-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MCJxJPag2DaXI1zL6qcbdhJmHnheIK9fHWmYUUC0wj7U8elvwaK6q7a4LaOf3EzC MDxA1df89JtLfahZ0ydNDg== 0000912057-00-011018.txt : 20000313 0000912057-00-011018.hdr.sgml : 20000313 ACCESSION NUMBER: 0000912057-00-011018 CONFORMED SUBMISSION TYPE: S-3/A PUBLIC DOCUMENT COUNT: 6 FILED AS OF DATE: 20000310 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INFORMATION HOLDINGS INC CENTRAL INDEX KEY: 0001063744 STANDARD INDUSTRIAL CLASSIFICATION: BOOKS: PUBLISHING OR PUBLISHING AND PRINTING [2731] IRS NUMBER: 061518007 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-3/A SEC ACT: SEC FILE NUMBER: 333-30202 FILM NUMBER: 566794 BUSINESS ADDRESS: STREET 1: 2777 SUMMER STREET STREET 2: SUITE 209 CITY: STAMFORD STATE: CT ZIP: 06905 BUSINESS PHONE: 2034665055 MAIL ADDRESS: STREET 1: 2777 SUMMER STREET STREET 2: SUITE 209 CITY: STAMFORD STATE: CT ZIP: 06905 S-3/A 1 FORM S-3/A AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 10, 2000 REGISTRATION NO. 333-30202 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 ------------------------ AMENDMENT NO. 1 TO FORM S-3 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 ------------------------ INFORMATION HOLDINGS INC. (Exact name of Registrant as Specified in Its Charter) DELAWARE 2731 06-1518007 (State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer incorporation or organization) Classification Code Number) Identification No.)
------------------------ 2777 SUMMER STREET, SUITE 209 STAMFORD, CT 06905 (203) 961-9106 (Address, Including Zip Code, and Telephone Number, Including Area Code, of Registrant's Principal Executive Offices) ------------------------------ MASON P. SLAINE PRESIDENT AND CHIEF EXECUTIVE OFFICER INFORMATION HOLDINGS INC. 2777 SUMMER STREET, SUITE 209 STAMFORD, CT 06905 (203) 961-9106 (Name, Address, Including Zip Code, and Telephone Number, Including Area Code, of Agent for Service) ------------------------------ Copies to: STEVEN J. GARTNER, ESQ. JONATHAN A. SCHAFFZIN, ESQ. Willkie Farr & Gallagher Cahill Gordon & Reindel 787 Seventh Avenue 80 Pine Street New York, NY 10019 New York, NY 10005 (212) 728-8000 (212) 701-3000
------------------------ APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as practicable after the effective date of this Registration Statement as determined by market conditions. If the only securities being registered on this Form are to be offered pursuant to dividend or interest reinvestment plans, please check the following box. / / If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), other than securities offered only in connection with dividend or reinvestment plans, check the following box. / / If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. / / - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- If delivery of the prospectus is expected to be made pursuant to Rule 434 under the Securities Act, please check the following box. / / ------------------------ CALCULATION OF REGISTRATION FEE
PROPOSED PROPOSED MAXIMUM MAXIMUM OFFERING AGGREGATE TITLE OF SHARES AMOUNT TO BE PRICE PER OFFERING AMOUNT OF TO BE REGISTERED REGISTERED(1) SHARE(2) PRICE(2) REGISTRATION FEE Common Stock, $.01 par value................. 4,600,000 $26.57 $122,222,000 $32,267
(1) Includes 600,000 shares which may be sold pursuant to the Underwriters' over-allotment option. (2) Estimated solely for the purpose of computing the registration fee pursuant to Rule 457(c) of the Securities Act, based on the average of the reported last high and low sales prices on the New York Stock Exchange on February 8, 2000. ------------------------------ 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 THIS REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE. The information in this Prospectus is not complete and may be changed. We may not sell these securities until the registration statement that we have filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. SUBJECT TO COMPLETION PRELIMINARY PROSPECTUS DATED MARCH 10, 2000 PROSPECTUS - ------------- 4,000,000 SHARES [LOGO] [LOGO] COMMON STOCK ------------- We are selling 4,000,000 shares of our common stock. Our common stock trades on the New York Stock Exchange under the symbol "IHI." The last reported sale price of our common stock on February 17, 2000 was $39 7/16 per share. INVESTING IN OUR COMMON STOCK INVOLVES RISKS THAT ARE DESCRIBED IN THE "RISK FACTORS" SECTION BEGINNING ON PAGE 9. ----------------
PER SHARE TOTAL --------- ----- Public offering price....................................... $ $ Underwriting discount....................................... $ $ Proceeds, before expenses, to Information Holdings.......... $ $
The underwriters may purchase up to an additional 600,000 shares of common stock from us at the public offering price, less the underwriting discount, within 30 days from the date of this prospectus to cover over-allotments. Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The shares will be ready for delivery on or about , 2000. ------------------ MERRILL LYNCH & CO. MORGAN STANLEY DEAN WITTER THOMAS WEISEL PARTNERS LLC ----------- The date of this prospectus is , 2000. Inside front cover [Artwork for prospectus inside front cover page consists of screen photos of Corporate Intelligence.com] TABLE OF CONTENTS
PAGE -------- Summary..................................................... 4 Risk Factors................................................ 9 Forward-Looking Statements.................................. 14 Use of Proceeds............................................. 15 Common Stock Price Range and Dividends...................... 16 Capitalization.............................................. 17 Selected Financial Information.............................. 18 Management's Discussion and Analysis of Financial Condition and Results of Operations................................. 20 Business.................................................... 26 Management.................................................. 37 Security Ownership of Certain Beneficial Owners and Management................................................ 39 Description of Capital Stock................................ 40 Shares Eligible for Future Sale............................. 42 Underwriting................................................ 43 Legal Matters............................................... 45 Experts..................................................... 45 Where You Can Find More Information......................... 46 Index to Financial Statements............................... F-1
------------------------ You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any person to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate as of the date on the front cover of this prospectus only. Our business, financial condition, results of operations and prospects may have changed since that date. None of our web sites or other publications are a part of this prospectus. 3 SUMMARY This summary highlights important information about our business and this offering. It does not contain all the information you should consider before investing in the common stock. Therefore, you should read the entire prospectus, including the "Risk Factors", the financial statements and all related notes included in this prospectus before deciding to purchase our common stock. INFORMATION HOLDINGS We are a leading provider of information products and services to professional end-users in the intellectual property and scientific and technology markets. Since we began operations in January 1997, we have grown rapidly through acquisitions, internal growth and we have increased profits through improved operating efficiencies. We attribute much of our recent internal growth to the development of our Internet-based business-to-business intellectual property products and services. For the nine months ended September 30, 1999, we had revenues of $39.9 million and net income of $3.5 million. Our earnings before interest, taxes, depreciation and amortization during the nine months ended September 30, 1999 was $10.2 million. - INTELLECTUAL PROPERTY--Our intellectual property businesses provide a broad array of databases, information products and complementary services for intellectual property professionals. We entered the intellectual property business in 1997. We have grown internally primarily through the sale of Internet-based products, which accounted for approximately 40% of our total intellectual property revenues for the nine months ended September 30, 1999. We also made four strategic acquisitions in 1999 that expanded and enhanced our product offerings and services. Our value-added patent information service is used by many of the largest technology, pharmaceutical, chemical and industrial companies in the world as well as most of the major intellectual property law firms. Our customers include over 50% of the top 100 U.S. patent filers of 1998. We intend to leverage our existing relationships to support the development of new products and services in our intellectual property business. We are aggregating all of our intellectual property businesses on one web site, CorporateIntelligence.com, which we believe will be the most comprehensive source of intellectual property information available from a single site on the Internet. We provide access to over 33 million patent documents in digital format and also provide patent annuity payment services and intellectual property management software. We are currently developing a trademark database to permit comprehensive federal, state and common law searches. We are also developing a patent licensing database, which will provide a central market for the licensing of patent rights. We expect the commercial rollout of CorporateIntelligence.com to occur over the course of the year 2000. - SCIENTIFIC AND TECHNOLOGY INFORMATION--Our CRC Press unit, acquired in January 1997 from The Times Mirror Company, provides information products to professionals in the scientific and technology markets. CRC Press, with a 97-year history, has established leading positions in several niche markets. We have highly regarded brand names and currently produce some of the most recognizable titles in their respective fields. Many of these products, including THE HANDBOOK OF CHEMISTRY AND PHYSICS (currently in its 80(th) edition), are produced in multiple media, including books, CD-ROMs, and electronic and web-based databases. We have significant proprietary content, including a library of over 4,000 previously published titles, which generate substantial recurring demand. CRC Press' subscription products target end-users with essential information and represent a stable source of revenues. We are currently using our proprietary content to build electronic databases and we expect Internet sales to be a source of future growth. 4 OUR GROWTH STRATEGY Our growth strategy includes the following: - AGGRESSIVELY DEVELOP CORPORATEINTELLIGENCE.COM. We plan to develop CorporateIntelligence.com into a professional portal for the intellectual property community. We believe the intellectual property and related markets are large, dynamic and growing. CorporateIntelligence.com will include our patent information as well as a comprehensive trademark search service, a patent licensing database and complementary services, which are currently being developed. Moreover, we believe our web site will serve as a central business-to-business marketplace for intellectual property products and services and a conduit for the exchange of business and information in the intellectual property community. - DEVELOP NEW PRODUCTS AND LEVERAGE PROPRIETARY CONTENT. We own and continue to acquire content that is valuable to professional end-users. We will continue to launch electronic versions of print products, increase distribution channels on a worldwide basis, develop web-enabled versions of core products and encourage our paper-based customers to purchase our Internet products. In addition, we intend to develop additional comprehensive Internet-based databases in subject areas where we have significant proprietary content, such as chemistry, engineering and information technology. - PURSUE ADDITIONAL ACQUISITIONS. Our businesses principally serve professional end-users in markets where information is critical to success. Since January 1997, we have completed nine acquisitions, including four in the science and technology area and five in the intellectual property area. We actively seek to identify and acquire businesses with attractive market, product and customer characteristics. We have also focused on businesses where revenues are derived from recurring sources and which include products that we believe are generally not sensitive to pricing pressures and adverse economic conditions. We will continue to pursue acquisitions in our existing markets. - EXPAND INTO NEW MARKETS. We may also pursue opportunities in new markets with characteristics similar to our existing markets. We will focus on attractive niche markets where we have the opportunity to internally grow revenues and profitability and thereby achieve operating efficiencies. Examples of additional markets we may pursue include financial, technology and healthcare information. - EXPLOIT ADDITIONAL NICHES IN SCIENTIFIC AND TECHNOLOGY MARKETS. We currently produce products in over 50 niches within the scientific and technology information markets. We believe there is an opportunity to expand into additional niches within these markets, either through new products or the acquisition of new product lines. We produced 282 new titles in 1998 and our production increased to 404 titles in 1999. We believe we can continue to increase the number of new titles produced, with expected new titles in year 2000 of approximately 450. Our headquarters are located at 2777 Summer Street, Suite 209, Stamford, Connecticut 06905. Our telephone number is (203) 961-9106. Our web site is located at www.informationholdings.com. RECENT DEVELOPMENTS In the fourth quarter of 1999, we had revenues of $18.9 million, compared to revenues of $14.1 million in the fourth quarter of 1998, an increase of $4.8 million or 34.4%. In the year ended December 31, 1999, we had revenues of $58.8 million, compared to $46.7 million in the year ended December 31, 1998, an increase of $12.1 million or 26.0%. See "Management's Discussion and Analysis of Financial Condition and Results of Operations--Recent Developments--Year Ended December 31, 1999." 5 THE OFFERING Common stock offered......................... 4,000,000 shares Shares outstanding after the offering........ 20,948,071 shares Use of proceeds.............................. We expect to use a substantial portion of the net proceeds from this offering to develop and market our CorporateIntelligence.com web site and to finance future acquisitions. Risk factors................................. See "Risk Factors" and other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in shares of the common stock. NYSE Symbol.................................. IHI
The number of shares outstanding after the offering excludes 591,854 shares reserved for issuance under our stock option plans as of September 30, 1999. This number assumes that the underwriters' over-allotment option is not exercised. If the over-allotment option is exercised in full, we will issue and sell an additional 600,000 shares. 6 SUMMARY FINANCIAL DATA In the table below, we provide our summary historical financial data. We have prepared this information using our audited consolidated financial statements for the years ended December 31, 1998 and 1997 and our unaudited financial statements for the nine months ended September 30, 1999 and 1998. When you read the summary historical financial data below, it is important that you read it together with the historical financial statements and related notes in our annual and quarterly reports filed with the SEC and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus.
YEAR ENDED NINE MONTHS DECEMBER 31, ENDED SEPTEMBER 30, ------------------- ------------------- 1997(1) 1998 1998 1999 -------- -------- -------- -------- (IN THOUSANDS, EXCEPT PER SHARE DATA) STATEMENT OF OPERATIONS DATA: Revenues................................................ $34,869 $46,651 $32,584 $39,865 Cost of sales........................................... 11,492 11,707 8,128 10,590 Operating expenses...................................... 28,040 31,234 23,177 24,631 Operating income (loss)................................. (4,663) 3,710 1,279 4,644 Income (loss) before taxes.............................. (4,908) 4,827 1,742 5,955 Net income (loss)(2).................................... (4,911) 4,785 1,607 3,506 Net income per share Basic earnings........................................ $ 0.21 Diluted earnings...................................... $ 0.20 Pro forma basic and diluted earnings (loss) per share (3)................................................... $ (0.29) $ 0.28 $ 0.09 --
AS OF SEPTEMBER 30, 1999 -------------------------- ACTUAL AS ADJUSTED(4) --------- -------------- BALANCE SHEET DATA: Cash and cash equivalents................................... $ 2,890 $152,148 Total assets................................................ 134,799 284,057 Total debt.................................................. 2,759 2,759 Total stockholders' equity.................................. 88,357 237,615
NINE MONTHS ENDED YEAR ENDED SEPTEMBER 30, DECEMBER 31, ------------------- 1998 1998 1999 ------------ -------- -------- OTHER DATA: Depreciation and amortization............................... $7,726 $ 5,561 $ 5,562 Capital expenditures........................................ 3,717 1,924 2,266 Net cash provided by operating activities................... 5,938 2,694 2,313 Net cash used in investing activities....................... (7,917) (36,340) (55,680) Net cash provided by (used in) financing activities......... 48,969 49,281 (1,013) EBITDA (5).................................................. 11,436 6,840 10,188
(FOOTNOTES ON FOLLOWING PAGE) 7 - ------------------------ (1) In conjunction with the acquisition and reorganization of CRC Press and other businesses and certain compensation issues, we recorded significant adjustments in 1997 and early 1998, which are not expected to continue in the future. These adjustments reduced revenues by $4,017 and increased expenses by $4,013, and therefore reduced net income by $8,030, for the year ended December 31, 1997. The adjustments reduced revenue by $54 and increased pre-tax expenses by $1,069, resulting in reduced net income of $674 for the year ended December 31, 1998. The adjustments affecting revenues were required by purchase accounting in connection with the acquisitions of CRC Press and MicroPatent and reflect the revaluation of acquired deferred subscription revenues based on the cost to fulfill subscriptions. This revaluation is a non-cash adjustment which reduces revenues in the twelve months following acquisition. The adjustments affecting expenses relate to: severance and reorganization costs from the consolidation of certain functions and reductions in the workforce; special bonuses granted to an officer; contingent compensation paid to an officer of a subsidiary; and certain additional purchase accounting-related adjustments. (2) Prior to our initial public offering in August 1998, we were a limited liability company and, accordingly, were not subject to U.S. federal or certain state income taxes. We had a nominal provision for income taxes in 1998 because of the full reversal of deferred tax valuation allowances deemed as no longer required. (3) No historical earnings per share or share data are presented, as we do not consider such historical data meaningful. The pro forma earnings (loss) per share for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1998 were computed using 16,943,189 shares outstanding, which reflects all shares outstanding following the initial public offering, as if such shares were outstanding since January 1, 1997. (4) As adjusted amounts give effect to the issuance and sale of 4,000,000 shares of common stock in this offering (based on the closing sale price on February 17, 2000 of $39.438 per share), after deducting underwriting discounts and estimated offering expenses. (5) "EBITDA" is income before interest expense/income, income taxes, depreciation and amortization. EBITDA is not a measure of performance under generally accepted accounting principles and should not be considered in isolation or as a substitute for net income, cash flow from operations or other income or cash flow data prepared in accordance with generally accepted accounting principles (GAAP). Items excluded from the calculation of EBITDA are significant components in understanding and evaluating our financial performance. While EBITDA should not be considered as a measure of profitability or liquidity, we understand that EBITDA is customarily used in evaluating the equity value of publishing companies. The EBITDA measure presented herein may not be comparable to similarly titled measures of other companies. 8 RISK FACTORS An investment in our common stock involves a high degree of risk. You should consider carefully the following risks, together with all other information included in this prospectus, before you decide to buy our common stock. RISKS RELATED TO OUR BUSINESS WE HAVE A LIMITED OPERATING HISTORY AND WE EXPECT OUR EXPENDITURES ON CORPORATEINTELLIGENCE.COM TO RESULT IN A LOSS IN 2000. We have completed numerous acquisitions since we began operations in January 1997. Consequently, our financial results and the financial results for our subsidiaries included in this prospectus are not, and will not be, directly comparable to our future financial results. As a result of adjustments in the aggregate amount of $8.0 million recorded in conjunction with the acquisition and reorganization of businesses and compensation issues, we reported a pre-tax loss of ($4.9) million for the year ended December 31, 1997. Our predecessor also reported pre-tax losses in 1993, 1995 and 1996 of ($3.9) million, ($14.1) million and ($11.1) million, respectively. Although we were profitable for the year ended December 31, 1998 and for the nine months ended September 30, 1999, we expect to report a loss for the year 2000 as a result of expenditures we intend to incur to develop and market our CorporateIntelligence.com business. We cannot assure you as to when we will return to profitability. OUR GROWTH STRATEGY CENTERS ON THE SUCCESSFUL INTEGRATION OF OUR INTELLECTUAL PROPERTY BUSINESSES AND LAUNCH OF OUR INTERNET UNIT, CORPORATEINTELLIGENCE.COM. We expect a substantial portion of our anticipated growth to come from our web site CorporateIntelligence.com. The site will offer intellectual property professionals the patent information and services we currently provide and the trademark search service, patent-licensing database and other services we are currently developing. We intend to commercially rollout the web site over the course of the year 2000. The launch of this site will require substantial sales and marketing expenditures. If we are unable to integrate our current intellectual property business, continue developing our new products and services and commercially rollout CorporateIntelligence.com, our financial condition and results of operations will be adversely affected. Moreover, CorporateIntelligence.com may not be successful and we may not achieve or sustain revenue growth or generate any profits from this business. The success of CorporateIntelligence.com will depend on market acceptance by our customers and users. We cannot assure you that business-to-business commerce on the Internet generally, or our information products and services in particular, will be able to achieve broad market acceptance. OUR GROWTH ALSO DEPENDS ON OUR ABILITY TO MAKE ACQUISITIONS AND TO INTEGRATE THOSE BUSINESSES. Our ability to engage in future acquisitions depends on various factors, including the availability of suitable acquisition candidates, the negotiation of acceptable terms, our financial capabilities at the time of the acquisition bid, the availability of skilled employees to manage the acquired businesses and general economic and business conditions. We cannot guarantee that we will identify acquisition targets that will result in successful business combinations. We cannot assure you that we will complete these acquisitions on acceptable terms. We compete for acquisition targets with other companies, many of which are larger than us and have greater financial resources. In addition, we seek to acquire businesses at attractive valuations, a policy which has caused, and may in the future cause, us to be outbid for businesses. We cannot assure you that we will continue to be successful in completing attractive acquisitions, integrating acquired businesses and improving their profitability. We intend to finance future acquisitions through cash on hand, borrowings and issuances of capital stock. We currently have no commitments for any acquisition financing beyond our existing credit 9 facility, and we cannot assure you that sufficient financing will be available or that it will be available on acceptable terms. In addition, our stockholders may experience dilution if we issue stock to finance acquisitions. WE OPERATE IN HIGHLY COMPETITIVE MARKETS. We face significant competition with respect to our scientific, technical, medical and professional and intellectual property businesses. In addition to competing for sales on the basis of the quality of our information and publications, we compete for the signing of noted authors. Many of our traditional competitors in the intellectual property market are offering content through on-line services. Moreover, several large technology-oriented companies such as IBM and some patent offices offer low-cost or free intellectual property services. Barriers to entry to the online commerce market are minimal and current and new competitors can launch new web sites at a relatively low cost. Many of our competitors are substantially larger than us and have greater financial, technical, editorial, personnel and marketing resources, longer operating histories and greater name recognition than we do. If we are unable to compete effectively under these conditions, we will be adversely affected. WE MAY NOT BE ABLE TO KEEP UP WITH THE CONTINUOUS TECHNOLOGICAL CHANGES IN OUR MARKET, ESPECIALLY OUR INTERNET BUSINESS, WHICH COULD HARM OUR BUSINESS. Since many of our businesses use the Internet and other electronic media, they are subject to rapid changes in technology. The development of new or improved technologies and products by competitors could have a material adverse effect on our electronically-based businesses. We cannot assure you that we can remain competitive once such technologies and products are introduced. MUCH OF THE DATA USED IN OUR INTELLECTUAL PROPERTY BUSINESS IS PUBLICLY AVAILABLE TO OUR USERS. Much of the source data for our patent and trademark information services is publicly available in raw form at little or no cost. To the extent that users of patent and trademark data choose to get the data they need from public sources rather than utilize our services or others seek to offer competitive means of accessing such data, we will be adversely affected. OUR INTERNATIONAL OPERATIONS AND EXPANSION INVOLVE FINANCIAL AND OPERATING RISKS. Approximately 25% of our 1998 revenues were generated from sales outside North America. We may increase our presence internationally through internal growth and, possibly, through acquisitions. There are risks inherent in doing business in international markets, such as: - the risks of divergent business expectations or difficulties in establishing joint ventures with foreign partners, - difficulties in staffing and managing multinational operations, currency and interest rate fluctuations, - reduced protection of intellectual property rights, - political instability, - restrictions or limitations on the repatriation of funds, and - potentially adverse tax consequences. We cannot assure you that these factors will not have a material adverse effect on our future international operations and on our financial condition and results of operations. WE DEPEND ON OUR KEY MANAGEMENT PERSONNEL FOR OUR FUTURE SUCCESS. We depend on our ability to retain and motivate high quality personnel, especially our management. Our success depends primarily on the efforts and abilities of Mason P. Slaine, our co-founder, President and Chief Executive Officer and Vincent A. Chippari, our Executive Vice 10 President and Chief Financial Officer. The success of our subsidiaries will depend on the senior management teams of such subsidiaries who we currently employ and those we will hire in connection with future acquisitions. If we cannot hire and retain qualified employees in connection with future acquisitions or replace the loss of the services of key employees, our financial condition and the results of our operations could be adversely affected. We do not currently maintain key person life insurance with respect to any of our employees. In addition, the success of our Internet-based initiatives is highly dependent on the efforts of a small in-house technology staff. We are still seeking additional technical staff, as well as sales and marketing personnel, to help develop and market our CorporateIntelligence.com business. The loss of services of these key personnel, or the inability to hire and retain additional technical support, could have an adverse effect on our financial condition and results of operations. OUR FAILURE OR THE FAILURE OF THIRD PARTIES TO BE YEAR 2000 COMPLIANT COULD NEGATIVELY IMPACT OUR BUSINESS. Although we have not experienced any material problems with the year 2000 issue, the year 2000 issue could cause disruptions in our business. We cannot ensure against all potential year 2000 problems that might originate with third parties. If we or any third party with whom we do business were to have a year 2000 problem, our business, especially that of MicroPatent, could be seriously disrupted and our financial condition and results of operations could be materially adversely affected. WE HAVE RECENTLY TERMINATED OUR INTERNATIONAL DISTRIBUTION AGREEMENT WITH SPRINGER VERLAG WHICH MAY NEGATIVELY AFFECT OUR FUTURE SALES AND OPERATING RESULTS. In January 2000, we terminated a distribution agreement with Springer Verlag, a European publisher that had exclusive distribution rights to many CRC Press products outside of North America. For the nine months ended September 30, 1999, Springer represented 6% of our consolidated revenues. We will begin selling these products directly and through other distributors. Our sales and operating results will be negatively affected for the first quarter of 2000 as a result of this transition. In the future, we may be unable to attain the same sales and operating results we experienced prior to the termination of this distribution agreement. RISKS RELATED TO THE INTERNET INDUSTRY OUR FUTURE RESULTS DEPEND ON CONTINUED GROWTH IN THE USE OF THE INTERNET. The Internet market is new and rapidly evolving. The growth of our business could suffer if Internet usage does not continue to grow. Internet usage may be inhibited for a number of reasons, including: - inadequate network infrastructure; - security concerns; - inconsistent quality of service; - lack of availability of cost-effective and high-speed service; and - changes in government regulation of the Internet. If Internet usage grows, the Internet infrastructure might not be able to support the demands placed on it by this growth or its performance and reliability may decline. In addition, future outages and other interruptions occurring throughout the Internet or at our web sites could lead to decreased use of our web sites and would therefore harm our business. WE COULD BE SUED FOR INFORMATION RETRIEVED FROM THE INTERNET. We may face liability for negligence, copyright or trademark infringement, personal injury, or other claims due to the nature of content on our web sites. Such claims may also include, among others, claims that by providing hypertext links to web sites operated by third parties, we are liable for 11 wrongful actions by those third parties through such web sites. Similar claims have been brought, and sometimes successfully asserted, against online services. It is also possible that users could make claims against us for losses incurred by reliance on information provided on or by our network. Although we carry general liability insurance, and set forth our terms and conditions of use on our web sites, our insurance might not cover potential claims of this type or might not be adequate to fully protect us. Also, the legal effectiveness of our terms and conditions of use is uncertain. Any liability or legal defense expenses that are not covered by insurance would harm our business, results of operations and financial condition. GOVERNMENT REGULATION AND LEGAL UNCERTAINTIES COULD ADD ADDITIONAL COSTS AND RISKS TO DOING BUSINESS ON THE INTERNET. There are currently few laws or regulations that specifically regulate communications or commerce on the Internet. However, laws and regulations may be adopted in the future that address issues such as user privacy, pricing and the characteristics and quality of products and services. For example, although it was held unconstitutional, the Telecommunications Act of 1996 prohibited some information and content from being transmitted over the Internet. Several other nations have taken actions to restrict the free flow of material deemed to be objectionable on the Internet. In addition, it may take years to determine the extent to which existing laws relating to issues such as property ownership, libel and personal privacy are applicable to the Internet. Any new laws or regulations relating to the Internet could harm our business. REGULATION COULD REDUCE THE VALUE OF OUR DOMAIN NAMES. We own the Internet domain names "CorporateIntelligence.com", "patent.com", and "trademark.com" as well as numerous other domain names both in the United States and internationally. Domain names generally are regulated by Internet regulatory bodies. The regulation of domain names in the United States and in foreign countries is subject to change. Regulatory bodies could establish additional top-level domains, appoint additional domain name registrars or modify the requirements for holding domain names. As a result, we might not acquire or maintain our domain names or comparable domain names in all the countries in which we conduct business, which could harm our business. Furthermore, the relationship between regulations governing domain names and laws protecting trademarks and similar proprietary rights is unclear and still evolving. Therefore, we might be unable to prevent third parties from acquiring domain names that infringe or otherwise decrease the value of our trademarks and other proprietary rights. If this occurred, our business would suffer. THE INTERNET INDUSTRY IS CHARACTERIZED BY RAPID TECHNOLOGICAL CHANGE. Rapid technological developments, evolving industry standards and user demands, and frequent new product introductions and enhancements characterize the market for Internet products and services. These market characteristics are exacerbated by the emerging nature of the market and the fact that many companies are expected to introduce new Internet products and services in the near future. Our future success will depend on our ability to continually improve our content offerings and services. In addition, the widespread adoption of developing multimedia-enabling technologies could require fundamental and costly changes in our technology, which could harm our business. RISK RELATED TO THIS OFFERING WARBURG, PINCUS AND MANAGEMENT WILL CONTINUE TO CONTROL THE COMPANY, WHICH COULD DELAY OR PREVENT A CHANGE IN CONTROL. After this offering, Warburg, Pincus Ventures, L.P. and Mr. Slaine will own an aggregate of 57.4% of the outstanding common stock. As a result, these stockholders will have the ability to control our company, including the election of directors, and direct our company's affairs and business. Such 12 concentration of ownership could delay or prevent a change in our control under circumstances that could give holders of the common stock the opportunity to realize a premium over the then prevailing market price of such stock. Such provisions may also adversely affect the market price of our common stock. OUR CERTIFICATE OF INCORPORATION CONTAINS PROVISIONS THAT COULD DELAY OR PREVENT A CHANGE IN CONTROL. Our certificate of incorporation permits our Board of Directors to issue preferred stock without further action by stockholders and Section 203 of the Delaware General Corporation Law imposes restrictions upon some acquirors of 15% or more of our common stock. These provisions could delay or frustrate the change of our control, even if such assumption of control would benefit the stockholders, and could also discourage or make more difficult, a merger, tender offer or proxy contest, even if such events could be beneficial to the stockholders interests. WE HAVE NOT IDENTIFIED A SPECIFIC USE FOR THE PROCEEDS OF THIS OFFERING. Substantially all proceeds from this offering will remain uncommitted pending the intended application of a substantial portion of such funds to develop and market our CorporateIntelligence.com web site and to finance future acquisitions. Accordingly, our management will have substantial discretion in using the proceeds we receive until our web site and/or any acquisition is completed. In the interim, our management intends to invest these proceeds in short-term, investment grade securities, which will yield the rate of return earned by such securities and will be subject to the risks inherent in investing in such securities. A delay in using such proceeds may adversely affect the market price of the common stock. FUTURE SALES OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD DEPRESS OUR STOCK PRICE. After this offering, we will have outstanding 20,948,071 shares of common stock. All the shares of common stock to be sold in this offering will be eligible for immediate sale in the public market without restriction unless purchased by our affiliates. Sales of substantial amounts of common stock, or the perception that such sales could occur, could adversely affect the market price of our common stock. In addition, we may also issue common stock to fund acquisitions, which could adversely affect the market price of the common stock and dilute stockholders' interests. The number of shares of common stock available for sale in the public market will be limited by lock-up agreements under which some holders of our outstanding shares of common stock and options to purchase common stock will agree not to sell or otherwise dispose of any of their shares for a period of days after the date of this prospectus without the prior written consent of Merrill Lynch. However, Merrill Lynch may, in its sole discretion, release all or any portion of the shares subject to lock-up agreements. After this offering, the holders of 12,026,137 shares of common stock will have the right to require us to register the sale of their shares, subject to limitations and to the lock-up agreements with the underwriters. These holders also have the right to require us to include their shares in any future public offerings of our equity securities. The sale of these additional shares into the public market may further adversely affect the market price or our common stock. WE DO NOT EXPECT TO PAY DIVIDENDS ON YOUR SHARES OF COMMON STOCK. We have never declared or paid dividends on our common stock and we do not currently anticipate paying dividends in the future. In addition, our existing credit facility restricts our ability to pay dividends. 13 FORWARD-LOOKING STATEMENTS This prospectus contains statements that plan for or anticipate the future. In this prospectus, forward-looking statements are generally identified by the use of such terms as "may", "will", "should", "expect", "intend", "anticipate", "estimate", "continue" and similar words, although some forward-looking statements are expressed differently. You should be aware that our actual growth and results could differ materially from those contained in the forward-looking statements due to a number of factors, including the following: - changes in the information products and services industry; - uncertainties and expenses resulting from the development of new businesses and web sites, such as CorporateIntelligence.com; - risks inherent in acquiring new businesses; - changes in Internet usage; - unexpected technological developments; - new competitors; - changes in customer and distibutor relationships; - dependence on key personnel; and - changes in U.S. or foreign government regulations. The factors that could cause our results to differ from those set forth in forward-looking statements include those identified above as well as those discussed in "Risk Factors", "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this prospectus. 14 USE OF PROCEEDS We estimate that the net proceeds to us from this offering will be approximately $149.3 million, or $171.7 million if the underwriters exercise their over-allotment option in full, after deducting estimated underwriting discounts and expenses. We expect to use a substantial portion of the net proceeds from this offering to develop and market our CorporateIntelligence.com web site and to finance future acquisitions. In the year 2000, we expect to incur expenditures ranging between $20 to $25 million in connection with the rollout of CorporateIntelligence.com. We expect to use the remaining net proceeds for working capital and general corporate purposes. The actual amount of net proceeds we spend on a particular use will depend on many factors, including: - our future revenue growth, if any; - our future capital expenditures; and - the amount of cash generated by our operations. Many of these factors are beyond our control. We have not allocated any portion of the net proceeds of the offering. We retain complete discretion in applying the proceeds of this offering. We intend to continue to pursue our expansion plans aggressively. Consistent with our past experience, we expect that a significant portion of our expansion will occur through acquisitions. The consideration for any acquisition could consist of securities, including shares of our common stock, cash or any combination thereof. We may acquire public or private companies. We currently have no agreement, agreement in principle, understanding or arrangement with any person to acquire or effect any material acquisition. Until we use the net proceeds of this offering, we intend to invest the net proceeds in short-term investment grade securities. 15 COMMON STOCK PRICE RANGE AND DIVIDENDS Since our initial public offering in August 1998, our common stock has traded on the New York Stock Exchange under the symbol "IHI." The following table sets forth the range of the high and low closing sales prices of our common stock for the periods indicated.
HIGH LOW -------- -------- YEAR ENDED DECEMBER 31, 1998: Third Quarter (from August 7, 1998)..................... $13.250 $ 8.500 Fourth Quarter.......................................... 15.750 9.500 YEAR ENDED DECEMBER 31, 1999: First Quarter........................................... 18.625 13.125 Second Quarter.......................................... 22.000 17.000 Third Quarter........................................... 19.938 17.375 Fourth Quarter.......................................... 29.063 17.625 YEAR ENDED DECEMBER 31, 2000: First Quarter (through February 17, 2000)............... 39.438 23.750
On February 17, 2000, the last reported sales price of our common stock on the New York Stock Exchange was $39.438 share. On February 4, 2000 there were 13 holders of record of our common stock. We have never declared or paid dividends. We do not anticipate declaring or paying cash dividends for the foreseeable future. Our existing credit facility restricts our ability to pay dividends. Instead, for the foreseeable future, we will retain our earnings, if any, for the future operation and expansion of our business. 16 CAPITALIZATION The following table sets forth our capitalization as of September 30, 1999 on an actual basis and as adjusted to give effect to this offering:
AS OF SEPTEMBER 30, 1999 -------------------------- ACTUAL AS ADJUSTED --------- ----------- (IN THOUSANDS) Cash and cash equivalents................................... $ 2,890 $152,148 ======= ======== DEBT: Current portion of capitalized lease obligations............ $ 275 $ 275 Long-term portion of capitalized lease obligations.......... 2,484 2,484 ------- -------- Total debt.............................................. 2,759 2,759 ------- -------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 1,000,000 shares authorized; no shares outstanding actual and as adjusted.................................................. -- -- Common stock, $.01 par value; 50,000,000 shares authorized; 16,948,071 shares outstanding actual and 20,948,071 shares outstanding as adjusted (1)............................... 169 209 Additional paid-in capital.................................. 84,808 234,026 Retained earnings........................................... 3,380 3,380 ------- -------- Total stockholders' equity.............................. 88,357 237,615 ------- -------- Total capitalization.................................... $91,116 $240,374 ======= ========
- ------------------------ (1) Does not include an aggregate of 591,854 shares of common stock issuable upon the exercise of stock options outstanding as of September 30, 1999. 17 SELECTED FINANCIAL INFORMATION The selected historical financial data of (i) CRC Press, Inc. (our predecessor) as of and for the years ended December 31, 1995 and 1996 and (ii) our company as of and for the years ended December 31, 1997 and 1998 have been derived from their respective audited financial statements. The selected historical financial data of our predecessor as of and for the year ended December 31, 1994 is derived from unaudited financial statements. The unaudited financial statements include all adjustments consisting of normal recurring accruals, which we consider necessary for a fair presentation of the financial position and results of operations for this period. The acquisition of our predecessor and all other acquisitions by us were accounted for using the purchase method of accounting. We acquired St. Lucie Press on January 14, 1997, Auerbach on June 5, 1997, MicroPatent on July 2, 1997, Chapman & Hall on August 19, 1998, Optipat on January 7, 1999, FaxPat on July 19, 1999, Master Data Center on August 12, 1999 and Corporate Intelligence on September 1, 1999. The results of operations of these businesses are included in our results from their respective dates of acquisition and are not included at all in our predecessor's results. Accordingly, certain of the historical financial data of our predecessor are not comparable to those of our company. NINE MONTHS PREDECESSOR YEAR ENDED YEAR ENDED ENDED DECEMBER 31, DECEMBER 31,(1) SEPTEMBER 30, (IN THOUSANDS, EXCEPT PER SHARE ------------------------------ ------------------- ------------------- DATA) 1994 1995 1996 1997 1998 1998 1999 - -------------------------------- -------- -------- -------- -------- -------- -------- -------- OPERATING DATA: Revenues(2)..................... $32,328 $32,054 $28,852 $34,869 $46,651 $32,584 $39,865 Cost of sales(3)................ 11,591 11,371 9,262 11,492 11,707 8,128 10,590 Operating expenses(3)........... 18,289 33,452 29,667 28,040 31,234 23,177 24,631 Operating income (loss)......... 2,448 (12,769) (10,077) (4,663) 3,710 1,279 4,644 Income (loss) before taxes...... 1,116 (14,136) (11,066) (4,908) 4,827 1,742 5,955 Net income (loss)(4)............ 1,556 (9,234) (11,236) (4,911) 4,785 1,607 3,506 Net income per share: Basic earnings................ $ 0.21 Diluted earnings.............. $ 0.20 Shares used in computing basic and diluted net income per share: Basic......................... 16,944 Diluted....................... 17,120 Pro forma basic and diluted earnings (loss) per share(5)...................... $ (0.29) $ 0.28 $ 0.09 -- BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents....... $ 846 $ 664 $ 1,025 $10,280 $57,270 $25,915 $ 2,890 Total assets.................... 49,897 45,753 35,533 50,219 104,791 99,357 134,799 Total debt...................... 12,026 13,756 15,705 5,188 2,955 3,017 2,759 Total equity.................... 26,251 17,017 5,818 28,556 84,793 81,615 88,357
(FOOTNOTES ON FOLLOWING PAGE) 18 - ------------------------ (1) In conjunction with the acquisition and reorganization of CRC Press and other businesses and certain compensation issues, we recorded significant adjustments in 1997 and 1998, which are not expected to continue in the future. These adjustments reduced revenues by $4,017 and increased expenses by $4,013, and therefore reduced net income by $8,030, for the year ended December 31, 1997. The adjustments reduced revenue by $54 and increased pre-tax expenses by $1,069; resulting in reduced net income of $674 for the year ended December 31, 1998. The adjustments affecting revenues were required by purchase accounting in connection with the acquisitions of CRC Press and MicroPatent and reflect the revaluation of acquired deferred subscription revenues based on the cost to fulfill subscriptions. This revaluation is a non-cash adjustment, which reduces revenues in the twelve months following acquisition. The adjustments affecting expenses relate to: severance and reorganization costs from the consolidation of certain functions and reductions in workforce; special bonuses granted to an officer; contingent compensation paid to an officer of a subsidiary; and certain additional purchase accounting-related adjustments. (2) Revenues for the year ended December 31, 1997 includes an initial stocking order by a new international distributor aggregating $3,307. (3) Operating expenses for the year ended December 31, 1995 include $10,727 of restructuring and one-time charges. Operating expenses for the year ended December 31, 1996 include an impairment in the value of goodwill and other intangible assets of $10,666. This charge represents the amount by which the recorded value of the assets exceeded the proceeds from the sale of the business. (4) Prior to our initial public offering in August 1998, we were a limited liability company and, accordingly, were not subject to U.S. federal or certain state income taxes. Subsequent to the initial public offering we incurred a nominal income tax provision due to the full reversal of deferred tax valuation allowances deemed as no longer required. Income tax (benefits) expenses of our predecessor were ($4,902) and $170, respectively, for the years ended December 31, 1995 and 1996. (5) No historical earnings per share or share data are presented, as we do not consider such historical data meaningful. The pro forma earnings (loss) per share for the years ended December 31, 1997 and 1998 and for the nine months ended September 30, 1998 were computed using 16,943,189 shares outstanding, which reflects all shares outstanding following the initial public offering, as if such shares were outstanding since January 1, 1997. 19 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with our financial statements and notes thereto and the other financial information appearing elsewhere in this prospectus. OVERVIEW We provide information products and services to professional end-users, primarily in the intellectual property and scientific and technology markets. Through our intellectual property businesses, we generate revenues from Internet-based services, patent annuity payment services, CD-ROM subscriptions and other products including database sales of historical and customized patent information. In addition to our current patent and trademark information products, we are developing significant new products in the intellectual property area that will be included in CorporateIntelligence.com. We expect that Internet sales will continue to grow in significance in the future and revenues from our intellectual property business to grow as a percentage of consolidated revenues in the year 2000. Through CRC Press, our scientific and technology information businesses generate revenues from the sale of books and subscription products. Revenues from books and related costs of sales are recognized when the product is shipped to the customer. For products sold with a right of return, revenues are recognized net of a provision for estimated returns. CRC Press' subscription products target end-users with essential information and represent a stable source of revenues. We realize significant liquidity benefits from subscription revenues as cash is generally received in advance of shipment. Revenues from subscription products are deferred and recognized as revenues once the product is shipped. Further, we believe that our book and subscription titles generate significant recurring demand. We are currently using our significant proprietary content to build electronic databases and we believe Internet sales will be a source of future growth for this business. Our cost of sales includes direct costs associated with product sales. These costs include printing and binding costs, amortization of plant costs, royalty expenses, Internet-related technology costs, costs to produce and distribute patents sold on CD-ROM and paper form and costs associates with patent annuity payments, primarily wages. The plant costs are amortized over a four-year life on an accelerated basis. Cost of sales approximated 27% of revenues for the nine months ended September 30, 1999. Our operating expenses consist of selling, general and administrative expenses, depreciation and amortization. Significant individual components include wages and related benefits, direct mail marketing costs and amortization of intangible assets. The aggregate cash consideration paid by us to acquire our businesses since 1997 of $88.3 million was allocated primarily to intangible assets. The amortization of these assets, as well as amortization from future acquisitions, will impact our operating results. Operating expenses approximated 62% of revenues for the nine months ended September 30, 1999. IMPACT OF ACQUISITIONS AND OUTLOOK A key component of our growth strategy is to pursue acquisitions in attractive niche markets where opportunities exist to internally grow the acquired companies' revenues and profitability to achieve operating efficiencies. Since beginning operations in January 1997, we have completed nine acquisitions, including five in the intellectual property area and four in the science and technology information markets. We continue to actively seek acquisitions that we believe will further our growth and operating strategies. As we acquire additional companies, our sales mix, market focus, cost structure and operating leverage may change significantly. Consequently, our historical and future results of 20 operations reflect and will reflect the impact of acquisitions, and period-to-period comparisons may not be meaningful in some respects. Historical information for companies subsequent to their acquisition may include integration and other costs that are not expected to continue in the future. We anticipate an operating loss for the year 2000 as a result of expenditures we expect to incur in connection with the development and commercial rollout of our CorporateIntelligence.com web site. In addition, our sales and operating results will be negatively affected for the first quarter of 2000, and possibly thereafter, as a result of the termination of our international distribution agreement with Springer Verlag. RESULTS OF OPERATIONS COMPARISON OF NINE MONTHS ENDED SEPTEMBER 30, 1999 AND 1998 REVENUES. In the first nine months of 1999, we had revenues of $39.9 million compared to revenues of $32.6 million in the first nine months of 1998, an increase of $7.3 million or 22.3%. The increase in revenues is primarily due to an increase of $2.0 million in book sales at CRC Press; an increase of $1.9 million in Internet sales at MicroPatent; an increase of $1.5 million in CRC Press electronic product sales; an increase of $2.1 million in sales of patents and file histories at Optipat and Faxpat; and revenues of $1.3 million at Master Data Center. These increases were partly offset by a decline of $1.2 million at CRC's Auerbach unit, due in part to a transition to a web-based product line. COST OF SALES. Cost of sales increased $2.5 million or 30.3% to $10.6 million in the first nine months of 1999 compared to $8.1 million in the corresponding period in 1998. Cost of sales expressed as a percentage of revenues in the first nine months of 1999 increased to 26.6% from 24.9% for the corresponding period of 1998. The increase in the costs of sales percentage over the comparable period in 1998 is primarily attributable to the inclusion of recently acquired businesses, which have lower gross margins than the existing businesses. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and administrative expenses increased $2.7 million or 14.8% in the first nine months of 1999, to $20.9 million from $18.2 million for the first nine months of 1998, principally as a result of operating expenses of businesses acquired in 1999 and increased personnel costs at CRC Press, due to business growth. Selling, general and administrative expenses as a percentage of revenues decreased to 52.4% in the first nine months of 1999, compared with 55.9% in the corresponding 1998 period. DEPRECIATION AND AMORTIZATION. Depreciation and amortization for the first nine months of 1999 decreased $0.2 million, or 4.7%, to $3.7 million from $3.9 million in the corresponding period in 1998, due primarily to decreased amortization of intangible assets. SEVERANCE AND SPECIAL BONUSES. Included in the first nine months of 1998 is a charge of $1.0 million related to severance and special bonuses at a subsidiary. INTEREST INCOME. Interest income increased to $1.5 million from $0.7 million due primarily to interest earned on the proceeds from our initial public offering. INCOME TAXES. The provision for income taxes as a percentage of pre-tax income for the nine months ended September 30, 1999 is 41.1%, which differs from the statutory rate primarily as a result of non-deductible amortization in excess of the purchase price over net assets acquired. This compares with an effective tax rate of 7.7% in the prior year. We did not record a provision for Federal income taxes in the prior year period due to the reversal of deferred tax valuation allowances deemed as no longer required. 21 COMPARISON OF FISCAL YEARS 1998 AND 1997 REVENUES. Revenues increased $11.8 million, or 33.8%, to $46.7 million from $34.9 million. Revenues at Auerbach and MicroPatent, businesses acquired in June 1997 and July 1997, respectively, increased by $6.5 million. Domestic book sales increased by $3.4 million, the adjustments (described in Note 1 to "Selected Financial Data" included in this prospectus) resulted in an increase of $4.0 million and other revenues increased by $1.3 million, including revenues from the Chapman & Hall product lines acquired in August 1998. These increases were offset by a decrease in international book sales of $3.4 million, due to a $3.3 million one-time stocking order received from a new international distributor in early 1997. COST OF SALES. Cost of sales increased $0.2 million, or 1.9%, to $11.7 million from $11.5 million. As a percentage of revenues, cost of sales decreased to 25.1% from 33.0% based on improved gross margins in CRC Press book publishing operations and higher gross margins of acquired businesses. OPERATING EXPENSES. Operating expenses increased $3.2 million, or 11.4%, to $31.2 million from $28.0 million. Operating expenses related to MicroPatent and Auerbach increased $2.2 million, amortization of intangible assets increased $1.0 million, direct mail marketing costs increased $1.0 million and all other operating expenses increased by $1.5 million. These increases were partially offset by a reduction in costs of $2.5 million associated with the adjustments. INTEREST INCOME (EXPENSE). Interest income (expense) increased $1.2 million, to $1.1 million from $(0.1) million, due primarily to interest earned on the proceeds from the initial public offering. NET INCOME. Net income increased $9.7 million to $4.8 million, compared to a loss of $4.9 million. The improvement is due primarily to increased gross profits of $11.6 million and increased interest income. These increases were partly offset by the increased operating expenses. We had a nominal provision for income taxes in 1998 because of the full reversal of deferred tax valuation allowances. COMPARISON OF FISCAL YEAR 1997 AND PREDECESSOR FISCAL YEAR 1996 REVENUES. Revenues increased $6.0 million, or 20.9%, to $34.9 million from $28.9 million. St. Lucie Press, Auerbach and MicroPatent, all the businesses acquired in 1997, contributed $8.3 million of revenues in 1997. Additionally, international book sales increased by $3.6 million, primarily due to an initial stocking order received from a new international distributor. These increases were partially offset by reduced revenues of $4.0 million related to the adjustments and other decreases of $1.9 million, due primarily to lower domestic book sales. COST OF SALES. Cost of sales increased $2.2 million, or 24.1%, to $11.5 million from $9.3 million. The acquisitions consummated during 1997 contributed $2.4 million to cost of sales in 1997. The adjustments caused an increase of $0.4 million and, as a result, increased cost of sales as a percentage of revenues. These increases were partially offset by reduced costs of $0.6 million, primarily due to a decrease in book production costs. Excluding the adjustments, cost of sales as a percentage of revenues decreased from 32.1% to 28.5% due primarily to lower amortization of plant costs, as well as reductions in printing and binding costs as a percentage of revenues. OPERATING EXPENSES. Operating expenses decreased $1.6 million, or 5.5%, to $28.0 million from $29.6 million due to an impairment of intangible assets of $10.7 million recorded in 1996 and a reduction in selling, general and administrative expenses of $2.1 million, primarily related to lower wages, rent and fulfillment costs. These decreases were partially offset by operating expenses of $5.7 million from the businesses acquired in 1997, expenses of $3.6 million related to the adjustments and an increase of $1.9 million related to amortization of intangible assets. 22 OPERATING INCOME(LOSS). The operating loss decreased $5.4 million or 53.7%, to $(4.7) million from $(10.1) million due to operating income (excluding the amortization of intangible assets) from the businesses acquired in 1997 of $0.6 million, an improvement in operating income of $4.0 million and an increase of $10.7 million due to the impairment of intangibles recorded in 1996. These increases were offset in part by an $8.0 million decrease resulting from the adjustments and a decrease of $1.9 million from higher amortization of intangible assets. INTEREST EXPENSE. Interest expense decreased by $0.9 million, or 87.5%, to $0.1 million from $1.0 million due to reduced long-term obligations of CRC Press, which had previous borrowings from its parent, The Times Mirror Company. NET LOSS. The net loss decreased $6.3 million, or 56.3%, to $(4.9) million from $(11.2) million due to the operating income changes described above, decreased interest expense and a decrease in income tax expense of $0.2 million. RECENT DEVELOPMENTS--YEAR ENDED DECEMBER 31, 1999 In the fourth quarter of 1999, we had revenues of $18.9 million, compared to revenues of $14.1 million in the fourth quarter of 1998, an increase of $4.8 million or 34.4%. Net income decreased to $2.5 million in the fourth quarter of 1999, or $0.15 per share, from $3.2 million, or $0.19 per share, in the fourth quarter of 1998. We did not record a provision for federal income taxes in the fourth quarter of 1998 due to the full reversal of deferred tax valuation allowances. In the year ended December 31, 1999, we had revenues of $58.8 million, compared to $46.7 million in the year ended December 31, 1998, an increase of $12.1 million or 26.0%. Net income increased to $6.0 million, or $0.36 per share, from $4.8 million, or $0.28 per share (on a pro forma basis), in the year ended December 31, 1998. We did not record a provision for federal income taxes in the year ended December 31, 1999 due to the full reversal of deferred tax valuation allowances. LIQUIDITY AND CAPITAL RESOURCES Prior to August 1998, our financing requirements were funded through cash generated by operating activities and capital contributions from the founding stockholders. In August 1998, we completed an initial public offering of our common stock to raise funds. On September 24, 1999, we entered into a seven-year revolving credit facility in an amount not to exceed $50,000,000 initially, including a $10,000,000 sublimit for the issuance of standby letters of credit. Total commitments under the credit facility shall be permanently reduced to $45,000,000 at the end of the third year, $37,500,000 at the end of the fourth year, $25,000,000 at the end of the fifth year and $12,500,000 at the end of the sixth year. The proceeds from the credit facility are intended to be used to fund acquisitions, to meet short-term working capital needs and for general corporate purposes. Borrowings under the credit facility bear interest at either the higher of the bank's prime rate and one-half of 1% in excess of the overnight federal funds rate plus a margin of 0.50% to 1.25% or the Eurodollar Rate plus a margin of 1.5% to 2.25% depending on our ratio of indebtedness to earnings before interest, taxes, depreciation and amortization. We also pay a commitment fee of 0.375% on the unused portion of the credit facility. As of September 30, 1999, we had no outstanding borrowings under the credit facility. Under the terms of the credit facility, we are required to maintain financial ratios related to fixed charge coverage, leverage and interest coverage, in addition to other covenants. As of September 30, 1999, we were in compliance with all covenants. The credit facility is secured by a first priority perfected pledge of all notes and capital stock owned by our subsidiaries and a first priority perfected security interest in all of our other assets and the assets of our subsidiaries, subject to exceptions. Obligations under the credit facility are guaranteed by us and our subsidiaries. The credit facility also 23 prohibits us from incurring some additional indebtedness, limits investments, mergers or consolidations and restricts substantial asset sales, and dividends. Cash and cash equivalents totaled $2.9 million at September 30, 1999 compared to $57.3 million at December 31, 1998. Excluding cash and cash equivalents, we had working capital of $(0.7) million at September 30, 1999 compared to working capital of $0.2 million at December 31, 1998. Since we receive patent annuity tax payments and subscription payments in advance, our existing operations are expected to maintain very low or negative working capital balances, excluding cash. Included in current liabilities at September 30, 1999 are obligations related to annuity payments and deferred revenue of approximately $19.7 million. Cash generated from operating activities was $2.3 million for the nine months ended September 30, 1999, derived from net income of $3.5 million plus non-cash charges of $5.5 million less an increase in operating assets, net of liabilities of $6.7 million. The increase in net operating assets is primarily the result of increased customer receivables as a result of the businesses acquired in fiscal 1999, offset by payment of royalties and other expenses related to book publishing operations. Cash used in investing activities was $55.7 million for the nine months ended September 30, 1999 due to acquisition costs of $53.4 million and capital expenditures, including pre-publication costs, of $2.3 million. Excluding acquisitions of businesses and titles, our existing operations are not capital intensive. Cash used in financing activities was $1.0 million for the nine months ended September 30, 1999, primarily related to payments of $0.2 million on approximately $2.8 million of capitalized lease obligations and $0.9 of fees associated with the new credit facility. We have no outstanding debt obligations at September 30, 1999 related to the new credit facility. We believe that funds generated by operations, together with cash on hand and borrowings available under our current credit facility will be sufficient to fund the cash requirements of our existing operations for the foreseeable future. We currently have no commitments for material capital expenditures. For the year 2000, we expect to incur expenditures ranging between $20 to 25 million in connection with the rollout of CorporateIntelligence.com. Our actual expenditures may vary depending on the timing of the commercial rollout, the development and integration of the databases, the hiring of additional technical staff and market acceptance of this website as well as other factors. We will use net proceeds from this offering for the development and marketing of our CorporateIntelligence.com web site, working capital, general corporate purposes and acquisitions. We do not have any agreements, arrangements or understandings with respect to any prospective material acquisitions. Pending such uses, the net proceeds will be invested in short-term, investment grade securities. SEASONALITY Our business is somewhat seasonal, with revenues typically reaching slightly higher levels during the third and fourth quarters of each calendar year, based on historical publication schedules. In 1998, 30% of our revenues were generated during the fourth quarter with the first, second and third quarters accounting for 23%, 22% and 25% of revenues, respectively. In addition, we may experience fluctuation in revenues from period to period based on the timing of acquisitions and new product launches. YEAR 2000 COMPLIANCE The Year 2000 issue is the result of computer systems that use two digits rather than four to define the applicable year, which may prevent such systems from accurately processing dates ending in the Year 2000 and after. This could result in system failures or in miscalculations causing a disruption of operations, including, but not limited to, an inability to process transactions, to send and receive 24 electronic data, or to engage in routine business activities and operations. We did not incur significant cost to address the Year 2000 issue. Although we have not experienced any material problems with the Year 2000 issue, the Year 2000 issue could cause disruptions in our business. We do not anticipate any problems, however, we cannot ensure against all potential Year 2000 problems that might originate with third parties. EFFECTS OF INFLATION We believe that inflation has not had a material impact on the results of operations presented herein. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS During the first quarter of fiscal 1999, we adopted the provisions of Statement of Financial Accounting Standards No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits," which requires additional disclosures relating to a company's pension and postretirement benefit plans for fiscal years beginning after December 15, 1998. Adoption of the new standard did not result in any change in our current disclosure requirements. In June 1999, the Financial Accounting Standards Board issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133." The Statement defers for one year the effective date of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities. The rule will now apply to all fiscal quarters of all fiscal years beginning after June 15, 2000. In our opinion, adoption of this new accounting standard will not have any impact on our consolidated financial position or results of operations. MARKET RISKS We may be subject to market risks arising from changes in interest rates. Our primary interest rate exposure results from changes in the Eurodollar or the prime rate which are used to determine the interest rate applicable to borrowings under our credit facility. We currently have no borrowing outstanding under this facility. We do not use financial instruments for trading or other speculative purposes. 25 BUSINESS OVERVIEW We are a leading provider of information products and services to professional end-users in the intellectual property and scientific and technology markets. Since we began operations in January 1997, we have grown rapidly through acquisitions, internal growth and we have increased profits through improved operating efficiencies. We attribute much of our recent internal growth to the development of our Internet-based business-to-business intellectual property products and services. For the nine months ended September 30, 1999, we had revenues of $39.9 million and net income of $3.5 million. Our earnings before interest, taxes, depreciation and amortization during that period were $10.2 million. Our intellectual property businesses provide a broad array of databases, information products and complementary services for intellectual property professionals. We entered the intellectual property business in July 1997 by acquiring MicroPatent, which supplies patent information via the Internet and on CD-ROM. Since then, we have focused on the development and expansion of this business, primarily through Internet-based products. In January and July 1999, we acquired Optipat, Inc. and Faxpat, Inc., respectively, which provide print and Internet-delivered patent information to the legal and corporate markets. In August 1999, we acquired Master Data Center, Inc. which provides specialized intellectual property services and software. In September 1999, we acquired the Corporate Intelligence business of Innovator Corporation and formed a new Internet-focused business unit, CorporateIntelligence.com. We have grown internally primarily through the sale of Internet-based products, which accounted for approximately 40% of our total intellectual property revenues for the nine months ended September 30, 1999. Our value-added patent information service is used by many of the largest technology, pharmaceutical, chemical and industrial companies in the world as well as most of the major intellectual property law firms. Our customers include over 50% of the top 100 U.S. patent filers of 1998. We intend to leverage our existing client relationships to support the development of our new products and services in the intellectual property market. Our CRC Press unit, acquired in January 1997 from The Times Mirror Company, provides information products to professionals in the scientific and technology markets. CRC Press, with a 97-year history, has established leading positions in several niche markets. In the first half of 1997, we acquired and combined with CRC Press: St. Lucie Press, Inc., a publisher of professional titles and Auerbach Publications, a provider of technology-oriented print and electronic subscription based products. In August 1998, CRC Press acquired the mathematics/statistics and chemical product lines of Chapman & Hall. Many of these products, including THE HANDBOOK OF CHEMISTRY AND PHYSICS (currently in its 80(th) edition), are produced in multiple media, including books, CD-ROMs, and electronic and web-based databases. We have significant proprietary content, including a library of over 4,000 previously published titles, which generate substantial recurring demand. CRC Press' subscription products target end-users with essential information and represent a stable source of revenues. We are currently using our proprietary content to build electronic databases and we are looking at Internet sales as a future source of growth. MARKETS INTELLECTUAL PROPERTY INFORMATION AND SERVICES The intellectual property markets are large, dynamic and growing. The intellectual property market overall continues to expand rapidly. Growth will continue to be fueled by increasing awareness of intellectual property as a corporate asset, greater enforcement of intellectual property rights on a worldwide basis, increasing intellectual property filings and the ever-increasing pace of innovation. For example, the United States Patent and Trademark Office (USPTO) issued over 160,000 patents in 1998, compared to less than 120,000 just three years prior and more than double that of ten years ago. 26 PATENT INFORMATION We estimate that the current annual revenue for search and retrieval of patent information approximates $250-$300 million. This market includes: primary information, which is the actual full text and images of patent documents, and secondary information, which consists of abstracts and indexes of patent information. While the market for secondary information is the larger component of the patent information market, we believe it is growing at a slower rate than the market for primary information. The market for primary information is growing rapidly, due primarily to advances in technology which decrease the value of abstracting and indexing services. We believe that we are the largest commercial provider of primary patent information on a worldwide basis. Historically, patent information was researched using secondary information providers, due to the complexity of finding and reviewing lengthy and complicated patent documents from diverse sources. The primary information market began in earnest with the advent of the CD-ROM, which enabled the viewing of actual patent images. The subsequent development of sophisticated search software and the Internet have created significant growth and substantial opportunities in the primary information segment. The ability to search millions of patent documents, including both bibliographic and full text data, and to retrieve and download the actual patents, has blurred the line between the primary and secondary information markets. Today, much of the value added by the abstracting and indexing services can be replicated by technology, generally at a much lower cost. TRADEMARK INFORMATION We estimate the current annual revenue for trademark information at approximately $200 million. The vast majority of revenue in this market is derived from "full searches" of trademark databases. Traditionally, a full trademark search involves the use of a trademark search company, which employs researchers to review federal, state and common law usage of names. The researchers typically use a combination of electronic databases of information, supplemented by manual reviews of common law sources such as business directories. The cost of a search is generally in excess of $500, with a large written report of the results available in one to four days. The market for pure electronic searching has been small, due primarily to the difficulty in establishing comprehensive databases of state and common law data. Electronic searches have historically been used only as "screening" tools in advance of getting a full search. To our knowledge, only two other comprehensive state databases exist and no comprehensive common law databases exist. Today, we derive a small amount of revenue from the trademark information market, primarily from the use of our U.S. federal trademark file on the Internet. However, for the last two years, we have been constructing a comprehensive U.S. state database, which is expected to be completed in the year 2000. We are also developing an electronic common law trademark search capability, which we also expect to complete in the year 2000. PATENT LICENSING MARKET Based on industry sources, we estimate that the current market for licensing patent rights exceeds $100 billion. We believe the potential market is much larger since most companies fail to take advantage of their own intellectual property assets. BTG International plc, a leading technology transfer company, commissioned a survey in 1998 that found one-third of U.S. companies' patents are not utilized. BTG estimated the potential commercial value of such unused patents to be $115 billion. This implies that a more efficient, better-utilized licensing market could grow far beyond its current size. The market features a large and disparate group of participants, representing buyers, sellers and agents for intellectual property rights. The patent licensing market today operates in a series of mostly 27 informal networks that result in individual licensing transactions. Typically, a technology owner, either in a research institution or commercial organization, will license rights to a buyer. In return, the technology owner receives either an up-front cash payment or a royalty based on future product sales. The most common methods of bringing buyers and sellers together include: - Personal relationships among researchers and corporations; - In-house knowledge of participants in a particular industry or market; - Participation in industry conferences and meetings; - Print and broadcast media; - Use of commercial databases, which contain generic information about companies in a given industry; or - Mass mailings to companies in the relevant area. We believe the current system has numerous inefficiencies that result in most available technologies not being licensed. Buyers remain without a mechanism that enables them to monitor available technologies in their respective areas of interest. Buyers also lack the ability to monitor all possible researchers and inventions in their industries. Technology owners have no easy way to target all relevant buyers of a particular technology. The sheer volume of technologies in a given field makes analysis and identification of relevant items extremely difficult. We believe that a substantial e-commerce opportunity exists to provide a centralized marketplace for patent licensing activities. The market remains largely untapped at this point, with several start-ups recently entering the marketplace. A robust database, a sufficient number of participants and appropriate search software can eliminate a great deal of inefficiency currently existing in the market. We believe that CorporateIntelligence.com has a unique opportunity in this area based on our existing relationships with major market participants and the substantial Internet traffic accessing our existing information services. SCIENTIFIC AND TECHNOLOGY INFORMATION We currently provide information products in selected niches of the professional information market. Our products generally fall into the science, technology and medical area, a market estimated at $6.8 billion by Veronis, Suhler & Associates. The market is global in nature and has achieved consistently solid growth over the past decade. We believe the market will continue to experience increased information needs based on several factors, including: - Constantly increasing complexity within scientific research; - Increasing globalization of scientific, technical and medical markets; - Technological advancements that enable greater distribution of content; and - Impact of the Internet, such as e-books, downloading and site licensing. The market has hundreds of niche information areas and individual titles are generally unique. As a result there is often little competition for specific titles. We target end-users, mostly professionals, with high-end specialized information products. Our information products are focused in areas with significant numbers of end-users, such as chemists, engineers, mathematicians, technology professionals and environmental scientists. These end-users are generally not price sensitive due to the critical nature of the information. Historically, the market has been geared toward print products, including books, journals and newsletters. We expect electronic products to significantly increase in importance. The nature of the 28 content in our markets, such as chemical and engineering information, is well suited to database development and Internet distribution. PRODUCTS INTELLECTUAL PROPERTY INFORMATION The businesses that will comprise CorporateIntelligence.com provided approximately 26% of our consolidated revenues in the nine months ended September 30, 1999. We expect these revenues to increase significantly as a percentage of our consolidated revenues in year 2000. PATENT INFORMATION SERVICES We believe we offer the most comprehensive primary patent information service in the world, with access to over 33 million patent documents in digital format. To support the information assets, we have developed sophisticated search and retrieval software and various tools that facilitate research and management of patent information. Our patent collection includes all patents ever issued by the USPTO and the European Patent Office (EPO), as well as patent documents from the World Intellectual Property Organization (WIPO) and Japanese Patent Office (JPO). We also provide access to a special collection of patents covering over 50 additional countries. Searching patent information can be done using bibliographic data, or, for a substantial portion of the collection, the full text of the patent documents. We believe we have more full text content than any other patent database, including the only searchable database of full text WIPO documents in the world. Specific product offerings include: - TOPS (Total Optimized Patent Solution)--TOPS is an Internet-based site license allowing corporations unlimited access to our patent database on a global basis. The product is sold as an annual subscription at a current cost of $85,000 per year. We also sell a more limited version (Mini-TOPS), which provides single site access for $35,000 per year. - WPS (Worldwide Patent Search) and WPS Full Text--WPS is an Internet-based search product which allows a user to search the database using bibliographic data ($2,500 per year) or full text data ($7,500 per year). - Downloads--We allow non-TOPS subscribers to download individual patents over the Internet for $4.95 per patent, or $8.95 for patents in our "special collection". - Custom intellectual property solutions--We also offer customized in-house patent installations, which may include specified databases, software and update capabilities. An example would be a customized, Lotus Notes-based searchable patent database installed on a corporate Intranet. We also provide various tools that facilitate the research and management of patent information. There are a number of small online providers of primary patent information, and we believe opportunities exist for us to provide wholesale services to these online providers. We recently signed an agreement with a major online information provider to fulfill patent document sales generated by its site. We are in discussions, and expect to reach similar agreements, with other online providers. ADDITIONAL PATENT-RELATED SERVICES - Patent Annuity Payments--Our Master Data Center unit offers a service that organizes and assists owners of intellectual property, including corporate and legal clients, with the payments of patent annuities on a worldwide basis. Due to the fact that the rules for filing and maintaining patents are fairly complex and vary among the various patent authorities around the world, owners of intellectual property in domestic and foreign markets, including many major corporation and law firms, use service providers to track filing and payment requirements and to 29 make these payments on their behalf. The service is priced on a per payment basis, with cash received from customers in advance of applicable payment dates. The service is a full service offering, including the purchase of foreign currencies. We currently make approximately 200,000 patent payments per year. The service is supported by a proprietary database that includes the current rules for filing and maintenance of patents in every major patent jurisdiction in the world. - Patent Management Software--We sell software in the corporate and legal markets which enables customers to manage, track and report intellectual property. - Patent CD-ROMs--We offer patents on CD-ROM on a subscription basis, such as annual USPTO and EPO patent files. We also sell backfiles of historical data and collections of specialized data on CD-ROM. Our CD-ROM customers continue to migrate to Internet products. - Patent Documents and File Histories--We also sell patent documents and file histories (copies of the examiner's file on a patent) in paper form via mail or fax. A portion of these orders are placed over the Internet. TRADEMARK INFORMATION AND SERVICES Trademark.com is currently in development and, when completed, we believe it will be the only product available that will enable a full trademark search performed via the Internet. Today we offer the ability to search an enhanced USPTO federal file over the Internet. Within the next several months, we expect to release a database covering trademarks in all 50 U.S. states. We believe there are only two other U.S. state databases in existence today. We also intend to provide users the ability to search common law trademark databases. The common law data will include both directory information (for example, yellow pages, Thomas Register, Dun & Bradstreet) and a comprehensive Internet search. We believe the ability to perform a full search over the Internet may enable us to transform the $200 million trademark search market to a much faster and less expensive product than the legacy-based paper services offered in the market today. In addition to Trademark.com, we currently sell software in the corporate and legal markets which enables customers to manage, track and report intellectual property. PATENT LICENSING We are currently developing a module that will provide a marketplace for patent holders and qualified buyers. The site will include both Internet licensing of patent rights and a service to facilitate more complex licensing transactions. Building on our established base of intellectual property market customers, we will seek to increase traffic by adding content and services including a customized intellectual property news service, a patent notification service, intellectual property market job postings, patent attorney listings, patent filing information and government forms. Revenue from patent licensing services will be derived both from listing fees charged to patent holders and searching fees charged to qualified buyers. Initial listings will be provided free of charge as we build a critical mass of available patents. We intend at a later point to charge transaction fees for licensing transactions completed via our service. We do not anticipate the sale of advertising to any significant degree. Many of the potential market participants in patent licensing are already our customers. We believe CorporateIntelligence.com will be the first professional portal for the intellectual property community. 30 ADDITIONAL SITE CONTENT In addition to information products and licensing services, we will feature numerous services that will increase traffic and repeat visitors. These services will include a combination of free and pay services. We will offer real time news covering all intellectual property sectors. The news will be keyword searchable and will also offer a service to have customized news delivered via e-mail. A patent and trademark notification service will be available, which will alert users to new patents and trademarks added to the database which match keywords entered by the user during registration. We intend to maintain an employment database of positions related to intellectual property law and research and development. We also intend to offer audio broadcasts with industry leaders on a regular basis and a public forum for moderated industry discussions. A searchable database of intellectual property law firms will be provided, as well as selected regulatory information related to the industry. In addition, the site will serve as a vertical search engine, "spidering" content from other web sites related to the intellectual property market. SCIENTIFIC AND TECHNOLOGY INFORMATION The scientific and technology information products of our CRC Press unit provided approximately 74% of our consolidated revenues in the nine months ended September 30, 1999. These products are expected to decrease as a percentage of revenues in year 2000. BOOK PUBLISHING Currently, the majority of our revenues in the scientific and technology market are derived from book publishing. We have an extensive backlist of over 4,000 titles, which generates substantial recurring demand. Over each of the past three years, approximately two-thirds of our book sales have been derived from backlist sales. In addition, we have aggressively increased our frontlist publishing programs. We published 404 new titles in 1999 and expect to publish approximately 450 new titles in 2000. This compares to 282 titles in 1998. CRC Press publishes primarily in the following areas: - Life sciences (biology, neurology, pathology, ecology, forensics, food science, marine science); - Hard sciences (chemistry, physics, mathematics, statistics, engineering); - Environmental sciences; and - Information technology and business. Life sciences and hard sciences combined provide approximately three-fourths of our backlist titles and a similar percentage of our annual book revenues. We have strong market positions in chemistry, mathematics, statistics, engineering and environmental science. We publish some of the most recognizable titles in their respective fields, including: - THE HANDBOOK OF CHEMISTRY AND PHYSICS - STANDARD MATHEMATICAL TABLES AND FORMULAE - CRC HANDBOOK OF HUMAN TOXICOLOGY - PRACTICAL HOMICIDE INVESTIGATION - MANAHAN'S ENVIRONMENTAL CHEMISTRY - ENVIRONMENTAL ENGINEERING HANDBOOK - ELECTRICAL ENGINEERING HANDBOOK - PAIN MANAGEMENT - TECHNICAL ANALYSIS OF STOCK TRENDS 31 Our books are generally technical in nature with a practitioner-oriented approach. By targeting professional end-users with high-end information products we are able to achieve premium pricing for our products. The average retail selling price for a CRC Press book is approximately $80. Over the past several years, CRC Press has sold on average 1,100 units per title. Sales tend to be weighted toward the first two years following release and a typical book sells over a 4-5 year period in total. We do have titles that sell for much longer periods, as well as titles that have annual editions. SUBSCRIPTION SERVICES CRC Press also offers numerous subscription-based products in the following areas: - Newsletters--Our Food Chemical News division serves the food and chemical industries with six newsletters and two food science guides, available in print and electronic formats. These products command premium pricing and have aggregate renewal rates of approximately 70%. The flagship product, Food Chemical News-Registered Trademark-, has been a leading source of information to the food industry for over 38 years. - Journals--CRC Press currently publishes 17 journals, including both primary journals of original research and secondary journals that summarize professional literature in selected scientific areas. The journal program is concentrated in areas where we have strong book publishing programs and provides synergy with respect to marketing and editorial functions. Aggregate renewal rates for journals approximate 85%. - Technology Services--Under our Auerbach imprint we provide high-level information products for the information technology market. Our products in this area are available over the Internet, both through CRC Press and Earthweb, on CD-ROM and in printed form. Our print products include journals, newsletters and annual handbooks. Some of our titles in this area include Journal of Information Systems Management, Handbook of MIS Management, Auerbach Information Management Series and IT Knowledgebase. - Electronic Databases--We produce numerous electronic databases that are available on a site license basis or on CD-ROM. Our database products are focused in areas where we have significant proprietary content such as chemistry, food chemistry and information technology and engineering. Our existing products include chemical dictionaries covering areas such as natural products, organic compounds and inorganic compounds. We also have electronic versions of major print products, such as the HANDBOOK OF CHEMISTRY AND PHYSICS, available over the Internet or on CD-ROM. We are currently developing Internet-based electronic products in areas such as engineering and food chemistry. 32 CUSTOMERS INTELLECTUAL PROPERTY We have long-standing relationships with the largest corporate and legal intellectual property market participants. We have approximately 7,000 customers for our information products, 300 users of our patent annuity payment services and 600 users of our management software. Our customers include major corporations in all major industries, with particular concentration in the chemical, pharmaceutical, technology, manufacturing and packaged goods areas. In addition to the corporate customer base, our customers include the majority of the major intellectual property law firms in the U.S. Major customers include: 3M Abbott Laboratories American Home Products Astra AB Bristol Meyers Squibb Dow Chemical Eastman Kodak Eaton Exxon Mobil Ford General Motors Glaxo Wellcome Goodyear Hewlett Packard Hitachi Hoechst Marion Roussel Honeywell IBM Johnson & Johnson Kimberly-Clark Matsushita Motorola Nokia Pfizer Philips NV Procter & Gamble Seagate SmithKline Beecham TRW Unilever United Technologies Volvo We have approximately 60 intellectual property customers contributing over $50,000 in revenue per annum, although no individual customer provides a significant percentage of our revenue. SCIENTIFIC AND TECHNOLOGY INFORMATION Our customers in this area are primarily professional end-users, including chemists, mathematicians, engineers, biologists and information technology professionals. Our customers are primarily based in corporations, with additional sales being made to individuals in academic settings, such as research institutions. We maintain extensive in-house lists of professionals and academics in the fields and niches in which we publish. In addition to individuals, we sell products to virtually all major distributors which serve our areas of focus. We also sell products to broad-based retailers, including Internet distributors. Significant customers include: Amazon.com Blackwell Scientific Login Brothers Baker & Taylor Ingram Taylor & Francis Barnes & Noble J.A. Majors
No individual customer provides a significant percentage our revenues. Prior to January 2000, Springer Verlag was the exclusive distributor of some CRC Press products outside of North America. That distribution agreement was terminated in January 2000 and we now handle all international distribution internally. Springer Verlag accounted for approximately 9% of our consolidated revenues for the year ended December 31, 1998. The percentage of our revenues derived from sales to Springer Verlag was lower in 1999 than it was in 1998. SALES, MARKETING AND DISTRIBUTION Our intellectual property products and services sales are made primarily through an in-house sales force with offices in the United States and the United Kingdom. Prospects are identified through 33 referrals from existing customers, referrals from patent and trademark offices, leads from trade shows and information requests from sources such as the Internet. Additional international sales are made through a network of distributors. The anticipated commercial rollout of our CorporateIntelligence.com web site by the end of the year 2000 will entail a comprehensive promotional and marketing campaign. Our plan includes the marketing of our web site through a combination of an increased sales force and trade shows and other promotional vehicles. Our scientific and technology products are sold primarily through direct response marketing. We have an in-house creative services and direct marketing group which designs, manages, and produces cost-effective direct mail campaigns and other promotional support programs. We utilize our extensive in-house lists of book buyers, supplemented by lists from professional societies and list management companies. In 1999, we produced in excess of 1,000 promotional campaigns and mailed in excess of 1,000,000 direct mail pieces per month on average. We also have a small, well-experienced sales force for professional book sales to academic and specialty bookstores, wholesalers, catalogers and associations, as well as sales of site licenses to corporations and academic institutions. COMPETITION PATENT INFORMATION MARKET We believe we are the largest commercial provider of primary patent information. Competition in this area comes primarily from patent and trademark offices, particularly the USPTO and the EPO. Both offer useful, low-end patent services, primarily geared toward academic users. Patent office products tend to be most useful for those trying to obtain a specific patent, but are generally less useful for research and high-end corporate and legal applications. In addition, IBM offers a patent service over the Internet. Traditional secondary information providers include Derwent Information, a unit of the Thomson Corporation, and the Chemical Abstract Service (CAS) of the American Chemical Society. These companies have significant revenues in abstracting and indexing services, but are not major factors in the primary information sector. Derwent recently discontinued its primary patent Internet product. TRADEMARK INFORMATION MARKET The traditional full search trademark market is dominated by Thomson & Thomson, a unit of the Thomson Corporation. The only other significant participant is Trademark Research Corporation, a unit of Wolters Kluwer. These businesses derive the vast majority of revenues from paper-based trademark searches. Thomson & Thomson offers a limited capability electronic search product, which is marketed as a "screening search" tool. INTELLECTUAL PROPERTY E-COMMERCE There have been a number of recently launched web sites attempting to provide a market for buyers and sellers of intellectual property rights, including yet2.com and pl-x.com. We believe these start-ups have little revenue. These businesses do not have long-established customer relations in the intellectual property field, significant expertise in intellectual property products and services, or additional products and services required by users such as our information products. It appears that yet2.com is attempting to develop a marketplace for licensing existing technologies, with the hope of receiving transaction fees for deals completed using their service. Pl-x.com has an affiliation with Ernst & Young and is primarily an auction site for patent rights. There are numerous additional start-ups in this area including Techex, which focuses on the life science market, and IPNetwork, which hopes to develop a "community" site including patent auction services. 34 PATENT ANNUITY PAYMENT SERVICES We believe we are the largest provider of patent annuity payment services in the United States, with over 200,000 annuity payments per annum. Computer Packages, Inc. is the only significant competitor in the U.S. C.P.A. is the leading provider of annuity payments in Europe, followed by Dennemeyer. We believe we are the leading provider of intellectual property management software. This market is relatively small and fragmented. SCIENTIFIC AND TECHNOLOGY INFORMATION This market is very large with numerous competitors. While there is competition for sales in a given area or niche, products are generally unique titles sold on an individual basis. We also compete for the signing of significant authors. Our primary competitors in this area include John Wiley, McGraw-Hill and Academic Press, a unit of Harcourt General. These competitors are larger and have greater resources than we do. In addition, due to the large number of market niches, we also compete with numerous small publishers. INTELLECTUAL PROPERTY We regard our trademarks, copyrights, domain names, trade secrets and similar intellectual property as valuable assets and rely upon trademark and copyright laws, as well as confidentiality agreements with employees and others, to protect our rights. We pursue the registration of material trademarks and copyrights in the United States and, depending upon use, in some other countries. We believe we own or license all intellectual property rights necessary to conduct our business. To the best of the our knowledge, there are no threatened or pending legal proceedings or claims related to our intellectual property that are likely to have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations. ENVIRONMENTAL MATTERS We believe that our operations are in compliance with all applicable foreign, federal, state and local environmental laws, as well as all laws and regulations relating to worker health and safety. FACILITIES We lease office space in East Haven, Connecticut; Washington, D.C.; Boca Raton, Florida; New York, New York; Stamford, Connecticut; Southfield, Michigan; and London, England under leases expiring in 2001, 2002, 2006, 2002, 2003, 2000 and 2005, respectively. We have contracts with third parties for warehousing and distribution services in Lynn, Missouri and Letchworth, England. We do not own any real property. We believe that our properties, taken as a whole, are in good operating condition and are suitable and adequate for our current business operations, and that suitable additional or alternative space will be available at commercially reasonable terms for future expansion. EMPLOYEES AND LABOR RELATIONS As of December 31, 1999, we had approximately 375 employees, consisting of 360 employees in the United States and 15 employees based in England. No employees are covered by collective bargaining agreements with labor unions. We believe that relations with our employees are good. LEGAL PROCEEDINGS Mason P. Slaine, our President and Chief Executive Officer, and Michael E. Danziger, a director of our company, are shareholders, officers and directors of Rand Publishing Company Inc. (Rand), a private holding company that has made investments in the publishing industry, and were defendants in 35 a lawsuit alleging that Mr. Slaine breached his fiduciary duty to some other investors and usurped corporate opportunities available to Rand by investing in our company and by participating in the acquisition by our company of various businesses. On December 2, 1998, Rand and Mr. Slaine filed a motion to dismiss the Rand investors' complaint against them. The court granted the motion on November 3, 1999 on the grounds that the plaintiffs had not alleged with particularity the efforts, if any, they had made to compel the board of directors of Rand to initiate these derivative claims in the first instance. The motion was granted with leave to plaintiffs to serve an amended complaint setting forth in detail the reasons why such demand on the Rand board would have been futile. In addition, we are involved in litigation that has arisen in the ordinary course of business. We do not expect any of these matters, either individually or in the aggregate, to cause a material adverse effect on our financial condition or results of operations. INSURANCE We maintain general liability and property insurance and an umbrella and excess liability policy in amounts we consider adequate and customary for a business of our kind. However, we cannot guarantee that future claims will not exceed insurance coverage. 36 MANAGEMENT EXECUTIVE OFFICERS AND DIRECTORS Set forth below are the names, ages and positions of our executive officers and directors as of February 11, 2000.
NAME AGE POSITION - ---- -------------------- -------- Mason P. Slaine........................... 46 President, Chief Executive Officer and Director Vincent A. Chippari....................... 39 Executive Vice President and Chief Financial Officer Mark Clinton.............................. 40 President, Master Data Center Norman R. Snesil.......................... 56 President and Chief Executive, CRC Press LLC Steven Wolfson............................ 55 President, MicroPatent LLC Michael E. Danziger....................... 41 Director David R. Haas............................. 58 Director Sidney Lapidus............................ 61 Director David E. Libowitz......................... 37 Director
Set forth below are the present principal occupation and employment background of each of our executive officers and directors. MASON P. SLAINE has been our President, Chief Executive Officer and a director since December 1996. Since 1993, Mr. Slaine has been President of Rand Publishing Company Inc., a small holding company that has made investments in the publishing industry. From 1994 to 1996, Mr. Slaine served as President of Thomson Financial, a division of the Thomson Corporation that provides financial information, research, analysis and software products worldwide. From 1993 to 1994, he served as President of Thomson Financial Publishing, a division of Thomson Financial. VINCENT A. CHIPPARI has been our Executive Vice President and Chief Financial Officer since January 1998. From 1990 to 1996, Mr. Chippari was Chief Financial Officer of Thomson Business Information, which serves the global scientific, medical, intellectual property, technical and general reference markets. From 1996 to 1997, he was Executive Vice President, Operations, of Thomson Intellectual Property/Automotive Group, as well as General Manager of its Derwent Information North America unit, a patent and scientific information business. MARK CLINTON has been President of Master Data Center since December 1995. He has held senior management positions at Master Data Center since 1991. Prior to joining Master Data Center, he was a consultant with Andersen Consulting for eight years, reaching the position of senior manager. NORMAN R. SNESIL has been President and Chief Executive Officer of our CRC Press unit since May 1999. From 1998 to 1999, he was President of Q.E.P. Co., Inc. From 1996 to 1998, he was President of Continental Graphics Company. From 1990 to 1996, Mr. Snesil was President and CEO of Thomson Healthcare, the medical information unit of Thomson. STEVEN WOLFSON has been President of our MicroPatent unit since July 1997. From 1996 to 1997, Mr. Wolfson was Vice President and Chief Financial Officer of MicroPatent's predecessor. From 1994 to 1996, he was Vice President and Chief Financial Officer of American Banker, a financial information 37 publishing company. From 1993 to 1994, Mr. Wolfson was an independent consultant in the financial and administrative fields. MICHAEL E. DANZIGER has been a director of our company since July 1998. He is currently a consultant in the information and publishing field. From 1991 to 1999, Mr. Danziger was Chairman of Thomson Financial's Database Group, a division of Thomson which provides financial information, products and services. Since 1993, he has also been an executive officer of Rand. DAVID R. HAAS has been a director of our company since July 1998. Mr. Haas has been a financial consultant in the entertainment and communications industries since 1995. From 1990 until 1994, he was Senior Vice President and Controller of Time Warner, a leading media and entertainment company. He is currently a director of TODD-AO Corporation. SIDNEY LAPIDUS has been a director of our company since December 1996. Mr. Lapidus has been a General Partner of Warburg, Pincus & Co. and a Member and Managing Director of E.M. Warburg, Pincus & Co., LLC or its predecessors since January 1982, where he has been employed since 1967. He is currently a director of Caribiner International, Inc., Grubb and Ellis Company, Radio Unica Communications Corp., Lennar Corporation, Four Media Company and several privately held companies. DAVID E. LIBOWITZ has been a director of our company since December 1996. Mr. Libowitz is a General Partner of Warburg Pincus & Co. and a Member and Managing Director of E.M. Warburg, Pincus & Co., LLC, where he has been employed since July 1991. He is currently a director of Caribiner International, Inc. and Four Media Company. Each director serves until the expiration of his term and thereafter until his successor is duly elected and qualified. Our executive officers are elected by the Board of Directors and hold office until their successors are duly elected and qualified or until their earlier resignation or removal from office. 38 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following table sets forth information, as of February 18, 2000 regarding the beneficial ownership of common stock by each stockholder who is known by us to own more than 5% of the outstanding shares of common stock, each of our directors and executive officers and all of the directors and executive officers as a group.
SHARES BENEFICIALLY OWNED(1) ------------------------ NAME AND ADDRESS OF BENEFICIAL OWNER NUMBER PERCENT - ------------------------------------ ---------- -------- Warburg, Pincus Ventures, L.P.(2) 466 Lexington Avenue New York, New York 10017.................................. 9,802,074 57.8% GeoCapital LLC(3) 767 Fifth Avenue, 45th Floor New York, New York 10153-4590............................. 1,000,200 5.9 J. & W. Seligman & Co. Incorporated(4) 100 Park Avenue New York, New York 10017.................................. 938,515 5.5 Westfield Capital Management Co., Inc.(5) One Financial Center Boston, Massachusetts 02111............................... 904,420 5.3 Mason P. Slaine 2777 Summer Street, Suite 209 Stamford, Connecticut 06905............................... 2,224,063 13.1 Vincent A. Chippari(6)...................................... 34,722 * Mark Clinton................................................ 0 * Norman R. Snesil............................................ 0 * Steven Wolfson(7)........................................... 3,604 * Michael E. Danziger(8)...................................... 91,934 * David R. Haas(8)............................................ 6,808 * Sidney Lapidus(9)........................................... 9,802,074 57.8 David E. Libowitz(9)........................................ 9,802,074 57.8 All directors and executive officers, as a group (nine persons).................................................. 12,163,205 71.8
- ------------------------ * Less than 1%. (1) Pursuant to the regulations of the SEC, shares are deemed to be "beneficially owned" by a person if such person directly or indirectly has or shares the power to vote or dispose of such shares, whether or not such person has any pecuniary interest in such shares, or the right to acquire the power to vote or dispose of such shares within 60 days, including any right to acquire through the exercise of any option, warrant or right. (2) The sole general partner of Warburg Pincus is Warburg, Pincus & Co., a New York general partnership. E.M. Warburg, Pincus & Co., LLC, a New York limited liability company, manages Warburg Pincus & Co. and may be deemed to control both entities. Lionel I. Pincus is the Managing Partner of Warburg Pincus & Co. and the Managing Member of E.M. Warburg, Pincus & Co., LLC. (3) Based upon information disclosed in Schedule 13-G filed February 8, 2000. (4) Based upon information disclosed in Schedule 13-G filed February 10, 2000. (5) Based upon information disclosed in Schedule 13-G filed February 10, 2000. (6) Includes 34,722 shares issuable upon exercise of options that are vested and exercisable. (7) Includes 2,604 shares issuable upon exercise of options that are vested and exercisable. (8) Includes 2,328 shares issuable upon exercise of options that are vested and exercisable. (9) All shares indicated as beneficially owned by Mr. Lapidus and Mr. Libowitz are owned by Warburg Pincus and are included because of their affiliation with Warburg Pincus. Both of them are Members and Managing Directors of E.M. Warburg, Pincus & Co., LLC and General Partners of Warburg Pincus & Co. Messrs. Lapidus and Libowitz disclaim beneficial ownership of the shares owned by Warburg Pincus. Messrs. Lapidus and Libowitz have a mailing address c/o 466 Lexington Avenue, New York, New York 10017. 39 DESCRIPTION OF CAPITAL STOCK Our authorized capital stock consists of 50,000,000 shares of common stock and 1,000,000 shares of preferred stock. COMMON STOCK Prior to this offering, there will be 16,948,071 shares of our common stock outstanding, owned by 13 stockholders of record. Holders of common stock have no pre-emptive, redemption, conversion or sinking fund rights. Holders of common stock are entitled to one vote per share on all matters submitted to a vote of stockholders and do not have any cumulative voting rights. In the event of a liquidation, dissolution, or winding-up of our company, any assets remaining after our creditors and the holders of our preferred stock are paid their liquidation preferences will be shared equally and ratably by the holders of our common stock. All outstanding shares of common stock have been validly issued, and are fully paid and nonassessable. Holders of common stock will receive such dividends, if any, as may be declared by the board of directors out of funds legally available for such purposes. PREFERRED STOCK We are authorized to issue up to 1,000,000 shares of preferred stock. Our board of directors has the authority to issue this preferred stock in one or more series and to fix substantially all of the terms, rights and amounts of our preferred stock, without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in our control without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock, including the loss of voting control to others. CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK After this offering, there will be 20,948,071 shares of common stock and 1,000,000 shares of preferred stock available for future issuance without stockholder approval. These shares may be utilized for a variety of corporate purposes, including future public offerings to raise additional capital or to facilitate corporate acquisitions. We currently have no plans to issue additional shares of common stock or preferred stock. The board of directors will be able to issue this unissued stock to persons who support current management. This may discourage or hinder any attempt to obtain control over us, which would protect the continuity of our management and may deprive the stockholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices. These additional shares also could be used to dilute the stock ownership of persons seeking to obtain control over us under a stockholders' rights plan or otherwise. DELAWARE GENERAL CORPORATION LAW Section 203 of the Delaware General Corporation Law prohibits a Delaware corporation from engaging in any of a broad range of business combinations, such as mergers, consolidations and sales of assets, with an "interested stockholder" for a period of three years from the date that such person became an interested stockholder unless: - the transaction that results in the person's becoming an interest stockholder, or the business combination, is approved by the board of directors of the corporation before the person becomes an interested stockholder, - the interested stockholder acquires 85% or more of the outstanding voting stock of the corporation in the same transaction that makes it an interested stockholder, or 40 - on or after the date the person becomes an interested stockholder, the business combination is approved by the corporation's board of directors and by holders of at least two-thirds of the corporation's outstanding voting stock, excluding shares owned by the interested stockholder, at a meeting of the stockholders. Under Section 203, an "interested stockholder" is defined as any person that is - the owner of 15% or more of the outstanding voting stock of the corporation, - an affiliate or associate of the corporation and the owner of 15% or more of the outstanding voting stock of the corporation at any time within the three-year period immediately prior to the date on which it is sought to be determined whether such person is an interested stockholder, or - an affiliate or associate of such person. Pursuant to an exception within Section 203, none of our stockholders existing prior to the offering are subject to the restrictions of Section 203. Under some circumstances, Section 203 makes it more difficult for a person who would be an "interested stockholder" to effect various business combinations with a corporation for a three-year period, although the stockholders may elect to exclude a corporation from the restrictions imposed thereunder. Our certificate of incorporation does not exclude us from the restrictions imposed under Section 203. The provisions of Section 203 may encourage companies interested in acquiring us to negotiate in advance with our board of directors, since the stockholder approval requirement would be avoided if a majority of the directors then in office approve either the business combination or the transaction which results in the stockholder becoming an interested stockholder. These provisions also could delay or frustrate the assumption of control by stockholders, even if such assumption of control would be beneficial to stockholders, and also could discourage or make more difficult a merger, tender offer or proxy contest, even if such events could be beneficial to the interests of stockholders. LIMITATION OF LIABILITY OF DIRECTORS Our certificate of incorporation provides that our directors will not be personally liable to us or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability - for any breach of the director's duty of loyalty to us or our stockholders, - for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, - under Section 174 of the Delaware General Corporation Law, which concerns unlawful payments of dividends, stock purchases or redemptions, or - for any transaction from which the director derived an improper personal benefit. While our certificate of incorporation provides directors with protection from awards for monetary damages for breaches of their duty of care, it does not eliminate such duty. Accordingly, the certificate of incorporation will have no effect on the availability of equitable remedies such as an injunction or rescission based on a director's breach of his duty of care. The provisions of the certificate of incorporation described above apply to our officer only if he is our director and is acting in his capacity as director, and do not apply to our officers who are not directors. REGISTRATION RIGHTS Warburg, Pincus and Mason Slaine are entitled to registration rights with respect to their respective shares of common stock. TRANSFER AGENT The transfer agent and registrar of the common stock is State Street Bank and Trust Company. 41 SHARES ELIGIBLE FOR FUTURE SALE After this offering, we will have 20,948,071 shares outstanding. We sold 4,722,356 shares of common stock in our initial public offering in August 1998. All of the shares we sell in this offering will be, and those sold in the initial public offering are, freely transferable without restriction under the Securities Act unless purchased by our "affiliates" (as that term is used under the Securities Act and the regulations promulgated thereunder). The remaining 12,225,715 shares of common stock outstanding are deemed "restricted" securities within the meaning of Rule 144 under the Securities Act and may not be resold without registration under the Securities Act or pursuant to an exemption from registration, including exemptions provided by Rule 144 under the Securities Act. All such restricted shares are presently held by our affiliates, are subject to lock-up agreements and will become eligible for sale beginning 90 days after the date of this prospectus upon expiration of such agreements and subject to compliance with the Securities Act. No predictions can be made of the effect, if any, that the sale or availability for sale of shares of additional common stock will have on the market price of this common stock. Nevertheless, sales of substantial amounts of common stock, or the perception that such sales could occur, could adversely affect the market price of the common stock. RULE 144. In general, under Rule 144, a stockholder who owns restricted shares that have been outstanding for at least one year is entitled to sell, within any three-month period, a number of these restricted shares that does not exceed the greater of: - 1% of the then outstanding shares of common stock (approximately 209,481 shares after this offering) or - the average weekly trading volume in the common stock during the four calendar weeks immediately preceding such sale. Our affiliates must also comply with the restrictions and requirements of Rule 144, other than the one-year holding period requirement, to sell shares of common stock that are not restricted securities. RULE 144(K). A stockholder who is not and who has not been an affiliate of ours during the three months preceding a sale, and who has beneficially owned the shares proposed to be sold for at least two years, is entitled to sell such shares under Rule 144(k) without regard to the volume limitations or other requirements described above. LOCK-UP AGREEMENTS. We, our directors and executive officers and Warburg Pincus have agreed, subject to some exceptions, not to offer, sell or otherwise dispose of or transfer any shares of common stock or any securities convertible into or exercisable or exchangeable for common stock for a period of 90 days after the date of this prospectus. REGISTRATION RIGHTS. Pursuant to a registration rights agreement, Warburg, Pincus and Mr. Slaine together have the right to request two registrations of their shares of common stock, provided that the anticipated aggregate public offering price equals $15 million or more, and unlimited registrations on Form S-3, provided that the anticipated aggregate offering price exceeds $5 million. In addition, they are entitled to have their shares included in an unlimited number of registrations initiated by us, subject to customary conditions. In general, all fees, costs and expenses of such registration (other than underwriting discounts and selling commissions) will be borne by us. We have agreed to indemnify these stockholders from any liability arising out of or relating to any untrue statement of a material fact or any omission of a material fact in any registration statement or prospectus filed by us pursuant to the registration rights agreement, subject to some exceptions. 42 UNDERWRITING Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Thomas Weisel Partners LLC are acting as representatives of each of the underwriters named below. Subject to the terms and conditions described in a purchase agreement among us and the underwriters, we have agreed to sell to the underwriters, and the underwriters severally have agreed to purchase from us the number of shares listed opposite their names below.
NUMBER UNDERWRITER OF SHARES - ----------- --------- Merrill Lynch, Pierce, Fenner & Smith Incorporated...................................... Morgan Stanley & Co. Incorporated........................... Thomas Weisel Partners LLC.................................. --------- Total............................................. 4,000,000 =========
The obligations of the underwriters to purchase the shares included in this offering are subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the purchase agreement, such as the receipt by the underwriters of officers' certificates and legal opinions. The underwriters have agreed to purchase all of the shares (other than those covered by the over-allotment option described below) if they purchase any of the shares. If an underwriter defaults, the purchase agreement provides that the purchase commitments may be terminated. COMMISSIONS, DISCOUNTS AND EXPENSES The representatives have advised us that the underwriters propose initially to offer the shares to the public at the public offering price on the cover page of this prospectus and to dealers at that price less a concession not in excess of $ per share. The underwriters may allow, and the dealers may reallow, a discount not in excess of $ per share to other dealers. After the public offering, the public offering price, concession and discount may be changed. The following table shows the public offering price, underwriting discount and commissions to be paid by us to the underwriters in connection with this offering. This information is presented assuming both no exercise or full exercise by the underwriters of their option to purchase additional shares of common stock.
PER SHARE WITHOUT OPTION WITH OPTION --------- -------------- ----------- Public offering price............................ Underwriting discount............................ Proceeds, before expenses, to Information Holdings.......................................
We estimate that our total expenses for this offering will be $604,989. OVER-ALLOTMENT OPTION We have granted an option to the underwriters, exercisable for 30 days after the date of this prospectus, to purchase up to an additional 600,000 shares of common stock at the public offering price set forth on the cover page of this prospectus, less the underwriting discount. The underwriters may exercise this option solely to cover over-allotments, if any, made on the sale of the common stock offered hereby. To the extent that the underwriters exercise this option, each underwriter will be obligated, subject to conditions, to purchase a number of additional shares of common stock proportionate to such underwriter's initial amount reflected in the foregoing table. 43 NO SALE OF SIMILAR SECURITIES We have agreed that, for a period of 90 days after the date of this prospectus, we will not without the prior written consent of Merrill Lynch, directly or indirectly (1) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of common stock or any securities convertible into or exchangeable or exercisable for or repayable with common stock, whether now owned or thereafter acquired by the person executing the agreement or with respect to which the person executing the agreement thereafter acquires the power of disposition, or file a registration statement under the Securities Act of 1933 with respect to the foregoing (other than shares sold in this offering) or (2) enter into any swap or other agreement or any transaction that transfers, in whole or in part, the economic consequence of ownership of common stock or such other securities, in cash or otherwise. NEW YORK STOCK EXCHANGE Our common stock is listed on the New York Stock Exchange under the symbol "IHI." PRICE STABILIZATION AND SHORT SELLING Until the distribution of the common stock is completed, rules of the SEC may limit the ability of the underwriters and some selling group members to bid for and purchase our common stock. As an exception to these rules, the representatives are permitted to engage in certain transactions that stabilize the price of our common stock. Such transactions consist of bids or purchases for the purpose of pegging, fixing or maintaining the price of our common stock. If the underwriters create a short position in the common stock in connection with the offering, such as by selling more shares of the common stock than are set forth on the cover page of this prospectus, the representatives may reduce that short position by purchasing shares of the common stock in the open market. The representatives may also elect to reduce any short position by exercising all or part of the over-allotment option described above. In general, purchases of a security for the purposes of stabilization or to reduce a short position could cause the price of the security to be higher than it might have been in the absence of such purchases. Neither our company nor any underwriters makes any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of the common stock. In addition, neither our company nor any of the underwriters makes any representation that the representatives will engage in such transactions or that such transactions, once commenced, will not be discontinued without notice. INDEMNIFICATION We have agreed to indemnify the underwriters against some liabilities, including liabilities under the Securities Act, or to contribute to payments that the underwriters may be required to make in respect of those liabilities. NEW UNDERWRITER Thomas Weisel Partners LLC, one of the representatives of the underwriters, was organized and registered as a broker-dealer in December 1998. Since December 1998, Thomas Weisel Partners has been named as a lead or co-manager on 115 filed public offerings of equity securities, of which 82 have been completed, and has acted as a syndicate member in an additional 56 public offerings of equity securities. Thomas Weisel Partners does not have any material relationship with us or any of our 44 officers, directors or other controlling persons, except with respect to its contractual relationship with us pursuant to the purchase agreement entered into in connection with this offering. LEGAL MATTERS The validity of the common stock offered through this prospectus will be passed upon for us by Willkie Farr & Gallagher, New York, New York. Certain legal matters relating to this offering will be passed upon for the underwriters by Cahill Gordon & Reindel, New York, New York. EXPERTS The consolidated financial statements of Information Holdings Inc. and subsidiaries for the years ended December 31, 1998 and 1997 and the financial statements of CRC Press Inc. for the year ended December 31, 1996 appearing in this Prospectus and Registration Statement have been audited by Ernst & Young LLP, independent auditors, to the extent indicated in their reports thereon also appearing elsewhere herein and in the Registration Statement. Such consolidated financial statements of Information Holdings Inc. and subsidiaries and financial statements of CRC Press Inc. have been included herein in reliance upon such reports given on the authority of such firm as experts in accounting and auditing. The financial statements of Master Data Center, Inc. as of December 31, 1998 and for the periods of January 1, 1998 through November 27, 1998 and November 28, 1998 through December 31, 1998 appearing in Information Holdings Inc.'s Current Report on Form 8-K/A dated October 26, 1999 have been audited by Ernst & Young LLP, independent auditors, as set forth in their report included therein and incorporated herein by reference. Such financial statements have been incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing. The financial statements of MicroPatent for the years ended June 30, 1996 and 1997 appearing in Information Holdings Inc.'s Registration Statement on Form S-1 333-56665 have been audited by Ernst & Young LLP, independent auditors, as set forth in their report included therein and incorporated herein by reference. Such financial statements have been incorporated herein by reference in reliance upon such report given on the authority of such firm as experts in accounting and auditing. 45 WHERE YOU CAN FIND MORE INFORMATION We file annual, quarterly and special reports, proxy statements and other information with the SEC. Our SEC filings are available to the public over the Internet at the SEC's web site at http://www.sec.gov. You may also read and copy any documents we file at the SEC's public reference room at Room 1024, 450 Fifth Avenue, N.W., Washington, D.C. 20549, and at the SEC's regional office at Seven World Trade Center, 13th Floor, New York, New York 10048. Please call the SEC at 1-800-SEC-0330 for further information on the public reference room. The SEC allows us to incorporate by reference the information we file with them, which means that we can disclose important information to you by referencing you to those documents. The information incorporated by reference is an important part of this prospectus, and information that we file later with the SEC will automatically update and supersede this information. We incorporate by reference into this prospectus the following documents previously filed by us with the SEC and any future filings we make with the SEC until we sell all of the shares of common stock: - Registration Statement on Form S-1 (File No. 333-56665) filed on August 6, 1998; - Annual Report on Form 10-K for the year ended December 31, 1998; - Proxy Statement relating to the Annual Meeting of Stockholders held on April 27, 1999; - Quarterly Reports on Form 10-Q for the quarters ended March 31, 1999, June 30, 1999 and September 30, 1999; - Current Reports on Form 8-K filed on May 19, 1999, August 20, 1999, October 26, 1999, February 14, 2000 and February 29, 2000. - The description of our common stock contained in our Registration Statement on Form 8-A (File No. 1-14371) filed with the SEC pursuant to Section 12(g) of the Exchange Act on August 4, 1998 and any amendments or reports filed for the purpose of updating such description. You may request a copy of these filings at no cost by writing or telephoning us at the following address: Information Holdings Inc. Attention: Secretary 2777 Summer Road, Suite 209 Stamford, CT 06905 Telephone No. (203) 961-9106. This prospectus does not contain all the information contained in the registration statement on Form S-3 filed by us for this offering. You should refer to the registration statement for further information about us and the shares we are offering. Statements in this prospectus concerning the terms of documents are necessarily summaries of those documents, and are qualified in their entirety by reference to the actual document filed with the SEC. 46 INFORMATION HOLDINGS INC. INDEX TO FINANCIAL STATEMENTS
PAGE -------- Consolidated Balance Sheets as of September 30, 1999 (unaudited) and December 31, 1998......................... F-2 Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 1999 and 1998 (unaudited)...... F-3 Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 (unaudited)............. F-4 Notes to Consolidated Financial Statements (unaudited)...... F-5 Report of Independent Auditors.............................. F-9 Report of Independent Certified Public Accountants.......... F-10 Consolidated Balance Sheets as of December 31, 1998 and 1997...................................................... F-11 Consolidated Statements of Operations for the Years ended December 31, 1998, 1997 and 1996.......................... F-12 Consolidated Statements of Stockholders'/Members' Equity for the Years Ended December 31, 1998, 1997 and 1996.......... F-13 Consolidated Statements of Cash Flows for the Years Ended December 31, 1998, 1997 and 1996.......................... F-14 Notes to Consolidated Financial Statements.................. F-15
F-1 INFORMATION HOLDINGS INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
SEPTEMBER 30, DECEMBER 31, 1999 1998 ------------- ------------ (Unaudited) ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 2,890 $ 57,270 Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS OF $2,824 AND $911, RESPECTIVELY)........................................... 17,936 9,286 Inventories............................................... 5,240 4,832 Prepaid expenses and other current assets................. 2,886 1,945 Deferred income taxes..................................... 870 777 -------- -------- Total current assets.................................. 29,822 74,110 Property and equipment, net................................. 4,439 4,173 Pre-publication costs (NET OF ACCUMULATED AMORTIZATION OF $2,650 AND $2,350, RESPECTIVELY)................................. 3,087 3,474 Publishing rights and other intangible assets, net.......... 78,818 21,265 Goodwill, net............................................... 15,688 336 Other assets................................................ 2,945 1,433 -------- -------- TOTAL....................................................... $134,799 $104,791 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of capitalized lease obligations.......... $ 275 $ 261 Accounts payable.......................................... 18,120 4,074 Accrued expenses.......................................... 1,901 1,821 Royalties payable......................................... 981 1,935 Deferred subscription revenue............................. 6,365 8,530 -------- -------- Total current liabilities............................. 27,642 16,621 Capital leases............................................ 2,484 2,694 Deferred income taxes..................................... 15,517 -- Other long-term liabilities............................... 799 683 -------- -------- Total liabilities..................................... 46,442 19,998 -------- -------- STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued................................. $ -- $ -- Common stock, $.01 par value; 50,000,000 shares authorized; 16,948,071 issued and outstanding........... 169 169 Additional paid-in capital................................ 84,808 84,750 Retained earnings (deficit)............................... 3,380 (126) -------- -------- Total stockholders' equity.............................. 88,357 84,793 -------- -------- TOTAL....................................................... $134,799 $104,791 ======== ========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. F-2 INFORMATION HOLDINGS INC. CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (IN THOUSANDS, EXCEPT SHARE DATA)
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, ------------------- ------------------- 1999 1998 1999 1998 -------- -------- -------- -------- Revenues................................................ $14,833 $11,511 $39,865 $32,584 Cost of sales........................................... 3,847 2,752 10,590 8,128 ------- ------- ------- ------- Gross profit............................................ 10,986 8,759 29,275 24,456 ------- ------- ------- ------- Operating expenses: Selling, general and administrative................... 7,208 5,881 20,890 18,200 Depreciation and amortization......................... 1,683 1,356 3,741 3,927 Severance and special bonuses......................... -- 1,050 -- 1,050 ------- ------- ------- ------- Total operating expenses.......................... 8,891 8,287 24,631 23,177 ------- ------- ------- ------- Income from operations.................................. 2,095 472 4,644 1,279 ------- ------- ------- ------- Other income (expense): Interest income....................................... 288 466 1,539 691 Interest expense...................................... (66) (71) (210) (228) Other expense......................................... -- -- (18) -- ------- ------- ------- ------- Income before income taxes.............................. 2,317 867 5,955 1,742 Provision for income taxes.............................. 1,030 43 2,449 135 ------- ------- ------- ------- Net income.............................................. $ 1,287 $ 824 $ 3,506 $ 1,607 ======= ======= ======= ======= Net income per common share amounts: Basic earnings........................................ $ 0.08 $ 0.21 ======= ======= Diluted earnings...................................... $ 0.08 $ 0.20 ======= ======= Pro forma income data: Income before income taxes, as reported............... $ 867 $ 1,742 Pro forma income taxes................................ 43 135 ------- ------- Pro forma net income.................................. $ 824 $ 1,607 ======= ======= Pro forma earnings per share.......................... $ 0.05 $ 0.09 ======= =======
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. F-3 INFORMATION HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (IN THOUSANDS)
NINE MONTHS ENDED SEPTEMBER 30, ----------------------- 1999 1998 -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income................................................ $ 3,506 $ 1,607 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation............................................ 1,155 875 Amortization of goodwill and other intangibles.......... 2,586 3,052 Amortization of pre-publication costs................... 1,821 1,634 Deferred taxes.......................................... (105) -- Loss on disposal of property and equipment.............. 18 -- Changes in operating assets and liabilities: Accounts receivable, net.............................. (4,537) (328) Inventories........................................... (443) (464) Prepaid expenses and other current assets............. (829) (1,290) Accounts payable and accrued expenses................. 2,889 364 Royalties payable..................................... (954) (476) Deferred subscription revenue......................... (2,330) (1,639) Other, net............................................ (464) (641) -------- -------- Net Cash Provided by Operating Activities............... 2,313 2,694 -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property and equipment.............. 11 -- Purchases of property and equipment....................... (1,020) (757) Pre-publication costs..................................... (1,246) (1,167) Increase in short-term investments........................ -- (30,148) Acquisitions of businesses and titles..................... (53,425) (4,268) -------- -------- Net Cash Used in Investing Activities................... (55,680) (36,340) -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net repayments under revolving credit facility............ -- (2,000) Financing costs for new credit facility................... (875) -- Net repayments under capital leases....................... (196) (171) Issuance of common stock.................................. 58 51,441 Capital contributions..................................... -- 11 -------- -------- Net Cash (Used in) Provided by Financing Activities..... (1,013) 49,281 -------- -------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS........ (54,380) 15,635 CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD.............. 57,270 10,280 -------- -------- CASH AND CASH EQUIVALENTS, END OF PERIOD.................... $ 2,890 $ 25,915 ======== ========
SEE NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS. F-4 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) A. BASIS OF PRESENTATION The consolidated balance sheet of Information Holdings Inc. (IHI, or the Company) at December 31, 1998 has been derived from IHI's Annual Report on Form 10-K for the year then ended. All other consolidated financial statements contained herein have been prepared by IHI and are unaudited. The financial statements should be read in conjunction with the financial statements for the year ended December 31, 1998 and the notes thereto contained in IHI's Annual Report on Form 10-K for the year then ended. The accompanying unaudited consolidated financial statements have been prepared in accordance with Article 10 of Regulation S-X for interim financial statements required to be filed with the Securities and Exchange Commission and do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. However, in the opinion of management, the accompanying unaudited consolidated financial statements contain all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the consolidated financial position of IHI as of September 30, 1999, and the consolidated results of its operations and its cash flows for the periods presented herein. Results for the three and nine months ended September 30, 1999 are not necessarily indicative of the results to be expected for the full fiscal year. B. INVENTORIES Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories at September 30, 1999 and December 31, 1998 consist solely of finished goods. The vast majority of inventories are books, which are reviewed periodically on a title-by-title basis for salability. The cost of inventory determined to be impaired is charged to income in the period of determination. C. PRE-PUBLICATION COSTS Certain expenses related to books, primarily comprised of design and other pre-production costs, are deferred and charged to expense over the estimated product life. These costs are primarily amortized over a four-year period following release of the applicable book, using an accelerated amortization method. During 1999, the Company removed from its Balance Sheet fully amortized pre-publication costs of approximately $1,645,000. D. RECLASSIFICATIONS Certain amounts in the fiscal 1998 financial statements have been reclassified to conform to the 1999 financial statement presentation. F-5 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) E. EARNINGS PER SHARE DATA The following table sets forth the computation of basic and diluted earnings per share for the periods indicated.
THREE MONTHS NINE MONTHS ENDED ENDED ------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) SEPTEMBER 30, SEPTEMBER 30, - ------------------------------------- 1999 1999 Basic: Net income........................................ $1,287 $3,506 Average shares outstanding........................ 16,946 16,944 ------ ------ Basic EPS......................................... $ 0.08 $ 0.21 ====== ====== Diluted: Net income........................................ $1,287 $3,506 ====== ====== Average shares outstanding........................ 16,946 16,944 Net effect of dilutive stock options--based on the treasury stock method........................... 182 176 ------ ------ Total............................................. 17,128 17,120 ------ ------ Diluted EPS....................................... $ 0.08 $ 0.20 ====== ======
During the third quarter of 1999, employees exercised stock options to acquire 4,882 shares at an exercise price of $12 per share. No historical earnings per share data are presented for the three months and nine months ended September 30, 1998, as the Company does not consider such data meaningful. The pro forma earnings per share data presented were computed using 16,943,189 shares outstanding, which reflects all shares outstanding following the Company's initial public offering in August 1998, as if such shares were outstanding since January 1, 1998. F. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS In June 1999, the Financial Accounting Standards Board (FASB) issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133. The Statement defers for one year the effective date of FASB Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities. The rule will now apply to all fiscal quarters of all fiscal years beginning after June 15, 2000. In the opinion of the Company's management, adoption of this new accounting standard will not have any impact on the Company's consolidated financial position or results of operations. G. ACQUISITIONS On September 1, 1999, the Company acquired the assets of the Corporate Intelligence (CI) business of Innovator Corporation for cash consideration of approximately $8,000,000. CI provides intellectual property information and related software and searching tools, primarily through the F-6 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) G. ACQUISITIONS (CONTINUED) Internet. The purchase price was preliminarily allocated to publishing rights and other intangible assets of $7,900,000 and non-compete agreements of $100,000. On August 12, 1999, the Company acquired all of the outstanding capital stock of Master Data Center, Inc. (MDC), a Michigan corporation, for cash consideration of approximately $33,000,000. MDC provides patent annuity tax payment services for owners of intellectual property in domestic and foreign markets and complementary software products for managing patent and trademark portfolios. The purchase price was preliminarily allocated to net liabilities assumed of $7,150,000, and publishing rights and other intangible assets of $40,150,000. The Company also recorded goodwill and an offsetting deferred income tax liability as a result of the gross up of acquired intangible assets in the amount of $15,622,000. This goodwill is being amortized using the straight-line method over 20 years. Amortization expense for the nine months ended September 30, 1999 was $105,000. On July 19, 1999, the Company acquired all of the assets of Faxpat, Inc. (Faxpat) for cash consideration of approximately $9,300,000. Faxpat is a leading provider of patent documents and file histories to the legal and corporate markets. The purchase price was preliminarily allocated to net tangible assets of $500,000, publishing rights and other intangible assets of $8,700,000 and non-compete agreements of $100,000. The above acquisitions have all been accounted for using the purchase method of accounting and, accordingly, the results of their operations have been included in the Company's results of operations from their respective dates of acquisition. The pro forma unaudited results of operations for the nine months ended September 30, 1999 and September 30, 1998, assuming consummation of the MDC acquisition as of January 1, 1998 are as follows:
NINE MONTHS NINE MONTHS ENDED ENDED ------------- ------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) SEPTEMBER 30, SEPTEMBER 30, - ------------------------------------- 1999 1998 Revenues........................................... $44,797 $38,271 Net income......................................... 2,608 1,667 Per common share amounts: Basic earnings................................... $ 0.15 $ 0.10 ======= ======= Diluted earnings................................. $ 0.15 $ 0.10 ======= =======
The pro forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisition been consummated as of the above date, nor are they necessarily indicative of future operating results. H. REVOLVING CREDIT FACILITY On September 24, 1999, the Company entered into a seven-year revolving credit facility in an amount not to exceed $50,000,000 initially, including a $10,000,000 sublimit for the issuance of standby letters of credit (the Credit Facility). Total commitments under the Credit Facility shall be permanently reduced to $45,000,000 at the end of the third year, $37,500,000 at the end of the fourth year, $25,000,000 at the end of the fifth year and $12,500,000 at the end of the sixth year. The proceeds from F-7 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) (Continued) H. REVOLVING CREDIT FACILITY (CONTINUED) the Credit Facility are intended to be used to fund acquisitions, to meet short-term working capital needs and for general corporate purposes. Borrowings under the Credit Facility bear interest at either the higher of the bank's prime rate and one-half of 1% in excess of the overnight federal funds rate plus a margin of 0.50% to 1.25% or the Eurodollar Rate plus a margin of 1.5% to 2.25% depending on the Company's ratio of indebtedness to earnings before interest, taxes, depreciation and amortization. The Company also pays a commitment fee of 0.375% on the unused portion of the Credit Facility. As of September 30, 1999, the Company had no outstanding borrowings under the Credit Facility. Under the terms of the Credit Facility, the Company is required to maintain certain financial ratios related to fixed charge coverage, leverage and interest coverage, in addition to certain other covenants. As of September 30, 1999, the Company was in compliance with all covenants. The Credit Facility is secured by a first priority perfected pledge of all notes and capital stock owned by the Company's subsidiaries and a first priority perfected security interest in all other assets of the Company and its subsidiaries, subject to certain exceptions. Obligations under the Credit Facility will be guaranteed by the Company and its subsidiaries. The Credit Facility also prohibits the Company from incurring certain additional indebtedness, limits certain investments, mergers or consolidations and restricts substantial asset sales, and dividends. I. SUBSEQUENT EVENT LEGAL PROCEEDINGS As previously disclosed, Mason P. Slaine, the Company's President and Chief Executive Officer, and Michael E. Danziger, a director of the Company, are shareholders, officers and directors of Rand Publishing Company Inc. (Rand), a private holding company that has made investments in the publishing industry, and are defendants in a lawsuit alleging that Mr. Slaine breached his fiduciary duty to certain other investors and usurped corporate opportunities available to Rand by investing in the Company and by participating in the acquisition by the Company of various businesses. On December 2, 1998, Rand and Mr. Slaine filed a motion to dismiss the Rand investors' complaint against them. The court granted the motion on November 3, 1999 on the grounds that the plaintiffs had not alleged with particularity the efforts, if any, they had made to impel the board of directors of Rand to initiate these derivative claims in the first instance. The motion was granted with leave to plaintiffs to serve an amended complaint setting forth in detail the reasons why such demand on the Rand board would have been futile. F-8 REPORT OF INDEPENDENT AUDITORS Stockholders and Board of Directors Information Holdings Inc. We have audited the accompanying consolidated balance sheets of Information Holdings Inc. and subsidiaries as of December 31, 1998 and 1997 and the related consolidated statements of operations, stockholders'/members' equity, and cash flows for each of the two years in the period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Information Holdings Inc. and subsidiaries at December 31, 1998 and 1997, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP New York, New York March 3, 1999 F-9 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS Stockholders and Board of Directors CRC Press, Inc. We have audited the accompanying statements of operations, stockholders' equity, and cash flows of CRC Press, Inc. for the year ended December 31, 1996. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the 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 audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the results of its operations and its cash flows for the year ended December 31, 1996, in conformity with generally accepted accounting principles. ERNST & YOUNG LLP West Palm Beach, Florida May 29, 1998 F-10 INFORMATION HOLDINGS INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31 DECEMBER 31 1998 1997 ----------- ----------- ASSETS CURRENT ASSETS: Cash and cash equivalents................................. $ 57,270 $10,280 Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS OF $911 AND $803, RESPECTIVELY)........................................... 9,286 4,968 Inventories............................................... 4,832 3,803 Prepaid expenses and other current assets................. 1,945 1,466 Deferred income taxes..................................... 777 -- -------- ------- Total current assets.................................. 74,110 20,517 Property and equipment--net............................... 4,173 4,041 Pre-publication costs (NET OF ACCUMULATED AMORTIZATION OF $2,350 AND $2,313, RESPECTIVELY)........................ 3,474 3,289 Publishing rights and other intangible assets, net........ 21,601 21,519 Other assets.............................................. 1,369 826 Deferred income taxes..................................... 64 27 -------- ------- TOTAL....................................................... $104,791 $50,219 ======== ======= LIABILITIES AND STOCKHOLDERS'/MEMBERS' EQUITY CURRENT LIABILITIES: Current portion of capitalized lease obligations.......... $ 261 $ 233 Accounts payable.......................................... 4,074 2,950 Accrued expenses.......................................... 1,821 3,511 Royalties payable......................................... 1,935 1,749 Deferred subscription revenue............................. 8,530 7,582 -------- ------- Total current liabilities............................. 16,621 16,025 Capital leases............................................ 2,694 2,955 Long-term debt............................................ -- 2,000 Other long-term liabilities............................... 683 683 -------- ------- Total liabilities..................................... 19,998 21,663 -------- ------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS'/MEMBERS' EQUITY: Members' equity........................................... $ -- $33,467 Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued................................. -- -- Common stock, $.01 par value; 50,000,000 shares authorized; 16,943,189 issued and outstanding........... 169 -- Additional paid-in capital................................ 84,750 -- Accumulated deficit....................................... (126) (4,911) -------- ------- Total stockholders'/members' equity................... 84,793 28,556 -------- ------- TOTAL....................................................... $104,791 $50,219 ======== =======
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-11 INFORMATION HOLDINGS INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT SHARE DATA)
1996 CRC PRESS PREDECESSOR 1998 1997 COMPANY ----------- ----------- ----------- Revenues................................................ $ 46,651 $ 34,869 $ 28,852 Cost of sales........................................... 11,707 11,492 9,262 ----------- ----------- -------- Gross profit............................................ 34,944 23,377 19,590 ----------- ----------- -------- Operating Expenses: Selling, general and administrative................... 24,871 20,918 17,295 Depreciation and amortization......................... 5,313 3,909 1,706 Severance and special bonuses......................... 1,050 3,213 -- Impairment of long-lived assets....................... -- -- 10,666 ----------- ----------- -------- Total operating expenses.......................... 31,234 28,040 29,667 ----------- ----------- -------- Income (loss) from operations........................... 3,710 (4,663) (10,077) ----------- ----------- -------- Other income (expense): Interest income....................................... 1,444 152 -- Interest expense...................................... (327) (282) (1,036) Other income (expense)................................ -- (115) 47 ----------- ----------- -------- Income (loss) before income taxes....................... 4,827 (4,908) (11,066) Provision for income taxes.............................. 42 3 170 ----------- ----------- -------- Net income (loss)....................................... $ 4,785 $ (4,911) $(11,236) =========== =========== ======== Pro forma data (Unaudited): Income (loss) before income taxes, as reported........ $ 4,827 $ (4,908) Pro forma income taxes................................ 42 3 ----------- ----------- Pro forma net income (loss)........................... $ 4,785 $ (4,911) =========== =========== Pro forma basic and diluted net income (loss) per share............................................... $ 0.28 $ (0.29) =========== =========== Pro forma weighted average common shares outstanding......................................... 16,943,189 16,943,189 =========== ===========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-12 INFORMATION HOLDINGS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS'/MEMBERS' EQUITY YEARS ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK --------------------- ADDITIONAL NUMBER OF PAID-IN ACCUMULATED MEMBERS' INFORMATION HOLDINGS INC. SHARES AMOUNT CAPITAL DEFICIT EQUITY TOTAL - ------------------------- ---------- -------- ---------- ----------- --------- -------- Balance at January 1, 1997............. -- $ -- $ -- $ -- $ -- $ -- Capital contributions.................. 33,467 33,467 Net loss............................... (4,911) (4,911) ---------- ---- ------- -------- --------- ------- Balance at December 31, 1997........... -- -- -- (4,911) 33,467 28,556 Exchange............................... 12,200,000 122 33,356 (33,478) -- Initial public offering................ 4,722,356 47 51,144 51,191 Issuance of common stock to an employee............................. 20,833 250 250 Capital contribution................... 11 11 Net income............................. 4,785 4,785 ---------- ---- ------- -------- --------- ------- Balance at December 31, 1998........... 16,943,189 $169 $84,750 $ (126) $ -- $84,793 ========== ==== ======= ======== ========= =======
ADDITIONAL COMMON PAID-IN ACCUMULATED CRC PRESS PREDECESSOR COMPANY STOCK CAPITAL DEFICIT TOTAL - ----------------------------- -------- ---------- ----------- -------- Balance at January 1, 1996.......................... $4 $29,069 $(12,056) $ 17,017 Capital contribution................................ 37 37 Net loss............................................ (11,236) (11,236) -- ------- -------- -------- Balance at December 31, 1996........................ $4 $29,106 $(23,292) $ 5,818 == ======= ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-13 INFORMATION HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31 (IN THOUSANDS)
1996 CRC PRESS PREDECESSOR 1998 1997 COMPANY -------- -------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income (loss)......................................... $ 4,785 $ (4,911) $(11,236) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Impairment write-down of long-lived assets.............. -- -- 10,666 Depreciation............................................ 1,192 836 541 Amortization of intangibles............................. 4,121 3,073 1,165 Amortization of pre-publication costs................... 2,413 2,313 3,064 Deferred income taxes................................... (814) (27) 170 Other................................................... 250 400 (371) Changes in operating assets and liabilities: Accounts receivable--net.............................. (4,318) (908) (1,879) Inventories........................................... (1,237) 785 (1,332) Prepaid expenses and other assets..................... (479) (807) 405 Accounts payable and accrued expenses................. (566) 2,779 (124) Royalties payable..................................... 186 843 (73) Deferred revenue...................................... 948 3,807 451 Other--net............................................ (543) 387 801 ------- -------- -------- Net Cash Provided by Operating Activities............... 5,938 8,570 2,248 ------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of property, plant and equipment....... 2 11 -- Pre-publication costs..................................... (2,390) (1,654) (3,641) Acquisitions of business titles........................... (4,202) (30,778) -- Purchases of property and equipment....................... (1,327) (1,163) (387) ------- -------- -------- Net Cash Used in Investing Activities................... (7,917) (33,584) (4,028) ------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net (repayments)borrowings under revolving credit facility................................................ (2,000) 2,000 -- Advances/contributions from Times Mirror.................. -- -- 2,307 Net repayments under capital leases....................... (233) (173) (166) Issuance of common stock in public offering............... 51,191 -- -- Capital contributions..................................... 11 33,467 -- ------- -------- -------- Net Cash Provided by Financing Activities............... 48,969 35,294 2,141 ------- -------- -------- NET INCREASE IN CASH AND CASH EQUIVALENTS................... 46,990 10,280 361 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR................ 10,280 -- 664 ------- -------- -------- CASH AND CASH EQUIVALENTS, END OF YEAR...................... $57,270 $ 10,280 $ 1,025 ======= ======== ======== SUPPLEMENTAL DISCLOSURE: Income taxes paid......................................... $ 187 $ 49 $ 974 ======= ======== ======== Interest paid............................................. $ 340 $ 244 $ 1,035 ======= ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-14 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION Information Ventures LLC (IV), a wholly owned subsidiary of Information Holdings Inc. (IHI), was formed on December 2, 1996 to create and build an information and publishing business. IV functions as a holding company and, through its wholly owned subsidiaries--CRC Press LLC and MicroPatent LLC, publishes information in print and electronic media in the fields of science, technology, business, environmental science, intellectual property, and certain related disciplines. Products are distributed on a worldwide basis, and IV has operating offices in the United States and in Europe. Prior to IV's initial acquisition, which occurred effective as of January 1, 1997, IV had no operations or assets. On August 12, 1998, the members of IV contributed all of their direct and indirect equity interests to IHI, a newly formed Delaware corporation, in exchange for 12,200,000 shares of common stock of IHI representing 100% of the initial outstanding equity interests (the Exchange). Effective August 12, 1998, IHI sold 4,250,000 additional shares of common stock in an initial public offering at $12.00 per share. Subsequently, the underwriters exercised an option and purchased an additional 472,356 shares at $12.00 per share. Net proceeds, after deducting underwriting discounts and expenses, of approximately $51,200,000 are available for general corporate purposes, including acquisitions. IHI, together with IV and its subsidiaries are referred to as (the Company). The consolidated financial statements presented as of and for the years ended December 31, 1998 and 1997 include the accounts of IHI and subsidiaries, all of which are wholly owned. Because IHI had no business operations prior to the Exchange, the balance sheet and statement of operations for IHI for periods prior to August 12, 1998 are not included herein. The balance sheet for the year ended December 31, 1997 and statements of operations for the period January 1, 1997 to August 12, 1998 and for the twelve months ended December 31, 1997 include the accounts of IV and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. All acquisitions have been accounted for using the purchase method of accounting, and operating results have been included from the respective dates of acquisition. The financial statements of CRC Press, Inc. are included herein for the twelve months ended December 31, 1996 as the predecessor company (the Predecessor). CRC Press, Inc. a wholly owned subsidiary of The Times Mirror Company, was subsequently purchased by IV on January 10, 1997, effectively as January 1, 1997, for cash consideration of $13,000,000. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CASH EQUIVALENTS--The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. The cost of these investments is equal to fair market value. F-15 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) ACCOUNTS RECEIVABLE--The changes in the allowance for doubtful accounts receivable and sales returns consist of the following (in thousands):
YEARS ENDED DECEMBER 31 --------------------------------- 1996 CRC PRESS PREDECESSOR 1998 1997 COMPANY -------- -------- ----------- Allowance, beginning of year...................... $ 803 $ -- $4,281 Provision for uncollectible accounts and returns......................................... 253 1,049 207 Write-off of uncollectible accounts and deductions from reserves................................... (145) (246) (1,509) ----- ------ ------ Allowance, end of year............................ $ 911 $ 803 $2,979 ===== ====== ======
INVENTORIES--Inventories are stated at the lower of cost (first-in, first-out method) or market. Inventories at December 31, 1998 and 1997 consist solely of finished goods. The vast majority of inventories are books, which are reviewed periodically on a title-by-title basis for salability. The cost of inventory determined to be impaired is charged to income in the period of determination. DIRECT MAIL COSTS--Direct mail costs are expensed upon mailing. Direct mail expense was approximately $6,460,000, $6,119,000, and $3,596,000 for the years ended December 31, 1998, 1997 and 1996, respectively. Direct mail related costs of approximately $529,000 and $418,000 were included in prepaid expenses and other current assets at December 31, 1998 and 1997, respectively. PROPERTY AND EQUIPMENT--Depreciation is provided using the straight-line method over the following estimated useful lives: Furniture and equipment.................... 5 years Computer equipment......................... 3 years Leasehold improvements..................... Shorter of useful life or lease term Property under capital leases.............. Life of lease
PRE-PUBLICATION COSTS--Certain expenses related to books, primarily comprised of design and other pre-production costs, are deferred and charged to expense over the estimated product life. These costs are primarily amortized over a four-year period following release of the applicable book, using an accelerated amortization method. During 1998, the Company removed from its Balance Sheet fully amortized Pre-publication costs with a cost of approximately $2,106,000. PUBLISHING RIGHTS AND OTHER INTANGIBLES--Publishing rights consist primarily of publication agreements, subscriber lists, trademarks and related assets and are amortized using the straight-line method over their estimated useful lives ranging from 3-20 years. Non-compete agreements arising from acquisitions are amortized using the straight-line basis over the contractual term, currently 3 years. Goodwill consists of the excess of cost over the value of identifiable net assets of businesses acquired and is being amortized on a straight-line basis over their estimated useful lives of 20 years. F-16 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) IMPAIRMENT OF LONG-LIVED ASSETS--The Company evaluates the recoverability of long-lived assets not held for sale by measuring the carrying amount of the assets against the estimated undiscounted future cash flows associated with them. Based on these evaluations, there were no adjustments to the carrying value on long-lived assets in fiscal 1998 and 1997. Based on the January 10, 1997 purchase of CRC Press' net assets from Times Mirror, CRC Press determined that goodwill had been impaired and recorded an impairment charge of approximately $10,666,000. REVENUE RECOGNITION--Revenues from books and the related cost of sales are recognized when the product is shipped to the customer. For products sold with the right of return, revenue is recognized net of a provision for estimated returns. Subscription payments received are deferred and recognized as revenue in the period in which the product is shipped. DEFERRED REVENUE--In connection with the acquisition of companies, it is the Company's policy to record deferred revenue at the cost to fulfill rather than based on the subscription payments received. INCOME TAXES--As a result of the Exchange discussed in Note 1, the Company became subject to Federal and state income taxes. Prior to that time the Company was a limited liability company (LLC) and was treated as a partnership for Federal and most state income taxes. However, in those periods the Company was still liable for income taxes in certain states and thus a provision for those state income taxes was reflected on the statement of operations. Deferred tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Recognition of deferred tax assets is limited to amounts considered by management to be more likely than not of realization in future periods. STOCK-BASED COMPENSATION--The Company accounts for its stock based compensation arrangements under the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and the disclosure-only provisions of Statement of Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based Compensations." Since stock options will be granted by the Company with exercise prices at or greater than the fair value of the shares at the date of grant, no compensation expense will be recognized. RECLASSIFICATIONS--Certain amounts in the fiscal 1997 financial statements have been reclassified to conform with the 1998 financial statement presentation. COMPUTATION OF EARNINGS PER COMMON SHARE--The Company adopted the provisions of SFAS No. 128, "Earnings Per Share," in the fourth quarter of fiscal 1998. The new standard requires dual presentation of basic and diluted earnings per share for all periods for which an income statement is presented. Basic income per common share is based on the weighted average outstanding common shares during the respective period. Diluted income per share is based on the weighted average outstanding common shares and the effect of all dilutive potential common shares, such as stock options. For fiscal 1998 diluted shares had no impact on the computation of earnings per common share. No historical earnings per share data are presented, as the Company does not consider such data meaningful. The pro forma earnings (loss) per share data presented were computed using 16,943,189 F-17 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) shares outstanding, which reflects all shares outstanding following the initial public offering, as if such shares were outstanding since January 1, 1997. ADOPTION OF NEW ACCOUNTING STANDARDS--Effective for the Company's fiscal 1998 financial statements, the Financial Accounting Standards Board (FASB) issued SFAS No. 130, "Reporting Comprehensive Income," which requires disclosures of comprehensive income and its components, as defined; and SFAS No. 131, "Disclosures About Segments of an Enterprise and Related Information," which requires certain financial and descriptive information about a company's reportable operating statements. The Company adopted these statements and determined that the new standards do not have any impact on the Company's consolidated financial statements. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS--In February of 1998, the FASB issued SFAS No. 132, "Employer's Disclosures about Pensions and Other Postretirement Benefits," which requires additional disclosures relating to a company's pension and postretirement benefit plans for fiscal years beginning after December 15, 1998. Additionally in June of 1998, SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," which establishes accounting and reporting standards for derivative instruments and for hedging activities was issued for all fiscal quarters of fiscal years beginning after June 15, 1999. In the opinion of the Company's management, adoption of these new accounting standards will not result in any change in the Company's disclosure requirements nor will they have any impact on the Company's consolidated financial position or results of operations. USE OF ESTIMATES--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. 3. ACQUISITIONS On August 19, 1998, the Company acquired two product lines for cash consideration of approximately $3,700,000: the Chapman & Hall list of mathematics and statistics books and Chapman & Hall's electronic databases and books in the chemistry field. The purchase price was allocated to net tangible assets of $200,000 and publishing rights and other intangible assets of $3,500,000. On January 10, 1997, effectively as of January 1, 1997, the Company acquired the net assets of CRC Press for cash consideration of $13,000,000. CRC Press publishes information in print and electronic media for the global scientific, professional and technical communities. The purchase price was allocated to net tangible assets of $5,800,000 and publishing rights and other intangible assets of $7,200,000. On January 14, 1997, effectively as of January 1, 1997, the Company acquired the net assets of St. Lucie Press for cash consideration of $2,600,000. St. Lucie publishes business related books. The purchase price was allocated to net tangible assets aggregating $600,000 and publishing rights and other intangibles of $2,000,000. On June 5, 1997, the Company acquired the net assets of Auerbach for cash consideration of $8,000,000. Auerbach publishes information in print and electronic media for the information F-18 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) 3. ACQUISITIONS (CONTINUED) technology market. The purchase price was allocated to net liabilities assumed of $300,000, publishing rights and other intangibles of $8,100,000, goodwill of $100,000 and noncompete agreements of $100,000. On July 2, 1997, effectively as of July 1, 1997, the Company acquired the net assets of MicroPatent for cash consideration of $7,400,000. MicroPatent provides information products and services for intellectual property professionals. The purchase price was allocated to in process research and development costs of $400,000 which were expensed in 1997, tangible net assets/(liabilities) aggregating ($100,000) and publishing rights and other intangibles of $7,100,000. In connection with the purchase of the above mentioned subsidiaries, the Company has revalued the deferred subscription revenues based on cost to fulfill. As a result, the deferred subscription revenues were reduced by $4,000,000 in fiscal 1997. Had the Company not made such revaluation, revenues and gross profit for the year ended December 31, 1997 would have been higher by $4,000,000. All acquisitions have been accounted for using the purchase method of accounting and, accordingly, the results of their operations have been included in the Company's results of operations from their respective dates of acquisition. The pro-forma unaudited condensed consolidated result of operations for the year ended December 31, 1997, assuming all the 1997 acquisitions were consummated as of January 1, 1997, are as follows (in thousands except per share data): Revenues.................................................... $39,483 ======= Net loss.................................................... $(7,872) ======= Loss per share.............................................. $ (0.46) =======
The pro-forma financial information is presented for informational purposes only and is not necessarily indicative of the operating results that would have occurred had the acquisitions been consummated as of the above dates, nor are they necessarily indicative of future operating results. 4. PROPERTY AND EQUIPMENT Property and equipment (at cost) consisted of the following (in thousands):
DECEMBER 31 DECEMBER 31 1998 1997 ----------- ----------- Buildings............................................ $2,344 $2,344 Furniture and equipment.............................. 858 467 Computer equipment................................... 2,545 1,756 Leasehold improvements............................... 476 310 ------ ------ 6,223 4,877 Less accumulated depreciation........................ 2,050 836 ------ ------ $4,173 $4,041 ====== ======
F-19 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) 5. PUBLISHING RIGHTS AND OTHER INTANGIBLE ASSETS Publishing rights and other intangible assets consisted of the following (in thousands):
DECEMBER 31 DECEMBER 31 1998 1997 ----------- ----------- Publishing rights.................................... $25,479 $22,994 Trademarks........................................... 2,850 1,350 Goodwill............................................. 348 148 Non-compete agreements............................... 117 100 ------- ------- 28,794 24,592 Less accumulated amortization........................ 7,193 3,073 ------- ------- $21,601 $21,519 ======= =======
6. SEVERANCE AND SPECIAL BONUSES In fiscal 1997, the Company recorded a pre-tax charge of approximately $1,600,000 related primarily to the consolidation of certain functions and reductions in the workforce. The charge was recorded in the first quarter of the fiscal year. At December 31, 1998 and 1997, accrued expenses included $0 and $160,000, respectively, of severance costs associated with this charge. The majority of the cash outlays were made in the first half of fiscal 1997, with the balance made in the first quarter of fiscal 1998. Additionally in fiscal 1997, a subsidiary entered into an employment agreement with an officer, which provided for contingent compensation arrangements until January of 2000 based on the subsidiary's operating performance. The Company also granted an officer of the Company a special bonus (payable in cash) related to the formation of the Company and its initial acquisitions. As a result, the amount recognized by the Company, as compensation expense under the two arrangements was approximately $1,600,000 for fiscal 1997. Accrued expenses at December 31, 1997 included the full amount of this charge, which was subsequently paid out in the first quarter of fiscal 1998. In conjunction with the initial public offering, the employment agreement noted above was amended in August of 1998. The employee was granted $800,000 in cash and $250,000 in stock. The Company recorded a pre-tax charge of $1,050,000 in the third quarter of 1998 related to this amendment. Accrued expenses at December 31, 1998 included $800,000 of costs related to this amendment, which was subsequently paid out in January 1999. 7. DEBT A subsidiary of the Company maintained a revolving line of credit (the Credit Line) borrowing arrangement of $5,000,000 with State Street Bank, with varying amounts of available credit expiring beginning in June of 2000. Interest on the Credit Line was due quarterly in arrears at the London Interbank Offering Rate (LIBOR) plus applicable margin ranging from 1.5% to 2.5%. In 1998 and 1997, interest rates under this agreement ranged from 7.22% to 7.38%. At December 31, 1997, the principal amount outstanding was $2,000,000 and the unused bank line of credit amounted to $3,000,000. In April of 1998, all outstanding balances were repaid in full and the Credit Line was subsequently cancelled by the Company in July of 1998. F-20 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) 8. INCOME TAXES The provision for income taxes consists of the following (in thousands):
YEARS ENDED DECEMBER 31 --------------------------------- 1996 CRC PRESS PREDECESSOR 1998 1997 COMPANY -------- -------- ----------- Current: Federal........................................... $ 663 $ -- $(313) State............................................. 220 30 (33) Deferred: Federal........................................... (634) -- 468 State............................................. (207) (27) 48 ----- ---- ----- $ 42 $ 3 $ 170 ===== ==== =====
The following represents a reconciliation between the actual income tax provision and income taxes computed by applying the statutory Federal income tax rate (35%) to loss before income taxes:
DECEMBER 31 1996 CRC PRESS PREDECESSOR COMPANY ----------- Statutory rate.............................................. $(3,873) State and local taxes, net of Federal tax benefits.......... (393) Goodwill amortization not deductible for tax purposes....... 4,198 Non-deductible permanent items.............................. 26 Other, net.................................................. 212 ------- $ 170 =======
9. PRO FORMA INCOME TAXES (UNAUDITED) As discussed in Note 2, the Company was a LLC and was treated as a partnership for Federal and most state income taxes. In connection with the offering, the Company became subject to Federal and additional state income tax. The pro forma provision for income taxes represents the income tax provisions that would have been reported had the Company been subject to Federal and additional state income taxes. F-21 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) 9. PRO FORMA INCOME TAXES (UNAUDITED) (CONTINUED) The Pro forma income tax provision consists of the following (in thousands):
YEARS ENDED DECEMBER 31 ------------------------ 1998 1997 -------- --------- Current: Federal................................................... $ 636 $ -- State..................................................... 247 3 Deferred.................................................... (841) -- ----- --------- $ 42 $ 3 ===== =========
The following represents a reconciliation between the pro forma income tax provision and income taxes computed by applying the statutory Federal income tax rate (35%) to pro forma income (loss) before income taxes:
YEARS ENDED DECEMBER 31 ------------------- 1998 1997 -------- -------- Statutory rate............................................ $ 1,641 $(1,669) State and local taxes, net of Federal tax benefits........ 342 (275) Valuation allowance....................................... (1,960) 1,960 Other, net................................................ 19 (13) ------- ------- Total..................................................... $ 42 $ 3 ======= =======
F-22 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) 9. PRO FORMA INCOME TAXES (UNAUDITED) (CONTINUED) Actual 1998 and pro forma 1997 deferred income taxes result from reporting income and expenses in different periods for tax and pro forma financial reporting purposes. Significant components of the Company's deferred tax asset is as follows (in thousands):
DECEMBER 31 DECEMBER 31 1998 1997 ----------- ----------- Current deferred income tax assets: Allowance for accounts receivable.................. $ 326 $ 326 Inventory.......................................... 451 82 Other, net......................................... -- 188 ------ ------- Total............................................ 777 596 Long-term deferred tax assets: Property and equipment............................. (622) (763) Net operating loss carryforwards................... -- 353 Amortizable assets................................. (481) 516 Non-deductible lease obligation.................... 1,194 1,258 Other.............................................. (27) 27 ------ ------- Total............................................ 64 1,391 ------ ------- Deferred tax asset valuation allowance............. -- (1,960) ------ ------- Total deferred tax asset............................. $ 841 $ 27 ====== =======
During 1998, the Company determined that it was more likely than not that the future tax benefits arising from its deferred tax assets would be realized in the future due to the Company's continued improvement in earnings and the probability of future taxable income. As a result, in accordance with SFAS No. 109, the Company recognized an income tax benefit of $1,960,000. 10. MEMBERSHIP INTEREST Prior to the initial public offering of the Company's common stock completed in August of 1998, the Company had two classes of voting preferred equity interests, which shared in profits and losses. The Class A Preferred holder contributed 95% of total capital, was allocated 95% of profits and losses and was entitled to elect three directors. The Class B Preferred holder contributed 5% of total capital, was allocated 5% of profits and losses and was entitled to elect one director. Voting rights were apportioned between the classes on a basis equivalent to contributed capital. Both classes of such preferred equity interests were required to convert to common equity interests under certain events, including a public offering of the Company's securities or the sale of the Company. Accordingly, the Class A and Class B Preferred holders received common equity interests under a pre-determined formula in connection with the Company's initial public offering. 11. EMPLOYEE BENEFIT PLANS The Company offers a defined contribution savings plan qualifying under Section 401(k) of the Internal Revenue Code. The plan covers substantially all full time U.S. employees, requiring one-year F-23 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) 11. EMPLOYEE BENEFIT PLANS (CONTINUED) of service prior to eligibility (see below). Participants fully vest in Company contributions after three years with partial vesting after one year. An employee may contribute up to 25% of his or her earnings on a pre-tax basis subject to IRS limitations. The Company, via the subsidiaries, matches 50% of such contributions up to a maximum employee contribution of 6% of salary. Prior to January 1, 1998, the Company previously offered two plans, which were merged into a new single plan as noted above. The new plan covers all employees of a subsidiary of the Company as of December 31, 1997 and new employees with more than one year of service (compared to 90 days service in the prior plan). Other plan provisions are unchanged from the prior plans. The Company's contributions under these plans for each of the three years ended December 31, 1998, 1997, and 1996 were approximately $198,000, $86,000 and $119,000, respectively. 12. 1998 STOCK OPTION PLAN The Board of Directors has adopted the Company's 1998 Stock Option Plan (the Plan) which provides for the granting of options to purchase not more than an aggregate of 866,866 shares of Common Stock, subject to adjustment as provided in the Plan. All directors and full-time employees of the Company are eligible to participate in the Plan. Each option granted pursuant to the Plan must provide for an exercise price per share that is at least equal to the fair market value per share of Common Stock on the date of grant. Options granted under the Plan are exercisable no earlier than one-year and no later than ten years from the grant date and vest in 25% increments over a four-year period from the date of grant. The exercise price of each option, the period during which each option may be exercised and the other terms and conditions of each option are determined by the Board of Directors. Options that have been granted to the Company's independent directors and certain executive officers have accelerated vesting schedules and exercisable lives. A summary of stock option transactions under the Company's stock option plan for the five months ended December 31, 1998 is as follows:
WEIGHTED AVERAGE SHARES EXERCISE PRICE -------- ---------------- Outstanding at January 1, 1998...................... -- $ -- Granted........................................... 541,846 12.02 Exercised......................................... -- -- Canceled or Lapsed................................ (12,513) 12.00 Outstanding at December 31, 1998.................... 529,333 $12.02 Shares exercisable at December 31, 1998............. 109,482 $12.00
The following table summarizes information about stock options outstanding at December 31, 1998:
Weighted Range of Avg. Remaining Weighted Weighted Exercise Number Contractual Average Number Average Prices Outstanding Life Exercise Price Exercisable Exercisable ---------- ----------- -------------- -------------- ----------- ----------- $12.00 521,533 7.3 years $12.00 109,482 $12.00 $13.13 7,800 10.0 years 13.13 -- -- 529,333 7.3 years $12.02 109,482 $12.00
F-24 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) 12. 1998 STOCK OPTION PLAN (CONTINUED) The Company accounts for its stock-option plan under the provisions of APB Opinion 25 and related Interpretations, "Accounting for Stock Issued to Employees," which utilizes the intrinsic value method. No compensation cost has been recognized related to the Company's stock option plan. Had compensation cost for the Company's stock option plan been determined based on the fair value of the options at the dates of grant consistent with the requirements of SFAS No. 123, "Accounting for Stock-Based Compensation," the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below (in thousands, except per share data):
DECEMBER 31 1998 ----------- Net income applicable to common shareholders As reported............................................... $4,785 Pro forma................................................. 4,691 Net income per basic and diluted common share As reported............................................... $ 0.28 Pro forma................................................. $ 0.28
The fair value of stock options granted in fiscal 1998 was estimated at the dates of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used:
DECEMBER 1998 -------- Risk free interest rate..................................... 5.5% Expected life of option grants.............................. 5 Expected volatility......................................... 25.0% Expected dividend yield..................................... 0
13. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS--The Company leases office space, office and computer equipment. The leases generally provide for the lessee to pay taxes, maintenance, insurance and certain other operating costs of the leased property, and certain capital leases include escalation clauses. F-25 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) 13. COMMITMENTS AND CONTINGENCIES (CONTINUED) The future noncancelable minimum lease payments under operating leases and under capital leases including estimated escalation amounts as of December 31, 1998 are as follows (in thousands):
OPERATING CAPITAL LEASES LEASES --------- -------- Year ending December 31................................... 1999...................................................... $ 639 $ 525 2000...................................................... 668 516 2001...................................................... 646 519 2002...................................................... 512 536 2003...................................................... 293 553 Thereafter................................................ 936 1,517 ------ ------ Total minimum lease payments.............................. $3,694 4,166 ====== ------ Less amount representing unamortized interest............. 1,211 ------ Present value of net minimum lease payments............... 2,955 Less current maturities................................... 261 ------ Long-term obligation...................................... $2,694 ======
Assets recorded under capital leases are included in Property and equipment as follows (in thousands):
DECEMBER 31 DECEMBER 31 1998 1997 ----------- ----------- Buildings............................................ $2,344 $2,344 Computer equipment................................... 86 86 ------ ------ 2,430 2,430 Less accumulated depreciation........................ 565 266 ------ ------ $1,865 $2,164 ====== ======
Rental expense for operating leases amounted to approximately $1,048,000, $888,000 and $872,000 for each of the years ended December 31, 1998, 1997 and 1996 respectively. LEGAL PROCEEDINGS--From time to time, the Company is a party to certain lawsuits and administrative proceedings that arise in the conduct of its business (see Item 3). While the outcome of these lawsuits and proceedings cannot be predicted with certainty, management believes that, if adversely determined, the lawsuits and proceedings, either singularly or in the aggregate, would not have a material adverse effect on the financial condition, results of operations, or net cash flows of the Company. EMPLOYMENT AGREEMENTS--The Company has employment agreements with certain officers and management personnel. The terms of these agreements are specific to each employee. F-26 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) 14. RELATED PARTY TRANSACTIONS In connection with the acquisition of CRC Press in January 1997, the Initial Stockholders loaned an aggregate of $2,500,000 to the Company. Such loans were repaid without interest in April 1997. The Company transacts business in the amount of approximately $250,000 per year with a mail house owned by a brother-in-law of Dennis Buda, the President of CRC Press. The rates charged by such mail house are at or below the rates charged by other mail houses serving the Company. In September 1998, a subsidiary of the Company entered into a loan agreement with an executive officer. Under the terms of the loan agreement, the subsidiary provided a loan of $550,000 bearing an interest rate of 5.5% per annum, payable on demand. The loan was repaid in full in January 1999. Times Mirror International Publishers, Inc. (TMIP), a wholly-owned subsidiary of Times Mirror, had an arrangement with other subsidiaries of Times Mirror, including CRC Press in fiscal 1996, to manage all international sales, including sales of U.S. copyrighted materials, foreign language adaptations of U.S. copyrighted materials and foreign rights income. In connection with this arrangement, TMIP marketed, sold and distributed CRC Press' products in certain international markets. Net sales to TMIP aggregated $3,975,000 in 1996. CRC Press incurred direct costs including paper, printing, binding, international royalties and incremental plant, editorial and production associated with foreign language adaptations of $1,837,000 in 1996. 15. SEGMENT INFORMATION The Company operates in one business segment, namely publishing, and publishes information in print and electronic media in a variety of fields including science, technology, business and intellectual property. Products are distributed on a worldwide basis, and the Company has operating offices in the United States and in Europe. The following table presents revenues (in thousands):
YEARS ENDED DECEMBER 31 ------------------- 1998 1997 -------- -------- United States............................................. $34,974 $24,570 Europe.................................................... 7,970 9,086 Others.................................................... 3,707 1,213 ------- ------- $46,651 $34,869 ======= =======
Revenues from one customer represented approximately 18.7% of the Company's consolidated revenue in fiscal year 1997. There were no customers who exceeded 10% of total revenues in fiscal 1998 and 1996, respectively. 16. FINANCIAL INSTRUMENTS AND OFF BALANCE SHEET RISK CONCENTRATION OF CREDIT RISK--Financial instruments that potentially subject the Company to credit risks consists principally of receivables. The Company believes the concentration of credit risk in its accounts receivables is substantially mitigated by the Company's ongoing credit evaluation process and due to the large number of customers comprising the Company's customer base. The Company does not generally require collateral from customers. A subsidiary of IV has entered into an exclusive F-27 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 1998, 1997 AND 1996 (CONTINUED) 16. FINANCIAL INSTRUMENTS AND OFF BALANCE SHEET RISK (CONTINUED) distribution agreement with a third party for sale of its products in regions outside of North America. Accounts receivable related to this distribution agreement approximated $2,262,000 at December 31, 1998. The Company evaluates the need for an allowance for doubtful accounts based upon factors surrounding the credit risk of specific customers, historical trends and other information. The Company invests its excess cash in high quality short-term liquid money market instruments and government agency bills. The Company has a policy of making investments only with institutions that have at least an "A" credit rating from a national rating agency. The investments generally mature within six months. The Company has not incurred losses related to these investments. The Company maintains its cash in demand deposit accounts which at times may exceed the Federal Deposit Insurance Corporation (FDIC) insurance limits. As of December 31, 1998, the Company had approximately $490,000 of cash in excess of FDIC insurance limits. FAIR VALUE OF FINANCIAL INSTRUMENTS--The carrying amount of cash and cash equivalents, accounts receivable and accounts payable approximates fair value because of the short-term maturity of these instruments. The carrying value of the Company's borrowings under its capitalized lease obligations approximates fair value based on quoted market prices for the same or similar instruments. 17. SUBSEQUENT EVENT On January 7, 1999, effectively as of January 1, 1999, the Company acquired the stock of Optipat, Inc. (Optipat), for cash consideration of $3,250,000. Optipat provides patent information in printed format and over the Internet to the corporate and legal markets. Also in January 1999, the Company purchased the environmental book-publishing list of Ann Arbor Press for cash consideration of approximately $500,000. F-28 Inside back cover [Artwork for prospectus inside back cover page shows screen photos of Information Holdings' current web sites] - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- 4,000,000 SHARES [LOGO] [LOGO] COMMON STOCK ------------- PROSPECTUS ------------------ MERRILL LYNCH & CO. MORGAN STANLEY DEAN WITTER THOMAS WEISEL PARTNERS LLC , 2000 - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- PART II INFORMATION NOT REQUIRED IN PROSPECTUS ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION The following table sets forth the various expenses in connection with the sale and distribution of the securities being registered which we will pay. All the amounts shown are estimates, except the SEC registration fee and the NASD filing fee: SEC Registration Fee........................................ $ 32,267 NYSE Fee.................................................... 16,100 NASD Fees................................................... 12,722 Transfer Agent and Registrar Fees and Expenses.............. 10,000 Printing and Engraving Expenses............................. 200,000 Legal Fees and Expenses..................................... 300,000 Accounting Fees and Expenses................................ 20,000 Blue Sky Fees and Expenses.................................. 5,000 Miscellaneous Expenses...................................... 8,900 -------- Total....................................................... $604,989 ========
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS Section 145 of the Delaware General Corporation Law empowers a Delaware corporation to indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (other than an action by or in the right of such corporation) by reason of the fact that such person is or was a director, officer, employee or agent of such corporation, or is or was serving at the request of such corporation as a director, officer, employee or agent of another corporation or enterprise. A corporation may indemnify such person against expenses (including attorneys' fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such action, suit or proceeding if he acted in good faith and in a manner reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, has no reasonable cause to believe his conduct was unlawful. A corporation may, in advance of the final disposition of any civil, criminal, administrative or investigative action, suit or proceeding, pay the expenses (including attorneys' fees) incurred by any officer or director in defending such action, provided that the director or officer undertake to repay such amount if it shall ultimately be determined that he is not entitled to be indemnified by the corporation. A Delaware corporation may indemnify officers and directors in an action by or in the right of the corporation to procure a judgment in its favor under the same conditions, except that no indemnification is permitted without judicial approval if the officer or director is adjudged to be liable to the corporation. Where an officer or director is successful on the merits or otherwise in the defense of any action referred to above, the corporation must indemnify him against the expenses (including attorneys' fees) which he actually or reasonably incurred in connection therewith. The indemnification provided is not deemed to be exclusive of any other rights to which an officer or director may be entitled under any corporation's bylaw, agreement, vote or otherwise. We have adopted provisions in our certificate of incorporation and bylaws that provide that we will indemnify our officers and directors to the maximum extent permitted under the DGCL. In addition, the Underwriting Agreement filed as Exhibit 1.1 to this Registration Statement provides for indemnification of us, our officers and our directors by the underwriters under some circumstances. Our officers and directors are also covered under our directors' and officers' insurance policy. II-1 ITEM 16. EXHIBITS AND FINANCIAL STATEMENTS SCHEDULES (a) Exhibits 1.1 Form of Underwriting Agreement among Information Holdings Inc., Merrill Lynch, Pierce, Fenner & Smith Incorporated, Morgan Stanley & Co. Incorporated and Thomas Weisel Partners LLC 4.1 Specimen of Common Stock Certificate* 4.2 Registration Rights Agreement, dated as of August 12, 1998, among Information Holdings Inc., Warburg, Pincus Ventures, L.P., and Mason P. Slaine** 5.1 Opinion of Willkie Farr & Gallagher+ 23.1 Consent of Willkie Farr & Gallagher (included in Exhibit 5.1)+ 23.2 Consent of Ernst & Young LLP 23.3 Consent of Ernst & Young LLP 23.4 Consent of Ernst & Young LLP 23.5 Consent of Ernst & Young LLP 24 Power of Attorney+ 27.1 Financial Data Schedule
(b) Financial Statements Schedules** None. - ------------------------ + Previously filed. * Incorporated herein by reference to the Registration Statement on Form S-1 (File No. 333-56665). ** Incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 30, 1998. ITEM 17. UNDERTAKINGS 1. The undersigned Registrant hereby undertakes 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 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. 2. Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the Registrant pursuant to the foregoing provisions, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the 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 persons of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification II-2 by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue. 3. The undersigned Registrant hereby undertakes that (a) For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this Registration Statement in reliance upon Rule 430A and contained in the form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this Registration Statement as of the time it was declared effective. (b) For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-3 SIGNATURES Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-3 and has duly caused Amendment No. 1 to this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in New York, New York, on March 10, 2000. INFORMATION HOLDINGS INC. BY: /S/ VINCENT A. CHIPPARI ----------------------------------------- Name: Vincent A. Chippari Title: Executive Vice President and Chief Financial Officer
II-4 Pursuant to the requirements of the Securities Act of 1933, this Amendment No. 1 to the Registration Statement has been signed by the following persons in the capacities and on the dates indicated.
SIGNATURE TITLE DATE --------- ----- ---- President, Chief Executive * Officer and Director ------------------------------------------- (Principal Executive March 10, 2000 Mason P. Slaine Officer) Executive Vice President and /s/ VINCENT A. CHIPPARI Chief Financial Officer ------------------------------------------- (Principal Accounting March 10, 2000 Vincent A. Chippari Officer and Principal Financial Officer) * Director ------------------------------------------- March 10, 2000 Michael E. Danziger * Director ------------------------------------------- March 10, 2000 David R. Haas * Director ------------------------------------------- March 10, 2000 Sidney Lapidus * Director ------------------------------------------- March 10, 2000 David E. Libowitz
*By: /s/ VINCENT A. CHIPPARI -------------------------------------- ATTORNEY-IN-FACT
II-5 EX-1.1 2 EXHIBIT 1.1 ================================================================================ INFORMATION HOLDINGS INC. (a Delaware corporation) 4,000,000 Shares of Common Stock PURCHASE AGREEMENT Dated: , 2000 ================================================================================ TABLE OF CONTENTS
PAGE PURCHASE AGREEMENT...........................................................1 SECTION 1. Representations and Warranties....................................3 (a) Representations and Warranties by the Company.................................................................3 (i) Compliance with Registration Requirements.....................................................3 (ii) Independent Accountants..........................................4 (iii) Financial Statements.............................................4 (iv) No Material Adverse Change in Business...........................5 (v) Good Standing of the Company.....................................5 (vi) Good Standing of Subsidiaries....................................6 (vii) Capitalization...................................................6 (viii) Authorization of Agreement.......................................7 (ix) Authorization and Description of Securities.......................................................7 (x) Absence of Defaults and Conflicts................................7 (xi) Absence of Labor Dispute.........................................8 (xii) Absence of Proceedings...........................................8 (xiii) Accuracy of Exhibits.............................................9 (xiv) Possession of Intellectual Property..............................9 (xv) Absence of Further Requirements..................................9 (xvi) Possession of Licenses and Permits..............................10 (xvii) Title to Property...............................................10 (xviii) Compliance with Cuba Act........................................11 (xix) Investment Company Act..........................................11 (xx) Environmental Laws..............................................11 (xxi) Registration....................................................12 (b) Officer's Certificates.................................................12 SECTION 2. Sale and Delivery to the Underwriters; Closing............................................12 (a) Initial Securities.....................................................12 (b) Option Securities......................................................13 (c) Payment................................................................13 (d) Denominations; Registration............................................14 SECTION 3. Covenants of the Company..........................................................14 (a) Compliance with Securities Regulations and Commission Requests.........14 (b) Filing of Amendments...................................................15 (c) Delivery of Registration Statements....................................15 (d) Delivery of Prospectus.................................................16 (e) Continued Compliance with Securities Laws..............................16 (f) Blue Sky Qualifications................................................16 (g) Rule 158...............................................................17 (h) Use of Proceeds........................................................17 (i) Listing................................................................17
-i- PAGE (j) Restriction on Sale of Securities.......................................17 (k) Reporting Requirements..................................................18 (l) Compliance with NASD Rules..............................................18 (m) Compliance with Rule 463................................................18 SECTION 4. Payment of Expenses...............................................19 (a) Expenses................................................................19 (b) Termination of Agreement................................................19 SECTION 5. Conditions of the Underwriters' Obligations.......................20 (a) Effectiveness of Registration Statement.................................20 (b) Opinion of Counsel for the Company......................................20 (c) Opinion of Counsel for the Underwriters.................................20 (d) Officers' Certificate...................................................21 (e) Accountant's Comfort Letter.............................................21 (f) Bring-down Comfort Letter...............................................22 (g) Approval of Listing.....................................................22 (h) No Objection............................................................22 (i) Lock-up Agreements......................................................22 (j) Conditions to Purchase of Option Securities.............................22 (k) Additional Documents....................................................23 (l) Termination of Agreement................................................23 SECTION 6. Indemnification...................................................24 (a) Indemnification of the Underwriters.....................................24 (b) Indemnification of the Company, its Directors and Officers..............26 (c) Actions against Parties; Notification...................................26 (d) Settlement without Consent if Failure to Reimburse......................27 SECTION 7. Contribution......................................................27 SECTION 8. Representations, Warranties and Agreements to Survive Delivery....29 SECTION 9. Termination of Agreement..........................................29 (a) Termination; General....................................................29 (b) Liabilities.............................................................30 SECTION 10. Default by One or More of the Underwriters.......................30 SECTION 11. Notices..........................................................31 SECTION 12. Parties..........................................................31 SECTION 13. GOVERNING LAW AND TIME...........................................31
-ii- PAGE SECTION 14. Effect of Headings...............................................31 SCHEDULES Schedule A - List of Underwriters..............................Sch A-1 Schedule B - Pricing Information...............................Sch B-1 Schedule C - List of Persons subject to Lock-up................Sch C-1 Schedule D - List of Subsidiaries..............................Sch D-1 EXHIBITS Exhibit A - Form of Opinion of Company's Counsel...................A-1 Exhibit B - Form of Lock-up Letter.................................B-1
-iii- INFORMATION HOLDINGS INC. (a Delaware corporation) 4,000,000 Shares of Common Stock (Par Value $.01 Per Share) PURCHASE AGREEMENT , 2000 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated MORGAN STANLEY & CO. INCORPORATED THOMAS WEISEL PARTNERS LLC as Representatives of the several Underwriters c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281-1209 Ladies and Gentlemen: Information Holdings Inc., a Delaware corporation (the "Company"), confirms its agreement with Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Morgan Stanley & Co. Incorporated, Thomas Weisel Partners LLC and each of the other Underwriters named in Schedule A hereto (collectively, the "Underwriters," which term shall also include any underwriter substituted as hereinafter provided in Section 10 hereof), for whom Merrill Lynch, Morgan Stanley & Co. Incorporated and Thomas Weisel Partners LLC are acting as Representatives (in such capacity, the "Representatives"), with respect to the issue and sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of Common Stock, par value $.01 per share, of the Company ("Common Stock") set forth in said Schedule A, and with respect to the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b) hereof to purchase all or any part of 600,000 additional shares of Common Stock solely to cover over-allotments, if any. The aforesaid 4,000,000 shares of Common Stock (the "Initial Securities") to be purchased by the Underwriters and all or any part of the 600,000 shares of Common Stock subject to the option described in Section 2(b) hereof (the "Option Securities") are hereinafter called, collectively, the "Securities." -2- The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered. The Company has filed with the Securities and Exchange Commission (the "Commission") a registration statement on Form S-3 (No. 333-30202) covering the registration of the Securities under the Securities Act of 1933, as amended (the "1933 Act"), including the related preliminary prospectus. Promptly after execution and delivery of this Agreement, the Company will either (i) prepare and file a prospectus in accordance with the provisions of Rule 430A ("Rule 430A") of the rules and regulations of the Commission under the 1933 Act (the "1933 Act Regulations") and paragraph (b) of Rule 424 ("Rule 424(b)") of the 1933 Act Regulations or (ii) if the Company has elected to rely upon Rule 434 ("Rule 434") of the 1933 Act Regulations, prepare and file a term sheet (a "Term Sheet") in accordance with the provisions of Rule 434 and Rule 424(b). The information included in any prospectus or Term Sheet, as the case may be, that was omitted from such registration statement at the time it became effective but that is deemed to be part of such registration statement at the time it became effective (a) pursuant to paragraph (b) of Rule 430A is referred to as "Rule 430A Information" or (b) pursuant to paragraph (d) of Rule 434 is referred to as "Rule 434 Information." Each prospectus used before such registration statement became effective, and any prospectus that omitted, as applicable, the Rule 430A Information or the Rule 434 Information, that was used after such effectiveness and prior to the execution and delivery of this Agreement, is herein called a "preliminary prospectus." Such registration statement, including the exhibits thereto and schedules thereto, at the time it became effective and including the Rule 430A Information or the Rule 434 Information, as applicable, is herein called the "Registration Statement." Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein referred to as the "Rule 462(b) Registration Statement," and after such filing the term "Registration Statement" shall include the Rule 462(b) Registration Statement. The final prospectus in the form first furnished to the Underwriters for use in connection with the offering of the Securities is herein called the "Prospectus." If Rule 434 is relied on, the term "Prospectus" shall refer to the preliminary prospectus dated February 18, 2000, together with the applicable Term Sheet and all references in this Agreement to the date of such Prospectus shall mean the date of the applicable Term Sheet. For purposes of this Agreement, all references to the Registration Statement, any preliminary -3- prospectus, the Prospectus or any Term Sheet or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system ("EDGAR"), as well as all exhibits thereto and documents incorporated by reference therein. SECTION 1. REPRESENTATIONS AND WARRANTIES. (a) REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company represents and warrants to each Underwriter as of the date hereof, as of the Closing Time referred to in Section 2(c) hereof, and as of each Date of Delivery (if any) referred to in Section 2(b), hereof and agrees with each Underwriter, as follows: (i) COMPLIANCE WITH REGISTRATION REQUIREMENTS. Each of the Registration Statement and any Rule 462(b) Registration Statement has become effective under the 1933 Act and no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or, to the knowledge of the Company, are contemplated by the Commission, and any request on the part of the Commission for additional information has been complied with. At the respective times the Registration Statement, any Rule 462(b) Registration Statement and any post-effective amendments thereto became effective and at the Closing Time (as defined below) (and, if any Option Securities are purchased, at the Date of Delivery), the Registration Statement, the Rule 462(b) Registration Statement and any amendments or supplements thereto complied and will comply in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations and did not and will not contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, and the Prospectus, any preliminary prospectus and any supplement thereto or prospectus wrapper prepared in connection therewith, at their respective times of issuance and at the Closing Time, complied and will comply in all material respects with any applicable laws or regulations of foreign jurisdictions in which the Prospectus and such preliminary prospectus, as amended or supplemented, if applicable, are distributed in connection with the offer and sale of Reserved Securities. Neither -4- the Prospectus nor any amendments or supplements thereto including any prospectus wrapper, at the time the Prospectus or any amendment or supplement thereto was issued and at the Closing Time (as defined below) (and, if any Option Securities are purchased, at the Date of Delivery), included or will include an untrue statement of a material fact or omitted or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. If Rule 434 is used, the Company will comply with the requirements of Rule 434 and the Prospectus shall not be "materially different," as such term is used in Rule 434, from the prospectus included in the Registration Statement at the time it became effective. The representations and warranties in this subsection shall not apply to statements in or omissions from the Registration Statement or the Prospectus made in reliance upon and in conformity with information furnished to the Company in writing by any Underwriter through the Representatives expressly for use in the Registration Statement or the Prospectus. Each preliminary prospectus filed as part of the Registration Statement as originally filed or as part of any amendment thereto, or filed pursuant to Rule 424 under the 1933 Act, complied when so filed in all material respects with the 1933 Act Regulations and each preliminary prospectus and the Prospectus delivered to the Underwriters for use in connection with this offering was identical to the electronically transmitted copy thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (ii) INDEPENDENT ACCOUNTANTS. The accountants who certified the financial statements and supporting schedules included in the Registration Statement are independent public accountants as required by the 1933 Act and the 1933 Act Regulations. (iii) FINANCIAL STATEMENTS. The financial statements included in the Registration Statement and the Prospectus, together with the related schedules and notes, present fairly the financial position of the Company and its consolidated subsidiaries at the dates indicated and the statement of operations, stockholders' equity and cash flows of the Company and its consolidated subsidiaries for the periods specified; said financial statements have been prepared in conformity with generally accepted accounting -5- principles ("GAAP") applied on a consistent basis throughout the periods involved. The supporting schedules included in the Registration Statement present fairly in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included in the Registration Statement. The pro forma financial statements and the related notes thereto included in the Registration Statement and the Prospectus present fairly the information shown therein, have been prepared in accordance with the Commission's rules and guidelines with respect to pro forma financial statements and have been properly compiled on the bases described therein, and the assumptions used in the preparation thereof are reasonable and the adjustments used therein are appropriate to give effect to the transactions and circumstances referred to therein. (iv) NO MATERIAL ADVERSE CHANGE IN BUSINESS. Since the respective dates as of which information is given in the Registration Statement and the Prospectus, except as otherwise stated therein, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business (a "Material Adverse Effect"), (B) there have been no transactions entered into by the Company or any of its subsidiaries, other than those in the ordinary course of business, which are material with respect to the Company and its subsidiaries considered as one enterprise, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock. (v) GOOD STANDING OF THE COMPANY. The Company has been duly organized and is validly existing as a corporation in good standing under the laws of the State of Delaware and has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of -6- business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (vi) GOOD STANDING OF SUBSIDIARIES. Each "significant subsidiary" of the Company (as such term is defined in Rule 1-02 of Regulation S-X) (each a "Subsidiary" and, collectively, the "Subsidiaries") has been duly organized and is validly existing as a limited liability company in good standing under the laws of the jurisdiction of its organization, has the power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is duly qualified as a foreign limited liability company to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, all of the issued and outstanding equity interests of each such Subsidiary have been duly authorized and validly issued, are fully paid and non-assessable and are owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding equity interests of any Subsidiary was issued in violation of the preemptive or similar rights of any securityholder of such Subsidiary. The only Subsidiaries of the Company are the subsidiaries listed on Schedule D of this Agreement. (vii) CAPITALIZATION. The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to this Agreement, pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Prospectus). The shares of issued and outstanding capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable; none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or other similar rights of any securityholder of the Company. -7- (viii) AUTHORIZATION OF AGREEMENT. This Agreement has been duly authorized, executed and delivered by the Company. (ix) AUTHORIZATION AND DESCRIPTION OF SECURITIES. The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued, fully paid and non-assessable; the Common Stock conforms to all statements relating thereto contained in the Prospectus and such description conforms to the rights set forth in the instruments defining the same; no holder of the Securities will be subject to personal liability by reason of being such a holder; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company. (x) ABSENCE OF DEFAULTS AND CONFLICTS. Neither the Company nor any of its subsidiaries is in violation of its charter, by-laws or limited liability company agreement, as the case may be, or in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company or any of its subsidiaries is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any subsidiary is subject (collectively, "Agreements and Instruments") except for such defaults that would not result in a Material Adverse Effect; and the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated in this Agreement and in the Registration Statement (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described in the Prospectus under the caption "Use of Proceeds") and compliance by the Company with its obligations under this Agreement has been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary pursuant to, the Agreements and Instruments -8- (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not result in a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter, by-laws or limited liability company agreement, as the case may be, of the Company or any subsidiary or any applicable law, statute, rule, regulation, judgment, order, writ or decree of any government, government instrumentality or court having jurisdiction over the Company or any subsidiary or any of their assets, properties or operations. As used herein, a "Repayment Event" means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder's behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company or any subsidiary. (xi) ABSENCE OF LABOR DISPUTE. No labor dispute with the employees of the Company or any subsidiary exists or, to the knowledge of the Company, is imminent, and the Company is not aware of any existing or imminent labor disturbance by the employees of any of its or any subsidiary's principal suppliers, manufacturers, customers or contractors, which, in either case, may reasonably be expected to result in a Material Adverse Effect. (xii) ABSENCE OF PROCEEDINGS. There is no action, suit, proceeding, inquiry or investigation before or brought by any court or governmental agency or body now pending, or, to the knowledge of the Company, threatened, against or affecting the Company or any subsidiary, which is required to be disclosed in the Registration Statement (other than as disclosed therein), or which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the properties or assets thereof or the consummation of the transactions contemplated in this Agreement or the performance by the Company of its obligations hereunder or thereunder; the aggregate of all pending legal or governmental proceedings to which the Company or any subsidiary is a party or of which any of their respective property or assets is the subject which are not described in the Registration Statement, including ordinary routine litigation incidental to the business, could not reasonably be expected to result in a Material Adverse Effect. -9- (xiii) ACCURACY OF EXHIBITS. There are no contracts or documents which are required to be described in the Registration Statement or the Prospectus or to be filed as exhibits thereto which have not been so described and filed as required. (xiv) POSSESSION OF INTELLECTUAL PROPERTY. The Company and its subsidiaries own or possess, or can acquire on reasonable terms, adequate patents, patent rights, licenses, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, domain names, trade names or other intellectual property (collectively, "Intellectual Property") necessary to carry on the business now operated by them, and neither the Company nor any of its subsidiaries has received any notice or is otherwise aware of any infringement of or conflict with asserted rights of others with respect to any Intellectual Property or of any facts or circumstances which would render any Intellectual Property invalid or inadequate to protect the interest of the Company or any of its subsidiaries therein, and which infringement or conflict (if the subject of any unfavorable decision, ruling or finding) or invalidity or inadequacy, singly or in the aggregate, would result in a Material Adverse Effect. (xv) ABSENCE OF FURTHER REQUIREMENTS. No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities under this Agreement or the consummation of the transactions contemplated by this Agreement, except (i) such as have been already obtained or as may be required under the 1933 Act or the 1933 Act Regulations and state securities or blue sky laws and (ii) such as have been obtained under the laws and regulations of jurisdictions outside the United States in which the Reserved Securities are offered. (xvi) POSSESSION OF LICENSES AND PERMITS. The Company and its subsidiaries possess such permits, licenses, approvals, consents and other authorizations (collectively, "Governmental Licenses") issued by the appropriate federal, state or local regulatory agencies or bodies necessary to conduct the business now operated by them; the -10- Company and its subsidiaries are in compliance with the terms and conditions of all such Governmental Licenses, except where the failure so to comply would not, singly or in the aggregate, have a Material Adverse Effect; all of the Governmental Licenses are valid and in full force and effect, except when the invalidity of such Governmental Licenses or the failure of such Governmental Licenses to be in full force and effect would not have a Material Adverse Effect; and neither the Company nor any of its subsidiaries has received any notice of proceedings relating to the revocation or modification of any such Governmental Licenses which, singly or in the aggregate, if the subject of an unfavorable decision, ruling or finding, would result in a Material Adverse Effect. (xvii) TITLE TO PROPERTY. The Company and its subsidiaries have good and marketable title to all real property owned by the Company and its subsidiaries and good title to all other properties owned by them, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances of any kind except such as (a) are described in the Prospectus or (b) do not, singly or in the aggregate, materially affect the value of such property and do not interfere with the use made and proposed to be made of such property by the Company or any of its subsidiaries; and all of the leases and subleases material to the business of the Company and its subsidiaries, considered as one enterprise, and under which the Company or any of its subsidiaries holds properties described in the Prospectus, are in full force and effect, and neither the Company nor any subsidiary has any notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company or any subsidiary under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company or such subsidiary to the continued possession of the leased or subleased premises under any such lease or sublease. (xviii) COMPLIANCE WITH CUBA ACT. The Company has complied with, and is and will be in compliance with, the provisions of that certain Florida act relating to disclosure of doing business with Cuba, codified as Section 517.075 of the Florida statutes, and the rules and regulations thereunder (collectively, the "Cuba Act") or is exempt therefrom. -11- (xix) INVESTMENT COMPANY ACT. The Company is not, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Prospectus will not be, an "investment company" or an entity "controlled" by an "investment company" as such terms are defined in the Investment Company Act of 1940, as amended (the "1940 Act"). (xx) ENVIRONMENTAL LAWS. Except as described in the Registration Statement and except as would not, singly or in the aggregate, result in a Material Adverse Effect, (A) neither the Company nor any of its subsidiaries is in violation of any federal, state or local statute, law, rule, regulation, ordinance, code, published policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products (collectively, "Hazardous Materials") or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, "Environmental Laws"), (B) the Company and its subsidiaries have all permits, authorizations and approvals required under any applicable Environmental Laws and are each in compliance with their requirements, (C) there are no pending or, to the Company's knowledge, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company or any of its subsidiaries and (D) to the Company's knowledge, there are no events or circumstances that might reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or governmental body or agency, against or affecting the Company or any of its subsidiaries relating to Hazardous Materials or any Environmental Laws. (xxi) REGISTRATION. There are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or -12- otherwise registered by the Company under the 1933 Act, except as disclosed in the Registration Statement. (b) OFFICER'S CERTIFICATES. Any certificate signed by any officer of the Company or any of its subsidiaries delivered to the Coordinator, the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company to each Underwriter as to the matters covered thereby. SECTION 2. Sale and Delivery to the Underwriters; Closing. ----------------------------------------------- (a) INITIAL SECURITIES. On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule B, the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof. (b) OPTION SECURITIES. In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional 600,000 shares of Common Stock at the price per share set forth in Schedule B hereto, less an amount per share equal to any dividends or distributions, if any, declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted will expire 30 days after the date of the Prospectus and may be exercised in whole or in part from time to time only for the purpose of covering over-allotments which may be made in connection with the offering and distribution of the Initial Securities upon notice by the Coordinator to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery for the Option Securities (a "Date of Delivery") shall be determined by the Coordinator, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time (as defined below). If the option is exercised as to all or any portion of the Option Securities, -13- each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A opposite the name of such Underwriter bears to the total number of Initial Securities, subject in each case to such adjustments as the Coordinator in its discretion shall make to eliminate any sales or purchases of fractional shares. (c) PAYMENT. Payment of the purchase price for, and delivery of certificates for, the Initial Securities shall be made at the offices of Cahill Gordon & Reindel, 80 Pine Street, New York, New York 10005 or at such other place as shall be agreed upon by the Coordinator and the Company, at 9:00 A.M. (Eastern time) on the third (fourth, if the pricing occurs after 4:30 P.M. (Eastern time) on any given day) business day after the date hereof (unless postponed in accordance with the provisions of Section 10), or such other time not later than ten business days after such date as shall be agreed upon by the Coordinator and the Company (such time and date of payment and delivery being herein called the "Closing Time"). In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of certificates for, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Coordinator and, Company, on each Date of Delivery as specified in the notice from the Coordinator to the Company. Payment shall be made to the Company by wire transfer of immediately available funds to a bank account designated by the Company, against delivery to the Representatives for the respective accounts of the Underwriters of certificates for the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Merrill Lynch, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder. -14- (d) DENOMINATIONS; REGISTRATION. Certificates for the Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time or the relevant Date of Delivery, as the case may be. The certificates for the Initial Securities and the Option Securities, if any, will be made available for examination and packaging by the Representatives in The City of New York not later than 10:00 A.M. (Eastern time) on the business day prior to the Closing Time or the relevant Date of Delivery, as the case may be. SECTION 3. COVENANTS OF THE COMPANY. The Company covenants with each Underwriter as follows: (a) COMPLIANCE WITH SECURITIES REGULATIONS AND COMMISSION REQUESTS. The Company, subject to Section 3(b), will comply with the requirements of Rule 430A or Rule 434, as applicable, and will notify the Coordinator immediately, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall become effective, or any supplement to the Prospectus or any amended Prospectus shall have been filed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, and (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or of any order preventing or suspending the use of any preliminary prospectus, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes. The Company will promptly effect the filings necessary pursuant to Rule 424(b) and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will make every reasonable effort to prevent the issuance of any stop order and, if any stop order is issued, to obtain the lifting thereof at the earliest possible moment. (b) FILING OF AMENDMENTS. The Company will give the Coordinator notice of its intention to file or prepare any amendment to the Registration Statement (including any filing under Rule 462(b)), any Term Sheet or any amendment, supplement or revision to either the prospectus included in the Registration Statement at the time it became effective or to the Prospectus, -15- will furnish the Coordinator with copies of any such documents a reasonable amount of time prior to such proposed filing or use, as the case may be, and will not file or use any such document to which the Coordinator or counsel for the Underwriters shall reasonably object. (c) DELIVERY OF REGISTRATION STATEMENTS. The Company has furnished or will deliver to the Representatives and counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and of each amendment thereto (including exhibits filed therewith or incorporated by reference therein) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, conformed copies of the Registration Statement as originally filed and of each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (d) DELIVERY OF PROSPECTUS. The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as such Underwriter reasonably requested, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when the Prospectus is required to be delivered under the 1933 Act or the Securities Exchange Act of 1934 (the "1934 Act"), such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T. (e) CONTINUED COMPLIANCE WITH SECURITIES LAWS. The Company will comply with the 1933 Act and the 1933 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Prospectus. If at any time when a prospectus is required by the 1933 Act to be delivered in connection with sales of the Securities, any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to amend the Registration Statement or amend or supplement the Prospectus in order that the Prospectus will not include any untrue statements of a material -16- fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser, or if it shall be necessary, in the opinion of such counsel, at any such time to amend the Registration Statement or amend or supplement the Prospectus in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly prepare and file with the Commission, subject to Section 3(b), such amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement or the Prospectus comply with such requirements, and the Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. (f) BLUE SKY QUALIFICATIONS. The Company will use its reasonable best efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Coordinator may designate and to maintain such qualifications in effect for a period of not less than one year from the later of the effective date of the Registration Statement and any Rule 462(b) Registration Statement; PROVIDED, HOWEVER, that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject. In each jurisdiction in which the Securities have been so qualified, the Company will file such statements and reports as may be required by the laws of such jurisdiction to continue such qualification in effect for a period of not less than one year from the effective date of the Registration Statement and any Rule 462(b) Registration Statement. (g) RULE 158. The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act. (h) USE OF PROCEEDS. The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Prospectus under "Use of Proceeds." -17- (i) LISTING. The Company will use its reasonable best efforts to effect the listing of the Securities on the New York Stock Exchange. (j) RESTRICTION ON SALE OF SECURITIES. During a period of 90 days from the date of the Prospectus, the Company will not, without the prior written consent of Merrill Lynch, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any share of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities registered pursuant to the Registration Statement, (B) any options to purchase Common Stock granted pursuant to the 1998 Stock Option Plan, as such term is defined in documents incorporated by reference in the Prospectus, (C) the exercise of the options referred to in clause (B) immediately above, (D) the exchange of equity interests referred to in Section 5(j) below, (E) securities issued pursuant to Dennis Buda's employment agreement or (E) any securities issued as consideration for a merger or acquisition; PROVIDED, HOWEVER, that any recipient of securities under clauses (E) and (F) immediately above shall be bound by the restrictions of this Section 3(j) and shall enter into an agreement substantially in the form of Exhibit B hereto. (k) REPORTING REQUIREMENTS. The Company, during the period when the Prospectus is required to be delivered under the 1933 Act or the 1934 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods and rules and regulations of the Commission thereunder. (l) COMPLIANCE WITH NASD RULES. The Company hereby agrees that it will ensure that the Reserved Securities will be restricted as required by the National Association of Securities Dealers, Inc. (the "NASD") or the NASD rules from sale, transfer, assignment, pledge or hypothecation for a period of three months following the date of this Agreement. The Underwriters will notify the Company as to which persons will need -18- to be so restricted. At the request of the Underwriters, the Company will direct the transfer agent to place a stop transfer restriction upon such securities for such period of time. Should the Company release, or seek to release, from such restrictions any of the Reserved Securities, the Company agrees to reimburse the Underwriters for any reasonable expenses (including, without limitation, legal expenses) they incur in connection with such release. (m) COMPLIANCE WITH RULE 463. The Company will report such information as may be required pursuant to Rule 463 of the 1933 Act Regulations. SECTION 4. PAYMENT OF EXPENSES. (a) EXPENSES. The Company will pay all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and of each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of this Agreement, any Agreement among Underwriters and such other documents as may be required in connection with the offering, purchase, sale, issuance or delivery of the Securities, (iii) the preparation, issuance and delivery of the certificates for the Securities to the Underwriters, including any stock or other transfer taxes and any stamp or other duties payable upon the sale and the issuance or delivery of the Securities to the Underwriters, (iv) the fees and disbursements of the Company's counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(f) hereof, including filing fees and the reasonable fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of the Blue Sky Survey and any supplement thereto, (vi) the printing and delivery to the Underwriters of copies of each preliminary prospectus, any Term Sheet and of the Prospectus and any amendment or supplement thereto, (vii) the preparation, printing and delivery to the Underwriters of copies of the Blue Sky Survey and any supplement thereto, (viii) the fees and expenses of any transfer agent or registrar for the Securities, (ix) the filing fees incident to, and the reasonable fees and disbursements of counsel for the Underwriters in connection with, the review by the NASD of the terms of the sale of the Securities, (x) the fees and expenses incurred in connection with the listing of the Securities on the New York Stock Exchange and (xi) all costs and expenses of the Underwriters, including the fees and disbursements -19- of counsel for the Underwriters, in connection with matters related to the Reserved Securities which are designated by the Company for sale to certain eligible employees and certain persons having business relationships with the Company. (b) TERMINATION OF AGREEMENT. If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 or Section 9(a)(i) hereof, the Company shall reimburse the Underwriters for all of their out-of-pocket expenses, including the reasonable fees and disbursements of counsel for the Underwriters. SECTION 5. CONDITIONS OF THE UNDERWRITERS' OBLIGATIONS. The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company contained in Section 1 hereof or in certificates of any officer of the Company or any subsidiary of the Company delivered pursuant to the provisions hereof, to the performance by the Company of its covenants and other obligations hereunder, and to the following further conditions: (a) EFFECTIVENESS OF REGISTRATION STATEMENT. The Registration Statement, including any Rule 462(b) Registration Statement, has become effective and at the Closing Time no stop order suspending the effectiveness of the Registration Statement shall have been issued under the 1933 Act or proceedings therefor initiated or threatened by the Commission, and any request on the part of the Commission for additional information shall have been complied with to the reasonable satisfaction of counsel for the Underwriters. A prospectus containing the Rule 430A Information shall have been filed with the Commission in accordance with Rule 424(b) (or a post-effective amendment providing such information shall have been filed and declared effective in accordance with the requirements of Rule 430A) or, if the Company has elected to rely upon Rule 434, a Term Sheet shall have been filed with the Commission in accordance with Rule 424(b). (b) OPINION OF COUNSEL FOR THE COMPANY. At the Closing Time, the Representatives shall have received the favorable opinion, dated as of the Closing Time, of Willkie Farr & Gallagher, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters to the effect set forth in Exhibit A hereto and to such further effect as counsel for the Underwriters may reasonably request. -20- (c) OPINION OF COUNSEL FOR THE UNDERWRITERS. At the Closing Time, the Representatives shall have received the favorable opinion, dated as of the Closing Time, of Cahill Gordon & Reindel, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, in form and substance satisfactory to the Representatives. In giving such opinion such counsel may rely, as to all matters governed by the laws of jurisdictions other than the law of the State of New York and the federal law of the United States and the General Corporation Law of the State of Delaware, upon the opinions of counsel satisfactory to the Representatives. Such counsel may also state that, insofar as such opinion involves factual matters, they have relied, to the extent they deem proper, upon certificates of officers of the Company and its subsidiaries and certificates of public officials. (d) OFFICERS' CERTIFICATE. At the Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, and the Representatives shall have received a certificate of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company, dated as of the Closing Time, to the effect that (i) there has been no such material adverse change, (ii) the representations and warranties in Section 1(a) hereof are true and correct in all material respects with the same force and effect as though expressly made at and as of the Closing Time, (iii) the Company has complied in all material respects with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement has been issued and no proceedings for that purpose have been instituted or are pending or, to their knowledge, are contemplated by the Commission. (e) ACCOUNTANT'S COMFORT LETTER. At the time of the execution of this Agreement, the Representatives shall have received from Ernst & Young, LLP a letter dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such -21- letter for each of the other Underwriters containing statements and information of the type ordinarily included in accountants' "comfort letters" to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement and the Prospectus. (f) BRING-DOWN COMFORT LETTER. At the Closing Time, the Representatives shall have received from Ernst & Young, LLP a letter, dated as of the Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section, except that the specified date referred to shall be a date not more than five business days prior to the Closing Time. (g) APPROVAL OF LISTING. At the Closing Time, the Securities shall have been approved for listing on the New York Stock Exchange, subject only to official notice of issuance. (h) NO OBJECTION. The NASD shall have confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements. (i) LOCK-UP AGREEMENTS. At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit B hereto signed by the persons listed on Schedule C hereto. (j) CONDITIONS TO PURCHASE OF OPTION SECURITIES. In the event that the Underwriters exercise their option provided in Section 2(b) hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company or any subsidiary of the Company hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received: (i) OFFICERS' CERTIFICATE. A certificate, dated such Date of Delivery, of the President or a Vice President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(d) hereof remains true and correct as of such Date of Delivery. -22- (ii) OPINION OF COUNSEL FOR THE COMPANY. The favorable opinion of Willkie Farr & Gallagher, counsel for the Company, in form and substance satisfactory to counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b) hereof. (iii) OPINION OF COUNSEL FOR THE UNDERWRITERS. The favorable opinion of Cahill Gordon & Reindel, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c) hereof. (iv) BRING-DOWN COMFORT LETTER. A letter from Ernst & Young, LLP in form and substance satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(f) hereof, except that the "specified date" in the letter furnished pursuant to this paragraph shall be a date not more than five days prior to such Date of Delivery. (k) ADDITIONAL DOCUMENTS. At the Closing Time and at each Date of Delivery, counsel for the Underwriters shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters. (l) TERMINATION OF AGREEMENT. If any condition specified in this Section shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the Option Securities, may be terminated by the Representatives -23- by notice to the Company at any time at or prior to the Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 and except that Sections 1, 6, 7 and 8 shall survive any such termination and remain in full force and effect. SECTION 6. INDEMNIFICATION. (a) INDEMNIFICATION OF THE UNDERWRITERS. The Company agrees to indemnify and hold harmless each Underwriter and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows: (i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or the omission or alleged omission therefrom of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included in any preliminary prospectus or the Prospectus (or any amendment or supplement thereto), or the omission or alleged omission therefrom of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading; (ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of (A) the violation of any applicable laws or regulations of foreign jurisdictions where Reserved Securities have been offered and (B) any untrue statement or alleged untrue statement of a material fact included in the supplement or prospectus wrapper material distributed in foreign jurisdictions in connection with the reservation and sale of the Reserved Securities to certain eligible employees and persons having business relationships with the Company or the omission or alleged omission therefrom of a material fact necessary to make the statements therein, when considered in conjunction with the Prospectus or preliminary prospectus, not misleading; -24- (iii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission or in connection with any violation of the nature referred to in Section 6(a)(ii)(A) hereof; provided that (subject to Section 6(d) below) any such settlement is effected with the written consent of the Company; and (iv) against any and all expense whatsoever, as incurred (including the fees and disbursements of counsel chosen by Merrill Lynch), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission or in connection with any violation of the nature referred to in Section 6(a)(ii)(A) hereof, to the extent that any such expense is not paid under (i), (ii) or (iii) above; PROVIDED, HOWEVER, that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto); and PROVIDED, FURTHER, HOWEVER, that Company shall not be liable to any indemnified party with respect to any preliminary prospectus (or supplement thereto) if the Prospectus corrected any such untrue statement or omission, was delivered to such indemnified party and such indemnified party failed to furnish a copy of the Prospectus at or prior to the written confirmation of the sale of Securities to the applicable purchaser. (b) INDEMNIFICATION OF THE COMPANY, ITS DIRECTORS AND OFFICERS. Each Underwriter severally agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and -25- all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information and the Rule 434 Information, if applicable, or any preliminary prospectus or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with written information furnished to the Company by such Underwriter through the Representatives expressly for use in the Registration Statement (or any amendment thereto) or such preliminary prospectus or the Prospectus (or any amendment or supplement thereto). (c) ACTIONS AGAINST PARTIES; NOTIFICATION. Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Section 6(a) above, counsel for the indemnified parties shall be selected by Merrill Lynch, and, in the case of parties indemnified pursuant to Section 6(b) above, counsel for the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; PROVIDED, HOWEVER, that counsel for the indemnifying party shall not (except with the consent of the indemnified party) also be counsel for the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability -26- arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party. (d) SETTLEMENT WITHOUT CONSENT IF FAILURE TO REIMBURSE. If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(iii) effected without its written consent if (i) such settlement is entered into more than 45 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement. Notwithstanding the immediately preceding sentence, if at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, an indemnifying party shall not be liable for any settlement of the nature contemplated by Section 6(a)(iii) effected without its consent if such indemnifying party (i) reimburses the indemnified party in accordance with such request to the extent it consider such request to be reasonable and (ii) provides written notice to the indemnified party which fully explains the indemnifying party's belief that any unpaid balance of such request is unreasonable, in each case prior to the date of such settlement. SECTION 7. CONTRIBUTION. If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company on the one hand and the Underwriters on the other hand from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i) is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i) above but also the relative fault of the Company on the one hand and of the Underwriters on the other hand in connection with the statements or omissions, which resulted in such losses, -27- liabilities, claims, damages or expenses, as well as any other relevant equitable considerations. The relative benefits received by the Company on the one hand and the Underwriters on the other hand in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company and the total underwriting discount received by the Underwriters, in each case as set forth on the cover of the Prospectus, or, if Rule 434 is used, the corresponding location on the Term Sheet, bear to the aggregate initial public offering price of the Securities as set forth on such cover. The relative fault of the Company on the one hand and the Underwriters on the other hand shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7. The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission. Notwithstanding the provisions of this Section 7, no Underwriter shall be required to contribute any amount in excess of the amount by which the total price at which the Securities underwritten by it and distributed to the public were offered to the public exceeds the amount of any damages which such Underwriter has otherwise been required to pay by reason of any such untrue or alleged untrue statement or omission or alleged omission. -28- No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. For purposes of this Section 7, each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Underwriters' respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint. SECTION 8. REPRESENTATIONS, WARRANTIES AND AGREEMENTS TO SURVIVE DELIVERY. All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company or any of its subsidiaries submitted pursuant hereto, shall remain operative and in full force and effect, regardless of any investigation made by or on behalf of any Underwriter or controlling person, or by or on behalf of the Company, and shall survive delivery of the Securities to the Underwriters. SECTION 9. TERMINATION OF AGREEMENT. (a) TERMINATION; GENERAL. The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to the Closing Time (i) if there has been, since the time of execution of this Agreement or since the respective dates as of which information is given in the Prospectus, any material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company and its subsidiaries considered as one enterprise, whether or not arising in the ordinary course of business, or (ii) if there has occurred any material adverse change in the financial markets in the United States, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of the Representatives, impracticable to market the Securities or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities -29- of the Company has been suspended or materially limited by the Commission or the New York Stock Exchange, or if trading generally on the American Stock Exchange or the New York Stock Exchange or in the Nasdaq National Market has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by such system or by order of the Commission, the National Association of Securities Dealers, Inc. or any other governmental authority, or (iv) if a banking moratorium has been declared by either Federal or New York authorities. (b) LIABILITIES. If this Agreement is terminated pursuant to this Section, such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1, 6, 7 and 8 shall survive such termination and remain in full force and effect. SECTION 10. DEFAULT BY ONE OR MORE OF THE UNDERWRITERS. If one or more of the Underwriters shall fail at the Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the "Defaulted Securities"), the Representatives shall have the right, within 24 hours thereafter, to make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then: (a) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or (b) if the number of Defaulted Securities exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase and of the Company to sell the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-defaulting Underwriter. -30- No action taken pursuant to this Section shall relieve any defaulting Underwriter from liability in respect of its default. In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either the Representatives or the Company shall have the right to postpone the Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement or Prospectus or in any other documents or arrangements. As used herein, the term "Underwriter" includes any person substituted for an Underwriter under this Section 10. SECTION 11. NOTICES. All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives at North Tower, World Financial Center, New York, New York 10281-1201, attention of [ ]; and notices to the Company shall be directed to it at 2777 Summer Street, Suite 209, Stamford, Connecticut 06905, Facsimile No. (203) 961-1431, attention of Mason P. Slaine, with a copy to Willkie Farr & Gallagher, 787 Seventh Avenue, New York 10019, facsimile no. (212) 728-8111, attention Steven J. Gartner. SECTION 12. PARTIES. This Agreement shall each inure to the benefit of and be binding upon the Underwriters and the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters and the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters and the Company and their respective successors, and said controlling persons and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities -31- from any Underwriter shall be deemed to be a successor by reason merely of such purchase. SECTION 13. GOVERNING LAW AND TIME. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK. SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME. SECTION 14. EFFECT OF HEADINGS. The Article and Section headings herein and the Table of Contents are for convenience only and shall not affect the construction hereof. -32- If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement between the Underwriters and the Company in accordance with its terms. Very truly yours, INFORMATION HOLDINGS INC. By:________________________ Title: CONFIRMED AND ACCEPTED, as of the date first above written: MERRILL LYNCH & CO. MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED MORGAN STANLEY & CO. INCORPORATED THOMAS WEISEL PARTNERS LLC By: MERRILL LYNCH, PIERCE, FENNER & SMITH INCORPORATED By:________________________________________ Authorized Signatory For themselves and as Representatives of the other Underwriters named in Schedule A hereto. SCHEDULE A
Number of Initial Name of Underwriter Securities - ------------------- ---------- Merrill Lynch, Pierce, Fenner & Smith Incorporated........................................................ Morgan Stanley & Co. Incorporated............................................... Thomas Weisel Partners LLC...................................................... Total........................................................................... 4,000,000
Schedule A-1 SCHEDULE B INFORMATION HOLDINGS INC. 4,000,000 Shares of Common Stock (Par Value $.01 Per Share) 1. The initial public offering price per share for the Securities, determined as provided in said Section 2, shall be $[ . ]. 2. The purchase price per share for the Securities to be paid by the several Underwriters shall be $[ . ], being an amount equal to the initial public offering price set forth above less $00.[ ] per share; PROVIDED, HOWEVER, that the purchase price per share for any Option Securities purchased upon the exercise of the over-allotment option described in Section 2(b) shall be reduced by an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. Schedule B-1 SCHEDULE C Warburg, Pincus Ventures, L.P. Mason P. Slaine Vincent A. Chippari David R. Haas Michael E. Danziger Schedule C-1 SCHEDULE D Subsidiaries of Information Holdings Inc:
NAME STATE OF ---- ORGANIZATION OR INCORPORATION ---------------- CRC Press LLC Delaware MicroPatent LLC Delaware Master Data Center Michigan
Schedule D-1 Exhibit A FORM OF OPINION OF COUNSEL FOR THE COMPANY TO BE DELIVERED PURSUANT TO SECTION 5(b) (i) The Company has been duly incorporated and is validly existing as a corporation in good standing under the laws of the State of Delaware. (ii) The Company has corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and to enter into and perform its obligations under the Purchase Agreement. (iii) The Company is duly qualified as a foreign corporation to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect. (iv) The authorized, issued and outstanding capital stock of the Company is as set forth in the Prospectus in the column entitled "Actual" under the caption "Capitalization" (except for subsequent issuances, if any, pursuant to the Purchase Agreement or pursuant to reservations, agreements or employee benefit plans referred to in the Prospectus or pursuant to the exercise of convertible securities or options referred to in the Prospectus); the shares of issued and outstanding capital stock have been duly authorized and validly issued and are fully paid and non-assessable; and none of the outstanding shares of capital stock of the Company was issued in violation of the preemptive or, to our knowledge, other similar rights of any securityholder of the Company. (v) The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to the Purchase Agreement and, when issued and delivered by the Company pursuant to the Purchase Agreement against payment of the consideration set forth in the Purchase Agreement, will be validly issued and fully paid and non-assessable and no holder of the Securities is or will be subject to personal liability by reason of being such a holder. EXHIBIT A-1 (vi) The issuance of the Securities is not subject to the preemptive or, to our knowledge, other similar rights of any securityholder of the Company. (vii) Each Subsidiary has been duly organized and is validly existing as a limited liability company in good standing under the laws of the jurisdiction of its organization, has the power and authority to own, lease and operate its properties and to conduct its business as described in the Prospectus and is duly qualified as a foreign limited liability company to transact business and is in good standing in each jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect; except as otherwise disclosed in the Registration Statement, all of the issued and outstanding equity interests of each Subsidiary have been duly authorized and validly issued, are fully paid and non-assessable and, to the best of our knowledge, are owned by the Company, directly or through subsidiaries, free and clear of any security interest, mortgage, pledge, lien, encumbrance, claim or equity; none of the outstanding equity interests of any Subsidiary was issued in violation of the preemptive or, to our knowledge, similar rights of any securityholder of such Subsidiary. (viii) The Purchase Agreement has been duly authorized, executed and delivered by the Company. (ix) To our knowledge, based solely on a telephone conversation with a member of the staff of the Commission, the Registration Statement, including any Rule 462(b) Registration Statement, has been declared effective under the 1933 Act; any required filing of the Prospectus pursuant to Rule 424(b) has been made in the manner and within the time period required by Rule 424(b); and, to the best of our knowledge, no stop order suspending the effectiveness of the Registration Statement or any Rule 462(b) Registration Statement has been issued under the 1933 Act and no proceedings for that purpose have been instituted or are pending or threatened by the Commission. (x) The Registration Statement, including any Rule 462(b) Registration Statement, the Rule 430A Information and the Rule 434 Information, as applicable, the Prospectus and each amendment or supplement to the Registration Statement and the Prospectus as of its respective effective or issue dates (other than the financial statements and supporting schedules included therein or omitted therefrom, as to which we need EXHIBIT A-2 express no opinion) appear on their face to be appropriately responsive in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. (xi) If Rule 434 has been relied upon, the Prospectus was not "materially different," as such term is used in Rule 434, from the prospectus included in the Registration Statement at the time it became effective. (xii) The form of certificate used to evidence the Common Stock complies in all material respects with the Delaware General Corporation Law, with any applicable requirements of the charter and by-laws of the Company and the requirements of the New York Stock Exchange. (xiii) To the best of our knowledge and except as disclosed in the Registration Statement, there is not pending or threatened any action, suit, proceeding, inquiry or investigation, to which the Company or any subsidiary is a party, or to which the property of the Company or any subsidiary is subject, before or brought by any court or governmental agency or body which might reasonably be expected to result in a Material Adverse Effect, or which might reasonably be expected to materially and adversely affect the consummation of the transactions contemplated in the Purchase Agreement or the performance by the Company of its obligations thereunder. (xiv) The information in the Prospectus under "Description of Capital Stock -- Common Stock," "Business -- Facilities," "Business -- Litigation," "Description of Capital Stock -- Preferred Stock" and in the Registration Statement under Item 14, to the extent that it constitutes matters of law, summaries of legal matters, the Company's charter and bylaws, legal proceedings or legal conclusions, fairly summarize the matters described therein. (xv) To the best of our knowledge, there are no franchises, contracts, indentures, mortgages, loan agreements, notes, leases or other instruments required to be described or referred to in the Registration Statement or to be filed as exhibits thereto other than those described or referred to therein or filed or incorporated by reference as exhibits thereto. (xvi) To the best of our knowledge, the Company is not in violation of its charter or by-laws. EXHIBIT A-3 (xvii) No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any court or governmental authority or agency (other than under the 1933 Act and the 1933 Act Regulations, which have been obtained, or as may be required under the securities or blue sky laws of the various states, as to which we need express no opinion) is necessary or required in connection with the due authorization, execution and delivery of the Purchase Agreement or for the offering, issuance, sale or delivery of the Securities. (xviii) The execution, delivery and performance of the Purchase Agreement and the consummation of the transactions contemplated in the Purchase Agreement (including the issuance and sale of the Securities) and compliance by the Company with its obligations under the Purchase Agreement do not and will not, whether with or without the giving of notice or lapse of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined in Section 1(a)(x) of the Purchase Agreement) under or result in the creation or imposition of any lien, charge or encumbrance upon any property or assets of the Company or any subsidiary pursuant to any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or any other agreement or instrument, known to us, to which the Company or any subsidiary is a party or by which it or any of them may be bound, or to which any of the property or assets of the Company or any subsidiary is subject (except for such conflicts, breaches or defaults or liens, charges or encumbrances that would not have a Material Adverse Effect), nor will such action result in any violation of the provisions of the charter or by-laws of the Company or limited liability company agreement of any Subsidiary, or any applicable New York, Delaware or federal law, statute, rule, regulation, judgment, order, writ or decree, known to us, of any government, government instrumentality or court having jurisdiction over the Company or any subsidiary or any of their respective properties, assets or operations. (xix) To the best of our knowledge, there are no persons with registration rights or other similar rights to have any securities registered pursuant to the Registration Statement or otherwise registered by the Company under the 1933 Act, except as disclosed in the Registration Statement. (xx) The Company is not an "investment company" or an entity "controlled" by an "investment company," as such terms are defined in the 1940 Act. EXHIBIT A-4 Because the primary purpose of our professional engagement was not to establish factual matters and because of the wholly or partially non-legal character of many of the determinations involved in the preparation of the Registration Statement and Prospectus, we are not passing upon and do not assume any responsibility for the accuracy, completeness or fairness of the statements contained in the Registration Statement or the Prospectus (except to the extent expressly set forth above) and make no representations that we have independently verified the accuracy, completeness or fairness of such statements. However, in the course of our acting as counsel to the Company in connection with its preparation of the Registration Statement and Prospectus, we participated in conferences with officers and other representatives of the Company, Ernst & Young LLP, independent auditors of the Company, the Representatives and counsel to the Underwriters, at which conferences the contents of the Registration Statement and the Prospectus and related matters were discussed. Based on our participation in the above-referenced conferences and our review of the Registration Statement and Prospectus, we advise you that nothing has come to our attention that caused us to believe that at the time the Registration Statement became effective under the Act (but after giving effect to any modifications incorporated therein pursuant to Rule 430A under the Act), the Registration Statement contained an untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary to make the statements therein not misleading, or that as of its date and the date hereof, the Prospectus contained or contains, as the case may be, an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading (it being understood that in each such case we express no belief or statement with respect to the financial statements, related notes and schedules, the pro forma financial information, or the other financial, numerical or statistical data found in or derivable from the internal accounting, financial or other records of the Company and its subsidiaries set forth or referred to in the Prospectus). In rendering such opinion, such counsel may rely as to matters of fact (but not as to legal conclusions), to the extent they deem proper, on certificates of responsible officers of the Company and public officials. Such opinion shall not state that it is to be governed or qualified by, or that it is otherwise subject to, any treatise, written policy or other document relating to legal opinions, including, without limitation, EXHIBIT A-5 the Legal Opinion Accord of the ABA Section of Business Law (1991). EXHIBIT A-6 Exhibit B FORM OF LOCK-UP FROM DIRECTORS, OFFICERS OR OTHER STOCKHOLDERS PURSUANT TO SECTION 5(I) [ ], 2000 MERRILL LYNCH & CO. Merrill Lynch, Pierce, Fenner & Smith Incorporated Morgan Stanley & Co. Incorporated Thomas Weisel Partners LLC as Representatives of the several Underwriters to be named in the within-mentioned Purchase Agreement c/o Merrill Lynch & Co. Merrill Lynch, Pierce, Fenner & Smith Incorporated North Tower World Financial Center New York, New York 10281-1209 Re: PROPOSED PUBLIC OFFERING BY INFORMATION HOLDINGS INC. Dear Sirs: The undersigned, a stockholder [and an officer and/or director] of Information Holdings Inc., a Delaware corporation (the "Company"), understands that Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch"), Morgan Stanley & Co. Incorporated and Thomas Weisel Partners LLC propose to enter into a Purchase Agreement (the "Purchase Agreement") with the Company providing for the public offering of shares (the "Securities") of the Company's common stock, par value $.01 per share (the "Common Stock"). In recognition of the benefit that such an offering will confer upon the undersigned as a stockholder of the Company, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the undersigned agrees with each underwriter to be named in the Purchase Agreement that, during a period commencing from the date of the execution of this agreement and ending 90 days after the date of the final Prospectus relating to the offering of the Common Stock, the undersigned will not, without the prior written consent of Merrill Lynch, directly or indirectly, (i) offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any Exhibit B-1 option or contract to sell, grant any option, right or warrant for the sale of, or otherwise dispose of or transfer any shares of the Common Stock or any securities convertible into or exchangeable or exercisable for Common Stock, whether now owned or hereafter acquired by the undersigned or with respect to which the undersigned has or hereafter acquires the power of disposition, or file any registration statement under the Securities Act of 1933, as amended, with respect to any of the foregoing or (ii) enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of the Common Stock, whether any such swap or transaction is to be settled by delivery of Common Stock or other securities, in cash or otherwise, in each case, except as expressly contemplated by the Prospectus (as defined in the Purchase Agreement). Very truly yours, --------------------------- Signature: --------------------------- Print Name: Exhibit B-2 EX-23.2 3 EXHIBIT 23.2 (CONSENT OF E & Y) Exhibit 23.2 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated May 29, 1998, with respect to the financial statements of CRC Press, Inc. as of December 31, 1996 in Amendment No. 1 to the Registration Statement (Form S-3 No. 333-30202) and related Prospectus of Information Holdings Inc. for the registration of 4,000,000 shares of its common stock. We also consent to the incorporation by reference therein of our report dated May 29, 1998 with respect to the financial statement schedule of CRC Press, Inc. for the year ended December 31, 1996 included in the Information Holdings Inc. Annual Report (Form 10-K) for 1998 filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP West Palm Beach, Florida March 10, 2000 EX-23.3 4 EXHIBIT 23.3 (CONSENT OF E & Y) Exhibit 23.3 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 1 to the Registration Statement (Form-3 No. 333-30202) and the related Prospectus of Information Holdings Inc. for the registration of 4,000,000 shares of its common stock and to the incorporation by reference therein of our report dated June 8, 1998, with respect to the financial statements of MicroPatent for the years ended June 30, 1996 and 1997 included in Information Holdings Inc. Registration Statement (Form S-1 No. 333-56665) filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP New York, New York March 10, 2000 EX-23.4 5 EXHIBIT 23.4 (CONSENT OF E & Y) Exhibit 23.4 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" and to the use of our report dated March 3, 1999 in Amendment No. 1 to the Registration Statement (Form S-3 No. 333-30202) and related Prospectus of Information Holdings Inc. for the registration of 4,000,000 shares of its common stock. We also consent to the incorporation by reference therein of our report dated March 3, 1999 with respect to the financial statement schedule of Information Holdings Inc. for the years ended December 31, 1998 and 1997 included in the Annual Report (Form 10-K) for 1998 filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP New York, New York March 10, 2000 EX-23.5 6 EXHIBIT 23.5 (CONSENT OF E & Y) Exhibit 23.5 CONSENT OF INDEPENDENT AUDITORS We consent to the reference to our firm under the caption "Experts" in Amendment No. 1 to the Registration Statement (Form S-3 No. 333-30202) and the related Prospectus of Information Holdings Inc. for the registration of 4,000,000 shares of its common stock and to the incorporation by reference therein of our report dated August 5, 1999, except for Note 1 which is dated August 12, 1999, with respect to the financial statements of Master Data Center, Inc. as of December 31, 1998 and for the periods of January 1, 1998 through November 27, 1998 and November 28, 1998 through December 31, 1998 included in Information Holdings Inc. Current Report on Form 8-K/A dated October 26, 1999 filed with the Securities and Exchange Commission. /s/ Ernst & Young LLP Detroit, Michigan March 10, 2000 -----END PRIVACY-ENHANCED MESSAGE-----