<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON DECEMBER 15, 1998
REGISTRATION NO. 333-61645
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 1
NOTE EXCHANGE OFFER
ON
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
INFOUSA INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 7331 47-0751545
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NUMBER)
INCORPORATION OR CLASSIFICATION CODE NUMBER)
ORGANIZATION)
</TABLE>
5711 SOUTH 86TH CIRCLE
OMAHA, NEBRASKA 68127
TEL: 402-593-4500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
VINOD GUPTA
CHIEF EXECUTIVE OFFICER
INFOUSA INC.
5711 SOUTH 86TH CIRCLE
OMAHA, NEBRASKA 68127
TEL: 402-593-4500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
FRANCIS S. CURRIE, ESQ.
ANDREW A. HIRSCH, ESQ.
MARTIN A. WELLINGTON, ESQ.
JULIA SCHWARTZMAN, ESQ.
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
TEL: 650-493-9300
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If the only securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
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 WHICH 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
PROSPECTUS
$115,000,000
[INFOUSA LOGO]
OFFER TO EXCHANGE NEW 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008 WHICH HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT FOR ALL OUTSTANDING 9 1/2% SENIOR
SUBORDINATED NOTES DUE 2008.
THE NEW 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008 WILL BE EFFECTIVELY
SUBORDINATE TO ALL OTHER OUTSTANDING INDEBTEDNESS OF INFOUSA INC. AND, EXCEPT
FOR THE NEW CREDIT FACILITY (AS DEFINED BELOW), INFOUSA INC. HAS NOT ISSUED AND
HAS NO CURRENT PLANS, ARRANGEMENTS OR AGREEMENTS TO ISSUE ANY ADDITIONAL
INDEBTEDNESS TO WHICH THE NEW 9 1/2% SENIOR SUBORDINATED NOTES COULD BE JUNIOR,
PARI PASSU, OR SENIOR.
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M. NEW YORK CITY TIME ON
, 1998, UNLESS EXTENDED. THERE WILL BE NO EXTENSION OF THE
EXCHANGE OFFER BEYOND 5:00 P.M. NEW YORK CITY TIME ON , 1998.
infoUSA Inc., formerly known as American Business Information, Inc. (the
"Company"), hereby offers upon the terms and subject to the conditions set forth
in this Prospectus (the "Prospectus") and the accompanying Letter of Transmittal
(the "Letter of Transmittal") (the offering pursuant to the Prospectus together
with the Letter of Transmittal herein the "Exchange Offer") to exchange up to an
aggregate principal amount of $115,000,000 of its New 9 1/2% Senior Subordinated
Notes due 2008 (the "New Notes") for up to an aggregate principal amount of
$115,000,000 of the Company's outstanding 9 1/2% Senior Subordinated Notes due
2008 (the "Existing Notes"). The terms of the New Notes are substantially
identical in all material respects to those of the Existing Notes, except that
the New Notes (i) will have been registered under the Securities Act of 1933, as
amended (the "Securities Act"), and therefore will not be subject to certain
restrictions on transfer applicable to the Existing Notes, and (ii) will not be
entitled to registration or other rights under the Registration Rights Agreement
(as defined), including the provision in the Registration Rights Agreement for
payment of Additional Interest (as defined in the Registration Rights Agreement)
upon failure by the Company to consummate the Exchange Offer or the occurrence
of certain other events. See "Description of Notes." The New Notes will be
issued pursuant to, and the Holders thereof (the "New Holders") will be entitled
to the benefit of, the Indenture (as defined below) governing the Existing
Notes. In the event that the Exchange Offer is consummated, any Existing Notes
which remain outstanding after consummation of the Exchange Offer will vote
together as a single class with the New Notes issued in
the Exchange Offer for purposes of determining whether Holders of the requisite
percentage in outstanding
Continued on following page
This Prospectus and the Letter of Transmittal are first being sent to
Existing Holders on or about , 1998.
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 FOR A DISCUSSION OF CERTAIN FACTORS
WHICH EXISTING HOLDERS SHOULD CONSIDER IN CONNECTION WITH THE EXCHANGE OFFER.
------------------------
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 OR THE LETTER OF TRANSMITTAL. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
, 1998
<PAGE> 3
(Continuation of cover page)
principal amount of Notes (as defined below) have taken certain actions or
exercised certain rights under the Indenture. See "Description of Notes" and
"The Exchange Offer." Holders of Existing Notes are referred to herein as
"Existing Holders," and Existing Holders together with New Holders are referred
to herein collectively as "Holders." The New Notes together with the Existing
Notes are referred to herein collectively as the "Notes." The Indenture dated as
of June 18, 1998 between the Company and State Street Bank and Trust Company of
California, N.A., as Trustee (the "Trustee"), is hereinafter referred to as the
"Indenture." Unless otherwise indicated or defined herein, capitalized terms
followed by the parenthetical remark "(as defined)" shall have the meanings
given to them in the Indenture.
Interest on the Notes will accrue from their date of original issuance (the
"Issue Date") and will be payable semi-annually in arrears on June 15 and
December 15 of each year, commencing on December 15, 1998, at the rate of 9 1/2%
per annum. The Notes will be redeemable, in whole or in part, at the option of
the Company, on or after June 15, 2003, at the redemption prices set forth
herein, plus accrued interest to the date of redemption. In addition, at any
time on or prior to June 15, 2001, the Company, at its option, may redeem up to
35% of the aggregate principal amount of the Notes originally issued with the
net cash proceeds of one or more Equity Offerings (as defined), at the
redemption price equal to 109.500% of the principal amount thereof, plus accrued
interest to the date of redemption; provided, that at least 65% of the aggregate
principal amount of the Notes originally issued plus any additional senior
subordinated notes issued after the Issue Date remains outstanding immediately
following such redemption.
The Notes will be general unsecured senior subordinated obligations of the
Company, will rank junior in right of payment to any Senior Debt (as defined) of
the Company and will be effectively subordinated to all indebtedness and other
obligations of the Company's subsidiaries. The Notes will rank pari passu in
right of payment with any other senior subordinated obligations of the Company
and senior in right of payment to all existing and future subordinated
indebtedness of the Company. As of September 30, 1998, the Company had
approximately $13.6 million of Senior Debt outstanding and the Company's
subsidiaries would have had no outstanding liabilities, other than trade
payables, which would have been effectively senior to the Notes. The Company has
no other indebtedness junior to, pari passu with, or senior to, the Notes and
has no current plans, arrangements or agreements to issue indebtedness junior
to, pari passu with, or senior to, the Notes.
Upon a Change of Control (as defined) each holder of Notes will have the
right to require the Company to repurchase such holder's Notes at a price equal
to 101% of the principal amount thereof, plus accrued and unpaid interest to the
repurchase date. In addition, the Company will be obligated to offer to
repurchase the Notes at 100% of the principal amount thereof plus accrued and
unpaid interest to the date of repurchase in the event of certain Asset Sales
(as defined). See "Description of Notes -- Offer to Purchase upon Change of
Control." If a Change of Control were to occur, there can be no assurance that
the Company would be able to repurchase any of the Notes tendered for
repurchase. See "Risk Factors -- Change of Control."
On June 18, 1998, the Company issued $115.0 million in aggregate principal
amount of Existing Notes. The Existing Notes were issued pursuant to exemptions
from, or in transactions not subject to, the registration requirements of the
Securities Act and applicable state securities laws. The New Notes are being
offered under this Prospectus, which is part of a registration statement of the
Company on Form S-4 (the "Exchange Offer Registration Statement", which term
shall encompass all amendments, exhibits, annexes and schedules thereto), in
order to satisfy certain obligations of the Company under the Registration
Rights Agreement. Once the Exchange Offer is consummated, the Company generally
will have no further obligations to register any of the Existing Notes not
tendered by Existing Holders for exchange. See "Risk Factors -- Consequences of
Failure to Exchange."
The New Notes generally will be issued in the form of Global Securities (as
defined) which will be deposited with, or on behalf of, the Depositary (as
defined) and registered in its name or in the name of a nominee of the
Depositary. Beneficial interests in the Global Securities representing the New
Notes will be shown on, and transfers thereof will be effected through, records
maintained by the Depositary. See "Book-Entry; Delivery and Form."
ii
<PAGE> 4
(Continuation of cover page)
The Company will accept for exchange any and all Existing Notes which are
properly tendered in the Exchange Offer prior to 5:00 p.m., New York City time,
on , 1998 (30 days after this Prospectus was sent to
Existing Holders), unless extended by the Company in its sole discretion (the
"Expiration Date"). The Company will not extend the Expiration Date beyond 5:00
p.m., New York City time, on , 1998 (60 days after this Prospectus
was sent to Existing Holders). Tenders of Existing Notes may be withdrawn at any
time prior to 5:00 p.m., New York City time, on the Expiration Date. In the
event the Company terminates the Exchange Offer and does not accept for exchange
any Existing Notes with respect to the Exchange Offer, the Company will promptly
return the Existing Notes to the Holders thereof. The Exchange Offer is not
conditioned upon any minimum principal amount of Existing Notes being tendered
for exchange, but is subject to certain events and conditions that may be waived
by the Company and to the terms and provisions of the Registration Rights
Agreement. The Existing Notes may be tendered in whole or in part solely in
integral multiples of $1,000.
The Company is making the Exchange Offer in reliance on the position of the
staff of the Division of Corporation Finance (the "Staff") of the Securities and
Exchange Commission (the "Commission") as set forth in the Staff's Exxon Capital
Holdings Corporation no-action letter (available May 13, 1988) (the "Exxon
Capital No-Action Letter"), Morgan Stanley & Co. Incorporated no-action letter
(available June 5, 1991) (the "Morgan Stanley No-Action Letter"), Shearman &
Sterling no-action letter (available July 2, 1993) (the "Shearman & Sterling
No-Action Letter"), and other interpretive letters addressed to third parties in
other transactions. However, the Company has not sought its own interpretive
letter addressing such matters and there can be no assurance that the Staff
would make a similar determination with respect to the Exchange Offer as it has
in such interpretive letters to third parties. Based on these interpretations by
the Staff, and subject to the two immediately following sentences, the Company
believes that New Notes issued pursuant to this Exchange Offer in exchange for
Existing Notes may be offered for resale, resold and otherwise transferred by a
Holder thereof (other than a Holder who is a broker-dealer) without further
compliance with the registration and prospectus delivery requirements of the
Securities Act, provided that such New Notes are acquired in the ordinary course
of such Holder's business and that such Holder is not participating, and has no
arrangement or understanding with any person to participate, in a distribution
(within the meaning of the Securities Act) of such New Notes. However, any
Holder of Existing Notes who (i) is an "affiliate" of the Company (within the
meaning of Rule 405 under the Securities Act), (ii) does not acquire such New
Notes in the ordinary course of its business, (iii) intends to participate in
the Exchange Offer for the purpose of distributing New Notes, or (iv) is a
broker-dealer who purchased such Existing Notes directly from the Company, (a)
will not be able to rely on the interpretations of the Staff set forth in the
above-mentioned interpretive letters, (b) will not be permitted or entitled to
tender such Existing Notes in the Exchange Offer, and (c) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or other transfer of such Existing Notes unless such
sale is made pursuant to an exemption from such requirements. In addition, as
described below, if any broker-dealer holds Existing Notes acquired for its own
account as a result of market-making or other trading activities and exchanges
such Existing Notes for New Notes in the Exchange Offer (an "Exchanging
Dealer"), then such Exchanging Dealer may be deemed a statutory "underwriter"
within the meaning of the Securities Act and must deliver a prospectus meeting
the requirements of the Securities Act in connection with any resales of such
New Notes.
Each Holder of Existing Notes who wishes to exchange Existing Notes for New
Notes in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act) of such New Notes, and (iv) it is not engaged in,
and does not intend to engage in, a distribution of the New Notes. Each
broker-dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it acquired the Existing Notes for its own
account as a result of market-making activities or other trading activities (and
not directly from the Company) and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
such New Notes. The Letter of Transmittal states that by so acknowledging and by
delivering a prospectus, such an Exchanging Dealer will
iii
<PAGE> 5
(Continuation of cover page)
not be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. Based on the position taken by the Staff in the interpretive
letters referred to above, the Company believes that Exchanging Dealers may
fulfill their prospectus delivery requirements with respect to the New Notes
received upon exchange of such Existing Notes with a prospectus meeting the
requirements of the Securities Act, which may be the prospectus prepared for an
exchange offer so long as it contains a description of the plan of distribution
with respect to the resale of such New Notes. Accordingly, this Prospectus, as
it may be amended or supplemented from time to time, may be used by an
Exchanging Dealer during the period referred to below in connection with resales
of New Notes received in exchange for Existing Notes where such Existing Notes
were acquired by such Exchanging Dealer for its own account as a result of
market making or other trading activities. Subject to certain provisions set
forth in the Registration Rights Agreement, the Company has agreed that this
Prospectus, as it may be amended or supplemented from time to time, may be used
by an Exchanging Dealer in connection with resales of such New Notes for a
period of 180 days following effectiveness of the Exchange Offer Registration
Statement. See "Plan of Distribution." Any Exchanging Dealer who is an affiliate
of the Company may not rely on such interpretive letters and must comply with
the registration and prospectus delivery requirements of the Securities Act in
connection with any resale transaction. See "The Exchange Offer -- Resales of
New Notes."
In that regard, each Exchanging Dealer who surrenders Existing Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not
misleading, or of the occurrence of certain other events specified in the
Registration Rights Agreement, such Exchanging Dealer will suspend the sale of
New Notes pursuant to this Prospectus until the Company has amended or
supplemented this Prospectus to correct such misstatement or omission and has
furnished copies of the amended or supplemented Prospectus to such Exchanging
Dealer or the Company has given notice that the sale of the New Notes may be
resumed, as the case may be.
The New Notes will be a new issue of securities for which there currently
is no market. Although the Initial Purchasers have informed the Company that
they currently intend to make a market in the New Notes, they are not obligated
to do so, and any such market making may be discontinued at any time without
notice. As the Existing Notes were issued, and the New Notes are being issued,
to a limited number of institutions who typically hold similar securities for
investment, the Company does not expect that an active public market for the New
Notes will develop. Accordingly, there can be no assurance as to the
development, liquidity or maintenance of any market for the New Notes. The
Company does not currently intend to apply for listing of the New Notes on any
securities exchange or for quotation through the Nasdaq Stock Market.
Any Existing Notes not tendered and accepted in the Exchange Offer will
remain outstanding and will be entitled to all the same rights and will be
subject to the same limitations applicable thereto under the Indenture (except
for those rights which terminate upon consummation of the Exchange Offer).
Following consummation of the Exchange Offer, the Holders of Existing Notes will
continue to be subject to the existing restrictions upon transfer thereof and
the Company will have no further obligation to such Existing Holders (except for
limited instances involving the Initial Purchasers and Existing Holders that are
not eligible to participate in the Exchange Offer) to provide for registration
under the Securities Act of the Existing Notes held by them. To the extent that
Existing Notes are tendered and accepted in the Exchange Offer, an Existing
Holder's ability to sell untendered Existing Notes could be adversely affected.
See "Risk Factors -- Consequences of Failure to Exchange."
Each New Note will bear interest from the most recent date to which
interest has been paid or duly provided for on the Existing Note surrendered in
exchange for such New Note or, if no such interest has been paid or duly
provided for on such Existing Note, from June 18, 1998. Holders of the Existing
Notes whose Existing Notes are accepted for exchange will not receive accrued
interest on such Existing Notes for any
iv
<PAGE> 6
(Continuation of cover page)
period from and after the last Interest Payment Date to which interest has been
paid or duly provided for on such Existing Notes prior to the original issue
date of the New Notes or, if no such interest has been paid or duly provided
for, will not receive any accrued interest on such Existing Notes, and will be
deemed to have waived the right to receive any interest on such Existing Notes
accrued from and after such Interest Payment Date or, if no such interest has
been paid or duly provided for, from and after June 18, 1998.
The Company will not receive any cash proceeds from the issuance of the New
Notes offered hereby. The Company has agreed to pay all required expenses of the
Exchange Offer. See "The Exchange Offer -- Fees and Expenses." No dealer-manager
is being used in connection with this Exchange Offer. See "Use of Proceeds" and
"Plan of Distribution."
THIS PROSPECTUS AND THE RELATED LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION. HOLDERS OF EXISTING NOTES ARE URGED TO READ THIS PROSPECTUS AND THE
RELATED LETTER OF TRANSMITTAL CAREFULLY BEFORE DECIDING WHETHER TO TENDER THEIR
EXISTING NOTES PURSUANT TO THE EXCHANGE OFFER.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT 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. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITY
OTHER THAN THE NEW NOTES, NOR DOES IT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY ANY OF THE NEW NOTES TO ANY PERSON IN ANY
JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR SOLICITATION TO
SUCH PERSON. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER
SHALL UNDER ANY CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY DATE SUBSEQUENT TO THE DATE HEREOF.
UNTIL AND INCLUDING , 1999 (90 DAYS AFTER THIS
PROSPECTUS WAS SENT TO EXISTING HOLDERS), ALL DEALERS EFFECTING TRANSACTIONS IN
THE NEW NOTES, WHETHER OR NOT PARTICIPATING IN THE EXCHANGE OFFER, MAY BE
REQUIRED TO DELIVER A PROSPECTUS IN CONNECTION WITH SUCH TRANSACTION.
EACH PROSPECTIVE PURCHASER OF THE NEW NOTES MUST COMPLY WITH ALL LAWS AND
REGULATIONS APPLICABLE TO IT AND IN FORCE IN ANY JURISDICTION IN WHICH IT
PURCHASES, OFFERS OR SELLS THE NEW NOTES OR POSSESSES OR DISTRIBUTES THIS
PROSPECTUS AND MUST OBTAIN ANY CONSENT, APPROVAL OR PERMISSION REQUIRED TO BE
OBTAINED BY IT FOR THE PURCHASE, OFFER OR SALE BY IT OF THE NEW NOTES UNDER THE
LAWS AND REGULATIONS APPLICABLE TO IT AND IN FORCE IN ANY JURISDICTION TO WHICH
IT IS SUBJECT OR IN WHICH IT MAKES SUCH PURCHASES, OFFERS OR SALES, AND THE
COMPANY SHALL NOT HAVE ANY RESPONSIBILITY THEREFOR.
THE FEDERAL SECURITIES LAWS PROHIBIT TRADING IN SECURITIES OF THE COMPANY
WHILE IN POSSESSION OF MATERIAL NONPUBLIC INFORMATION WITH RESPECT THERETO.
ALL INQUIRIES RELATING TO THIS PROSPECTUS AND THE REGISTRATION CONTEMPLATED
HEREIN SHOULD BE DIRECTED TO THE INITIAL PURCHASERS.
THIS PROSPECTUS CONTAINS SUMMARIES INTENDED TO BE ACCURATE WITH RESPECT TO
CERTAIN TERMS OF CERTAIN DOCUMENTS, BUT REFERENCE IS MADE TO THE ACTUAL
DOCUMENTS, CERTAIN OF WHICH ARE SET FORTH IN THE COMPANY'S FILINGS WITH THE
COMMISSION, SPECIFICALLY DESCRIBING THE TERMS OF THE NOTES OR
v
<PAGE> 7
(Continuation of cover page)
WILL BE MADE AVAILABLE TO PROSPECTIVE INVESTORS UPON REQUEST TO THE COMPANY OR
THE INITIAL PURCHASERS, FOR COMPLETE INFORMATION WITH RESPECT THERETO, AND ALL
SUCH SUMMARIES ARE QUALIFIED IN THEIR ENTIRETY BY SUCH REFERENCE.
THE INFORMATION CONTAINED IN THIS PROSPECTUS WAS OBTAINED FROM THE COMPANY
AND OTHER SOURCES, BUT NO ASSURANCE CAN BE GIVEN AS TO THE ACCURACY OR
COMPLETENESS OF SUCH INFORMATION. IN MAKING AN INVESTMENT DECISION, INVESTORS
MUST RELY ON THEIR OWN EXAMINATION OF THE COMPANY AND THE TERMS OF THE OFFERING
INCLUDING THE MERITS AND RISKS INVOLVED. THE CONTENTS OF THIS PROSPECTUS ARE NOT
TO BE CONSTRUED AS LEGAL, BUSINESS OR TAX ADVICE. EACH PROSPECTIVE INVESTOR
SHOULD CONSULT ITS OWN ATTORNEY, BUSINESS ADVISOR AND TAX ADVISOR AS TO LEGAL,
BUSINESS OR TAX ADVICE.
MARKET DATA USED THROUGHOUT THIS PROSPECTUS WERE OBTAINED FROM INTERNAL
COMPANY SURVEYS, CONSULTANTS' REPORTS AND INDUSTRY PUBLICATIONS. CONSULTANTS'
REPORTS AND INDUSTRY PUBLICATIONS GENERALLY STATE THAT THE INFORMATION CONTAINED
THEREIN HAS BEEN OBTAINED FROM SOURCES BELIEVED TO BE RELIABLE, BUT THAT THE
ACCURACY AND COMPLETENESS OF SUCH INFORMATION IS NOT GUARANTEED. THE COMPANY HAS
NOT INDEPENDENTLY VERIFIED THIS MARKET DATA. SIMILARLY, INTERNAL COMPANY
SURVEYS, WHILE BELIEVED BY THE COMPANY TO BE RELIABLE, HAVE NOT BEEN VERIFIED BY
ANY INDEPENDENT SOURCES.
FORWARD-LOOKING STATEMENTS
THIS PROSPECTUS INCLUDES "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
SECTION 27A OF THE SECURITIES ACT AND SECTION 21E OF THE U.S. SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED (THE "EXCHANGE ACT"). ALL STATEMENTS OTHER THAN
STATEMENTS OF HISTORICAL FACTS INCLUDED IN THIS OFFERING MEMORANDUM, INCLUDING
WITHOUT LIMITATION, CERTAIN STATEMENTS UNDER THE "OFFERING MEMORANDUM SUMMARY,"
"THE COMPANY," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS" AND "BUSINESS" AND LOCATED ELSEWHERE HEREIN REGARDING THE
COMPANY'S FINANCIAL POSITION AND BUSINESS STRATEGY, MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS. IN ADDITION, FORWARD-LOOKING TERMINOLOGY SUCH AS
"MAY", "WILL", "EXPECT", "INTEND", "ESTIMATE", "ANTICIPATE", "BELIEVE", OR
"CONTINUE" OR THE NEGATIVE THEREOF OR VARIATIONS THEREON OR SIMILAR TERMINOLOGY.
ALTHOUGH THE COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH
FORWARD-LOOKING STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH
EXPECTATIONS WILL PROVE TO HAVE BEEN CORRECT. IMPORTANT FACTORS THAT COULD CAUSE
ACTUAL RESULTS TO DIFFER MATERIALLY FROM THE COMPANY'S EXPECTATIONS ("CAUTIONARY
STATEMENTS") ARE DISCLOSED IN THIS PROSPECTUS, INCLUDING WITHOUT LIMITATION IN
CONJUNCTION WITH THE FORWARD-LOOKING STATEMENTS INCLUDED IN THIS PROSPECTUS AND
UNDER "RISK FACTORS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
------------------------
American Big Business Directory(R), American Manufacturer's Directory(R),
Credit Reference Directory(R), Database America(R), Directory Assistance
Plus(R), infoUSA Inc.(R), MarketZone(R), PowerFinder(R), PowerFinder Pro(R), Pro
CD, Inc.(R), Sales Leads USA(R), Select Phone Deluxe(R), 1.5 Million Doctors,
Dentists & Pharma-
vi
<PAGE> 8
(Continuation of cover page)
cies(TM), 104 Million Businesses & Households(TM), 2 Million Fax Numbers
Directory(TM), 88 Million Households(TM), 88 Million Households Deluxe(TM),
Alabama Business Directory(TM), American Business Communications, Inc.(TM),
American Yellow Pages(TM), BJ Hunter(TM), Business Profiles(TM), Canadian
Business Pages(TM), Census USA(TM), County Data Corporation(TM), Customer
Analyzer(TM), DBA(TM), DBA Holdings, Inc.(TM), Digital Directory Assistance,
Inc.(TM), Entrepreneurs Directory(TM), Female Executives(TM), Households
USA(TM), JAMI Marketing(TM), Marketing Data Systems, Inc.(TM), Non-Stop Sales
Leads(TM), Physicians and Surgeons Directory(TM), Professionals(TM), Sales Leads
on a Map(TM), Streets USA(TM), Walter Karl, Inc.(TM), Web Sites USA(TM), Yellow
Pages USA(TM) 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.
vii
<PAGE> 9
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 Class
A Common Stock and Class B Common Stock are 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. 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.
The Company's Annual Report on Form 10-K for the fiscal year ended December
31, 1997, as amended, the Company's quarterly report on Form 10-Q for the
quarter ended March 31, 1998, as amended, the Company's current report on Form
8-K dated February 24, 1998, the Company's current report on Form 8-K dated May
21, 1998, the Company's current report on Form 8-K dated June 18, 1998, the
Company's current report on Form 8-K dated July 31, 1998, the Company's
quarterly report on Form 10-Q for the quarter ended June 30, 1998, the Company's
quarterly report on Form 10-Q for the quarter ended September 30, 1998, the
Company's current report on Form 8-K dated October 1, 1998, as amended, and the
Company's current report on Form 8-K dated October 12, 1998 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 Sections 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 Notes 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 modified 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).
viii
<PAGE> 10
SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the more detailed information and financial data, including
the Consolidated Financial Statements and notes thereto appearing elsewhere in
this Prospectus. As used in this Prospectus, all references to "infoUSA" or the
"Company" shall mean infoUSA Inc. and its consolidated subsidiaries, unless the
context indicates otherwise.
THE COMPANY
infoUSA Inc. is a leading provider of business and consumer marketing
information and data processing services that assist its clients in finding new
customers and generating new business. The Company's key assets include a
proprietary database of over 11 million businesses and a consumer database of
over 113 million households and over 180 million individuals in the United
States and Canada, which the Company believes are the most comprehensive and
accurate available. The Company leverages these key assets by selling a wide
range of information products and data processing services through multiple
distribution channels primarily to small and medium-size businesses, and also to
consumers and large corporations. From 1993 to 1997, the Company's net sales
increased at a compounded annual growth rate of 36.5% to $193.3 million from
$55.8 million through internal growth and acquisitions.
Sales lead generation products, data processing services and consumer
CD-ROM products accounted for 63.7%, 26.6% and 9.7%, respectively, of the
Company's net sales for the nine months ended September 30, 1998. Sales lead
generation products include detailed information on a targeted group of
businesses or consumers selected from the Company's databases based on a
client's specific requirements. These products are offered in a wide variety of
customized and pre-packaged formats and can also be accessed via the Internet
and telephone. Data processing services include data warehousing and analysis,
list enhancement and market research, which enable clients to more effectively
analyze and utilize information on both existing and prospective customers.
Consumer CD-ROM products are reference tools used primarily by small office/home
office businesses and consumers.
The Company believes that the single most important challenge facing
businesses is the need to replenish and grow their customer bases. Therefore,
the Company believes that targeted marketing to businesses and consumers through
direct marketing, telemarketing and field sales has become one of the most
cost-effective means to identify and acquire new customers. The growth of
targeted marketing has created a substantial and ongoing need for accurate and
timely information to help marketers identify potential customers from the
millions of businesses and hundreds of millions of consumers in the United
States and Canada. Based on its own databases, the Company estimates that the
market for its products and services includes approximately 4.7 million small
businesses with less than 20 employees, approximately 100,000 medium-size
businesses with 20 to 500 employees, approximately 25,000 larger corporations,
approximately 10 million small office/home office businesses and approximately
40 million consumers. The demand for business and consumer data varies among
small and medium-size businesses, consumers and large corporations. The Company
believes that small and medium-size businesses usually do not have the resources
to collect and analyze marketing information on their own. These businesses
typically use the Company's information for sales prospecting, customer
targeting and general marketing purposes. Larger corporations typically have
their own customer and prospect data but require data processing services to
analyze this data to enhance their marketing programs. Finally, consumers
require information on a variety of delivery formats primarily for reference
purposes. The Company provides a wide range of products and data processing
services to meet the information and marketing needs of small and medium-size
businesses, consumers and large corporations.
1
<PAGE> 11
THE EXCHANGE OFFER
SECURITIES OFFERED............ $115,000,000 in aggregate principal amount of
New 9 1/2% Senior Subordinated Notes due 2008.
THE EXCHANGE OFFER............ $1,000 principal amount of the New Notes in
exchange for each $1,000 principal amount of
Existing Notes. As of the date hereof,
$115,000,000 aggregate principal amount of
Existing Notes are outstanding. The Company
will issue the New Notes to New Holders on or
promptly after the Expiration Date.
Based on an interpretation by the Staff set
forth in no-action letters issued to third
parties, the Company believes that New Notes
issued pursuant to the Exchange Offer in
exchange for Existing Notes may be offered for
resale, resold and otherwise transferred by any
Holder thereof (other than any such Holder
which is an affiliate of the Company or is a
broker-dealer which acquired such Existing
Notes directly from the Company) without
compliance with the registration and prospectus
delivery provisions of the Securities Act,
provided that (i) such New Notes are acquired
in the ordinary course of such Holder's
business, (ii) such Holder does not intend to
participate and has no arrangement or
understanding with any person to participate in
the distribution of such New Notes and (iii)
such Holder is not engaged in and does not
intend to engage in the, or a, distribution of
the New Notes. Each Exchanging Dealer that
acquired such Existing Notes as a result of
market making or other trading activity and
that receives New Notes for its own account
pursuant to the Exchange Offer must acknowledge
that it will deliver a prospectus in connection
with any resale of such New Notes. The Company
has agreed that this Prospectus, as it may be
amended or supplemented from time to time, may
be used, subject to certain provisions of the
Registration Rights Agreement, by such an
Exchanging Dealer in connection with such
resales for a period of 180 days following the
effectiveness of the Exchange Offer
Registration Statement. See "The Exchange
Offer -- Resales of New Notes" and "Plan of
Distribution."
Any Existing Holder who (i) is an affiliate of
the Company, (ii) does not acquire such New
Notes in the ordinary course of its business,
(iii) tenders in the Exchange Offer with the
intention to participate, or for the purpose of
participating, in a distribution of the New
Notes, or (iv) is a broker-dealer which
acquired such Existing Notes directly from the
Company, could not rely on the position of the
Staff enunciated in the Exxon Capital No-Action
Letter, the Morgan Stanley No-Action Letter or
similar no-action letters and, in the absence
of an exemption therefrom, must comply with the
registration and prospectus delivery
requirements of the Securities Act in
connection with the resale of the New Notes.
Failure to comply with such requirements in
such instance may result in such Holder
incurring liability under the Securities Act
for which the Holder is not indemnified by the
Company.
No federal or state regulatory requirements
must be complied with or approval obtained in
connection with the Exchange Offer, other
2
<PAGE> 12
than registration requirements under the
Securities Act and compliance with the
registration or comparable provisions of
applicable state securities laws.
EXPIRATION DATE............... 5:00 p.m., New York City time, on
, 1998 (30 days after this
Prospectus was sent to Existing Holders),
unless the Exchange Offer is extended by the
Company in its sole discretion, in which case
the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended. The Company will not extend the
Expiration Date beyond 5:00 p.m., New York City
time, on , 1998 (60 days after
this Prospectus was sent to Existing Holders).
INTEREST ON THE NEW NOTES AND
THE EXISTING NOTES............ Each New Note will bear interest from the most
recent date to which interest has been paid or
duly provided for on the Existing Note
surrendered in exchange for such New Note or,
if no such interest has been paid or duly
provided for on such Existing Note, from June
18, 1998. Holders of the Existing Notes whose
Existing Notes are accepted for exchange will
not receive accrued interest on such Existing
Notes for any period from and after the last
Interest Payment Date to which interest has
been paid or duly provided for on such Existing
Notes prior to the original issue date of the
New Notes or, if no such interest has been paid
or duly provided for, will not receive any
accrued interest on such Existing Notes, and
will be deemed to have waived the right to
receive any interest on such Existing Notes
accrued from and after such Interest Payment
Date or, if no such interest has been paid or
duly provided for, from and after June 18,
1998.
AMENDMENT OR TERMINATION OF
THE EXCHANGE OFFER............ The Company is not required to accept any
Existing Notes for exchange, and may amend or
terminate the Exchange Offer in its sole
discretion at any time before acceptance of
such Existing Notes for exchange. By way of
example, the following constitute some, but not
all, of the reasons the Company might choose to
amend or terminate the Exchange Offer: (i) the
Exchange Offer would violate applicable law,
(ii) a judicial or administrative action or
proceeding might materially impair the
Company's ability to proceed with the Exchange
Offer, (iii) any necessary governmental
approvals are not obtained, (iv) a stock market
or banking moratorium has occurred, or (v) a
stop order has been issued or threatened which
would suspend effectiveness of the Exchange
Offer Registration Statement. See "The Exchange
Offer -- Amendments; Termination."
PROCEDURES FOR TENDERING
EXISTING NOTES................ Each Existing Holder wishing to accept the
Exchange Offer must complete, sign and date the
accompanying Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver the Letter of
Transmittal, or such facsimile, together with
the Existing Notes and any other required
documentation to the Exchange Agent (as defined
below) at the address set forth in the Letter
of Transmittal. PERSONS HOLDING EXISTING NOTES
THROUGH THE
3
<PAGE> 13
DEPOSITARY (INITIALLY THE DEPOSITORY TRUST
COMPANY ("DTC")) AND WISHING TO ACCEPT THE
EXCHANGE OFFER MUST DO SO PURSUANT TO DTC'S
AUTOMATED TENDER OFFER PROGRAM ("ATOP"), BY
WHICH EACH TENDERING PARTICIPANT WILL AGREE TO
BE BOUND BY THE LETTER OF TRANSMITTAL. By
executing or agreeing to be bound by the Letter
of Transmittal, each Existing Holder will
represent to the Company that, among other
things, the Existing Holder or the person
receiving such New Notes, whether or not such
person is the Existing Holder, (i) is not an
affiliate of the Company, (ii) is acquiring the
New Notes in the ordinary course of business,
(iii) has any arrangement or understanding with
any person to participate in the distribution
of such New Notes within the meaning of the
Securities Act, and (iv) is not engaged in, and
does not intend to engage in, a distribution of
the New Notes.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. Any beneficial owner whose Existing Notes are
registered in the name of a broker, dealer,
commercial bank, trust company or other nominee
and who wishes to tender should contact such
registered Holder promptly and instruct such
registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such
owner must, prior to completing and executing
the Letter of Transmittal and delivering its
Existing Notes, either make appropriate
arrangements to register ownership of the
Existing Notes in such owner's name or obtain a
properly completed bond power from the
registered Holder. The transfer of registered
ownership may take considerable time.
GUARANTEED DELIVERY
PROCEDURES.................... Existing Holders who wish to tender their
Existing Notes and whose Existing Notes are not
immediately available or who cannot deliver
their Existing Notes, the Letter of Transmittal
or any other documents required by the Letter
of Transmittal to the Exchange Agent (or comply
with the procedures for book-entry transfer)
prior to the Expiration Date must tender their
Existing Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer -- Guaranteed Delivery Procedures."
WITHDRAWAL RIGHTS............. Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the
Expiration Date pursuant to the procedures
described under "The Exchange
Offer -- Withdrawals of Tenders."
ACCEPTANCE OF EXISTING NOTES
AND DELIVERY OF NEW NOTES..... The Company will accept for exchange any and
all Existing Notes that are properly tendered
in the Exchange Offer prior to 5:00 p.m., New
York City time, on the Expiration Date. The New
Notes issued pursuant to the Exchange Offer
will be delivered promptly following the
Expiration Date. See "The Exchange
Offer -- Terms of the Exchange Offer."
CERTAIN FEDERAL INCOME TAX
CONSIDERATIONS.............. The exchange of the New Notes for the Existing
Notes pursuant to the Exchange Offer will not
be taxable to the Holders thereof for
4
<PAGE> 14
federal income tax purposes. However, no ruling
has been obtained from the Internal Revenue
Service in connection with the Exchange Offer.
See "Certain Federal Income Tax
Considerations."
EFFECT ON HOLDERS OF EXISTING
NOTES......................... As a result of the making of this Exchange
Offer, the Company will have fulfilled certain
of its obligations under the Registration
Rights Agreement, and Existing Holders who do
not tender their Existing Notes, except for
limited instances involving the Initial
Purchasers and Existing Holders that are not
eligible to participate in the Exchange Offer,
will not have any further registration rights
under the Registration Rights Agreement or
otherwise. See "The Exchange Offer -- Purposes
and Effect of Exchange Offer." Such Existing
Holders will continue to hold the untendered
Existing Notes and will be entitled to all the
rights and subject to all the limitations
applicable thereto under the Indenture, except
to the extent such rights or limitations, by
their terms, terminate or cease to have further
effectiveness as a result of the Exchange
Offer. All untendered Existing Notes will
continue to be subject to certain restrictions
on transfer. Accordingly, if any Existing Notes
are tendered and accepted in the Exchange
Offer, the trading market for the untendered
Existing Notes could be adversely affected.
EXCHANGE AGENT................ State Street Bank and Trust Company of
California, N.A.
5
<PAGE> 15
SUMMARY OF TERMS OF NEW NOTES
The form and terms of the New Notes are the same as the form and terms of
the Existing Notes (which they replace) except that (i) the New Notes have been
registered under the Securities Act and, therefore, will not bear legends
restricting the transfer thereof, and (ii) the Holders of New Notes, except for
limited instances involving the Initial Purchasers and certain Holders that are
not eligible to participate in the Exchange Offer, will not be entitled to
further registration rights under the Registration Rights Agreement, which
rights will be satisfied when the Exchange Offer is consummated, and will not be
entitled to any payments of Additional Interest for failure to satisfy such
rights. The New Notes will evidence the same debt as the Existing Notes and will
be entitled to the benefits of the Indenture. See "Description of Notes."
ISSUER........................ infoUSA Inc.
SECURITIES OFFERED............ $115,000,000 aggregate principal amount of New
9 1/2% Senior Subordinated Notes due 2008.
MATURITY DATE................. June 15, 2008.
INTEREST PAYMENT DATES........ Interest on the Notes will accrue from the date
of original issuance (the "Issue Date") and is
payable semi-annually on each June 15 and
December 15, commencing December 15, 1998.
SINKING FUND.................. None
RANKING....................... The Notes will be general unsecured senior
subordinated obligations of the Company, will
rank junior in right of payment with all
existing and future Senior Debt (as defined) of
the Company and will be effectively
subordinated to all indebtedness and other
obligations of the Company's subsidiaries. The
Notes will rank pari passu in right of payment
with any other senior subordinated obligations
of the Company and senior in right of payment
to all existing and future subordinated
indebtedness of the Company. As of September
30, 1998 the Company had approximately $13.6
million of Senior Debt outstanding and the
Company's subsidiaries would have had no
outstanding liabilities, other than trade
payables, which would have been effectively
senior to the Notes.
OPTIONAL REDEMPTION........... The Notes will be redeemable, in whole or in
part, at the option of the Company on or after
June 15, 2003, at the redemption prices set
forth herein, plus accrued and unpaid interest
to the date of redemption. In addition, at any
time on or prior to June 15, 2001, the Company,
at its option, may redeem up to 35% of the
aggregate principal amount of the outstanding
Notes with the net cash proceeds of one or more
Equity Offerings (as defined), at a redemption
price equal to 109.500% of the principal amount
thereof, plus accrued interest to the date of
redemption; provided that at least 65% of the
aggregate principal amount of Notes originally
issued plus any additional senior subordinated
notes issued after the Issue Date remains
outstanding immediately after any such
redemption. See "Description of
Notes -- Redemption."
CHANGE OF CONTROL............. Upon a Change of Control (as defined), each
holder of the Notes will have the right to
require the Company to repurchase such holder's
Notes at a price equal to 101% of the principal
amount thereof, plus accrued and unpaid
interest to the date of repurchase. The
Company's ability to repurchase the Notes upon
a Change of Control is subject to a number of
financial and legal limitations.
6
<PAGE> 16
See "Risk Factors -- Change of Control" and
"Description of the Notes -- Offer to Purchase
upon Change of Control."
CERTAIN COVENANTS............. The Indenture governing the Notes (the
"Indenture") will contain certain covenants
that limit the ability of the Company and its
subsidiaries to, among other things, incur
additional indebtedness, pay dividends or make
certain other restricted payments, consummate
certain asset sales, enter into certain
transactions with affiliates, incur liens,
impose restrictions on the ability of a
subsidiary to pay dividends or make certain
payments to the Company and its subsidiaries,
merge or consolidate with any other person or
sell, assign, transfer, lease, convey or
otherwise dispose of all or substantially all
of the assets of the Company. These
restrictions and qualifications are subject to
a number of important qualifications and
exceptions. See "Description of
Notes -- Certain Covenants."
TRANSFER RESTRICTIONS......... For restrictions on transfer of the New Notes,
see "The Exchange Offer -- Resale of New
Notes."
USE OF PROCEEDS............... All Existing Notes received and accepted by the
Company, in its sole discretion, for exchange
in the Exchange Offer will be canceled.
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered in evaluating an investment in the Notes.
7
<PAGE> 17
SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The following table sets forth summary financial information of the
Company. The summary income statement data for the years ended December 31,
1995, 1996 and 1997 are derived from the Consolidated Financial Statements of
the Company, which Consolidated Financial Statements have been audited by
PricewaterhouseCoopers LLP (on July 1, 1998, Coopers & Lybrand L.L.P. merged
with Price Waterhouse LLP to form PricewaterhouseCoopers LLP), independent
accountants. The selected income statement data for the nine months ended
September 30, 1997 and 1998, and the summary balance sheet data at September 30,
1998 are derived from the unaudited consolidated financial statements of the
Company although such information has been prepared on the same basis as the
Company's audited financial statements and, in the opinion of management,
contain all adjustments, consisting of normal recurring adjustments and other
adjustments described in note 1, necessary for a fair presentation of the
financial position and results of operations of the Company. The results of
operations for the nine months ended September 30, 1998 are not necessarily
indicative of results for the full fiscal year. For additional information, see
the Consolidated Financial Statements of the Company appearing elsewhere in this
Prospectus. The summary financial data should also be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------------- -------------------
1995 1996 1997 1997 1998
------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales............................. $86,766 $108,298 $193,327 $139,511 $172,528
Costs and expenses:
Database and production costs...... 23,999 29,272 55,090 38,674 49,469
Selling, general and
administrative................... 37,724 45,766 80,203 59,396 91,696
Depreciation and amortization...... 3,469 4,855 34,415 24,397 20,784
Provision for litigation
settlement....................... -- -- -- -- 4,500
Acquisition-related and
restructuring charges(1)......... -- 21,500 56,098 56,098 15,468
------- -------- -------- -------- --------
Total costs and expenses...... 65,192 101,393 225,806 178,565 181,917
------- -------- -------- -------- --------
Operating income (loss)............... 21,574 6,905 (32,479) (39,054) (9,389)
Other income (expense), net:
Other income, net.................. 1,322 2,251 3,748 2,513 16,306
Interest expense................... (157) (209) (4,098) (2,687) (6,225)
------- -------- -------- -------- --------
Income (loss) before income taxes
and discontinued operation....... 22,739 8,947 (32,829) (39,228) 692
Income taxes.......................... 8,421 3,400 6,987 4,299 4,907
------- -------- -------- -------- --------
Income (loss) from continuing
operations......................... 14,318 5,547 (39,816) (43,527) (4,215)
Loss on discontinued operations and
abandonment of subsidiary(2)....... (2,317) (1,728) -- -- --
------- -------- -------- -------- --------
Net income (loss)..................... $12,001 $ 3,819 $(39,816) $(43,527) $ (4,215)
======= ======== ======== ======== ========
OTHER DATA:
EBITDA, as adjusted(3)................ $25,043 $ 33,260 $ 58,034 $ 41,441 $ 31,363
EBITDA, as adjusted, Margin(4)........ 28.9% 30.7% 30.0% 29.7% 18.2%
Capital expenditures(5)............... $ 4,066 $ 9,204 $ 15,178 $ 10,975 $ 22,133
Ratio of earnings to fixed
charges(6)......................... 122.0x 30.5x -- -- 1.1x
</TABLE>
8
<PAGE> 18
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
ACTUAL
------------------
<S> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents................................. $ 24,501
Working capital........................................... 60,775
Total assets.............................................. 263,989
Long-term debt, including current portion................. 128,590
Stockholders' equity...................................... 78,217
</TABLE>
- ---------------
(1) In 1996, represents 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 of assets based on management's
evaluation of certain intangibles related to acquisitions prior to 1995. In
1997, represents the write-off of purchased in-process research and
development costs of $49.2 million and other restructuring costs of $2.6
million relating to the acquisition of Database America ("DBA") and
purchased in-process research and development costs of $4.3 million relating
to the acquisition of Pro CD. For the nine month period ended September 30,
1998, represents charges of $9.2 million for the write-off of purchased in-
process research and development costs relating to the acquisition of Walter
Karl, $3.0 million of costs associated with the Company's bid to acquire
Metromail Corporation and $3.3 million for restructuring and other costs.
(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 from this disposition were approximately $3.3
million from 1993 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 delivered to the Company in this transaction.
(3) "EBITDA, as adjusted," is defined as operating income (loss) adjusted to
exclude depreciation, amortization of intangible assets, provision for
litigation settlement and acquisition-related and restructuring charges.
EBITDA, as adjusted, is presented because it is a widely accepted indicator
of a company's ability to incur and service debt. However, EBITDA, as
adjusted, does not purport to represent cash provided by operating
activities as reflected in the Company's consolidated statements of cash
flows, is not a measure of financial performance under generally accepted
accounting principles ("GAAP") and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with
GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to
similar measures reported by other companies.
(4) "EBITDA, as adjusted, margin" is defined as EBITDA, as adjusted, divided by
net sales.
(5) Capital expenditures includes purchases of property and equipment, certain
consumer database costs and software development costs.
(6) The ratio of earnings to fixed charges is determined by dividing the sum of
income before income taxes and interest expense by interest expense.
Earnings were inadequate to cover fixed charges in 1997 and the nine months
ended September 30, 1997 by $32.8 million and $39.2 million, respectively.
Adjusted to eliminate non-cash acquisition-related and restructuring charges
of $56.1 million for 1997 and the nine months ended September 30, 1997,
respectively, such earnings would have exceeded fixed charges by $23.3
million and $16.9 million, respectively.
9
<PAGE> 19
RISK FACTORS
An Investment in the New Notes offered hereby is speculative in nature and
involves a high degree of risk. Prospective purchasers of the New Notes offered
hereby should carefully consider the following risk factors, as well as the
other information set forth in this Prospectus, prior to making an investment in
the New Notes. The following discussion contains forward-looking statements that
involve known and unknown risks and uncertainties. See the cover page,
"Forward-Looking Statements."
EFFECTS OF LEVERAGE
As of September 30, 1998, the Company had total indebtedness of
approximately $128.6 million. In addition, the Indenture allows the Company to
enter into a revolving credit facility under which it would be able to incur up
to $100.0 million of additional borrowings, all of which would be senior to the
Notes. Moreover, the Indenture under which the Notes will be issued permits the
Company to incur substantial additional indebtedness (including, subject to
certain conditions, an additional $85.0 million of senior subordinated notes
under the Indenture), a material portion of which could be senior to the Notes.
See "Capitalization" and "Description of Notes -- Certain Covenants."
The Company's ability to pay principal and interest on the Notes and to
satisfy its other debt obligations will depend upon its future operating
performance, which performance will be affected by prevailing economic
conditions and financial, business and other factors, certain of which are
beyond the control of the Company. The Company's ability to pay principal and
interest on the Notes and to satisfy its other debt obligations may also depend
upon the future availability of revolving credit borrowings under a revolving
credit facility. Such availability will depend on, among other things, the
Company's ability to enter into such a credit facility on acceptable terms and
its ability to meet certain specified financial ratios and maintenance tests.
The Company expects that, based on current and expected levels of operations,
its operating cash flow should be sufficient to meet its operating expenses, to
make necessary capital expenditures and to service its debt requirements as they
become due. If the Company is unable to service its indebtedness, it will be
forced to take actions, such as reducing or delaying acquisitions and/or capital
expenditures, selling assets, restructuring or refinancing its indebtedness
(including the Notes) or seeking additional equity capital. There is no
assurance that any of these remedies could be effected on satisfactory terms, if
at all. See "-- Restrictions Imposed by Terms of Indebtedness," and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources."
SUBORDINATION OF NOTES
The payment of principal, premium (if any) and interest on, and any other
amounts owing in respect of, the Notes will be subordinated to the prior payment
in full of all existing and future Senior Debt and effectively subordinated to
all liabilities (including trade debt) of the Company's subsidiaries. As of
September 30, 1998, the aggregate outstanding amount of Senior Debt was
approximately $13.6 million and the Company's subsidiaries had no outstanding
liabilities, other than trade payables, which would be effectively senior to the
Notes. In the event of the bankruptcy, liquidation, dissolution, reorganization
or other winding up of the Company, the assets of the Company will be available
to pay obligations on the Notes only after all Senior Debt has been paid in
full, and there may not be sufficient assets remaining to pay amounts due on any
or all of the Notes. See "Description of Notes -- Subordination."
RESTRICTIONS IMPOSED BY TERMS OF INDEBTEDNESS
The Indenture governing the terms of the Notes contains certain covenants
limiting, subject to certain exceptions, the incurrence of indebtedness, payment
of dividends or other restricted payments, issuance of guarantees, entering into
certain transactions with affiliates, consummation of certain asset sales,
certain mergers and consolidations, sales or other dispositions of all or
substantially all of the assets of the Company and imposing restrictions on the
ability of a subsidiary to pay dividends or make certain payments to the Company
and its subsidiaries. A breach of any of these covenants could result in an
event of default under the
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Indenture. The Company's ability to comply with such covenants may be affected
by events beyond its control. See "Description of Notes -- Certain Covenants."
In addition, if the Company were to enter into a revolving credit facility,
such facility would contain other restrictive covenants which would be more
restrictive than those contained in the Indenture. A breach of any of these
covenants, unless waived, would result in a default under such a credit
facility. Upon the occurrence of an event of default under such a credit
facility, the lenders could elect to declare all amounts outstanding, together
with accrued interest, to be immediately due and payable. If the lenders under
such a credit facility accelerate the payment of such indebtedness, there can be
no assurance that the assets of the Company would be sufficient to repay in full
such indebtedness and the other indebtedness of the Company, including the
Notes. If the Company were unable to repay those amounts, such lenders could
proceed against the collateral granted to them to secure that indebtedness.
INTEGRATION OF RECENT AND FUTURE ACQUISITIONS
Since mid-1996, the Company has completed eight significant acquisitions,
including the August 1996 acquisition of Digital Directory Assistance, the
November 1996 merger with County Data Corporation and acquisition of Marketing
Data Systems, the December 1996 acquisition of BJ Hunter, the February 1997
merger with Database America ("DBA"), the August 1997 acquisition of Pro CD, the
March 1998 acquisition of Walter Karl and the May 1998 acquisition of JAMI
Marketing. The Company also made a number of other acquisitions in prior
periods. In March 1998, the Company attempted to acquire Metromail Corporation
("Metromail") for approximately $850.0 million, including the assumption of
debt, and may in the future evaluate other acquisitions of that magnitude. See
"Business -- Litigation." The Company's strategy includes continued growth
through acquisitions of complementary products, technologies or businesses,
which, if implemented, 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 particular problems, liabilities or
contingencies related to the businesses being acquired. To the extent that
efforts to integrate recent or future acquisitions fail, there could be a
material adverse effect on the Company's business, financial condition and
results of operations. While the Company has not made any binding commitments
with respect to any particular future acquisitions, the Company frequently
evaluates the strategic opportunities available to it and intends to pursue
opportunities that it believes fit its business strategy. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Overview."
RECENT CHANGES IN SENIOR MANAGEMENT
The Company has recently undergone significant changes in its senior
management team, even as it has experienced rapid growth both internally and
through acquisitions. Vinod Gupta, the Company's Chairman, was re-appointed
Chief Executive Officer in July 1998, having resigned that position in October
1997. Scott Dahnke, Chief Executive Officer from October 1997, Jon Wellman,
President and Chief Operating Officer since January 1997 and Chief Financial
Officer from January 1995 to January 1997, Steve Purcell, Chief Financial
Officer since April 1997, Rick Puckett, Controller of the Company since October
1997 and Chief Financial Officer after Mr. Purcell's departure, Gregory Back,
Executive Vice President of Corporate Planning and Business Development since
October 1997 and Kevin Hall, Senior Vice President of Special Projects since
October 1997 ceased their employment with the Company between July and September
1998. Gautam Gupta, a director of the Company who is unrelated to Vinod Gupta,
is now serving as acting Chief Financial Officer while the Company conducts a
search for his permanent replacement. Sanford Goodman, Vice President of
Corporate Development, joined the Company in June 1998. Messrs. Dahnke, Wellman,
Purcell, Puckett, Back and Hall did not resign because of any disagreements with
the Company's Board or other senior management, and much of the Company's
remaining senior management team has been with the Company for many years. The
Company has now been reorganized into three major groups headed by group
presidents. Al Ambrosino, who has been with the Company or its subsidiary for 19
years, Monica Messer, who has been with the Company for 15 years, and William
Chasse, who has been with the Company for 10 years, have each
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been named group president. In the past, limitations on 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. Failure of the Company to identify and hire a
permanent Chief Financial Officer on a timely basis or failure of Company's
senior management to adjust to new responsibilities, manage growth or work
together effectively could result in disruptions of operations or the departure
of additional key personnel, which in turn could have a material adverse effect
on the Company's business, financial condition, results of operations and stock
price. See "Management."
FLUCTUATIONS IN OPERATING RESULTS
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
typically 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. 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 typically experiences
decreases in net sales of consumer CD ROM products just prior to the
introduction of new editions of these products. This effect, coupled with the
changes in estimates outlined below, resulted in a decline in consumer CD ROM
net sales in the three months ended September 30, 1998 compared to the prior
year period and the three months ended June 30, 1998. In addition, cancellation
of a major data processing contract in the three months ended September 30, 1998
resulted in lower than expected net sales of data processing services in that
period. 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, such as those discussed above,
have a disproportionate effect on operating performance in any given period. In
addition, changes in estimates for increased reserves and allowances, the
provision of an arbitration reserve and charges related to cost-cutting in the
three months ended September 30, 1998 amounted to a total of $21.4 million in
charges in that period. As a result of these charges and the weakness of net
sales discussed above, the Company recorded a net loss of $13.3 million for the
three months ended September 30, 1998, and may record a net loss for the fiscal
year. If the Company is required to record charges in the future, such charges
could materially and adversely affect the Company's business, financial
condition or results of operations. Long term growth will be materially
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 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 a material adverse effect on the Company's
business, financial condition or results of operations. See "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
its consumer CD-ROM products. Accordingly, the Company is exposed to the risk of
product returns from retailers and distributors, particularly in the case of
products sold shortly before introduction of the next year's edition of the same
product. Consumers may also seek to return consumer CD-ROM products, although
historically returns from consumers have been low. 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. Actual product returns
could differ from estimates, and product returns that exceed the Company's
reserves could materially adversely affect the Company's business, financial
condition and results of operations. In addition, changes in estimates of
reserves for product returns can have a material and adverse effect on the
Company's operating results. For example, as discussed above, changes in
estimates for increased reserves and allowances in the consumer CD-ROM business,
primarily to account for anticipated returns and price protection adjustments,
together with additions to other reserves, amounted to charges of approximately
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$15.5 million in the three months ended September 30, 1998 (out of the $21.4
million in special charges discussed above), contributing to the Company's net
loss for that period.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to define the applicable year. Any of the Company's
computer programs that have date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities. While the Company believes it is
taking or will take adequate steps to prepare its computer systems for the Year
2000, if such modifications and conversions are not made, or are not completed
in time, the Year 2000 issue could have a material adverse impact on the
operations of the Company. Furthermore, the systems of other companies on which
the Company's systems rely may not be prepared for the Year 2000, or such
companies may implement Year 2000 preparations with systems that are
incompatible with the Company's systems. In that event, the Company's operations
and financial condition may be materially and adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Year 2000 Compliance by the Company and Others."
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's
sales of CD-ROM's in the quarter ended September 30, 1998 were lower than
expected by the Company and projected by financial analysts. In addition, the
Company believes that if customers increasingly look to the Internet, digital
video disc ("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. The
Company plans to offer and sell its products and services increasingly over the
Internet and to introduce products on DVD. Failure of the Company to improve
sales of CD-ROM products or to successfully sell its products over the Internet
or on DVD or to successfully introduce products that take advantage of other
technological changes may thus have a material adverse effect on the Company's
business, results of operations and financial condition. See
"Business -- Products and Services."
COMPETITION
The business and consumer marketing information industry is highly
competitive. 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. The Company faces increasing competition
in consumer sales lead generation products and data processing services from
Great Universal Stores, P.L.C. ("GUS") as a result of GUS' recent acquisitions
of Experian, Direct Marketing Technologies and Metromail. 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, Experian and Equifax, both directly and through reseller networks.
In data processing services, the Company competes with Acxiom, May & Speh,
Direct Marketing Technologies and Harte-Hanks Data Technologies. In consumer
products, the Company competes with certain smaller producers of CD-ROM
products. In addition, 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 and consumer marketing information
industry. There is no guarantee that the Company will be successful in this new
market. See "Business -- Competition."
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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 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 for specified purposes and contain terms and conditions
prohibiting the unauthorized reproduction and use 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 Property 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 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.
CONTROLLING STOCKHOLDER
Mr. Gupta and his family (the "Gupta Family") own voting stock constituting
approximately 40.2% of the Company's total stockholder vote, based on the number
of shares outstanding at September 30, 1998. As a result, the Gupta Family is 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. The interests of the Gupta Family may, in certain circumstances,
differ from the interests of holders of the Notes. See "Principal Stockholders."
PURCHASE OF NOTES UPON A CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company is required to make
an offer to purchase all outstanding Notes at a purchase price equal to 101% of
the principal amount thereof, together with accrued and unpaid interest, if any,
to the date of purchase. There can be no assurance that the Company will have
available funds sufficient to purchase the Notes upon a Change of Control. In
addition, any Change of Control, and any repurchase of the Notes required under
the Indenture upon a Change of Control, may
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constitute an event of default under any revolving credit facility which the
Company may enter into, and in that event the obligations of the Company
thereunder could be declared due and payable by the lenders thereunder. Upon the
occurrence of an event of default, the lenders under such a credit facility may
have the ability to block repurchases of the Notes for a period of time and upon
any acceleration of the obligations under such a credit facility, the lenders
thereunder would be entitled to receive payment of all outstanding obligations
thereunder before the Company may repurchase any of the Notes tendered pursuant
to an offer to repurchase the Notes upon such Change of Control. See
"Description of Notes -- Change of Control."
ABSENCE OF PUBLIC MARKET FOR THE NOTES
The Existing Notes are currently owned by a relatively small number of
beneficial owners. The Existing Notes have not been registered under the
Securities Act or any state securities laws and, unless so registered and to the
extent not exchanged for the New Notes, may not be offered or sold except
pursuant to an exemption from, or in a transaction not subject to, the
registration requirements of the Securities Act and applicable state securities
laws. Any Existing Notes tendered and exchanged in the Exchange Offer will
reduce the aggregate principal amount of Existing Notes outstanding. Following
the consummation of the Exchange Offer, Existing Holders who did not tender
their Existing Notes generally will not have any further registration rights
under the Registration Rights Agreement, and such Existing Notes will continue
to be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for such Existing Notes could be adversely affected. The Existing
Notes are currently eligible for sale pursuant to Rule 144A through The Portal
Market of the National Association of Securities Dealers, Inc. ("Portal").
Because the Company anticipates that most Existing Holders will elect to
exchange such Existing Notes for New Notes in order to reduce restrictions on
the resale of New Notes under the Securities Act, the Company anticipates that
the liquidity of the market for any Existing Notes remaining after the
consummation of the Exchange Offer may be substantially limited.
The New Notes will constitute a new issue of securities for which there is
currently no active trading market. If the New Notes are traded after their
initial issuance, they may trade at a discount from their initial offering
price, depending upon prevailing interest rates, the market for similar
securities and other factors including general economic conditions and the
current financial condition, results of operations and business prospects of the
Company. Although the New Notes will generally be permitted to be resold or
otherwise transferred by non-affiliates of the Company without compliance with
the registration and prospectus delivery requirements of the Securities Act, the
Company does not intend to apply for a listing or quotation of the New Notes on
any securities exchange or stock market. The Initial Purchasers have informed
the Company that they currently intend to make a market in the New Notes.
However, the Initial Purchasers are not obligated to do so, and any such
market-making may be discontinued at any time without notice. In addition, such
market-making activity will be subject to the limits imposed under the Exchange
Act. Accordingly, there can be no assurance as to the development, liquidity or
maintenance of any market for the New Notes, or, in the case of non-tendering
Existing Holders, the trading market for the Existing Notes following the
Exchange Offer. If no trading market develops or is maintained, New Holders may
experience difficulty in reselling New Notes or may be unable to sell them.
The liquidity of, and trading market for, the Existing Notes or the New
Notes also may be adversely affected by general declines in the market for
similar securities. Such a decline may adversely affect such liquidity and
trading markets independent of the financial performance of, and prospects for,
the Company.
CONSEQUENCES OF FAILURE TO EXCHANGE
Existing Holders who do not exchange their Existing Notes for New Notes
pursuant to the Exchange Offer will continue to be subject to the restrictions
on transfer of such Existing Notes as set forth in the legend thereon as a
consequence of the original issuance of the Existing Notes pursuant to
exemptions from, or in transactions not subject to, the registration
requirements of the Securities Act and applicable state securities laws. In
general, the Existing Notes may not be offered or sold, unless (i) to a person
who the seller reasonably believes is a qualified institutional buyer in a
transaction meeting the requirements of Rule 144A, in a transaction meeting the
requirements of Rule 144A under the Securities Act, (ii) in accordance with
another
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<PAGE> 25
exemption from the registration requirements of the Securities Act (and based
upon an opinion of counsel if the Company so requests), (iii) to the Company, or
(iv) pursuant to an effective registration statement, and, in each case, in
accordance with any applicable securities laws of any state of the United States
or any other applicable jurisdiction. The Company does not currently anticipate
that it will register the Existing Notes under the Securities Act. Based on
interpretations by the Staff, as set forth in no-action letters issued to third
parties, the Company believes that New Notes issued pursuant to the Exchange
Offer in exchange for Existing Notes may be offered for resale, resold or
otherwise transferred by Holders thereof (other than any such Holder which is an
affiliate of the Company or is a broker-dealer which acquired such Existing
Notes directly from the Company) without compliance with the registration and
prospectus delivery requirements of the Securities Act, provided that (i) such
New Notes are acquired in the ordinary course of such Holder's business, (ii)
such Holder has no arrangement or understanding with any person to participate
in the distribution of such New Notes, (iii) such Holder is not engaged in and
does not intend to engage in a distribution of the New Notes, and (iv) provided
that Exchanging Dealers will be subject to prospectus delivery requirements in
connection with any resale. However, the Commission has not considered the
Exchange Offer in the context of a no-action letter addressing such matters and
there can be no assurance that the Staff would make a similar determination with
respect to the Exchange Offer.
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THE EXCHANGE OFFER
The following discussion sets forth or summarizes the material terms of the
Exchange Offer, including those set forth in the Letter of Transmittal
distributed with this Prospectus. This summary is qualified in its entirety by
reference to the full text of the documents underlying the Exchange Offer
(including the Indenture and the Registration Rights Agreement), which are
exhibits to the Exchange Offer Registration Statement.
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Existing Notes were sold by the Company to the Initial Purchasers on
June 18, 1998, and were subsequently resold to qualified institutional buyers
pursuant to Rule 144A under the Securities Act. In connection with the offering
of the Existing Notes, the Company entered into the Registration Rights
Agreement, which requires, among other things, that the Company (i) file with
the Commission a registration statement under the Securities Act with respect to
an issue of new notes of the Company identical in all material respects (other
than transfer restrictions, registration rights and the requirement, under
certain circumstances, to pay Additional Interest) to the Existing Notes (which
obligation has been satisfied by the filing of the Exchange Offer Registration
Statement), (ii) use their best efforts to cause such registration statement to
become effective under the Securities Act and (iii) upon the effectiveness of
that registration statement, offer to the Holders of the Existing Notes the
opportunity to exchange their Existing Notes for a like principal amount of New
Notes, which would be issued without a restrictive legend and may generally be
reoffered and resold by the Holder without restrictions or limitations under the
Securities Act, subject to the terms and conditions of the Exxon Capital, Morgan
Stanley and Shearman & Sterling No-Action Letters. See the discussion set forth
on the cover page of this Prospectus and the information under the captions
"Prospectus Summary -- The Exchange Offer" and "-- Resale of New Notes."
Any Existing Notes tendered and exchanged in the Exchange Offer will reduce
the aggregate principal amount of Existing Notes outstanding. Following the
consummation of the Exchange Offer, Existing Holders who did not tender their
Existing Notes generally will not have any further registration rights under the
Registration Rights Agreement, and such Existing Notes will continue to be
subject to certain restrictions on transfer. Accordingly, the liquidity of the
market for such Existing Notes could be adversely affected. The Existing Notes
are currently eligible for sale pursuant to Rule 144A. Because the Company
anticipates that most Existing Holders will elect to exchange such Existing
Notes for New Notes due to the reduction of restrictions on the resale of New
Notes under the Securities Act, the Company anticipates that the liquidity of
the market for any Existing Notes remaining after the consummation of the
Exchange Offer may be substantially limited.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Existing
Notes validly tendered and not withdrawn prior to 5:00 p.m., New York City time
on the Expiration Date. The Company will issue $1,000 principal amount of New
Notes in exchange for each $1,000 principal amount of outstanding Existing Notes
accepted in the Exchange Offer. Existing Holders may tender some or all of their
Existing Notes pursuant to the Exchange Offer. However, Existing Notes may be
tendered only in integral multiples of $1,000. The form and terms of the New
Notes are the same as the form and terms of the Existing Notes except that (i)
the New Notes have been registered under the Securities Act and hence will not
bear legends restricting the transfer thereof, and (ii) New Holders generally
will not be entitled to certain rights under the Registration Rights Agreement
or Additional Interest, which rights generally will terminate upon consummation
of the Exchange Offer. The New Notes will evidence the same debt as the Existing
Notes and will be entitled to the benefits of the Indenture.
Existing Holders do not have any appraisal or dissenters' rights under the
Delaware General Corporation Law or the Indenture in connection with the
Exchange Offer. The Company intends to conduct the Exchange Offer in accordance
with the applicable requirements of the Exchange Act and the rules and
regulations of the Commission thereunder, including Rule 14e-1.
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The Company shall be deemed to have accepted validly tendered Existing
Notes when, as and if the Company has given oral or written notice thereof to
the Exchange Agent. The Exchange Agent will act as agent for the tendering
Existing Holders for the purpose of receiving the New Notes from the Company.
If any tendered Existing Notes are not accepted for exchange because of an
invalid tender, the occurrence of certain other events set forth herein or
otherwise, the tendered certificates, if any, for any such unaccepted Existing
Notes will be returned, without expense, to the tendering Existing Holder
thereof as promptly as practicable after the Expiration Date.
Existing Holders who tender Existing Notes in the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the instructions
in the Letter of Transmittal, transfer taxes with respect to the exchange of
Existing Notes pursuant to the Exchange Offer. The Company will pay all required
charges and expenses, other than transfer taxes in certain circumstances, in
connection with the Exchange Offer. See "-- Fees and Expenses."
EXPIRATION DATE; EXTENSIONS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
, 1998 (30 days after this Prospectus was sent to Existing
Holders), unless the Company, in its sole discretion, extends the Exchange
Offer, in which case the term "Expiration Date" shall mean the latest date and
time to which the Exchange Offer is extended. The Company will not extend the
Expiration Date beyond 5:00 p.m., New York City time, on , 1998 (60
days after this Prospectus was sent to Existing Holders).
To extend the Exchange Offer, the Company will notify the Exchange Agent of
any extension by oral or written notice, followed by a public announcement
thereof no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Existing Notes, to extend the Exchange Offer or to terminate the
Exchange Offer by giving oral or written notice of such delay, extension or
termination to the Exchange Agent, or (ii) to amend the terms of the Exchange
Offer in any manner. Any such delay in acceptance, extension, termination or
amendment will be followed as promptly as practicable by a public announcement
thereof. See "-- Amendments; Termination."
INTEREST ON NEW NOTES
Each New Note will bear interest from the most recent date to which
interest has been paid or duly provided for on the Existing Note surrendered in
exchange for such New Note or, if no such interest has been paid or duly
provided for on such Existing Note, from June 18, 1998. Holders of the Existing
Notes whose Existing Notes are accepted for exchange will not receive accrued
interest on such Existing Notes for any period from and after the last Interest
Payment Date to which interest has been paid or duly provided for on such
Existing Notes prior to the original issue date of the New Notes or, if no such
interest has been paid or duly provided for, will not receive any accrued
interest on such Existing Notes, and will be deemed to have waived the right to
receive any interest on such Existing Notes accrued from and after such Interest
Payment Date or, if no such interest has been paid or duly provided for, from
and after June 18, 1998. Interest on the New Notes will be payable semi-annually
on each June 15 and December 15, commencing on December 15, 1998.
PROCEDURES FOR TENDERING
Only a Holder of Existing Notes may tender such Existing Notes in the
Exchange Offer. To tender in the Exchange Offer, an Existing Holder must
complete, sign and date the Letter of Transmittal, or a facsimile thereof, have
the signatures thereon guaranteed if required by the Letter of Transmittal, and
mail or otherwise deliver such Letter of Transmittal or such facsimile, together
with the Existing Notes and any other required documents, to the Exchange Agent
so as to be received by the Exchange Agent at the address set forth below prior
to 5:00 p.m., New York City time, on the Expiration Date. Delivery of the
Existing Notes may be made
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by book-entry transfer in accordance with the procedures described below.
Confirmation of such book-entry transfer must be received by the Exchange Agent
prior to the Expiration Date.
By executing the Letter of Transmittal, each Holder will make to the
Company the representation set forth below in the second paragraph under the
heading "-- Resale of New Notes."
The tender by an Existing Holder and the acceptance thereof by the Company
will constitute an agreement between such Existing Holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal.
THE METHOD OF DELIVERY OF EXISTING NOTES AND THE LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK
OF THE HOLDER. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED THAT HOLDERS USE
AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT TIME SHOULD BE
ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE EXPIRATION DATE. NO
LETTER OF TRANSMITTAL OR NOTES SHOULD BE SENT TO THE COMPANY. HOLDERS MAY
REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS, TRUST COMPANIES OR
NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Any beneficial owner whose Existing Notes are registered in the name of a
broker, dealer, commercial bank, trust company or other nominee and who wishes
to tender should contact the registered Existing Holder promptly and instruct
such registered Existing Holder to tender on such beneficial owner's behalf.
Signatures on the Letter of Transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Existing Notes tendered pursuant thereto (i) are signed by the
registered Existing Holder, unless such Existing Holder has completed the box
entitled "Special Exchange Instructions" or "Special Delivery Instructions" on
the Letter of Transmittal, or (ii) are tendered for the account of an Eligible
Institution. In the event that signatures on a Letter of Transmittal or a notice
of withdrawal, as the case may be, are required to be guaranteed, such guarantee
must be by a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States, or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange Act
(an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the
registered Holder of any Existing Notes listed therein, such Existing Notes must
be endorsed or accompanied by a properly completed bond power, signed by such
registered Existing Holder as such registered Existing Holder's name appears on
such Existing Notes, with the signature thereon guaranteed by an Eligible
Institution.
If the Letter of Transmittal or any Existing Notes or bond powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by the
Company, evidence satisfactory to the Company of their authority to so act must
be submitted with the Letter of Transmittal.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Existing Notes and withdrawal of tendered
Existing Notes will be determined by the Company in its sole discretion, which
determination will be final and binding. The Company reserves the absolute right
to reject any and all Existing Notes not properly tendered or any Existing Notes
the Company's acceptance of which would, in the opinion of counsel for the
Company, be unlawful. The Company also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Existing Notes. The
Company's interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the Letter of Transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Existing Notes must be cured within such time as the
Company shall determine. Although the Company intends to notify Existing Holders
of defects or irregularities with respect to tenders of Existing Notes, none of
the Company, the Exchange Agent or any other person shall incur any liability
for failure to
19
<PAGE> 29
give such notification. Tenders of Existing Notes will not be deemed to have
been made until such defects or irregularities have been cured or waived. Any
Existing Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Existing Holders, unless
otherwise provided in the Letter of Transmittal, as soon as practicable
following the Expiration Date.
Tender of Existing Notes Held Through DTC
The Exchange Agent and DTC have confirmed that the Exchange Offer is
eligible for ATOP, the DTC Automated Tender Offer Program. Accordingly, DTC
participants may, in lieu of physically completing and signing the applicable
Letter of Transmittal and delivering it to the Exchange Agent, electronically
transmit their acceptance of the Exchange Offer by causing DTC to transfer
Existing Notes to the Exchange Agent in accordance with DTC's ATOP procedures
for transfer. DTC will then send an Agent's Message (as defined below) to the
Exchange Agent.
The term "Agent's Message" means a message transmitted by DTC, received by
the Exchange Agent and forming part of the Book-Entry Confirmation, which states
that DTC has received an expressed acknowledgment from a participant in DTC that
is tendering Existing Notes which are the subject of such Book-Entry
Confirmation, that such participant has received and agrees to be bound by the
terms of the applicable Letter of Transmittal (or, in the case of an Agent's
Message relating to guaranteed delivery, that such participant has received and
agrees to be bound by the applicable Notice of Guaranteed Delivery), and that
the Company may enforce such agreement against such participant.
PERSONS TENDERING EXISTING NOTES THROUGH ATOP THEREBY AGREE TO BE BOUND BY
THE LETTER OF TRANSMITTAL AND WILL BE DEEMED TO HAVE MADE THE REPRESENTATION SET
FORTH BELOW IN THE SECOND PARAGRAPH UNDER THE HEADING "-- RESALE OF NEW NOTES."
Book-entry Delivery Procedures
Within two business days after the date hereof, the Exchange Agent will
establish accounts with respect to the Existing Notes at DTC, for purposes of
the Exchange Offer. Any financial institution that is a participant in DTC may
make book-entry delivery of the Existing Notes by causing DTC to transfer such
Existing Notes into the Exchange Agent's account at DTC in accordance with DTC
procedures for such transfer. Timely book-entry delivery of Existing Notes
pursuant to the Exchange Offer, however, requires receipt of a Book-Entry
Confirmation prior to the Expiration Date. In addition, although delivery of
Existing Notes may be effected through book-entry transfer into the Exchange
Agent's account at DTC, the Letter of Transmittal (or a manually signed
facsimile thereof), together with any required signature guarantees and any
other required documents, or an Agent's Message in connection with a book-entry
transfer, must, in any case, be delivered or transmitted to and received by the
Exchange Agent prior to the Expiration Date to receive New Notes for tendered
Existing Notes, or the guaranteed delivery procedure described below must be
complied with. Tender will not be deemed made until such documents or Agent's
Message are received by the Exchange Agent. Delivery of documents or information
to DTC does not constitute delivery to the Exchange Agent.
GUARANTEED DELIVERY PROCEDURES
Existing Holders who wish to tender their Existing Notes and (i) whose
Existing Notes are not immediately available, (ii) who cannot deliver their
Existing Notes, the Letter of Transmittal or any other required documents to the
Exchange Agent, or (iii) who cannot complete the procedures for book-entry
transfer, prior to the Expiration Date, may effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or
20
<PAGE> 30
hand delivery) setting forth the name and address of the Existing Holder,
the certificate number(s) of such Existing Notes and the principal amount
of Existing Notes tendered, stating that the tender is being made thereby
and guaranteeing that, on or prior to three New York Stock Exchange trading
days after the Expiration Date, the Letter of Transmittal (or facsimile
thereof), together with the certificate(s) representing the Existing Notes
(or a confirmation of book-entry transfer of such Existing Notes into the
Exchange Agent's account at DTC) and any other documents required by the
Letter of Transmittal, will be deposited by the Eligible Institution with
the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Existing Notes in proper form for transfer (or a confirmation of book-entry
transfer of such Existing Notes into the Exchange Agent's account at DTC)
and all other documents required by the Letter of Transmittal, are received
by the Exchange Agent within three New York Stock Exchange trading days
after the Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Existing Holders who wish to tender their Existing Notes according to
the guaranteed delivery procedures set forth above.
WITHDRAWALS OF TENDERS
Except as otherwise provided herein, tenders of Existing Notes may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Existing Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at the address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must (i) specify the name of
the person having deposited the Existing Notes to be withdrawn (the
"Depositor"), (ii) identify the Existing Notes to be withdrawn (including the
certificate number(s) and principal amount of such Existing Notes, or, in the
case of Existing Notes transferred by book-entry transfer, the name and number
of the account at DTC to be credited), (iii) be signed by the Existing Holder in
the same manner as the original signature on the Letter of Transmittal by which
such Existing Notes were tendered (including any required signature guarantees)
or be accompanied by documents of transfer sufficient to have the Trustee
register the transfer of such Existing Notes into the name of the person
withdrawing the tender, and (iv) specify the name in which any such Existing
Notes are to be registered, if different from that of the Depositor. All
questions as to the validity, form and eligibility (including time or receipt)
of such notices will be determined by the Company, whose determination shall be
final and binding on all parties. Any Existing Notes so withdrawn will be deemed
not to have been validly tendered for purposes of the Exchange Offer and no New
Notes will be issued with respect thereto unless the Existing Notes so withdrawn
are validly retendered. Any Existing Notes which have been tendered but which
are not accepted for exchange will be returned to the Holder thereof without
cost to such Existing Holder as soon as practicable after withdrawal, rejection
of tender or termination of the Exchange Offer. Properly withdrawn Existing
Notes may be retendered by following one of the procedures described above under
"-- Procedures for Tendering" at any time prior to the Expiration Date.
AMENDMENTS; TERMINATION
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or to exchange New Notes for any Existing
Notes, and may amend or terminate the Exchange Offer in its sole discretion
before the acceptance of such Existing Notes. By way of example, the following
constitute some, but not all, of the reasons for which the Company might choose
to amend or terminate the Exchange Offer:
(a) in the opinion of counsel to the Company, the Exchange Offer or
any part thereof contemplated herein violates any applicable law or
interpretation of the Staff;
(b) any action or proceeding shall have been instituted or threatened
in any court or by any governmental agency which might materially impair
the ability of the Company to proceed with the
21
<PAGE> 31
Exchange Offer or any material adverse development shall have occurred in
any existing action or proceeding with respect to either the Company or the
Guarantors, if any;
(c) any governmental approval has not been obtained, which approval
the Company shall deem necessary for the consummation of the Exchange Offer
as contemplated hereby;
(d) any cessation of trading on the Nasdaq Stock Market or any
exchange, or any banking moratorium, shall have occurred, as a result of
which the Company is unable to proceed with the Exchange Offer; or
(e) a stop order shall have been issued by the Commission or any state
securities authority suspending the effectiveness of the Exchange Offer
Registration Statement or proceedings shall have been initiated or, to the
knowledge of the Company, threatened for that purpose.
In its sole discretion, the Company may (i) refuse to accept any Existing
Notes and return all tendered Existing Notes to the tendering Existing Holders,
(ii) extend the Exchange Offer and retain all Existing Notes tendered prior to
the expiration of the Exchange Offer, subject, however, to the rights of
Existing Holders to withdraw such Existing Notes (see "-- Withdrawals of
Tenders"), or (iii) accept all properly tendered Existing Notes which have not
been validly withdrawn.
EXCHANGE AGENT
State Street Bank and Trust Company of California, N.A., will act as
Exchange Agent for the Exchange Offer with respect to the Existing Notes.
Questions and requests for assistance, requests for additional copies of
this Prospectus or of the Letter of Transmittal for the Existing Notes and
requests for copies of the Notice of Guaranteed Delivery should be directed to
the Exchange Agent, addressed as follows:
<TABLE>
<S> <C>
By Hand, Overnight Courier State Street Bank and Trust Company of
or Mail: California, N.A. Exchange Agent
c/o State Street Bank and Trust Company
2 International Place, 4th Floor
Boston, MA 02110
Attention: Kellie Mullen, Corporate Trust Department
By Facsimile: 617-664-5290
Confirm by Telephone: 617-664-5587
</TABLE>
FEES AND EXPENSES
The required expenses of soliciting Existing Notes for exchange will be
borne by the Company. The principal solicitation is being made by mail by the
Exchange Agent. However, additional solicitation may be made by telephone,
facsimile or in person by officers and regular employees of the Company and its
affiliates and by persons so engaged by the Exchange Agent.
The Company will pay the Exchange Agent reasonable and customary fees as
negotiated for its services and will reimburse it for its reasonable
out-of-pocket expenses in connection therewith and pay other registration
expenses, including fees and expenses, as negotiated, of the Trustee (as
defined), filing fees, blue sky fees and printing and distribution expenses.
RESALE OF NEW NOTES
The Company is making the Exchange Offer in reliance on the position of the
Staff as set forth in the Exxon Capital No-Action Letter, the Morgan Stanley
No-Action Letter and the Shearman & Sterling No-Action Letter, and other
interpretive letters addressed to third parties in other transactions. However,
the Company has not sought its own interpretive letter addressing such matters
and there can be no assurance that the Staff would make a similar determination
with respect to the Exchange Offer as it has in such interpretive letters to
third parties. Based on these interpretations by the Staff, and subject to the
two immediately
22
<PAGE> 32
following sentences, the Company believes that New Notes issued pursuant to this
Exchange Offer in exchange for Existing Notes may be offered for resale, resold
and otherwise transferred by a Holder thereof (other than a Holder who is a
broker-dealer) without further compliance with the registration and prospectus
delivery requirements of the Securities Act, provided that such New Notes are
acquired in the ordinary course of such Holder's business and that such Holder
is not participating, and has no arrangement or understanding with any person to
participate, in a distribution (within the meaning of the Securities Act) of
such New Notes. However, any Holder of Existing Notes who (i) is an "affiliate"
of the Company (within the meaning of Rule 405 under the Securities Act), (ii)
does not acquire such New Notes in the ordinary course of its business, (iii)
intends to participate in the Exchange Offer for the purpose of distributing New
Notes, or (iv) is a broker-dealer who purchased such Existing Notes directly
from the Company, (a) will not be able to rely on the interpretations of the
Staff set forth in the above-mentioned interpretive letters, (b) will not be
permitted or entitled to tender such Existing Notes in the Exchange Offer, and
(c) must comply with the registration and prospectus delivery requirements of
the Securities Act in connection with any sale or other transfer of such
Existing Notes unless such sale is made pursuant to an exemption from such
requirements. In addition, as described below, an Exchanging Dealer may be
deemed a statutory "underwriter" within the meaning of the Securities Act and
must deliver a prospectus meeting the requirements of the Securities Act in
connection with any resales of such New Notes.
Each Holder of Existing Notes who wishes to exchange Existing Notes for New
Notes in the Exchange Offer will be required to represent that (i) it is not an
affiliate of the Company, (ii) any New Notes to be received by it are being
acquired in the ordinary course of its business, (iii) it has no arrangement or
understanding with any person to participate in and (iv) it is not engaged in,
and does not intend to engage in, a distribution (within the meaning of the
Securities Act) of such New Notes. Each broker-dealer that receives New Notes
for its own account pursuant to the Exchange Offer must acknowledge that it
acquired the Existing Notes for its own account as a result of market-making
activities or other trading activities (and not directly from the Company) and
must agree that it will deliver a prospectus meeting the requirements of the
Securities Act in connection with any resale of such New Notes. The Letter of
Transmittal states that by so acknowledging and by delivering a prospectus, such
an Exchanging Dealer will not be deemed to admit that it is an "underwriter"
within the meaning of the Securities Act. Based on the position taken by the
Staff in the interpretive letters referred to above, the Company believes that
Exchanging Dealers may fulfill their prospectus delivery requirements with
respect to the New Notes received upon exchange of such Existing Notes with a
prospectus meeting the requirements of the Securities Act, which may be the
prospectus prepared for an exchange offer so long as it contains a description
of the plan of distribution with respect to the resale of such New Notes.
Accordingly, this Prospectus, as it may be amended or supplemented from time to
time, may be used by an Exchanging Dealer during the period referred to below in
connection with resales of New Notes received in exchange for Existing Notes
where such Existing Notes were acquired by such Exchanging Dealer for its own
account as a result of market-making or other trading activities. Subject to
certain provisions set forth in the Registration Rights Agreement, the Company
has agreed that this Prospectus, as it may be amended or supplemented from time
to time, may be used by an Exchanging Dealer in connection with resales of such
New Notes for a period of 180 days following effectiveness of the Exchange Offer
Registration Statement. See "Plan of Distribution." Any Exchanging Dealer who is
an affiliate of the Company may not rely on such interpretive letters and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any resale transaction. See "The Exchange
Offer -- Resales of New Notes."
In that regard, each Exchanging Dealer who surrenders Existing Notes
pursuant to the Exchange Offer will be deemed to have agreed, by execution of
the Letter of Transmittal, that, upon receipt of notice from the Company of the
occurrence of any event or the discovery of any fact which makes any statement
contained or incorporated by reference in this Prospectus untrue in any material
respect or which causes this Prospectus to omit to state a material fact
necessary in order to make the statements contained or incorporated by reference
herein, in light of the circumstances under which they were made, not misleading
or of the occurrence of certain other events specified in the Registration
Rights Agreement, such Exchanging Dealer will suspend the sale of New Notes
pursuant to this Prospectus until the Company has amended or supplemented this
Prospectus to correct such misstatement or omission and has furnished copies of
the amended or supple-
23
<PAGE> 33
mented Prospectus to such Exchanging Dealer or the Company has given notice that
the sale of the New Notes may be resumed, as the case may be.
CONSEQUENCES OF FAILURE TO EXCHANGE
As a result of the making of this Exchange Offer, the Company will have
fulfilled certain of its obligations under the Registration Rights Agreement,
and Holders of Existing Notes who do not tender their Notes, except for certain
instances involving the Initial Purchasers or Existing Holders who are not
eligible to participate in the Exchange Offer, will not have any further
registration rights under the Registration Rights Agreement or otherwise or
rights to receive Additional Interest for failure to register. Accordingly, any
Holder of Existing Notes that does not exchange that Holder's Existing Notes for
New Notes will continue to hold the untendered Existing Notes and will be
entitled to all the rights and subject to all the limitations applicable thereto
under the Indenture, except to the extent that such rights or limitations, by
their terms, terminate or cease to have further effectiveness as a result of the
Exchange Offer.
The Existing Notes that are not exchanged for New Notes pursuant to the
Exchange Offer will remain restricted securities. Accordingly, such Existing
Notes may be resold only (i) to a person who the seller reasonably believes is a
qualified institutional buyer in a transaction meeting the requirements of Rule
144A, in a transaction meeting the requirements of Rule 144A under the
Securities Act, (ii) in accordance with another exemption from the registration
requirements of the Securities Act (and based upon an opinion of counsel if the
Company so requests), (iii) to the Company, or (iv) pursuant to an effective
registration statement, and, in each case, in accordance with any applicable
securities laws of any State of the United States or any other applicable
jurisdiction.
OTHER MATTERS
Participation in the Exchange Offer is voluntary and Existing Holders
should carefully consider whether to accept. Holders of the Existing Notes are
urged to consult their financial and tax advisors in making their own decision
on what action to take.
The Company may in the future seek to acquire untendered Existing Notes in
open market or privately negotiated transactions, through subsequent exchange
offers or otherwise. The Company has no present plans to acquire any Existing
Notes that are not tendered in the Exchange Offer or to file a registration
statement to permit resales of any untendered Existing Notes.
24
<PAGE> 34
USE OF PROCEEDS
The Company will not receive any cash proceeds from the Exchange Offer. In
consideration for issuing the New Notes in exchange for Existing Notes as
described in this Prospectus, the Company will receive Existing Notes in like
principal amount. The Existing Notes surrendered in exchange for the New Notes
will be retired and canceled.
The terms and conditions of the Existing Notes to be retired and canceled
in the Exchange Offer are identical in all material respects to those of the New
Notes, except that the New Notes will be registered securities whereas the
Existing Notes are not, and except that holders of the New Notes will not be
entitled to registration rights and will not be entitled to Additional Interest
under the Registration Rights Agreement.
The net proceeds from the sale of the Existing Notes (after deducting the
estimated fees, expenses and hedging costs in connection with the Offering) were
approximately $109.6 million.
The Company used approximately $87.0 million of the net proceeds from the
sale of the Existing Notes to repay indebtedness previously outstanding under
the Old Credit Facility and expects to use the remainder of the net proceeds for
general corporate purposes, including acquisitions.
Proceeds from the Old Credit Facility were used to, among other things,
fund capital expenditures and acquisitions. Borrowings under the Old Credit
Facility bore interest at the lender's base rate or margins ranging from 0.375%
to 0.625% over LIBOR (based on the Company's funded debt ratio). The Company
terminated the Old Credit Facility in July 1998. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations."
25
<PAGE> 35
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of September 30, 1998.
<TABLE>
<CAPTION>
SEPTEMBER 30, 1998
------------------
<S> <C>
Cash and cash equivalents................................... $ 24,501
========
Long term debt (including current maturities):
Other notes payable and capital lease obligations......... 13,590
Existing notes............................................ 115,000
--------
Total debt................................................ 128,590
Total stockholders' equity................................ 78,217
--------
Total capitalization.............................. $206,807
========
</TABLE>
26
<PAGE> 36
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents selected consolidated financial data for the
Company. The selected income statement and balance sheet data for the years
ended December 31, 1993, 1994, 1995, 1996 and 1997 are derived from the
consolidated financial statements of the Company, which consolidated financial
statements have been audited by PricewaterhouseCoopers LLP, independent public
accountants. The selected income statement data for the nine months ended
September 30, 1997 and 1998 are derived from the unaudited consolidated
financial statements of the Company although such information has been prepared
on the same basis as the Company's audited financial statements and, in the
opinion of management, contain all adjustments, consisting of normal recurring
adjustments and the adjustments described in note 1, necessary for a fair
presentation of the financial position and results of operations of the Company.
The results of operations for the nine months ended September 30, 1998 are not
necessarily indicative of results for the full fiscal year. The following
information 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 thereto, included elsewhere in this
Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------------------------- -------------------
1993 1994 1995 1996 1997 1997 1998
------- ------- ------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales........................................ $55,752 $69,603 $86,766 $108,298 $193,327 $139,511 $172,528
Costs and expenses:
Database and production costs................ 13,973 18,153 23,999 29,272 55,090 38,674 49,469
Selling, general and administrative.......... 23,072 28,249 37,724 45,766 80,203 59,396 91,696
Depreciation and amortization................ 2,651 3,125 3,469 4,855 34,415 24,397 20,784
Provision for litigation settlement.......... -- -- -- -- -- -- 4,500
Acquisition-related and restructuring
charges(1)................................. -- -- -- 21,500 56,098 56,098 15,468
------- ------- ------- -------- -------- -------- --------
Total costs and expenses................... 39,696 49,527 65,192 101,393 225,806 178,565 181,917
------- ------- ------- -------- -------- -------- --------
Operating income (loss).......................... 16,056 20,076 21,574 6,905 (32,479) (39,054) (9,389)
Other income (expense):
Investment income............................ 1,172 1,109 1,322 3,194 3,748 2,513 16,306
Interest expense............................. (298) (247) (157) (209) (4,098) (2,687) (6,225)
Other........................................ -- -- -- (943) -- -- --
------- ------- ------- -------- -------- -------- --------
Income (loss) before income taxes and
discontinued operations........................ 16,930 20,938 22,739 8,947 (32,829) (39,228) 692
Income taxes..................................... 5,941 7,710 8,421 3,400 6,987 4,299 4,907
------- ------- ------- -------- -------- -------- --------
Income (loss) from continuing operations......... 10,989 13,228 14,318 5,547 (39,816) (43,527) (4,215)
Loss on discontinued operations(2)............... (214) (404) (2,317) (355) -- -- --
Loss from abandonment of subsidiary(2)........... -- -- -- (1,373) -- -- --
------- ------- ------- -------- -------- -------- --------
Net income (loss)................................ $10,775 $12,824 $12,001 $ 3,819 $(39,816) $(43,527) $ (4,215)
======= ======= ======= ======== ======== ======== ========
OTHER DATA:
EBITDA, as adjusted(3)........................... $18,707 $23,201 $25,043 $ 33,260 $ 58,034 $ 41,441 $ 31,363
EBITDA, as adjusted, margin(4)................... 33.6% 33.3% 28.9% 30.7% 30.0% 29.7% 18.2%
Capital expenditures(5).......................... $ 1,749 $ 3,580 $ 4,066 $ 9,204 $ 15,178 $ 10,975 $ 22,133
Ratio of earnings to fixed charges(6)............ 56.7x 83.1x 122.0x 30.5x -- -- 1.1x
CONSOLIDATED BALANCE SHEET DATA (AT PERIOD END):
Cash and cash equivalents........................ $ 8,511 $13,491 $11,999 $ 7,497 $ 10,653 $ 10,171 $ 24,501
Working capital.................................. 30,765 35,411 45,363 45,727 60,007 62,353 60,775
Total assets..................................... 61,027 77,783 91,241 107,877 194,911 196,035 263,989
Long-term debt, including current portion........ 4,587 3,821 2,039 1,135 82,000 82,167 128,590
Stockholders' equity............................. 50,665 63,326 76,084 87,605 80,236 76,676 78,217
</TABLE>
- ---------------
(1) In 1996, represents 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 of assets based on management's
evaluation of certain intangibles related to acquisitions prior to 1995. In
1997, represents the write-off of purchased in-process research and
development costs of $49.2 million and other restructuring costs of $2.6
million relating to the acquisition of DBA and purchased in-process
27
<PAGE> 37
research and development costs of $4.3 million relating to the acquisition
of Pro CD. For the nine month period ended September 30, 1998, represents
charges of $9.2 million for the write-off of purchased in-process research
and development costs relating to the acquisition of Walter Karl, $3.0
million of costs associated with the Company's bid to acquire Metromail
Corporation and $3.3 million for restructuring and other costs.
(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 from this disposition were approximately $3.3
million from 1993 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 delivered to the Company in this transaction.
(3) "EBITDA, as adjusted," is defined as operating income (loss) adjusted to
exclude depreciation, amortization of intangible assets, provision for
litigation settlement and acquisition-related and restructuring charges.
EBITDA, as adjusted, is presented because it is a widely accepted indicator
of a company's ability to incur and service debt. However, EBITDA, as
adjusted, does not purport to represent cash provided by operating
activities as reflected in the Company's consolidated statements of cash
flows, is not a measure of financial performance under generally accepted
accounting principles ("GAAP") and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with
GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to
similar measures reported by other companies.
(4) "EBITDA, as adjusted, margin" is defined as EBITDA, as adjusted, divided by
net sales.
(5) Capital expenditures includes purchases of property and equipment, certain
consumer database costs and software development costs.
(6) The ratio of earnings to fixed charges is determined by dividing the sum of
income before income taxes and interest expense by interest expense.
Earnings were inadequate to cover fixed charges in 1997 and the nine months
ended September 30, 1997 by $32,829 and $39,228, respectively. Adjusted to
eliminate non-cash acquisition-related and restructuring charges of $56,098
for 1997 and the nine months ended September 30, 1997, respectively, such
earnings would have exceeded fixed charges by $23,269 and $16,870,
respectively.
28
<PAGE> 38
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with "Selected
Historical Consolidated Financial Information," and the Consolidated Financial
Statements of the Company and the notes thereto included elsewhere in this
Prospectus. The results shown herein are not necessarily indicative of the
results to be expected in any future period.
OVERVIEW
The Company is a leading provider of business and consumer marketing
information products and data processing services that assist its clients in
finding new customers and generating new business. The Company's key assets
include a proprietary database of over 11 million businesses and a consumer
database of over 113 million households and over 180 million individuals in the
United States and Canada, which the Company believes are the most comprehensive
and accurate available. The Company leverages these key assets by selling a wide
range of information products and data processing services through multiple
distribution channels primarily to small and medium-size businesses and also to
consumers and large corporations.
Sales lead generation products, data processing services and consumer
CD-ROM products accounted for 63.7%, 26.6% and 9.7%, respectively, of the
Company's net sales for the nine months ended September 30, 1998. 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 1997. Over three
quarters of the Company's net sales in 1997 were attributable to customers who
had previously purchased the Company's products and services. The Company
estimates that no customer represented greater than approximately 8.0% of net
sales in 1997. From 1993 to 1997, the Company's net sales increased at a
compounded annual rate of 36.5% to $193.3 million from $55.8 million through
internal growth and acquisitions.
The Company's net sales are 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. Generally, a majority 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. 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 financial performance 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
databases, fulfilling customer orders and the direct costs associated with the
production of CD-ROM titles. Costs to develop new databases are capitalized by
the Company and amortized upon the successful completion of the databases over a
period not to exceed 5 years. 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.
Since 1996, database and production costs have increased as a percentage of
net sales as a result of higher costs associated with 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 the future.
The Company is building infrastructure for continued growth and increased
sales and has heightened its investment in field sales operations and direct
marketing activities. As a result, selling, general and administrative expenses
have grown substantially. Since 1996, the overall increase in selling, general
and administrative expenses has been more than offset by the overall increase in
the sales of data processing services and CD-ROM products, which bear a slightly
lower selling, general and administrative cost margin than the same margin
associated with the net sales of sales lead generation products. As a result,
selling,
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<PAGE> 39
general and administrative expenses have decreased as a percentage of net sales
since 1996. To the extent that data processing and CD-ROM sales constitute a
greater percentage of net sales, the Company expects selling, general and
administrative costs to decrease as a percentage of net sales in the future.
The Company has supplemented its internal growth through strategic
acquisitions. The Company has completed eight significant 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,
increased its presence in list management and list brokerage services and
broadened its offerings of business marketing information. The following table
summarizes these acquisitions:
<TABLE>
<CAPTION>
TRANSACTION
VALUE
ACQUIRED COMPANY KEY ASSET DATE ACQUIRED (IN MILLIONS)(1)
---------------- --------- ------------- ----------------
<S> <C> <C> <C>
Digital Directory Assistance Consumer CD-ROM Products August 1996 $ 17
County Data Corporation New Businesses Database November 1996 $ 11
Marketing Data Systems Data Processing Services November 1996 $ 3
BJ Hunter Canadian Business Database December 1996 $ 3
DBA Consumer Database and Data Processing February 1997 $105
Services
Pro CD Consumer CD-ROM Products August 1997 $ 18
Walter Karl Data Processing and List Management March 1998 $ 18
Services
JAMI Marketing List Management Services May 1998 $ 13
</TABLE>
- ---------------
(1) Transaction value includes total consideration paid including cash paid,
debt issued and stock issued plus long-term debt repaid or assumed at the
date of acquisition plus, in the case of DBA, a subsequent purchase price
adjustment in October 1997.
The Company incurred acquisition-related charges to operations, consisting
of the write-off of acquired in-process research and development and other
restructuring charges of an aggregate of approximately $21.5 million in 1996 in
connection with the acquisition of Digital Directory Assistance and the change
in estimated useful lives of certain intangibles related to acquisitions prior
to 1995, $56.1 million in 1997 in connection with the acquisitions of DBA and
Pro CD and $14.3 million in 1998 in connection with the acquisitions of Walter
Karl and for certain other acquisition-related and restructuring charges. In
addition, the Company expects to amortize goodwill and other intangibles over
periods of 1 to 15 years in connection with acquisitions completed since
mid-1996. The Company's results for 1997 do not include the operations of Walter
Karl or JAMI Marketing. In connection with future acquisitions, the Company
expects that it will be required to incur additional acquisition-related charges
to operations and to amortize additional amounts of goodwill and other
intangibles over future periods. While there are currently no binding
commitments with respect to any particular future acquisitions, the Company
frequently evaluates the strategic opportunities available to it and intends to
pursue strategic acquisitions of complementary products, technologies or
businesses that it believes fit its business strategy. See Note 2 to the
unaudited consolidated financial statements at September 30, 1998 and Notes 2,
3, 6, 16 and 18 of Notes to Consolidated Financial Statements.
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RESULTS OF OPERATIONS
The following table sets forth the periods indicated, certain items from
the Company's statement of operations data expressed as a percentage of net
sales:
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
----------------------- ----------------
1995 1996 1997 1997 1998
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Net sales.................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Costs and expenses:
Database and production costs............................ 27.7 27.0 28.5 27.7 28.7
Selling, general and administrative...................... 43.5 42.3 41.5 42.6 53.1
Depreciation and amortization............................ 4.0 4.5 17.8 17.5 12.0
Provision for litigation settlements..................... -- -- -- -- 2.6
Acquisition-related charges.............................. -- 19.9 29.0 40.2 9.0
----- ----- ----- ----- -----
Total costs and expenses.......................... 75.2 93.7 116.8 128.0 105.4
----- ----- ----- ----- -----
Operating income (loss).................................... 24.8 6.3 (16.8) (28.0) (5.4)
Other income, net:......................................... 1.3 1.9 -- (.1) 5.8
----- ----- ----- ----- -----
Income (loss) before income taxes........................ 26.1 8.2 (16.8) (28.1) 0.4
Income taxes............................................... 9.7 3.1 3.6 3.1 2.8
----- ----- ----- ----- -----
Income (loss) from continuing operations................... 16.4 5.1 (20.4) (31.2) (2.4)
Loss on discontinued operations and abandonment of
subsidiary............................................... 2.7 1.6 -- -- --
----- ----- ----- ----- -----
Net income (loss)........................................ 13.7% 3.5% (20.4)% (31.2)% (2.4)%
===== ===== ===== ===== =====
EBITDA, as adjusted(1)..................................... 28.9% 30.7% 30.0% 29.7% 18.2%
===== ===== ===== ===== =====
</TABLE>
(1) "EBITDA, as adjusted," is defined as operating income (loss) adjusted to
exclude depreciation, amortization of intangible assets, provision for
litigation settlement and acquisition-related and restructuring charges.
EBITDA, as adjusted, is presented because it is a widely accepted indicator
of a company's ability to incur and service debt. However, EBITDA, as
adjusted, does not purport to represent cash provided by operating
activities as reflected in the Company's consolidated statements of cash
flows, is not a measure of financial performance under generally accepted
accounting principles ("GAAP") and should not be considered in isolation or
as a substitute for measures of performance prepared in accordance with
GAAP. Also, the measure of EBITDA, as adjusted, may not be comparable to
similar measures reported by other companies.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO 1997
NET SALES
For the nine months ended September 30, 1998 net sales were $172.5 million,
a 23.7% increase from $139.5 million for the same period in 1997. Net sales of
sales lead generation products for the nine months ended September 30, 1998 were
$109.9 million, a 16.3% increase from $94.5 million for the same period in 1997.
Factors contributing to an increase in net sales of sales products include the
enhancement of existing and development of new sales lead generation products
and the increase in the number of mailing pieces mailed from 21.3 million during
the first nine months of 1997 to 30.0 million during the same period of 1998.
Net sales of data processing services for the nine months ended September 30,
1998 were $45.9 million, a 48.5% increase from $30.9 million for the same period
in 1997. Net sales of consumer CD-ROM products for the nine months ended
September 30, 1998 were $16.7 million, an 18.4% increase from $14.1 million for
the same period in 1997. Although the Company experienced an increase in net
sales of consumer CD-ROM products for the nine months ended September 30, 1998
versus the same period in 1997, a portion of the increase relates to the
acquisition of Pro CD during August 1997, as the Company recorded the results of
operations for Pro CD for only two months of the nine months ended September 30,
1997.
Amounts and percentages for the nine months ended September 30, 1998 and
1997, respectively, may not be fully comparable from period to period due to the
acquisition of the Database America Companies ("DBA") in February 1997, Pro CD
in August 1997, Walter Karl in March 1998 and JAMI in June 1998. During the
third quarter of 1998, a major customer of data processing services informed the
Company that it would cancel certain direct mail activities requiring the
Company's services, adversely affecting net sales of
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<PAGE> 41
data processing services previously described. The Company believes that the
cancellation of services provided to this customer may cause a decline in future
data processing services net sales.
DATABASE AND PRODUCTION COSTS
For the nine month period ended September 30, 1998, database and production
costs were $49.5 million, or 28.7% of net sales, compared to $38.7 million, or
27.7% of net sales for the same period in 1997. The increase in database and
production costs as a percentage of net sales is principally the result of the
write-down of $0.9 million the Company recorded during the third quarter of 1998
on its remaining 1998 consumer CD-ROM product inventory on hand.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the nine month period
ended September 30, 1998 were $91.7 million, or 53.1% of net sales, compared to
$59.4 million, or 42.6% of net sales for the same period in 1997. The increase
in selling, general and administrative expenses as a percentage of net sales is
principally the result of the Company's increase in estimates for reserves
related to price protection and cooperative advertising for consumer CD-ROM
products and additions to other general reserves totalling $12.1 million.
DEPRECIATION AND AMORTIZATION EXPENSES
Depreciation and amortization expenses for the nine month period ended
September 30, 1998 were $20.8 million, or 12.0% of net sales, compared to $24.4
million, or 17.5% of net sales for the same period in 1997. Amortization of
acquired database costs and purchased data processing software associated with
the acquisition of the Database America Companies (DBA) in February 1997 totaled
$5.1 million and $15.8 million for the nine months ended September 30, 1998, and
1997, respectively.
Excluding amortization on acquired database costs and purchased data
processing software associated with the acquisition of DBA in February 1997,
depreciation and amortization expenses were $15.7 million and $8.6 million for
the nine month periods ended September 30, 1998 and 1997, respectively. The
increase relates primarily to amortization of intangibles for acquisitions
recorded since June 1997, including Pro CD in August 1997, Walter Karl in March
1998, and JAMI Marketing Services in June 1998.
PROVISION FOR LITIGATION SETTLEMENT
The Company recorded a provision for litigation settlement of $4.5 million
during the third quarter of 1998 related to a dispute which is reflected in the
accompanying consolidated statements of operations. See Note 8 of the Notes to
the Consolidated Financial Statements for additional information regarding the
dispute.
ACQUISITION-RELATED AND RESTRUCTURING CHARGES
For the nine month period ended September 30, 1998, in addition to the
write-off of purchased in-process research and development costs of $9.2 million
for Walter Karl described in Note 2 of the Notes to the Consolidated Financial
Statements, included in acquisition-related and restructuring charges in the
accompanying consolidated statement of operations are: $3.0 million of costs
associated with the Company's bid to acquire Metromail Corporation, $0.7 million
associated with the Company's offering to sell Class A Common Stock which was
not completed, $1.4 million for restructuring costs related to the Company's
compilation and sales activities for new businesses enacted during the first
quarter of 1998, and $1.2 million for restructuring costs related to certain
cost reduction measures enacted during the third quarter of 1998.
These acquisition-related and restructuring charges totaled $15.5 million,
and represented 9.0% of net sales during the nine months ended September 30,
1998. As part of the acquisition of the Database America Companies in February
1997 and Pro CD in August 1997, the Company recorded charges totaling $56.1
million, or 40.2% of net sales, during the nine months ended September 30, 1997
for the write-off of
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<PAGE> 42
acquired in-process research and development costs as well as other related
integration and organizational restructuring costs.
OPERATING INCOME (LOSS)
Including the factors previously described, the Company had an operating
loss of $(9.4) million, or (5.4)% of net sales for the nine month period ended
September 30, 1998, as compared to an operating loss of $(39.1) million, or
(28.0)% of net sales for the same period in 1997.
OTHER INCOME (EXPENSE), NET
Other income (expense), net for the nine months ended September 30, 1998
and 1997 was $10.1 million and $(0.2) million, respectively. During the second
quarter of 1998, the Company recorded a realized gain of $16.5 million on the
disposition of its holdings in Metromail Corporation common stock. This realized
gain was partially offset during the second quarter of 1998 when the Company
recorded a loss of $2.0 million on the write-off of an investment classified in
other assets in the accompanying consolidated balance sheets.
INCOME TAXES
A provision for income taxes of $4.9 million and $4.3 million was recorded
for the nine months ended September 30, 1998, and 1997, respectively.
Acquisition-related charges of $9.2 million and $49.2 million were included in
income before income taxes during the nine months ended September 30, 1998 and
1997, respectively, but are not deductible for tax purposes. The provision for
these periods also reflect the inclusion of amortization on certain intangibles
in taxable income not deductible for tax purposes.
EBITDA, AS ADJUSTED
Excluding the provision for litigation settlement, acquisition-related and
restructuring charges previously described, the Company's EBITDA, as adjusted,
was $31.4 million, or 18.2% of net sales, during the nine months ended September
30, 1998, compared to $41.4 million, or 29.7% of net sales, during the same
period of 1997.
1997 COMPARED TO 1996
Net Sales. Net sales for 1997 were $193.3 million, a 78.5% increase from
$108.3 million in 1996. Of this increase, approximately $54.4 million were
attributable to the net sales of DBA for the period from February 1, 1997, the
date of acquisition, through December 31, 1997. In addition, net sales in 1996
and 1997 also increased as a result of acquisitions completed in the third and
fourth quarters of 1996.
Net sales of sales lead generation products for 1997 were $128.9 million, a
43.7% increase from $89.7 million in 1996. Excluding the effect of acquisitions
completed after July 1996, net sales of sales lead generation products for 1997
were $106.8 million, a 18.9% increase from 1996. Net sales of sales lead
generation products attributable to acquired companies and included in 1997 were
approximately $22.0 million, or 17.1% of net sales.
Net sales of data processing services for 1997 were $42.7 million, as
compared to $4.6 million in 1996. This increase is directly attributable to the
acquisitions of DBA and Marketing Data Systems.
Net sales of consumer CD-ROM products for 1997 were $21.7 million, a 56.1%
increase from $13.9 million in 1996. This increase was primarily attributable to
the acquisitions of Digital Directory Assistance in August 1996 and Pro CD in
August 1997.
Database and Production Costs. Database and production costs for 1997 were
$55.1 million, an 88.1% increase from $29.3 million in 1996. These costs
constituted 28.5% of net sales in 1997 and 27.0% of net sales in 1996. The
increase as a percentage of net sales was the result of higher database and
production costs associated with sales of data processing services and CD-ROM
products. As previously noted, net sales of data processing services for 1997
were $42.7 million, as compared to $4.6 million in 1996.
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<PAGE> 43
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1997 were $80.2 million, a 75.1% increase from $45.8
million in 1996. These expenses constituted 41.5% of net sales in 1997 and 42.3%
as a percentage of net sales in 1996. This decrease as a percentage of net sales
was the result of the increase in net sales of data processing services from
4.2% of total net sales in 1996 to 22.1% of total net sales in 1997. Since 1996,
the overall increase in selling, general and administrative expenses as a
percentage of net sales has been offset by the overall increase in the sales of
data processing services and CD-ROM products, which bear a slightly lower
selling, general and administrative cost margin than the same margin associated
with the net sales of sales lead generation products.
Depreciation and Amortization Expenses. Depreciation and amortization
expenses for 1997 were $34.4 million, as compared to $4.9 million in 1996. These
expenses constituted 17.8% of net sales in 1997, and 4.5% of net sales in 1996.
Of such increases, $21.7 million represented amortization of acquired database
costs and purchased data processing costs related to the acquisition of DBA,
which are being amortized over lives of one or two years. The remaining increase
reflects additional depreciation on property and equipment additions and
amortization of intangibles for certain other acquisitions recorded since July
1996.
Acquisition-Related Charges. As part of the acquisition of Digital
Directory Assistance in August 1996, the Company recorded charges of $10.0
million in 1996 for purchased in-process research and development costs.
Additionally, in September 1996, the Company recorded a charge of $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 made prior to
1995. These acquisition-related charges constituted $21.5 million, or 19.9%, of
net sales in 1996.
As part of the acquisition of DBA in February 1997 and Pro CD in August
1997, the Company recorded charges totaling $56.1 million, or 29.0% of net
sales, in 1997 for purchased in-process research and development costs as well
as other related integration and organizational restructuring costs.
Operating Income (Loss). As a result of the factors previously described,
the Company had an operating loss of $(32.5) million, or (16.8)% of net sales in
1997, as compared to operating income of $6.9 million, or 6.3% of net sales in
1996. Excluding the effect of the amortization and acquisition-related charges
previously described, the Company would have had operating income of $45.3
million, or 23.5% of net sales, in 1997, and operating income of $28.4 million,
or 26.2% of net sales, in 1996.
Other Income (Expense), Net. Other income (expense), net for 1997 was
$(0.4) million, as compared to $2.0 million in 1996. This decrease was primarily
attributable to interest expense incurred on the Old Credit Facility, of which
$78.0 million was outstanding at December 31, 1997. The Company did not have a
credit facility at December 31, 1996.
Income Taxes. A provision for income taxes of $7.0 million and $3.4 million
was recorded for 1997 and 1996, respectively. A provision was recorded on a
pretax loss in 1997 due to non-deductible acquisition related charges and
amortization of certain intangibles.
EBITDA, as adjusted. The Company's EBITDA, as adjusted, was $58.0 million
or 30.0% of net sales in 1997, and $33.3 million or 30.7% of net sales in 1996.
Including acquisition-related charges previously described, the Company had
EBITDA, as adjusted, of $1.9 million, or 1.0% of net sales in 1997, as compared
to EBITDA, as adjusted, of $11.8 million, or 10.9% of net sales in 1996.
1996 COMPARED TO 1995
Net Sales. Net sales for 1996 were $108.3 million, a 24.8% increase from
$86.8 million in 1995. Net sales of sales lead generation products for 1996 were
$89.7 million, an 18.2% increase from $75.9 million in 1995. Net sales of
consumer CD-ROM products for 1996 were $13.9 million, a 73.8% increase from $8.0
million in 1995. Net sales of data processing services were $4.6 million, a
64.3% increase from $2.8 million in 1995.
Database and Production Costs. Database and production costs for 1996 were
$29.3 million, a 22.1% increase from $24.0 million in 1995.
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<PAGE> 44
Selling, General and Administrative Expenses. Selling, general and
administrative expenses for 1996 were $45.8 million, a 21.5% increase 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 the Company's 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.
Acquisition-Related Charges. During the third quarter of 1996, the Company
recorded acquisition-related charges to continuing operations of $10.0 million
for purchased 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 previously described,
operating income in 1996 was $6.9 million, as compared to $21.6 million in 1995.
Excluding the acquisition-related charges previously described, the Company
would have had operating income of $28.4 million, or 26.2% 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.
EBITDA, as adjusted. The Company's EBITDA, as adjusted, was $33.3 million,
or 30.7% of net sales, in 1996, compared to EBITDA, as adjusted, of $25.0
million, or 28.9% of net sales, in 1995. Including acquisition-related charges
previously described, the Company had EBITDA, as adjusted, of $11.8 million or
10.9% of net sales in 1996, as compared to EBITDA, as adjusted, of $25.0 million
or 28.9% of net sales in 1995.
YEAR 2000 COMPLIANCE BY THE COMPANY AND OTHERS
In 1996 the Company began preparing its computer-based systems for Year
2000 ("Y2k") computer software compliance. The Company's Y2k project covers both
traditional computer based systems and infrastructure ("IT Systems") and
computer based facilities and equipment ("Non IT Systems"). The Company's
project has six phases: Inventory, Assessment, Renovation, Testing,
Implementation and Contingency Planning.
The Company has completed an inventory and assessment of its IT Systems.
These systems are over 90% Y2k compliant. The Company expects to correct
non-compliant IT Systems by replacing or correcting them by the end of the
second quarter 1999 with testing and implementation completed by the end of the
third quarter of 1999. The Company has completed an inventory and assessment of
its Non-IT Systems. The Company expects to replace any non-compliant Non-IT
Systems by the end of the first quarter 1999, with testing and implementation
completed by the end of the second quarter of 1999.
The Company's Y2k project also considers the readiness of significant
customers and vendors. Such significant vendors have indicated to the Company an
expectation to be Y2k compliant. There are no vendors whose non-compliance will
impair the ability of the company to obtain necessary goods or to sell or
provide products/services to its customers. Disruptions of the computer systems
of the Company's vendors are not expected to have a material adverse effect on
the Company's financial conditions and results of operations for the period of
such disruption.
The Company believes that the most reasonable worst case Y2k scenario is
that a small number of vendors will be unable to supply goods for a short time
after January 1, 2000. As part of its Y2k process, the Company plans to develop
contingency plans with respect to such scenarios. No mission-critical systems or
facilities necessary for the Company's continued operation are considered to be
at risk. Although these plans
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<PAGE> 45
are yet to be developed, the Company expects that these plans may include a
combination of actions including stockpiling of goods and selective resourcing
of business to Y2k compliant vendors.
The Company has incurred approximately $2.25 million of Y2k cost. These
costs fall into three categories: 1) systems replacement, 2) specific Y2k
assessment effort, and 3) expense cost of Y2k Project office. Future expenses
are estimated to include approximately $3.5 million of additional cost. These
future costs are expected to be primarily replacement system costs. Such cost
estimates are based upon presently available information and may change as the
Company continues with its Y2k project. The Company anticipates to pay for its
Y2k compliance plan from operating cash flows.
The above discussion regarding costs, risks and estimated completion dates
for Y2k compliance is based on the Company's best estimates given information
that is currently available, and is subject to change. Actual costs may
substantially exceed the Company's assessment due to unanticipated Y2k problems
associated with the Company's IT and non-IT systems and products. Further,
failure of the Company's vendors and customers to address Y2k problems in a
timely manner may have a greater adverse affect on the Company's business than
presently expected.
ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement is effective for fiscal
years beginning after December 15, 1997, which will expand disclosures made by
the Company and will have no impact on consolidated financial position, results
of operations or cash flows.
In 1998, the Accounting Standards Committee issued Statement of Accounting
Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which is effective for fiscal years
beginning after December 15, 1998. The SOP provides guidance on when costs
incurred for internal-use computer software are and are not capitalized, and on
the accounting for such software that is marketed. The adoption of this SOP is
not expected to have a significant impact on consolidated financial position,
results of operation or cash flows.
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1998, the Company's principal sources of liquidity
included cash and cash equivalents of $24.5 million and marketable securities
with a fair market value of $19.0 million. As of September 30, 1998, the Company
had working capital of $60.8 million.
The Company terminated its revolving credit facility with First Union
National Bank during July 1998.
Net cash provided by operating activities during the nine month period
ended September 30, 1998 totaled $9.3 million. The Company spent $16.7 million
related to property additions during the same period. The Company completed
construction in August 1998 of a new facility for the consumer and business
database compilation division located in Papillion, Nebraska, at an estimated
cost of approximately $10.0 million. The Company is also building a new sales
center and data processing services facility in Montebello, New York, with an
estimated cost of $10.0 million, which is presently anticipated to be completed
in the summer of 2000.
During the nine months ended September 30, 1998, the Company paid $19.4
million, $12.9 million and $0.5 million in connection with the acquisitions of
Walter Karl, JAMI and Contacts Target Marketing, respectively. See Note 2 to the
Notes to the Consolidated Financial Statements for additional information
related to these acquisitions.
During May 1998, the Company recorded a realized gain on the disposition of
its holdings in the common stock of Metromail Corporation of $16.5 million. The
Company recorded gross proceeds on the disposition of the Metromail Corporation
common stock of $34.2 million.
The Company believes that its existing sources of liquidity and cash
generated from operations, assuming no major acquisitions, 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.
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BUSINESS
GENERAL
infoUSA is a leading provider of business and consumer marketing
information and data processing services that assist its clients in finding new
customers and generating new business. The Company's key assets include a
proprietary database of over 11 million businesses and a consumer database of
over 113 million households and over 180 million individuals in the United
States and Canada, which the Company believes are the most comprehensive and
accurate available. The Company leverages these key assets by selling a wide
range of information products and data processing services through multiple
distribution channels primarily to small and medium-size businesses, and also to
consumers and large corporations. From 1993 to 1997, the Company's net sales
increased at a compounded annual growth rate of 36.5% to $193.3 million from
$55.8 million through internal growth and acquisitions.
Sales lead generation products, data processing services and consumer
CD-ROM products accounted for 63.7&, 26.6% and 9.7%, respectively, of the
Company's net sales for the nine months ended September 30, 1998. Sales lead
generation products include detailed information on a targeted group of
businesses or consumers selected from the Company's databases based on a
client's specific requirements. These products are offered in a wide variety of
customized and pre-packaged formats and can also be accessed via the Internet
and telephone. Data processing services include data warehousing and analysis,
list enhancement and market research, which enable clients to more effectively
analyze and utilize information on both existing and prospective customers.
Consumer CD-ROM products are reference tools used primarily by small office/home
office businesses and consumers.
The Company was incorporated in Nebraska in 1972, and reincorporated in
Delaware in 1992. The Company's principal executive offices are located at 5711
South 86th Circle, Omaha, Nebraska 68127, and its telephone number is (402)
593-4500.
INDUSTRY OVERVIEW
The Company believes that the single most important challenge facing
businesses is the need to replenish and grow their customer bases. Therefore the
Company believes that targeted marketing to businesses and consumers through
direct marketing, telesales and field sales has become one of the most
cost-effective means 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
help identify potential customers from the millions of businesses and hundreds
of millions of consumers in the United States and Canada.
Based on its own databases, the Company estimates that the market for its
products and services includes approximately 4.7 million small businesses with
less than 20 employees, approximately 100,000 medium-size businesses with 20 to
500 employees, approximately 25,000 larger corporations, approximately 10
million small office/home office businesses and approximately 40 million
consumers. The demand for business and consumer data varies 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. These
businesses require accurate and comprehensive information for sales prospecting,
customer targeting and general marketing purposes. 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. Larger corporations typically have their own customer and
prospect data but require data processing services to analyze this data to
enhance their marketing programs. Finally, consumers require information on a
variety of delivery formats primarily for
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reference purposes. The Company provides a wide range of products and services
to meet the information and marketing needs of small and medium-size businesses,
consumers and large corporations.
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
marketing 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 further 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 range
of well established distribution channels.
DATABASES
The Company believes that its databases are 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.
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 approximately 5,000 sources including yellow page directories, state
directories, chamber of commerce directories, newspapers, business white pages,
and other publicly available sources. Each business entry contains, where
available: name of business, street address, city, state, area code and
telephone number, fax number, product brands sold by businesses, number of
employees, SIC code, key management personnel, franchises, professional
specialties, yellow page classification, 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 300 employees to compile, program
and process data simultaneously. 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 accurate information is included
in the Company's database. The Company has also developed proprietary software
to check the database for the accuracy of spelling, abbreviations and telephone
exchanges.
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Consumer Database. The Company's consumer database includes its proprietary
white page file and data licensed from third parties on over 113 million
households, over 180 million consumers, over 60 million homeowners, and over 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 complies with the Direct Marketing
Association 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.
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, 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.
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 each customer's 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 new leads and changes enable
businesses
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to get important sales and marketing information before their competitors, based
upon a pre-selected list of criteria. 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 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.
Directory Assistance Plus. The Company sells its telephone information
service, Directory Assistance Plus, to businesses that request instant company
profiles, business credit profiles and additional detailed information on
businesses in the United States and Canada. Business 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.
Information Brokerage Services. The Company currently resells information
on businesses and 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.
List Enhancement Services. The Company's list enhancement services
primarily include "merge-purge" services, which 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 also
updates client data by comparing it to information the Company licenses from the
U.S. Postal Service's National Change of Address, Delivery Sequence File, and
Locatable Address Conversion systems. The Company sells its list enhancement
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-size and
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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-size
and large businesses. In addition, the Company has recently introduced
MarketZone, a database marketing service that allows large customers to access,
enhance and analyze their data, which is warehoused and maintained by infoUSA.
The Company currently has 12 MarketZone subscribers, and the process of adding
new subscribers generally requires 3 months for client consultation and data
preparation.
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, 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 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,
vertical market sales forces 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, vertical market sales forces 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. The Company regularly evaluates and introduces new product
and service delivery channels, such as the Internet and network marketing, to
reach the broadest possible range of new customers. The Company's principal
sales and marketing channels currently include:
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 1997, the Company mailed more than 32
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.
In 1997, the Company initiated more than 750,000 telephone contacts with past
and 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 30, 1998, the Company had field sales offices in 12
cities.
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Vertical Market Sales Forces. The Company's vertical market sales forces
specialize in serving specific vertical markets to provide information products
and services tailored to specific industry needs. Vertical market sales forces
establish relationships with clients through telephone contacts and office
calls. Currently, the Company has sales forces dedicated to the health care
industry and libraries, and the Company is building sales forces targeted at
government agencies, the banking and insurance industries and educational
institutions.
National Accounts. The Company's national accounts sales teams establish
ongoing relationships with larger corporate clients 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
most of the principal on-line information providers, including InfoSpace,
Netscape and Big Book, to value-added resellers, such as Microsoft and Acxiom,
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 potential
customers to purchase additional products or services directly from the Company.
Internet Information Service. SalesLeadsUSA and infoUSA, the Company's
World Wide Web sites, allow businesses and consumers to define a target market,
retrieve a count of the number of businesses in a particular market or obtain a
business profile on a particular company. 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.
COMPUTER OPERATIONS AND DATABASE PROTECTION
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 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, 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 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 believes that it could regenerate its analytical
capabilities through the lease of computer equipment in less than two weeks. In
August 1998, the Company completed the building of a new facility for the
business and consumer database compilation division in Papillion, Nebraska. The
Company is building a new sales center and data processing facility for the
operations of DBA in Montebello, New York, which is anticipated to be completed
in 1999.
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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 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. 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 and consumer marketing information industry 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 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. The Company faces increasing
competition in consumer sales lead generation products and data processing
services from GUS as a result of GUS' recent acquisitions of Experian, Direct
Marketing Technologies and Metromail. In business sales lead generation
products, the Company faces competition from DMS. 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, Experian and Equifax, both directly and through reseller
networks. In data processing services, the Company competes with Acxiom, May &
Speh, Direct Marketing Technologies and Harte-Hanks Data Technologies. In
consumer products, the Company competes with certain smaller producers of CD-ROM
products. In addition, 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 and consumer marketing information
industry. There is no guarantee that the Company will be successful in this new
market.
EMPLOYEES
As of September 30, 1998, the Company employed a total of approximately
1,700 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. Database compilation is also
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performed at the Company's 140,000 square foot facility in Papillon, Nebraska.
The Company owns all 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 150,000 square foot
facility for the operations of DBA in Montebello, New York, which is presently
anticipated to be completed in 1999.
LITIGATION
In connection with its attempt to acquire Metromail, on March 17, 1998, the
Company filed suit against Metromail, certain officers and members of the Board
of Directors of Metromail and GUS in Delaware Chancery Court, alleging that
Metromail's Board of Directors breached their fiduciary obligation to
Metromail's stockholders, including the Company, by failing to hold a full and
fair auction for Metromail prior to entering into an agreement to sell Metromail
to GUS (the "GUS Merger Agreement"). The complaint sought to enjoin the
consummation of the GUS Merger Agreement and certain other declaratory and
injunctive relief.
On March 20, 1998, GUS filed a counter-claim against the Company alleging,
among other things, that infoUSA tortiously interfered with the GUS Merger
Agreement and GUS's prospective business relations with Metromail. The
counter-claim also alleges that the Company breached a confidentiality agreement
entered into by the Company with the Metromail's financial advisor and of which
GUS is a third party beneficiary. As relief, the GUS claim seeks, among other
things, injunctive relief and actual, punitive and other damages in an amount to
be determined at trial, estimated by GUS to exceed $500 million, plus fees and
expenses. On March 27, 1998, the Delaware Chancery Court denied the Company's
motion for a preliminary injunction to block the GUS Merger Agreement. On April
17, 1998 GUS completed its acquisition of Metromail. The Company believes that
it acted properly in regard to the Metromail matter and that the GUS
counter-claim has little merit. The Company will vigorously defend the suit;
however there can be no assurance that this matter will be resolved without a
material adverse affect on the Company's financial condition. On November 3,
1998, the Company and GUS filed a stipulation of dismissal with the Delaware
Chancery Court, and the Company expects the Court to approve the stipulation and
dismiss the claim and counter-claims with prejudice shortly.
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MANAGEMENT
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Vinod Gupta....................... 51 Chairman of the Board and Chief Executive
Officer
Jon D. Hoffmaster................. 49 Vice Chairman of the Board
Gautam Gupta...................... 52 Acting Chief Financial Officer and Director
Allen Ambrosino................... 56 Executive Vice President and President, DBA
Monica Messer..................... 36 Executive Vice President and Chief
Information Officer
William Chasse.................... 39 Executive Vice President, Sales and Marketing
William Kerrey.................... 50 Senior Vice President, Licenses
Harold W. Andersen................ 74 Director
Elliot S. Kaplan.................. 61 Director
Paul A. Goldner................... 64 Director
George Haddix..................... 59 Director
George J. Kubat................... 52 Director
</TABLE>
VINOD GUPTA is the founder of the Company, has been Chairman of the Board
of the Company since its incorporation in 1972 and was named Chief Executive
Officer effective August 1, 1998. Mr. Gupta previously 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.
JON D. HOFFMASTER has served as a director of the Company since 1978, as
Vice Chairman of the Board of the Company from 1993 to December 1995 and since
April 1998, 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 served as a consultant to the Company
from January 1996 to April 1998. Mr. Hoffmaster is also a director of Bridges
Investment Fund. Mr. Hoffmaster holds a B.A. in Finance from the University of
Nebraska.
GAUTAM GUPTA has served as a director of the Company since May 1988 and as
Acting Chief Financial Officer of the Company since September, 1998. From 1982
to 1998, Mr. Gupta served as the President and Chief Executive Officer of IDE
Corporation and 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. in Engineering from the Indian Institute of
Technology, Kharagpur, India. Mr. Gupta is unrelated to Vinod Gupta.
ALLEN AMBROSINO has served as President, Large Business Group of the
Company since July 1998, as Executive Vice President of the Company from August
1997 to July 1998 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.
MONICA MESSER has served as President, Database Compilation and Information
Systems and Chief Information Officer of the Company since July 1998 and
February 1997, respectively, as Executive Vice President of the Company from
February 1997 to July 1998 and 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 President, Small Business and Consumer Groups
of the Company since October 1996, as Executive Vice President, Sales and
Marketing from October 1996 to July 1998, 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.
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<PAGE> 55
WILLIAM KERREY has served as President, Database Licensing and Advertising
Sales Groups since July 1998, as Senior Vice President, Licenses from August
1994 to July 1998 and 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 W. 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.
Andersen is currently a Contributing Editor to the Omaha World Herald. Mr.
Andersen holds a B.S. in Liberal Arts from the University of Nebraska.
ELLIOT KAPLAN has served as director of the Company since May 1988. He is a
name partner and former Chairman of the Executive Board of the law firm of
Robins, Kaplan, Miller & Ciresi L.L.P. and has practiced law continuously with
that firm since 1962. Mr. Kaplan is also a director and officer of Best Buy Co.,
Inc., and a director of The Franklin Corporation. Mr. Kaplan holds a B.A. in
Business Administration and a J.D. from the University of Minnesota.
PAUL A. 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.
GEORGE HADDIX has served as a director of the Company since March 1995.
Since December 1997, Mr. Haddix has been an individual investor. From November
1994 to December 1997, Mr. Haddix has served as President of CSG Holdings, Inc.
and CSG Systems International, Inc., companies 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.
GEORGE J. 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 and a J.D. from Creighton University.
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<PAGE> 56
PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Company's
Class A Common Stock and Class B Common Stock as of September 30, 1998 (i) by
each of the Chief Executive Officer and the four next most highly compensated
officers of the Company (ii) by each director, (iii) by all current directors
and executive officers as a group and (iv) by all persons known to the Company
to be the beneficial owners of more than 5% of the Company's voting stock:
<TABLE>
<CAPTION>
TOTAL
VOTING
DIRECTORS, OFFICERS AND 5% STOCKHOLDERS CLASS A CLASS B PERCENTAGE
--------------------------------------- ---------- ---------- ----------
<S> <C> <C> <C>
Vinod Gupta(1)...................................... 9,255,654 9,485,684 37.8%
5711 South 86th Circle
Omaha, Nebraska 68127
FMR Corp............................................ 1,915,600 1,985,000 8.0%
82 Devonshire Street
Boston, Massachusetts 02109
Wanger Asset Management............................. 1,672,500 1,631,100 6.6%
227 West Monroe Street, Suite 300
Chicago, IL 60606-5016
Paul A. Goldner(2).................................. 1,298,479 1,237,089 5.0%
100 Paragon Drive
Montvale, New Jersey 07645
Jon D. Hoffmaster(3)................................ 476,500 508,500 2.0%
George Haddix(4).................................... 23,500 23,500 *
Harold W. Andersen(5)............................... 17,300 27,300 *
Gautam Gupta(6)..................................... 20,535 20,535 *
Elliot S. Kaplan(7)................................. 71,540 91,840 *
George Kubat(8)..................................... 35,950 29,950 *
Monica Messer(9).................................... 175,934 185,934 *
William Chasse(10).................................. 115,875 116,875 *
William Kerrey(11).................................. 28,632 28,632 *
Allen Ambrosino(12)................................. 33,000 33,000 *
All directors and executive officers as a group (12
persons)(13)...................................... 11,552,899 11,788,809 46.3%
</TABLE>
- ---------------
* Represents less than 1% of the outstanding voting stock
(1) Excludes 315,000 shares of Class A Common Stock and 345,000 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 360,000 shares of Class A Common Stock and
360,000 shares of Class B Common Stock subject to options exercisable
within 60 days of September 30, 1998.
(2) 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 claims no
beneficial interest. Includes 39,000 shares of Class A Common Stock and
39,000 shares of Class B Common Stock subject to options exercisable within
60 days of September 30, 1998.
(3) Includes 118,500 shares of Class A Common Stock and 118,500 shares of Class
B Common Stock subject to options exercisable within 60 days of September
30, 1998.
(4) Includes 3,000 shares of Class A Common Stock and 3,000 shares of Class B
Common Stock subject to options exercisable within 60 days of September 30,
1998.
(5) Includes 3,000 shares of Class A Common Stock and 3,000 shares of Class B
Common Stock subject to options exercisable within 60 days of September 30,
1998.
(6) Includes 6,000 shares of Class A Common Stock and 6,000 shares of Class B
Common Stock subject to options exercisable within 60 days of September 30,
1998.
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<PAGE> 57
(7) Includes 6,000 shares of Class A Common Stock and 6,000 shares of Class B
Common Stock subject to options exercisable within 60 days of September 30,
1998.
(8) Includes 21,000 shares of Class A Common Stock and 21,000 shares of Class B
Common Stock subject to options exercisable within 60 days of September
30,, 1998.
(9) Includes 46,250 shares of Class A Common Stock and 46,250 shares of Class B
Common Stock subject to options exercisable within 60 days of September 30,
1998.
(10) Includes 115,875 shares of Class A Common Stock and 115,875 shares of Class
B Common Stock subject to options exercisable within 60 days of September
30, 1998.
(11) Includes 14,659 shares of Class A Common Stock and 14,659 shares of Class B
Common Stock subject to options exercisable within 60 days of September 30,
1998.
(12) Includes 33,000 shares of Class A Common Stock and 33,000 shares of Class B
Common Stock subject to options exercisable within 60 days of September 30,
1998.
(13) Includes 766,284 shares of Class A Common Stock and 766,284 shares of Class
B Common Stock subject to options exercisable within 60 days of September
30, 1998.
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<PAGE> 58
CERTAIN TRANSACTIONS
During 1995, 1996, 1997 and the nine months ended September 30, 1998, the
Company paid $198,000, $48,000, $364,000 and $1,070,000, respectively, to
Annapurna Corporation for consulting and transportation services and related
expenses reimbursed in connection with the Company's acquisition-related
activities. Annapurna Corporation is 100% owned by Vinod Gupta, the Chairman of
the Board.
In January 1997, the Company entered into an agreement with Jon Hoffmaster,
the Vice Chairman of the Board for which fees are paid as Mr. Hoffmaster's
consulting services are requested by the Company. The Company paid Mr.
Hoffmaster $100,000 for services provided related to the acquisition of DBA in
February 1997 and $200,000 for services provided related to the attempted
acquisition of Metromail in March 1998.
In February 1997, as part of the acquisition of DBA, the Company entered
into an employment and consulting agreement with Paul A. Goldner, a director,
for a term of five years, under which Mr. Goldner will receive compensation at a
rate of $120,000 per annum and under which the Company agreed to nominate Mr.
Goldner to be elected to the Board when his current term expires in 1999.
The Company has retained the law firm of Robins, Kaplan, Miller & Ciresi
L.L.P. to provide certain legal services. Elliot Kaplan, a director of the
Company, is a name partner and former Chairman of the Executive Board of Robins,
Kaplan, Miller & Ciresi L.L.P.
49
<PAGE> 59
DESCRIPTION OF NOTES
The Existing Notes were, and the New Notes will be, issued under an
indenture (the "Indenture"), dated as of June 18, 1998 by and between the
Company and State Street Bank and Trust Company of California, N.A., as Trustee
(the "Trustee"). The following summary of certain provisions of the Indenture
does not purport to be complete and is subject to, and is qualified in its
entirety by reference to, the Trust Indenture Act of 1939, as amended (the
"TIA"), and to all of the provisions of the Indenture, including the definitions
of certain terms therein and those terms made a part of the Indenture by
reference to the TIA as in effect on the date of the Indenture. A copy of the
Indenture may be obtained from the Company or the Initial Purchasers. The
definitions of certain capitalized terms used in the following summary are set
forth below under "-- Certain Definitions." For purposes of this section,
references to the "Company" include only the Company and not its Subsidiaries.
The Notes are unsecured obligations of the Company, ranking subordinate in
right of payment to all Senior Debt of the Company.
The Notes will be issued in fully registered form only, without coupons, in
denominations of $1,000 and integral multiples thereof. Initially, the Trustee
will act as Paying Agent and Registrar for the Notes. The Notes may be presented
for registration or transfer and exchange at the offices of the Registrar, which
initially will be the Trustee's corporate trust office. The Company may change
any Paying Agent and Registrar without notice to holders of the Notes (the
"Holders"). The Company will pay principal (and premium, if any) on the Notes at
the Trustee's corporate trust office in Los Angeles, California. At the
Company's option, interest may be paid at the Trustee's corporate trust office
or by check mailed to the registered address of Holders. Any Notes that remain
outstanding after the completion of the Exchange Offer, together with the
Exchange Notes issued in connection with the Exchange Offer, will be treated as
a single class of securities under the Indenture.
PRINCIPAL, MATURITY AND INTEREST
The Notes are limited in aggregate principal amount to $200.0 million, of
which $115.0 million in aggregate principal amount will be issued in the
Offering, and will mature on June 15, 2008. Additional amounts may be issued
from time to time, subject to the limitations set forth under "-- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness." Interest on
the Notes will accrue at the rate of 9 1/2% per annum and will be payable
semi-annually in cash on each June 15 and December 15 commencing on December 15,
1998, to the persons who are registered Holders at the close of business on the
June 1 and December 1 immediately preceding the applicable interest payment
date. Interest on the Notes will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from and including the
date of issuance.
The Notes will not be entitled to the benefit of any mandatory sinking
fund.
REDEMPTION
Optional Redemption. The Notes will be redeemable, at the Company's option,
in whole at any time or in part from time to time, on and after June 15, 2003,
upon not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on June 15 of the year set forth
below, plus, in each case, accrued interest to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003.............................................. 104.750%
2004.............................................. 103.167%
2005.............................................. 101.583%
2006 and thereafter............................... 100.000%
</TABLE>
50
<PAGE> 60
Optional Redemption Upon Equity Offerings. At any time, or from time to
time, on or prior to June 15, 2001, the Company may, at its option, use the net
cash proceeds of one or more Equity Offerings (as defined) to redeem up to 35%
in aggregate principal amount of the outstanding Notes at a redemption price
equal to 109.500% of the principal amount thereof plus accrued interest to the
date of redemption; provided that at least 65% of the principal amount of Notes
originally issued plus any additional Notes issued after the Issue Date remains
outstanding immediately after any such redemption. In order to effect the
foregoing redemption with the proceeds of any Equity Offering, the Company shall
make such redemption not more than 120 days after the consummation of any such
Equity Offering.
As used in the preceding paragraph, "Equity Offering" means a public or
private offering of Qualified Capital Stock of the Company for aggregate net
cash proceeds to the Company of at least $20.0 million.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the Notes are to be redeemed at any
time, selection of such Notes for redemption will be made by the Trustee in
compliance with the requirements of the principal national securities exchange,
if any, on which such Notes are listed or, if such Notes are not then listed on
a national securities exchange, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided, however, that no Notes of
a principal amount of $1,000 or less shall be redeemed in part; provided,
further, that if a partial redemption is made with the proceeds of an Equity
Offering, selection of the Notes or portions thereof for redemption shall be
made by the Trustee only on a pro rata basis or on as nearly a pro rata basis as
is practicable (subject to DTC procedures), unless such method is otherwise
prohibited. Notice of redemption shall be mailed by first-class mail at least 30
but not more than 60 days before the redemption date to each Holder of Notes to
be redeemed at its registered address. If any Note is to be redeemed in part
only, the notice of redemption that relates to such Note shall state the portion
of the principal amount thereof to be redeemed. A new Note in a principal amount
equal to the unredeemed portion thereof will be issued in the name of the Holder
thereof upon cancellation of the original Note. On and after the redemption
date, interest will cease to accrue on Notes or portions thereof called for
redemption as long as the Company has deposited with the Paying Agent funds in
satisfaction of the applicable redemption price pursuant to the Indenture.
SUBORDINATION
The payment of all Obligations on the Notes is subordinated in right of
payment to the prior payment in full in cash of all Obligations on Senior Debt.
Upon any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities, to creditors upon any total
or partial liquidation, dissolution, winding up, reorganization, assignment for
the benefit of creditors or marshaling of assets of the Company or in a
bankruptcy, reorganization, insolvency, receivership or other similar proceeding
relating to the Company or its property, whether voluntary or involuntary, all
Obligations due or to become due upon all Senior Debt shall first be paid in
full in cash, or such payment duly provided for to the satisfaction of the
holders of Senior Debt, before any payment or distribution of any kind or
character is made on account of any Obligations on the Notes, or for the
acquisition of any of the Notes for cash or property or otherwise. If any
default occurs and is continuing in the payment when due, whether at maturity,
upon any redemption, by declaration or otherwise, of any principal of, interest
on, unpaid drawings for letters of credit issued in respect of, or regularly
accruing fees with respect to, any Senior Debt, no payment of any kind or
character shall be made by or on behalf of the Company or any other Person on
its or their behalf with respect to any Obligations on the Notes or to acquire
any of the Notes for cash or property or otherwise.
In addition, if any other event of default occurs and is continuing with
respect to any Designated Senior Debt, as such event of default is defined in
the instrument creating or evidencing such Designated Senior Debt, permitting
the holders of such Designated Senior Debt then outstanding to accelerate the
maturity thereof and if the Representative for the respective issue of
Designated Senior Debt gives written notice of the event of default to the
Trustee (a "Default Notice"), then, unless and until all events of default have
been cured or waived or have ceased to exist or the Trustee receives notice from
the Representative for the respective issue of Designated Senior Debt
terminating the Blockage Period (as defined), during the 180 days
51
<PAGE> 61
after the delivery of such Default Notice (the "Blockage Period"), neither the
Company nor any other Person on its behalf shall (x) make any payment of any
kind or character with respect to any Obligations on the Notes or (y) acquire
any of the Notes for cash or property or otherwise. Notwithstanding anything
herein to the contrary, in no event will a Blockage Period extend beyond 180
days from the date the payment on the Notes was due and only one such Blockage
Period may be commenced within any 360 consecutive days. No event of default
which existed or was continuing on the date of the commencement of any Blockage
Period with respect to the Designated Senior Debt shall be, or be made, the
basis for commencement of a second Blockage Period by the Representative of such
Designated Senior Debt whether or not within a period of 360 consecutive days,
unless such event of default shall have been cured or waived for a period of not
less than 90 consecutive days (it being acknowledged that any subsequent action,
or any breach of any financial covenants for a period commencing after the date
of commencement of such Blockage Period that, in either case, would give rise to
an event of default pursuant to any provisions under which an event of default
previously existed or was continuing shall constitute a new event of default for
this purpose).
By reason of such subordination, in the event of the insolvency of the
Company, creditors of the Company who are not holders of Senior Debt, including
the Holders of the Notes, may recover less, ratably, than holders of Senior
Debt.
At June 30, 1998, the Company had approximately $3.0 million aggregate
amount of Senior Debt outstanding and the Company's subsidiaries had no
outstanding liabilities, other than trade payables, which would have been
effectively senior in right of payment to the Notes.
CHANGE OF CONTROL
The Indenture will provide that upon the occurrence of a Change of Control,
each Holder will have the right to require that the Company purchase all or a
portion of such Holder's Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued interest to the date of purchase.
The Indenture will provide that, prior to the mailing of the notice
referred to below, but in any event within 30 days following any Change of
Control, the Company covenants to (i) repay in full all Indebtedness and
terminate all commitments under the Credit Facility and all other Senior Debt
the terms of which require repayment upon a Change of Control or offer to repay
in full and terminate all commitments under all Indebtedness under the Credit
Facility and all other such Senior Debt and to repay the Indebtedness owed to,
and terminate the commitments of, each lender which has accepted such offer or
(ii) obtain the requisite consents under the Credit Facility and all other
Senior Debt to permit the repurchase of the Notes as provided below. The Company
shall first comply with the covenant in the immediately preceding sentence
before it shall be required to repurchase Notes pursuant to the provisions
described below. The Company's failure to comply with the covenant described in
the immediately preceding sentence shall constitute an Event of Default
described in clause (iii) and not in clause (ii) under "-- Events of Default."
Within 30 days following the date upon which the Change of Control
occurred, the Company must send, by first class mail, a notice to each Holder,
with a copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 45 days from the date such
notice is mailed, other than as may be required by law (the "Change of Control
Payment Date"). Holders electing to have a Note purchased pursuant to a Change
of Control Offer will be required to surrender the Note, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the Note completed, to
the Paying Agent at the address specified in the notice prior to the close of
business on the third business day prior to the Change of Control Payment Date.
The Credit Facility restricts the Company from repurchasing any Notes and
also provides that repurchases of Notes with the proceeds of certain asset sales
and change of control events with respect to the Company would constitute a
default thereunder. Any future credit agreements relating to Senior Debt to
which the Company becomes a party may contain similar restrictions and
provisions. If a Change of Control Offer is made, there can be no assurance that
the Company will have available funds sufficient to repay outstanding Senior
Debt or to pay the Change of Control purchase price for all the Notes that might
be
52
<PAGE> 62
delivered by Holders seeking to accept the Change of Control Offer. In the event
the Company is required to purchase outstanding Notes pursuant to a Change of
Control Offer, the Company expects that it would seek third party financing to
the extent it does not have available funds to meet its purchase obligations.
However, there can be no assurance that the Company would be able to obtain such
financing.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to redemption upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company and
its Restricted Subsidiaries to incur additional Indebtedness, to grant liens on
their property, to make Restricted Payments and to make Asset Sales may also
make more difficult or discourage a takeover of the Company, whether favored or
opposed by the management of the Company. Consummation of any such transaction
in certain circumstances may require redemption or repurchase of the Notes, and
there can be no assurance that the Company or the acquiring party will have
sufficient financial resources to effect such redemption or repurchase. Such
restrictions and the restrictions on transactions with Affiliates may, in
certain circumstances, make more difficult or discourage any leveraged buyout of
the Company or any of its Subsidiaries. While such restrictions cover a wide
variety of arrangements which have traditionally been used to effect highly
leveraged transactions, the Indenture may not afford the Holders of Notes
protection in all circumstances from the adverse aspects of a highly leveraged
transaction, reorganization, restructuring, merger or similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Change of Control Offer. To the extent that
the provisions of any securities laws or regulations conflict with the "Change
of Control" provisions of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Change of Control" provisions of the
Indenture by virtue thereof.
The Change of Control provisions of the Indenture will not apply in the
event of (i) changes in a majority of the Board of Directors of the Company so
long as a majority of the Board of Directors consists of individuals who at the
beginning of any two year period constituted the Board of Directors of the
Company or who are new directors whose election by such Board of Directors or
whose nomination for election by the shareholders of the Company was approved by
a vote of a majority of the directors of the Company then still in office who
were either directors at the beginning of such period or whose election or
nomination for election was previously so approved, or (ii) certain transactions
with Permitted Holders, who include members of management of the Company and
certain of their affiliates. The Change of Control provisions are not intended
to afford holders of Notes protection in the event of certain highly leveraged
transactions, reorganizations, recapitalizations, restructurings, mergers and
similar transactions that might adversely affect the holders of Notes, but that
would not constitute a Change of Control. The Company could, in the future,
enter into such transactions, including transactions involving the Permitted
Holders, that would not constitute a Change of Control under the Indenture, but
that would increase the amount of Indebtedness of the Company outstanding at
such time or otherwise affect the Company's capital structure or credit rating.
However, the Indenture contains certain limitations on the ability of the
Company to incur additional Indebtedness and to engage in certain mergers,
consolidations and sales of assets, whether or not a Change of Control is
involved. See "Certain Covenants -- Limitation on Indebtedness" and "Certain
Covenants -- Merger, Sale of Assets, etc."
The occurrence of certain of the events that would constitute a Change of
Control under the Indenture may constitute an event of default under any Credit
Facility, as defined. Future Senior Indebtedness of the Company and its
Subsidiaries may also contain prohibitions of certain events that would
constitute a Change of Control or require such Senior Indebtedness to be
repurchased upon a Change of Control. Moreover, the exercise by the Holders of
their right to require the Company to repurchase the Notes could cause a default
under such Senior Indebtedness, even if the events constituting a Change of
Control do not. Upon the occurrence of a Change of Control, if it is prohibited
by the terms of any outstanding Indebtedness from making an Offer to Repurchase
or from repurchasing the Notes, the Company is required to either (i) repay all
such Indebtedness and terminate all commitments outstanding thereunder or (ii)
obtain the requisite consents under any such Indebtedness required to permit the
Offer to Repurchase or the repurchase of the Notes. Any Credit Facility may
provide for loans up to a maximum amount of $100.0 million and, if the
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<PAGE> 63
requisite consents from the lenders thereunder are not forthcoming, it is
unlikely that the Company would be able to repay all of its obligations under
such a Credit Facility and repurchase the Notes unless it could obtain
alternative financing. In addition, although it currently has no outstanding
securities or liabilities which are pari passu with the Notes, the Company could
in the future incur such pari passu obligations which could have change of
control provisions similar to those in the Indenture requiring repurchase of
such obligations at the same time as the repurchase of the Notes. Finally, the
terms of certain agreements of the Company's Subsidiaries may contain certain
restrictions (which are permitted under the terms of the Indenture) on the
ability of such Subsidiaries to pay dividends or make loans to the Company. The
existence of pari passu obligations and restrictions on dividends and loans
could further increase the Company's need to obtain alternative financing to
facilitate a repurchase of the Notes in the event of a Change of Control. There
can be no assurance that the Company would be able to obtain any such financing
on commercially reasonable terms, or at all, and consequently no assurance can
be given that the Company would be able to repurchase any of the Notes tendered
pursuant to such an Offer to Purchase.
None of the provisions in the Indenture relating to a purchase of Notes
upon a Change of Control is waivable by the Board of Directors of the Company.
Without the consent of each Holder of Notes affected thereby, no amendment to
the Indenture may modify the provisions of the Indenture requiring the Company
to make an Offer to Purchase upon a Change of Control in a manner materially
adverse to any such Holder.
CERTAIN COVENANTS
The Indenture will contain, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of its Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible for
payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company or any Restricted Subsidiary
may incur Indebtedness (including, without limitation, Acquired Indebtedness),
in each case if on the date of the incurrence of such Indebtedness, after giving
effect to the incurrence thereof, the Consolidated Fixed Charge Coverage Ratio
of the Company is greater than 2.25 to 1.0 if such Indebtedness is incurred
prior to June 15, 2000 and 2.50 to 1.0 thereafter.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of its Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any Capital
Stock of the Company or any warrants, rights or options to purchase or acquire
shares of any class of such Capital Stock, (c) make any principal payment on,
purchase, defease, redeem, prepay, decrease or otherwise acquire or retire for
value, prior to any scheduled final maturity, scheduled repayment or scheduled
sinking fund payment, any Indebtedness of the Company that is subordinate or
junior in right of payment to the Notes or (d) make any Investment (other than
Permitted Investments) (each of the foregoing actions set forth in clauses (a),
(b), (c) and (d) being referred to as a "Restricted Payment"), if at the time of
such Restricted Payment or immediately after giving effect thereto, (i) a
Default or an Event of Default shall have occurred and be continuing or (ii) the
Company is not able to incur at least $1.00 of additional Indebtedness (other
than Permitted Indebtedness) in compliance with the "Limitation on Incurrence of
Additional Indebtedness" covenant or (iii) the aggregate amount of Restricted
Payments (including such proposed Restricted Payment) made subsequent to the
Issue Date shall exceed the sum of: (A) 50% of the cumulative Consolidated Net
Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company earned during the period beginning on the first day of
the first full fiscal quarter occurring after the Issue Date and ending on the
last day of the fiscal quarter immediately preceding the date the Restricted
Payment occurs (the "Reference Date") (treating such period as a single
accounting period); plus (B) 100% of the aggregate net cash proceeds received by
the Company from any Person (other than a Subsidiary of the Company) from the
issuance and sale of Qualified Capital
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Stock of the Company or from any equity contribution from a holder of the
Company's Capital Stock subsequent to the Issue Date and on or prior to the
Reference Date; plus (C) the principal amount (or accreted amount as of such
Reference Date) of any Indebtedness of the Company or any Restricted Subsidiary
of the Company incurred after the Issue Date which has been converted into or
exchanged for Qualified Capital Stock of the Company (minus the amount of any
cash or the fair market value (as determined in good faith by the Board of
Directors of the Company) of property distributed by the Company or any
Restricted Subsidiary of the Company upon such conversion or exchange); plus (D)
without duplication, the sum of (1) the aggregate amount returned in cash on or
with respect to Investments (other than Permitted Investments) made subsequent
to the Issue Date whether through interest payments, principal payments,
dividends or other distributions or payments, (2) the net cash proceeds received
by the Company or any of its Restricted Subsidiaries from the disposition of all
or any portion of such Investments (other than to a Subsidiary of the Company)
and (3) upon redesignation of an Unrestricted Subsidiary as a Restricted
Subsidiary, the fair market value of such Subsidiary; provided, however, that
the sum of clauses (1), (2) and (3) above shall not exceed the aggregate amount
of all such Investments made subsequent to the Issue Date; plus (E) $20.0
million.
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend or the
consummation of any irrevocable redemption within 60 days after the date of
declaration of such dividend or the giving of such irrevocable redemption notice
if the dividend or redemption would have been permitted on the date of
declaration or the giving of such irrevocable redemption notice; (2) if no
Default or Event of Default shall have occurred and be continuing, the
redemption or acquisition of any shares of Capital Stock of the Company, either
(i) solely in exchange for shares of Qualified Capital Stock of the Company or
(ii) through the application of net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of the Company) of shares of Qualified
Capital Stock of the Company; (3) payments by the Company to purchase, redeem or
acquire for value shares of Qualified Capital Stock of the Company or options on
such shares held by officers or employees upon the death, disability, retirement
or termination of employment of such employees pursuant to the terms of an
employee benefit plan or any other agreement pursuant to which such shares of
Qualified Capital Stock or options were issued or pursuant to a severance,
buy-sell or right of first refusal agreement with such employees, (4)
Investments in securities not constituting cash or Cash Equivalents and received
in connection with an Asset Sale made pursuant to the provisions of the covenant
described under "-- Limitation on Asset Sales" below, (5) if no Default or Event
of Default shall have occurred and be continuing, the acquisition of any
Indebtedness of the Company that is subordinate or junior in right of payment to
the Notes either (i) solely in exchange for shares of Qualified Capital Stock of
the Company or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of (A)
shares of Qualified Capital Stock of the Company or (B) Refinancing Indebtedness
and (6) the redemption of the Company's Preferred Stock purchase rights under
the Company's stockholder's rights plans in an aggregate amount not to exceed
$500,000. In determining the aggregate amount of Restricted Payments made
subsequent to the Issue Date in accordance with clause (iii) of the immediately
preceding paragraph, amounts expended pursuant to clauses (1), (2)(ii), (3), (4)
and (5)(ii)(A) shall be included in such calculation.
The amount of any non-cash Restricted Payment shall be the fair market
value, on the date such Restricted Payment is made, of the assets or securities
proposed to be transferred or issued by the Company or such Restricted
Subsidiary, as the case may be, pursuant to such Restricted Payment. The fair
market value of any non-cash Restricted Payment shall be determined by the Board
of Directors of the Company whose resolution with respect to the fair market
value of any Restricted Payment in excess of $5.0 million shall be delivered to
the Trustee, such determination to be based upon an opinion or appraisal issued
by an accounting, appraisal or investment banking firm of national standing if
such fair market value exceeds $10.0 million. At least semi-annually the Company
shall deliver to the Trustee an officers' certificate stating that all
Restricted Payments made during the prior six month period were permitted and
setting forth the basis upon which the calculations required by this covenant
were computed, together with a copy of any opinion or appraisal required by the
Indenture.
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Limitation on Asset Sales. The Company will not, and will not permit any of
its Restricted Subsidiaries to, consummate an Asset Sale unless (i) the Company
or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash or Cash Equivalents and is received
at the time of such disposition; provided, that the amount of (x) any
liabilities of the Company or any Restricted Subsidiary (other than contingent
liabilities and liabilities of the Company that are by their terms subordinated
to the Notes or any guarantee thereof) that are assumed by the transferee of any
such assets pursuant to a novation agreement that releases the Company or such
Restricted Subsidiary from further liability and (y) any notes or other
obligations received by the Company or any such Restricted Subsidiary from such
transferee that are converted by the Company or such Restricted Subsidiary into
cash or Cash Equivalents (to the extent of the cash or Cash Equivalents
received) within 365 days following the closing of such Asset Sale, will be
deemed to be cash for purposes of this provision; provided, further, that the
75% limitation referred to above shall not apply to any sale, transfer or other
disposition of assets in which the cash portion of the consideration received
therefor, determined in accordance with the foregoing proviso, is equal to or
greater than what the after-tax net proceeds would have been had such
transaction complied with the aforementioned 75% limitation; and (iii) upon the
consummation of an Asset Sale, the Company shall apply, or cause such Restricted
Subsidiary to apply, the Net Cash Proceeds relating to such Asset Sale within
365 days of receipt thereof either (A) to prepay any Senior Debt and, in the
case of any Senior Debt under any revolving credit facility, effect a permanent
reduction in the availability under such revolving credit facility if required
by the terms of such revolving credit facility, or prepay the Indebtedness of
any Restricted Subsidiary of the Company that was incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant and, in the
case of any such Indebtedness under any revolving credit facility, effect a
permanent reduction in the availability under such revolving credit facility if
required by the terms of such revolving credit facility, (B) to make an
investment in properties and assets that replace the properties and assets that
were the subject of such Asset Sale or in properties and assets (including
Qualified Capital Stock of a Person which becomes a Restricted Subsidiary) that
will be used in the business of the Company and its Restricted Subsidiaries as
existing on the Issue Date or in businesses reasonably related or incidental
thereto ("Replacement Assets"), or (C) a combination of prepayment and
investment permitted by the foregoing clauses (iii)(A) and (iii)(B). On the
366th day after an Asset Sale or such earlier date, if any, as the Board of
Directors of the Company or of such Restricted Subsidiary determines not to
apply the Net Cash Proceeds relating to such Asset Sale as set forth in clauses
(iii)(A), (iii)(B) and (iii)(C) of the next preceding sentence (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds which
have not been applied on or before such Net Proceeds Offer Trigger Date as
permitted in clauses (iii)(A), (iii)(B) and (iii)(C) of the next preceding
sentence (each a "Net Proceeds Offer Amount") shall be applied by the Company or
such Restricted Subsidiary to make an offer to purchase (the "Net Proceeds
Offer") on a date (the "Net Proceeds Offer Payment Date") not less than 30 nor
more than 45 days following the applicable Net Proceeds Offer Trigger Date, from
all Holders on a pro rata basis, that amount of Notes equal to the Net Proceeds
Offer Amount at a price equal to 100% of the principal amount of the Notes to be
purchased, plus accrued interest to the date of purchase; provided, however,
that if at any time any non-cash consideration received by the Company or any
Restricted Subsidiary of the Company, as the case may be, in connection with any
Asset Sale is converted into or sold or otherwise disposed of for cash (other
than interest received with respect to any such non-cash consideration), then
such conversion or disposition shall be deemed to constitute an Asset Sale
hereunder and the Net Cash Proceeds thereof shall be applied in accordance with
this covenant. The Company may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $10.0
million resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, and not just the amount in excess of $10.0
million, shall be applied as required pursuant to this paragraph).
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and its Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "-- Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold the
properties and
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assets of the Company and its Restricted Subsidiaries not so transferred for
purposes of this covenant, and shall comply with the provisions of this covenant
with respect to such deemed sale as if it were an Asset Sale. In addition, the
fair market value of such properties and assets of the Company or its Restricted
Subsidiaries deemed to be sold shall be deemed to be Net Cash Proceeds for
purposes of this covenant.
Notwithstanding the two immediately preceding paragraphs, the Company and
its Restricted Subsidiaries will be permitted to consummate an Asset Sale
without complying with such paragraphs to the extent (i) at least 75% of the
consideration for such Asset Sale constitutes Replacement Assets and (ii) such
Asset Sale is for fair market value; provided, that any consideration not
constituting Replacement Assets received by the Company or any of its Restricted
Subsidiaries in connection with any Asset Sale permitted to be consummated under
this paragraph shall constitute Net Cash Proceeds subject to the provisions of
the two preceding paragraphs.
Each Net Proceeds Offer will be mailed to the record Holders as shown on
the register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set forth
in the Indenture. Upon receiving notice of the Net Proceeds Offer, Holders may
elect to tender their Notes in whole or in part in integral multiples of $1,000
in exchange for cash. To the extent Holders properly tender Notes in an amount
exceeding the Net Proceeds Offer Amount, Notes of tendering Holders will be
purchased on a pro rata basis (based on amounts tendered). A Net Proceeds Offer
shall remain open for a period of 20 business days or such longer period as may
be required by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Notes pursuant to a Net Proceeds Offer. To the extent that the
provisions of any securities laws or regulations conflict with the "Limitation
on Asset Sales" covenant of the Indenture, the Company shall comply with the
applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Limitation on Asset Sales" covenant of the
Indenture by virtue thereof.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of its
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary of the Company to (a) pay dividends or make
any other distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary of the Company; or (c) transfer any of its
property or assets to the Company or any other Restricted Subsidiary of the
Company, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) the Indenture; (3) customary non-assignment,
subletting or restriction on transfer or net worth provisions of any contract,
license or any lease governing a leasehold interest of any Restricted Subsidiary
of the Company; (4) any instrument governing Acquired Indebtedness, which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person or the properties or assets of the
Person so acquired; (5) agreements existing on the Issue Date to the extent and
in the manner such agreements are in effect on the Issue Date; (6) the Credit
Facility; (7) restrictions on the transfer of assets subject to any Lien
permitted under the Indenture imposed by the holder of such Lien; (8) any
agreement for the sale or disposition of the Capital Stock or assets of any
Subsidiary of the Company; provided, that such encumbrances and restrictions are
only applicable to such Subsidiary or assets, as applicable, and any such sale
or disposition is made in compliance with the covenant described under
"-- Limitation on Asset Sales" to the extent applicable thereto; or (9) an
agreement governing Indebtedness incurred to Refinance the Indebtedness issued,
assumed or incurred pursuant to an agreement referred to in clause (2), (4), (5)
or (6) above; provided, however, that the provisions relating to such
encumbrance or restriction contained in any such Indebtedness are no less
favorable to the Company in any material respect as determined by the Board of
Directors of the Company in their reasonable and good faith judgment than the
provisions relating to such encumbrance or restriction contained in agreements
referred to in such clause (2), (4), (5) or (6).
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of its Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned
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Restricted Subsidiary of the Company) or permit any Person (other than the
Company or a Wholly Owned Restricted Subsidiary of the Company) to own any
Preferred Stock of any Restricted Subsidiary of the Company.
Limitation on Liens. The Company will not, and will not cause or permit any
of its Restricted Subsidiaries to, directly or indirectly, create, incur, assume
or permit or suffer to exist any Liens of any kind against or upon any property
or assets of the Company or any of its Restricted Subsidiaries whether owned on
the Issue Date or acquired after the Issue Date, or any proceeds therefrom, or
assign or otherwise convey any right to receive income or profits therefrom, to
secure any Indebtedness, unless (i) in the case of Liens securing Indebtedness
that is expressly subordinate or junior in right of payment to the Notes, the
Notes are secured by a Lien on such property, assets or proceeds that is senior
in priority to such Liens and (ii) in all other cases, the Notes are equally and
ratably secured, except for (A) Liens existing as of the Issue Date to the
extent and in the manner such Liens are in effect on the Issue Date; (B) Liens
securing Senior Debt; (C) Liens securing the Notes; (D) Liens of the Company or
a Wholly Owned Restricted Subsidiary of the Company on assets of any Restricted
Subsidiary of the Company; (E) Liens securing Refinancing Indebtedness which is
incurred to Refinance any Indebtedness which has been secured by a Lien
permitted under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens (x) are no less
favorable to the Holders and are not more favorable to the lienholders with
respect to such Liens than the Liens in respect of the Indebtedness being
Refinanced and (y) do not extend to or cover any property or assets of the
Company or any of its Restricted Subsidiaries not securing the Indebtedness so
Refinanced; and (F) Permitted Liens.
Prohibition on Incurrence of Senior Subordinated Debt. The Company will
not, directly or indirectly, incur or suffer to exist Indebtedness that is
senior in right of payment to the Notes and subordinate in right of payment to
any other Indebtedness of the Company.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or into
any Person, or sell, assign, transfer, lease, convey or otherwise dispose of (or
cause or permit any Restricted Subsidiary of the Company to sell, assign,
transfer, lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Company's Restricted Subsidiaries) whether as an entirety or substantially as an
entirety to any Person unless: (i) either (1) the Company shall be the surviving
or continuing corporation or (2) the Person (if other than the Company) formed
by such consolidation or into which the Company is merged or the Person which
acquires by sale, assignment, transfer, lease, conveyance or other disposition
the properties and assets of the Company and of the Company's Restricted
Subsidiaries substantially as an entirety (the "Surviving Entity") (x) shall be
a corporation organized and validly existing under the laws of the United States
or any State thereof or the District of Columbia and (y) shall expressly assume,
by supplemental indenture (in form and substance satisfactory to the Trustee),
executed and delivered to the Trustee, the due and punctual payment of the
principal of, and premium, if any, and interest on all of the Notes and the
performance of every covenant of the Notes, the Indenture and the Registration
Rights Agreement on the part of the Company to be performed or observed; (ii)
immediately after giving effect to such transaction and the assumption
contemplated by clause (i)(2)(y) above (including giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred in
connection with or in respect of such transaction), the Company or such
Surviving Entity, as the case may be, (1) shall have a Consolidated Net Worth
equal to or greater than the Consolidated Net Worth of the Company immediately
prior to such transaction and (2) shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
"Limitation on Incurrence of Additional Indebtedness" covenant; (iii)
immediately before and immediately after giving effect to such transaction and
the assumption contemplated by clause (i)(2)(y) above (including, without
limitation, giving effect to any Indebtedness and Acquired Indebtedness incurred
or anticipated to be incurred and any Lien granted in connection with or in
respect of the transaction), no Default or Event of Default shall have occurred
or be continuing; and (iv) the Company or the Surviving Entity shall have
delivered to the Trustee an officers' certificate and an opinion of counsel
(which opinion shall be subject to customary qualifications and assumptions
reasonably acceptable to the Trustee), each stating that such consolidation,
merger, sale, assignment, transfer, lease, conveyance or
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other disposition and, if a supplemental indenture is required in connection
with such transaction, such supplemental indenture comply with the applicable
provisions of the Indenture and that all conditions precedent in the Indenture
relating to such transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries of the Company the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the Company
in accordance with the foregoing, in which the Company is not the continuing
corporation, the Surviving Entity shall succeed to, and be substituted for, and
may exercise every right and power of, the Company under the Indenture and the
Notes with the same effect as if such Surviving Entity had been named as such.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of its Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related transactions
(including, without limitation, the purchase, sale, lease or exchange of any
property or the rendering of any service) with, or for the benefit of, any of
its Affiliates (each an "Affiliate Transaction"), other than (x) Affiliate
Transactions permitted under paragraph (b) below and (y) Affiliate Transactions
on terms that are no less favorable than those that might reasonably have been
obtained in a comparable transaction at such time on an arm's-length basis from
a Person that is not an Affiliate of the Company or such Restricted Subsidiary.
All Affiliate Transactions (and each series of related Affiliate Transactions
which are similar or part of a common plan) involving aggregate payments or
other property with a fair market value in excess of $1.0 million shall be
approved by the Board of Directors of the Company or such Restricted Subsidiary,
as the case may be, such approval to be evidenced by a Board Resolution stating
that such Board of Directors has determined that such transaction complies with
the foregoing provisions. If the Company or any Restricted Subsidiary of the
Company enters into an Affiliate Transaction (or a series of related Affiliate
Transactions related to a common plan) that involves an aggregate fair market
value of more than $5.0 million the Company or such Restricted Subsidiary, as
the case may be, shall, prior to the consummation thereof, obtain a favorable
opinion as to the fairness of such transaction or series of related transactions
to the Company or the relevant Restricted Subsidiary, as the case may be, from a
financial point of view, from an Independent Financial Advisor and file the same
with the Trustee.
(b) The restrictions set forth in clause (a) above shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary of the Company as determined in good faith by the Company's Board of
Directors or senior management; (ii) transactions exclusively between or among
the Company and any of its Wholly Owned Restricted Subsidiaries or exclusively
between or among such Wholly Owned Restricted Subsidiaries, provided such
transactions are not otherwise prohibited by the Indenture; (iii) any agreement
as in effect as of the Issue Date or any amendment thereto or any transaction
contemplated thereby (including pursuant to any amendment thereto) in any
replacement agreement thereto so long as any such amendment or replacement
agreement is not more disadvantageous to the Holders in any material respect
than the original agreement as in effect on the Issue Date; (iv) advances and
loans to employees for relocation, entertainment and travel expenses, drawing
accounts and other matters in the ordinary course of business; (v) transactions
with Annapurna Corporation aggregating not more than $500,000 in any fiscal
year; and (vi) Restricted Payments permitted by the Indenture.
Limitation of Guarantees by Subsidiaries. The Company will not permit any
Restricted Subsidiary, directly or indirectly, by way of the pledge of any
intercompany note or otherwise, to assume, guarantee or in any other manner
become liable with respect to any Indebtedness of the Company or any other
Subsidiary (other than (A) Indebtedness and other obligations under the Credit
Facility, (B) Permitted Indebtedness of a Restricted Subsidiary, (C)
Indebtedness under Currency Agreements in reliance on clause (v) of the
definition of Permitted Indebtedness or (D) Interest Swap Obligations incurred
in reliance on clause (iv) of
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the definition of Permitted Indebtedness), unless, in any such case, such
Restricted Subsidiary executes and delivers a supplemental indenture to the
Indenture providing a guarantee of payment of the Notes by such Restricted
Subsidiary (the "Guarantee").
Notwithstanding the foregoing, any such Guarantee by a Restricted
Subsidiary of the Notes shall provide by its terms that it shall be
automatically and unconditionally released and discharged, without any further
action required on the part of the Trustee or any Holder, upon: (i) the
unconditional release of such Restricted Subsidiary from its liability in
respect of the Indebtedness in connection with which such Guarantee was executed
and delivered pursuant to the preceding paragraph; or (ii) any sale or other
disposition (by merger or otherwise) to any Person which is not a Restricted
Subsidiary of the Company of all of the Company's Capital Stock in, or all or
substantially all of the assets of, such Restricted Subsidiary; provided, that
(a) such sale or disposition of such Capital Stock or assets is otherwise in
compliance with the terms of the Indenture and (b) such assumption, guarantee or
other liability of such Restricted Subsidiary has been released by the holders
of the other Indebtedness so guaranteed.
Conduct of Business. The Company and its Restricted Subsidiaries will not
engage in any businesses which are not the same as or similar, reasonably
related or incidental to the businesses in which the Company and its Restricted
Subsidiaries are engaged on the Issue Date.
Reports to Holders. The Indenture will provide that the Company will
deliver to the Trustee within 15 days after the filing of the same with the
Commission, copies of the quarterly and annual reports and of the information,
documents and other reports, if any, which the Company is required to file with
the Commission pursuant to Section 13 or 15(d) of the Exchange Act. The
Indenture further provides that, notwithstanding that the Company may not be
subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act, the Company will file with the Commission, to the extent permitted, and
provide the Trustee and Holders with such annual reports and such information,
documents and other reports specified in Sections 13 and 15(d) of the Exchange
Act. The Company will also comply with the other provisions of TIA sec. 314(a).
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any Notes when the same becomes due
and payable and the default continues for a period of 30 days (whether or
not such payment shall be prohibited by the subordination provisions of the
Indenture);
(ii) the failure to pay the principal on any Notes, when such
principal becomes due and payable, at maturity, upon redemption or
otherwise (including the failure to make a payment to purchase Notes
tendered pursuant to a Change of Control Offer or a Net Proceeds Offer)
(whether or not such payment shall be prohibited by the subordination
provisions of the Indenture);
(iii) a default in the observance or performance of any other covenant
or agreement contained in the Indenture which default continues for a
period of 30 days after the Company receives written notice specifying the
default (and demanding that such default be remedied) from the Trustee or
the Holders of at least 25% of the outstanding principal amount of the
Notes (except in the case of a default with respect to the "Merger,
Consolidation and Sale of Assets" covenant, which will constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary of the
Company and such failure continues for a period of 20 days or more, or the
acceleration of the final stated maturity of any such Indebtedness (which
acceleration is not rescinded, annulled or otherwise cured within 20 days
of receipt by the Company or such Restricted Subsidiary of notice of such
acceleration) if the aggregate principal amount of such Indebtedness,
together with the principal amount of any other such Indebtedness in
default for failure to pay principal at final maturity or which has been
accelerated, in each case with respect to which the 20-day period described
above has passed, aggregates $15.0 million or more at any time;
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(v) one or more judgments in an aggregate amount in excess of $15.0
million shall have been rendered against the Company or any of its
Significant Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable; or
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries.
If an Event of Default (other than an Event of Default specified in clause
(vi) above with respect to the Company) shall occur and be continuing, the
Trustee or the Holders of at least 25% in principal amount of outstanding Notes
may declare the principal of and accrued interest on all the Notes to be due and
payable by notice in writing to the Company and the Trustee specifying the
respective Event of Default and that it is a "notice of acceleration" (the
"Acceleration Notice"), and the same (i) shall become immediately due and
payable or (ii) if there are any amounts outstanding under the Credit Facility,
shall become immediately due and payable upon the first to occur of an
acceleration under the Credit Facility or 5 business days after receipt by the
Company and the Representative under the Credit Facility of such Acceleration
Notice (but only if such Event of Default is then continuing). If an Event of
Default specified in clause (vi) above with respect to the Company occurs and is
continuing, then all unpaid principal of, and premium, if any, and accrued and
unpaid interest on all of the outstanding Notes shall ipso facto become and be
immediately due and payable without any declaration or other act on the part of
the Trustee or any Holder.
The Indenture will provide that, at any time after a declaration of
acceleration with respect to the Notes as described in the preceding paragraph,
the Holders of a majority in principal amount of the Notes may rescind and
cancel such declaration and its consequences (i) if the rescission would not
conflict with any judgment or decree, (ii) if all existing Events of Default
have been cured or waived except nonpayment of principal or interest that has
become due solely because of the acceleration, (iii) to the extent the payment
of such interest is lawful, interest on overdue installments of interest and
overdue principal, which has become due otherwise than by such declaration of
acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in clause (vi) of the description above
of Events of Default, the Trustee shall have received an officers' certificate
and an opinion of counsel (which opinion shall be subject to customary
qualifications and assumptions reasonably acceptable to the Trustee) that such
Event of Default has been cured or waived. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the Notes may waive any
existing Default or Event of Default under the Indenture, and its consequences,
except a default in the payment of the principal of or interest on any Notes.
Holders of the Notes may not enforce the Indenture or the Notes except as
provided in the Indenture and under the TIA. Subject to the provisions of the
Indenture relating to the duties of the Trustee, the Trustee is under no
obligation to exercise any of its rights or powers under the Indenture at the
request, order or direction of any of the Holders, unless such Holders have
offered to the Trustee reasonable indemnity. Subject to all provisions of the
Indenture and applicable law, the Holders of a majority in aggregate principal
amount of the then outstanding Notes have the right to direct the time, method
and place of conducting any proceeding for any remedy available to the Trustee
or exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge of
any Default or Event of Default (provided that such officers shall provide such
certification at least annually whether or not they know of any Default or Event
of Default) that has occurred and, if applicable, describe such Default or Event
of Default and the status thereof.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding Notes ("Legal
Defeasance"). Such Legal Defeasance means that the Company shall be deemed to
have paid and discharged the entire indebtedness represented by the outstanding
Notes, except for
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(i) the rights of Holders to receive payments in respect of the principal of,
premium, if any, and interest on the Notes when such payments are due, (ii) the
Company's obligations with respect to the Notes concerning issuing temporary
Notes, registration of Notes, mutilated, destroyed, lost or stolen Notes and the
maintenance of an office or agency for payments, (iii) the rights, powers,
trust, duties and immunities of the Trustee and the Company's obligations in
connection therewith and (iv) the Legal Defeasance provisions of the Indenture.
In addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the Notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
reorganization and insolvency events) described under "-- Events of Default"
will no longer constitute an Event of Default with respect to the Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i)
the Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the opinion
of a nationally recognized firm of independent public accountants, to pay the
principal of, premium, if any, and interest on the Notes on the stated date for
payment thereof or on the applicable redemption date, as the case may be; (ii)
in the case of Legal Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the date of the
Indenture, there has been a change in the applicable federal income tax law, in
either case to the effect that, and based thereon such opinion of counsel shall
confirm that, the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same times
as would have been the case if such Legal Defeasance had not occurred; (iii) in
the case of Covenant Defeasance, the Company shall have delivered to the Trustee
an opinion of counsel in the United States reasonably acceptable to the Trustee
confirming that the Holders will not recognize income, gain or loss for federal
income tax purposes as a result of such Covenant Defeasance and will be subject
to federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not occurred;
(iv) no Default or Event of Default shall have occurred and be continuing on the
date of such deposit (other than a Default or an Event of Default resulting from
the incurrence of Indebtedness all or a portion of the proceeds of which will be
used to defease the Notes) or insofar as Events of Default from bankruptcy or
insolvency events are concerned, at any time in the period ending on the 91st
day after the date of deposit; (v) such Legal Defeasance or Covenant Defeasance
shall not result in a breach or violation of, or constitute a default under the
Indenture (other than a Default or an Event of Default resulting from the
incurrence of Indebtedness all or a portion of the proceeds of which will be
used to defease the Notes), or any other material agreement or instrument to
which the Company or any of its Subsidiaries is a party or by which the Company
or any of its Subsidiaries is bound; (vi) the Company shall have delivered to
the Trustee an officers' certificate stating that the deposit was not made by
the Company with the intent of preferring the Holders over any other creditors
of the Company or with the intent of defeating, hindering, delaying or
defrauding any other creditors of the Company or others; (vii) the Company shall
have delivered to the Trustee an officers' certificate and an opinion of
counsel, each stating that all conditions precedent provided for or relating to
the Legal Defeasance or the Covenant Defeasance have been complied with; (viii)
the Company shall have delivered to the Trustee an opinion of counsel to the
effect that (A) the trust funds will not be subject to any rights of holders of
Senior Debt, including, without limitation, those arising under the Indenture
and (B) after the 91st day following the deposit, the trust funds will not be
subject to the effect of any applicable bankruptcy, insolvency, reorganization
or similar laws affecting creditors' rights generally; and (ix) certain other
customary conditions precedent are satisfied. Notwithstanding the foregoing, the
opinion of counsel required by clause (ii) or (iii) above need not be delivered
if all Notes not theretofore delivered to the Trustee for cancellation (x) have
become due and payable, (y) will become due and payable on the maturity date
within one year or (z) are to be called for redemption within one year under
arrangements satisfactory to the Trustee for giving of notice of redemption by
the Trustee in the name, and at the expense, of the Company.
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SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
Notes, as expressly provided for in the Indenture) as to all outstanding Notes
when (i) either (a) all the Notes theretofore authenticated and delivered
(except lost, stolen or destroyed Notes which have been replaced or paid and
Notes for whose payment money has theretofore been deposited in trust or
segregated and held in trust by the Company and thereafter repaid to the Company
or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all Notes not theretofore delivered to the Trustee for
cancellation have become due and payable and the Company has irrevocably
deposited or caused to be deposited with the Trustee funds in an amount
sufficient to pay and discharge the entire Indebtedness on the Notes not
theretofore delivered to the Trustee for cancellation, for principal of,
premium, if any, and interest on the Notes to the date of deposit together with
irrevocable instructions from the Company directing the Trustee to apply such
funds to the payment thereof at maturity or redemption, as the case may be; (ii)
the Company has paid all other sums payable under the Indenture by the Company;
and (iii) the Company has delivered to the Trustee an officers' certificate and
an opinion of counsel stating that all conditions precedent under the Indenture
relating to the satisfaction and discharge of the Indenture have been complied
with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does not,
in the opinion of the Trustee, adversely affect the rights of any of the Holders
in any material respect. In formulating its opinion on such matters, the Trustee
will be entitled to rely on such evidence as it deems appropriate, including,
without limitation, solely on an opinion of counsel. Other modifications and
amendments of the Indenture may be made with the consent of the Holders of a
majority in principal amount of the then outstanding Notes issued under the
Indenture, except that, without the consent of each Holder affected thereby, no
amendment may: (i) reduce the amount of Notes whose Holders must consent to an
amendment; (ii) reduce the rate of or change or have the effect of changing the
time for payment of interest, including defaulted interest, on any Notes; (iii)
reduce the principal of or change or have the effect of changing the fixed
maturity of any Notes, or change the date on which any Notes may be subject to
redemption or reduce the redemption price therefor; (iv) make any Notes payable
in money other than that stated in the Notes; (v) make any change in provisions
of the Indenture protecting the right of each Holder to receive payment of
principal of and interest on such Note on or after the due date thereof or to
bring suit to enforce such payment, or permitting Holders of a majority in
principal amount of Notes to waive Defaults or Events of Default; (vi) after the
Company's obligation to purchase Notes arises thereunder, amend, change or
modify in any material respect the obligation of the Company to make and
consummate a Change of Control Offer in the event of a Change of Control or make
and consummate a Net Proceeds Offer with respect to any Asset Sale that has been
consummated or modify any of the provisions or definitions with respect thereto;
or (vii) modify or change any provision of the Indenture or the related
definitions affecting the subordination or ranking of the Notes or any Guarantee
in a manner which adversely affects the Holders.
GOVERNING LAW
The Indenture will provide that it, the Notes will be governed by, and
construed in accordance with, the laws of the State of New York but without
giving effect to applicable principles of conflicts of law to the extent that
the application of the law of another jurisdiction would be required thereby.
THE TRUSTEE
The Indenture will provide that, except during the continuance of an Event
of Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the Trustee
will exercise such rights and powers vested in it by the Indenture, and use the
same degree of care and skill in its exercise as a prudent man would exercise or
use under the circumstances in the conduct of his own affairs.
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The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company, to obtain
payments of claims in certain cases or to realize on certain property received
in respect of any such claim as security or otherwise. Subject to the TIA, the
Trustee will be permitted to engage in other transactions; provided that if the
Trustee acquires any conflicting interest as described in the TIA, it must
eliminate such conflict or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary of
the Company or at the time it merges or consolidates with the Company or any of
its Subsidiaries or assumed in connection with the acquisition of assets from
such Person and in each case not incurred by such Person in connection with, or
in anticipation or contemplation of, such Person becoming a Restricted
Subsidiary of the Company or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The term
"control" means the possession, directly or indirectly, of the power to direct
or cause the direction of the management and policies of a Person, whether
through the ownership of voting securities, by contract or otherwise; and the
terms "controlling" and "controlled" have meanings correlative of the foregoing.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary of the Company in any other Person pursuant to which such
Person shall become a Restricted Subsidiary of the Company or any Restricted
Subsidiary of the Company, or shall be merged with or into the Company or any
Restricted Subsidiary of the Company, or (b) the acquisition by the Company or
any Restricted Subsidiary of the Company of the assets of any Person (other than
a Restricted Subsidiary of the Company) which constitute all or substantially
all of the assets of such Person or comprises any division or line of business
of such Person or any other properties or assets of such Person other than in
the ordinary course of business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
its Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Wholly Owned Restricted Subsidiary of the
Company of (a) any Capital Stock of any Restricted Subsidiary of the Company; or
(b) any other property or assets of the Company or any Restricted Subsidiary of
the Company other than in the ordinary course of business; provided, however,
that asset sales or other dispositions shall not include (i) a transaction or
series of related transactions for which the Company or its Restricted
Subsidiaries receive aggregate consideration of less than $2.0 million, (ii) the
sale, lease, conveyance, disposition or other transfer of all or substantially
all of the assets of the Company as permitted under "-- Certain
Covenants -- Merger, Consolidation and Sale of Assets," (iii) the sale or other
transfer for value by the Company of any Capital Stock of any Person (other than
a Subsidiary) so long as the Investment in such Capital Stock was permitted
under "Limitation on Restricted Payments," (iv) the sale of Cash Equivalents,
(v) disposals or replacements of obsolete or outdated equipment in the ordinary
course of business and (vi) the sale or discount, in each case without recourse
(other than recourse for a breach of a representation or warranty), of accounts
receivable arising in the ordinary course of business, but only in connection
with the compromise or collection thereof in the ordinary course of business and
not as part of a financing transaction.
"Board of Directors" means, as to any Person, the board of directors of
such Person or any duly authorized committee thereof.
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"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to any
Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having a rating of at least A from
either Standard & Poor's Corporation ("S&P") or Moody's Investors Service, Inc.
("Moody's"); (iii) commercial paper maturing no more than one year from the date
of creation thereof and, at the time of acquisition, having a rating of at least
A-2 from S&P or at least P-2 from Moody's; (iv) certificates of deposit, time
deposits or bankers' acceptances maturing within one year from the date of
acquisition thereof issued by any bank organized under the laws of the United
States of America or any state thereof or the District of Columbia or any U.S.
branch of a foreign bank having at the date of acquisition thereof combined
capital and surplus of not less than $250.0 million; (v) repurchase obligations
with a term of not more than 30 days for underlying securities of the types
described in clause (i) above entered into with any bank meeting the
qualifications specified in clause (iv) above; (vi) investments in money market
funds which invest substantially all their assets in securities of the types
described in clauses (i) through (v) above and (vii) in the case of any foreign
subsidiary, (A) direct obligations of the sovereign nation (or any agency
thereof) in which such foreign subsidiary is organized or is conducting business
or in obligations fully and unconditionally guaranteed by such sovereign nation
(or any agency thereof) or (B) of the type and maturity described in clauses
(iii), (iv) or (v) above of foreign obligors, which obligations or obligors (or
the parents of such obligors) have ratings described in such clauses or
equivalent ratings from comparable foreign rating agencies.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or a
series of related transactions) of all or substantially all of the assets of the
Company to any Person or group of related Persons for purposes of Section 13(d)
of the Exchange Act (a "Group"), together with any Affiliates thereof (whether
or not otherwise in compliance with the provisions of the Indenture) other than
to the Permitted Holders; (ii) the approval by the holders of Capital Stock of
the Company of any plan or proposal for the liquidation or dissolution of the
Company (whether or not otherwise in compliance with the provisions of the
Indenture); (iii) any Person or Group (other than the Permitted Holders) shall
become the owner, directly or indirectly, beneficially or of record (other than
any Person described in clause (d)(2) of Rule 13d-3 of the Exchange Act), of
shares representing more than 50% of the aggregate ordinary voting power
represented by the issued and outstanding Capital Stock of the Company; or (iv)
the replacement of a majority of the Board of Directors of the Company over a
two-year period from the directors who constituted the Board of Directors of the
Company at the beginning of such period, and such replacement shall not have
been approved by a vote of at least a majority of the Board of Directors of the
Company then still in office who either were members of such Board of Directors
at the beginning of such period or whose election as a member of such Board of
Directors was previously so approved.
"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether voting
or non-voting) of such Person's common stock, whether
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outstanding on the Issue Date or issued after the Issue Date, and includes,
without limitation, all series and classes of such common stock.
"Consolidated EBITDA," as adjusted, means, with respect to any Person, for
any period, the sum (without duplication) of (i) Consolidated Net Income and
(ii) to the extent Consolidated Net Income has been reduced thereby, (A) all
income taxes of such Person and its Restricted Subsidiaries paid or accrued in
accordance with GAAP for such period (other than income taxes attributable to
extraordinary, unusual or nonrecurring gains or losses or taxes attributable to
sales or dispositions outside the ordinary course of business), (B) Consolidated
Interest Expense and (C) Consolidated Non-cash Charges less any non-cash items
increasing Consolidated Net Income for such period, all as determined on a
consolidated basis for such Person and its Restricted Subsidiaries in accordance
with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means, with respect to any
Person, the ratio of Consolidated EBITDA, as adjusted, of such Person during the
four full fiscal quarters (the "Four Quarter Period") ending on or prior to the
date of the transaction giving rise to the need to calculate the Consolidated
Fixed Charge Coverage Ratio (the "Transaction Date") to Consolidated Fixed
Charges of such Person for the Four Quarter Period. In addition to and without
limitation of the foregoing, for purposes of this definition, "Consolidated
EBITDA," as adjusted, and "Consolidated Fixed Charges" shall be calculated after
giving effect on a pro forma basis for the period of such calculation to (i) the
incurrence or repayment of any Indebtedness of such Person or any of its
Restricted Subsidiaries (and the application of the proceeds thereof) giving
rise to the need to make such calculation and any incurrence or repayment of
other Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of the
Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the proceeds
thereof), occurred on the first day of the Four Quarter Period and (ii) any
asset sales or other dispositions or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of such Person or one of its Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA, as adjusted, (including
any pro forma expense and cost reductions calculated on a basis consistent with
Regulation S-X under the Exchange Act) attributable to the assets which are the
subject of the Asset Acquisition or asset sale or other disposition during the
Four Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such asset sale or other disposition or Asset
Acquisition (including the incurrence, assumption or liability for any such
Acquired Indebtedness) occurred on the first day of the Four Quarter Period. If
such Person or any of its Restricted Subsidiaries directly or indirectly
guarantees Indebtedness of a third Person, the preceding sentence shall give
effect to the incurrence of such guaranteed Indebtedness as if such Person or
any Restricted Subsidiary of such Person had directly incurred or otherwise
assumed such guaranteed Indebtedness. Furthermore, in calculating "Consolidated
Fixed Charges" for purposes of determining the denominator (but not the
numerator) of this "Consolidated Fixed Charge Coverage Ratio," (1) interest on
outstanding Indebtedness determined on a fluctuating basis as of the Transaction
Date and which will continue to be so determined thereafter shall be deemed to
have accrued at a fixed rate per annum equal to the rate of interest on such
Indebtedness in effect on the Transaction Date; and (2) notwithstanding clause
(1) above, interest on Indebtedness determined on a fluctuating basis, to the
extent such interest is covered by agreements relating to Interest Swap
Obligations, shall be deemed to accrue at the rate per annum resulting after
giving effect to the operation of such agreements.
"Consolidated Fixed Charges" means, with respect to any Person for any
period, the sum, without duplication, of (i) Consolidated Interest Expense, plus
(ii) the product of (x) the amount of all dividend payments on any series of
Preferred Stock of such Person (other than dividends paid in Qualified Capital
Stock) paid, accrued or scheduled to be paid or accrued during such period times
(y) a fraction, the numerator of which is one and the denominator of which is
one minus the then current effective consolidated federal, state and local tax
rate of such Person, expressed as a decimal.
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"Consolidated Interest Expense" means, with respect to any Person for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of such Person and its Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount and amortization or write-off
of deferred financing costs, (b) the net costs under Interest Swap Obligations,
(c) all capitalized interest and (d) the interest portion of any deferred
payment obligation; and (ii) the interest component of Capitalized Lease
Obligations paid, accrued and/or scheduled to be paid or accrued by such Person
and its Restricted Subsidiaries during such period as determined on a
consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to any Person, for any
period, the aggregate net income (or loss) of such Person and its Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP, plus, to the extent net income has been reduced thereby, any non-cash
charges relating to any Asset Acquisition by such Person permitted by the terms
of the Indenture; provided that there shall be excluded therefrom (a) after-tax
gains from Asset Sales or abandonments or reserves relating thereto, (b)
after-tax items classified as extraordinary or nonrecurring gains, (c) the net
income of any Person acquired in a "pooling of interests" transaction accrued
prior to the date it becomes a Restricted Subsidiary of the referent Person or
is merged or consolidated with the referent Person or any Restricted Subsidiary
of the referent Person, (d) the net income (but not loss) of any Restricted
Subsidiary of the referent Person to the extent that the declaration of
dividends or similar distributions by that Restricted Subsidiary of that income
is restricted by a contract, operation of law or otherwise, (e) the net income
of any Person, other than a Restricted Subsidiary of the referent Person, except
to the extent of cash dividends or distributions paid to the referent Person or
to a Wholly Owned Restricted Subsidiary of the referent Person by such Person,
(f) any restoration to income of any contingency reserve, except to the extent
that provision for such reserve was made out of Consolidated Net Income accrued
at any time following the Issue Date, (g) income or loss attributable to
discontinued operations (including, without limitation, operations disposed of
during such period whether or not such operations were classified as
discontinued), and (h) in the case of a successor to the referent Person by
consolidation or merger or as a transferee of the referent Person's assets, any
earnings of the successor corporation prior to such consolidation, merger or
transfer of assets.
"Consolidated Net Worth" of any Person means the consolidated stockholders'
equity of such Person, determined on a consolidated basis in accordance with
GAAP, less (without duplication) amounts attributable to Disqualified Capital
Stock of such Person.
"Consolidated Non-cash Charges" means, with respect to any Person, for any
period, the aggregate depreciation, amortization and other non-cash expenses of
such Person and its Restricted Subsidiaries reducing Consolidated Net Income of
such Person and its Restricted Subsidiaries for such period, determined on a
consolidated basis in accordance with GAAP (excluding any such charges
constituting an extraordinary item or loss or any such charge which requires an
accrual of or a reserve for cash charges for any future period).
"Credit Facility" means one or more credit facilities governed by one or
more credit agreements among the Company, the lenders party thereto in their
capacities as lenders thereunder, together with the related documents thereto
(including, without limitation, any guarantee agreements and security
documents), in each case as such agreements may be amended (including any
amendment and restatement thereof), supplemented or otherwise modified from time
to time, including any agreement extending the maturity of, refinancing,
replacing or otherwise restructuring (including increasing the amount of
available borrowings thereunder or adding Restricted Subsidiaries of the Company
as additional borrowers or guarantors thereunder) all or any portion of the
Indebtedness under any such agreements or any successor or replacement
agreements and whether by the same or any other agent, lender or group of
lenders.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of Default.
"Designated Senior Debt" means (i) Indebtedness under or in respect of the
Credit Facility and (ii) any other Indebtedness constituting Senior Debt which,
at the time of determination, has an aggregate principal
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amount of at least $25.0 million and is specifically designated in the
instrument evidencing such Senior Debt as "Designated Senior Debt" by the
Company.
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable, pursuant to a sinking fund obligation or otherwise, or
is redeemable at the sole option of the holder thereof on or prior to the final
maturity date of the Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or
any successor statute or statutes thereto.
"Fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for cash,
between a willing seller and a willing and able buyer, neither of whom is under
undue pressure or compulsion to complete the transaction. Fair market value
shall be determined by the Board of Directors of the Company acting reasonably
and in good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company which, if required by the terms of the Indenture, shall
be delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of such
Person evidenced by bonds, debentures, notes or other similar instruments, (iii)
all Capitalized Lease Obligations of such Person, (iv) all Obligations of such
Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and all Obligations under any title retention
agreement (but excluding trade accounts payable and other accrued liabilities
arising in the ordinary course of business), (v) all Obligations for the
reimbursement of any obligor on any letter of credit, banker's acceptance or
similar credit transaction, (vi) guarantees and other contingent obligations in
respect of Indebtedness referred to in clauses (i) through (v) above and clause
(viii) below, (vii) all Obligations of any other Person of the type referred to
in clauses (i) through (vi) which are secured by any lien on any property or
asset of such Person, the amount of such Obligation being deemed to be the
lesser of the fair market value of such property or asset or the amount of the
Obligation so secured, (viii) all Obligations under currency agreements and
interest swap agreements of such Person and (ix) all Disqualified Capital Stock
issued by such Person with the amount of Indebtedness represented by such
Disqualified Capital Stock being equal to the greater of its voluntary or
involuntary liquidation preference and its maximum fixed repurchase price, but
excluding accrued dividends, if any. For purposes hereof, the "maximum fixed
repurchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
the Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the issuer
of such Disqualified Capital Stock.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified to
perform the task for which it is to be engaged.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated by
applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated by
applying a fixed or a floating rate of
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interest on the same notional amount and shall include, without limitation,
interest rate swaps, caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness issued
by, any Person. "Investment" shall exclude extensions of trade credit by the
Company and its Restricted Subsidiaries on commercially reasonable terms in
accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. For the purposes of the "Limitation on
Restricted Payments" covenant, (i) "Investment" shall include and be valued at
the fair market value of the net assets of any Restricted Subsidiary at the time
that such Restricted Subsidiary is designated an Unrestricted Subsidiary and
shall exclude the fair market value of the net assets of any Unrestricted
Subsidiary at the time that such Unrestricted Subsidiary is designated a
Restricted Subsidiary and (ii) the amount of any Investment shall be the
original cost of such Investment plus the cost of all additional Investments by
the Company or any of its Restricted Subsidiaries, without any adjustments for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment, reduced by the payment of dividends or distributions
in connection with such Investment or any other amounts received in respect of
such Investment; provided that no such payment of dividends or distributions or
receipt of any such other amounts shall reduce the amount of any Investment if
such payment of dividends or distributions or receipt of any such amounts would
be included in Consolidated Net Income. If the Company or any Restricted
Subsidiary of the Company sells or otherwise disposes of any Common Stock of any
direct or indirect Restricted Subsidiary of the Company such that, after giving
effect to any such sale or disposition, the Company no longer owns, directly or
indirectly, greater than 50% of the outstanding Common Stock of such Restricted
Subsidiary, the Company shall be deemed to have made an Investment on the date
of any such sale or disposition equal to the fair market value of the Common
Stock of such Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the Notes.
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof and any agreement to give
any security interest).
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents (other
than the portion of any such deferred payment constituting interest) received by
the Company or any of its Restricted Subsidiaries from such Asset Sale net of
(a) reasonable out-of-pocket expenses and fees relating to such Asset Sale
(including, without limitation, legal, accounting and investment banking fees
and sales commissions), (b) taxes paid or payable after taking into account any
reduction in consolidated tax liability due to available tax credits or
deductions and any tax sharing arrangements, (c) repayment of Indebtedness that
is required to be repaid in connection with such Asset Sale and (d) appropriate
amounts to be provided by the Company or any Restricted Subsidiary, as the case
may be, as a reserve, in accordance with GAAP, against any liabilities
associated with such Asset Sale and retained by the Company or any Restricted
Subsidiary, as the case may be, after such Asset Sale, including, without
limitation, pension and other post-employment benefit liabilities, liabilities
related to environmental matters and liabilities under any indemnification
obligations associated with such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Permitted Holders" means Vinod Gupta and his spouse, their lineal
descendants and adopted children and spouses of their lineal descendants and
adopted children, any foundation controlled by any of the foregoing persons, any
trusts for the benefit of any of the foregoing persons and any Affiliates of the
foregoing persons.
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"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the Notes issued in the Offering and the
Indenture;
(ii) Indebtedness incurred pursuant to the Credit Facility in an
aggregate principal amount at any time outstanding not to exceed $100.0
million;
(iii) other Indebtedness of the Company and its Subsidiaries
outstanding on the Issue Date reduced by the amount of any scheduled
amortization payments or mandatory prepayments when actually paid or
permanent reductions thereon;
(iv) Interest Swap Obligations of the Company or any of its Restricted
Subsidiaries covering Indebtedness of the Company or such Restricted
Subsidiary; provided, however, that such Interest Swap Obligations are
entered into to protect the Company and its Restricted Subsidiaries from
fluctuations in interest rates on Indebtedness incurred in accordance with
the Indenture to the extent the notional principal amount of such Interest
Swap Obligation does not exceed the principal amount of the Indebtedness to
which such Interest Swap Obligation relates;
(v) Indebtedness under Currency Agreements; provided that in the case
of Currency Agreements which relate to Indebtedness, such Currency
Agreements do not increase the Indebtedness of the Company and its
Restricted Subsidiaries outstanding other than as a result of fluctuations
in foreign currency exchange rates or by reason of fees, indemnities and
compensation payable thereunder;
(vi) Indebtedness of a Wholly Owned Restricted Subsidiary of the
Company to the Company or to a Wholly Owned Restricted Subsidiary of the
Company for so long as such Indebtedness is held by the Company, a Wholly
Owned Restricted Subsidiary of the Company or the lenders or collateral
agent under the Credit Facility, in each case subject to no Lien held by a
Person other than the Company, a Wholly Owned Restricted Subsidiary of the
Company or the lenders or collateral agent under the Credit Facility;
provided that if as of any date any Person other than the Company, a Wholly
Owned Restricted Subsidiary of the Company or the lenders or collateral
agent under the Credit Facility owns or holds any such Indebtedness or
holds a Lien in respect of such Indebtedness, on such date the Company
shall be deemed to have incurred Indebtedness not constituting Permitted
Indebtedness;
(vii) Indebtedness of the Company to a Restricted Subsidiary of the
Company for so long as such Indebtedness is held by a Restricted Subsidiary
of the Company or the lenders or collateral agent under the Credit
Facility, in each case subject to no Lien other than in favor of the
lenders or collateral agent under the Credit Facility; provided that (a)
any Indebtedness of the Company to any Restricted Subsidiary of the Company
is unsecured and subordinated in right of payment in an insolvency,
bankruptcy, liquidation or any other similar proceeding, pursuant to a
written agreement, to the Company's obligations under the Indenture and the
Notes and (b) if as of any date any Person other than a Restricted
Subsidiary of the Company owns or holds any such Indebtedness or any Person
other than the lenders or collateral agent under the Credit Facility holds
a Lien in respect of such Indebtedness, on such date the Company shall be
deemed to have incurred Indebtedness not constituting Permitted
Indebtedness;
(viii) Indebtedness arising from the honoring by a bank or other
financial institution of a check, draft or similar instrument inadvertently
(except in the case of daylight overdrafts) drawn against insufficient
funds in the ordinary course of business; provided, however, that such
Indebtedness is extinguished within two business days of incurrence;
(ix) Indebtedness of the Company or any of its Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with
self-insurance or similar requirements in the ordinary course of business;
(x) Indebtedness represented by Capitalized Lease Obligations and
Purchase Money Indebtedness of the Company and its Restricted Subsidiaries
incurred in the ordinary course of business not to exceed $30.0 million at
any one time outstanding;
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(xi) Refinancing Indebtedness;
(xii) Indebtedness in respect of bid, performance, advance payment,
appeal or surety bonds;
(xiii) guarantees of Indebtedness otherwise permitted under the
Indenture, provided that in the case of a guarantee by a Restricted
Subsidiary, such Restricted Subsidiary complies with the "Limitation of
Guarantees by Subsidiaries" covenant; and
(xiv) additional Indebtedness of the Company or any Restricted
Subsidiary in an aggregate principal amount not to exceed $25.0 million at
any one time outstanding.
For purposes of determining compliance with the "Limitation on Incurrence
of Additional Indebtedness" covenant, in the event that an item of Indebtedness
meets the criteria of more than one of the categories of Permitted Indebtedness
described in clauses (i)through (xiv) of the definition of "Permitted
Indebtedness" or is otherwise entitled to be incurred pursuant to the
"Limitation on Incurrence of Additional Indebtedness" covenant, the Company
shall, in its sole discretion, classify such item of Indebtedness in any manner
that complies with such covenant and such item of Indebtedness will be treated
as having been incurred pursuant to only one of such clauses or pursuant to such
covenant or as having been divided and incurred pursuant to more than one of
such clauses or such covenant. Accrual of interest, the accretion of accreted
value and the payment of interest will not be deemed to be an incurrence of
Indebtedness for purposes of this covenant. If the Indebtedness is incurred,
denominated and payable in other than United States currency, then the
Indebtedness shall be converted into United States currency using the spot
foreign exchange rate of the currency in which such Indebtedness is incurred,
denominated and payable on the date of Incurrence of such Indebtedness.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary of the Company in any Person that is or will become
immediately after such Investment a Restricted Subsidiary of the Company or that
will merge or consolidate into the Company or a Restricted Subsidiary of the
Company; (ii) Investments in the Company by any Restricted Subsidiary of the
Company; provided that any Indebtedness evidencing such Investment is unsecured
and subordinated in right of payment in an insolvency, bankruptcy, liquidation
or any other similar proceeding, pursuant to a written agreement, to the
Company's obligations under the Notes and the Indenture; (iii) investments in
cash and Cash Equivalents; (iv) loans and advances to employees and officers of
the Company and its Restricted Subsidiaries in the ordinary course of business
for bona fide business purposes not in excess of $1.0 million at any one time
outstanding; (v) Currency Agreements and Interest Swap Obligations entered into
in the ordinary course of the Company's or its Restricted Subsidiaries'
businesses and otherwise in compliance with the Indenture; (vi) Investments in
securities of trade creditors or customers received pursuant to any plan of
reorganization or similar arrangement upon the bankruptcy, workout or insolvency
of such trade creditors or customers or in settlement of delinquent obligations;
(vii) Investments made by the Company or its Restricted Subsidiaries as a result
of consideration received in connection with an Asset Sale made in compliance
with the "Limitation on Asset Sales" covenant; (viii) any acquisition of assets
or securities of another Person to the extent it is in exchange for the issuance
of Qualified Capital Stock of the Company or a Restricted Subsidiary; (ix)
Investments existing on the Issue Date; and (x) Investments in prepaid expenses,
negotiable instruments held for collection, utility, workers' compensation,
performance and similar deposits; (xi) guarantees of Indebtedness otherwise
permitted under the Indenture, provided that in the case of a guarantee by a
Restricted Subsidiary, such Restricted Subsidiary complies with the "Limitation
of Guarantees by Subsidiaries" covenant; and (xii) any other Investments not to
exceed $30.0 million at any one time outstanding.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims
either (a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or its Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for
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sums not yet delinquent or being contested in good faith, if such reserve
or other appropriate provision, if any, as shall be required by GAAP shall
have been made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of its Restricted Subsidiaries;
(vi) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(vii) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(viii) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(ix) Liens securing Capitalized Lease Obligations and Purchase Money
Indebtedness permitted pursuant to clause (x) of the definition of
"Permitted Indebtedness" or the proviso to "-- Certain
Covenants -- Limitation on Incurrence of Additional Indebtedness";
provided, however, that (A) the Indebtedness shall not exceed the cost of
such property or assets and shall not be secured by any property or assets
of the Company or any Restricted Subsidiary of the Company other than the
property and assets so leased, acquired or constructed (and with respect to
Capitalized Lease Obligations, together with the proceeds thereof,
substitutions and replacements thereof and accessions thereto) and (B) the
Lien securing such Indebtedness shall be created within 180 days of such
lease, acquisition or construction or, in the case of a refinancing
thereof, within 180 days of such refinancing;
(x) Liens securing Indebtedness under Currency Agreements;
(xi) Liens securing Acquired Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant;
provided that (A) such Liens secured such Acquired Indebtedness at the time
of and prior to the incurrence of such Acquired Indebtedness by the Company
or a Restricted Subsidiary of the Company and were not granted in
connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary of the Company and
(B) such Liens do not extend to or cover any property or assets of the
Company or of any of its Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary of the Company and are no more favorable to the lienholders than
those securing the Acquired Indebtedness prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary of the
Company.
(xii) Liens existing on the Issue Date;
(xiii) Liens to secure any Refinancing Indebtedness which is incurred
to Refinance any Indebtedness which has been secured by a Lien permitted
under the Indenture and which has been incurred in accordance with the
provisions of the Indenture; provided, however, that such Liens (A) are no
less favorable to the Holders and are not more favorable to the lienholders
with respect to such Liens than the
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Liens in respect of the Indebtedness being Refinanced and (B) do not extend
to or cover any property or assets of the Company or any of its Restricted
Subsidiaries not securing the Indebtedness so Refinanced;
(xiv) Liens in favor of the Company;
(xv) Liens in favor of customs and revenue authorities to secure
payment of customs duties in connection with the importation of goods in
the ordinary course of business and other similar Liens arising in the
ordinary course of business;
(xvi) leases or subleases granted to third Persons not interfering
with the ordinary course of business of the Company or its Restricted
Subsidiaries;
(xvii) Liens arising by virtue of any common law, statutory,
regulatory, contractual or warranty provision relating to bankers' liens,
rights of set-off or similar rights and remedies as to deposit or
securities accounts maintained in the ordinary course of business;
(xviii) Liens under licensing agreements for use of intellectual
property entered into in the ordinary course of business;
(xix) Liens under the Credit Facility and other Senior Debt permitted
to be incurred under the "Limitation on Incurrence of Additional
Indebtedness" covenant; and
(xx) Liens on property existing at the time of the acquisition thereof
by the Company or any Restricted Subsidiary of the Company; provided, that
(x) such Liens were in existence at the time of and prior to the
acquisition of such property and were not granted in connection with, or in
anticipation of, the acquisition thereof and (y) such Liens extend only to
the property so acquired and the proceeds thereof.
"Person" means an individual, partnership, corporation, unincorporated
organization, association, limited liability company, joint stock company, trust
or joint venture, or a governmental agency or political subdivision thereof or
any other entity.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Purchase Money Indebtedness" means Indebtedness of the Company and its
Restricted Subsidiaries incurred in the normal course of business for the
purpose of financing all or any part of the purchase price, or the cost of
installation, construction or improvement, of property or equipment.
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of the Company of Indebtedness incurred in accordance with
the "Limitation on Incurrence of Additional Indebtedness" covenant (other than
pursuant to clause (ii), (iv), (v), (vi), (vii), (viii), (ix), (x), (xiii) or
(xiv) of the definition of Permitted Indebtedness), in each case that does not
(1) result in an increase in the aggregate principal amount of Indebtedness of
such Person as of the date of such proposed Refinancing (plus the amount of any
interest and premium required to be paid under the terms of the instrument
governing such Indebtedness, market-based premiums and reasonable fees and
expenses incurred by the Company in connection with such Refinancing) or (2)
create Indebtedness with (A) a Weighted Average Life to Maturity that is less
than the Weighted Average Life to Maturity of the Indebtedness being Refinanced
or (B) a final maturity earlier than the final maturity of the Indebtedness
being Refinanced; provided that (x) if such Indebtedness being Refinanced is
Indebtedness of the Company, then such Refinancing Indebtedness shall be
Indebtedness solely of the Company and (y) if such Indebtedness being Refinanced
is subordinate or junior to the Notes, then such Refinancing Indebtedness shall
be subordinate to the Notes at least to the same extent and in the same manner
as the Indebtedness being Refinanced.
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"Representative" means the indenture trustee or other trustee, agent or
representative in respect of any Designated Senior Debt; provided that if, and
for so long as, any Designated Senior Debt lacks such a representative, then the
Representative for such Designated Senior Debt shall at all times constitute the
holders of a majority in outstanding principal amount of such Designated Senior
Debt in respect of any Designated Senior Debt.
"Restricted Subsidiary" of any Person means any Subsidiary of such Person
which at the time of determination is not an Unrestricted Subsidiary.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether owned
by the Company or any Restricted Subsidiary at the Issue Date or later acquired,
which has been or is to be sold or transferred by the Company or such Restricted
Subsidiary to such Person or to any other Person from whom funds have been or
are to be advanced by such Person on the security of such property.
"Senior Debt" means the principal of, premium, if any, and interest
(including any interest accruing subsequent to the filing of a petition of
bankruptcy at the rate provided for in the documentation with respect thereto,
whether or not such interest is an allowed claim under applicable law) on any
Indebtedness of the Company, whether outstanding on the Issue Date or thereafter
created, incurred or assumed, unless, in the case of any particular
Indebtedness, the instrument creating or evidencing the same or pursuant to
which the same is outstanding expressly provides that such Indebtedness shall
not be senior in right of payment to the Notes. Without limiting the generality
of the foregoing, "Senior Debt" shall also include the principal of, premium, if
any, interest (including any interest accruing subsequent to the filing of a
petition of bankruptcy at the rate provided for in the documentation with
respect thereto, whether or not such interest is an allowed claim under
applicable law) on, and all other amounts owing in respect of, (x) all monetary
obligations (including guarantees thereof) of every nature of the Company under
the Credit Facility, including, without limitation, obligations to pay principal
and interest, reimbursement obligations under letters of credit, fees, expenses
and indemnities, (y) all Interest Swap Obligations (including guarantees
thereof) and (z) all obligations (including guarantees thereof) under Currency
Agreements, in each case whether outstanding on the Issue Date or thereafter
incurred. Notwithstanding the foregoing, "Senior Debt" shall not include (i) any
Indebtedness of the Company to a Subsidiary of the Company or any Affiliate of
the Company or any of such Affiliate's Subsidiaries, (ii) Indebtedness to, or
guaranteed on behalf of, any shareholder, director, officer or employee of the
Company or any Subsidiary of the Company (including, without limitation, amounts
owed for compensation), (iii) Indebtedness to trade creditors and other amounts
incurred in connection with obtaining goods, materials or services, (iv)
Indebtedness represented by Disqualified Capital Stock, (v) any liability for
federal, state, local or other taxes owed or owing by the Company, (vi) that
portion of any Indebtedness incurred in violation of the Indenture provisions
set forth under the "Limitation on Incurrence of Additional Indebtedness"
covenant (but, as to any such obligation, no such violation shall be deemed to
exist for purposes of this clause (vi) if the holder(s) of such obligation or
their representative and the Trustee shall have received an officer's
certificate of the Company to the effect that the incurrence of such
Indebtedness does not (or, in the case of revolving credit Indebtedness, that
the incurrence of the entire committed amount thereof at the date on which the
initial borrowing thereunder is made would not) violate such provisions of the
Indenture), (vii) Indebtedness which, when incurred and without respect to any
election under Section 1111(b) of Title 11, United States Code, is without
recourse to the Company and (viii) any Indebtedness which is, by its express
terms, subordinated in right of payment to any other Indebtedness of the
Company.
"Significant Subsidiary", with respect to any Person, means any Restricted
Subsidiary of such Person that satisfies the criteria for a "significant
subsidiary" set forth in Rule 1.02(w) of Regulation S-X under the Securities
Act.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of
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which at least a majority of the voting interest under ordinary circumstances is
at the time, directly or indirectly, owned by such Person.
"Unrestricted Subsidiary" of any Person means (i) any Subsidiary of such
Person that at the time of determination shall be or continue to be designated
an Unrestricted Subsidiary by the Board of Directors of such Person in the
manner provided below and (ii) any Subsidiary of an Unrestricted Subsidiary. The
Board of Directors may designate any Subsidiary (including any newly acquired or
newly formed Subsidiary) to be an Unrestricted Subsidiary unless such Subsidiary
owns any Capital Stock of, or owns or holds any Lien on any property of, the
Company or any other Subsidiary of the Company that is not a Subsidiary of the
Subsidiary to be so designated; provided that (x) the Company certifies to the
Trustee that such designation complies with the "Limitation on Restricted
Payments" covenant and (y) each Subsidiary to be so designated and each of its
Subsidiaries has not at the time of designation, and does not thereafter,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable with respect to any Indebtedness pursuant to which the lender
has recourse to any of the assets of the Company or any of its Restricted
Subsidiaries. The Board of Directors may designate any Unrestricted Subsidiary
to be a Restricted Subsidiary only if (x) immediately after giving effect to
such designation, the Company is able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with the
"Limitation on Incurrence of Additional Indebtedness" covenant and (y)
immediately before and immediately after giving effect to such designation, no
Default or Event of Default shall have occurred and be continuing. Any such
designation by the Board of Directors shall be evidenced to the Trustee by
promptly filing with the Trustee a copy of the Board Resolution giving effect to
such designation and an officers' certificate certifying that such designation
complied with the foregoing provisions.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total of
the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii) the
number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Restricted Subsidiary" of any Person means any Restricted
Subsidiary of such Person of which all the outstanding voting securities (other
than in the case of a foreign Restricted Subsidiary, directors' qualifying
shares or an immaterial amount of shares required to be owned by other Persons
pursuant to applicable law) are owned by such Person or any Wholly Owned
Restricted Subsidiary of such Person.
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FEDERAL INCOME TAX CONSIDERATIONS
The following sets forth the material anticipated federal income tax
consequences expected to result to Holders from the Exchange Offer and from the
purchase, ownership and disposition of the New Notes. The description of the
federal income tax consequences set forth below is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), and judicial decisions and
administrative interpretations thereunder, as of the date hereof, and such
authorities may be repealed, revoked, modified or otherwise interpreted or
applied so as to result in federal income tax consequences different from those
described below. There can be no assurance that the Internal Revenue Service
(the "IRS") will not challenge one or more of the tax consequences described
herein, and the Company has not obtained, nor does it intend to obtain, a ruling
from the IRS or an opinion of counsel with respect to the U.S. federal income
tax consequences of acquiring or holding New Notes. The description below
pertains only to U.S. Holders, except as described below under the caption
"Non-U.S. Holders." As used herein, U.S. Holders means (i) citizens or residents
(within the meaning of Section 7701(b) of the Code) of the United States, (ii)
corporations, partnerships or other entities created in or under the laws of the
United States or any political subdivision thereof, (iii) estates, the income of
which is subject to United States federal income taxation regardless of its
source, and (iv) in general, trusts subject to the primary supervision of a
court within the United States and the control of a United States person as
described in Section 7701(a)(30) of the Code.
This description does not purport to deal with all aspects of U.S. federal
income taxation that may be relevant to a particular Holder in light of the
Holder's circumstances (for example, persons subject to the alternative minimum
tax provisions of the Code). Also, it is not intended to be wholly applicable to
all categories of investors, some of which (such as dealers in securities,
banks, insurance companies, tax-exempt organizations, and persons holding New
Notes as part of a hedging or conversion transaction or straddle or persons
deemed to sell New Notes under the constructive sale provisions of the Code) may
be subject to special rules. The description below is premised upon the
assumption that the New Notes and Existing Notes constitute indebtedness for
U.S. federal income tax purposes, and that the Existing Notes and New Notes are
held (or would be held if acquired) as capital assets within the meaning of
Section 1221 of the Code. This description does not describe the tax
considerations applicable to subsequent purchasers. The description also does
not discuss any aspect of state, local or foreign law, nor federal estate and
gift tax law.
EACH PROSPECTIVE HOLDER AND, SUBSEQUENT TO THE EXCHANGE OFFER, EACH HOLDER
OF NEW NOTES IS STRONGLY URGED TO CONSULT ITS OWN TAX ADVISOR INCLUDING WITH
RESPECT TO ITS PARTICULAR TAX SITUATION THE TAX EFFECTS OF ANY STATE, LOCAL,
FOREIGN OR OTHER TAX LAWS AND POSSIBLE CHANGES IN THE TAX LAWS.
Exchange of Notes
The exchange of Existing Notes for New Notes pursuant to the Exchange Offer
will not be a taxable exchange for U.S. federal income tax purposes.
Accordingly, a Holder will have the same adjusted issue price, adjusted basis
and holding period in the New Notes as it had in the Existing Notes immediately
before the exchange.
Stated Interest
The New Notes will be issued without original issue discount. Stated
interest on the Existing Notes and New Notes will be includable in the Holder's
income under such Holder's method of accounting.
Bond Premium
Generally, if the New Notes are purchased, or if the Existing Notes were
purchased, for an amount in excess of the amount payable at the maturity date
(or a call date, if appropriate) of the New Notes, such excess will constitute
amortizable bond premium that the Holder may elect to amortize under the
constant interest method over the period from the date of acquisition to the
date of maturity (or until an earlier call date). If bond premium is amortized,
the amount required to be included in the Holder's income each year
76
<PAGE> 86
with respect to interest on the Note will be reduced by the amount of
amortizable bond premium allocable to such year. An election to amortize bond
premium is available only if the New Notes are held as capital assets. This
election is revocable only with the consent of the IRS and applies to all
obligations owned or subsequently acquired by the Holder. To the extent the
excess is deducted as amortizable bond premium, the Holder's adjusted tax basis
in the New Notes will be reduced.
Market Discount on the New Notes
To the extent a Holder had market discount with respect to an Existing
Note, the Holder generally will have market discount with respect to a New Note.
Any principal payment or gain realized by a Holder on disposition or retirement
of a New Note will be treated as ordinary income to the extent that there is
accrued market discount on the New Note. Unless a Holder elects to accrue under
a constant-interest method, accrued market discount is the total market discount
multiplied by a fraction, the numerator of which is the number of days the
Holder has held the obligation and the denominator of which is the number of
days from the date the Holder acquired the obligation under its maturity. A
Holder may be required to defer a portion of its interest deductions for the
taxable year attributable to any indebtedness incurred or continued to purchase
or carry a New Note purchased with market discount. Any such deferred interest
expense would not exceed the market discount that accrues during such taxable
year and is, in general, allowed as a deduction not later than the year in which
such market discount is includable in income. If the Holder elects to include
market discount in income currently as it accrues on all market discount
instruments acquired by the Holder in that taxable year or thereafter, the
interest deferral rule described above will not apply.
Sale, Exchange or Retirement of the New Notes
Upon the sale, exchange or retirement of a New Note, the Holder generally
will recognize gain or loss equal to the difference between the amount realized
on the sale, exchange or retirement (which does not include any amount
attributable to accrued but unpaid interest) and the Holder's adjusted tax basis
in the New Note. A Holder's adjusted tax basis in a New Note will generally
equal the Holder's adjusted basis for the Existing Note exchanged therefor
increased by any original issue discount or market discount previously included
in income by such Holder with respect to such New Note and decreased by any
payments received thereon that are not qualified stated interest and the amount
of any amortizable bond premium applied to reduce interest on the New Note.
Gain or loss realized on the sale, exchange or retirement of a New Note
will be capital (subject to the market discount rules, discussed above), and
will be long-term if at the time of sale, exchange or retirement the New Note
has been held or deemed held for more than one year. Under recently enacted
federal legislation which is retroactively effective as of January 1, 1998, gain
on the disposition of most capital assets held by an individual more than one
year would be subject to a maximum rate of tax of 20%. The deductibility of
capital losses is subject to limitations.
Non-U.S. Holders
The following sets forth the material anticipated U.S. federal income and
estate tax consequences expected to result to Non-U.S. Holders from the
ownership and disposition of New Notes. As used herein, a Non-U.S. Holder means
any Holder other than a U.S. Holder.
Interest
Interest paid by the Company to a Non-U.S. Holder generally will not be
subject to United States federal income or withholding tax if such interest is
not effectively connected with the conduct of a trade or business within the
United States by such Non-U.S. Holder and pursuant to the "portfolio interest
exception" such Non-U.S. Holder: (i) does not actually or constructively own 10%
or more of the total combined voting power of all classes of stock of the
Company; (ii) is not a controlled foreign corporation with respect to which the
Company is a "related person" within the meaning of the code; and (iii)
certifies, under penalties of perjury, that such Holder is not a United States
person and provides such Holder's name and address. Recently
77
<PAGE> 87
adopted Treasury Regulations that will be effective beginning January 1, 2000
(the "New Regulations") would modify the foregoing certification requirement in
certain respects. Prospective holders are urged to consult their own tax
advisors as to the certification and other requirements under the New
Regulations.
Gain on Disposition
A Non-U.S. Holder will generally not be subject to United States federal
income tax on gain recognized on a sale, redemption or other disposition of a
New Note unless: (i) the gain is effectively connected with the conduct of a
trade or business within the United States by the Non-U.S. Holder; (ii) in the
case of a Non-U.S. Holder who is a nonresident alien individual and holds the
Note as a capital asset, such Holder is present in the United States for 183 or
more days in the taxable year and certain other requirements are met; or (iii)
the Non-U.S. Holder is subject to tax pursuant to the provisions of U.S. tax law
applicable to certain U.S. expatriates (including certain former citizens or
residents of the U.S.).
Federal Estate Taxes
If interest on the New Notes is exempt from withholding of United States
federal income tax under the portfolio interest exception described above, the
New Notes will generally not be included in the estate of a deceased Non-U.S.
Holder for United States federal estate tax purposes.
Backup Withholding
A Holder of the New Notes may be subject to backup withholding at a rate of
31% with respect to interest paid or accrued on, and gross proceeds of a sale
of, the New Notes unless (i) such Holder is a corporation or comes within
certain other exempt categories and, when required, demonstrates this fact or
(ii) provides a correct taxpayer identification number, certifies as to no loss
of exemption from backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A Holder of the New Notes who does
not provide such Holder's correct taxpayer identification number may be subject
to penalties imposed by the IRS.
In general, payment of the proceeds from the sale of Notes to or through a
United States office of a broker is subject to both United States backup
withholding and information reporting unless the Holder or beneficial owner
certifies its non-United States status under penalties of perjury or otherwise
establishes an exemption, provided that the broker does not have actual
knowledge that the holder is a U.S. person or that the conditions of any other
exemption are not, in fact, satisfied. United States information reporting and
backup withholding generally will not apply to a payment made outside the United
States of the proceeds of a sale of Notes through an office outside the United
States of a non-United States broker. However, United States information
reporting requirements (but not backup withholding) will apply to a payment made
outside the United States of the proceeds of a sale of Notes through an office
outside the United States of a broker that is a United States person, that
derives 50% or more of its gross income for a specified three-year period from
the conduct of a trade or business in the United States, or that is a
"controlled foreign corporation" for U.S. federal income tax purposes, unless
the broker has documentary evidence in its files that the Holder or beneficial
owner is a non-United States person or the Holder or beneficial owner otherwise
establishes an exemption.
The New Regulations would modify the application of the information
reporting requirements and the backup withholding tax to Non-U.S. Holders
beginning January 1, 2000. Amounts withheld under the backup withholding rules
may be credited against a Holder's tax liability, and a Holder may obtain a
refund of any excess amounts withheld under the backup withholding rules by
filing the appropriate claim for refund with the IRS.
THE FOREGOING DESCRIPTION OF FEDERAL INCOME TAX CONSEQUENCES DOES NOT
CONSTITUTE TAX ADVICE, AND IS NOT BASED UPON ANY OPINION OF COUNSEL.
ACCORDINGLY, EACH HOLDER OF THE EXISTING NOTES SHOULD CONSULT SUCH HOLDER'S OWN
TAX ADVISOR WITH RESPECT TO THE TAX CONSEQUENCES TO SUCH HOLDER OF THE
ACQUISITION, OWNERSHIP AND DISPOSITION OF THE NEW NOTES.
78
<PAGE> 88
PLAN OF DISTRIBUTION
This Prospectus, as it may be amended or supplemented from time to time,
may be used by Exchanging Dealers in connection with resales of New Notes
received in exchange for Existing Notes where such Existing Notes were acquired
as a result of market-making activities or other trading activities. Each
Exchanging Dealer that receives New Notes for its own account pursuant to the
Exchange Offer must acknowledge that it will deliver a prospectus in connection
with any resale of such New Notes. The Company has agreed that under certain
circumstances, for a period of up to 180 days after the Expiration Date, it will
make this Prospectus, as amended or supplemented, available to any Exchanging
Dealer for use in connection with any such resale. In addition, up through and
including , 1998 (90 days after this Prospectus was sent to
Existing Holders), all dealers effecting transactions in the New Notes, whether
or not participating in the Exchange Offer, may be required to deliver a
prospectus in connection with such transaction.
The Company will not receive any proceeds from any sale of New Notes by
broker-dealers. New Notes received by broker-dealers for their own account
pursuant to the Exchange Offer may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New Notes or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or negotiated prices. Any such resale may be made
directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer or the purchasers of any such New Notes. Any Exchanging Dealer
that acquired Existing Notes as a result of market making activities or other
trading activities and who resells New Notes that were received by it pursuant
to the Exchange Offer and any broker or dealer that participates in a
distribution of such New Notes may be deemed to be an "underwriter" within the
meaning of the Securities Act and any profit on any such resale of New Notes and
any commission or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The Letter of Transmittal
states that, by acknowledging that it will deliver and by delivering a
prospectus, an Exchanging Dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
For a period of up to 180 days following effectiveness of the Exchange
Offer Registration Statement, and subject to certain conditions, the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such documents
in the Letter of Transmittal. The Company has agreed to pay all required
expenses incident to the Exchange Offer (including the expenses of one counsel
for the Existing Holders) other than commissions or concessions of any
broker-dealers and will indemnify the Existing Holders (including any
broker-dealers) against certain liabilities, including liabilities under the
Securities Act.
LEGAL MATTERS
The validity of the New Notes offered hereby will be passed upon for the
Company by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
EXPERTS
The consolidated balance sheets as of December 31, 1997 and 1996 and the
consolidated statements of operations, stockholders' equity, and cash flows for
each of the three years in the period ended December 31, 1997 of the Company
included in this Prospectus have been audited by PricewaterhouseCoopers LLP (on
July 1, 1998, Coopers & Lybrand L.L.P. merged with Price Waterhouse LLP to form
PricewaterhouseCoopers LLP), independent accountants, 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.
On October 1, 1998, PricewaterhouseCoopers LLP, the Company's independent
accountants (the "Former Accountants") resigned from their engagement as
principal accountants for the Company. The reports of the Former Accountants for
the last two fiscal years contained no adverse opinion, disclaimer of opinion or
opinion that was qualified or modified as to uncertainty, audit scope or
accounting principles. The
79
<PAGE> 89
decision to change accountants was not recommended or approved by Company's
board of directors, nor by its audit committee. In the last two fiscal years and
through October 1, 1998, there have been no disagreements with the Former
Accountants on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which, if not resolved to
the satisfaction of the Former Accountants, would have caused them to make
reference thereto in their report on the financial statements of such years. In
the last two fiscal years and through October 1, 1998, none of the events listed
in paragraphs (A) through (D) of Item 304(a)(1)(v) of Regulation S-K occurred
except: (i) the Form 10-Q, filed by the Company for the period ended June 30,
1998, disclosed that the Company was in the process of performing a valuation
analysis of its acquisition of JAMI Marketing and any changes to its preliminary
estimates of the assets acquired, liabilities assumed and goodwill and other
intangibles recorded as part of the purchase, including an assessment of
purchased in-process research and development costs, would be recorded in the
third quarter of 1998; the Former Accountants indicated that if such in-process
research and development charge was material, the financial statements for the
period ended June 30, 1998 would require restatement; the Company has since
determined that there will be no material in-process research and development
costs in connection with the JAMI Marketing acquisition; and (ii) as a result of
recent financial management resignations, the Former Accountants advised the
Company that it intended to expand the scope of its audit testing for the fiscal
year 1998 audit, and management is in agreement with this advice.
On October 12, 1998, the Company engaged the services of KPMG Peat Marwick
(the "New Accountants") to serve as the Company's principal accountants for the
current fiscal year. In September, 1998, the Company engaged the New Accountants
for purposes of allocating the cost of the acquisition to certain assets and
liabilities acquired by the Company from JAMI Marketing in May 1998. This
project has not yet been completed. The New Accountants have expressed in
writing their preliminary view that there should not be a material charge for in
process research and development costs as a result of the JAMI Marketing
transaction. PricewaterhouseCoopers LLP, the Company's former accountants, were
not consulted by the Company regarding the allocation of the acquisition costs.
During its last two fiscal years and through October 1, 1998, the Company has
not consulted with the New Accountants on either the application of accounting
principles to a specified transaction, or any matter that was the subject of a
reportable event discussed above.
80
<PAGE> 90
INFOUSA INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INFOUSA INC. AND SUBSIDIARIES:
Consolidated Balance Sheets at September 30, 1998
(unaudited) and December 31, 1997...................... F-2
Consolidated Statements of Operations for the Nine Months
Ended September 30, 1998 (unaudited) and September 30,
1997 (unaudited)....................................... F-3
Consolidated Statements of Cash Flows for the Nine Months
Ended September 30, 1998 (unaudited) and September 30,
1997 (unaudited)....................................... F-4
Notes to Consolidated Financial Statements at September
30, 1998 (unaudited)................................... F-5
Report of Independent Accountants......................... F-9
Consolidated Balance Sheets as of December 31, 1997 and
1996................................................... F-10
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1996 and 1995....................... F-11
Consolidated Statements of Stockholders' Equity for the
Periods Ended December 31, 1997, 1996 and 1995......... F-12
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997,
1996 and 1995.......................................... F-13
Notes to Consolidated Financial Statements................ F-14
</TABLE>
F-1
<PAGE> 91
INFOUSA INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1998 1997
------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents................................. $ 24,501 $ 10,653
Marketable securities..................................... 19,046 24,045
Trade accounts receivable, net of allowances of $16,440
and $6,013, respectively............................... 40,458 49,409
List brokerage trade accounts receivable.................. 15,953 --
Income taxes receivable................................... 4,550 345
Prepaid expenses.......................................... 3,515 3,475
Deferred marketing costs.................................. 4,430 3,417
Deferred income taxes..................................... 576 --
-------- --------
Total current assets.............................. 113,029 91,344
-------- --------
Property and equipment, net................................. 38,324 25,117
Intangible assets, net of accumulated amortization.......... 107,766 73,741
Deferred income taxes....................................... -- 1,410
Other assets................................................ 4,870 3,299
-------- --------
$263,989 $194,911
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt......................... $ 1,492 $ 716
Payable to shareholders................................... -- 1,871
Accounts payable.......................................... 7,139 9,426
List brokerage trade accounts payable..................... 19,041 --
Accrued payroll expenses.................................. 5,278 4,910
Accrued expenses.......................................... 15,403 5,406
Deferred revenue.......................................... 3,901 4,238
Deferred income taxes..................................... -- 4,770
-------- --------
Total current liabilities......................... 52,254 31,337
-------- --------
Long-term debt, net of current portion...................... 127,098 81,284
Deferred income taxes....................................... 6,420 --
Other liabilities........................................... -- 2,054
Commitments and contingencies Stockholders' equity:
Preferred stock, $.0025 par value. Authorized 5,000,000
shares; None issued or outstanding..................... -- --
Class A common stock, $.0025 par value. Authorized
220,000,000 shares; 24,689,871 shares issued and
outstanding at September 30, 1998 and 24,460,332 shares
issued and outstanding at December 31, 1997............ 62 61
Class B common stock, $.0025 par value. Authorized
75,000,000 shares; 24,854,879 shares issued and
24,689,879 shares outstanding at September 30, 1998 and
24,625,332 shares issued and 24,460,332 shares
outstanding at December 31, 1997....................... 62 62
Paid-in capital........................................... 72,476 69,055
Retained earnings......................................... 8,911 13,126
Treasury stock, at cost, 165,000 shares of Class B common
stock held at September 30, 1998 and December 31,
1997................................................... (2,281) (2,281)
Accumulated other comprehensive income (loss)............. (1,013) 213
-------- --------
Total stockholders' equity........................ 78,217 80,236
-------- --------
$263,989 $194,911
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements
F-2
<PAGE> 92
INFOUSA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1998 1997 1998 1997
-------- ------- -------- --------
<S> <C> <C> <C> <C>
Net sales.............................................. $ 55,072 $50,555 $172,528 $139,511
Costs and expenses:
Database and production costs........................ 17,978 14,148 49,469 38,674
Selling, general and administrative.................. 41,199 21,331 91,696 59,396
Depreciation and amortization........................ 7,698 8,985 20,784 24,397
Provision for litigation settlement.................. 4,500 -- 4,500 --
Acquisition-related and restructuring charges........ 1,216 4,300 15,468 56,098
-------- ------- -------- --------
72,591 48,764 181,917 178,565
-------- ------- -------- --------
Operating income (loss)................................ (17,519) 1,791 (9,389) (39,054)
Other income (expense):
Investment income.................................... 212 955 16,306 2,513
Interest expense..................................... (3,081) (1,212) (6,225) (2,687)
-------- ------- -------- --------
Income (loss) before income taxes...................... (20,388) 1,534 692 (39,228)
Income taxes........................................... (7,115) 775 4,907 4,299
-------- ------- -------- --------
Net income (loss)...................................... $(13,273) $ 759 $ (4,215) $(43,527)
======== ======= ======== ========
BASIC EARNINGS PER SHARE:
Net income (loss).................................... $ (0.27) $ 0.02 $ (0.09) $ (0.91)
======== ======= ======== ========
Weighted average shares outstanding.................. 49,360 48,774 49,319 47,964
======== ======= ======== ========
DILUTED EARNINGS PER SHARE:
Net income (loss).................................... $ (0.27) $ 0.02 $ (0.09) $ (0.91)
======== ======= ======== ========
Weighted average shares outstanding.................. 49,360 50,273 49,319 47,964
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE> 93
INFOUSA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1998 1997
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss.................................................. $ (4,215) $(43,527)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 20,784 24,397
Deferred income taxes.................................. (5,361) (2,431)
Net realized gains on sale of marketable securities and
other investments..................................... (17,603) (1,647)
Impairment of other assets............................. 2,000 --
Acquisition-related and restructuring charges.......... 14,353 53,500
Changes in assets and liabilities, net of effect of
acquisitions:
Trade accounts receivable............................ 8,992 (6,869)
List brokerage trade accounts receivable............. (4,732) --
Prepaid expenses..................................... 49 1,261
Deferred marketing costs............................. (1,013) (1,303)
Accounts payable..................................... (2,948) (985)
List brokerage trade accounts payable................ 3,104 --
Income taxes receivable and payable.................. (4,205) 698
Accrued expenses..................................... 97 (5,677)
--------- --------
Net cash provided by operating activities......... 9,302 17,417
Cash flows from investing activities:
Proceeds from sales of marketable securities.............. 36,443 18,589
Purchases of marketable securities........................ (15,691) (12,285)
Purchases of other investments............................ (3,000) (2,000)
Purchases of property and equipment....................... (16,692) (6,392)
Acquisitions of businesses................................ (30,906) (79,462)
Consumer database costs................................... (868) (2,348)
Software development costs................................ (4,573) (2,235)
Other..................................................... -- (1,101)
--------- --------
Net cash used in investing activities............. (35,287) (87,234)
Cash flows from financing activities:
Repayment of long-term debt............................... (110,617) (2,026)
Proceeds from long-term debt.............................. 154,800 81,000
Deferred financing costs.................................. (5,901) (388)
Payment of note payable to shareholders................... -- (7,925)
Proceeds from exercise of stock options................... 1,150 1,242
Tax benefit related to employee stock options............. 401 588
--------- --------
Net cash provided by financing activities......... 39,833 72,491
--------- --------
Net increase in cash and cash equivalents................... 13,848 2,674
Cash and cash equivalents, beginning........................ 10,653 7,497
--------- --------
Cash and cash equivalents, ending........................... $ 24,501 $ 10,171
========= ========
Supplemental cash flow information:
Interest paid............................................. $ 3,403 $ 2,247
========= ========
Income taxes paid......................................... $ 9,630 $ 7,389
========= ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE> 94
INFOUSA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The accompanying unaudited financial statements have been prepared on the
same basis as the audited consolidated financial statements and, in the opinion
of management, contain all adjustments, consisting of normal recurring
adjustments, necessary to fairly present the financial information included
therein.
The Company suggests that this financial data be read in conjunction with
the audited consolidated financial statements and notes thereto for the year
ended December 31, 1997 included in the Company's 1997 Annual Report on Form
10-K, as amended, filed with the Securities and Exchange Commission. Results for
the interim period presented are not necessarily indicative of results to be
expected for the entire year.
2. ACQUISITIONS AND ACQUISITION-RELATED AND RESTRUCTURING CHARGES
Effective March 1998, the Company acquired certain assets and assumed
certain liabilities of Walter Karl, Inc. ("Walter Karl"), a national direct
marketing service firm that provides list management, list brokerage, database
marketing and direct marketing services to a wide array of customers. Total
consideration for the acquisition was approximately $19.4 million in cash,
funded using a revolving credit facility (See Note 4). The acquisition has been
accounted for under the purchase method of accounting. As part of the
acquisition, the Company performed a valuation analysis and recorded
acquisition-related charges of $9.2 million for the write-off of purchased
in-process research and development costs which related to projects that had not
met technological feasibility. Intangibles and goodwill recorded as part of the
purchase included goodwill of $23.5 million (to be amortized over 15 years),
core technology of $3.7 million (to be amortized over 3 years), tradenames of
$4.2 million (to be amortized over 15 years), customer base of $2.2 million (to
be amortized over 3 years), and $0.8 million of other intangibles (to be
amortized over 5 years).
Effective June 1998, the Company acquired certain assets and assumed
certain liabilities of JAMI Marketing Services, Inc. ("JAMI"), a list brokerage,
list management, data processing, and marketing consulting firm. Total
consideration for the acquisition was approximately $12.6 million in cash,
subject to adjustment, funded with the proceeds from the disposition of the
Company's holdings of Metromail Corporation common stock (See "Management's
Discussion and Analysis of Financial Condition -- Other Income (Expense), Net").
The acquisition has been accounted for under the purchase method of accounting.
As part of the acquisition, the Company performed a preliminary valuation
analysis and recorded goodwill of $0.9 million (to be amortized over 15 years),
non-compete agreements of $7.1 million (to be amortized over 5 years),
tradenames of $0.4 million (to be amortized over 5 years), customer base of $4.2
million (to be amortized over 3 years), and $0.6 million of other intangibles
(to be amortized over 5 years).
Effective July 1998, the Company acquired certain assets and assumed
certain liabilities of Contacts Target Marketing ("CTM"), a regional business
marketing database company, based in Vancouver, Canada, for approximately $0.4
million in cash. CTM will be operated as a branch of the Company's Canadian
operation. The acquisition has been accounted for under the purchase method of
accounting. As part of the acquisition, the Company recorded goodwill of $0.5
million.
No pro forma information has been presented within the accompanying
consolidated financial statements and notes to consolidated financial statements
related to the acquisitions of Walter Karl, JAMI and CTM as the results of
operations for these acquisitions for the period from January 1, 1998 to the
date of acquisition of these acquisitions are not material to the accompanying
consolidated statement of operations.
The accompanying consolidated statement of operations for the three month
period ended September 30, 1998 reflects $1.2 million for restructuring costs
related to certain cost reduction measures the Company enacted during the third
quarter of 1998. The $1.2 million of restructuring costs is comprised of: $0.6
million for severance pay, $0.4 million for lease termination costs, and $0.2
million for the abandonment of certain assets. The restructuring, including
recording the payments and write-downs described, is anticipated to be completed
by March 31, 1999.
F-5
<PAGE> 95
In addition to the write-off of purchased in-process research and
development costs of $9.2 million for Walter Karl previously described, included
in acquisition-related and restructuring charges in the accompanying
consolidated statement of operations for the nine month period ended September
30, 1998 are: $3.0 million of costs associated with the Company's bid to acquire
Metromail Corporation, $0.7 million associated with the Company's offering to
sell Class A Common Stock which was not completed, $1.4 million for
restructuring costs related to the Company's compilation and sales activities
for new businesses enacted during the first quarter of 1998, and $1.2 million
for restructuring costs related to certain cost reduction measures enacted
during the third quarter of 1998 (as detailed above). The $1.4 million of
restructuring costs for the new businesses compilation and sales activities
enacted during the first quarter of 1998 is comprised of: $0.6 million for
severance pay, $0.3 million for lease termination costs, and $0.5 million for
the abandonment of certain assets. The restructuring for the new businesses
compilation and sales activities, including recording the payments and
write-downs described, was completed as of September 30, 1998.
3. SENIOR SUBORDINATED NOTES
On June 18, 1998, the Company completed a private placement of 9 1/2%
Senior Subordinated Notes due June 15, 2008 (the "Notes") in the aggregate
principal amount of $115.0 million. The Notes have not been registered under the
Securities Act of 1933, as amended (the "Act") and may not be offered or sold in
the United States absent registration or an applicable exemption from the
registration requirements of the Act. A portion of the proceeds were used to
pay-off the revolving credit facility described in Note 4 below. The Notes are
subject to various covenants, including among other things, limiting additional
indebtedness and the ability to pay dividends.
Interest on the Notes will accrue from the original issuance date and will
be payable semi-annually in arrears on June 15 and December 15 of each year,
commencing on December 15, 1998, at the rate of 9 1/2% per annum. The Notes are
redeemable, in whole or in part, at the option of the Company, on or after June
15, 2003, at designated redemption prices outlined in the Indenture governing
the Notes, plus any accrued interest to the date of redemption. In addition, at
any time on or prior to June 15, 2001, the Company, at its option, may redeem up
to 35% of the aggregate principal amount of the Notes originally issued with the
net cash proceeds of one or more equity offerings, at the redemption price equal
to 109.5% of the principal amount thereof, plus any accrued interest to the date
of redemption. In the event of a change in control, each holder of Notes will
have the right to require the Company to repurchase such holder's Notes at a
price equal to 101% of the principal amount thereof, plus any accrued interest
to the repurchase date.
During May 1998 in connection with the sale of the Notes, the Company
entered into a Treasury yield collar agreement (the "Treasury Collar") with a
bank, to hedge against the movement in interest rates on the ten-year Treasury
Note. The Treasury Collar was in the notional amount of $100.0 million. During
June 1998, the Company terminated the Treasury Collar and, in connection
therewith, made a payment of approximately $1.6 million to the bank which was
recorded as deferred financing costs included in intangible assets in the
accompanying consolidated balance sheets. The termination fee will be amortized
over the 10 year life of the Notes.
4. OTHER DEBT OBLIGATIONS
The Company previously maintained an uncollateralized $100 million Credit
Facility with First Union National Bank of North Carolina ("FUNB"). The Company
terminated the FUNB Credit Facility effective July 1, 1998. As of September 30,
1998, the Company had no revolving credit facility in place.
During July 1998, the Company executed a mortgage note in the amount of
$10.8 million. The note bears interest at a fixed rate of 7.40% through July
2003, and then will be adjusted to an interest rate which is 175 basis points
over the five year Treasury Constant Maturities (as defined by the Federal
Reserve System), yet in any event, shall not bear an interest rate below 7.25%.
The mortgage note is collateralized by the deed of trust covering certain real
property located at the Company's new Papillion, Nebraska facility.
During June 1998, the Company executed a commitment letter with a bank
proposing to extend credit up to $13.5 million related to the financing of the
Company's new facility in Montebello, New York. The
F-6
<PAGE> 96
commitment is subject to the negotiation and execution of a definitive credit
and security agreement. The note would be collateralized by certain real
property.
5. EARNINGS PER SHARE INFORMATION
The following data shows the amounts used in computing earnings per share
and the effect on the weighted average number of shares of dilutive potential
common stock. Options on 0.6 million shares of common stock were not included in
computing diluted earnings per share for the three month period ended September
30, 1998, because their effects were antidilutive. Options on 1.1 million and
1.2 million shares of common stock were not included in computing diluted
earnings per share for the nine month period ended September 30, 1998 and 1997,
respectively, because their effects were antidilutive.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ ------------------
1998 1997 1998 1997
------- ------- ------- -------
<S> <C> <C> <C> <C>
Weighted average number of shares outstanding used in
basic earnings per share.............................. 49,360 48,774 49,319 47,964
Net additional common stock equivalent shares
outstanding after assumed exercise of stock options... -- 1,499 -- --
------ ------ ------ ------
Weighted average number of shares outstanding used in
basic earnings per share.............................. 49,360 50,273 49,319 47,964
====== ====== ====== ======
</TABLE>
6. ACCOUNTING STANDARDS
In 1997, the Financial Accounting Standards Board ("FASB") issued Statement
of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting and display of comprehensive
income and its components in the financial statements. Reclassification of
financial statements for earlier periods provided for comparative purposes is
required. The following is a reconciliation of net income (loss) per the
accompanying consolidated statements of operations to comprehensive income
(loss) for the periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------ -------------------
1998 1997 1998 1997
-------- ------ ------- --------
<S> <C> <C> <C> <C>
Net income (loss).................................. $(13,273) $ 759 $(4,215) $(43,527)
Other comprehensive income (loss):
Unrealized gain (loss) from investments:
Unrealized holding gains (losses) arising during
the period, net of income taxes of $(484),
$2,143, $5,536, and $1,419, respectively...... (789) 3,496 9,032 2,316
Reclassification adjustment for net (gains)
losses included in net income, net of income
taxes of $0, $(192), $(6,287), and $(442),
respectively.................................. -- (313) (10,258) (721)
-------- ------ ------- --------
Net unrealized gain (loss) from investments...... (789) 3,183 (1,226) 1,595
-------- ------ ------- --------
Comprehensive income (loss)........................ $(14,062) $3,942 $(5,441) $(41,932)
======== ====== ======= ========
</TABLE>
In 1997, the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This statement is effective for fiscal
years beginning after December 15, 1997, which will expand disclosures made by
the Company and will have no impact on consolidated financial position, results
of operations or cash flows.
In 1998, the Accounting Standards Committee issued Statement of Accounting
Position ("SOP") No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use," which is effective for fiscal years
beginning after December 15, 1998. The SOP provides guidance on when costs
incurred for internal-use computer software are and are not capitalized, and on
the accounting for such software that is marketed.
F-7
<PAGE> 97
7. 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. See also Note 8 below
and Part II, Item 1.
8. SUBSEQUENT EVENT
During October 1998, the Company announced a decision in its year-long
arbitration dispute with Experian Information Solutions, Inc., a division of
TRW, Inc. The dispute centered around a license agreement between the Database
America Companies ("DBA") and Experian prior to the Company's acquisition of
DBA. DBA claimed that Experian breached the license agreement by, among other
things, providing data to third parties in violation of that agreement. Experian
claimed that DBA improperly terminated the agreement. Both sides sought damages
resulting from their claims of breach.
On October 16, 1998, the Arbitrator from the American Arbitration
Association found DBA to have breached the contract and awarded damages to
Experian in the amount of $4,447,000. Although the Arbitrator found that
Experian had provided data improperly to a third party, he did not find it to be
a material breach.
The Company recorded a provision for litigation settlement of $4.5 million
during the third quarter of 1998 related to this dispute which is reflected in
the accompanying consolidated statements of operations. The Company has reviewed
the Arbitrator's decision and believes that the amount of damages is not
supported by either the law or the facts. The Company is currently reviewing its
options for a petition to the Arbitrator for reconsideration on the issue of
damages and a potential appeal on the grounds that the Arbitrator did not apply
the appropriate limitations of California law regarding damages claims.
F-8
<PAGE> 98
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and Board of Directors of
infoUSA Inc.:
We have audited the consolidated balance sheets of infoUSA Inc. (formerly
named American Business Information, Inc.) and subsidiaries as of December 31,
1997 and 1996 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, 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 infoUSA Inc.
and subsidiaries as of December 31, 1997 and 1996, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles.
PRICEWATERHOUSECOOPERS LLP
Omaha, Nebraska
January 23, 1998, except for note 18,
as to which the date is March 31, 1998
F-9
<PAGE> 99
INFOUSA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents................................. $ 10,653 $ 7,497
Marketable securities..................................... 24,045 22,810
Trade accounts receivable, net of allowances of $6,013 and
$2,724, respectively................................... 49,409 29,630
Income taxes receivable................................... 345 1,105
Prepaid expenses.......................................... 3,475 3,267
Deferred marketing costs.................................. 3,417 1,263
-------- --------
Total current assets.............................. 91,344 65,572
-------- --------
Property and equipment, net................................. 25,117 18,886
Intangible assets, net of accumulated amortization.......... 73,741 17,410
Deferred income taxes....................................... 1,410 5,388
Other assets................................................ 3,299 621
-------- --------
$194,911 $107,877
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt......................... $ 716 $ 708
Payable to shareholders................................... 1,871 7,925
Accounts payable.......................................... 9,426 5,520
Accrued payroll expenses.................................. 4,910 2,352
Accrued expenses.......................................... 5,406 711
Deferred revenue.......................................... 4,238 2,117
Deferred income taxes..................................... 4,770 512
-------- --------
Total current liabilities......................... 31,337 19,845
-------- --------
Long-term debt, net of current portion...................... 81,284 427
Other liabilities........................................... 2,054 --
Commitments and contingencies
STOCKHOLDERS' EQUITY:
Preferred stock, $.0025 par value. Authorized 5,000,000
shares; none issued or outstanding..................... -- --
Class A common stock, $.0025 par value. Authorized
220,000,000 shares; 24,460,332 shares issued and
outstanding at December 31, 1997 and 22,100,960 shares
issued and outstanding at December 31, 1996............ 61 --
Class B common stock, $.0025 par value. Authorized
75,000,000 shares; 24,625,332 shares issued and
24,460,332 shares outstanding at December 31, 1997 and
22,265,960 shares issued and 22,100,960 shares
outstanding at December 31, 1996....................... 62 55
Paid-in capital............................................. 69,055 37,268
Retained earnings........................................... 13,126 52,942
Treasury stock, at cost, 165,000 shares of Class B common
stock held at December 31, 1997 and 1996............... (2,281) (2,281)
Unrealized holding gain (loss), net of tax................ 213 (379)
-------- --------
Total stockholders' equity........................ 80,236 87,605
-------- --------
$194,911 $107,877
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-10
<PAGE> 100
INFOUSA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Net sales............................................. $193,327 $108,298 $86,766
Costs and expenses:
Database and production costs....................... 55,090 29,272 23,999
Selling, general and administrative................. 80,203 45,766 37,724
Depreciation and amortization....................... 34,415 4,855 3,469
Acquisition-related charges......................... 56,098 21,500 --
-------- -------- -------
225,806 101,393 65,192
-------- -------- -------
Operating income (loss)............................... (32,479) 6,905 21,574
Other income (expense):
Investment income................................... 3,748 3,194 1,322
Interest expense.................................... (4,098) (209) (157)
Other............................................... -- (943) --
-------- -------- -------
Income (loss) before income taxes and discontinued
operations.......................................... (32,829) 8,947 22,739
Income taxes.......................................... 6,987 3,400 8,421
-------- -------- -------
Income (loss) from continuing operations.............. (39,816) 5,547 14,318
Loss on discontinued operations....................... -- (355) (2,317)
Loss from abandonment of subsidiary................... -- (1,373) --
-------- -------- -------
Net income (loss)..................................... $(39,816) $ 3,819 $12,001
======== ======== =======
BASIC EARNINGS PER SHARE:
Income (loss) from continuing operations............ $ (0.82) $ 0.13 $ 0.35
Loss on discontinued operations and abandonment of
subsidiary....................................... -- (0.04) (0.06)
-------- -------- -------
Net income (loss)..................................... $ (0.82) $ 0.09 $ 0.29
======== ======== =======
Weighted average shares outstanding................... 48,432 42,065 41,475
======== ======== =======
DILUTED EARNINGS PER SHARE:
Income (loss) from continuing operations............ $ (0.82) $ 0.13 $ 0.34
Loss on discontinued operations and abandonment of
subsidiary....................................... -- (0.04) (0.06)
-------- -------- -------
Net income (loss)..................................... $ (0.82) $ 0.09 $ 0.28
======== ======== =======
Weighted average shares outstanding................... 48,432 42,390 42,136
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-11
<PAGE> 101
INFOUSA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1995, 1996, AND 1997
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
UNREALIZED
CLASS A CLASS B HOLDING TOTAL
COMMON COMMON PAID-IN RETAINED TREASURY GAIN STOCKHOLDERS'
STOCK STOCK CAPITAL EARNINGS STOCK (LOSS) EQUITY
------- ------- ------- -------- -------- ---------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31, 1994... $-- $34 $26,573 $ 36,936 $ -- $(217) $ 63,326
Issuance of 188,250 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 2,441,950 shares
of common stock............. -- 3 9,628 -- -- -- 9,631
Issuance of 1,120,000 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 4,718,744 shares
of common stock............. -- 7 31,261 -- -- -- 31,268
Tax benefit related to
employee stock options...... -- -- 587 -- -- -- 587
2 for 1 stock dividend........ 61 -- (61) -- -- -- --
Unrealized holding gain, net
of tax...................... -- -- -- -- -- 592 592
Net loss...................... -- -- -- (39,816) -- -- (39,816)
--- --- ------- -------- ------- ----- --------
Balances, December 31, 1997... $61 $62 $69,055 $ 13,126 $(2,281) $ 213 $ 80,236
=== === ======= ======== ======= ===== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-12
<PAGE> 102
INFOUSA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)................................... $(39,816) $ 3,819 $12,001
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization.................... 34,415 4,855 3,469
Deferred income taxes............................ (2,787) (6,307) 662
Impairment of other assets....................... -- 740 630
Loss on discontinued operations and abandonment
of subsidiary.................................. -- 2,788 1,833
Net realized (gains) losses on sale of marketable
securities and other investments............... (2,560) (1,267) 339
Acquisition-related charges...................... 56,098 21,500 --
Changes in assets and liabilities, net of effect
of acquisitions:
Trade accounts receivable...................... (7,445) (7,762) (4,108)
Prepaid expenses............................... 287 (1,117) (796)
Deferred marketing costs....................... (2,154) (267) (996)
Accounts payable............................... (4,854) (1,422) 2,480
Income taxes receivable and payable............ 7,283 (128) (1,330)
Accrued expenses............................... (8,211) (3,111) 1,635
-------- -------- -------
Net cash provided by operating activities...... 30,256 12,321 15,819
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of marketable securities........ 19,596 18,865 15,787
Purchases of marketable securities.................. (17,448) (17,348) (24,792)
Purchase of other investments....................... (2,000) -- --
Purchases of property and equipment................. (8,882) (6,755) (3,554)
Acquisitions of businesses, including minority
interest......................................... (84,224) (6,484) (1,174)
Consumer database costs............................. (3,398) (494) --
Software development costs.......................... (2,898) (1,955) (512)
Other............................................... (678) 347 (660)
-------- -------- -------
Net cash used in investing activities.......... (99,932) (13,824) (14,905)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt......................... (7,193) (1,450) (3,192)
Proceeds from long-term debt........................ 86,000 -- --
Deferred financing costs............................ (388) -- --
Repayment of note payable to shareholders........... (7,925) -- --
Acquisition of treasury stock....................... -- (2,281) --
Deferred offering costs............................. (339) -- --
Proceeds from exercise of stock options............. 2,090 520 786
Tax benefit related to employee stock options....... 587 212 --
-------- -------- -------
Net cash provided by (used in) financing
activities.................................. 72,832 (2,999) (2,406)
Net increase (decrease) in cash and cash
equivalents......................................... 3,156 (4,502) (1,492)
Cash and cash equivalents, beginning.................. 7,497 11,999 13,491
-------- -------- -------
Cash and cash equivalents, ending..................... $ 10,653 $ 7,497 $11,999
======== ======== =======
Supplemental cash flow information:
Interest paid....................................... $ 3,616 $ 78 $ 165
======== ======== =======
Income taxes paid................................... $ 7,443 $ 8,280 $ 8,226
======== ======== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-13
<PAGE> 103
INFOUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
infoUSA Inc. (infoUSA), formerly named American Business Information, Inc.,
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
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 infoUSA and its subsidiaries. Intercompany accounts and
transactions have been eliminated.
Revenue Recognition. 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.
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 5 years. The Company is currently
capitalizing costs associated with a compilation project to create a new
consumer database. Costs incurred as of December 31, 1997 related to the
database compilation effort totaled approximately $3.9 million, 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, 1997 and 1996, was $3.4 million and $1.3 million, respectively.
Total advertising expense for the years ended December 31, 1997, 1996, and 1995
was $15.9 million, $11.0 million, and $10.8 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, 1997 and 1996, was $1.9 million
and $1.4 million, respectively. Amortization of capitalized costs during the
years ended December 31, 1997, 1996 and 1995, totaled approximately $2.5
million, $1.0 million, and $81 thousand, 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.
Earnings Per Share. Statement of Financial Accounting Standards No. 128,
Earnings Per Share, 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."
F-14
<PAGE> 104
INFOUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Basic earnings per share are based on the weighted average number of common
shares outstanding, including contingently issuable shares, which have been
restated to account for the stock dividend (See Note 17). Diluted earnings per
share are based on the weighted number of common shares outstanding, including
contingently issuable shares, plus dilutive potential common shares outstanding
(representing outstanding stock options).
The following data show the amounts used in computing earnings per share
and the effect on the weighted average number of shares of potentially dilutive
common stock. Options on 1.1 million shares of common stock were not included in
computing diluted earnings per share for 1997 because their effects were
antidilutive.
<TABLE>
<CAPTION>
1997 1996 1995
------ ------ ------
(AMOUNTS IN THOUSANDS)
<S> <C> <C> <C>
Weighted average number of shares outstanding used in
basic EPS.............................................. 48,432 42,065 41,475
Net additional common equivalent shares outstanding after
assumed exercise of stock options...................... -- 325 661
------ ------ ------
Weighted average number of shares outstanding used in
diluted EPS............................................ 48,432 42,390 42,136
====== ====== ======
</TABLE>
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
Core technology costs................................... 3 years
Customer base costs..................................... 3 years
Trade name costs........................................ 10 years
Perpetual software license agreement.................... 10 years
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.
F-15
<PAGE> 105
INFOUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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 1996 and 1995
financial statements to conform to the 1997 presentation.
3. ACQUISITIONS
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 was approximately $16.9
million, of which $4.0 million in cash was paid in September 1996, $7.9 million
in the form of a promissory note was issued to the sellers and paid in January
1997, and the remaining amount was paid through the issuance of 600,000
unregistered shares of the Company's Class A Common Stock and 600,000
unregistered shares of the Company's Class B Common Stock. The acquisition was
accounted for under the purchase method of accounting. In addition to purchased
in-process research and development costs of $10.0 million (See Note 16),
goodwill recorded as part of the purchase was $10.0 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 Class A Common Stock and 560,000 unregistered shares of the Company's
Class B 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 Class A Common Stock and 118,000 shares of the Company's Class B
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 Class A Common Stock and 150,000 shares of the Company's Class B
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, as adjusted, for the
acquisition was approximately $103.5 million, consisting of $51.5 million in
cash, partially funded using a revolving credit facility (See Note 7), and
approximately 2.3 million unregistered shares of the Company's Class A Common
Stock and 2.3 million unregistered shares of the Company's Class B Common Stock.
In October 1997, the Company and the former stockholders of DBA agreed to a
purchase price adjustment, pursuant to which the Company agreed to issue to the
former DBA stockholders an additional 139,829 unregistered shares of its Class A
Common Stock and 139,829 unregistered shares of its Class B Common Stock. As of
December 31, 1997, these additional shares of the Company's stock had not been
issued to the former DBA shareholders, and this
F-16
<PAGE> 106
INFOUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
liability of approximately $1.9 million is included in payable to shareholders
in the accompanying consolidated balance sheets. 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 $20.8 million.
Goodwill is being amortized over 15 years.
Effective August 1997, the Company acquired certain assets and assumed
certain liabilities of Pro CD, Inc. (Pro CD), a provider of telephone directory
and other business software products on CD-ROM to consumers, from Acxiom
Corporation (Acxiom). The acquisition has been accounted for under the purchase
method of accounting. 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. In addition to purchased in-process research and development costs of
$4.3 million (See Note 16), intangibles and goodwill recorded as part of the
purchase included core technology, customer base, and Trade name costs totaling
$5.9 million, noncompete agreements of $5.2 million and goodwill of $6.2
million. Goodwill is being amortized over 10 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 acquired on
January 1, of the year preceding the acquisition, and excluding the write-offs
of in-process research and development costs, 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,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net sales..................................... $206,578 $187,325 $101,404
Net income (loss)............................. $ 29,187 $(26,054) $ 9,564
Basic earnings (loss) per share............... $ 0.60 $ (0.53) $ 0.22
Diluted earnings (loss) per share............. $ 0.60 $ (0.53) $ 0.21
</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.
F-17
<PAGE> 107
INFOUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. MARKETABLE SECURITIES
<TABLE>
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED
COST GROSS GAIN GROSS LOSS FAIR VALUE
--------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
At December 31, 1997
Municipal bonds....................... $ 824 $ 1 $ (2) $ 823
Corporate bonds....................... 2,459 4 (66) 2,397
Common stock.......................... 20,372 1,429 (1,030) 20,771
Preferred stock....................... 47 7 -- 54
------- ------ ------- -------
$23,702 $1,441 $(1,098) $24,045
======= ====== ======= =======
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
======= ====== ======= =======
</TABLE>
Scheduled maturities of marketable debt securities at December 31, 1997,
are as follows:
<TABLE>
<CAPTION>
LESS THAN ONE TO 5 FIVE TO MORE THAN
1 YEAR YEARS 10 YEARS 10 YEARS
--------- -------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Municipal bonds............................. $ 82 $ 251 $ -- $491
Corporate bonds............................. 1,111 1,286 -- --
------ ------ ---- ----
$1,193 $1,537 $ -- $491
====== ====== ==== ====
</TABLE>
For the year ended December 31, 1997, proceeds from sales of marketable
securities approximated $19.6 million while realized gains totaled $2.6 million
and realized losses totaled $86 thousand. 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.
5. PROPERTY AND EQUIPMENT
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Land and improvements.............................. $ 1,733 $ 1,220
Buildings and improvements......................... 13,040 9,084
Furniture and equipment............................ 26,608 21,597
Capitalized equipment leases....................... 2,014 1,437
------- -------
43,395 33,338
Less accumulated depreciation and amortization:
Owned property................................... 17,502 14,188
Capitalized equipment leases..................... 776 264
------- -------
Property and equipment, net...................... $25,117 $18,886
======= =======
</TABLE>
The Company has entered a commitment to construct an additional facility in
Papillion, Nebraska, near the existing Company's Ralston, Nebraska, location.
The estimated cost of the project is $8 million and is
F-18
<PAGE> 108
INFOUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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
October 2007. Certain of these leases contain renewal options. Rent expense was
$2.6 million, $952 thousand, and $593 thousand in the years ended December 31,
1997, 1996 and 1995, respectively.
Following is a schedule of the future minimum lease payments as of December
31, 1997:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
(IN THOUSANDS)
<S> <C> <C>
1998..................................................... $ 750 $2,541
1999..................................................... 245 1,972
2000..................................................... 70 710
2001..................................................... -- 362
2002..................................................... -- 167
------ ------
Total future minimum lease payments...................... 1,065 $5,752
======
Less amounts representing interest....................... 65
------
Present value of net minimum lease payments.............. $1,000
======
</TABLE>
6. INTANGIBLE ASSETS
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Goodwill........................................... $44,598 $19,093
Noncompete agreements.............................. 6,925 --
Core technology.................................... 1,100 --
Customer base...................................... 1,100 --
Trade name......................................... 3,700 --
Purchased data processing software................. 9,400 --
Acquired database costs............................ 19,000 --
Perpetual software license agreement............... 8,000 --
Software development costs......................... 1,865 1,955
Consumer database costs............................ 3,892 494
Other deferred costs............................... 1,662 --
------- -------
101,242 21,542
Less accumulated amortization...................... 27,501 4,132
------- -------
$73,741 $17,410
======= =======
</TABLE>
F-19
<PAGE> 109
INFOUSA 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,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Uncollateralized bank revolving line of credit, provides
for maximum borrowings of $100 million at December 31,
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
December 31, 1997 was 6.5%. Principal is due February
2000. Effective July 1997, the Company entered into an
interest rate swap whereby $30 million of outstanding
credit bears a fixed interest rate of 6.74%. The interest
rate swap terminates in July 1999. Interest is payable at
the earliest of the end of each applicable interest
period or quarterly...................................... $78,000 $ --
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 December 31, 1997 was 8.43%.
Principal is due January 2000. Interest is payable
monthly.................................................. 3,000 --
Bank note assumed in acquisition, repaid in January 1997... -- 225
Computer lease obligations (See Note 5).................... 1,000 910
------- ------
82,000 1,135
Less current portion....................................... 716 708
------- ------
Long-term debt............................................. $81,284 $ 427
======= ======
</TABLE>
Future maturities by calendar year of long-term debt as of December 31,
1997 are as follows (in thousands):
<TABLE>
<S> <C>
1998............................................... $ 716
1999............................................... $ 210
2000............................................... $81,074
</TABLE>
The Company is subject to certain financial covenants of the $100.0 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.
Interest rate swap agreements are used by the Company to reduce the
potential impact of increases in interest rates on floating-rate long-term debt.
At December 31, 1997, the Company was a party to one interest rate swap
agreement which expires in July 1999. The agreement entitles the Company to
receive from counterparties on a monthly basis the amounts, if any, by which the
Company's interest payments on $30 million of outstanding debt of its $100
million revolving line of credit due in February 2000 exceed 6.74%, and to pay
to counterparties on a monthly basis the amounts, if any, by which the Company's
interest payments on $30 million of outstanding debt of its $100 million
revolving line of credit are less than 6.74%.
The Company has not declared or paid any cash dividends on its capital
stock. Pursuant to certain financing arrangements, the Company has agreed not to
pay cash dividends in any four quarter period in excess of the lesser of
$5,000,000 or 25% of net income for such four quarter period.
F-20
<PAGE> 110
INFOUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES
The provision for income taxes on continuing operations consists of the
following:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal............................. $9,163 $8,782 $7,101
State............................... 742 925 658
------ ------ ------
9,905 9,707 7,759
------ ------ ------
Deferred:
Federal............................. (2,688) (6,159) 615
State............................... (230) (148) 47
------ ------ ------
(2,918) (6,307) 662
------ ------ ------
$6,987 $3,400 $8,421
====== ====== ======
</TABLE>
Loss on discontinued operations and abandonment of subsidiary is presented
net of income tax benefits of $1.1 million in 1996 and $1.3 million in 1995.
The effective income tax rate varied from the federal statutory rate as
follows:
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
--------------------------------------------
DECEMBER 31, DECEMBER 31, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C>
Tax provision computed at statutory
rate of 35%......................... $(11,490) $3,131 $7,959
State taxes, net...................... 424 530 401
Amortization of nondeductible
intangibles......................... 637 29 --
In-process research and development... 17,220 -- --
Nondeductible expense, nontaxable
income and other.................... 196 (290) 61
-------- ------ ------
$ 6,987 $3,400 $8,421
======== ====== ======
</TABLE>
F-21
<PAGE> 111
INFOUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The components of the net deferred tax asset (liability) were as follows:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1997 1996
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Marketable securities............................ $ -- $ 232
Intangible assets................................ 2,242 5,758
Accrued vacation................................. 399 291
Accrued expenses................................. -- 369
Accounts receivable.............................. -- 317
Other assets..................................... 521 521
------- -------
3,162 7,488
------- -------
Deferred tax liabilities:
Accounts receivable.............................. (2,876) --
Marketable securities............................ (130) --
Depreciation..................................... (1,126) (824)
Prepaid expenses and other....................... (2,390) (1,788)
------- -------
(6,522) (2,612)
------- -------
Net deferred tax asset (liability)................. $(3,360) $ 4,876
======= =======
</TABLE>
9. STOCK INCENTIVES
As of December 31, 1997, a total of 5.0 million shares of the Company's
Class A Common Stock and 5.0 million shares of the Company's Class B Common
Stock have been reserved for issuance to officers, key employees and
non-employee directors under the Company's 1992 Stock Option Plan. In addition,
as of December 31, 1997, a total of 2.0 million shares of the Company's Class A
Common Stock have been reserved for issuance to officers, key employees and
non-employee directors under the Company's 1997 Class A Common Stock Option
Plan.
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
F-22
<PAGE> 112
INFOUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
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, DECEMBER 31,
1997 1996 1995
------------ ------------ ------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Net income (loss) -- as reported.............. $(39,816) $3,819 $12,001
Net income (loss) -- pro forma................ $(41,503) $3,072 $11,779
Basic earnings (loss) per share -- as
reported.................................... $ (0.82) $ 0.09 $ 0.29
Diluted earnings (loss) per share -- as
reported.................................... $ (0.82) $ 0.09 $ 0.28
Basic earnings (loss) per share -- pro
forma....................................... $ (0.86) $ 0.07 $ 0.29
Diluted earnings (loss) per share -- pro
forma....................................... $ (0.86) $ 0.07 $ 0.28
</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 1997, 1996
and 1995: dividend yield of 0%; expected volatility of 19.16% (1997) and 15.52%
(1996 and 1995); risk free interest rate based on the U.S. Treasury strip yield
at the date of grant; and expected lives of 4.0 to 6.0 years.
During 1995, the Company agreed to repurchase, at fair market value,
583,750 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. The
following information has been restated to reflect the stock dividend (See Note
17). Each option to purchase shares of common stock outstanding prior to the
Stock Dividend was converted into an option to purchase both, but not either,
shares of Class A Common Stock and Class B Common Stock.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996 DECEMBER 31, 1995
------------------- ------------------ ------------------
WEIGHTED AVERAGE WEIGHTED AVERAGE WEIGHTED AVERAGE
EXERCISE EXERCISE EXERCISE
------------------- ------------------ ------------------
SHARES PRICE SHARES PRICE SHARES PRICE
--------- ------ --------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding beginning of
period....................... 5,203,800 $ 7.58 2,913,750 $5.49 2,188,500 $4.33
Granted........................ 2,799,250 11.81 3,964,000 8.19 996,000 7.69
Exercised...................... (357,250) 5.87 (705,950) 4.32 (188,250) 4.18
Forfeited/Expired.............. (167,750) 8.95 (968,000) 6.00 (82,500) 4.22
--------- ------ --------- ----- --------- -----
Outstanding end of period...... 7,478,050 $ 9.22 5,203,800 $7.58 2,913,750 $5.49
========= ====== ========= ===== ========= =====
Options exercisable at end of
period....................... 1,344,550 $ 7.10 585,050 $5.53 757,500 $5.49
========= ====== ========= ===== ========= =====
Shares available for options
that may be granted.......... 1,660,000 2,796,200 886,250
========= ========= =========
Weighted-average grant date
fair value of options,
granted during the
period -- exercise price
equals stock market price at
grant........................ $ 3.30 $2.00 $1.91
====== ===== =====
Weighted-average grant date
fair value of options granted
during the period -- exercise
price exceeds stock market
price at grant............... $2.10
=====
</TABLE>
F-23
<PAGE> 113
INFOUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table summarizes information about stock options outstanding
at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------------------------------
WEIGHTED-
AVERAGE WEIGHTED-
REMAINING AVERAGE WEIGHTED-
NUMBER CONTRACTUAL EXERCISE NUMBER AVERAGE
RANGE OF EXERCISE PRICES OUTSTANDING LIFE PRICE EXERCISABLE EXERCISE PRICE
------------------------ ----------- ----------- --------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$3.80 to $4.09.................. 78,250 0.3 years $ 3.90 78,250 $ 3.90
$4.10 to $5.45.................. 353,800 1.5 years 4.51 247,300 4.50
$5.46 to $6.82.................. 691,500 2.9 years 6.21 247,500 6.06
$6.83 to $8.18.................. 787,500 3.4 years 7.46 172,500 7.54
$8.19 to $9.54.................. 2,901,000 3.6 years 8.67 557,000 8.73
$9.55 to $10.90................. 324,000 4.2 years 10.40 -- --
$10.91 to $12.27................ 1,142,000 4.4 years 11.14 42,000 11.06
$12.28 to $13.63................ 1,200,000 4.7 years 13.00 -- --
--------- --------- ------ --------- ------
$3.80 to $13.63................. 7,478,050 3.7 years $ 9.22 1,344,550 $ 7.10
========= ========= ====== ========= ======
</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 $782 thousand, $115
thousand and $80 thousand in the years ended December 31, 1997, 1996 and 1995,
respectively.
11. RELATED PARTY TRANSACTIONS
Included in other assets at December 31, 1997 and December 31, 1996, are
investments of $71 thousand and $571 thousand, respectively, in companies that
were partially owned by certain members of the Board of Directors of the Company
at the time the investments were made. At December 31, 1997, the remaining
investment included $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 $364 thousand, $48 thousand, and $148 thousand in 1997,
1996 and 1995, respectively, 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 $145 thousand, $156 thousand, and $0 in the years ended
December 31, 1997, 1996 and 1995, respectively, 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 Partner is a member of the
Board of Director. Legal fees paid to the law firm totaled $146 thousand, $91
thousand, and $115 thousand in the years ended December 31, 1997, 1996 and 1995,
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. ABC recorded net sales of
$6.7 million and $2.9 million during 1994 and 1995, respectively.
F-24
<PAGE> 114
INFOUSA 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 1997 and 1996 (See Note 3) and
assumed liabilities as follows:
<TABLE>
<CAPTION>
1997 1996
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Fair value of assets............................ $134,555 $28,107
Cash paid....................................... (84,224) (6,484)
Promissory note issued.......................... -- (7,925)
Common stock issued............................. (29,178) (9,382)
-------- -------
Liabilities assumed............................. $ 21,153 $ 4,316
======== =======
</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 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 following table presents the carrying amounts and estimated fair values
of the Company's financial instruments at December 31, 1997 and 1996. Statement
of Financial Accounting Standards No. 107, Disclosures about Fair Value of
Financial Instruments, defines the fair value of a financial instrument as the
amount at which the instrument could be exchanged in a current transaction
between willing parties.
The carrying amounts shown in the following table are included in the
consolidated balance sheets under the indicated captions.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 DECEMBER 31, 1996
---------------------- ----------------------
CARRYING CARRYING
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Cash and cash equivalents................ $ 10,653 $ 10,653 $ 7,497 $ 7,497
Marketable securities.................. 23,833 24,045 23,421 22,810
Other assets........................... 2,071 2,000 621 621
Financial liabilities
Payable to shareholders................ (1,871) (1,871) (7,925) (7,925)
Long-term debt......................... (81,284) (81,284) (427) (427)
Derivatives
Interest rate swap..................... -- 133 -- --
</TABLE>
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments:
Cash and cash equivalents and payable to shareholders. The carrying amounts
approximate fair value because of the short maturity of those instruments.
F-25
<PAGE> 115
INFOUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Marketable securities. The fair values of debt securities and equity
investments are based on quoted market prices at the reporting date for those or
similar investments.
Other assets, including investments in other companies. Investments in
companies not traded on organized exchanges are valued on the basis of
comparisons with similar companies whose shares are publicly traded.
Long-term debt. Given the short term nature of the revolving lines of
credit as well as the variable rate of interest associated with $78.0 million of
the outstanding debt at December 31, 1997, fair value approximates carrying
value.
Interest rate swap. The fair value of the interest rate swap was calculated
based on discounted cash flows of the difference between the swap rate and the
estimated market rate for similar terms.
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. ACQUISITION-RELATED CHARGES
As part of the acquisition of DDA in August 1996 (See Note 3), the Company
recorded acquisition-related charges for purchased in-process research and
development costs totaling $10.0 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 an acquisition-related
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 acquisition-related charges totaling $51.8 million for
write-offs in conjunction with the merger of DBA for purchased in-process
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).
As part of the acquisition of Pro CD in August 1997 (See Note 3), the
Company recorded acquisition-related charges totaling $4.3 million for
write-offs in conjunction with the merger of Pro CD for purchased in-process
research and development costs which related to projects that had not met
technological feasibility.
17. STOCK RECLASSIFICATION AND STOCK DIVIDEND AND STOCKHOLDERS RIGHTS PLANS
On October 3, 1997, the Company's Board of Directors and shareholders
approved the reclassification of the existing common stock as Class B Common
Stock and authorized 220,000,000 shares of a new Class A Common Stock. The Board
also declared a two-for-one stock split, effected in the form of a stock
dividend of one share of Class A Common Stock for each share of Class B Common
Stock then outstanding. Accordingly all share and per share information has been
restated to reflect the stock split. Each share of Class A Common Stock entitles
the holder to one vote and a non-cumulative dividend of $0.02 per year, when and
as declared by the Board of Directors in preference to any dividend on Class B
Common Stock. Each share of Class B Common Stock entitles the holder to ten
votes.
On October 3, 1997, the Company adopted a stockholder rights plan with
respect to its Class A Common Stock and adopted certain changes to the plan it
had adopted on July 21, 1997 with respect to its Class B Common Stock, under
which the Board declared a dividend distribution of one Preferred Stock purchase
right to holders of each share of Class A Common Stock and Class B Common Stock.
The rights are not exercisable until ten days after a person or group announces
the acquisition of 15% or more of the Company's
F-26
<PAGE> 116
INFOUSA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
voting stock or announces a tender offer for 15% or more of the Company's
outstanding common stock. Each right entitles the holder to purchase common
stock at one half the stock's market value. 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 15% or more of the Company's voting
stock. The rights are automatically attached to and trade with each share of
Common Stock.
18. SUBSEQUENT EVENTS
Effective March 1998, the Company acquired certain assets and assumed
certain liabilities of Walter Karl, Inc., a national direct marketing service
firm that provides list management, list brokerage, database marketing and
direct marketing services to a wide array of customers. Total consideration for
the acquisition was approximately $19 million. The acquisition has been
accounted for under the purchase method of accounting. Substantially all of the
purchase price was allocated to goodwill.
On March 17, 1998, the Company filed suit in Delaware court to enjoin a
merger agreement whereby Great Universal Stores, PLC ("GUS") would acquire
Metromail Corporation ("Metromail") for $31.50 per share. On March 20, 1998, GUS
filed a counterclaim against the Company alleging, among other things, that
infoUSA tortiously interfered with the Merger Agreement and GUS's prospective
business relations with Metromail. The Counterclaim also alleges that the
Company breached a confidentiality agreement entered into by the Company with
Metromail's financial advisor and of which GUS is a third party beneficiary. As
relief, the GUS claim seeks, among other things, injunctive relief and actual,
punitive and other damages in an amount to be determined at trial, estimated by
GUS to exceed $500 million, plus fees and expenses. On March 27, 1998, the
Delaware Chancery Court denied the Company's motion for a preliminary injunction
to block the GUS Merger Agreement. The Company does not believe that the GUS
counterclaim has merit and will vigorously defend the suit, however there can be
no assurance that this matter will be resolved without a material adverse affect
on the Company's financial condition. On March 30, 1998, the Metromail Board of
Directors accepted a proposal to be acquired by GUS for $34.50 per share.
F-27
<PAGE> 117
- ------------------------------------------------------
- ------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER THAN THOSE CONTAINED IN
THE PROSPECTUS, AND, IF GIVEN OR MADE, SUCH OTHER INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY EXCHANGE OF EXISTING NOTES FOR NEW NOTES
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE
HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT
THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS
DATE. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF
AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT RELATES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN
OFFER TO BUY SUCH SECURITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR
SOLICITATION IS UNLAWFUL.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Summary............................... 1
Risk Factors.......................... 10
The Exchange Offer.................... 17
Use of Proceeds....................... 25
Capitalization........................ 26
Selected Consolidated Financial
Data................................ 27
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 29
Business.............................. 37
Management............................ 45
Principal Stockholders................ 47
Certain Transactions.................. 49
Description of Notes.................. 50
Federal Income Tax Considerations..... 76
Plan of Distribution.................. 79
Legal Matters......................... 79
Experts............................... 79
Index to Consolidated Financial
Statements.......................... F-1
</TABLE>
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
------------------------
PROSPECTUS
------------------------
$115,000,000
[INFOUSA LOGO]
9 1/2% SENIOR SUBORDINATED NOTES
DUE 2008
EXCHANGE AGENT:
STATE STREET BANK AND
TRUST COMPANY OF
CALIFORNIA, N.A.
2 INTERNATIONAL PLACE
4TH FLOOR
BOSTON, MA 02110
ATTN: KELLIE MULLEN,
CORPORATE TRUST DEPARTMENT
TEL: 617-664-5587
FAX: 617-664-5290
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 118
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. 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, as amended (Exhibit 3.1 hereto) 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 10.1 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. The
foregoing summaries are necessarily subject to the complete text of the statute,
the Articles, the Bylaws and the agreements referred to above and are qualified
in their entirety by reference thereto.
ITEM 21. EXHIBITS
A list of exhibits included as part of the Registration Statement is set
forth below:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
3.1 Certificate of Incorporation, as amended through July 31,
1998 is incorporated herein by reference to the Company's
quarterly report on Form 10-Q for the quarter ended June 30,
1998 (File No. 000-19598), filed on August 14, 1998.
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.
4.1 Purchase Agreement dated June 12, 1998 between the
Registrant, BT Alex. Brown Incorporated, Goldman, Sachs &
Co. and Hambrecht & Quist LLC is incorporated herein by
reference to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1998 (File No. 000-19598), filed
on August 14, 1998.
4.2 Indenture dated as of June 18, 1998 (the "Indenture") by and
between the Registrant and State Street Bank and Trust
Company of California, N.A., as Trustee is incorporated
herein by reference to the Company's quarterly report on
Form 10-Q for the quarter ended June 30, 1998 (File No.
000-19598), filed on August 14, 1998.
4.3 Exchange and Registration Rights Agreement dated as of June
18, 1998 by and among the Registrant and BT Alex. Brown
Incorporated, Goldman, Sachs & Co. and Hambrecht & Quist LLC
as the Initial Purchasers is incorporated herein by
reference to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1998 (File No. 000-19598), filed
on August 14, 1998.
4.4 $115,000,000 Existing Global 9 1/2% Senior Subordinated Note
due 2008 is incorporated herein by reference to the
Company's quarterly report on Form 10-Q for the quarter
ended June 30, 1998 (File No. 000-19598), filed on August
14, 1998.
4.6 Form of New 9 1/2% Senior Subordinated Note due 2008.
5.1 Opinion of Wilson Sonsini Goodrich & Rosati regarding
legality of securities being registered.
10.1 Form of Indemnification Agreement with Officers and
Directors is incorporated herein by reference to the
exhibits filed with the Company's Registration Statement on
Form S-1 (File No. 33-51352), filed August 28, 1992.
</TABLE>
II-1
<PAGE> 119
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<S> <C>
12.1 Statement re Computation of Ratios is incorporated herein by
reference to the Company's quarterly report on Form 10-Q for
the quarter ended June 30, 1998 (File No. 000-19598), filed
on August 14, 1998.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1).
24.1 Power of Attorney is contained on the signature pages of
this Registration Statement.
25.1 Statement of Eligibility on Form T-1 for State Street Bank
and Trust Company of California, N.A., as Trustee under the
Indenture.
99.1* Form of Letter of Transmittal.
99.2* Form of Notice of Guaranteed Delivery.
</TABLE>
- ---------------
* Filed Previously
ITEM 22. UNDERTAKINGS
The undersigned Registrant hereby undertakes:
1. To respond to requests for information that is incorporated by
reference into the Prospectus pursuant to Item 4, 10(b), 11 or 13 of this
Form S-4, within one business day of receipt of such request, and to send
the incorporated documents by first class mail or other equally prompt
means. This includes information contained in documents filed subsequent to
the effective date of the registration statement through the date of
responding to the request.
2. To supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein,
that was not the subject of and included in the registration statement when
it became effective.
3. That for purposes of determining any liability under the Securities
Act of 1933, each filing of the registrant's annual report pursuant to
section 13(a) or section 15(d) of the Securities Exchange Act of 1934 (and,
where applicable, each filing of an employee benefit plan's annual report
pursuant to section 15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the 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.
4. Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Company pursuant to the foregoing provisions, or
otherwise, the Company has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the 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 an action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Company will, unless in the opinion of their 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 Act and will be governed by the final
adjudication of such issue.
II-2
<PAGE> 120
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-4 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, this 15th day of December
1998.
INFOUSA INC.
/s/ VINOD GUPTA
--------------------------------------
Vinod Gupta,
Chairman and Chief Executive Officer
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
--------- ----- ----
<S> <C> <C>
/s/ VINOD GUPTA Chief Executive Officer December 15, 1998
- -------------------------------------------------------- and Chairman of the Board
Vinod Gupta
/s/ GAUTAM GUPTA* Acting Chief Financial December 15, 1998
- -------------------------------------------------------- Officer, Secretary
Gautam Gupta (principal financial
accounting officer) and
Director
/s/ JON D. HOFFMASTER* Director December 15, 1998
- --------------------------------------------------------
Jon D. Hoffmaster
/s/ ELLIOT S. KAPLAN* Director December 15, 1998
- --------------------------------------------------------
Elliot S. Kaplan
/s/ HAROLD ANDERSEN* Director December 15, 1998
- --------------------------------------------------------
Harold Andersen
/s/ GEORGE F. HADDIX* Director December 15, 1998
- --------------------------------------------------------
George F. Haddix
/s/ GEORGE J. KUBAT* Director December 15, 1998
- --------------------------------------------------------
George J. Kubat
/s/ PAUL A. GOLDNER* Director December 15, 1998
- --------------------------------------------------------
Paul A. Goldner
*By: /s/ VINOD GUPTA
----------------------------------------------------
Vinod Gupta
Attorney-in-Fact
</TABLE>
II-3
<PAGE> 121
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER EXHIBIT TITLE PAGE
- ------- ------------- ------------
<C> <S> <C>
4.6 Form of New 9 1/2% Senior Subordinated Note due 2008
5.1 Opinion of Wilson Sonsini Goodrich & Rosati regarding the
legality of the securities being registered.
23.1 Consent of PricewaterhouseCoopers LLP
23.2 Consent of Wilson Sonsini Goodrich & Rosati, P.C. (included
in Exhibit 5.1)
25.1 Statement of Eligibility on Form T-1 for State Street Bank
and Trust Company of California, N.A., as Trustee under the
Indenture.
</TABLE>
<PAGE> 1
EXHIBIT 4.6
FORM OF NEW 9 1/2% SENIOR SUBORDINATED NOTE DUE 2008
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY OR A
NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS NOT EXCHANGEABLE
FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITARY OR ITS
NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE, AND NO
TRANSFER OF THIS NOTE (OTHER THAN A TRANSFER OF THIS NOTE AS A WHOLE BY THE
DEPOSITARY TO A NOMINEE OF THE DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO
THE DEPOSITARY OR ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN
THE LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF
THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO THE ISSUER OR
ITS AGENT FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY
CERTIFICATE ISSUED IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME
AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE
TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED
REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED OWNER
HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
-1-
<PAGE> 2
FORM OF NEW 9 1/2% SENIOR SUBORDINATED NOTE DUE 2008
CUSIP No.: 02476FAA5
infoUSA INC.
9 1/2% SENIOR SUBORDINATED NOTE DUE 2008
No. $
infoUSA INC., a Delaware corporation (the "Company," which term
includes any successor entity), for value received promises to pay to _________
or registered assigns, the principal sum of _________ Dollars, on June 15, 2008.
Interest Payment Dates: June 15 and December 15
Record Dates: June 1 and December 1
Reference is made to the further provisions of this Note contained
herein, which will for all purposes have the same effect as if set forth at this
place.
-2-
<PAGE> 3
IN WITNESS WHEREOF, the Company has caused this Note to be signed
manually or by facsimile by its duly authorized officers.
infoUSA INC.
By: ________________________________________
Name:
Title:
By:
Name:
Dated: ________________, 1998 Title:
Certificate of Authentication
This is one of the 9 1/2% Senior Subordinated Notes due 2008 referred
to in the within-mentioned Indenture.
STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A.,
as Trustee
By:__________________________________________
Authorized Signatory
-3-
<PAGE> 4
(REVERSE OF SECURITY)
9 1/2% Senior Subordinated Note due 2008
----------------------------------------
1. Interest. infoUSA INC., a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Note at the rate per
annum shown above. Interest on the Notes will accrue from the most recent date
on which interest has been paid or, if no interest has been paid, from June 18,
1998. The Company will pay interest semi-annually in arrears on each Interest
Payment Date, commencing December 15, 1998. Interest will be computed on the
basis of a 360-day year of twelve 30-day months.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Notes and on overdue installments of interest (without regard to any applicable
grace periods) to the extent lawful.
2. Method of Payment. The Company shall pay interest on the Notes
(except defaulted interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest Payment
Date even if the Notes are canceled on registration of transfer or registration
of exchange after such Record Date. Holders must surrender Notes to a Paying
Agent to collect principal payments. The Company shall pay principal and
interest in money of the United States that at the time of payment is legal
tender for payment of public and private debts ("U.S. Legal Tender"). However,
the Company may pay principal and interest by its check payable in such U.S.
Legal Tender. The Company may deliver any such interest payment to the Paying
Agent or to a Holder at the Holder's registered address.
3. Paying Agent and Registrar. Initially, STATE STREET BANK AND TRUST
COMPANY OF CALIFORNIA, N.A. (the "Trustee") will act as Paying Agent and
Registrar. The Company may change any Paying Agent, Registrar or co-Registrar
without notice to the Holders.
4. Indenture. The Company issued the Notes under an Indenture, dated as
of June 18, 1998 (the "Indenture"), by and among the Company and the Trustee.
Capitalized terms herein are used as defined in the Indenture unless otherwise
defined herein. This Note is one of a duly authorized issue of Unrestricted
Notes of the Company designated as its 9 1/2% Senior Subordinated Notes due 2008
(the "Unrestricted Notes"). The Notes include the Initial Notes, the Private
Exchange Notes (if any) and the Unrestricted Notes issued in exchange for the
Initial Notes pursuant to the Registration Rights Agreement. The Initial Notes
and the Unrestricted Notes are treated as a single class of securities under the
Indenture. The terms of the Notes include those stated in this Indenture and
those made part of the Indenture by reference to the Trust Indenture Act of 1939
(15 U.S. Code Sections 77aaa-77bbbb) (the "TIA"), as in effect on the date of
the Indenture. Notwithstanding anything to the contrary herein, the Notes are
subject to all such terms, and Holders of Notes are referred to the Indenture
and said Act for a statement of them. The Notes are general unsecured
Obligations of the Company
-4-
<PAGE> 5
limited in aggregate principal amount to $200,000,000. Each Holder, by accepting
a Note, agrees to be bound by all of the terms and provisions of the Indenture,
as the same may be amended from time to time.
5. Subordination. The Notes are subordinated in right of payment, in
the manner and to the extent set forth in the Indenture, to the prior payment in
full in cash of all Senior Debt of the Company, whether outstanding on the date
of the Indenture or thereafter created, incurred, assumed or guaranteed. Each
Holder by its acceptance hereof agrees to be bound by such provisions and
authorizes and expressly directs the Trustee, on its behalf, to take such action
as may be necessary or appropriate to effectuate the subordination provided for
in the Indenture and appoints the Trustee its attorney-in-fact for such
purposes.
6. Redemption Provisions. Except as provided below, the Notes may not
be redeemed prior to June 15, 2003.
(a) Optional Redemption. On or after such date, the Notes may
be redeemed at the option of the Company, at any time as a whole, or from time
to time in part, on not less than 30 nor more than 60 days' notice, at the
following redemption prices (expressed as percentages of principal amount), plus
accrued and unpaid interest (if any) to the date of redemption (subject to the
rights of holders of record on the relevant record date to receive interest due
on the relevant interest payment date), if redeemed during the 12-month period
commencing June 15:
<TABLE>
<CAPTION>
Redemption Price
-----------------
<S> <C>
2003...................................... 104.750%
2004...................................... 103.167%
2005................................... 101.583%
2006 and thereafter....................... 100.000%
</TABLE>
(b) Optional Redemption Upon Equity Offerings. Notwithstanding
the foregoing, at any time prior to June 15, 2001, the Company may, at its
option, redeem, in part and from time to time, with the net cash proceeds of one
or more Equity Offerings, up to 35% of the sum of (i) the initial aggregate
principal amount of the Notes originally issued in the Offering and (ii) the
aggregate principal amount of any additional Notes issued under the Indenture
after the Issue Date at a redemption price equal to 109.500% of the principal
amount thereof plus accrued and unpaid interest thereon, if any, to the
redemption date; provided that at least 65% of the sum of (i) the initial
aggregate principal amount of the Notes issued in the Offering and (ii) the
aggregate principal amount of any additional Notes issued
-5-
<PAGE> 6
under the Indenture after the Issue Date remains outstanding immediately after
the occurrence of any such redemption and that any such redemption occurs within
120 days following the closing of any such Equity Offering.
7. Notice of Redemption. Notice of redemption shall be mailed by
first-class mail at least 30 days but not more than 60 days before the
Redemption Date to each Holder of Notes to be redeemed at its registered
address. Notes in denominations larger than $1,000 may be redeemed in part. If
any Note is to be redeemed in part only, the notice of redemption that relates
to such Note shall state the portion of the principal amount thereof to be
redeemed. A new Note in a principal amount equal to the unredeemed portion
thereof will be issued in the name of the Holder thereof upon cancellation of
the original Note. On and after the Redemption Date, interest will cease to
accrue on Notes or portions thereof called for redemption as long as the Company
has deposited with the paying agent funds in satisfaction of the applicable
redemption price pursuant to the Indenture.
Except as set forth in the Indenture, if monies for the redemption of
the Notes called for redemption shall have been deposited with the Paying Agent
for redemption on such Redemption Date, then, unless the Company defaults in the
payment of such Redemption Price plus accrued interest, if any, the Notes called
for redemption will cease to bear interest from and after such Redemption Date
and the only right of the Holders of such Notes will be to receive payment of
the Redemption Price plus accrued interest, if any.
8. Offers to Purchase. Section 4.15 of the Indenture provides
that, upon a Change of Control if the Company does not redeem the Notes, each
holder will have the right, subject to certain conditions set forth in the
Indenture, to require the Company to repurchase such holder's Notes at a price
equal to 101% of the principal amount thereof plus accrued interest to the date
of repurchase. Section 4.16 of the Indenture provides that, after certain Asset
Sales, and subject to further limitations contained therein, the Company will
make an offer to purchase certain amounts of the Notes in accordance with the
procedures set forth in the Indenture.
9. Denominations; Transfer; Exchange. The Notes are in registered
form, without coupons, in denominations of $1,000 and integral multiples of
$1,000. A Holder shall register the transfer or of exchange Notes in accordance
with the Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay certain
transfer taxes or similar governmental charges payable in connection therewith
as permitted by the Indenture. The Registrar need not register the transfer of
or exchange of any Notes or portions thereof selected for redemption.
10. Persons Deemed Owners. The registered Holder of a Note shall be
treated as the owner of it for all purposes.
11. Unclaimed Money. If money for the payment of principal or
interest remains unclaimed for two years, the Trustee and the Paying Agent will
pay the money back to the
-6-
<PAGE> 7
Company. After that, all liability of the Trustee and such Paying Agent with
respect to such money shall cease.
12. Discharge Prior to Redemption or Maturity. If the Company at any
time deposits with the Trustee U.S. Legal Tender or U.S. Government Obligations
sufficient to pay the principal of, premium, if any, and interest on the Notes
to redemption or maturity and complies with the other provisions of the
Indenture relating thereto, the Company will be discharged from certain
provisions of the Indenture and the Notes (including certain covenants, but
excluding its obligation to pay the principal of and interest on the Notes).
13. Amendment; Supplement; Waiver. Subject to certain exceptions, the
Indenture or the Notes may be amended or supplemented with the written consent
of the Holders of at least a majority in aggregate principal amount of the Notes
then outstanding, and any existing Default or Event of Default or noncompliance
with any provision may be waived with the written consent of the Holders of a
majority in aggregate principal amount of the Notes then outstanding. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Notes to, among other things, cure any ambiguity, defect or
inconsistency, provide for uncertificated Notes in addition to or in place of
certificated Notes, or comply with Article Five of the Indenture or make any
other change that does not adversely affect in any material respect the rights
of any Holder of a Note.
14. Restrictive Covenants. The Indenture imposes certain limitations on
the ability of the Company and its Restricted Subsidiaries to, among other
things, incur additional Indebtedness or Liens, make payments in respect of its
Capital Stock or certain Indebtedness, enter into transactions with Affiliates,
create dividend or other payment restrictions affecting Subsidiaries, incur
additional senior subordinated Indebtedness, merge or consolidate with any other
Person, sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its assets or adopt a plan of liquidation and sell Capital
Stock of a Restricted Subsidiary. Such limitations are subject to a number of
important qualifications and exceptions. The Company must annually report to the
Trustee on compliance with such limitations.
15. Successors. When a successor assumes, in accordance with the
Indenture, all the Obligations of its predecessor under the Notes and the
Indenture, the predecessor will be released from those Obligations.
16. Defaults and Remedies. If an Event of Default occurs and is
continuing, the Trustee or the Holders of at least 25% in aggregate principal
amount of Notes then outstanding may declare all the Notes to be due and payable
in the manner, at the time and with the effect provided in the Indenture.
Holders of Notes may not enforce the Indenture or the Notes except as provided
in the Indenture. The Trustee is not obligated to enforce the Indenture or the
Notes unless it has received indemnity reasonably satisfactory to it. The
Indenture permits, subject to certain limitations therein provided, Holders of a
majority in aggregate principal amount of the Notes then outstanding to direct
the Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Notes notice of any
-7-
<PAGE> 8
continuing Default or Event of Default (except a Default in payment of principal
or interest) if it determines that withholding notice is in their interest.
17. Trustee Dealings with Company. The Trustee under the Indenture, in
its individual or any other capacity, may become the owner or pledgee of Notes
and may otherwise deal with the Company, its Subsidiaries or their respective
Affiliates as if it were not the Trustee.
18. No Recourse Against Others. No stockholder, director, officer,
employee or incorporator, as such, of the Company shall have any liability for
any obligation of the Company under the Notes or the Indenture. Each Holder of a
Note by accepting a Note waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Notes.
19. Authentication. This Note shall not be valid until the Trustee or
Authenticating Agent manually signs the certificate of authentication on this
Note.
20. Governing Law. The laws of the State of New York shall govern this
Note and the Indenture, without regard to principles of conflict of laws.
21. Abbreviations and Defined Terms. Customary abbreviations may be
used in the name of a Holder of a Note or an assignee, such as: TEN COM (=
tenants in common), TEN ENT (= tenants by the entireties), JT TEN (= joint
tenants with right of survivorship and not as tenants in common), CUST (=
Custodian), and U/G/M/A (= Uniform Gifts to Minors Act).
22. CUSIP Numbers. Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures, the Company has caused
CUSIP numbers to be printed on the Notes as a convenience to the Holders of the
Notes. No representation is made as to the accuracy of such numbers as printed
on the Notes and reliance may be placed only on the other identification numbers
printed hereon.
23. Indenture. Each Holder, by accepting a Note, agrees to be bound by
all of the terms and provisions of the Indenture, as the same may be amended
from time to time.
The Company will furnish to any Holder of a Note upon written request
and without charge a copy of the Indenture, which has the text of this Note in
larger type. Requests may be made to: infoUSA Inc., 5711 South 86th Circle, P.O.
Box 27347, Omaha, Nebraska 68127-0347 Attn: Chief Executive Officer.
-8-
<PAGE> 9
ASSIGNMENT FORM
If you the Holder want to assign this Note, fill in the form below and
have your signature guaranteed:
I or we assign and transfer this Note to:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code and
social security or tax ID number of assignee)
and irrevocably appoint ,_________________, agent to transfer this Note on the
books of the Company. The agent may substitute another to act for him.
Date:_____________________________ Signed:____________________________________
(Sign exactly as your name appears on the
other side of this Note)
Signature Guarantee: __________________________________________________
Participant in a recognized Signature Guarantee Medallion Program
(or other signature guarantor program reasonably acceptable to the
Trustee.)
-9-
<PAGE> 10
[OPTION OF HOLDER TO ELECT PURCHASE]
If you want to elect to have this Note purchased by the Company
pursuant to Section 4.15 or Section 4.16 of the Indenture, check the appropriate
box:
Section 4.15 [ ]
Section 4.16 [ ]
If you want to elect to have only part of this Note purchased by the
Company pursuant to Section 4.15 or Section 4.16 of the Indenture, state the
amount you elect to have purchased:
$________________________
Dated: _______________ ____________________________________________________
NOTICE: The signature on this assignment must
correspond with the name as it appears upon the
face of the within Note in every particular without
alteration or enlargement or any change whatsoever
and be guaranteed by the endorser's bank or broker.
Signature Guarantee: ______________________________________________________
Participant in a recognized Signature Guarantee Medallion Program
(or other signature guarantor program reasonably acceptable to the
Trustee.)
-10-
<PAGE> 11
THIS NOTE IS A GLOBAL NOTE WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITARY
OR A NOMINEE OF A DEPOSITARY OR A SUCCESSOR DEPOSITARY. THIS NOTE IS
NOT EXCHANGEABLE FOR NOTES REGISTERED IN THE NAME OF A PERSON OTHER
THAN THE DEPOSITARY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES
DESCRIBED IN THE INDENTURE, AND NO TRANSFER OF THIS NOTE (OTHER THAN A
TRANSFER OF THIS NOTE AS A WHOLE BY THE DEPOSITARY TO A NOMINEE OF THE
DEPOSITARY OR BY A NOMINEE OF THE DEPOSITARY TO THE DEPOSITARY OR
ANOTHER NOMINEE OF THE DEPOSITARY) MAY BE REGISTERED EXCEPT IN THE
LIMITED CIRCUMSTANCES DESCRIBED IN THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION
("DTC"), TO THE ISSUER OR ITS AGENT FOR REGISTRATION OF TRANSFER,
EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS REGISTERED IN THE
NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY AN
AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO.
OR TO SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE
OF DTC), ANY TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR
OTHERWISE BY OR TO ANY PERSON IS WRONGFUL INASMUCH AS THE REGISTERED
OWNER HEREOF, CEDE & CO., HAS AN INTEREST HEREIN.
-11-
<PAGE> 1
EXHIBIT 5.1
[WILSON SONSINI GOODRICH & ROSATI LETTERHEAD]
November 9, 1998
infoUSA Inc.
5711 South 86th Circle
P.O. Box 27347
Omaha, NE 68127
RE: OPINION RE LEGALITY
infoUSA Inc.
NEW 9 1/2% SENIOR SUBORDINATED NOTES DUE 2008
COVERED BY REGISTRATION STATEMENT ON FORM S-4, REG. NO. 333-61645
Ladies and Gentlemen:
We have acted as corporate counsel to infoUSA Inc., a Delaware corporation
(the "Company"), in connection with the filing by the Company with the
Securities and Exchange Commission (the "Commission") of a registration
statement on Form S-4, Reg. No. 333-61645 (the "Registration Statement"), under
the Securities Act of 1933, as amended (the "Securities Act"). The Registration
Statement relates to the proposed issuance by the Company of up to $115,000,000
aggregate principal amount of the Company's new 9 1/2% Senior Subordinated Notes
due 2008 (the "New Notes"). The New Notes are proposed to be issued in exchange
for substantially identical, currently outstanding, but unregistered, notes (the
"Existing Notes"). The Existing Notes are, and the New Notes will upon issuance
be, covered by that certain indenture dated June 18, 1998 (the "Indenture") by
and between the Company and State Street Bank and Trust Company of California,
N.A., as trustee (the "Trustee"). This opinion letter is delivered in accordance
with the requirements of Item 601(b)(5) of Regulation S-K under the Securities
Act.
In connection with this opinion, we have examined originals or copies,
certified or otherwise identified to our satisfaction, of: (i) the Registration
Statement, in the form filed with the Commission and as amended through the date
hereof; (ii) the charter documents of the Company, as currently in effect; (iii)
the Indenture; (iv) the form of the New Notes; and (v) resolutions of the Board
of Directors of the Company relating to, among other things, the issuance and
exchange of the New Notes for the Existing Notes and the filing of the
Registration Statement. We also have examined such other documents as we have
deemed necessary or appropriate as a basis for the opinions set forth below.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents. As to certain facts
material to this opinion, we have relied without independent verification upon
oral or written statements and representations of officers and other
representatives of the Company and others.
Based upon the foregoing, and subject to the assumptions and limitations
set forth herein, we are of the opinion that, when (i) the Registration
Statement, as finally amended (including all necessary post-effective
amendments, if any), shall have become effective under the Securities Act and
(ii) when the New Notes are duly executed, attested, issued and delivered by
duly authorized officers of the Company, and authenticated by the Trustee, all
in accordance with the terms of the Indenture and the prospectus contained in
the Registration Statement, against surrender and cancellation of a like
principal amount of Existing Notes, the New Notes issued by the Company will be
legally issued, and the New Notes will constitute valid and binding obligations
of the Company, enforceable against the Company in accordance with their terms,
except to the extent that enforcement thereof may be limited by (i) bankruptcy,
insolvency, reorganization, arrangement, moratorium, fraudulent conveyance and
other laws relating to or affecting creditors' rights generally, and (ii)
general principles of equity, whether such enforcement is considered in a
proceeding in equity or at law.
<PAGE> 2
infoUSA Inc.
November 9, 1998
Page 2
To the extent relevant to the opinions set forth above, we have assumed
that the Trustee is duly organized, validly existing and in good standing under
the laws of its jurisdiction of organization; that the Trustee is duly qualified
to engage in the activities contemplated by the Indenture and is duly qualified
and eligible under the terms of the Indenture to act as trustee thereunder; that
the Indenture was duly authorized, executed and delivered by the Trustee; that
the Indenture is a valid and binding obligation of the Trustee; that the Trustee
is in compliance, generally with respect to acting as a trustee under the
Indenture, with all applicable laws and regulations; and that the Trustee has
the requisite organizational and legal power and authority to perform its
obligations under the Indenture.
This opinion is given in respect of the Indenture and the New Notes only,
and we express no opinion as to the legality, validity or binding effect of any
collateral agreement or other document or any other matter beyond the matters
expressly set forth herein.
We express no opinion as to the enforceability of provisions of the
Indenture or the New Notes which provide that the assertion or employment of any
right or remedy shall not prevent the concurrent assertion or employment of any
other right or remedy, or that every right and remedy shall be cumulative and in
addition to every other right and remedy, or that any delay or omission to
exercise any right or remedy shall not impair any other right or remedy or
constitute a waiver thereof.
Members of our firm are admitted to the bars of the State of California and
the State of New York and we do not express any opinion as to the laws of any
jurisdiction other than the laws of the State of California, the State of New
York (but only insofar as the opinions expressed herein relate to validity,
binding effect and enforceability), the General Corporation Law of the State of
Delaware and the federal laws of the United States, and we express no opinion
with respect to the applicability thereto, or the effect thereon, of the laws of
any other jurisdiction. In this regard, we render no opinion with respect to
said Section 11.08 (and the corresponding provisions of the New Notes) of the
appropriate choice of laws with respect to the Indenture or the New Notes.
Moreover, we express no opinion with respect to compliance with state securities
laws or as to the applicability to the obligations of the Company under the
Indenture or the New Notes of Sections 547 and 548 of Title 11 of the United
States Code or applicable state law (including, without limitation, Article 10
of the New York Debtor & Creditor Law and Sections 3439 et seq. of the
California Civil Code) relating to fraudulent transfers.
This opinion is rendered solely for your benefit in connection with the
transactions described above. This opinion may not be used or relied upon by any
other person and may not be disclosed, quoted, filed with a governmental agency
or otherwise referred to without our prior written consent. However, we consent
to the filing of this opinion as an exhibit to the Registration Statement and
prospectus and to the use of our name under the caption "Legal Matters" in the
Registration Statement and any amendments thereto. In giving such consent, we do
not concede that we are experts within the meaning of the Securities Act or the
rules and regulations thereunder or that this consent is required by Section 7
of the Securities Act.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
/s/ WILSON SONSINI GOODRICH & ROSATI, P.C.
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-4
(File No. 333-61645) of our report dated January 23, 1998 except for Note 18, as
to which the date is March 31, 1998, on our audits of the consolidated financial
statements of infoUSA Inc. (formerly named American Business Information, Inc.)
and Subsidiaries as of December 31, 1996 and 1997 and for each of the three
years in the period ended December 31, 1997. We also consent to the references
to our firm under the captions "Experts," "Selected Consolidated Financial
Data," and "Summary Historical Data."
/s/ PricewaterhouseCoopers LLP
Omaha, Nebraska
December 15, 1998
<PAGE> 1
Exhibit 25.1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM T-1
---------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b)(2) [X]
STATE STREET BANK AND TRUST COMPANY OF CALIFORNIA, NATIONAL ASSOCIATION
(Exact name of trustee as specified in its charter)
<TABLE>
<S> <C>
United States 06-1143380
(Jurisdiction of incorporation or (I.R.S. Employer
organization if not a U.S. national bank) Identification No.)
</TABLE>
633 West 5th Street, 12th Floor, Los Angeles, California 90071
(Address of principal executive offices) (Zip Code)
Lynda A. Vogel, Senior Vice President and Managing Director
633 West 5th Street, 12th Floor, Los Angeles, California 90071
(213) 362-7399
(Name, address and telephone number of agent for service)
infoUSA Inc.
(Exact name of obligor as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 47-0751545
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
5711 South 86th Circle
Omaha, Nebraska 68127-0347
(Address of principal executive offices) (Zip Code)
9 1/2% Senior Subordinated Notes Due 2008
(TYPE OF SECURITIES)
<PAGE> 2
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to which
it is subject.
Comptroller of the Currency, Western District Office, 50 Fremont
Street, Suite 3900, San Francisco, California, 94105-2292
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its parent, State
Street Bank and Trust Company.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission as Exhibits with
corresponding exhibit numbers to the Form T-1 of Western Digital Corporation,
filed pursuant to Section 305(b)(2) of the Act, on May 12, 1998 (Registration
No. 333-52463), and are incorporated herein by reference.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A Certificate of Corporate Existence (with fiduciary powers) from the
Comptroller of the Currency, Administrator of National Banks is on file with the
Securities and Exchange Commission as Exhibits with corresponding exhibit
numbers to the Form T-1 of Western Digital Corporation, filed pursuant to
Section 305(b)(2) of the Act, on May 12, 1998 (Registration No. 333-52463), and
are incorporated herein by reference.
3. A copy of the authorization of the trustee to exercise corporate trust
powers, if such authorization is not contained in the documents specified in
paragraph (1) or (2), above.
Authorization of the Trustee to exercise fiduciary powers (included in
Exhibits 1 and 2; no separate instrument).
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on file with the
Securities and Exchange Commission as Exhibits with corresponding exhibit
numbers to the Form T-1 of Western Digital Corporation, filed pursuant to
Section 305(b)(2) of the Act, on May 12, 1998 (Registration No. 333-52463), and
are incorporated herein by reference.
1
<PAGE> 3
5. A copy of each indenture referred to in item 4. if the obligor is in
default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the Act is annexed
hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining authority.
A copy of the latest report of condition of the trustee published pursuant
to law or the requirements of its supervising or examining authority is annexed
hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company of California,
National Association, organized and existing under the laws of the United States
of America, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in the City of Los
Angeles, and State of California, on the 3rd of November, 1998.
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, NATIONAL ASSOCIATION
By: /s/ Joni D'Amico
---------------------------------
Name: Joni D'Amico
Title: Assistant Vice President
2
<PAGE> 4
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture Act
of 1939, as amended, in connection with the proposed issuance by infoUSA Inc. of
its 9 1/2% Senior Subordinated Notes due 2008, we hereby consent that reports
of examination by Federal, State, Territorial or District authorities may be
furnished by such authorities to the Securities and Exchange Commission upon
request therefor.
STATE STREET BANK AND TRUST COMPANY
OF CALIFORNIA, NATIONAL ASSOCIATION
By: /s/ Joni D'Amico
---------------------------------
Name: Joni D'Amico
Title: Assistant Vice President
Dated: November 3, 1998
3
<PAGE> 5
EXHIBIT 7
Consolidated Report of Condition and Income for A Bank With Domestic Offices
Only and Total Assets of Less Than $100 Million of State Street Bank and Trust
Company of California, a national banking association duly organized and
existing under and by virtue of the laws of the United States of America, at the
close of business September 30, 1998, published in accordance with a call made
by the Federal Deposit Insurance Corporation pursuant to the required law: 12
U.S.C. Section 324 (State member banks); 12 U.S.C. Section 1817 (State nonmember
banks); and 12 U.S.C. Section 161 (National banks).
<TABLE>
<CAPTION>
Thousands
ASSETS of Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin..................... 5,481
Interest-bearing balances.............................................. 0
Securities ................................................................. 38
Federal funds sold and securities purchased under agreements to resell
in domestic offices of the bank and its Edge subsidiary ............... 0
Loans and lease financing receivables:
Loans and leases, net of unearned income.................... 0
Allowance for loan and lease losses......................... 0
Allocated transfer risk reserve............................. 0
Loans and leases, net of unearned income and allowances................ 0
Assets held in trading accounts............................................. 0
Premises and fixed assets................................................... 55
Other real estate owned..................................................... 0
Investments in unconsolidated subsidiaries ................................. 0
Customers' liability to this bank on acceptances outstanding................ 0
Intangible assets........................................................... 0
Other assets................................................................ 1,106
------
Total assets,............................................................... 6,680
======
LIABILITIES
Deposits:
In domestic offices.................................................... 0
Noninterest-bearing.................................... 0
Interest-bearing....................................... 0
In foreign offices and Edge subsidiary................................. 0
Noninterest-bearing.................................... 0
Interest-bearing....................................... 0
Federal funds purchased and securities sold under agreements to repurchase
in domestic offices of the bank and of its Edge subsidiary............. 0
Demand notes issued to the U.S. Treasury and Trading Liabilities............ 0
Other borrowed money........................................................ 0
Subordinated notes and debentures........................................... 0
Bank's liability on acceptances executed and outstanding ................... 0
Other liabilities........................................................... 2,746
Total liabilities........................................................... 2,746
------
EQUITY CAPITAL
Perpetual preferred stock and related surplus............................... 0
Common stock................................................................ 500
Surplus .................................................................... 750
Undivided profits and capital reserves/Net unrealized holding gains (losses) 2,684
Cumulative foreign currency translation adjustments ........................ 0
Total equity capital ....................................................... 3,934
------
Total liabilities and equity capital ....................................... 6,680
======
</TABLE>
4
<PAGE> 6
I, Kevin R. Wallace, Vice President and Comptroller of the above named bank do
hereby declare that this Report of Condition and Income for this report date
have been prepared in conformance with the instructions issued by the
appropriate Federal regulatory authority and is true to the best of my knowledge
and belief.
Kevin R. Wallace
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the appropriate Federal regulatory authority and is true and correct.
Lynda A. Vogel
James A. Quale
Stephen Rivero
5
