<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 29, 1997
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
---------------------
AMERICAN BUSINESS INFORMATION, INC.
(Exact name of registrant as specified in its charter)
---------------------
<TABLE>
<CAPTION>
DELAWARE 47-0751545
<S> <C>
(State or other jurisdiction (I.R.S. Employer
of incorporation) Identification Number)
</TABLE>
5711 SOUTH 86TH CIRCLE
OMAHA, NEBRASKA 68127
(402) 593-4500
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)
---------------------
STEVEN PURCELL
CHIEF FINANCIAL OFFICER AND SECRETARY
5711 SOUTH 86TH CIRCLE, OMAHA, NEBRASKA 68127
(402) 593-4500
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
---------------------
Copies of all communications should be sent to:
<TABLE>
<S> <C>
FRANCIS S. CURRIE, ESQ. MICHAEL J. SULLIVAN, ESQ.
MARTIN A. WELLINGTON, ESQ. JODIE M. BOURDET, ESQ.
WILSON SONSINI GOODRICH & ROSATI, P.C. TROY F. CHRISTMAS, ESQ.
650 PAGE MILL ROAD COOLEY GODWARD LLP
PALO ALTO, CALIFORNIA 94304-1050 FIVE PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
</TABLE>
---------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
- ------------------
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
- ------------------
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
======================================================================================================
PROPOSED
MAXIMUM PROPOSED
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE MAXIMUM AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE(2) OFFERING PRICE REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Common Stock(1)............. 9,775,000 shares $14.13 $138,120,750 $42,000
======================================================================================================
</TABLE>
(1) Assumes the completion by the Company on October 3, 1997 of the
reclassification of its existing Common Stock as Class B Common Stock, the
authorization of a new Class A Common Stock and the dividend of one share of
Class A Common Stock for every share of Class B Common Stock outstanding as
of that date (the "Stock Dividend").
(2) Calculated pursuant to Rule 457(c) under the Securities Act of 1933, as
amended, based on a closing price of $28.25 on September 25, 1997, as
adjusted to give effect to the proposed Stock Dividend.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR
MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT
BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR
THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE
SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE
UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS
OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED OCTOBER , 1997
PROSPECTUS
8,500,000 SHARES
[LOGO]
CLASS A COMMON STOCK
Of the 8,500,000 shares of Class A Common Stock offered hereby, 6,500,000
shares are being sold by the Company and 2,000,000 shares are being sold by the
Selling Stockholders. The Company will not receive any of the proceeds from the
sale of shares by the Selling Stockholders. Upon completion of the
Reclassification and the Stock Dividend, defined below, the Company's Class A
Common Stock will be quoted on the Nasdaq National Market under the symbol
ABIIA. On October , 1997, the last reported sale price of the Class A Common
Stock was $ per share. See "Price Range of Common Stock" and "Principal
and Selling Stockholders."
On October 3, 1997, the Company expects to reclassify its existing Common
Stock as Class B Common Stock, authorize a new Class A Common Stock (together,
the "Reclassification"), and declare a dividend of one share of Class A Common
Stock for every share of Class B Common Stock outstanding as of that date (the
"Stock Dividend"). Upon completion of reclassification and the stock dividend
the Company's Common Stock will consist of Class A Common Stock and Class B
Common Stock. The Class A Common Stock will entitle the holder thereof to one
vote per share and a non-cumulative dividend of $0.02 per share per year, when
and as declared by the Company's Board of Directors in preference to any
dividend on the Class B Common Stock. The Class B Common Stock will entitle the
holder thereof to ten votes per share. In all other respects, the Class A Common
Stock and Class B Common Stock will be identical. See "Description of Capital
Stock."
------------------
THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" COMMENCING ON PAGE 4.
------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
------------------
<TABLE>
<CAPTION>
=======================================================================================================
PRICE TO UNDERWRITING PROPOSED TO
PUBLIC DISCOUNT(1) COMPANY(2) PROCEEDS TO
SELLING
STOCKHOLDERS
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share.............................. $ $ $ $
- -------------------------------------------------------------------------------------------------------
Total(3)............................... $ $ $ $
=======================================================================================================
</TABLE>
(1) See "Underwriting" for indemnification arrangements with the several
Underwriters.
(2) Before deducting expenses payable by the Company estimated at $ .
(3) The Company has granted to the Underwriters a 30-day option to purchase up
to an additional 1,275,000 shares of Class A Common Stock solely to cover
over-allotments, if any. If all such shares are purchased, the total Price
to Public, Underwriting Discount and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
------------------
The shares of Class A Common Stock are offered by the several Underwriters
subject to prior sale, receipt and acceptance by them and subject to the right
of the Underwriters to reject any order in whole or in part and certain other
conditions. It is expected that certificates for such shares will be made
available for delivery on or about , 1997, at the office of the agent
of Hambrecht & Quist LLC in New York, New York.
HAMBRECHT & QUIST
ABN AMRO CHICAGO CORPORATION
BT ALEX. BROWN
, 1997
<PAGE> 3
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE CLASS A COMMON
STOCK, INCLUDING BY ENTERING STABILIZING BIDS OR EFFECTING SYNDICATE COVERING
TRANSACTIONS. FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS OR THEIR RESPECTIVE AFFILIATES MAY ENGAGE IN PASSIVE MARKET MAKING
TRANSACTIONS IN THE CLASS A COMMON STOCK ON THE NASDAQ STOCK MARKET IN
ACCORDANCE WITH RULE 103 OF REGULATION M. SEE "UNDERWRITING."
American Business Information(R), SalesLeadsUSA, PhoneDisc(R),
InfoAccess(R), and certain other product and business names used herein are
trademarks of the Company. This Prospectus also includes trademarks of companies
other than the Company.
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and the Consolidated Financial Statements and Notes thereto
appearing elsewhere in this Prospectus. On October 3, 1997, the Company expects
to reclassify its existing Common Stock as Class B Common Stock, authorize a new
Class A Common Stock (together, the "Reclassification") and declare a dividend
of one share of Class A Common Stock for each share of Class B Common Stock
outstanding as of that date (the "Stock Dividend"). Unless otherwise specified,
all of the material contained herein, including all discussion relating to the
Class A Common Stock and Class B Common Stock, assumes the completion of the
Reclassification and the Stock Dividend, except that "Summary Consolidated
Financial Data," "Price Range of Common Stock," "Selected Consolidated Financial
Data," and the Consolidated Financial Statements do not reflect the completion
of the Reclassification and the Stock Dividend. See "Description of Capital
Stock."
THE COMPANY
American Business Information, Inc. (the "Company") is a leading provider
of business and consumer marketing information products and data processing
services. The Company's products and services help its clients achieve more
effective new customer generation at lower cost. The Company's key assets
include a proprietary database of over 11 million businesses and a consumer
database of over 113 million households and 180 million individuals in the
United States and Canada, which the Company believes are among the most
comprehensive and accurate available. The Company leverages these key assets by
selling a broad range of marketing information products and data processing
services through targeted distribution channels primarily to small and medium
size businesses and also to consumers and larger corporations. The Company's net
sales increased at a compounded annual rate of 22% to $108.3 million in 1996
from $48.5 million in 1992, both through the introduction of new products and
distribution channels and through the acquisition of complementary businesses.
For the six months ended June 30, 1997, total net sales were $89.0 million.
The Company's business is organized around three principal product lines,
consisting of sales lead generation products, data processing services and
consumer CD-ROM products, which accounted for 73%, 18% and 9% of the Company's
net sales, respectively, in the six months ended June 30, 1997. The Company
sells a wide range of pre-packaged and customized information products and data
processing services tailored to meet specific requirements of small and medium
size business, consumers and larger corporations. The Company prices its
products and services based on the type, amount and format of the information
provided to create an attractive marketing information solution for its
customers. The Company distributes its products and services through direct
mail, telemarketing, field sales offices, national accounts sales teams, retail
outlets and information resellers.
The Company intends to enhance its competitive position in the business and
consumer information market by continuing to help its clients generate new
customers efficiently and effectively and by successfully implementing its
growth strategy. The Company continues to invest substantial time and resources
to maintain the quality and increase the depth of its databases. The Company
leverages its databases through the introduction of new information products,
new delivery formats and new distribution channels. The Company intends to
emphasize recurring revenue in a number of ways including encouraging the repeat
purchase of its information products through the use of annual editions and
monthly updates, licensing its databases to other information providers and
large corporations and selling its data processing services to large
corporations. Using its consumer database, which it has under license from third
parties, the Company intends to utilize the effective strategies and
distribution channels developed for its business information products and data
processing services to serve customers engaged in marketing to consumers.
Since mid-1996, the Company has completed six strategic acquisitions that
increased its presence in the consumer marketing information industry, greatly
increased its ability to provide data processing solutions, added two consumer
CD-ROM product lines and broadened its offerings of business marketing
information. While there are currently no commitments with respect to any
particular future acquisitions, the Company frequently evaluates the strategic
opportunities available to it and may in the future pursue acquisitions of
complementary products, technologies or businesses.
The Company was incorporated in Nebraska in 1972, and was reincorporated
into Delaware in 1992. The Company's executive offices are located at 5711 South
86th Circle, Omaha, Nebraska 68127, and its telephone number is (402) 593-4500.
1
<PAGE> 5
THE OFFERING(1)
<TABLE>
<S> <C>
Class A Common Stock offered by the Company................. 6,500,000 shares
Class A Common Stock offered by the Selling Stockholders.... 2,000,000 shares
Shares outstanding after the Offering
Class A Common Stock...................................... 30,859,082 shares(2)(3)
Class B Common Stock...................................... 24,359,082 shares(2)(4)
-----------------------------------
Total............................................. 55,218,164 shares
Use of proceeds............................................. To repay approximately $78.0
million in bank debt and for
general corporate purposes,
including working capital and
potential future acquisitions
Nasdaq National Market symbol for Class A Common Stock...... ABIIA
</TABLE>
- ---------------
(1) Assumes the completion of the Reclassification and the Stock Dividend.
(2) The Class A Common Stock will entitle the holders thereof to one vote per
share on all matters submitted to a vote of the stockholders and a
non-cumulative dividend of $0.02 per year, prior and in preference to the
Class B Common Stock. The Class B Common Stock will entitle the holders
thereof to ten votes per share on any matter submitted to a vote of the
stockholders. In all other respects the Class A Common Stock and the Class B
Common Stock will be identical. See "Description of Capital Stock."
(3) Based on the number of shares of Common Stock outstanding at June 30, 1997
as adjusted to give effect to the Reclassification and the Stock Dividend.
Excludes 3,090,150 shares of Class A Common Stock reserved for issuance upon
the exercise of outstanding options. Also excludes 1,909,850 shares reserved
for future grant of issuance under the Company's 1992 Stock Option Plan.
Also excludes 2,000,000 shares of Class A Common Stock reserved for the 1997
Class A Common Stock Option Plan, to be approved October 3, 1997.
(4) Based on the number of shares of Common Stock outstanding at June 30, 1997
as adjusted to give effect to the Reclassification and the Stock Dividend.
Excludes 3,090,150 shares of Class B Common Stock reserved for issuance upon
exercise of outstanding options. Also excludes 1,909,850 shares reserved for
future grant of issuance under the Company's 1992 Stock Option Plan.
2
<PAGE> 6
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The following summary consolidated historical data is derived from the
Company's historical consolidated financial statements and does not reflect the
proposed Reclassification and Stock Dividend.
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------------ ------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales................... $48,517 $55,752 $69,603 $86,766 $108,298 $49,110 $ 88,956
Operating income
(loss)(1)................ 14,282 16,056 20,076 21,574 6,905 13,588 (40,845)
Other income, net........... 60 874 862 1,165 2,042 1,012 83
Net income
(loss)(1)(2)(3).......... $ 9,162 $10,775 $12,824 $12,001 $ 3,819 $ 9,085 $(44,286)
Net income (loss) per
share.................... $ 0.45 $ 0.52 $ 0.62 $ 0.58 $ 0.18 $ 0.44 $ (1.86)
Weighted average shares
outstanding.............. 20,165 20,658 20,678 20,738 21,033 20,792 23,776
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------
ACTUAL AS ADJUSTED(4)
-------- --------------
<S> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital.................................................. $ 60,919 $
Total assets..................................................... 160,882
Long-term debt, including current portion........................ 64,235
Stockholders' equity............................................. 76,698
</TABLE>
- ---------------
(1) In 1996, reflects charges for the write-off of acquired in-process research
and development of approximately $10.0 million relating to the acquisition
of Digital Directory Assistance and approximately $11.5 million relating to
the change in estimated useful lives based on management's evaluation of
certain intangibles related to acquisitions prior to 1995. In 1997, reflects
the write-off of $49.2 million of acquired in-process research and
development and $2.6 million of other restructuring charges related to the
acquisition of DBA.
(2) During 1995, the Company sold American Business Communications for $3.0
million in the form of a non-recourse promissory note. The aggregate losses
from discontinued operations were approximately $3.3 million through 1996.
In addition, in 1996 the Company recorded a loss of $1.4 million
attributable to the default by the purchaser on the non-recourse promissory
note.
(3) Prior to February 1992, the Company was taxed as an S Corporation.
Accordingly, net income prior to February 1992 contained no provision for
federal and state income taxes. Net income for 1992 reflects a pro forma tax
provision at a combined federal and state income tax rate of 36% in 1992.
(4) Adjusted to reflect the sale by the Company of 6,500,000 shares of Class A
Common Stock at a price of $ per share and the anticipated use of
the net proceeds by the Company.
Except as otherwise noted, all information in this Prospectus assumes no
exercise of the Underwriters' over-allotment option. See "Underwriting."
3
<PAGE> 7
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. Actual results could differ materially from those discussed in
the forward-looking statements as a result of certain factors, including those
set forth below and elsewhere in this Prospectus. The following risk factors
should be considered carefully in addition to the other information contained in
this Prospectus before purchasing the Class A Common Stock offered hereby.
Integration of Recent and Future Acquisitions. Since mid-1996, the Company
has completed six acquisitions, including the August 1996 acquisition of certain
assets and liabilities of Digital Directory Assistance, the November 1996 merger
with County Data Corporation and acquisition of certain assets and liabilities
of Marketing Data Systems, the December 1996 acquisition of certain assets and
liabilities of BJ Hunter, the February 1997 merger with Database America ("DBA")
and the August 1997 acquisition of certain assets and liabilities of Pro CD. The
Company also made a number of other acquisitions in prior periods. The Company's
strategy includes continued growth through acquisitions of complementary
products, technologies or businesses, which may result in the diversion of
management's attention from the day-to-day operations of the Company's business
and may include numerous other risks, including difficulties in the integration
of operations, databases, products and personnel, difficulty in applying the
Company's internal controls to acquired businesses and unanticipated problems,
liabilities and contingencies. To the extent that efforts to integrate recent
and future acquisitions fail, there could be a material adverse effect on the
Company's business, financial condition and results of operations. While there
are currently no commitments with respect to any particular future acquisitions,
the Company frequently evaluates the strategic opportunities available to it.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Business -- Strategy."
Financial and Accounting Issues Related to Acquisitions. In connection with
the acquisitions completed since mid-1996, the Company issued approximately 3.6
million shares of Class A Common Stock and 3.6 million shares of Class B Common
Stock, and paid approximately $100.5 million in cash. The issuance of stock in
these or future transactions may be dilutive to existing stockholders to the
extent that earnings per share of the acquired companies do not offset the
additional number of shares outstanding. In connection with the acquisitions of
DBA and Pro CD, the Company incurred substantial amounts of debt, all of which
will be repaid with the proceeds to the Company of the offering made hereby. In
connection with future acquisitions, the Company may incur substantial amounts
of debt. Servicing such debt may result in decreases in earnings per share, and
the inability on the part of the Company to service such debt would result in a
material adverse effect on the Company's business, financial condition and
results of operations. Finally, the Company expects that future acquisitions
will generally be required to be accounted for using the purchase method. As a
result of such accounting treatment, in connection with future acquisitions the
Company may be required to take charges to operations or to amortize goodwill.
As a result of acquisitions completed since mid-1996, the Company was required
to take significant one-time charges to operations and will be required to
amortize goodwill and other intangibles over a period of 1 to 15 years. The
one-time charges and amortization of goodwill and other intangibles have had and
will continue to have an adverse effect on net income. Future acquisitions could
result in substantial charges to operations, incurrence of debt and amortization
of goodwill and other intangibles and, to the extent they do, such acquisitions
will have an adverse effect on the Company's net income, earnings per share and
overall financial condition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business -- Strategy."
Recent Changes in Senior Management; Constraints on Management
Resources. The Company has experienced rapid growth, particularly as a result of
its recent acquisitions, and believes that as a result the hiring and retention
of senior management will be essential to the Company's ability to manage growth
successfully. In 1996 and the first six months of 1997, the lack of senior
management resources resulted in a few key individuals taking on multiple roles
and responsibilities in the Company, which in turn placed a significant strain
on the Company's senior management. While the Company believes it has filled
many key management positions in the last several months, there can be no
assurance that the Company will be successful in attracting and retaining the
necessary senior management personnel in the future. The Company's founder and
Chairman of the Board, Vinod Gupta, expects to remain an active Chairman of the
Board but to reduce his role in the Company's day-to-day management over the
next twelve months. The Company hired Scott Dahnke as its Chief
4
<PAGE> 8
Executive Officer in October 1997, Steven Purcell as its Chief Financial Officer
in April 1997, Gregory Back as its Executive Vice President of Corporate
Planning and Business Development in October 1997, Joseph Szczepaniak as the
President of the Company's Consumer CD-ROM division in October 1997, Kevin Hall
as Senior Vice President of Special Projects in October 1997 and Rick Puckett as
its Corporate Controller in September 1997. Messrs. Purcell, Szczepaniak and
Puckett had no prior experience with the Company. Messrs. Dahnke, Back and Hall
served as consultants to the Company since May 1997, but did not have experience
with the day-to-day management of the Company. This new management team does not
have experience working together or working with the Company's other senior
management and other personnel. Failure of the new management team to
effectively manage growth, work together or work well with the Company's other
senior management could result in disruptions in operations or the departure of
key personnel, which in turn could have a material adverse effect on the
Company's business, financial condition or results of operations. See
"Management."
Fluctuations in Operating Results; Failure to Achieve Anticipated
Growth. The Company believes that future operating results will be subject to
quarterly and annual fluctuations, and that long term growth will depend upon
the Company's ability to expand its present business and complete strategic
acquisitions. The Company's net sales on a quarterly basis can be affected by
seasonal characteristics and certain other factors. For example, the Company
experiences higher revenue from its sales leads products in the fall of each
year due to increases in direct marketing by the Company's clients in the fourth
quarter of each year. In addition, the Company typically experiences increases
in revenue in the two months following introduction of new editions of its
consumer CD-ROM products. Revenue from sales lead generation products is
generally lower in the summer due to decreased direct marketing activity of the
Company's customers during that time. The Company's operating expenses are
determined in part based on the Company's expectations of future revenue growth
and are substantially fixed. As a result, unexpected changes in revenue levels
will have a disproportionate effect on net income in any given period. Long term
growth will be adversely affected if the Company fails to broaden its existing
product and service offerings, increase sales of products and services, or
expand into new markets, or fails to complete acquisitions or successfully
integrate acquired operations into its existing operations. To the extent there
are fluctuations in operating results or the Company fails to achieve long-term
internal growth or growth through acquisitions, there could be an adverse affect
on the Company's business, financial condition, results of operations or stock
price. See "Price Range of Common Stock" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
Risk of Product Returns. The Company has agreements that allow retailers
certain rights to return the Company's consumer CD-ROM products and consumers
may also seek to return such products to the Company. In the past the Company
has offered customers a money-back guarantee on its products. Accordingly, the
Company is exposed to the risk of product returns from retailers, distributors,
and direct purchasers, particularly in the case of products sold shortly before
introduction of the next year's edition of the same product. At the time of
product sales, the Company establishes reserves based on estimated future
returns of products, taking into account promotional activities, the timing of
new product introductions, seasonal variations in product returns, distributor
and retailer inventories of the Company's products and other factors. The
Company's product returns have historically been high in the fourth fiscal
quarter, immediately prior to and after the introduction of new editions of the
Company's products. Actual product returns could differ from estimates, and
product returns that exceed the Company's reserves could adversely affect the
Company's business, financial condition and results of operations. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 2 of Notes to Consolidated Financial Statements.
Restatement of Financial Statements. The Company was required to restate
its financial statements twice in 1997. One restatement was required in
connection with the recognition of compensation expense associated with a former
officer of the Company and the other was required in connection with recognition
and amortization of goodwill associated with an acquisition. Because of these
recent restatements of financial statements, any future restatement of the
Company's financial statements, to the extent it is material, could have an
adverse affect on the Company's results of operations and stock price. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
5
<PAGE> 9
Risks Associated with Changes in Technology. Advances in information
technology may result in changing customer preferences for products and product
delivery formats in the business and consumer marketing information industry.
The Company believes it is presently the leading provider of marketing
information on CD-ROM. However, the Company believes that if customers
increasingly look to the Internet, DVD or other new technology for information
resources, the market for business and consumer information on CD-ROM may
contract and prices for CD-ROM products may have to decrease or CD-ROM products
may become obsolete. Failure of the Company to successfully shift its products
to the Internet or DVD, or to successfully introduce products that take
advantage of other technological changes may thus have an adverse effect on the
Company's business, results of operations and financial condition. See
"Business -- Products and Services."
Volatility and Uncertainties With Respect to Stock Price. As with other
companies that have experienced rapid growth, the Company has experienced and is
likely to continue to experience substantial volatility in its stock price.
Factors such as announcements by either the Company or its competitors of new
products or services or of changes in product or service pricing policies,
quarterly fluctuations in the Company's operating results, announcements of
technical innovations, announcements relating to strategic relationships or
acquisitions, changes in earnings estimates, opinions or ratings by analysts,
and general market conditions or market conditions within the business and
consumer marketing information industry, among other factors, may have
significant impact on the Company's stock price. Should the Company fail to
introduce, enhance or integrate products or services on the schedules expected,
its stock price could be adversely affected. It is likely that in some future
quarter the Company will fail to achieve anticipated operating results, and this
failure will have a material adverse effect on the Company's stock price. In
addition, the Company's Class A Common Stock and Class B Common Stock have been
trading for a very short time. While the Company expects the Class A Common
Stock and Class B Common Stock prices to remain roughly equal in most market
conditions, the difference in rights of the two classes, coupled with the
general volatility of the Company's stock price described above, could cause the
Class A Common Stock and Class B Common Stock to trade at different prices. In
the event of a tender offer or other unsolicited attempt to acquire the Company,
shares of Class B Common Stock would likely trade at a substantial premium to
shares of Class A Common Stock as a result of the disparity of voting rights.
Future issuances of both Class A Common Stock and Class B Common Stock could
affect the price for either or both classes of Common Stock. For the foregoing
reasons, the price for the Company's Class A Common Stock may be subject to
substantial fluctuation. See "Price Range of Common Stock" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
Risk of Discounted Value of Class A Common Stock in Future Acquisitions or
Financings. The Company presently plans to issue primarily Class A Common Stock
in future acquisitions or financings. If the Class A Common Stock trades at a
discount to the Class B Common Stock, then acquisitions or financings involving
the issuance of Class A Common Stock will be economically more dilutive to
existing stockholders than such transactions would be if the Company issued
Class B Common Stock. This dilution, if it occurs, will result in decreased
earnings per share and lower stock prices for both the Class A Common Stock and
the Class B Common Stock. See "Description of Capital Stock."
Competition. The business information industry is highly competitive. In
particular, the rapid expansion of the Internet creates a substantial new
channel for distributing business information to the market, and a new avenue
for future entrants to the business information industry. There is no guarantee
that the Company will be successful in this new market. Many of the Company's
principal or potential future competitors are much larger than the Company and
have much larger capital bases from which to develop and compete with the
Company. In business sales lead generation products, the Company faces
competition from Dun's Marketing Services ("DMS"), a division of Dun &
Bradstreet. DMS, which relies upon information compiled from Dun & Bradstreet's
credit database, tends to focus on marketing to large companies. In business
directory publishing, the Company competes primarily with Regional Bell
Operating Companies, Donnelley Marketing and many smaller, regional directory
publishers. In consumer sales lead generation products, the Company competes
with Metromail, Donnelley Marketing, R.L. Polk, Trans Union, Equifax and
Experian, both directly and through reseller networks. In data processing
services, the Company competes with Acxiom, May & Speh, Harte-Hanks Data
Technologies and Direct Marketing Technologies. In consumer products, the
6
<PAGE> 10
Company competes with certain small producers of CD-ROM products. In addition,
the Company faces competition to the extent similar information is available on
the Internet. See "Business -- Competition."
Risks Associated with Computer Systems and Software Upgrades. Many of the
Company's currently installed computer systems and software products are coded
to accept only two digit entries in the date code field. Beginning in the year
2000, these date code fields will need to accept four digit entries to
distinguish 21st century dates from 20th century dates. As a result, the
re-engineering of the Company's computer systems and software products to
achieve year 2000 compliance will need to be completed within approximately two
years. System wide computer upgrades and re-engineering can lead to
unanticipated system and software defects that could disrupt the Company's data
compilation, processing and packaging activities. In addition, the Company needs
to replace its accounting systems in order to accommodate recent growth. If the
Company is unsuccessful in upgrading its computer systems and software, or if
successful completion of such upgrades takes longer than anticipated, such
failure or delay would have a material adverse effect on the Company's business,
competitive position, results of operations and financial condition.
Loss of Data Centers. The Company's business depends on computer systems
contained in the Company's data centers located in Omaha, Nebraska, Carter Lake,
Iowa and Montvale, New Jersey. A fire or other disaster affecting any of the
Company's data centers could disable the Company's computer systems. Any
significant damage to any of the data centers could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Business -- Computer Operations and Database Protection."
Limited Protection of Intellectual Property and Proprietary Rights. The
Company regards its databases and software as proprietary. The Company's
databases are copyrighted, and the Company depends on trade secret and
non-disclosure safeguards for protection of its software. The Company
distributes its products under agreements that grant customers a license to use
the Company's products in the ordinary course of their businesses and contain
terms and conditions prohibiting the unauthorized reproduction of the Company's
products. In addition, the Company generally enters into confidentiality
agreements with its management and programming staff and limits access to and
distribution of its proprietary information. There can be no assurance that the
foregoing measures will be adequate to protect the Company's intellectual
property. See "Business -- Intellectual and Other Proprietary Rights."
Direct Marketing Regulation and Dependence Upon Mail Carriers. The Company
and many of its customers engage in direct marketing. Certain data and services
provided by the Company are subject to regulation by federal, state and local
authorities. In addition, growing concerns about individual privacy and the
collection, distribution and use of information about individuals have led to
self-regulation of such practices by the direct marketing industry through
guidelines suggested by the Direct Marketing Association (the "DMA") and to
increased federal and state regulation. Compliance with existing federal, state
and local laws and regulations and industry self-regulation has not to date had
a material adverse effect on the Company's business, financial condition or
results of operations. Nonetheless, federal, state and local laws and
regulations designed to protect the public from the misuse of personal
information in the marketplace and adverse publicity or potential litigation
concerning the commercial use of such information may increasingly affect the
operations of the Company, which could result in substantial regulatory
compliance or litigation expense or a loss of revenue. Certain proposed federal
legislation could also create proprietary rights in certain "white pages"
information that is presently in the public domain, which could in turn increase
the cost to the Company of acquiring data, or disrupt its ability to do so. The
direct mail industry depends and will continue to depend upon the services of
the United States Postal Service and other private mail carriers. Any
modification by the United States Postal Service of its rate structure, any
increase in public or private postal rates generally or any disruption in the
availability of public or private postal services could have a negative impact
on the demand for business information, direct mail activities and the cost of
the Company's direct mail activities.
Certain Anti-takeover Effects. Upon completion of the offering made hereby
the Company's Chairman of the Board, Vinod Gupta, and his family (the "Gupta
Family") will own voting stock constituting approximately % of the
Company's total stockholder vote (approximately % if the over-allotment
option is
7
<PAGE> 11
exercised in full). As a result, after the offering the Gupta Family will remain
in a position to control most matters requiring stockholder approval, including
the election of the Company's Board of Directors and the approval of certain
merger proposals. In addition, the Company's charter documents contain certain
provisions that may delay, defer or prevent a takeover of the Company, including
the Company's two-class Common Stock structure, a class of undesignated
Preferred Stock that the Board can issue without stockholder consent, a
classified board of directors with three-year staggered terms, and a
supermajority stockholder vote requirement to amend the Certificate of
Incorporation. The Company is also governed by Section 203 of the General
Corporation Law of the State of Delaware, which imposes a three-year moratorium
on certain business combinations between the Company and an interested
stockholder. Finally, the Company has adopted a stockholder rights plan with
respect to its Class B Common Stock, and intends to adopt another stockholder
rights plan with respect to its Class A Common Stock, which plans are
specifically designed to make an unsolicited, non-negotiated takeover attempt
more difficult. See "Description of Capital Stock -- Certain Anti-Takeover
Effects."
8
<PAGE> 12
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 6,500,000 shares of
Class A Common Stock offered by the Company hereby at the public offering price
of $ , after deducting the underwriting discount and estimated offering
expenses payable by the Company, are estimated to be $ ($ if
the Underwriters' over-allotment option is exercised in full). The Company will
not receive any proceeds from the sale of Class A Common Stock by the Selling
Stockholders. See "Principal and Selling Stockholders."
The Company intends to use the net proceeds from this offering to repay
debt and for general corporate purposes, including working capital and potential
future acquisitions. The Company plans to repay approximately $78.0 million in
debt with the proceeds of the offering, which debt was incurred since January 1,
1997 primarily in connection with the acquisitions of DBA and Pro CD. The debt
to be repaid matures on February 14, 2000 and accrues interest at the bank's
base rate or LIBOR plus a percentage ranging from 0.375% to 0.625% based on the
Company's funded debt ratio. A portion of the net proceeds may also be used for
investment in or acquisition of complementary products, technologies or
businesses. As of the date of this Prospectus, the Company has no commitments
with respect to any specific acquisition. Pending such uses, the net proceeds
will be invested in investment-grade, interest-bearing securities.
9
<PAGE> 13
PRICE RANGE OF COMMON STOCK
The Company's Class A Common Stock will be traded on the Nasdaq National
Market under the symbol ABIIA. Presently, the Company's Common Stock is traded
on the Nasdaq National Market under the symbol ABII. The following table sets
forth for the periods indicated the high and low sale price for the Company's
Common Stock prior to the Stock Dividend, which is not adjusted to give effect
to the Reclassification and the Stock Dividend. See "Description of Capital
Stock."
<TABLE>
<CAPTION>
FISCAL
YEAR HIGH LOW
------------------------------------------------------------------- ------ ------
<S> <C> <C>
1995
1st Quarter........................................................ $14.83 $10.83
2nd Quarter........................................................ 19.83 14.17
3rd Quarter........................................................ 21.50 17.17
4th Quarter........................................................ 21.25 16.75
1996
1st Quarter........................................................ 19.50 14.00
2nd Quarter........................................................ 20.00 15.25
3rd Quarter........................................................ 19.00 10.50
4th Quarter........................................................ 23.00 15.75
1997
1st Quarter........................................................ 24.00 18.50
2nd Quarter........................................................ 23.88 17.00
3rd Quarter........................................................
4th Quarter (through October , 1997*)............................
</TABLE>
- ---------------
* Date of Stock Dividend
Since October , 1997, the date of the Stock Dividend, the highest closing
price for the Class A Common Stock was $ , and the lowest closing price
for such stock was $ . For the same period, the highest closing price
for the Class B Common Stock was $ , and the lowest closing price for
such stock was $ . The last reported sale price for the Company's Class
A Common Stock is indicated on the cover of the Prospectus. As of October ,
1997, there were holders of record of Class A Common Stock and holders
of record of Class B Common Stock.
As of September 26, 1997, the last reported sale price for the Company's
Common Stock was $27.63.
DIVIDEND POLICY
The Company has not declared or paid any cash dividends on its capital
stock. The Company currently anticipates that it will retain all future earnings
for use in its business and does not anticipate paying any cash dividends in the
foreseeable future.
10
<PAGE> 14
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 (i) on an actual basis, (ii) on a pro forma basis to give effect to the
Reclassification and the Stock Dividend, which the Company anticipates
completing on October 3, 1997, and (iii) on such pro forma basis as adjusted to
give effect to the sale by the Company of the 6,500,000 shares of Class A Common
Stock offered hereby at an assumed offering price of per share and the
application of the estimated proceeds therefrom. This table should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
JUNE 30, 1997
---------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Long-term debt, current portion (1)....................... $ 576 $ 576 $ --
======== ========== =========
Long-term debt, excluding current portion (1)............. 63,659 63,659 --
Stockholders' equity:
Preferred Stock, $.0025 par value per share, 5,000,000
shares authorized; no shares issued or outstanding... -- -- --
Common Stock, $.0025 par value per share, actual:
75,000,000 shares authorized, 24,524,082 shares
issued and 24,359,082 shares outstanding(2); pro
forma and as adjusted: none.......................... 61 -- --
Class A Common Stock (3), actual: none; pro forma:
$.0025 par value per share, 220,000,000 shares
authorized, 24,524,082 shares issued and outstanding;
as adjusted: (3)........................... -- 61
Class B Common Stock (4), actual: none; pro forma:
$.0025 par value per share, 75,000,000 shares
authorized, 24,524,082 shares issued and 24,359,082
shares outstanding;
as adjusted: (3)........................... -- 61
Paid-in capital......................................... 67,458 67,397
Retained earnings....................................... 8,656 8,656 8,656
Treasury stock, at cost, 165,000 shares held............ (2,281) (2,281) (2,281)
Unrealized holding gain, net of tax..................... 2,804 2,804 2,804
-------- ------------ -----------
Total stockholders' equity........................... 76,698 76,698
-------- ------------ -----------
Total capitalization............................ $140,357 $140,357
======== ========== =========
</TABLE>
- ---------------
(1) See Note 7 of Notes to Consolidated Financial Statements for information
regarding long-term debt and capitalized leases.
(2) Excludes 3,090,150 shares reserved as of June 30, 1997 for issuance upon the
exercise of outstanding options at a weighted average exercise price of
$16.55 per share. Also excludes 1,909,850 shares reserved for future grant
or issuance under the Company's stock option plan at June 30, 1997. See Note
9 to the Consolidated Financial Statements.
(3) Based on the number of shares of Common Stock outstanding at June 30, 1997,
as adjusted to give effect to the Reclassification and the Stock Dividend.
Excludes 3,090,150 shares of Class A Common Stock reserved for issuance upon
the exercise of outstanding options. Also excludes 1,909,850 shares reserved
for future grant of issuance under the Company's 1992 Stock Option Plan.
Also excludes 2,000,000 shares of Class A Common Stock reserved for the 1997
Class A Common Stock Option Plan, to be approved October 3, 1997.
(4) Based on the number of shares of Common Stock outstanding at June 30, 1997,
as adjusted to give effect to the Reclassification and the Stock Dividend.
Excludes 3,090,150 shares of Class B Common Stock reserved for issuance upon
exercise of outstanding options. Also excludes 1,909,850 shares reserved for
future grant of issuance under the Company's 1992 Stock Option Plan.
11
<PAGE> 15
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data for each of the years in
the five years ended December 31, 1996 and the six months ended June 30, 1997
has been derived from the Company's audited Consolidated Financial Statements
and should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the Consolidated Financial
Statements and related notes included elsewhere in this Prospectus. The selected
financial data for the six months ended June 30, 1996 has been derived from
unaudited interim financial statements and, in the opinion of management,
include all adjustments that are of a normal recurring nature. The Consolidated
Financial Statements as of December 31, 1995 and 1996, and June 30, 1997, and
for each of the years in the three years ended December 31, 1996 and the six
months ended June 30, 1997, have been audited by Coopers & Lybrand L.L.P. and
are included elsewhere in this Prospectus. The following data does not reflect
the proposed Reclassification and the Stock Dividend.
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE
YEAR ENDED DECEMBER 31, 30,
---------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1997
------- ------- ------- ------- -------- 1996 --------
-----------
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales............................ $48,517 $55,752 $69,603 $86,766 $108,298 $49,110 $ 88,956
Costs and expenses:
Database and production costs...... 11,774 13,973 18,153 23,999 29,272 12,928 24,526
Selling, general and
administrative................... 20,051 23,072 28,249 37,724 45,766 20,265 38,065
Depreciation and amortization...... 2,410 2,651 3,125 3,469 4,855 2,329 15,412
One-time charges(1)................ -- -- -- -- 21,500 -- 51,798
------- ------- ------- ------- -------- ----------- --------
Total costs and expenses............. 34,235 39,696 49,527 65,192 101,393 35,522 129,801
------- ------- ------- ------- -------- ----------- --------
Operating income (loss).............. 14,282 16,056 20,076 21,574 6,905 13,588 (40,845)
Other income (expense):
Investment income.................. 607 1,172 1,109 1,322 3,194 1,045 1,558
Interest expense................... (605) (298) (247) (157) (209) (33) (1,475)
Other.............................. 58 -- -- -- (943) -- --
------- ------- ------- ------- -------- ----------- --------
Income (loss) before income taxes and
discontinued operation............. 14,342 16,930 20,938 22,739 8,947 14,600 (40,762)
Income taxes(2)...................... 4,435 5,941 7,710 8,421 3,400 5,515 3,524
------- ------- ------- ------- -------- ----------- --------
Income (loss) from continuing
operations......................... 9,907 10,989 13,228 14,318 5,547 9,085 (44,286)
Loss on discontinued operation(3).... -- (214) (404) (2,317) (355) -- --
Loss from abandonment of
subsidiary(3)...................... -- -- -- -- (1,373) -- --
------- ------- ------- ------- -------- ----------- --------
Net income (loss).................... $ 9,907 $10,775 $12,824 $12,001 $ 3,819 $ 9,085 $(44,286)
======== ======== ======== ======== ========= =========== =========
Historical and pro forma
information(3)
Net income (loss).................. $ 9,162 $10,775 $12,824 $12,001 $ 3,819 $ 9,085 $(44,286)
Earnings per share:
Income (loss) from continuing
operations....................... $ 0.45 $ 0.53 $ 0.64 $ 0.69 $ 0.26 $ 0.44 $ (1.86)
Loss on discontinued operation and
abandonment of subsidiary........ -- (0.01) (0.02) (0.11) (0.08) -- --
------- ------- ------- ------- -------- ----------- --------
Net income (loss).................. $ 0.45 $ 0.52 $ 0.62 $ 0.58 $ 0.18 $ 0.44 $ (1.86)
======== ======== ======== ======== ========= =========== =========
Weighted average shares
outstanding........................ 20,165 20,658 20,678 20,738 21,033 20,792 23,776
======== ======== ======== ======== ========= =========== =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
---------------------------------------------------- -----------------------
1992 1993 1994 1995 1996 1996 1997
------- ------- ------- ------- -------- ----------- --------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital....................... $23,465 $30,765 $35,411 $45,363 $ 45,727 $52,031 $ 60,919
Total assets.......................... 47,807 61,027 77,783 91,241 107,877 96,181 160,882
Long-term debt, including current
portion............................. 5,306 4,587 3,821 2,039 1,135 1,141 64,235
Stockholders' equity.................. 39,508 50,665 63,326 76,084 87,605 84,515 76,698
</TABLE>
- ------------------------------
(1) In 1996, represents charges for the write-off of purchased in-process
research and development costs of approximately $10.0 million relating to
the acquisition of Digital Directory Assistance and approximately $11.5
million related to the change in estimated useful lives based on
management's evaluation of certain intangibles related to acquisitions prior
to
12
<PAGE> 16
1995. In 1997, represents the write-off of $49.2 million of purchased
in-process research and development costs and $2.6 million of other
restructuring costs related to the acquisition of DBA.
(2) Prior to February 1992, the Company was taxed as an S corporation.
Accordingly, net income prior to February 1992 contained no provision for
federal and state income taxes. Pro forma net income reflects a pro forma
tax provision at a combined federal and state income tax rate of 36% in
1992.
(3) During 1995, the Company sold American Business Communications for $3.0
million in the form of a non-recourse promissory note. The aggregate losses
from discontinued operations were approximately $3.3 million through 1996.
In addition, in 1996 the Company recorded a loss of $1.4 million
attributable to the default by the purchaser on the non-recourse promissory
note.
13
<PAGE> 17
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Consolidated Financial Data" and the Company's Consolidated Financial
Statements and Notes thereto included elsewhere in this Prospectus. Except for
the historical information contained herein, the discussion in this Prospectus
contains certain forward-looking statements that involve risks and
uncertainties, such as statements of the Company's plans, objectives,
expectations and intentions. The cautionary statements made in this Prospectus
should be read as being applicable to all related forward-looking statements
wherever they appear in this Prospectus. The Company's actual results could
differ materially from those discussed here. Factors that could cause or
contribute to such differences include those discussed in "Risk Factors," as
well as those discussed elsewhere herein.
OVERVIEW
The Company is a leading provider of business and consumer marketing
information products and data processing services. The Company's products and
services help its clients achieve more effective new customer generation a lower
cost. The Company's key assets include a proprietary database of over 11 million
businesses and a consumer database of over 113 million households and 180
million individuals in the United States and Canada, which the Company believes
are among the most comprehensive and accurate available. The Company leverages
these key assets by selling a broad range of marketing information products and
data processing services through targeted distribution channels primarily to
small and medium size businesses and also to consumers and larger corporations.
The Company's business is organized around three principal product lines
consisting of sales lead generation products, data processing services and
consumer CD-ROM products, which accounted for 73%, 18%, and 9% of net sales,
respectively, in the six months ended June 30, 1997. Historically, the Company's
revenue has been derived predominantly through the sale of its sales lead
generation products. The Company began to recognize significant revenue from its
data processing services in 1997 and revenue from its consumer CD-ROM products
increased substantially between 1993 and 1996. Over 75% of the Company's net
sales in 1996 were attributable to customers who had previously purchased the
Company's products. No customer represented greater than 6% of net sales in the
six months ended June 30, 1997. The Company's net sales increased at a
compounded annual rate of 22% to $108.3 million in 1996 from $48.5 million in
1992, both through the introduction of new products and new distribution
channels and through the acquisition of complementary businesses. For the six
months ended June 30, 1997, total net sales were $89.0 million.
The Company has supplemented its internal growth through strategic
acquisitions. The Company has completed six acquisitions since mid-1996. Through
these acquisitions, the Company has increased its presence in the consumer
marketing information industry, greatly increased its ability to provide data
processing solutions, added two consumer CD-ROM product lines and broadened its
offerings of business marketing information. The following table summarizes
these acquisitions:
<TABLE>
<CAPTION>
ACQUIRED COMPANY KEY ASSET DATE ACQUIRED
- ---------------------------- ------------------------------------------------ --------------
<S> <C> <C>
Digital Directory Assistance Consumer CD-ROM Products August 1996
County Data Corporation New Businesses Database November 1996
Marketing Data Systems Data Processing Services November 1996
BJ Hunter Canadian Business Database December 1996
DBA Consumer Database and Data Processing Services February 1997
Pro CD Consumer CD-ROM Products August 1997
</TABLE>
The Company incurred one-time charges to operations, consisting of the
write-off of acquired in-process research and development and other
restructuring charges of an aggregate of approximately $10.0 million in 1996 in
connection with the acquisition of Digital Directory Assistance and $51.8
million in the six months ended June 30, 1997 in connection with the acquisition
of DBA. The Company expects additional one-time charges in the three months
ended September 30, 1997 in connection with the Pro CD acquisition. In
14
<PAGE> 18
addition, the Company expects to amortize an aggregate of approximately $64.1
million in goodwill and other intangibles over periods of 1 to 15 years, with
additional amortization expected in connection with the Pro CD acquisition. Of
this amount, $19.0 million constitutes amortization of purchased databases
associated with the DBA acquisition over 12 months beginning on February 1, 1997
which will result in $4.8 million, $4.8 million and $1.6 million being
recognized in the three months ended September 30, 1997, December 31, 1997 and
March 31, 1998, respectively. The Company's strategy is to continue growth both
internally and through future strategic acquisitions. While there are currently
no commitments with respect to any particular future acquisitions, the Company
frequently evaluates the strategic opportunities available to it and may in the
future pursue acquisitions of complementary products, technologies or
businesses. See Notes 2, 3, 6 and 16 of Notes to Consolidated Financial
Statements.
The Company's revenue is primarily generated from the sale of its products
and services and the licensing of its data to third parties. Revenue from the
sale of products and services is generally recognized when the product is
delivered or the services are performed. A portion of revenue from data
licensing is recognized at the time the initial set of data is delivered, with
the remaining portion being deferred and recognized over the license term as the
Company provides updated information. Reserves are established for estimated
returns and uncollectible amounts.
The Company's operating expenses are determined in part based on the
Company's expectations of future revenue growth and are substantially fixed in
the short term. As a result, unexpected changes in revenue will have a
disproportionate effect on net income in any given period. The Company's
database and production costs are generally expensed as incurred and relate
principally to maintaining, verifying and updating its database, fulfilling
customer orders and the direct costs associated with the production of CD-ROM
titles. Costs to develop new databases, including the consumer database
currently under development, are capitalized by the Company and amortized upon
the successful completion of the databases over a period not to exceed 12
months. Selling, general and administrative expenses consist principally of
salaries and benefits associated with the Company's sales force as well as costs
associated with its catalogs and other promotional materials.
Database and production costs have increased as a percentage of net sales
as a result of higher costs for data processing services and CD-ROM production.
To the extent that data processing and CD-ROM sales constitute a greater
percentage of net sales, the Company expects database and production costs to
increase as a percentage of net sales. In addition, the Company is building
infrastructure for continued growth and increased sales, and as a result
selling, general and administrative expenses have grown as a percentage of net
sales.
The Company has been profitable on an operating basis in each year since
its inception in 1972. The Company incurred a net loss in the six months ended
June 30, 1997, and expects a net loss in fiscal 1997, due to one-time write-offs
of acquired in-process research and development and restructuring charges and
amortization of goodwill and other intangibles in connection with the
acquisitions of DBA and other businesses. Excluding these one-time write-offs
and amortization, the Company would have been profitable in the six months ended
June 30, 1997.
During 1995, the Company sold American Business Communications for $3.0
million in the form of a non-recourse promissory note. The aggregate losses from
discontinued operations were approximately $3.3 million through 1996. In
addition, in 1996 the Company recorded a loss of $1.4 million attributable to
the default by the purchaser on the non-recourse promissory note.
15
<PAGE> 19
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items
from the Company's statement of operations data expressed as a percentage of net
sales:
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED
DECEMBER 31, JUNE 30,
----------------- -----------
1994 1995 1996 1996 1997
--- --- --- --- ----
<S> <C> <C> <C> <C> <C>
Net sales..................................................... 100% 100% 100% 100% 100%
Costs and expenses:
Database and production costs............................... 26 28 27 26 28
Selling, general and administrative......................... 41 43 42 41 43
Depreciation and amortization............................... 4 4 5 5 17
One-time charges............................................ -- -- 20 -- 58
--- --- --- --- ----
Total costs and expenses............................ 71 75 94 72 146
--- --- --- --- ----
Operating income (loss)....................................... 29 25 6 28 (46)
Other income, net............................................. 1 2 2 2 --
--- --- --- --- ----
Income (loss) before income taxes and discontinued
operation................................................... 30 27 8 30 (46)
Income taxes.................................................. 11 10 3 11 4
--- --- --- --- ----
Income (loss) from continuing operations...................... 19 17 5 19 (50)
Loss on discontinued operation and abandonment of
subsidiary.................................................. 1 3 1 -- --
--- --- --- --- ----
Net income (loss)............................................. 18% 14% 4% 19% (50)%
=== === === === ====
</TABLE>
SIX MONTHS ENDED JUNE 30, 1997 COMPARED TO SIX MONTHS ENDED JUNE 30, 1996
Net Sales. Net sales for the six months ended June 30, 1997 were $89.0
million, an 81% increase from $49.1 million in the comparable period in 1996.
Excluding the effect of acquisitions completed after June 30, 1996, net sales
for the six months ended June 30, 1997 were $57.0 million, a 16% increase from
the comparable period in 1996. Net sales attributable to acquired companies and
included in the six months ended June 30, 1997 were approximately $32.0 million,
or 36% of net sales. Of this amount, $22.9 million were attributable to the net
sales of DBA from February 1, 1997, the date of acquisition, through June 30,
1997. The remaining $9.1 million were primarily attributable to the net sales of
Digital Directory Assistance, Marketing Data Systems, County Data Corporation
and BJ Hunter for the six months ended June 30, 1997.
Net sales of sales lead generation products for the six months ended June
30, 1997 were $65.0 million, a 55% increase from $42.0 million in the comparable
period in 1996. Excluding the effect of acquisitions completed after June 30,
1996, net sales of sales lead generation products for the six months ended June
30, 1997 were $52.8 million, a 26% increase from the comparable period in 1996.
Net sales of sales lead generation products attributable to acquired companies
and included in the six months ended June 30, 1997 were $12.2 million, or 19% of
net sales. Of this amount, $9.1 million were attributable to the net sales of
DBA from February 1, 1997 through June 30, 1997. The remaining $3.1 million were
attributable to the net sales of County Data Corporation and BJ Hunter for the
six months ended June 30, 1997.
Net sales of data processing services for the six months ended June 30,
1997 were $16.3 million, as compared to $1.9 million in the comparable period in
1996. This increase is directly attributable to the acquisitions of DBA and
Marketing Data Systems. Of the increase, $13.8 million were attributable to the
net sales of DBA from February 1, 1997 through June 30, 1997 and $933,000 were
attributable to the net sales of Marketing Data Systems for the six months ended
June 30, 1997.
Net sales of consumer CD-ROM products for the six months ended June 30,
1997 were $7.7 million, a 47% increase from $5.2 million in the comparable
period in 1996.
Database and Production Costs. Database and production costs for the six
months ended June 30, 1997 were $24.5 million, a 90% increase from $12.9 million
in the comparable period in 1996. These costs
16
<PAGE> 20
constituted 28% of net sales in the six months ended June 30, 1997 and 26% of
net sales in the comparable period of 1996. The increase as a percentage of net
sales was the result of higher database and production costs for data processing
services and CD-ROM production as compared to the costs for maintaining and
verifying the Company's databases.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for the six months ended June 30, 1997 were $38.1
million, an 88% increase from $20.3 million in the comparable period in 1996.
These expenses constituted 43% of net sales in the six months ended June 30,
1997 and 41% as a percentage of net sales in the comparable period in 1996. This
increase as a percentage of net sales was primarily attributable to an increase
in direct marketing activities for all of the Company's products and services,
continued investment in the Company's field sales organization and promotional
marketing of consumer CD-ROM products.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses for the six months ended June 30, 1997 were $15.4 million, as compared
to $2.3 million in the comparable period in 1996. These expenses constituted 17%
of net sales in the six months ended June 30, 1997 and 5% of net sales in the
comparable period of 1996. Of such increase, $10.4 million represented
amortization of goodwill and other intangibles related to the acquisition of
DBA. The remaining increase reflects additional depreciation on property and
equipment additions and amortization of intangibles for certain other
acquisitions recorded since June 30, 1996.
One-Time Charges. As part of the acquisition of DBA, the Company recorded
nonrecurring charges of $51.8 million, or 58% of net sales, in the six months
ended June 30, 1997 for acquired in-process research and development, as well as
other related integration and organizational restructuring costs.
Operating Income (Loss). As a result of the factors described above, the
Company had an operating loss of $40.8 million in the six months ended June 30,
1997 as compared to operating income of $13.6 million in the comparable period
in 1996. Excluding the effect of the amortization and one time charges described
above, the Company would have had operating income of $21.4 million, or 24% of
net sales, in the six months ended June 30, 1997.
Other Income, Net. Other income, net for the six months ended June 30,
1997 was $83,000, as compared to $1.0 million in the comparable period in 1996.
This decrease was primarily attributable to interest expense incurred on the
Company's credit line.
Income Taxes. A provision for income taxes at a combined federal and state
tax rate of 38% was recorded with respect to the six months ended June 30, 1997
and June 30, 1996.
1996 COMPARED TO 1995
Net Sales. Net sales for 1996 were $108.3 million, a 25% increase from
$86.8 million in 1995. Net sales of sales lead generation products for 1996 were
$89.7 million, an 18% increase from $75.9 million in 1995. Net sales of consumer
CD-ROM products for 1996 were $13.9 million, a 74% increase from $8.0 million in
1995. Net sales of data processing services were $4.6 million, a 64% increase
from $2.8 million in 1995.
Database and Production Costs. Database and production costs for 1996 were
$29.3 million, an increase of 22% from $24.0 million in 1995.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1996 were $45.8 million, an increase of 21% from
$37.7 million in 1995. This increase was primarily attributable to an overall
increase in direct marketing activities for all of the Company's products and
services, continued investment in a field sales organization and promotional
marketing of consumer CD-ROM products, partially offset by a one-time charge of
$3.1 million in 1995 to recognize compensation expense related to the repurchase
of capital stock from a former officer of the Company.
Depreciation and Amortization Expenses. Depreciation and amortization of
goodwill and other intangibles were $4.9 million in 1996, as compared to $3.5
million in 1995, primarily due to the increased amortization related to
acquisitions.
17
<PAGE> 21
One-Time Charges. During the third quarter of 1996, the Company recorded
one-time charges to continuing operations of $10.0 million for acquired
in-process research and development associated with the acquisition of Digital
Directory Assistance and $11.5 million associated with a change in the estimated
useful lives of certain intangible assets related to acquisitions prior to 1995.
Operating Income. As a result of the factors described above, operating
income in 1996 was $6.9 million, as compared to $21.6 million in 1995. Excluding
the one-time charges described above, the Company would have had operating
income of $28.4 million, or 26% of net sales, in 1996.
Other Income, Net. Other income, net for 1996 was $2.0 million, as compared
to $1.2 million in 1995, primarily due to net realized gains of $1.3 million on
the sale of marketable securities during 1996 compared to net realized losses of
$339,000 on the sale of marketable securities during 1995. Interest expense
increased slightly due to the addition of capitalized equipment leases during
early 1996. Other expenses consist of a permanent write-down on an equity
investment included in other assets of the consolidated balance sheet and costs
associated with a pooling-of-interests transaction.
1995 COMPARED TO 1994
Net Sales. Net sales for 1995 were $86.8 million, a 25% increase from $69.6
million in 1994. Net sales of sales lead generation products for 1995 were $75.9
million, a 16% increase from $65.6 million in 1994. Net sales of consumer CD-ROM
products for 1995 were $8.0 million, as compared to $2.0 million in 1994.
Database and Production Costs. Database and production costs for 1995 were
$24.0 million, a 32% increase from $18.2 million in 1994. The increase in
database and production costs as a percent of net sales was primarily
attributable to increased sales of CD-ROM products which bore a slightly higher
level of costs than the Company's traditional lead generation products.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1995 were $37.7 million, a 34% increase from $28.2
million in 1994. This increase was primarily attributable to an overall increase
in direct marketing activities for all of the Company's products and services,
continued investment in a field sales organization and promotional marketing of
consumer CD-ROM products. This increase also includes a one-time charge of $3.1
million in 1995 to recognize compensation expense related to the repurchase of
capital stock from a former officer of the Company.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses were $3.5 million in 1995, as compared to $3.1 million in 1994,
primarily due to the increased amortization related to acquisitions.
Operating Income. As a result of the factors described above, operating
income in 1995 was $21.6 million, as compared to $20.1 million in 1994.
Other Income, Net. Other income, net for 1995 was $1.2 million, as compared
to $862,000 for 1994. Investment income for 1995 was $1.3 million, as compared
to $1.1 million in 1994, primarily due to an increase in cash and cash
equivalents and investments. Interest expense decreased in 1995 from 1994 due to
lower outstanding debt balances during 1995.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1997, the Company's principal sources of liquidity included
cash and cash equivalents of $7.9 million and marketable securities of $22.2
million. In February 1997, the Company entered into a $65.0 million credit
facility in connection with the acquisition of DBA. Subsequent to June 30, 1997,
the Company increased this credit facility to $100.0 million. The primary reason
for the increase was to finance the acquisition of Pro CD. As of the date of
this Prospectus, $78.0 million of this facility had been drawn upon. All of the
Company's debt under this credit facility will be repaid with the proceeds of
the offering made hereby. As of June 30, 1997, the Company had working capital
of $60.9 million.
Net cash provided by operating activities for the six months ended June 30,
1997 totaled $9.4 million. The Company spent approximately $2.1 million on
upgrades to data processing equipment and $2.4 million related to building and
improvements to its Omaha facility in the six months ended June 30, 1997. The
18
<PAGE> 22
Company is building a new facility for the consumer and business database
compilation division in Papillion, Nebraska, with an estimated cost of $8.0
million, which is anticipated to be completed in mid-1998.
The Company paid $67.7 million in cash during the six months ended June 30,
1997 in connection with the acquisition of certain businesses. This amount
includes $7.9 million and $59.8 million associated with the acquisitions of
Digital Directory Assistance and DBA, respectively.
The Company believes that the proceeds from the sale of the Common Stock
offered hereby, together with its existing sources of liquidity and cash
generated from operations, will satisfy the Company's projected working capital
and other cash requirements for at least the next 12 months. To the extent the
Company experiences growth in the future, the Company anticipates that its
operating and investing activities may use cash. Any such future growth and any
acquisitions of other technologies, products or companies may require the
Company to obtain additional equity or debt financing, which may not be
available or may be dilutive.
19
<PAGE> 23
BUSINESS
American Business Information, Inc. (the "Company") is a leading provider
of business and consumer marketing information products and data processing
services. The Company's products and services help its clients achieve more
effective new customer generation at lower cost. The Company's key assets
include a proprietary database of over 11 million businesses and a consumer
database of over 113 million households and 180 million individuals in the
United States and Canada, which the Company believes are among the most
comprehensive and accurate available. The Company leverages these key assets by
selling a broad range of marketing information products and data processing
services through targeted distribution channels primarily to small and medium
size businesses and also to consumers and larger corporations. The Company's net
sales increased at a compounded annual growth rate of 22% to $108.3 million in
1996 from $48.5 million in 1992, both through the introduction of new products
and distribution channels and through the acquisition of complementary
businesses. For the six months ended June 30, 1997, total net sales were $89.0
million.
BACKGROUND
Businesses, sales organizations and sales people have an ongoing need to
acquire new customers. Targeted marketing to businesses and consumers through
direct marketing, telesales and field sales is increasingly used to identify and
acquire new customers. As competition for customers has heightened, marketing
costs have increased while technological advances have made information more
accessible and less expensive. As a result, it has become imperative for
businesses to utilize their marketing resources more efficiently through the
targeted use of information products and data processing services. The growth of
business and consumer targeted marketing has created a substantial and ongoing
need for accurate and timely information to identify potential customers from
the millions of businesses and hundreds of millions of consumers in the United
States and Canada.
The demand for business and consumer data is highly segmented among small
and medium size businesses, large corporations and individual consumers. For
many small and medium size businesses with limited resources business
information and related analytical services have become fundamental marketing
tools, as these businesses require accurate and comprehensive information on a
specific, limited segment of the customer population. The Company believes that
traditionally these small and medium size businesses have been unable to obtain
this information because they do not have the resources to collect it themselves
and marketing information vendors have not provided them with comprehensive and
affordable solutions. In contrast, larger corporations typically have their own
data and require data processing and management services and the blending of
their in-house customized database with a more extensive data set to achieve
specific marketing requirements. Individual consumers need very specific
reference information on a small number of businesses or consumers that is
easily accessible at low cost through a variety of delivery formats.
The Company believes that the increasing demand for sales and marketing
information products and data processing services has contributed and will
continue to contribute to growth and consolidation in the business and consumer
information industry. The Company believes that economies of scale and scope are
available in the compilation and maintenance of large and in-depth business and
consumer databases that can then be leveraged to meet each segment of demand in
the business and consumer information market. The Company also believes that the
quality of data processing services is directly dependent upon the scale and
scope of the underlying databases. The Company also believes that to optimize
the value of a database, the provider of information products and data
processing services derived from that database must have a broad array of well
established distribution channels.
STRATEGY
The Company's objective is to be the leading provider of business and
consumer marketing information products and data processing services in the
United States and Canada by continuing to help its clients generate new
customers efficiently and effectively. The Company focuses on selling its lead
generation products to small and medium size businesses while marketing
reference products to consumers and more complete solutions to larger
corporations. The Company believes that it effectively competes in the business
20
<PAGE> 24
and consumer marketing information industry by exploiting its competitive
strengths. These strengths include the Company's accurate and comprehensive
databases and its ability to leverage these databases by providing customers
with the specific data they need in a variety of formats through targeted
distribution channels. Key elements of the Company's growth strategy include:
Expand and Enhance the Proprietary Business Database. The Company continues
to invest substantial time and resources to maintain the quality and increase
the depth of its proprietary business database, which it believes contains the
most comprehensive and accurate business marketing information in the United
States and Canada. The Company expands and continually updates its business
database to strengthen its leadership position in business marketing information
products and data processing services. For example, the Company makes over 16
million telephone calls every year to verify each record in the business
database.
Leverage the Databases. The Company continues to leverage its business
database by introducing new information products and new product delivery
formats to strengthen its competitive advantage in the business marketing
information industry. The Company sells a wide range of pre-packaged and
customized information products tailored to specific customer requirements on a
variety of delivery formats through targeted distribution channels. The Company
distributes its information products and data processing services through direct
mail, telemarketing, field sales offices, national accounts sales teams, retail
outlets and information resellers. The Company intends to respond to changes in
information technology by introducing new product delivery formats, such as
delivery over the Internet and business intranets and on DVD. The Company prices
its information products and services based on the type, amount and format of
the information provided to create an attractive marketing information solution
for its customers.
Increase Recurring Revenue. The Company intends to emphasize recurring
revenue in a number of ways. The Company encourages repeat purchases of its
information products by offering annual editions of its directories and monthly
subscription updates. The Company generates recurring revenue from royalties by
licensing its databases to other information providers and large corporations
for internal use. In addition, the Company sells its data processing services to
large corporations with ongoing information service requirements, and
subsequently sells its information products to these clients.
Replicate Business Database Strategy for Consumer Database. The Company
intends to utilize the strategies and targeted distribution channels developed
for its business information products and data processing services to serve
clients engaged in marketing to consumers. The Company believes that its
consumer database is among the most accurate and comprehensive in the United
States, and its ability to offer customers both high quality business and
consumer data gives it a competitive advantage over other companies offering
marketing information. The Company's consumer database consists of data licensed
from third parties and the Company is developing a proprietary consumer white
page file.
Enhance Product and Service Offerings Through Strategic Acquisitions. The
Company intends to continue expanding its database and data processing
capabilities not only through expansion of its existing business, but also
through the acquisition of complementary businesses. Since mid-1996, the Company
completed six acquisitions that increased its presence in the consumer marketing
information industry, greatly increased its ability to provide data processing
solutions, added two consumer CD-ROM product lines and broadened its offerings
of business marketing information. The Company believes that there are further
opportunities to add to its product and service offerings and to expand its
distribution channels through strategic acquisitions.
DATABASES
The Company believes that its databases are among the most comprehensive
and accurate in the United States, and that the maintenance and development of
these databases will be critical elements of the Company's continued success.
The Company continually updates its databases to reflect the formation of new
businesses, entities going out of business, changes relating to existing
businesses, such as new offices, new officers or new lines of business, and
changes of consumer names and addresses. The Company has invested and will
continue to invest significant time and resources in the creation, maintenance
and enhancement of its databases and related applications software.
21
<PAGE> 25
Business Database. The Company's proprietary business database contains
information on over 11 million businesses in the United States and Canada. The
Company segments the business database into subsets such as growing businesses,
small business owners, big businesses, "work at home" businesses, female
executives and business owners, corporate affiliations, toll-free telephone
numbers and World Wide Web sites. The Company also adds depth to its business
database through the addition of data elements such as news headlines, public
filings, credit information and business owner biographies. The Company compiles
the information in the business database in two stages. First, the Company
inputs from over 5,000 sources including yellow page directories, state
directories, chamber of commerce directories, newspapers, business white pages,
telephone directories and other publicly available sources. Each business entry
contains, where available: name of business, contact person, street address,
city, state, area code and telephone number, fax number, yellow page
classification, SIC code, product brands sold by businesses, franchises,
professional specialties, size of yellow page advertisement, year of first
appearance in the yellow pages, zip code, carrier route, county code, population
code and metropolitan statistical area. Second, the Company makes over 16
million telephone calls each year to the businesses in the database to verify
the information and to obtain or confirm additional information for inclusion in
the database. The Company's proprietary automated and predictive dialing system
optimizes the efficiency of the telephone verification process. Information
obtained through the telephone verification process includes name of the owner
or manager, number of employees, primary business activity and address
verification. The Company regularly evaluates additional or alternative
questions to ask in telephone verification in order to improve the depth and
quality of its database.
The maintenance and development of the Company's business database require
sophisticated computer hardware and software to handle rapid compilation, order
processing, accounting, storage, sorting and quality control. The Company's
computer system allows a work force of over 500 employees to compile, program
and process data simultaneously. More than 1,500 proprietary software programs
operate the data compilation, demographic enhancement and order fulfillment
process. The Company's data entry personnel use on-line proprietary data
compilation software to access the database and update, change or verify each
record at a rate of approximately 1.3 million records per month. A separate
quality control group checks input quality and seeks to ensure that the
information that reaches the Company's database is approximately 98% accurate
from the original source. The Company has also developed proprietary software to
check the database for the accuracy of spelling, abbreviations and telephone
exchanges.
Consumer Database. The Company's consumer database, which primarily
consists of data licensed from third parties, contains information on over 113
million households, 180 million consumers, 60 million homeowners, and 22 million
mail order purchasers. The consumer database includes information in over 70
categories of demographic information including age, income, marital status,
gender, presence of children in households, credit card information, mortgage
data, vehicle information, recent changes of address and lifestyle selections.
The Company obtains information for its consumer database from publicly
available and third party directories, supplemented with information gathered
from warranty data, census data, buyer information, credit data and
self-reported lifestyle information. In addition, the Company updates and
maintains its consumer database using information licensed from the United
States Postal Service's National Change of Address, Delivery Sequence File and
Locatable Address Conversion Systems, allowing the Company to track consumers as
they move. These steps enable the Company to ensure high deliverability rates
for direct mail marketing. The Company is working to complete its own
proprietary consumer white page file, which it expects to complete by the end of
1997. The Company complies with the DMA guidelines with respect to the
collection, distribution and use of information about individuals.
"New Business" Database. The Company monitors and compiles information on
newly formed businesses throughout the United States by checking state filings,
business licenses and court documents. The Company verifies and sells the data
to allow clients to contact potential new customers as soon as possible, then
incorporates the information into its core business database.
Medical Databases. The Company maintains and markets a specialized database
on physicians and surgeons, and is creating a similar database on dentists. The
physician and surgeon database contains information on over 575,000 physicians
and surgeons nationwide. The database is compiled from third party sources, and
contains information on age, gender, professional school, specialties, and
personal interests.
22
<PAGE> 26
PRODUCTS AND SERVICES
The Company offers a variety of business and consumer information products
and data processing services to assist its customers with activities such as
identifying and qualifying prospective customers, initiating direct mail
programs, telemarketing, estimating market potential, monitoring the
effectiveness of marketing efforts and surveying competitive markets. The
Company sells its information products through a variety of delivery formats,
including hard copy prospect lists, sales lead cards, mailing labels, diskettes,
CD-ROMs, the Internet, telephone and fax. The Company distributes its
information products and data processing services through direct mail,
telemarketing, field sales offices, national accounts sales teams, retail
outlets and information resellers. More than 75% of the Company's net sales in
1996 were attributable to customers who had previously purchased the Company's
products. The Company's business is organized around three principal product
lines consisting of sales lead generation products, data processing services and
consumer CD-ROM products, which accounted for 73%, 18% and 9% of net sales,
respectively, in the six months ended June 30, 1997.
Sales Lead Generation Products
Customized Sales Lead Generation Products. The Company's customized sales
lead generation products, which include hard copy prospect lists, sales lead
cards, mailing labels, diskettes and mapping products, are used by customers who
ask the Company to generate specific information for them. The Company markets
its customized sales lead generation products primarily to small and medium size
businesses, who use these materials to efficiently identify and communicate with
potential customers. The Company produces its sales lead generation products
using a combination of customized sorting criteria to meet the customer's
marketing objectives. The Company's telemarketing sales representatives work
with prospective customers to help them specify sorting criteria that will
produce marketing information materials optimized for that customers business,
and guide them to understanding how this information can be used. For example,
with Sales Leads On A Map, customers can plot their leads on a street map, which
allows them to increase productivity, assign sales territories and measure sales
activity by knowing exactly where prospective customers are clustered. The
Company sells its customized sales lead generation products primarily through
direct mail, telemarketing and its field sales offices. Generally, sales lead
generation products are priced on a per name basis, which varies according to
the number of names supplied, the type of information required and the delivery
format selected.
Non-Stop Sales Leads. Non-Stop Sales Leads is a subscription program that
provides customers with a prospect database and monthly updates including new
leads for the market area, changes to the original database and a list of
companies that have gone out of business. The Company sells Non-Stop Sales Leads
to small, medium and large businesses who use the monthly new prospect updates
to acquire new customers, expand into new markets and replace lost customers.
The Company markets Non-Stop Sales Leads primarily through direct mail,
telemarketing and field sales offices. Customers pay an up-front fee for the
initial database of requested information and additional monthly subscription
fees for the updates.
Business Directories. The Company's printed business directories are
bundled with CD-ROMs and include such titles as State Business Directories,
American Manufacturers Directory, Big Business Directory, Credit Reference
Directory, Entrepreneurs Directory, Physicians & Surgeons Directory and U.S.
Business Directory. In addition, the Company also sells a number of business
directories on CD-ROM only, including titles such as Households USA,
Professionals, and Female Executives and Business Owners. The Company sells
these directories to small and large business and consumer marketers who use
them for lead generation, telemarketing and reference purposes, and are
attracted to the directories by their affordability, convenience and reference
value. The printed directories are useful for reference, while the CD-ROM
products allow users to sort, search and print marketing information. The
Company sells its business directories primarily through direct mail, telesales
and its field sales offices. Purchasers of business directories pay a one-time
fee for the directories when they initially acquire them, and can purchase
annual updates. For CD-ROM products an annual license fee enables a customer to
access and use a specified number of names. Proprietary metering technologies
for CD-ROM products require purchasers to pay an additional fee to download
additional names and prevent purchasers from using the product longer than one
year after the installation date.
23
<PAGE> 27
Telephone Information Service. The Company sells its telephone information
service, InfoAccess, to businesses that request instant company profiles,
business credit profiles and additional detailed information on businesses in
the United States and Canada. Business credit profiles allow a customer to
evaluate a company's credit history, qualify sales leads, learn about vendors,
suppliers or competitors and determine whether a prospective customer is likely
to pay bills on time. The Company prices its telephone information services on a
subscription basis.
Internet/Online Information Service. SalesLeadsUSA (www.SalesLeadsUSA.com)
allows businesses and consumers to define a target market, retrieve a count of
the number of businesses in a particular market or obtain a credit profile on a
particular company, all through the World Wide Web. Customers also use the site
for directory assistance, finding individuals in the white pages or businesses
in the yellow pages. Links to the service are also available on InfoSpace,
Microsoft, Netscape and Big Book and other national online information
providers. SalesLeadsUSA provides customers with immediate access to the
Company's database 24 hours a day, seven days a week. The Company's directory
assistance information over the Internet is free. The Company sells customer
lists and business profiles over the Internet on a per name or per profile
basis.
Information Brokerage Services. The Company currently resells information
on consumers that it purchases from other suppliers. The Company resells this
data to businesses who use the information to target narrow segments of the
population. Purchasers can select consumer lists by age group, income range,
homeowner status, mortgage value, hobbies or interests, or geographical area.
The Company sells brokered information through direct mail, telemarketing, field
sales offices and its national accounts sales teams. The Company prices its
brokered information on a per name basis.
Data Processing Services
The Company's data processing services include "merge-purge" services,
market research services and data warehousing and analysis. Data processing
services are marketed primarily through national accounts sales teams. The
Company prices these services on a contract or per order basis depending upon
the nature of the services provided.
"Merge-Purge." Merge-purge services involve merging data from multiple
sources and purging out duplicative and erroneous data. Merge-purge services
enable clients to more accurately target customers. The Company sells its
merge-purge services primarily to large corporations, many of which use these
services on an ongoing basis, providing a steady stream of revenue.
Market Research Services. The Company offers a variety of market research
services, including customer and market profile analyses, market segmentation
reports, statistical marketing reports, list enhancements to update a customer's
in-house database, computerized name search service, and other analytical tools
and reports. The Company sells these market research services primarily to
medium and large businesses, who use the data to target their direct marketing
efforts on segments of the business or consumer population most likely to
respond positively.
Data Warehousing and Analysis. The information provided by the Company's
data warehousing and analysis allows customers to make more informed business
decisions by identifying the highest potential prospect group, determining
market size, conducting competitive analysis or determining sales goals,
marketing plans, budgetary priorities, site locations or territory assignments.
The Company sells data warehousing and analysis services to small, medium and
large businesses.
Consumer CD-ROM Products
The Company's consumer CD-ROM products include titles such as 104 Million
Businesses and Households, Streets USA, American Yellow Pages, 88 Million
Households, 2 Million Fax Number Directory, PhoneDisc Powerfinder, Powerfinder
Pro and Select Phone Deluxe. The Company markets its consumer CD-ROM products to
individual consumers and small office and home office businesses, who use these
products on their personal computers as an affordable way to find addresses and
phone numbers of businesses and
24
<PAGE> 28
consumers anywhere in the country. Customers can view and select information to
print to lists or labels or download the information. The Company sells consumer
CD-ROMs through direct mail and retail outlets.
SALES AND MARKETING
The Company markets and sells its information products and data processing
services directly through direct mail, telemarketing, field sales offices and
national accounts sales teams and indirectly through distribution channels such
as value-added resellers and retail outlets. The sales and marketing channels
used by the Company vary by product. Sales lead generation products are sold
through direct mail, telesales, field sales offices and national accounts sales
teams. Data processing services are sold primarily through national accounts
sales teams. Consumer CD-ROM products are sold through direct mail,
telemarketing and retail outlets, and the Company licenses its databases to
information resellers and large corporations.
Direct Mail. The Company has traditionally marketed to businesses through
direct mail, in which the Company mails catalogs to prospective customers and
takes orders by mail or by telephone. In 1996 and the first half of 1997, the
Company mailed more than 34 million catalogs, letters and other pieces of mail
primarily to small and medium size businesses. The Company sells its full line
of sales lead generation products, including customer lists, mailing labels,
directories, CD-ROM products, maps and credit reference guides, through direct
mail. Direct mail marketing allows the Company to reach a large number of
customers at relatively little cost, and generates a high volume of sales.
Telemarketing. The Company sells its sales lead generation products and
services through "outbound" telephone calls to small and medium size businesses.
Since adopting this strategy in late 1996, the Company estimates it has
initiated more than 350,000 telephone contacts with prospective customers.
Telemarketing allows the Company to contact dormant accounts, occasional
purchasers and repeat customers to create a more consultative relationship
between the client and the Company, and in turn to generate more frequent sales.
Field Sales Offices. The Company's field sales offices sell the Company's
full line of sales lead generation products and services through direct or
telephone contact with small and medium size businesses, establishing
consultative relationships at the local level. The Company believes that through
field sales offices it can establish and maintain direct relationships with
businesses that are otherwise unresponsive to direct mail and telesales
contacts. As of September 1, 1997, the Company had field sales offices in 10
cities, and expects to add offices in two more cities by the end of 1997.
National Accounts. The Company's national accounts sales teams establish
ongoing relationships with larger corporations to sell data processing services
and information products. Data processing services for these clients include
generating mailing lists through merging and purging of databases, producing
customer profiles and market analysis, and managing and warehousing client data.
After selling data processing services to large corporations, the Company seeks
to sell its information products to these clients as well.
Retail Sales. The Company sells its consumer CD-ROM products
"off-the-shelf" to customers through retail sales outlets including computer
software stores, office supply stores, convenience stores, pharmacies and
supermarkets. The Company sells its consumer CD-ROM products principally through
wholesale distributors and also directly to retail outlets.
Database Licensing. The Company licenses its databases for distribution to
on-line information providers such as InfoSpace, Microsoft, Netscape and Big
Book and to large corporations for internal use. Licensees pay the Company
royalties for the use of its information products. In addition, some on-line
information services provide a link to the Company's World Wide Web site,
allowing to purchase additional products or services directly from the Company.
COMPUTER OPERATIONS AND DATABASE PROTECTION
The Company compiles and maintains business databases on its redundant
computer systems located at its Omaha, Nebraska and Carter Lake, Iowa
facilities. The Company uses its Omaha facility primarily for compiling and
enhancing the business database. The Company uses its Carter Lake facility to
fulfill orders,
25
<PAGE> 29
produce directories and develop new software applications. By maintaining its
data entry operations in one location and its order-filling capacity at the
other, the Company believes it enhances its ability to control the accuracy and
costs of the compilation process.
Each of the data centers is protected by a fire suppression system and an
uninterrupted power supply battery backup system. The Company's data is
regularly backed up and stored off-site. The Company believes its computer
systems are adequate for its present requirements and that its operations can be
readily expanded in support of the Company's growth strategy. The Company is
building a new facility for the business and consumer database compilation
division in Papillion, Nebraska, which is anticipated to be completed in mid-
1998.
The Company maintains its consumer database and analytical data processing
capabilities at its Montvale, New Jersey facilities. The data is regularly
backed up and stored off-site. The Company has contracted with a third party to
load and access its consumer database in the event of loss at the Montvale
facility, and the Company could regenerate its analytical capabilities through
the lease of computer equipment in less than two weeks.
The Company's telecommunications equipment is also redundant. In the event
of a disaster at any of its locations, calls could be redirected to the other
location within 12 hours, thereby minimizing the effect of the disaster.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
The Company regards its databases and software as proprietary. The
Company's database are copyrighted, and the Company depends on trade secret and
non-disclosure safeguards for protection of its software. The Company
distributes its products under agreements that grant customers a license to use
the Company's products in the ordinary course of their businesses and contain
terms and conditions prohibiting the unauthorized reproduction of the Company's
products. In addition, the Company generally enters into confidentiality
agreements with its management and programming staff and limits access to and
distribution of its proprietary information. While there can be no assurance
that the steps taken by the Company will be adequate to deter misappropriation
of its proprietary rights or independent third party development of
substantially similar products and technology, the Company believes that legal
protection of its database and software is less significant than the knowledge
and experience of the Company's management and personnel, and their ability to
develop, enhance and market existing and new products and services.
COMPETITION
The business environment in which the Company competes is highly
competitive. The Company believes that competition in its industry is based on
the quality and comprehensiveness of the information provided, the ability to
deliver the information in products and formats that the customer needs and, to
a lesser extent, on the pricing of information products and services. The
Company also believes that the ability to provide data processing to support
customer direct selling efforts can provide a key competitive advantage. A
number of small and large competitors are active in specific aspects of the
Company's business. Many such competitors have substantially greater financial,
technical and marketing resources than the Company. In business sales lead
generation products, the Company faces competition from Dun's Marketing Services
("DMS"), a division of Dun & Bradstreet. DMS, which relies upon information
compiled from Dun & Bradstreet's credit database, tends to focus on marketing to
large companies. In business directory publishing, the Company competes
primarily with Regional Bell Operating Companies, Donnelley Marketing, and many
smaller, regional directory publishers. In consumer sales lead generation
products, the Company competes with Metromail, Donnelly Marketing, R.L. Polk,
Trans Union, Equifax and Experian, both directly and through reseller networks.
In analytical data processing services, the Company competes with Acxiom, May &
Speh, Harte-Hanks Data Technologies and Direct Marketing Technologies. In
consumer products, the Company competes with certain small producers of CD-ROM
products. In addition, the Company faces competition to the extent similar
marketing information is available on the Internet.
26
<PAGE> 30
EMPLOYEES
As of September 1, 1997, the Company employed a total of approximately
1,600 people on a full-time basis. None of the Company's employees is
represented by a labor union or is the subject of a collective bargaining
agreement. The Company has never experienced a work stoppage and believes that
its employee relations are good.
PROPERTIES
The Company's headquarters are located in a 148,000 square foot facility in
Omaha, Nebraska, where the Company performs data compilation, telephone
verification, data development services, and sales and administrative
activities. Order fulfillment and shipping are conducted at the Company's 30,000
square foot Carter Lake, Iowa facility, which is located 15 miles from its
headquarters. The Company owns both of these facilities, as well as adjacent
land for possible future expansion. In addition, the Company leases a 101,000
square foot facility in Montvale, New Jersey, which lease expires in September
1999. The Company also leases sales office space at various locations, the
aggregate rental obligations of which are not significant. The Company is
building a new 130,000 square foot facility for the business and consumer
database compilation division in Papillion, Nebraska, which is anticipated to be
completed in mid-1998.
27
<PAGE> 31
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company as of October 1, 1997
will be as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------- --- ---------------------------------------------------------
<S> <C> <C>
Vinod Gupta.................. 51 Chairman of the Board
Scott Dahnke................. 32 Chief Executive Officer and Director
Jon Wellman.................. 45 President, Chief Operating Officer and Director
Steven Purcell............... 46 Chief Financial Officer and Secretary
Allen Ambrosino.............. 54 Executive Vice President and President, Database America
Gregory Back................. 30 Executive Vice President, Corporate Planning and Business
Development
Monica Messer................ 34 Executive Vice President and Chief Information Officer
William Chasse............... 38 Executive Vice President, Sales and Marketing
William Kerrey............... 49 Senior Vice President, Licenses
Harold Andersen(1)(2)........ 73 Director
Paul Goldner................. 63 Director
Gautam Gupta................. 51 Director
George Haddix, Ph.D.(1)...... 58 Director
Jon Hoffmaster(2)............ 49 Director
Elliot Kaplan(1)............. 60 Director
George Kubat(2).............. 51 Director
</TABLE>
- ---------------
(1) Member of Compensation Committee
(2) Member of Audit Committee
Vinod Gupta is the founder of the Company and has been Chairman of the
Board of the Company since its incorporation in 1972. Mr. Gupta served as Chief
Executive Officer of the Company from the time of its incorporation in 1972
until September 1997. Mr. Gupta holds a B.S. in Engineering from the Indian
Institute of Technology, Kharagpur, India, and an M.S. in Engineering and an
M.B.A. from the University of Nebraska. Mr. Gupta is unrelated to Gautam Gupta.
Scott Dahnke joined the Company as Chief Executive Officer of the Company
in October 1997. Prior to that time, Mr. Dahnke was with the consulting firm
McKinsey & Company, Inc., where he worked since August 1991, and had been a
Partner since May 1997. While at McKinsey, Mr. Dahnke served as a consultant to
the Company since May 1997. Mr. Dahnke holds a B.S. in Mechanical Engineering
from the University of Notre Dame and an M.B.A. from Harvard Business School.
Jon Wellman has served as President, Chief Operating Officer and a director
of the Company since February 1997. Mr. Wellman joined the Company in August
1995 as Chief Financial Officer and Secretary. Mr. Wellman previously served as
Vice President and Chief Financial Officer at Signal Technology Corporation, a
defense electronics manufacturer, from December 1994 to July 1995, and was a
Partner with Coopers & Lybrand L.L.P., an independent public accounting firm,
from 1989 to November 1994. Mr. Wellman holds a B.S. in Business from the
University of Idaho.
Steven Purcell has served as Chief Financial Officer and Secretary of the
Company since April 1997. Prior to that time, Mr. Purcell served as the Chief
Financial Officer and Treasurer at Micro Warehouse, Inc., a direct mail computer
software and hardware distributor, from November 1991 until November 1996. Mr.
Purcell holds a B.S. in Accounting from the University of New Haven and an
M.B.A. from Radford College. Mr. Purcell is licensed as a Certified Public
Accountant.
Allen Ambrosino has served as Executive Vice President of the Company since
August 1997, and as President of DBA, which the Company acquired in February
1997, since November 1991. Mr. Ambrosino holds a B.S. in Business Administration
from Fairleigh Dickinson University.
28
<PAGE> 32
Gregory Back has served as Executive Vice President of Corporate Planning
and Business Development of the Company since October 1997. Prior to that time,
Mr. Back was with the consulting firm McKinsey & Company, Inc., where he worked
from September 1989 to September 1992 and again from September 1994 to September
1997. While at McKinsey, Mr. Bank served as a consultant to the Company since
May 1997. Mr. Back also worked for Golder, Thoma, Cressey & Rauner, a private
equity firm, from June 1993 to August 1993. Mr. Back holds a B.A. in Economics
from Yale University and an M.B.A. from Stanford Business School.
Monica Messer has served as an Executive Vice President and Chief
Information Officer of the Company since February 1997, and served as a Senior
Vice President of the Company from January 1996 to January 1997. Ms. Messer
joined the Company in 1984 and has served as a Vice President of the Company
since 1985. Ms. Messer holds a B.S. in Business Administration from Bellevue
University.
William Chasse has served as Executive Vice President, Sales and Marketing
of the Company since October 1996, as a Senior Vice President from January 1995
to October 1996, and as a Vice President from 1990 to January 1995. Mr. Chasse
joined the Company in 1988. Mr. Chasse holds a B.S. in Business Administration
and an M.B.A. from the University of Nebraska.
William Kerrey has served as Senior Vice President, Licenses since August
1994, and served as a Vice President from 1989 to August 1994. Mr. Kerrey holds
a B.S. in Economics, a B.S. in Spanish and an M.S. in Agronomy from the
University of Nebraska.
Harold Andersen has served as director of the Company since September 1993.
He is the former President, Chief Executive Officer, Chairman and Publisher of
the Omaha World Herald Company, a newspaper publishing company. Mr. Anderson is
currently a Contributing Editor to the Omaha World Herald. Mr. Andersen holds a
B.S. in Liberal Arts from the University of Nebraska.
Paul Goldner has served as a director of and consultant to the Company
since the acquisition of DBA in February 1997. He was a founder of DBA, and
served as its Chairman and Chief Executive Officer from 1973 to February 1997.
Mr. Goldner holds a B.S. in Management Engineering from the Rensselaer
Polytechnic Institute. In connection with its acquisition of DBA, the Company
agreed to nominate Mr. Goldner to be elected to the Board when his current term
expires in 1999.
Gautam Gupta has served as a director of the Company since May 1988. Since
1982, Mr. Gupta has served as the President and Chief Executive Officer of
IDEAssociates, Inc., a manufacturer of data communication equipment for computer
systems. Mr. Gupta holds an M.B.A. from Harvard Business School and an M.S. and
a B.S. degree in Engineering from the Indian Institute of Technology, Kharagpur,
India. Mr. Gupta is unrelated to Vinod Gupta.
George Haddix, Ph.D. has served as a director of the Company since March
1995. Since November 1994, Mr. Haddix has served as President of CSG Holdings,
Inc. and CSG Systems International, Inc., companies engaged in providing
software and information services to the communications industry. Mr. Haddix is
a director of CSG Systems International, Inc. From 1989 until joining CSG in
November 1994, Mr. Haddix was an individual investor. Mr. Haddix holds a B.A.
from the University of Nebraska, an M.A. from Creighton University and a Ph.D.
from Iowa State University, all in Mathematics.
Jon Hoffmaster has served as a director of the Company since 1978, as Vice
Chairman of the Company from September 1993 to December 1995, as Chief Financial
Officer of the Company from July 1992 to July 1995, and as President and Chief
Operating Officer of the Company from September 1991 to September 1993. Mr.
Hoffmaster has served as a consultant to the Company since January 1996. Mr.
Hoffmaster is also a director of Bridges Investment Fund. Mr. Hoffmaster holds a
B.A. in Finance from the University of Nebraska.
Elliot Kaplan has served as director of the Company since May 1988. He is a
senior partner and the Chairman of the Executive Board of the law firm of
Robins, Kaplan, Miller & Ciresi and has practiced law continuously with that
firm since 1962. Mr. Kaplan is also a director of Best Buy Co., Inc., and of the
Franklin
29
<PAGE> 33
Corporation. Mr. Kaplan holds a B.A. in Business Administration and a J.D. from
the University of Minnesota.
George Kubat has served as a director of the Company since May 1995. Since
November 1992, Mr. Kubat has served as President and Chief Executive Officer of
Phillips Manufacturing Co., a dry wall equipment and supply business
("Phillips"). Prior to joining Phillips, Mr. Kubat was with Coopers & Lybrand
L.L.P. for over 16 years. Mr. Kubat is also a director of America First
Companies L.L.C. and SITEL Corporation. Mr. Kubat holds a B.S. in Business
Administration from Creighton University and a J.D. from Creighton University.
30
<PAGE> 34
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth the beneficial ownership of Common Stock of
the Company as of August 31, 1997 and as adjusted as of such date to reflect the
sale of the shares offered hereby (assuming no exercise of the Underwriter's
over-allotment option) by (i) all persons known to the Company to be the
beneficial owners of more than 5% of the Company's Class A Common Stock or Class
B Common Stock, (ii) the Company's Chief Executive Officer and the four most
highly compensated executive officers other than the Chief Executive Officer,
(iii) each Selling Stockholder, (iv) each of the Company's directors and (v) all
directors and executive officers as a group. The information on beneficial
ownership in the table and the footnotes below is based upon the Company's
records, Schedule 13D and 13G filings and information supplied to the Company by
the listed person or entity.
The following table has been prepared in accordance with Rule 13d-3 of the
Securities Exchange Act of 1934 and discloses all securities beneficially owned
by the named persons as of August 31, 1997, plus all securities that such
persons have a right to acquire through the exercise of options or other rights
within 60 days after August 31, 1997. Certain individuals in the table below
have the right to acquire additional shares after such 60-day period, as
indicated in the footnotes to the table.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO THE OFFERING(1) AFTER THE OFFERING(1)
------------------------------------ CLASS A ------------------------------------
DIRECTORS, OFFICERS, AND 5% TOTAL SHARES TOTAL
STOCKHOLDERS VOTING OFFERED VOTING
AND SELLING STOCKHOLDERS CLASS A CLASS B PERCENTAGE HEREBY(1) CLASS A CLASS B PERCENTAGE
- ------------------------------- ---------- ---------- ---------- --------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Vinod Gupta(2)................. 9,115,654 9,115,654 37.2% 1,000,000 8,115,654 9,115,654 35.9%
5711 South 86th Circle
Omaha, Nebraska 68127
FMR Corp....................... 2,448,050 2,448,050 10.0% 2,448,050 2,448,050 9.8%
82 Devonshire Street
Boston, Massachusetts 02109
Paul Goldner(3)................ 1,426,316 1,426,316 5.8% 400,000 1,026,316 1,426,316 5.6%
100 Paragon Drive
Montvale, New Jersey 07645
Jon Hoffmaster(4).............. 471,000 471,000 1.9% 471,000 471,000 1.9%
George Haddix(5)............... 23,500 23,500 * 23,500 23,500 *
Harold Andersen(6)............. 17,300 17,300 * 17,300 17,300 *
Gautam Gupta(7)................ 45,535 45,535 * 45,535 45,535 *
Elliot Kaplan(8)............... 91,840 91,840 * 91,840 91,840 *
George Kubat(9)................ 28,300 28,300 * 28,300 28,300 *
Jon Wellman(10)................ 82,500 82,500 * 82,500 82,500 *
Monica Messer(11).............. 160,934 160,934 * 160,934 160,934 *
William Chasse(12)............. 68,250 68,250 * 68,250 68,250 *
William Kerrey(13)............. 19,759 19,759 * 19,759 19,759 *
All directors and executive
officers as a group (12
persons)(14)................. 11,550,888 11,550,888 46.5% 1,400,000 10,150,888 11,550,888 44.9%
========== ========== ========== ========= ========== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
OTHER SELLING STOCKHOLDERS
- -------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
As a Group..................... -- -- -- 600,000
Total................. 2,000,000
=========
</TABLE>
- ---------------
* Represents less than 1% of the outstanding shares of Common Stock.
(1) This table is presented on a pro forma basis to reflect the
Reclassification and the Stock Dividend. See "Description of Capital
Stock."
(2) Excludes 345,030 shares of Class A Common Stock and 345,030 shares of Class
B Common Stock held in irrevocable trusts for the benefit of Mr. Gupta's
children for which Mr. Gupta is not trustee and in which he has no
beneficial interest. Includes 120,000 shares of Class A Common Stock and
120,000 shares of Class B Common Stock subject to options exercisable on or
before October 31, 1997.
31
<PAGE> 35
(3) Excludes 543,717 shares of Class A Common Stock and 543,717 shares of Class
B Common Stock held in irrevocable trusts for the benefit of Mr. Goldner's
children for which Mr. Goldner is not a trustee and in which he has no
beneficial interest. Includes 3,000 shares of Class A Common Stock and
3,000 shares of Class B Common Stock subject to options exercisable on or
before October 31, 1997.
(4) Includes 81,000 shares of Class A Common Stock and 81,000 shares of Class B
Common Stock subject to options exercisable on or before October 31, 1997.
(5) Includes 21,000 shares of Class A Common Stock and 21,000 shares of Class B
Common Stock subject to options exercisable on or before October 31, 1997.
(6) Includes 3,000 shares of Class A Common Stock and 3,000 shares of Class B
Common Stock subject to options exercisable on or before October 31, 1997.
(7) Includes 6,000 shares of Class A Common Stock and 6,000 shares of Class B
Common Stock subject to options exercisable on or before October 31, 1997.
(8) Includes 6,000 shares of Class A Common Stock and 6,000 shares of Class B
Common Stock subject to options exercisable on or before October 31, 1997.
(9) Includes 21,000 shares of Class A Common Stock and 21,000 shares of Class B
Common Stock subject to options exercisable on or before October 31, 1997.
(10) Includes 82,500 shares of Class A Common Stock and 82,500 shares of Class B
Common Stock subject to options exercisable on or before October 31, 1997.
(11) Includes 11,250 shares of Class A Common Stock and 11,250 shares of Class B
Common Stock subject to options exercisable on or before October 31, 1997.
(12) Includes 68,250 shares of Class A Common Stock and 68,250 shares of Class B
Common Stock subject to options exercisable on or before October 31, 1997.
(13) Includes 9,000 shares of Class A Common Stock and 9,000 shares of Class B
Common Stock subject to options exercisable on or before October 31, 1997.
(14) Includes 432,000 shares of Class A Common Stock and 432,000 shares of Class
B Common Stock subject to options exercisable on or before October 31,
1997.
32
<PAGE> 36
DESCRIPTION OF CAPITAL STOCK
The Company is offering hereby shares of its Class A Common Stock. The
following discussion assumes the completion of the Reclassification and the
Stock Dividend, which the Company expects to occur on October 3, 1997.
The Company's authorized capital stock consists of 295,000,000 shares of
Common Stock, par value $0.0025 per share, and 5,000,000 shares of Preferred
Stock, par value $0.0025 per share. Of the Common Stock, 220,000,000 shares have
been designated Class A Common Stock and 75,000,000 shares have been designated
Class B Common Stock. Of the Preferred Stock, 35,000 shares have been designated
Series A Preferred Stock, 220,000 shares have been designated Series B Preferred
Stock and 4,745,000 shares remain undesignated.
The following summary of certain features of the Common Stock and Preferred
Stock does not purport to be complete and is subject to, and qualified in its
entirety by, the provisions of the Company's Certificate of Incorporation, as
amended, and Certificate of Designation, as amended, which are included as
exhibits to the Registration Statement of which this Prospectus is a part, and
by the provisions of applicable law.
COMMON STOCK
Except as set forth below, the Class A Common Stock and Class B Common
Stock are substantially identical. The holders of Common Stock may take action
by written consent in accordance with Delaware law, but do not have the right to
cumulate votes in connection with the election of Directors. In the event of a
liquidation, dissolution or winding up of the Company and subject to any rights
of any Preferred Stock outstanding, the holders of each class of Common Stock
will first receive any declared but unpaid dividends with respect to such class,
and then will be entitled to share ratably in all assets remaining after payment
of the Company's liabilities. A sale of all or substantially all of the
Company's assets or a merger in which the stockholders of the Company
immediately prior to the merger own less than a majority of the voting power of
the surviving entity following the merger, will be deemed to be liquidation,
dissolution or winding up of the Company. The Common Stock has no preemptive,
conversion or other subscription rights and there are no redemption or sinking
fund provisions applicable to the Common Stock. All outstanding shares of Common
Stock are fully paid and non-assessable. There are no restrictions on the
transferability of the Common Stock, except for such restrictions as may be
entered into by the holders thereof contractually or may be imposed on the
holders thereof by applicable law.
Voting Rights. Holders of the Class A Common Stock are entitled to one vote
per share on all matters submitted to a vote of the stockholders. Holders of the
Class B Common Stock are entitled to ten votes per share on all matters
submitted to a vote of the stockholders. The votes of holders of Class A Common
Stock and Class B Common Stock will be counted together for all purposes,
including any increase or decrease in the number of authorized shares of Class A
Common Stock or Class B Common Stock, unless the matter to be voted on would
increase or decrease the par value of such class or alter or change the powers,
preferences or special rights of the shares of such class so as to affect it
adversely. As a result of this difference in voting rights, the holders of Class
B Common Stock will effectively maintain voting control of the Company, except
in limited circumstances.
Dividend Rights. Neither the Class A Common Stock nor the Class B Common
Stock has any right to receive dividends unless and until such dividends are
declared by the Board of Directors out of funds legally available therefor.
Subject to any dividend rights of the Preferred Stock, when and if the Board of
Directors declares a dividend on Common Stock payable other than in shares of
capital stock of the Company or in rights to acquire such capital stock, holders
of Class B Common Stock will not be entitled to any such dividend until the
holders of the Class A Common Stock have received a dividend in such year equal
to $0.02 per share. Thereafter, all such dividends declared on Class A Common
Stock and Class B Common Stock shall be paid at an equal per-share rate. The
Company has not paid any cash dividends since its inception and does not
anticipate paying cash dividends in the foreseeable future. The Company
currently intends to retain available future earnings to finance the operations
of the business.
33
<PAGE> 37
PREFERRED STOCK
Series A Preferred Stock and Series B Preferred Stock.
No shares of Series A Preferred Stock or Series B Preferred Stock are
currently outstanding. The Series A Preferred Stock and Series B Preferred Stock
were designated by the Board of Directors in connection with the Company's
stockholder rights plans. The Series A Preferred Stock is issuable upon the
exercise of certain currently unexercisable purchase rights, which rights are
attached to and trade with the outstanding shares of Class A Common Stock.
Similarly, the Series B Preferred Stock is issuable upon the exercise of certain
currently unexercisable purchase rights, which rights are attached to and trade
with the outstanding shares of Class B Common Stock. Because of the voting,
dividend and liquidation rights of each series of Preferred Stock described
below, the value of a one-thousandth interest in one share of Series A Preferred
Stock or a one-thousandth interest in one share of Series B Preferred Stock
should approximate the value of one share of Class A Common Stock or Class B
Common Stock, respectively. The Preferred Stock purchase rights, and the
conditions upon which they detach from the Common Stock and become exercisable,
are discussed in detail in "-- Certain Anti-Takeover Effects -- Stockholder
Rights Plans."
Except as set forth below, the Series A Preferred Stock and Series B
Preferred Stock are substantially identical. Upon issuance of Preferred Stock,
the holders thereof, together with the holders of Common Stock, may take action
by written consent in accordance with Delaware law, but will not have the right
to cumulate votes in connection with the election of directors. The Preferred
Stock has no preemptive, conversion or other subscription rights and there are
no redemption or sinking fund provisions applicable to the Preferred Stock.
There are no restrictions on the transferability of the Preferred Stock, except
for such restrictions as may be entered into by the holders thereof
contractually, or may be imposed on the holders thereof by applicable law.
Voting Rights. Holders of the Series A Preferred Stock are entitled to
1,000 votes per share on all matters submitted to a vote of the stockholders.
Holders of the Series B Preferred Stock are entitled to 10,000 votes per share
on all matters submitted to a vote of the stockholders. The votes of holders of
Series A Preferred Stock and Series B Preferred Stock will be counted together
with the votes of the Common Stock for all purposes, unless the matter to be
voted on would increase or decrease the par value of such series or alter or
change the powers, preferences or special rights of the shares of such series so
as to affect it adversely.
Dividend Rights. Each share of Series A Preferred Stock is entitled to a
dividend equal to 1,000 times any dividend declared per share of Class A Common
Stock. Each share of Series B Preferred Stock is entitled to a dividend equal to
1,000 times any dividend declared per share of Class B Common Stock.
Liquidation Rights. In the event of a liquidation, dissolution or winding
up of the Company holders of Series A Preferred Stock are entitled to receive
1,000 times any amount payable to the Class A Common Stock, while holders of
Series B Preferred Stock are entitled to receive 1,000 times any amount payable
to the Class B Common Stock, plus, in each case, any accrued but unpaid
dividends. As is the case for the Common Stock, a sale of all or substantially
all of the Company's assets or a merger in which the stockholders of the Company
immediately prior to the merger own less than a majority of the voting power of
the surviving entity following the entity will be treated as a liquidation,
dissolution or winding up of the Company.
Undesignated Preferred Stock
Pursuant to the Company's Certificate of Incorporation, the Board of
Directors has the authority, without further action by the stockholders, to
issue the remaining 4,745,000 undesignated shares of Preferred Stock in one or
more series and to fix the designations, powers, preferences and privileges, and
relative participating, optional or special rights and the qualifications,
limitations or restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption and liquidation preferences, any or
all of which may be greater than the rights of the Common stock, the Series A
Preferred Stock or the Series B Preferred Stock. The Board of Directors, without
stockholder approval, can issue Preferred Stock with voting, conversion or other
rights that could adversely affect the voting power and other rights of holders
of Common Stock, the Series A Preferred Stock or the Series B Preferred Stock.
Preferred Stock could thus be issued quickly with terms calculated to delay or
prevent a change in control of the Company or make removal of management
34
<PAGE> 38
more difficult. Additionally, the issuance of Preferred Stock may have the
effect of decreasing the market price of either or both classes of Common Stock.
At present, there are no shares of Preferred Stock outstanding and the Company
has no plans to issue any of the Preferred Stock, except as described above. See
"-- Series A Preferred Stock and Series B Preferred Stock."
REGISTRATION RIGHTS
Certain stockholders of the Company (the "Registration Rights Holders"),
including certain of the Selling Stockholders, have contractual rights with
respect to registration under the Securities Act of up to 3,513,000 shares of
the Company's Class A Common Stock and 3,513,000 shares of the Company's Class B
Common Stock held by them. Specifically, under certain circumstances, the
Company is obligated to file registration statements on Form S-3 at the
Company's expense, and certain of the Registration Rights Holders have
"piggyback" registration rights, which allow them to include their shares in
registered offerings effected by the Company for its own account or for the
account of other security holders. The Selling Stockholders and the Company's
officers and directors have agreed to a lock-up expiring 180 days following
effectiveness of the offering made hereby with respect to the portion of their
respective holdings not being offered hereby. The exercise by the Selling
Stockholders of their respective registration rights or other sale by the
Selling Stockholders or officers or directors of the Company of their respective
holdings following the expiration of such 180-day period could have an adverse
impact on the market for shares of the Company's Class A Common Stock or Class B
Common Stock.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is NorWest
Shareowner Services of Minnesota.
CERTAIN ANTI-TAKEOVER EFFECTS
Two Classes of Common Stock. The Company recently reclassified its Common
Stock as Class B Common Stock, with ten votes per share, and authorized the new
Class A Common Stock, with one vote per share, to provide greater flexibility to
issue Common Stock without substantial diminution of the voting power of the
existing stockholders. The Reclassification could also result in certain
anti-takeover effects because the Class B Common Stock effectively controls all
matters subject to stockholder vote, and the Gupta Family controls
approximately % of the Class B Common Stock. New issuances of Class A Common
Stock, including the offering made hereby, will not substantially reduce the
voting control of the Gupta Family, the Board and management. As a result, the
Reclassification might reduce the possibility of the stockholders receiving and
accepting hostile takeover bids, which are often made at premiums over
then-current market prices of the target company's stock. The Reclassification
may also render more difficult or discourage mergers, proxy contests, removal of
current management or other changes in control of the Company that may be
desired by substantial holders of the Company's equity securities, particularly
if their holdings are primarily Class A Common Stock.
Stockholder Rights Plans. The Board recently adopted a stockholder rights
plan with respect to its Class B Common Stock and intends to adopt a second
stockholder rights plan with respect to its Class A Common Stock (together, the
"Rights Plans"). Pursuant to the Rights Plans, the Board declared a dividend
distribution of Series B Preferred Stock purchase rights to the holders of the
Class B Common Stock (the "Series B Rights"), and intends to declare a dividend
distribution of Series A Preferred Stock purchase rights to the holders of the
Class A Common Stock (the "Series A Rights," or together with the Series B
Rights, the "Rights"). The Series A Rights and Series B Rights trade with shares
of the Company's Class A Common Stock and Class B Common Stock, respectively,
and have no impact on the way the Company's shares are traded. The Rights are
not exercisable until ten days after a person or group (other than present
holders of more than 15% of the Company's voting stock, including the Company's
Chairman, Vinod Gupta, or members of his family (the "Gupta Family")) announces
acquisition of 15% or more of the Company's outstanding voting stock or the
commencement of a tender offer which would result in ownership of the person or
group of 15% or more of the outstanding voting stock.
35
<PAGE> 39
Once a person or group (the "Acquiring Person") acquires 15% or more of the
Company's voting stock, including the Class A Common Stock as Class B Common
Stock together (a "Trigger Event"), each Series A Right or Series B Right not
owned by the Acquiring Person will entitle its holder to purchase, at such
Right's then current exercise price, that number of shares of Class A Common
Stock or Class B Common Stock, respectively, of the Company (or, in certain
circumstances as determined by the Board, cash, other property or other
securities) having a market value at that time of twice such Right's exercise
price. If, after the tenth day following acquisition by such Acquiring Person of
15% or more of the Company's voting stock, the Company sells more than 50% of
its assets or earning power or is acquired in a merger or other business
combination transaction, the Acquiring Person must assume the obligations under
the Rights and the Rights will become exercisable to acquire common stock of the
Acquiring Person at the discounted price. The Rights are redeemable at the
Company's option for $0.001 per Right at any time on or prior to public
announcement that a Person has acquired beneficial ownership of 15% or more of
the Company's voting stock.
The Rights are designed to protect and maximize the value of stockholders'
interests in the Company in the event of an unsolicited takeover attempt through
such methods as a gradual accumulation of shares in excess of 15% of the
outstanding stock followed by a two-tier tender offer or other tactics that do
not treat all shareholders equally. The Rights Plan is not intended to prevent a
takeover, but instead to protect stockholders from the abusive and coercive
tactics that often occur in takeover attempts. These tactics may unfairly
pressure stockholders, deprive them of the full value of their shares, or
squeeze them out of their investment without giving them any real choice.
Classified Board of Directors. The Company's Certificate of Incorporation
currently provides for three classes of directors, each with three-year terms.
The term of one class of Directors terminates at each annual meeting of
stockholders. As a result, stockholders desiring to replace the incumbent
directors and gain control of the Board would be required to win at least two
annual contests before their nominees constituted a majority of directors.
Super-majority Required to Amend Certificate of Incorporation. The
Company's Certificate of Incorporation provides that the affirmative vote of the
holders of at least 60% of the shares entitled to vote, voting together as a
single class, is required to amend provisions of the Certificate of
Incorporation. These provisions of the Certificate of Incorporation could
discourage potential acquisition proposals and could delay or prevent a change
in control of the Company.
Section 203 of the Delaware General Corporation Law. Finally, because the
Company has not by a provision in its Certificate of Incorporation elected
otherwise, it is subject to Section 203 of the Delaware General Corporation Law
("Section 203"), which imposes certain restrictions, described below, on
"business combinations" with an "interested stockholder" that could produce
anti-takeover effects in certain circumstances. Section 203 defines a business
combination to include: (i) any merger or consolidation involving the
corporation and the interested stockholder; (ii) any sale, transfer, pledge or
other disposition involving the interested stockholder of 10% or more of the
assets of the corporation; (iii) subject to certain exceptions, any transaction
which results in the issuance or transfer by the corporation of any stock of the
corporation to the interested stockholder; (iv) any transaction involving the
corporation which has the effect of increasing the proportionate share of the
stock of any class or series of the corporation beneficially owned by the
interested stockholder; or (v) the receipt by the interested stockholder of the
benefit of any loans, advances, guarantees, pledges or other financial benefits
provided by or through the corporation. In general, Section 203 defines an
"interested stockholder" as any entity or person beneficially owning 15% or more
of the outstanding voting stock of the corporation and any entity or person
affiliated with or controlling or controlled by such entity or person.
Subject to certain exceptions, Section 203 prohibits a Delaware corporation
from engaging in any business combination with any interested stockholder for a
period of three years following the time that such stockholder became an
interested stockholder, unless (i) prior to such time, the board of directors of
the corporation approved either the business combination or the transaction
which resulted in the stockholder becoming an interested stockholder, (ii) upon
consummation of the transaction which resulted in the stockholder becoming an
interested stockholder, the interested stockholder owned at least 85% of the
voting
36
<PAGE> 40
stock of the corporation outstanding at the time the transaction commenced (not
counting those shares owned by directors who are also officers and by employee
stock plans in which employee participants do not have the right to determine
confidentially whether shares held subject to the plan will be tendered in a
tender or exchange offer), or (iii) at or subsequent to such time, the business
combination is approved by the board of directors and authorized at an annual or
special meeting of stockholders, and not by written consent, by the affirmative
vote of at least 66 2/3% of the outstanding voting stock which is not owned by
the interested stockholder.
37
<PAGE> 41
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below, through their Representatives, Hambrecht & Quist LLC,
ABN AMRO Chicago Corporation and BT Alex. Brown Incorporated, have severally
agreed to purchase from the Company and the Selling Stockholders the following
respective number of shares of Class A Common Stock.
<TABLE>
<CAPTION>
NUMBER OF
NAME SHARES
-------------------------------------------------------------------------- ---------
<S> <C>
Hambrecht & Quist LLC.....................................................
ABN AMRO Chicago Corporation..............................................
BT Alex. Brown Incorporated...............................................
---------
Total........................................................... 8,500,000
========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent, including the absence
of any material adverse change in the Company's business and the receipt of
certain certificates, opinions and letters from the Company, its counsel and
independent auditors. The nature of the Underwriters' obligation is such that
they are committed to purchase all shares of Class A Common Stock offered hereby
if any of such shares are purchased.
The Underwriters propose to offer the shares of Class A Common Stock
directly to the public at the offering price set forth on the cover of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow and such dealers may reallow a
concession not in excess of $ per share to certain other dealers. After
the public offering of the shares, the offering price and other selling terms
may be changed by the Underwriters.
The Company has granted to the Underwriters an option, exercisable no later
than 30 days after the date of this Prospectus, to purchase up to 1,275,000
additional shares of Class A Common Stock at the public offering price, less the
underwriting discount, set forth on the cover page of this Prospectus. To the
extent that the Underwriters exercise this option, each of the Underwriters will
have a firm commitment to purchase approximately the same percentage thereof
that the number of shares of Class A Common Stock to be purchased by it shown in
the above table bears to the total number of shares of Class A Common Stock
offered hereby. The Company will be obligated, pursuant to the option, to sell
such shares to the Underwriters to the extent the option is exercised. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of shares of Class A Common Stock offered hereby.
The offering of the shares is made for delivery when, as and if accepted by
the Underwriters and subject to prior sale and to withdrawal, cancellation or
modification of the offering without notice. The Underwriters reserve the right
to reject an order for the purchase of shares in whole or in part.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act and to contribute to payments the Underwriters may be required to
make in respect thereof.
The Selling Stockholders and a director have agreed that they will not,
without the prior written consent of Hambrecht & Quist LLC, sell, offer,
contract to sell, make any short sale, pledge, sell any option or contract to
purchase, purchase any option or contract to sell, grant any option, right or
warrant to purchase or otherwise transfer or dispose of any shares of Common
Stock or any securities convertible into or exchangeable or exercisable for or
any rights to purchase or acquire Common Stock or enter into any swap or other
agreement that transfers, in whole or in part, any of the economic consequences
or ownership of Common Stock owned by them during the 180-day period following
the date of this Prospectus.
38
<PAGE> 42
In general, the rules of the Commission will prohibit the Underwriters from
making a market in the Company's Common Stock during the "cooling off" period
immediately preceding the commencement of sales in the offering. The Commission
has, however, adopted exemptions from these rules that permit passive market
making under certain conditions. These rules permit an underwriter to continue
to make a market subject to the conditions, among others, that its bid not
exceed the highest bid by a market maker not connected with the offering and
that its net purchases on any one trading day not exceed prescribed limits.
Pursuant to these exemptions, certain Underwriters, selling group members or
their respective affiliates intend to engage in passive market making in the
Company's Common Stock during the cooling off period.
Hambrecht & Quist LLC and ABN AMRO Chicago Corporation each make a market
in the Company's Common Stock and expect to make markets in the Company's Class
A Common Stock and Class B Common Stock following the Reclassification and the
Stock Dividend. Within the last 12 months, Hambrecht & Quist LLC also provided
advisory services to the Company regarding capital structure, acquisition
opportunities and financing strategies for which it was paid customary fees. In
addition, ABN AMRO Chicago Corporation and BT Alex. Brown provided advisory
services to the Company regarding actual and potential acquisitions for which
they have received or will receive customary fees.
LEGAL MATTERS
The validity of the Common Stock offered hereby will be passed upon for the
Company and the Selling Stockholders by Wilson Sonsini Goodrich & Rosati,
Professional Corporation, Palo Alto, California. Certain legal matters will be
passed upon for the Underwriters by Cooley Godward LLP, Palo Alto and San
Francisco, California.
EXPERTS
The consolidated financial statements of the Company at December 31, 1995
and 1996, and June 30, 1997 and for each of the three years in the period ended
December 31, 1996 and the six months ended June 30, 1997, appearing in this
Prospectus and Registration Statement have been audited by Coopers & Lybrand
L.L.P., independent auditors, as set forth in their reports thereon appearing
elsewhere herein and are included in reliance upon such reports, given upon the
authority of such firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, Judiciary Plaza,
450 Fifth Street, N.W., Washington, D.C. 20549, and at the Commission's
following Regional Offices: Suite 1400, Northwest Atrium Center, 500 West
Madison Street, Chicago, Illinois 60661; and 13th Floor, Seven World Trade
Center, New York, New York 10048. Copies of such material can be obtained at
prescribed rates from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549. The Company's
Common Stock is quoted for trading on the Nasdaq National Market and reports,
proxy statements and other information concerning the Company may also be
inspected at the offices of the National Association of Securities Dealers, 1735
K Street, N.W., Washington, D.C. 20006.
Additional information regarding the Company and the shares offered hereby
is contained in the Registration Statement on Form S-3 and the exhibits thereto
filed with the Commission under the Securities Act of 1933, as amended (the
"Securities Act"). For further information pertaining to the Company and the
shares, reference is made to the Registration Statement and the exhibits
thereto, which may be inspected without charge at, and copies thereof may be
obtained at prescribed rates from, the office of the Commission at 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
39
<PAGE> 43
The Commission maintains a World Wide Web site that contains reports, proxy
and information statements and other information regarding registrants that file
electronically with the Commission. The address of the site is
http://www.sec.gov.
INFORMATION INCORPORATED BY REFERENCE
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1996, as amended, the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1997, as amended, the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1997, the Company's Current Report on Form
8-K dated February 28, 1997, as amended, the Company's Current Report on Form
8-K dated August 5, 1997, the Company's Current Report on Form 8-K dated
September 8, 1997, the Company's Current Report on Form 8-K dated October 3,
1997, the description of the Company's Class A Common Stock contained in the
Company's registration statement on Form 8-A dated October 3, 1997, the
description of the Company's Class B Common Stock contained in the Company's
Registration Statement on Form 8-A dated October 18, 1991, 1992, as amended, the
description of the Company's Series A Preferred Stock Purchase Rights contained
in the Company's Registration Statement on Form 8-A dated October 3, 1997 and
the description of the Company's Series B Preferred Stock Purchase Rights
contained in the Company's registration statement on Form 8-A dated August 6,
1997, as amended, filed by the Company with the Commission are hereby
incorporated by reference in this Prospectus except as superseded or modified
herein. All documents filed by the Company with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Prospectus and prior to the termination of the offering of the shares offered
hereby shall be deemed to be incorporated by reference into this Prospectus and
to be a part hereof from the date of filing of such documents. Any statement
contained in any document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any such statement so
modified or superseded shall not be deemed, except as modified or superseded, to
constitute a part of this Prospectus. The Company will provide without charge to
each person, including any beneficial owner, to whom this Prospectus is
delivered, upon written or oral request of such person, a copy of any and all of
the documents that have been or may be incorporated by reference herein (other
than exhibits to such documents that are not specifically incorporated by
reference into such documents). Such requests should be directed to the
Company's Secretary at the Company's principal executive offices at 5711 South
86th Circle, Omaha, Nebraska 68127 (telephone (402) 593-4500).
40
<PAGE> 44
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
American Business Information, Inc. and Subsidiaries:
Report of Independent Accountants.................................................. F-2
Consolidated Balance Sheets as of December 31, 1995, 1996 and June 30, 1997........ F-3
Consolidated Statements of Operations for the Years Ended December 31, 1994, 1995
and 1996, and for the Six Month Periods Ended June 30, 1996 (unaudited) and
1997............................................................................ F-4
Consolidated Statements of Stockholders' Equity for the Periods Ended December 31,
1994, 1995, 1996 and June 30, 1997.............................................. F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 1994, 1995
and 1996, and for the Six Month Periods Ended June 30, 1996 (unaudited) and
1997............................................................................ F-6
Notes to Consolidated Financial Statements......................................... F-7
</TABLE>
F-1
<PAGE> 45
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
American Business Information, Inc.:
We have audited the consolidated balance sheets of American Business
Information, Inc. and subsidiaries as of December 31, 1995 and 1996 and June 30,
1997 and the related consolidated statements of operations, changes in
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1996 and the six months ended June 30, 1997. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of American
Business Information, Inc. and subsidiaries as of December 31, 1995 and 1996,
and June 30, 1997, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 1996,
and the six months ended June 30, 1997 in conformity with generally accepted
accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
------------------------------------
COOPERS & LYBRAND L.L.P.
Omaha, Nebraska
September 19, 1997
F-2
<PAGE> 46
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ --------
<S> <C> <C> <C>
Current assets:
Cash and cash equivalents................................................. $ 11,999 $ 7,497 $ 7,863
Marketable securities..................................................... 23,350 22,810 22,237
Trade accounts receivable, net of allowances of $1,824, $2,724, and
$3,168, respectively.................................................... 18,552 29,630 44,236
Income taxes receivable................................................... 984 1,105 634
Prepaid expenses.......................................................... 1,733 3,267 3,345
Deferred income taxes..................................................... 129 -- --
Deferred marketing costs.................................................. 996 1,263 629
------------ ------------ --------
Total current assets................................................ 57,743 65,572 78,944
------------ ------------ --------
Property and equipment, net................................................. 13,885 18,886 23,580
Net assets of business transferred under contractual arrangement............ 2,972 -- --
Intangible assets, net of accumulated amortization.......................... 14,642 17,410 55,600
Deferred income taxes....................................................... -- 5,388 --
Other assets................................................................ 1,999 621 2,758
------------ ------------ --------
$ 91,241 $107,877 $160,882
============ ============ ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................................... $ 969 $ 708 $ 576
Note payable to shareholders.............................................. -- 7,925 --
Accounts payable.......................................................... 4,255 5,520 5,206
Accrued payroll expenses.................................................. 5,267 2,352 3,425
Accrued expenses.......................................................... 239 711 3,885
Deferred revenue.......................................................... 1,650 2,117 1,445
Deferred income taxes..................................................... -- 512 3,488
------------ ------------ --------
Total current liabilities........................................... 12,380 19,845 18,025
------------ ------------ --------
Long-term debt, net of current portion...................................... 1,070 427 63,659
Deferred income taxes....................................................... 1,707 -- 2,500
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.0025 par value. Authorized 5,000,000 shares; none
issued or outstanding................................................... -- -- --
Common stock, $.0025 par value. Authorized 75,000,000 shares; 20,776,860
shares issued and outstanding at December 31, 1995, 22,265,960 shares
issued and 22,100,960 shares outstanding at December 31, 1996, and
24,524,082 shares issued and 24,359,082 shares outstanding at June 30,
1997.................................................................... 51 55 61
Paid-in capital........................................................... 27,342 37,268 67,458
Retained earnings......................................................... 48,937 52,942 8,656
Treasury stock, at cost, 0 shares held at December 31, 1995, and 165,000
shares held at December 31, 1996 and June 30, 1997...................... -- (2,281) (2,281)
Unrealized holding gain (loss), net of tax................................ (246) (379) 2,804
------------ ------------ --------
Total stockholders' equity.......................................... 76,084 87,605 76,698
------------ ------------ --------
$ 91,241 $107,877 $160,882
============ ============ ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 47
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED ENDED
------------------------------------------ ----------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 JUNE 30, 1997
------------ ------------ ------------ 1996 --------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net sales............................ $ 69,603 $ 86,766 $108,298 $49,110 $ 88,956
Costs and expenses:
Database and production costs...... 18,153 23,999 29,272 12,928 24,526
Selling, general and
administrative.................. 28,249 37,724 45,766 20,265 38,065
Depreciation and amortization...... 3,125 3,469 4,855 2,329 15,412
One-time charges................... -- -- 21,500 -- 51,798
------------ ------------ ------------ ----------- --------
49,527 65,192 101,393 35,522 129,801
------------ ------------ ------------ ----------- --------
Operating income (loss).............. 20,076 21,574 6,905 13,588 (40,845)
Other income (expense):
Investment income.................. 1,109 1,322 3,194 1,045 1,558
Interest expense................... (247) (157) (209) (33) (1,475)
Other.............................. -- -- (943) -- --
------------ ------------ ------------ ----------- --------
Income (loss) before income taxes and
discontinued operation............. 20,938 22,739 8,947 14,600 (40,762)
Income taxes......................... 7,710 8,421 3,400 5,515 3,524
------------ ------------ ------------ ----------- --------
Income (loss) from continuing
operations......................... 13,228 14,318 5,547 9,085 (44,286)
Loss on discontinued operation....... (404) (2,317) (355) -- --
Loss from abandonment of
subsidiary......................... -- -- (1,373) -- --
------------ ------------ ------------ ----------- --------
Net income (loss).................... $ 12,824 $ 12,001 $ 3,819 $ 9,085 $(44,286)
========== ========== ========== ========= ========
Earnings per share:
Income (loss) from continuing
operations...................... $ 0.64 $ 0.69 $ 0.26 $ 0.44 $ (1.86)
Loss on discontinued operation and
abandonment of subsidiary....... (0.02) (0.11) (0.08) -- --
------------ ------------ ------------ ----------- --------
Net income (loss).................. $ 0.62 $ 0.58 $ 0.18 $ 0.44 $ (1.86)
========== ========== ========== ========= ========
Weighted average shares
outstanding........................ 20,678 20,738 21,033 20,792 23,776
========== ========== ========== ========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 48
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995, AND 1996
AND THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
NET UNREALIZED TOTAL
COMMON PAID-IN RETAINED TREASURY HOLDING STOCKHOLDERS'
STOCK CAPITAL EARNINGS STOCK GAIN (LOSS) EQUITY
------ ------- -------- -------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1993........ $ 34 $26,519 $ 24,112 $ -- $ -- $ 50,665
Issuance of 6,750 shares of common
stock............................ -- 54 -- -- -- 54
Unrealized holding loss, net of
tax.............................. -- -- -- -- (217) (217)
Net income......................... -- -- 12,824 -- -- 12,824
------ ------- -------- -------- ----------- -------------
Balances, December 31, 1994........ 34 26,573 36,936 -- (217) 63,326
Issuance of 94,125 shares of common
stock............................ -- 786 -- -- -- 786
Unrealized holding loss, net of
tax.............................. -- -- -- -- (29) (29)
3 for 2 stock split................ 17 (17) -- -- -- --
Net income......................... -- -- 12,001 -- -- 12,001
------ ------- -------- -------- ----------- -------------
Balances, December 31, 1995........ 51 27,342 48,937 -- (246) 76,084
Issuance of 1,220,975 shares of
common stock..................... 3 9,628 -- -- -- 9,631
Issuance of 560,000 shares of
common stock in
pooling-of-interests
transaction...................... 1 86 186 -- -- 273
Tax benefit related to employee
stock options.................... -- 212 -- -- -- 212
Acquisition of treasury stock...... -- -- -- (2,281) -- (2,281)
Unrealized holding loss, net of
tax.............................. -- -- -- -- (133) (133)
Net income......................... -- -- 3,819 -- -- 3,819
------ ------- -------- -------- ----------- -------------
Balances, December 31, 1996........ 55 37,268 52,942 (2,281) (379) 87,605
Issuance of 2,258,122 shares of
common stock..................... 6 29,858 -- -- -- 29,864
Tax benefit related to employee
stock options.................... -- 332 -- -- -- 332
Unrealized holding gain, net of
tax.............................. -- -- -- -- 3,183 3,183
Net loss........................... -- -- (44,286) -- -- (44,286)
------ ------- -------- -------- ----------- -------------
Balances, June 30, 1997............ $ 61 $67,458 $ 8,656 $ (2,281) $ 2,804 $ 76,698
====== ======= ======== ======= ========= ==========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE> 49
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE SIX MONTHS
FOR THE YEARS ENDED ENDED
------------------------------------------ ----------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30,
1994 1995 1996 JUNE 30, 1997
------------ ------------ ------------ 1996 --------
-----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $ 12,824 $ 12,001 $ 3,819 $ 9,085 $(44,286)
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization.................. 3,125 3,469 4,855 2,329 15,412
Deferred income taxes.......................... 574 662 (6,307) 1,538 (1,879)
Impairment of other assets..................... -- 630 740 -- --
Loss on discontinued operation and abandonment
of subsidiary................................ -- 1,833 2,788 -- --
Net realized (gains) losses on sale of
marketable securities and other
investments.................................. -- 339 (1,267) (93) (866)
One-time charges............................... -- -- 21,500 -- 49,200
Changes in assets and liabilities, net of
effect of acquisitions:
Trade accounts receivable.................... (2,166) (4,108) (7,762) (333) (1,501)
Prepaid expenses............................. 211 (796) (1,117) (810) 631
Deferred marketing costs..................... -- (996) (267) (1,305) 634
Accounts payable............................. 615 2,480 (1,422) (912) (2,022)
Income taxes receivable and payable.......... 573 (1,330) (128) 407 471
Accrued expenses............................. 2,330 1,635 (3,111) (3,892) (6,378)
------------ ------------ ------------ ----------- --------
Net cash provided by operating
activities.............................. 18,086 15,819 12,321 6,014 9,416
Cash flows from investing activities:
Proceeds from sales of marketable securities...... 15,248 15,787 18,865 3,230 16,728
Purchases of marketable securities................ (15,316) (24,792) (17,348) (4,755) (10,303)
Purchase of other investments..................... -- -- -- -- (2,000)
Purchases of property and equipment............... (3,580) (3,554) (6,755) (2,787) (5,356)
Acquisitions of businesses, including minority
interest....................................... (8,246) (1,174) (6,484) -- (59,806)
Consumer database costs........................... -- -- (494) (356) (1,340)
Software development costs........................ -- (512) (1,955) (980) (972)
Other............................................. (500) (660) 347 (400) 13
------------ ------------ ------------ ----------- --------
Net cash used in investing activities..... (12,394) (14,905) (13,824) (6,048) (63,036)
Cash flows from financing activities:
Repayment of long-term debt....................... (5,566) (3,192) (1,450) (897) (1,857)
Proceeds from long-term debt...................... 4,800 -- -- -- 63,000
Deferred financing costs.......................... -- -- -- -- (250)
Repayment of note payable to shareholders......... -- -- -- -- (7,925)
Acquisition of treasury stock..................... -- -- (2,281) -- --
Proceeds from exercise of stock options........... 54 786 520 293 686
Tax benefit related to employee stock options..... -- -- 212 -- 332
------------ ------------ ------------ ----------- --------
Net cash provided by (used in) financing
activities.............................. (712) (2,406) (2,999) (604) 53,986
Net increase (decrease) in cash and cash
equivalents....................................... 4,980 (1,492) (4,502) (638) 366
Cash and cash equivalents, beginning................ 8,511 13,491 11,999 11,999 7,497
------------ ------------ ------------ ----------- --------
Cash and cash equivalents, ending................... $ 13,491 $ 11,999 $ 7,497 $11,361 $ 7,863
========== ========== ========== ========= ========
Supplemental cash flow information:
Interest paid..................................... $ 259 $ 165 $ 78 $ 33 $ 1,550
========== ========== ========== ========= ========
Income taxes paid................................. $ 6,328 $ 8,226 $ 8,280 $ 2,894 $ 4,517
========== ========== ========== ========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE> 50
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) GENERAL
American Business Information, Inc. (ABI) and its subsidiaries, (the
Company), provides business and consumer marketing information products and data
processing services throughout the United States and Canada. These products
include customized business lists, business directories and other information
services.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
All information pertaining to the six months ended June 30, 1996 are
unaudited and management believes that all adjustments, which are all of a
normal recurring nature, that are necessary to a fair presentation of the
results of operations and cash flows for the six months ended June 30, 1996 have
been made.
Use of Estimates and Assumptions: The preparation of financial statements
in conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Principles of Consolidation: The consolidated financial statements include
the accounts of ABI and its subsidiaries. Intercompany accounts and transactions
have been eliminated.
Revenue Recognition: The Company recognizes revenue from the sale of
product or license of information at the time of delivery. A portion of the
revenue is deferred and recognized over the license term when the Company is
required to provide updated information. Allowance is made currently for
estimated returns and for estimated uncollectable amounts. Actual experience has
been within management's expectations.
Database Costs: Costs to maintain and enhance the Company's business
database are expensed as incurred. Costs to develop new databases are
capitalized and amortized upon the successful completion of the compilation
project, over a period not to exceed 1 year. The Company is currently
capitalizing costs associated with a compilation project to create a new
consumer database. Costs incurred as of December 31, 1996 and June 30, 1997
related to the database compilation effort totaled approximately $494 thousand
and $1.8 million, respectively, and are included in intangible assets in the
accompanying consolidated balance sheets.
Advertising Costs: Certain direct-response advertising costs are
capitalized and amortized over periods that correspond to the estimated revenue
stream of the individual advertising activity. All other advertising costs are
expensed as the advertising takes place. Total unamortized marketing costs at
December 31, 1995 and 1996, and June 30, 1997, was $1.0 million, $1.3 million,
and $629 thousand, respectively. Total advertising expense for the years ended
December 31, 1994, 1995, and 1996 was $8.6 million, $10.8 million, and $11.0
million, respectively. Total advertising expense for the six month periods ended
June 30, 1996 and 1997, was $5.2 million and $6.2 million, respectively.
Software Capitalization: Until technological feasibility is established,
software development costs are expensed as incurred. After that time, direct
costs are capitalized and amortized using the straight-line method over the
estimated economic life, generally one to four years. Unamortized software costs
included in intangible assets at December 31, 1995 and 1996, and June 30, 1997,
was $431 thousand, $1.4 million, and $1.8 million, respectively. Amortization of
capitalized costs during the years ended December 31, 1995 and 1996 totaled
approximately $81 thousand, and $1.0 million, respectively. Amortization of
capitalized costs during the six month periods ended June 30, 1996 and 1997 was
$237 thousand and $1.3 million, respectively.
Income taxes: The Company recognizes income taxes using the liability
method, under which deferred tax assets and liabilities are determined based on
the difference between financial and tax bases of assets and liabilities using
enacted tax rates.
F-7
<PAGE> 51
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Earnings Per Share: Earnings per share are based on the weighted average
number of common shares outstanding. Common equivalent shares arise as a result
of stock options and have not been included in the calculation since their
dilutive effect is less than 3%.
Financial Accounting Standards No. 128, Earnings Per Share, (FASB 128) was
issued in February 1997 and is effective for financial statements issued for
fiscal periods ending after December 15, 1997. The standard revises the
calculation and presentation of earnings per share and requires the presentation
of "basic earnings per share" and "diluted earnings per share." Management
believes the amount reported as earnings per share in the accompanying income
statement would approximate basic earnings per share under FASB 128 and that
diluted earnings per share would be less than 3% dilutive.
Invested Cash: Cash equivalents,consisting of highly liquid debt
instruments that are readily convertible to known amounts of cash and when
purchased have an original maturity of three months or less, are carried at cost
which approximates fair value. Marketable securities have been classified as
available-for-sale and are therefore carried at fair value, which are estimated
based on quoted market prices. Net unrealized gains and losses are reported as a
separate component of stockholders' equity. Unrealized and realized gains and
losses are determined by specific identification.
Property and Equipment: Property and equipment (including equipment
acquired under capital leases) are stated at cost and are depreciated or
amortized primarily using straight-line methods over the estimated useful lives
of the assets, as follows:
<TABLE>
<S> <C>
Buildings and improvements...................................... 30 years
Office furniture and equipment.................................. 5 to 7 years
Computer equipment.............................................. 5 years
Capitalized equipment leases.................................... 5 years
</TABLE>
Intangibles: Intangible assets are stated at cost and are amortized using
the straight-line method over the estimated useful lives of the assets, as
follows:
<TABLE>
<S> <C>
Goodwill................................................ 8 to 15 years
Distribution networks................................... 2 years
Noncompete agreements................................... Term of agreements
Purchased data processing software...................... 2 years
Acquired database costs................................. 1 year
Software development costs.............................. 1 to 4 years
</TABLE>
In 1996, the Company shortened the lives for goodwill and distribution
networks in recognition of more rapid changes in the businesses acquired to 8
years and 2 years, respectively. Prior to 1996, goodwill and distribution
networks were amortized over 30 and 15 years, respectively.
All of the Company's long-lived assets are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. If the sum of the expected future cash flows is less than the
carrying amount of the asset, a loss is recognized.
Reclassifications: Certain reclassifications were made to the 1994, 1995
and 1996 financial statements to conform to the 1997 presentation.
(3) ACQUISITIONS
Effective March 1994, the Company acquired certain assets from Business
Mailers, Inc. (BMI) for total consideration of $5.8 million which was accounted
for under the purchase method of accounting. The
F-8
<PAGE> 52
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Company allocated substantially all of the purchase price to a distribution
network which was amortized over its estimated useful life.
Effective August 1994, the Company acquired certain assets of Zeller &
Letica (Z&L) and Nationwide Mail Marketing (NMM) for total consideration of $2.4
million which was accounted for under the purchase method of accounting.
Substantially all of the purchase price was allocated to a distribution network
and amortized over its estimated useful life.
Effective August 1996, the Company acquired certain assets and assumed
certain liabilities of Digital Directory Assistance, Inc. (DDA), a publisher of
PhoneDisc CD-ROM products. The total purchase price, subject to adjustment, was
estimated to be approximately $17.1 million of which $4.0 million was paid in
September 1996, $7.9 million in the form of a promissory note issued to the
sellers paid in January 1997, and the remaining amount through the issuance of
600,000 unregistered shares of the Company's common stock. The acquisition was
accounted for under the purchase method of accounting. In addition to purchased
in-process research and development costs of $10 million (See Note 16), goodwill
recorded as part of the purchase was $9.9 million, which is being amortized over
8 years.
Effective November 1996, the Company acquired the common stock of County
Data Corporation (CDC), a national new business database compiler. Total
consideration for the acquisition was 560,000 unregistered shares of the
Company's common stock. The acquisition was accounted for under the
pooling-of-interests method of accounting. The accompanying consolidated
financial statements have not been restated to reflect this acquisition, as the
net sales and net income of CDC were not significant for the periods presented.
Effective November 1996, the Company acquired certain assets and assumed
certain liabilities of Marketing Data Systems, Inc. (MDS), a provider of data
warehousing, research and analysis services for target marketing applications to
Fortune 1000 companies. Total consideration for the acquisition was $2.4
million, consisting of $1.0 million in cash and 118,000 unregistered shares of
the Company's common stock. The acquisition has been accounted for under the
purchase method of accounting. Substantially all of the purchase price was
allocated to goodwill which is being amortized over 8 years.
Effective December 1996, the Company acquired all of the Common Stock of
Kadobec Investments, Inc., (operating as B.J. Hunter), which provides lead
generation products in Canada. Total consideration for the acquisition was $3.1
million, consisting of $876 thousand in cash and 150,000 unregistered shares of
the Company's common stock. The acquisition has been accounted for under the
purchase method of accounting. The Company allocated substantially all of the
purchase price to goodwill which is being amortized over 8 years.
Effective February 1, 1997, the Company acquired all issued and outstanding
common stock of DBA Holdings, Inc. and Subsidiaries (operating as Database
America Companies, or DBA), a provider of data processing and analytical
services for marketing applications, and compiler of information on consumers
and businesses in the United States. Total consideration for the acquisition was
approximately $100 million, consisting of $60 million in cash, funded using a
revolving credit facility (See Note 7), and approximately 2.2 million
unregistered shares of the Company's common stock. The acquisition has been
accounted for under the purchase method of accounting. In addition to purchased
in-process research and development costs of $49.2 million (See Note 16),
intangibles and goodwill recorded as part of the purchase included acquired
database costs of $19.0 million, purchased data processing software of $9.4
million, noncompete agreements of $1.7 million and goodwill of $16.7 million.
Goodwill is being amortized over 15 years.
Operating results for each of these acquisitions are included in the
accompanying consolidated statements of operations from the respective
acquisition dates. Assuming the above described companies had been
F-9
<PAGE> 53
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
acquired on January 1, of the year preceding the acquisition, unaudited pro
forma consolidated revenues, net income (loss) and net income (loss) per share
would have been as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
------------ ------------ ------------ -------- --------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
Net sales........................ $ 72,749 $101,404 $172,624 $ 81,273 $ 93,019
Net income (loss)................ $ 13,316 $ 9,564 $ (3,217) $ 4,023 $ 14,614
Net income (loss) per share...... $ 0.64 $ 0.43 $ (0.13) $ 0.18 $ 0.60
</TABLE>
The pro forma information provided above does not purport to be indicative
of the results of operations that would actually have resulted if the
acquisitions were made as of those dates or of results which may occur in the
future.
(4) MARKETABLE SECURITIES
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GROSS GAIN GROSS LOSS VALUE
--------- ---------- ---------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
At December 31, 1995
Municipal bonds.......................... $12,027 $ 68 $ (55) $12,040
U.S. government and agency............... 1,513 46 -- 1,559
Corporate bonds.......................... 7,189 114 (5) 7,298
Common stock............................. 1,148 11 (248) 911
Preferred stock.......................... 1,804 4 (266) 1,542
--------- ---------- ---------- -------
$23,681 $ 243 $ (574) $23,350
======= ======== ======== =======
At December 31, 1996
Municipal bonds.......................... $11,450 $ 35 $ (132) $11,353
U.S. government and agency............... 808 7 (5) 810
Corporate bonds.......................... 5,751 17 (58) 5,710
Common stock............................. 5,365 18 (496) 4,887
Preferred stock.......................... 47 3 -- 50
--------- ---------- ---------- -------
$23,421 $ 80 $ (691) $22,810
======= ======== ======== =======
At June 30, 1997
Municipal bonds.......................... $ 685 $ -- $ -- $ 685
Corporate bonds.......................... 2,665 -- (55) 2,610
Common stock............................. 14,317 5,571 (984) 18,904
Preferred stock.......................... 47 -- (9) 38
--------- ---------- ---------- -------
$17,714 $5,571 $ (1,048) $22,237
======= ======== ======== =======
</TABLE>
Scheduled maturities of marketable debt securities at June 30, 1997, are as
follows:
<TABLE>
<CAPTION>
LESS THAN ONE TO FIVE TO MORE THAN
1 YEAR 5 YEARS 10 YEARS 10 YEARS
--------- ------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Municipal bonds............................. $ -- $ 178 $ -- $ 507
Corporate bonds............................. 1,121 1,489 -- --
--------- ------- -------- ---------
$ 1,121 $ 1,667 $ -- $ 507
======= ====== ====== ========
</TABLE>
F-10
<PAGE> 54
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
For the year ended December 31, 1995, proceeds from sales of marketable
securities approximated $15.8 million while realized gains totaled $747 thousand
and realized losses totaled $1.1 million. For the year ended December 31, 1996,
proceeds approximated $18.9 million while realized gains totaled $1.6 million
and realized losses totaled $343 thousand. For the six month periods ended June
30, 1996 and 1997, proceeds approximated $3.2 million and $16.7 million,
respectively, while realized gains totaled $202 thousand and $925 thousand,
respectively, and realized losses totaled $109 thousand and $59 thousand,
respectively.
(5) PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Land and improvements.............................. $ 1,032 $ 1,220 $ 1,701
Buildings and improvements......................... 7,157 9,084 11,476
Furniture and equipment............................ 15,439 21,597 24,520
Capitalized equipment leases....................... 1,437 1,437 2,014
------------ ------------ --------
25,065 33,338 39,711
Less accumulated depreciation and amortization:
Owned property................................... 11,036 14,188 15,639
Capitalized equipment leases..................... 144 264 492
------------ ------------ --------
Property and equipment, net................... $ 13,885 $ 18,886 $ 23,580
========== ========== =======
</TABLE>
The Company is currently constructing an additional facility in Papillion,
Nebraska, near the existing Company headquarter location. The estimated cost of
the project is $8 million and is anticipated to be completed in mid 1998. The
Company anticipates funding the project with cash flows from operations and a
revolving credit facility.
Under the terms of its capital lease agreements, the Company is required to
pay ownership costs, including taxes, licenses and maintenance. The Company also
leases office space under operating leases expiring at various dates through
February, 2005. Certain of these leases contain renewal options. Rent expense
was $603 thousand, $593 thousand, and $952 thousand in the years ended December
31, 1994, 1995 and 1996, respectively, and $374 thousand and $1.1 million for
the six month periods ended June 30, 1996 and 1997, respectively.
(6) INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Goodwill......................................... $ 6,331 $ 19,093 $ 37,792
Distribution networks............................ 11,871 -- --
Noncompete agreements............................ 150 -- 1,725
Purchased data processing software............... -- -- 9,400
Acquired database costs.......................... -- -- 19,000
Consumer database costs.......................... -- 494 1,834
Software development costs....................... 512 1,955 2,503
------------ ------------ --------
18,864 21,542 72,254
Less accumulated amortization.................... 4,222 4,132 16,654
------------ ------------ --------
$ 14,642 $ 17,410 $ 55,600
========== ========== =======
</TABLE>
F-11
<PAGE> 55
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) FINANCING ARRANGEMENTS
Long-term debt consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Uncollateralized bank revolving line of credit,
provides for maximum borrowings of $75 million
at June 30, 1997. Facility provides for
borrowings with interest at bank's base rate or
LIBOR plus 0.375%-0.625%, based on the
Company's funded debt ratio. The rate in effect
at June 30, 1997 was 6.1875%. Principal is due
February 2000. Interest is payable at the
earliest of the end of each applicable interest
period or quarterly. In August 1997, available
borrowings under the facility was increased to
$100 million................................... $ -- $ -- $ 60,000
Uncollateralized bank revolving line of credit,
provides for maximum borrowings of $5 million.
Facility provides for borrowings with interest
at bank's LIBOR plus 2.150% The rate in effect
at June 30, 1997 was 7.85%. Principal is due
January 2000. Interest is payable monthly...... -- -- 3,000
Bank note, repaid in March 1996.................. 687 -- --
Bank note assumed in acquisition, repaid in
January 1997................................... -- 225 --
Computer lease obligations (See Note 5).......... 1,352 910 1,235
------------ ------------ --------
2,039 1,135 64,235
Less current portion............................. 969 708 576
------------ ------------ --------
Long-term debt................................. $1,070 $ 427 $ 63,659
========== ========== =======
</TABLE>
Future maturities by calendar year of long-term debt as of June 30, 1997
are as follows:
<TABLE>
<S> <C>
Remainder of 1997.................................. $ 301
1998............................................... $ 613
1999............................................... $ 235
2000............................................... $63,086
</TABLE>
The Company is subject to certain financial covenants on the $75 million
revolving credit facility, including maximum funded debt ratio, minimum interest
coverage ratio, and minimum tangible net worth tests. Additionally, the Company
is required to pay an annual commitment fee on the average unused amount of the
facility, ranging from 0.15%-0.25% based on the Company's funded debt ratio.
F-12
<PAGE> 56
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Following is a schedule of the future minimum lease payments as of June 30,
1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Remainder of 1997................................................ $ 316 $ 1,130
1998............................................................. 637 2,046
1999............................................................. 243 1,521
2000............................................................. 87 654
2001............................................................. -- 259
2002............................................................. -- 90
------- ---------
Total future minimum lease payments.............................. $ 1,283 $ 5,700
=======
Less amounts representing interest............................... 48
-------
Present value of net minimum lease payments...................... $ 1,235
======
</TABLE>
(8) INCOME TAXES
The provision for income taxes on continuing operations consists of the
following:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED SIX MONTHS ENDED
-------------------------------------------- --------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
------------ ------------ ------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Current:
Federal.................... $6,559 $7,101 $ 8,782 $3,661 $ 4,923
State...................... 577 658 925 316 480
------------ ------------ ------------ -------- --------
7,136 7,759 9,707 3,977 5,403
------------ ------------ ------------ -------- --------
Deferred:
Federal.................... 443 615 (6,159) 1,416 (1,731)
State...................... 131 47 (148) 122 (148)
------------ ------------ ------------ -------- --------
574 662 (6,307) 1,538 (1,879)
------------ ------------ ------------ -------- --------
$7,710 $8,421 $ 3,400 $5,515 $ 3,524
========== ========== ========== ====== =======
</TABLE>
Loss on discontinued operation and abandonment of subsidiary is presented
net of income tax benefits of $235 thousand in 1994, $1.3 million in 1995 and
$1.1 million in 1996.
F-13
<PAGE> 57
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The effective income tax rate varied from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
FOR THE
FOR THE YEARS ENDED SIX MONTHS ENDED
------------------------------------------ -------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1994 1995 1996 1996 1997
------------ ------------ ------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Tax provision computed at
statutory rate of 35%......... $7,328 $7,959 $3,131 $5,110 $(14,267)
State taxes, net................ 418 401 530 285 216
Amortization of nondeductible
intangibles................... -- -- 29 -- 293
In-process research and
development................... -- -- -- -- 17,220
Nondeductible expense,
nontaxable income and other... (36) 61 (290) 120 62
------------ ------------ ------------ -------- --------
$7,710 $8,421 $3,400 $5,515 $ 3,524
========== ========== ========== ====== ========
</TABLE>
The components of the net deferred tax asset (liability) were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30,
1995 1996 1997
------------ ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Deferred tax assets:
Marketable securities.......................... $ 85 $ 232 $ --
Intangible assets.............................. -- 5,758 --
Accrued vacation............................... 185 291 301
Accrued expenses............................... 409 369 --
Accounts receivable............................ 389 317 560
Other assets................................... 239 521 --
Other.......................................... 208 -- --
------------ ------------ --------
1,515 7,488 861
------------ ------------ --------
Deferred tax liabilities:
Intangible assets.............................. (1,439) -- (1,375)
Marketable securities.......................... -- -- (1,719)
Depreciation................................... (801) (824) (972)
Prepaid expenses and other..................... (853) (1,788) (2,783)
------------ ------------ --------
(3,093) (2,612) (6,849)
------------ ------------ --------
Net deferred tax asset (liability)............... $ (1,578) $ 4,876 $ (5,988)
========== ========== =======
</TABLE>
No valuation allowance has been recorded against net deferred tax assets
since management believes future taxable income will more likely than not be
sufficient to realize such assets.
F-14
<PAGE> 58
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(9) STOCK INCENTIVES
The Company has a stock option plan under which, as of June 30, 1997, a
total of 5.0 million shares of the Company's common stock have been reserved for
issuance to officers, key employees and non-employee directors.
Options are generally granted at the stock's fair market value on the date
of grant, vest generally over a four or five year period and expire five or six
years, respectively, from date of grant. Options issued to shareholders holding
10% or more of the Company's stock are generally issued at 110% of the stock's
fair market value on the date of grant and vest over periods ranging from five
to six years with early vesting if certain financial goals are met. Certain
options issued to directors at the stock's fair market value vested immediately
and expire five years from grant date. The Company has adopted the
disclosure-only provisions of Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation". Accordingly, no compensation
cost has been recognized for the stock option plan. Had compensation cost for
the Company's stock option plan been determined based on the fair value at the
grant date for awards issued in or subsequent to 1995 consistent with the
provisions of SFAS No. 123, the Company's net income (loss) and earnings (loss)
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31, JUNE 30, JUNE 30,
1995 1996 1996 1997
------------ ------------ -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Net income (loss) -- as reported......... $ 12,001 $3,819 $9,085 $(44,286)
Net income (loss) -- pro forma........... $ 11,779 $3,072 $8,560 $(44,909)
Earnings (loss) per share -- as
reported............................... $ 0.58 $ 0.18 $ 0.44 $ (1.86)
Earnings (loss) per share -- pro forma... $ 0.57 $ 0.15 $ 0.41 $ (1.89)
</TABLE>
The above pro forma results are not likely to be representative of the
effects on reported net income for future years since options vest over several
years and additional awards generally are made each year.
The fair value of the weighted average of each year's option grants is
estimated as of the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions used for grants in 1995, 1996
and 1997: dividend yield of 0%; expected volatility of 15.52% (1995 and 1996)
and 16.18% (1997); risk free interest rate based on the U.S. Treasury strip
yield at the date of grant; and expected lives of 4.0 or 5.0 years for options
other than those issued to 10% or more shareholders for which the expected lives
were equal to the vesting periods of 5 to 6 years.
F-15
<PAGE> 59
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1995, the Company agreed to repurchase, at fair market value,
291,875 shares of common stock from a former officer of the Company for $3.1
million. The charge of $3.1 million is reflected as selling, general and
administrative expense in the accompanying 1995 consolidated statement of
operations. The actual shares were repurchased and retired in 1996.
<TABLE>
<CAPTION>
DECEMBER 31, 1994 DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- ------------------ ------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE EXERCISE AVERAGE EXERCISE AVERAGE EXERCISE
----------------- ------------------ ------------------
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ----- --------- ------ --------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of
period........................ 694,500 $8.28 1,094,250 $ 8.65 1,456,875 $10.97
Granted......................... 436,500 $9.18 498,000 $15.38 1,982,000 $16.37
Exercised....................... (6,750) $7.94 (94,125) $ 8.36 (352,975) $ 8.63
Forfeited/Expired............... (30,000) $8.13 (41,250) $ 8.45 (484,000) $12.00
--------- ----- --------- ------ --------- ------
Outstanding end of period....... 1,094,250 $8.65 1,456,875 $10.97 2,601,900 $15.16
======== ===== ======== ====== ======== ======
Options exercisable at end of
period........................ 189,000 $8.23 378,750 $10.99 292,525 $11.07
======== ===== ======== ====== ======== ======
Shares available for options
that may be granted........... 805,750 443,125 1,398,100
======== ======== ========
Weighted-average grant date fair
value of options, granted
during the period -- exercise
price equals stock market
price at grant................ $ 3.82 $ 3.99
====== ======
Weighted-average grant date fair
value of options granted
during the period -- exercise
price exceeds stock market
price at grant................ $ 4.19
======
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996 JUNE 30, 1997
------------------ ------------------
WEIGHTED WEIGHTED
AVERAGE EXERCISE AVERAGE EXERCISE
------------------ ------------------
SHARES PRICE SHARES PRICE
--------- ------ --------- ------
<S> <C> <C> <C> <C>
Outstanding beginning of period.................. 1,456,875 $10.97 2,601,900 $15.16
Granted.......................................... 1,125,000 $16.80 595,000 $21.45
Exercised........................................ (325,950) $ 8.65 (77,375) $ 8.86
Forfeited/Expired................................ (483,250) $12.01 (29,375) $17.86
--------- ------ --------- ------
Outstanding end of period........................ 1,772,675 $14.81 3,090,150 $16.55
======== ====== ======== ======
Options exercisable at end of period............. 223,825 $10.50 474,650 $13.29
======== ====== ======== ======
Shares available for options that may be
granted........................................ 2,227,325 1,909,850
======== ========
Weighted-average grant date fair value of
options, granted during the period -- exercise
price equals stock market price at grant....... $ 3.97 $ 6.05
====== ======
Weighted-average grant date fair value of options
granted during the period -- exercise price
exceeds stock market price at grant............ $ 4.19
======
</TABLE>
F-16
<PAGE> 60
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The following table summarizes information about stock options outstanding
at June 30,1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
--------------------------------------- OPTIONS EXERCISABLE
WEIGHTED- ------------------------
AVERAGE WEIGHTED- WEIGHTED-
REMAINING AVERAGE AVERAGE
NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
------------------------------- ----------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$7.59 to $9.50................. 234,650 1.8 years $ 8.81 145,400 $ 8.66
$11.00 to $14.50............... 613,500 3.7 years $ 13.22 87,500 $ 11.78
$15.50 to $18.75............... 1,685,000 4.4 years $ 17.15 241,750 $ 16.61
$20.75 to $22.75............... 557,000 5.3 years $ 21.64 -- $ --
----------- --------- ----------- ---------
$7.59 to $22.75................ 3,090,150 $ 16.55 474,650 $ 13.29
========= ======= ======== =======
</TABLE>
(10) SAVINGS PLAN
Employees who meet certain eligibility requirements can participate in the
Company's 401(k) Savings and Investment Plan. Under the plan, the Company may,
at its discretion, match a percentage of the employee contributions. The Company
recorded expenses related to its matching contributions of $71 thousand, $80
thousand and $115 thousand in the years ended December 31, 1994, 1995 and 1996,
respectively, and $55 thousand and $437 thousand for the six month periods ended
June 30, 1996 and 1997, respectively.
(11) RELATED PARTY TRANSACTIONS
Included in other assets at December 31, 1995, December 31, 1996, and June
30, 1997, are investments of $1.3 million, $571 thousand, and $486 thousand,
respectively, in two companies that were partially owned by certain members of
the Board of Directors of the Company at the time the investments were made. At
June 30, 1997, the investments include $415 thousand in Trident Capital Partners
CSG Acquisition Fund, L.P. and $71 thousand in IDE Corporation. The Company owns
less than 10% of either company and accounts for these investments on the cost
method.
The Company paid $280 thousand, $148 thousand, and $48 thousand in 1994,
1995 and 1996, respectively, and $24 thousand for each of the six month periods
ended June 30, 1996 and 1997, to Annapurna Corporation for consulting services
and related expenses in connection with acquisition activity conducted by the
Company. Annapurna Corporation is 100% owned by a significant stockholder. The
Company also paid $156 thousand in the year ended December 31, 1996, and $48
thousand and $125 thousand for the six month periods ended June 30, 1996 and
1997, to a Director of the Company for consulting services in connection with
acquisition activity conducted by the Company.
The Company utilizes a law firm of which one member of the Board of
Directors is a partner to the firm. Legal fees paid to the law firm totaled $69
thousand, $115 thousand, and $91 thousand in the years ended December 31, 1994,
1995 and 1996, respectively, and $81 thousand and $47 thousand for the six month
periods ended June 30, 1996 and 1997, respectively.
(12) DISCONTINUED OPERATIONS
On June 1, 1995, the Company transferred substantially all of the assets
and liabilities of its wholly-owned subsidiary, American Business
Communications, Inc. ("ABC") to a wholly-owned subsidiary of Baker University.
The Company received $3.0 million in the form of a 7.52% non-recourse promissory
note, due in equal monthly installments through 2005. The note is listed as "net
assets of business transferred under contractual arrangement" on the
accompanying consolidated balance sheet since it is non-recourse to Baker
University. ABC recorded net sales of $6.7 million and $2.9 million during 1994
and 1995, respectively.
F-17
<PAGE> 61
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
During 1996, Baker University defaulted on the note and the Company
abandoned any remaining net assets of the business. As a result, the Company
recorded a loss from abandonment of subsidiary of $1.4 million, net of tax.
(13) SUPPLEMENTAL CASH FLOW INFORMATION
The Company made certain acquisitions in 1994, 1996 and 1997 (See Note 3)
and assumed liabilities as follows:
<TABLE>
<CAPTION>
1994 1996 1997
------- ------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Fair value of assets................................. $ 9,333 $28,107 $114,280
Cash paid............................................ (8,246) (6,484) (59,806)
Promissory note issued............................... -- (7,925) --
Common stock issued.................................. -- (9,382) (29,178)
------- ------- --------
Liabilities assumed.................................. $ 1,087 $ 4,316 $ 25,296
======= ======= ========
</TABLE>
In conjunction with the transfer of ABC in 1995, approximately $6.8 million
of assets, less liabilities of $1.0 million, were exchanged for a $3.0 million
note receivable. As a result, the Company recognized an impairment of $1.8
million net of a tax benefits, which is included in loss on discontinued
operations.
During 1997, the Company acquired computer equipment totaling $577 thousand
under a capital lease obligation (See Note 5).
(14) FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments approximates
their estimated fair value at June 30, 1997. The fair value of cash and cash
equivalents was based on the carrying value of such assets. The estimated fair
value of marketable securities were based on quoted market prices. The fair
value of notes receivable and long-term debt, including capital lease
obligations, were estimated based on discounted cash flows using market rates at
the balance sheet date. The use of discounted cash flows can be significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. The derived fair value estimates cannot be substantiated by
comparison to independent markets and, in many cases, could not be realized in
immediate settlement of the instrument.
(15) CONTINGENCIES
The Company and its subsidiaries are involved in legal proceedings, claims
and litigation arising in the ordinary course of business. Management believes
that any resulting liability should not materially affect the Company's
financial position, results of operations, or cash flows.
(16) ONE-TIME CHARGES
As part of the acquisition of DDA in August 1996 (See Note 3), the Company
recorded one-time charges for purchased in-process research and development
costs totaling $10 million for write-offs in conjunction with the merger of DDA,
which related to projects that had not met technological feasibility.
Additionally in 1996, the Company recorded a one-time charge totaling $11.5
million due to the change in estimated useful lives based on management's
evaluation of the remaining lives of certain intangibles related to acquisitions
prior to 1995.
As part of the acquisition of DBA in February 1997 (See Note 3), the
Company recorded one-time charges totaling $51.8 million for write-offs in
conjunction with the merger of DBA for purchased in-process
F-18
<PAGE> 62
AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
research and development costs which related to projects that had not met
technological feasibility ($49.2 million), as well as other related integration
and organizational restructuring costs ($2.6 million).
(17) SUBSEQUENT EVENT
Effective August 1997, the Company acquired certain assets and assumed
certain liabilities of Pro CD, Inc. (Pro CD). from Acxiom Corporation (Acxiom),
a provider of telephone directory and other business software products on CD-ROM
to consumers. The acquisition will be accounted for as a purchase. Total
consideration for the acquisition was $18 million in cash, funded using a
revolving credit facility (See Note 7). In conjunction with the acquisition of
Pro CD, the Company entered into a Data License Agreement with Acxiom in which
Acxiom will pay to the Company $8 million over a two year period. Additionally,
the Company entered into a Technology License Agreement with Acxiom in which the
Company will pay to Acxiom $8 million over a two year period.
(18) PENDING STOCK SPLIT
The Company's Board of Directors has approved the reclassification of the
existing common stock as Class B Common Stock and the authorization of a new
Class A Common Stock. Subject to shareholder approval authorizing the
reclassification, the number of authorized shares of Class A Common Stock will
be 220 million and the number of authorized shares of Class B Common Stock will
be 75,000,000. Upon completion of the reclassification the Board plans to
declare a stock split, effected in the form of a two-for-one stock dividend of
one share of Class A Common Stock for each share of Class B Common Stock then
outstanding. Had the stock split occurred January 1, 1994, net income (loss) per
common share would have been $.31, $.29 and $.09, for the years ended December
31, 1994, 1995 and 1996 respectively and $.22 and $(.93) for the six months
ended June 30, 1996 and 1997 respectively.
F-19
<PAGE> 63
======================================================
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING
STOCKHOLDERS OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER
TO SELL OR A SOLICITATION OF AN OFFER TO BUY TO ANY PERSON IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL OR TO ANY PERSON TO WHOM
IT IS UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY OFFER OR SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 1
Risk Factors.......................... 4
Use of Proceeds....................... 9
Price Range of Common Stock and
Dividend Policy..................... 10
Capitalization........................ 11
Selected Financial Data............... 12
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 14
Business.............................. 20
Management............................ 28
Principal and Selling Stockholders.... 31
Description of Capital Stock.......... 33
Underwriting.......................... 38
Legal Matters......................... 39
Experts............................... 39
Available Information................. 39
Incorporation Incorporated by
Reference........................... 40
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
======================================================
======================================================
8,500,000 SHARES
[LOGO]
CLASS A COMMON STOCK
-----------------------
PROSPECTUS
-----------------------
HAMBRECHT & QUIST
ABN AMRO
CHICAGO CORPORATION
BT ALEX. BROWN
, 1997
======================================================
<PAGE> 64
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the various expenses incurred or to be
incurred in connection with the sale and distribution of the securities being
registered, other than underwriting discounts and commissions. All of the
amounts shown are estimates except the Securities and Exchange Commission
registration and NASD filing fees.
<TABLE>
<S> <C>
Securities and Exchange Commission registration fee............... $ 42,000
NASD filing fee................................................... $ 14,308
Nasdaq listing fee................................................ $ 17,500
Accounting fees and expenses...................................... $110,000
Legal fees and expenses........................................... $225,000
Printing and engraving............................................ $150,000
Blue Sky fees and expenses (including counsel fees)............... $ 5,000
Transfer agent, registrar, and custodian fees and expenses........ $ 15,000
Miscellaneous expenses............................................ $ 21,192
--------
Total........................................................... $600,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to permit such indemnification under
certain circumstances for liabilities (including reimbursement for expenses
incurred) arising under the Securities Act of 1933, as amended. Article XIII of
the Company's Certificate of Incorporation (Exhibit 3.1) and Article VIII of the
Company's Bylaws (Exhibit 3.2 hereto) provide for indemnification of the
Company's directors and officers to the maximum extent permitted by the Delaware
General Corporation Law. The Company has also entered into contracts in the form
attached hereto as Exhibit 99.1 with each officer and director, providing for
the indemnification of such persons for losses and claims incurred as a result
of their position as officer or director. Reference is also made to Section 7(b)
of the Underwriting Agreement (Exhibit 1.1 hereto) indemnifying officers and
directors of the Company against certain liabilities.
ITEM 16. EXHIBITS
The following exhibits are filed herewith or incorporated by reference
herein:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------------- -----------------------------------------------------------------------------
<C> <S>
1.1 -- Form of Underwriting Agreement, to be filed by amendment.
2.1 -- Asset Purchase Agreement between the Company and Digital Directory
Assistance, Inc. is incorporated herein by reference to exhibits filed
with registrant's current report on Form 8-K dated September 10, 1996.
2.2 -- Agreement and Plan of Reorganization between the Company and the
Shareholders of County Data Corporation is incorporated herein by
reference to exhibits filed with Company's Annual Report on Form 10-K for
the Fiscal Year Ended December 31, 1996, filed with the Commission on
March 31, 1997.
2.3 -- Agreement and Plan of Reorganization between the Company and the
Shareholders of 3319971 Canada Inc. is incorporated herein by reference to
exhibits filed with Company's Annual Report on Form 10-K for the Fiscal
Year Ended December 31, 1996, filed with the Commission on March 31, 1997.
</TABLE>
II-1
<PAGE> 65
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- --------------- -----------------------------------------------------------------------------
<C> <S>
2.4 -- Agreement and Plan of Reorganization between the Company and the
shareholders of Marketing Data Systems, Inc. to be filed by amendment.
2.5 -- Agreement and Plan of Reorganization between the Company and the
Shareholders of DBA Holdings, Inc. is incorporated herein by reference to
exhibits filed with registrant's current report on Form 8-K dated February
28, 1997.
2.6 -- Agreement and Plan of Reorganization between the Company and the
Shareholders of Pro CD, Inc. is incorporated herein by reference to
exhibits filed with registrant's current report on Form 8-K dated
September 25, 1997.
3.1 -- Certificate of Incorporation, as amended through September 5, 1996 is
incorporated herein by reference to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1996, filed with the
Commission on March 31, 1997.
3.2 -- Bylaws are incorporated herein by reference to the Company's Registration
Statement on Form S-1 (File No. 33-42887), which became effective February
18, 1992.
3.3 -- Form of Amendment to Certificate of Incorporation to be filed with the
Delaware Secretary of State on or after October 3, 1997, subject to
stockholder approval.
3.4 -- Certificate of Designation of Rights, Preferences, and Privileges of
Series A Participating Preferred Stock is incorporated herein by reference
to the Company's registration statement on Form 8-A (File No. 97-652508),
filed on August 6, 1997.
3.5 -- Form of Amended and Restated Certificate of Designation of Participating
Preferred Stock, to be filed in Delaware on or after October 3, 1997,
subject to stockholder approval of Exhibit 3.3 to be filed by amendment.
4.1 -- Rights Plan for Class A Common, to be filed by amendment.
4.2 -- Rights Plan for Class B Common to be filed by amendment.
4.3 -- Specimen of Class A Common Stock Certificate, to be filed by amendment.
5.1 -- Opinion of Wilson Sonsini Goodrich & Rosati, P.C., regarding certain legal
matters, to be filed by amendment.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Wilson Sonsini Goodrich & Rosati, P.C. (See Exhibit 5.1 above)
24.1 -- Power of Attorney is contained on the signature pages of this Registration
Statement.
99.1 -- Form of Director and Officer Indemnification Agreement, to be filed by
amendment.
</TABLE>
ITEM 17. UNDERTAKINGS
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the provisions described under Item 15 above, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
II-2
<PAGE> 66
The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement: (i) to
include any prospectus required by Section 10(a)(3) of the Securities Act;
(ii) to reflect in the prospectus any facts or events arising after the
effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information in the Registration
Statement. Notwithstanding the foregoing, any increase or decrease in
volume of securities offered (if the total dollar value of securities
offered would not exceed that which was registered) and any deviation from
the low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Commission pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the effective
Registration Statement; and (iii) to include any material information with
respect to the plan of distribution not previously disclosed in the
Registration Statement or any material change to such information in the
Registration Statement; provided, however, that (i) and (ii) do not apply
if the information required to be included in a post-effective amendment
thereby is contained in periodic reports filed with or furnished to the
Commission by the Registrant pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the Registration
Statement.
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or Section 15(d) of the Exchange Act that is incorporated by
reference in this Registration Statement shall be deemed to be a new
Registration Statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
(5) That for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be
part of this registration statement as of the time it was declared
effective.
(6) That for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE> 67
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Omaha, State of Nebraska, on the 26th day of
September 1997.
AMERICAN BUSINESS INFORMATION, INC.
By: /s/ JON H. WELLMAN
------------------------------------
Jon H. Wellman
President and Chief Operating
Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each individual whose signature appears
below constitutes and appoints Jon H. Wellman and Steven Purcell, jointly and
severally, his true and lawful attorneys-in-fact and agents, each with the power
of substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Registration Statement on Form S-3, and to file the same,
with all exhibits thereto and all other documents in connection therewith, with
the Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in connection therewith,
as fully to all intents and purposes as he might or could do in person, hereby
ratifying and confirming all that said attorneys-in-fact and agents, or any of
them, or his or their substitute or substitutes, may lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------------- ------------------------------- -------------------
<C> <S> <C>
/s/ VINOD GUPTA Chairman of the Board and September 26, 1997
- ---------------------------------------------- Chief Executive Officer
Vinod Gupta (principal executive officer)
/s/ JON H. WELLMAN President, Chief Operating September 26, 1997
- ---------------------------------------------- Officer, and Director
Jon H. Wellman
/s/ STEVEN PURCELL Chief Financial Officer and September 26, 1997
- ---------------------------------------------- Secretary (principal financial
Steven Purcell and accounting officer)
Director September 26, 1997
- ----------------------------------------------
Jon D. Hoffmaster
/s/ GAUTAM GUPTA Director September 26, 1997
- ----------------------------------------------
Gautam Gupta
/s/ ELLIOT S. KAPLAN Director September 26, 1997
- ----------------------------------------------
Elliot S. Kaplan
/s/ HAROLD ANDERSEN Director September 26, 1997
- ----------------------------------------------
Harold Andersen
</TABLE>
II-4
<PAGE> 68
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ---------------------------------------------- ------------------------------- -------------------
<C> <S> <C>
/s/ GEORGE F. HADDIX Director September 26, 1997
- ----------------------------------------------
George F. Haddix
/s/ GEORGE J. KUBAT Director September 26, 1997
- ----------------------------------------------
George J. Kubat
Director September 26, 1997
- ----------------------------------------------
Paul A. Goldner
</TABLE>
II-5
<PAGE> 69
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE PAGE
- --------------- ------------------------------------------------------------------------- ----
<C> <S> <C>
1.1 -- Form of Underwriting Agreement, to be filed by amendment.
2.1 -- Asset Purchase Agreement between the Company and Digital Directory
Assistance, Inc. is incorporated herein by reference to exhibits filed
with registrant's current report on Form 8-K dated September 10, 1996.
2.2 -- Agreement and Plan of Reorganization between the Company and the
Shareholders of County Data Corporation is incorporated herein by
reference to exhibits filed with Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1996, filed with the Commission
on March 31, 1997.
2.3 -- Agreement and Plan of Reorganization between the Company and the
Shareholders of 3319971 Canada Inc. is incorporated herein by
reference to exhibits filed with Company's Annual Report on Form 10-K
for the Fiscal Year Ended December 31, 1996, filed with the Commission
on March 31, 1997.
2.4 -- Agreement and Plan of Reorganization between the Company and the
shareholders of Marketing Data Systems, Inc. to be filed by amendment.
2.5 -- Agreement and Plan of Reorganization between the Company and the
Shareholders of DBA Holdings, Inc. is incorporated herein by reference
to exhibits filed with registrant's current report on Form 8-K dated
February 28, 1997.
2.6 -- Agreement and Plan of Reorganization between the Company and the
Shareholders of Pro CD, Inc. is incorporated herein by reference to
exhibits filed with registrant's current report on Form 8-K dated
September 25, 1997.
3.1 -- Certificate of Incorporation, as amended through September 5, 1996 is
incorporated herein by reference to the Company's Annual Report on
Form 10-K for the fiscal year ended December 31, 1996, filed with the
Commission on March 31, 1997.
3.2 -- Bylaws are incorporated herein by reference to the Company's
Registration Statement on Form S-1 (File No. 33-42887), which became
effective February 18, 1992.
3.3 -- Form of Amendment to Certificate of Incorporation to be filed with the
Delaware Secretary of State on or after October 3, 1997, subject to
stockholder approval.
3.4 -- Certificate of Designation of Rights, Preferences, and Privileges of
Series A Participating Preferred Stock is incorporated herein by
reference to the Company's registration statement on Form 8-A (File
No. 97-652508), filed on August 6, 1997.
3.5 -- Form of Amended and Restated Certificate of Designation of
Participating Preferred Stock, to be filed in Delaware on or after
October 3, 1997, subject to stockholder approval of Exhibit 3.3 to be
filed by amendment.
4.1 -- Rights Plan for Class A Common, to be filed by amendment.
4.2 -- Rights Plan for Class B Common to be filed by amendment.
4.3 -- Specimen of Class A Common Stock Certificate, to be filed by
amendment.
5.1 -- Opinion of Wilson Sonsini Goodrich & Rosati, P.C., regarding certain
legal matters, to be filed by amendment.
23.1 -- Consent of Coopers & Lybrand L.L.P.
23.2 -- Consent of Wilson Sonsini Goodrich & Rosati, P.C. (See Exhibit 5.1
above)
24.1 -- Power of Attorney is contained on the signature pages of this
Registration Statement.
99.1 -- Form of Director and Officer Indemnification Agreement, to be filed by
amendment.
</TABLE>
<PAGE> 1
Exhibit 3.3
CERTIFICATE OF AMENDMENT TO CERTIFICATE OF INCORPORATION
OF AMERICAN BUSINESS INFORMATION, INC.
American Business Information, Inc., a corporation organized and existing
under the laws of the State of Delaware (the "Company"), hereby certifies as
follows:
FIRST: The Board of Directors of the Company, at a meeting duly called and
held in accordance with the Bylaws of the Company and Section 141 of the
Delaware General Corporation Law, as amended, duly adopted resolutions
proposing and declaring advisable the amendment to the Certificate of
Incorporation of the Company as set forth below.
SECOND: That Article IV of the Company's Certificate of Incorporation, as
amended to date, is hereby amended in its entirety to read as follows:
"Article IV. AUTHORIZED STOCK.
A. The total number of shares of all classes of capital stock which the
corporation shall have authority to issue is three hundred million
(300,000,000) shares which shall be divided into three classes as follows:
(i) Two Hundred Twenty Million (220,000,000) shares of Class A Common
Stock of the par value of one fourth of one cent ($0.0025) per share;
(ii) Seventy-Five million (75,000,000) shares of Class B Common Stock
of the par value of one fourth of one cent ($0.0025) per share; and
(iii) Five Million (5,000,000) shares of Preferred Stock with a par
value of one fourth of one cent ($0.0025) per share.
Upon this Certificate of Amendment of Certificate of Incorporation
becoming effective pursuant to the General Corporation Law of the State of
Delaware (the "Effective Time"), and without any further action on the part
of the Corporation or its stockholders, each share of the Corporation's Common
Stock, one fourth of one cent ($0.0025) par value, then issued (including
shares held in the treasury of the Corporation), shall be automatically
reclassified, changed and converted into one (1) fully paid and non-assessable
share of Class B Common Stock, one fourth of one cent ($0.0025) par value. Any
stock certificate which, immediately prior to the Effective Time, represents
shares of Common Stock, one fourth of one cent ($0.0025) par value, will, from
and after the Effective Time, automatically and without the necessity of
presenting the same for exchange, represent that number of shares of Class B
Common Stock equal to the number of shares of Common Stock represented by such
certificate prior to the Effective Time. As soon as practicable after the
Effective Time, the corporation's transfer agent shall mail a transmittal
letter to each record holder who then holds shares of Class B Common Stock,
informing such persons of this reclassification with appropriate instructions
on exchanging certificates representing such shares and other relevant matters.
The Class A Common Stock and Class B Common Stock are hereinafter collectively
referred to as the "Common Stock."
The rights, preferences, privileges, restrictions and limitations
pertaining to the Common Stock, subject to applicable law, are set forth in
Section B of this Article IV. The rights, preferences,
-1-
<PAGE> 2
privileges, restrictions and limitations pertaining to the Preferred Stock,
subject to applicable law, are set forth in Article V.
B. COMMON STOCK: Except as set forth expressly in this Section B and to
the fullest extent not otherwise required by applicable law, the Class A Common
Stock and Class B Common Stock shall be identical in every respect.
(i) DIVIDENDS: Subject to all of the rights of any Preferred Stock as
to dividends, holders of shares of Class A Common Stock shall be entitled
to receive, when and as declared by the Board of Directors, out of funds
legally available therefor, dividends at the rate per share of $0.02, per
annum, as adjusted for stock splits, stock dividends, recapitalizations,
and similar events, payable in preference and priority to any payment of
any dividend on the Class B Common Stock of the Corporation (such
preferential dividends, the "Class A Preferential Dividends"). The Class
A Preferential Dividends shall not be cumulative, and no right to such
dividends shall accrue to holders of Class A Common Stock unless declared
by the Board of Directors. No dividends or other distributions shall be
made with respect to the Class B Common Stock in any fiscal year, other
than dividends payable solely in capital stock, until (a) the Class A
Preferential Dividends have been paid to or declared and set apart upon
all shares of Class A Common Stock during that fiscal year, and (b) such
dividend is declared by the Board of Directors. All dividends other than
the Class A Preferential Dividends shall be paid, when, as and if declared
by the Board of Directors, at an equal per-share rate on all
then-outstanding shares of Class A Common Stock and Class B Common Stock.
(ii) VOTING: To the fullest extent not otherwise required by law, the
holder of each share of Class A Common Stock issued and outstanding shall
have one vote with respect to such share and the holder of each share of
Class B Common Stock shall have ten (10) votes with respect to such share,
such votes to be counted together with all other shares of stock of the
Corporation having general voting power and not separately as a class.
Holders of Common Stock shall be entitled to notice of any shareholders'
meeting in accordance with the Bylaws of the Corporation. Pursuant to
Section 242(c) of the General Corporation Law of Delaware, the number of
authorized shares of Class A Common Stock or Class B Common Stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of the
stock of the corporation entitled to vote, voting together as a single
class.
(iii) ALLOCATIONS OF PROCEEDS UPON LIQUIDATION: In the event of any
liquidation, dissolution or winding up of the Corporation (a
"Liquidation Event") the assets or funds of the Corporation legally
available for distribution to its stockholders by reason of their
ownership of the stock of the Corporation shall, subject to all of the
rights of any Preferred Stock to receive assets of the Corporation upon a
Liquidation Event, be distributed as follows: first, the holders of Common
Stock shall be entitled to receive for each outstanding share of Common
Stock then held by them an amount equal to all declared but unpaid
dividends on such share; second, all remaining assets and funds of the
Corporation legally available for distribution to stockholders by reason
of their ownership of stock of the Corporation shall be distributed
ratably among the holders of Common Stock in proportion to the number of
shares of Common Stock held by them. For purposes of
-2-
<PAGE> 3
this paragraph, a merger or consolidation of the Corporation with or into
any other corporation or corporations, or a sale of all or substantially
all of the assets of the Corporation, shall be treated as a liquidation,
dissolution or winding up, unless the stockholders of the Corporation
immediately prior to such transaction hold at least 50% of the outstanding
voting equity securities of the surviving corporation in such merger,
consolidation or sale of assets reorganization.
C. ISSUANCES AND REPURCHASES OF COMMON STOCK: The Board of Directors
shall have the power to issue and sell all or any part of any class of stock
herein or hereafter authorized to such persons, firms, associations or
corporations, and for such consideration as the Board of Directors shall from
time to time, in its discretion, determine, whether or not greater
consideration could be received upon the issue or sale of the same number of
shares of another class, and as otherwise permitted by law. In addition, the
Board of Directors shall have the power to purchase any class of stock herein
or hereafter authorized from such persons, firms, associations or corporations,
and for such consideration as the Board of Directors shall from time to time,
in its discretion, determine, whether or not less consideration could be paid
upon the purchase of the same number of shares of another class, and as
otherwise permitted by law."
THIRD: The undersigned, Jon H. Wellman and Steven Purcell further verify
that:
A. This Amendment to Certificate of Incorporation has been duly
adopted in accordance with Section 242 of the Delaware General
Corporation Law, as amended.
B. Pursuant to a duly adopted resolution of the Board of Directors of
the Company, a special meeting of the stockholders of the Company was
duly called and held, upon notice in accordance with Section 222 of the
Delaware General Corporation Law, as amended, at which meeting holders of
at least sixty percent of the outstanding shares of Common Stock of the
Company, constituting the only outstanding securities of the Company
entitled to vote in respect of the amendment to the Certificate of
Incorporation of the Company as set forth above, duly approved said
amendment.
THE UNDERSIGNED, being the President and Secretary, respectively, of
American Business Information, Inc., do make this Amendment to Certificate of
Incorporation, hereby declaring and certifying that this is an act and deed of
the Company and that the facts herein stated are true, and accordingly have
hereunto set their hands this day of October, 1997.
________________________________
Jon H. Wellman,
President
________________________________
Steven Purcell,
Secretary
-3-
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-3
(File No. ) of our report dated September 19, 1997, on our audits of the
consolidated financial statements of American Business Information, Inc. and
Subsidiaries as of December 31, 1995 and 1996 and June 30, 1997 and for each of
the three years in the period ended December 31, 1996 and the six months ended
June 30, 1997. We also consent to the incorporation by reference in this
registration statement of our report dated January 24, 1997, except for Notes 17
and 18, for which the dates are February 15, 1997 and July 31, 1997,
respectively, on our audits of the consolidated financial statements and
financial statement schedules of American Business Information, Inc. and
Subsidiaries as of December 31, 1996 and 1995, and for each of the three years
in the period ended December 31, 1996, which report is included in the Company's
Annual Report on Form 10-K/A. We also consent to the references to our firm
under the captions "Experts" and "Selected Consolidated Financial Data."
/s/ COOPERS & LYBRAND L.L.P.
------------------------------------
Coopers & Lybrand L.L.P.
Omaha, Nebraska
September 29, 1997
