-----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, Hl3TJEVJ/dNXJdZdTA/HX1FHJqq0As62qD2vuA1hjIUw2QtJN66iDk9tMLWNO1c6 p22XiOxT+7OPklbUdeqiIg== 0000912057-01-008500.txt : 20010328 0000912057-01-008500.hdr.sgml : 20010328 ACCESSION NUMBER: 0000912057-01-008500 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010327 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: 10-K SEC ACT: SEC FILE NUMBER: 001-14371 FILM NUMBER: 1580649 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 10-K 1 a2042989z10-k.txt FORM 10-K UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------------ FORM 10-K (Mark One) /X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2000 OR /_/ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file No. 1-14371 INFORMATION HOLDINGS INC. (Exact name of registrant as specified in its charter) DELAWARE 06-1518007 (State of incorporation) (IRS Employer Identification No.) 2777 SUMMER STREET, SUITE 209 STAMFORD, CONNECTICUT 06905 (Address of principal executive offices) (Zip Code) (203) 961-9106 (Registrant's telephone number, including area code) Securities registered pursuant to Section 12(b) of the Act: TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED ------------------- ------------------------------------ COMMON STOCK, PAR VALUE $0.01 PER SHARE NEW YORK STOCK EXCHANGE Securities registered pursuant to Section 12(g) of the Act: NONE Indicate by check mark whether the registrant (1) has filed reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES /X/ NO /_/ Indicate by check mark if disclosure of delinquent filers pursuant to item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to the Form 10-K. /_/ The aggregate market value of the voting stock held by non-affiliates of the registrant on March 15, 2001 was approximately $239,613,000, based upon the March 15, 2001 closing sale price of the common stock of $22.34 as reported by the New York Stock Exchange. The number of outstanding shares of Common stock, par value $0.01 of the registrant outstanding as of March 15, 2001 was 21,615,798 shares. DOCUMENTS INCORPORATED BY REFERENCE Items 10, 11, 12 and 13 of Part III are incorporated by reference to the definitive proxy statement relating to the registrant's Annual Meeting of Stockholders for fiscal 2000, which definitive proxy statement will be filed within 120 days of the end of the registrant's fiscal year. TABLE OF CONTENTS PART I PAGE Item 1 Business.............................................................1 Item 2. Properties...........................................................9 Item 3. Legal Proceedings....................................................9 Item 4. Submission of Matters to a Vote of Security Holders..................9 PART II Item 5. Market for the Registrant's Common Equity and Related Stockholder Matters.....................................10 Item 6. Selected Financial Data.............................................11 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.......................13 Item 7A. Quantitative and Qualitative Disclosures About Market Risk.........17 Item 8. Financial Statements and Supplementary Data.........................18 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure..............................18 PART III Item 10. Directors and Executive Officers of the Registrant.................19 Item 11. Executive Compensation.............................................19 Item 12. Security Ownership of Certain Beneficial Owners and Management...................................19 Item 13. Certain Relationships and Related Transactions.....................19 PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.................................20 Signatures..................................................................23 PART I ITEM 1. BUSINESS OVERVIEW Information Holdings Inc. (IHI or the Company) is a leading provider of information products and services to professional end-users in intellectual property, scientific and technical information and information technology learning markets. Since beginning operations in January 1997, IHI has increased revenues and profits rapidly, both through acquisitions and internal growth. For the year ended December 31, 2000, revenues were $73.3 million and net income was $7.1 million. The Company's intellectual property (IP) businesses provide a broad array of databases, information products and complementary services for IP professionals. The Company's MicroPatent unit, acquired in 1997, provides patent information, primarily via the Internet. While generating significant internal growth, this business has also been supplemented by the acquisitions of Optipat, Faxpat and Corporate Intelligence in 1999, businesses that provide print and Internet-delivered patent information to legal and corporate markets. Master Data Center (MDC), which was acquired in August 1999, provides specialized intellectual property services and software. In fiscal 2000, the Company launched CI.com, which provides access to the Company's existing IP services as well as new services in the trademark searching and intellectual property licensing areas. Internet-based products accounted for approximately 55% of MicroPatent's revenues and 37% of total IP revenues for the year ended December 31, 2000. The IP businesses provided 41% of IHI's consolidated revenues in fiscal 2000. CRC Press, acquired in 1997, provides information products to professionals in the scientific and technical markets. CRC Press, with a 98-year history, has established leading positions in several niche markets. In 1997 and 1998, three businesses were acquired and combined with CRC Press: St. Lucie Press, a publisher of professional titles, Auerbach Publications, a provider of technology-oriented print and electronic products and the mathematics and chemical product lines of Chapman & Hall. CRC Press has significant proprietary content, including a library of over 4,500 previously published titles, which generates substantial recurring demand. The scientific and technology information businesses provided 53% of IHI's consolidated revenues in fiscal 2000. This percentage is expected to decrease in the year 2001. In November 2000, the Company entered the information technology (IT) learning market with the acquisition of the assets of Transcender Corporation (Transcender). Transcender provides IT certification test-preparation products, including exam simulations for certifications from major hardware and software providers. Transcender is a leading online provider of test-preparation products for IT professionals, corporations, learning centers and universities. IT learning revenues, which represent results for two months from the date of acquisition, provided 6% of the Company's consolidated revenues in fiscal 2000. This percentage is expected to increase significantly in fiscal 2001. See Note 16 of the Notes to Consolidated Financial Statements for additional business segment information. -1- MARKETS PATENT INFORMATION The Company estimates that current annual revenue in the market for search and retrieval of patent information exceeds $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, the Company believes it is growing at a slower rate than the market for primary information. 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. Management believes that the Company is the largest commercial provider of primary patent information on a worldwide basis. TRADEMARK INFORMATION The Company estimates that current annual revenue in the market for trademark information exceeds $200 million. The vast majority of revenue in this market is derived from "full searches" of trademark databases, which traditionally involved the use of 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 market for pure electronic searching has historically 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. During fiscal 2000, the Company launched Trademark.com as a component of CI.com, a service that provides the capability to search U.S. federal, state and common law sources of trademark information. PATENT AND TECHNOLOGY LICENSING Industry sources estimate that the annual revenues in the market for patent and technology licensing currently exceed $100 billion. Licensing transactions have historically been conducted through offline networks of licensing executives. The Company believes there is a significant potential market for an online exchange to facilitate licensing transactions. During fiscal 2000, the Company launched Patex.com, an Internet-based patent and technology licensing exchange. The Company is also launching ancillary services related to patent licensing and expects to generate revenues from these services beginning in fiscal 2001. SCIENTIFIC AND TECHNICAL INFORMATION The Company provides information products in selected niches of the professional information market. These products generally fall into the scientific technical information areas, a market estimated at $3.9 billion by Veronis, Suhler & Associates. The market, which is global in nature, has achieved relatively consistent growth over the past decade based on factors such as: o Constantly increasing complexity within scientific research; o Increasing globalization of scientific, technical and medical markets; o Technological advancements that enable greater distribution of content; and o Impact of the Internet, such as e-books, downloading and site licensing. -2- 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. The Company targets end-users, mostly professionals, with high-end specialized information products. These information products are focused in areas with significant numbers of end-users, such as chemists, engineers, mathematicians, technology professionals and environmental scientists. The end-users are generally not price sensitive due to the critical nature of the information. IT LEARNING The Company sells products within a component of the IT certification/test-preparation market. A report by the industry research firm IDC estimates that this market currently approximates $2.5 billion and is estimated to reach $4.0 billion by 2003. This market includes both a test certification segment and a test-preparation segment. The Company competes in the latter segment, a market currently estimated at $1.0 billion. Significant growth in the IT certification market is being driven by several factors, including: o Continual advances in technology; o Growth in IT employment levels and shortages of skilled IT professionals; o Increases in technology-based corporate training; o Growth in the number of certifications, re-certifications and multiple certifications; and o Insufficient college-level training. PRODUCTS IP PRODUCTS AND SERVICES PATENT INFORMATION SERVICES The Company believes it offers the most comprehensive primary patent information service in the world, with access to over 33 million patent documents in digital format. The information assets are supported by sophisticated search software and various tools, which facilitate research and management of patent information. The patent collection includes all patents ever issued by the United States Patent and Trademark Office (USPTO) and the European Patent Office (EPO), as well as patent documents from the World Intellectual Property Organization and Japanese Patent Office. In addition, the Company also provides 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. The primary product offerings in this area are Internet-based searching and downloading products, sold on either a subscription or pay-per-use basis. There are also customized database and technology applications for major corporations. Patent documents and patent file histories are also sold in paper and electronic formats. Revenues from patent information services approximated $19.2 million in 2000. PATENT ANNUITY PAYMENT SERVICES The Company's MDC 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 corporations and law firms, use service providers to track filing and payment requirements and to 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 supported by a proprietary database that includes the -3- current rules for filing and maintenance of patents in every major patent jurisdiction in the world. In addition, MDC licenses complementary software in the corporate and legal markets that enable customers to manage, track and report intellectual property. Revenues from annuity payments and software approximated $10.4 million in 2000. TRADEMARK INFORMATION SERVICES Prior to June 2000, the Company provided products to search an enhanced USPTO federal trademark file. The Company launched Trademark.com in June 2000, which enables customers to search U.S. federal, state and common law databases over the Internet. The Company is continually enhancing this service by the addition of additional common law content. Future development initiatives are expected to provide additional search functionality and selected international databases. Trademark revenues approximated $0.4 million in 2000. PATENT AND TECHNOLOGY LICENSING SERVICES During fiscal 2000, the Company launched Patex.com, an Internet exchange to facilitate licensing of patents and technologies. The site includes both Internet licensing of patent rights and a service to facilitate more complex licensing transactions. The site currently has over 15,000 patents and technologies available for license. During fiscal 2000, the service provided free listings and searches. Beginning in fiscal 2001, revenue will be derived both from listing fees and transaction fees for licensing transactions completed via the service. In February 2001, the Company launched several additional services in the licensing market, including consulting services to identify licensing and enforcement opportunities, assessment of patent portfolios and contingency licensing services. SCIENTIFIC AND TECHNICAL INFORMATION REFERENCE PRODUCTS - BOOK PUBLISHING Currently, the majority of revenues in the scientific and technical market are derived from book publishing. The Company has an extensive backlist of over 4,500 titles, which generates substantial recurring demand. During fiscal 2000, approximately 70% of book sales were derived from backlist sales. In addition, the Company has continually increased its front list publishing programs. New titles in 2000 totaled 438, compared to 404 titles in 1999. The Company expects to produce approximately 460 new titles in 2001. CRC Press publishes primarily in the following areas: o Life sciences (biology, neurology, pathology, forensics, food science, marine science); o Hard sciences (chemistry, physics, mathematics, statistics, engineering); o Environmental sciences; and o Information technology and business. Life sciences and hard sciences combined provide approximately three-fourths of backlist titles and a similar percentage of annual book revenues. The Company has strong market positions in chemistry, mathematics, statistics, engineering and environmental science. Revenues from book publishing approximated $28.2 million in fiscal 2000. -4- Books are generally technical in nature with a practitioner-oriented approach. By targeting professional end-users with high-end information products, the Company is able to achieve premium pricing for its 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. There are 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: o Newsletters--The Food Chemical News division serves the food and chemical industries with four 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%. o 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. Aggregate renewal rates for journals approximate 85%. o Technology Services--Under its Auerbach imprint, CRC Press provides high-level information products for the information technology market in print and electronic formats. o Electronic Databases--Numerous electronic databases are available on a site license basis or on CD-ROM. Database products are focused in areas where the Company has significant proprietary content such as chemistry, food chemistry, information technology and engineering. Revenues from the product areas described above approximated $10.7 million in fiscal 2000. IT LEARNING The Company provides IT professionals with certification test-preparation software, available over the Internet or on CD-ROM. The product is sold with a standard license for a single user, with network and multi-users licenses also available. The Company's primary product line, TRANSCENDERCERT, covers certifications from organizations including Microsoft, Cisco and CompTIA. Individual products are sold for $100-180, with "bundled packages" and corporate site licenses also available. The products use sophisticated software and technology to provide realistic exam simulations. Products feature questions in multiple formats, answer explanations and documentation references (using both text and video demonstration), score reports and computer adaptive testing, custom and random exams and case studies. Products were historically sold primarily to individual IT professionals, with an increasing focus on corporate and organizational sales. Transcender was acquired on November 6, 2000. Revenues from the date of acquisition through December 31, 2000 approximated $4.1 million. -5- CUSTOMERS INTELLECTUAL PROPERTY The Company has long-standing relationships with the largest corporate and legal IP market participants. There are over 10,000 customers for the Company's information products, 350 users of patent annuity payment services and 750 users of management software. 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, customers include the majority of the major intellectual property law firms in the U.S. There are approximately 75 IP customers contributing over $50,000 in revenue per annum, although no individual customer provides a significant percentage of revenue. SCIENTIFIC AND TECHNICAL INFORMATION Customers in this area are primarily professional end-users, including chemists, mathematicians, engineers, biologists and information technology professionals. These customers are primarily based in corporations, with additional sales being made to individuals in academic settings, such as research institutions. The Company maintains extensive in-house lists of professionals and academics in the fields and niches in which it publishes. In addition to individuals, products are sold to major distributors that serve the Company's areas of focus. Products are also sold to broad-based retailers, including Internet distributors. No individual customer provides a significant percentage of 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 international distribution is now handled internally. Springer Verlag accounted for approximately 11.4% of consolidated revenues for the year ended December 31, 1999 and an immaterial percentage of revenues in fiscal 2000. IT LEARNING Transcender products are sold to IT professionals in self-study programs, instructor-led training courses, colleges and universities and in corporations with large IT staffing levels. Over 200,000 professionals have purchased Transcender products to prepare for certification exams. In addition to individuals, customers for the Company's products include training companies, universities and large corporations. The majority of customers today are individuals, although there is an increasing percentage of organizational and corporate sales. No individual customer provides a significant percentage of revenues. SALES, MARKETING AND DISTRIBUTION IP products and service sales are made primarily through an in-house sales force with offices in the United States and the United Kingdom. Prospects are identified through 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 Company has sales personnel dedicated to each of the patent information, patent annuity service, trademark information and patent licensing areas. -6- Scientific and technical products are sold primarily through direct response marketing. The Company has an in-house creative services and direct marketing group which designs, manages, and produces cost-effective direct mail campaigns and other promotional support programs. In fiscal 2000, the Company mailed in excess of 8,000,000 direct mail pieces. There is also 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. IT learning products are sold primarily through direct response marketing, advertising in trade publications and on the Internet and through customer referrals. The Company also has a small in-house sales force for sales to organizations and corporations. COMPETITION PATENT INFORMATION MARKET Management believes that the Company is 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, Delphion Inc., a recent entrant into the patent information market 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 of the American Chemical Society. These companies have significant revenues in abstracting and indexing services, but are not major participants in the primary information sector. PATENT ANNUITY PAYMENT SERVICES The Company believes it is the largest provider of patent annuity payment services in the United States. 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. The Company also believes it is the leading provider of intellectual property management software. This market is relatively small and fragmented. 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 CCH Corsearch, a unit of Wolters Kluwer. These businesses derive the vast majority of revenues from paper-based trademark searches. Thomson & Thomson offers an electronic search product, which has been historically marketed as a "screening search" tool. PATENT AND TECHNOLOGY LICENSING 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, pl-x.com and Delphion. Management believes these start-ups have little revenue. In addition, management believes that 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 IHI's information products. -7- SCIENTIFIC AND TECHNICAL 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. The Company also competes for the signing of significant authors. Primary competitors in this area include John Wiley, McGraw-Hill and Academic Press, a unit of Harcourt. These competitors are larger and have greater resources than the Company. IT LEARNING Direct competitors in the IT certification test-preparation market include Measure Up and Self Test Software, businesses smaller than Transcender that provide Internet and CD-ROM certification training materials. Coriolis also provides IT certification-training materials, primarily in print formats. Indirect competitors include broad-based IT training businesses such as SmartForce, NetG, DigitalThink and Element K. These businesses are larger than Transcender, but are not primarily focused on certification test-preparation. The industry overall is large and fragmented. FOREIGN OPERATIONS AND EXPORT SALES The Company maintains an office in London, England, which includes both sales staff and certain editorial employees. Export sales, based on customer location, represented approximately 19% of consolidated revenues for the year ended December 31, 2000, which includes an estimate of IP and IT information delivered over the Internet to recipients outside the United States. INTELLECTUAL PROPERTY The Company regards its trademarks, copyrights, domain names, trade secrets and similar intellectual property as valuable assets and relies upon trademark and copyright laws, as well as confidentiality agreements with employees and others, to protect its rights. The Company pursues the registration of material trademarks and copyrights in the United States and, depending upon use, in some other countries. The Company believes it owns or licenses all intellectual property rights necessary to conduct its business. To the best of the management's knowledge, there are no threatened or pending legal proceedings or claims related to intellectual property that are likely to have, individually or in the aggregate, a material adverse effect on the Company's business, financial condition or results of operations. ENVIRONMENTAL MATTERS The Company believes its 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. EMPLOYEES AND LABOR RELATIONS As of December 31, 2000, the Company had approximately 468 employees, consisting of 452 employees in the United States and 16 employees based in England. No employees are covered by collective bargaining agreements with labor unions. The Company believes that relations with its employees are good. -8- ITEM 2. PROPERTIES The Company leases its corporate headquarters, which is located in Stamford, Connecticut, and leases additional office space primarily in East Haven, Connecticut; Boca Raton, Florida; New York, New York; Southfield, Michigan; Nashville, Tennessee and London, England. The Company leases warehouse space in Nashville, Tennessee for use by its Transcender unit and also contracts with third parties for warehousing and distribution services in Linn, Missouri and Letchworth, England for use by its CRC Press unit. The Company does not own any real property. The Company believes that its properties, taken as a whole, are in good operating condition and are suitable and adequate for current business operations, and that suitable additional or alternative space will be available at commercially reasonable terms for future expansion. ITEM 3. 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. 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. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of security holders during the fourth quarter of 2000. -9- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock is listed on the New York Stock Exchange (NYSE) under the symbol "IHI." As of March 15, 2001, there were approximately 3,525 holders of the Company's common stock comprised of 25 record holders and approximately 3,500 beneficial holders. The following table reflects the high and low closing sales prices of the Company's common stock as reported by the NYSE, for the periods indicated.
2000 1999 ---------------- ---------------- COMMON STOCK HIGH LOW HIGH LOW ---- --- ---- --- First Quarter $45.438 $23.750 $18.625 $13.125 Second Quarter 37.125 21.500 22.000 17.000 Third Quarter 37.000 30.250 19.938 17.375 Fourth Quarter 35.375 15.875 29.063 17.625
DIVIDEND POLICY The Company has never paid a dividend on its common stock and does not anticipate paying any dividends on its common stock in the foreseeable future. The current policy of the Company's Board of Directors is to retain earnings to finance the operations and expansion of the Company's business. In addition, the Company's Credit Facility, as defined in Item 7 of this Annual Report "Management's Discussion and Analysis of Financial Conditions and Results of Operations", restricts the ability of the Company to pay dividends. CHANGES IN SECURITIES AND USE OF PROCEEDS The following report relates to the Company's secondary public stock offering: Commission file number of registration statement: 333-30202 Effective Date: March 14, 2000 Expenses incurred through December 31, 2000: Underwriting discounts $ 8,595,000 Other expenses $ 522,000 Total expenses $ 9,117,000 Application of proceeds through December 31, 2000: Acquisitions of businesses and titles $ 64,862,250 Temporary investments $ 90,137,750 (Commercial paper and money market funds) -10- ITEM 6. SELECTED FINANCIAL DATA The selected historical financial data of (i) CRC Press, Inc. (the Predecessor) as of and for the year ended December 31, 1996 and (ii) the Company as of and for each of the four years in the period ended December 31, 2000 have been derived from their respective audited financial statements. The acquisition of the Predecessor and all other acquisitions by the Company were accounted for using the purchase method of accounting. The Company 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, Corporate Intelligence on September 1, 1999, and Transcender on November 6, 2000. The results of operations of these businesses are included in the Company's results from their respective dates of acquisition and are not included at all in the Predecessor's results. Accordingly, certain of the historical financial data of the Predecessor are not comparable to those of the Company. The selected historical financial data should be read in conjunction with, and are qualified by reference to, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and notes thereto included elsewhere in this Form 10-K.
THE PREDECESSOR YEAR ENDED THE COMPANY DECEMBER 31, YEAR ENDED DECEMBER 31, (IN THOUSANDS, EXCEPT PER SHARE DATA) 1996 1997 1998 1999 2000 ---- ---- ---- ---- ---- (1) (1) OPERATING DATA: Revenues (2) ................................. $ 28,852 $ 34,869 $ 46,651 $ 58,778 $ 73,289 Cost of sales ................................ 9,262 11,492 11,707 15,742 19,720 Operating expenses (3) ....................... 29,667 28,040 31,234 34,104 48,231 Operating income (loss) ...................... (10,077) (4,663) 3,710 8,932 5,338 Interest (expense) income .................... (1,036) (130) 1,117 1,330 7,005 Income (loss) before taxes ................... (11,066) (4,908) 4,827 10,244 12,345 Net income (loss) (4) ........................ (11,236) (4,911) 4,785 6,017 7,092 Net income per common share: Basic earnings ............................. $ 0.36 $ 0.34 Diluted earnings ........................... $ 0.35 $ 0.34 Shares used in computing net income per share: Basic ...................................... 16,945 20,583 Diluted .................................... 17,128 20,822 Pro forma basic and diluted earnings (loss) per common share (5) ......... $ (0.29) $ 0.28 -- -- BALANCE SHEET DATA (AT PERIOD END): Cash and cash equivalents .................... $ 1,025 $ 10,280 $ 57,270 $ 7,551 $ 96,375 Total assets ................................. 35,533 50,219 104,791 138,658 310,996 Total debt ................................... 15,705 5,188 2,955 2,694 2,415 Total equity ................................. 5,818 28,556 84,793 90,935 256,274
(FOOTNOTES ON FOLLOWING PAGE) -11- (FOOTNOTES FROM PRECEDING PAGE) ----------- (1) In conjunction with the acquisition and reorganization of CRC Press and other businesses and certain compensation issues, the Company recorded significant adjustments in 1997 and 1998, which are not expected to continue in the future. These adjustments (the 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 include an initial stocking order by an international distributor aggregating $3,307. (3) 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. Operating expenses for the year ended December 31, 2000 include an impairment in the value of the Company's investment in Techex of $1,500,000. (4) Prior to the Company's initial public offering, in August 1998, the Company was a limited liability company and, accordingly, was not subject to U.S. federal or certain state income taxes. Subsequent to the initial public offering, the Company incurred a nominal income tax provision due to the full reversal of deferred tax valuation allowances deemed as no longer required. For the years ended December 31, 2000 and 1999, the Company was fully taxable. (5) No historical earnings per share or share data are presented for years prior to fiscal 1999, as the Company does not consider such historical data meaningful. The pro forma earnings (loss) per share for the years ended December 31, 1997 and 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. - 12 - ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS AND NOTES THERETO AND THE OTHER FINANCIAL INFORMATION APPEARING ELSEWHERE IN THIS FORM 10-K. UNLESS OTHERWISE STATED IN THIS FORM 10-K, REFERENCES TO THE FISCAL YEARS 2000, 1999, AND 1998 RELATE TO THE FISCAL YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998, RESPECTIVELY. IMPACT OF ACQUISITIONS AND OUTLOOK A key component of the Company's growth strategy is to pursue acquisitions in attractive niche markets where opportunities exist to internally grow the acquired companies' revenues and increase profitability through operating efficiencies. Since beginning operations in January 1997, the Company has completed ten acquisitions, including five in the intellectual property area, four in scientific and technology information and one in the information technology learning market. The Company continues to actively seek acquisitions that will further the Company's growth and operating strategies. As the Company acquires additional companies, its sales mix, market focus, cost structure and operating leverage may change significantly. Consequently, the Company's historical and future results of 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. RESULTS OF OPERATIONS FISCAL YEAR 2000 VS. 1999 REVENUES. Revenues increased $14.5 million, or 24.7%, to $73.3 million from $58.8 million. The increase in revenues is primarily due to an increase in Internet-based sales of patent information of approximately $3.4 million at MicroPatent and an increase of $2.4 million in sales of patent file histories at Optipat and Faxpat, businesses acquired in fiscal 1999. Revenues at Master Data Center, which was acquired in August 1999, increased $6.6 million, reflective of a full year's revenue for the period ended December 31, 2000. Revenues associated with IT learning products increased $4.1 million as a result of the acquisition of Transcender in November 2000. These increases were partially offset by a decline of $2.0 million in international book sales at CRC Press. The Company previously terminated an international distribution agreement in January 2000, and was contractually restricted from selling many of its scientific information products internationally for a 45-day period. International book sales in each quarter of fiscal 2000 improved over the previous quarter and are expected to show continued improvement into 2001. COST OF SALES. Cost of sales increased $4.0 million or 25.3% to $19.7 million from $15.7 million. As a percentage of revenues, cost of sales remained relatively constant over prior year levels, primarily as a result of the inclusion of MDC for a full year, which has lower gross margins than the Company's other existing units offset by the inclusion of Transcender, which has higher gross margins than the Company's other existing units, and improved gross margins in the intellectual properties businesses as a result of the successful integration of acquired businesses. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). SG&A expenses increased $8.9 million or 31.4%, to $37.0 million from $28.1 million. Increased SG&A expenses relate primarily to operating expenses of businesses acquired in 1999 and in 2000 and development expenses of CorporateIntelligence.com. SG&A expenses as a percentage of revenues increased to 50.5% for fiscal 2000, compared with 47.9% for fiscal 1999. - 13 - DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $3.7 million, or 63.4%, to $9.7 million from $6.0 million, primarily as a result of the amortization of intangible assets of businesses acquired in the last half of fiscal 1999 and the acquisition of Transcender in November 2000 (See Note 3 of the Notes to Consolidated Financial Statements). IMPAIRMENT OF LONG-LIVED ASSETS In the fourth quarter of 2000, the Company determined that the value of its investment in Techex was impaired due to the inability of Techex to generate significant revenues. The evaluation of the recoverability of long-lived assets to be held and used is based on comparing the assets carrying amount with its fair value. Based on fair market value estimates, the Company recorded a charge of $1,500,000 to the Company's intellectual properties businesses to write down the carrying amount of the investment to estimated fair value. Due to uncertainties inherent in the estimation process, it is reasonably possible that the actual recovery of the remaining investment of $500,000 may vary from the current estimate. INTEREST INCOME (EXPENSE). Interest income (expense) increased to $7.0 million from $1.3 million due primarily to interest earned on the proceeds from the secondary public stock offering completed in March 2000. INCOME TAXES. The provision for income taxes as a percentage of pre-tax income for the year ended December 31, 2000 is 42.6%, which differs from the statutory rate primarily as a result of state and local income taxes and non-deductible amortization in excess of the purchase price over net assets acquired. This compares with an effective tax rate of 41.3% in the prior year. FISCAL YEAR 1999 VS. 1998 REVENUES. Revenues increased $12.1 million, or 26.0%, to $58.8 million from $46.7 million. The increase in revenues is primarily due to an increase of $4.0 million in book sales at CRC Press; revenues of $3.8 million at Master Data Center and $3.3 million in sales of patents and file histories at Optipat and Faxpat, businesses acquired in fiscal 1999; and an increase of $3.2 million in Internet sales at MicroPatent. These increases were partially offset by a decline of $1.6 million at CRC's Auerbach unit and a decline of $0.9 million in CD-ROM sales at MicroPatent. COST OF SALES. Cost of sales increased $4.0 million, or 34.5%, to $15.7 million from $11.7 million. As a percentage of revenues, cost of sales increased to 26.8% from 25.1% due primarily to the inclusion of recently acquired businesses, which have lower gross margins than the existing businesses. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES (SG&A). SG&A expenses increased $3.3 million or 13.2% to $28.2 million from $24.9 million, principally as a result of operating expenses of businesses acquired in fiscal 1999 and normal cost increases. SG&A expenses as a percentage of revenues decreased to 47.9% for fiscal 1999, compared with 53.3% for fiscal 1998. DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased $0.7 million, or 12.2%, to $6.0 million from $5.3 million, primarily as a result of the amortization of intangible assets of businesses acquired in fiscal 1999. SEVERANCE AND SPECIAL BONUSES. Included in the fiscal 1998 results is a charge of $1.1 million related to severance and special bonuses at a subsidiary. INTEREST INCOME. Interest income increased $0.2 million, to $1.7 million from $1.5 million, due primarily to interest earned on the proceeds from the initial public offering. - 14 - INCOME TAXES. The provision for income taxes as a percentage of pre-tax income for the year ended December 31, 1999 is 41.3%, which differs from the statutory rate primarily as a result of state and local income taxes and non-deductible amortization in excess of the purchase price over net assets acquired. This compares with an effective tax rate of 0.9% in the prior year. The Company 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. LIQUIDITY AND CAPITAL RESOURCES In the first quarter of 2000, the Company sold 4,500,000 shares of its common stock in a public offering and received approximately $155.0 million of net proceeds. The proceeds from this offering will be used to finance future acquisitions and for general corporate purposes. In November 2000, the Company acquired all of the assets of Transcender Corporation for cash consideration of approximately $60,000,000 (See Note 3 of the Notes to Consolidated Financial Statements). The Company is currently evaluating various acquisition proposals, some of which are significant in size. There is no assurance that any such acquisitions will be consummated. Pending such uses, the proceeds will be invested in short-term, investment grade securities. 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 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 and for the periods ended December 31, 2000 and 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 December 31, 2000, 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. Cash and cash equivalents, including short-term investments, totaled $108.1 million at December 31, 2000 compared to $7.6 million at December 31, 1999. Excluding cash, cash equivalents and short-term investments, the Company had a working capital deficit of $(0.7) million at December 31, 2000 compared to working capital deficit of $(3.3) million at December 31, 1999. Since the Company receives patent annuity payments and subscription payments in advance, the Company's existing operations are expected to maintain very low or negative working capital balances, excluding cash. Included in current liabilities at December 31, 2000, are obligations related to patent annuity payments and deferred subscription revenue of approximately $27.5 million. - 15 - Cash generated from operating activities was $14.4 million for the fiscal year ended December 31, 2000, derived from net income of $7.1 million plus non-cash charges of $11.8 million less an increase in operating assets, net of liabilities of $4.5 million. The increase in net operating assets is primarily the result of increased customer receivables as a result of the businesses recently acquired, the payment of expenses related to book publishing operations, and the payment of income tax liabilities offset by an increase in patent annuity payments. Cash used in investing activities was $82.4 million for the fiscal year ended December 31, 2000, due to acquisition costs for businesses and titles of $64.9 million and capital expenditures, including pre-publication costs of $5.8 million. Excluding acquisitions of businesses and titles, the Company's existing operations are not capital intensive. Capital expenditures for fiscal 2000 include approximately $1.1 million of purchases of new computer equipment necessary to facilitate the Company's increased Internet capacity. Additionally, the Company invested $11.7 million in short-term investments in commercial paper, which are scheduled to mature in April 2001. Cash generated from financing activities was $156.8 million for the fiscal year ended December 31, 2000, primarily due to net cash proceeds received from the issuance of common stock as a result of the Company's secondary common stock offering of 4,500,000 shares at a price of $36.50 per share (See Note 1 of the Notes to Consolidated Financial Statements). The Company has no outstanding debt obligations as of December 31, 2000 related to the new Credit Facility. The Company believes that funds generated from operations, together with cash on hand and borrowings available under its Credit Facility will be sufficient to fund the cash requirements of its existing operations for the foreseeable future. The Company currently has no commitments for material capital expenditures. During fiscal 2000 the Company incurred $6.5 million of costs related to CorporateIntelligence.com. For 2001, it is anticipated that funding requirements for CorporateIntelligence.com will decrease and subsequent to fiscal 2001, they will not be significant. Future operating requirements and capital needs may be subject to economic conditions and other factors, many of which are beyond the Company's control. SEASONALITY The Company's business is somewhat seasonal, with revenues typically reaching slightly higher levels during the third and fourth quarters of each calendar year, based on publication schedules and other factors. In 2000, 31% of the Company's revenues were generated during the fourth quarter with the first, second, and third quarters accounting for 22%, 22% and 25% of revenues, respectively. In 1999, revenues for the first through fourth quarters were 21%, 22%, 25% and 32%, respectively. In addition, the Company may experience fluctuations in revenues from period to period based on the timing of acquisitions and new product launches. IMPACT OF NEW ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company adopted SFAS 133 effective January 1, 2001. The adoption of SFAS 133 did not have a significant impact on the consolidated financial position, results of operations, or cash flows of the Company. - 16 - EFFECTS OF INFLATION The Company believes that inflation has not had a material impact on the results of operations presented herein. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK The Company has only limited involvement with derivative financial instruments and does not use them for trading purposes. The Company may be subject to market risks arising from changes in interest rates. 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 the Credit Facility. As of December 31, 2000, the Company had no outstanding borrowings under the Credit Facility. The Company routinely enters into forward contracts to acquire various international currencies in an effort to hedge foreign currency transaction exposures of its operations. Such forward contracts have been designated as hedges for future annual patent payments to related international regulatory agencies. At December 31, 2000, the Company had entered into forward contracts to acquire various international currencies, all having maturities of less than three months, aggregating approximately $8,809,000. Realized gains and losses relating to the forward contracts were immaterial for the year ended December 31, 2000. IMPORTANT FACTORS RELATING TO FORWARD-LOOKING STATEMENTS The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for forward-looking statements so long as those statements are identified as forward-looking and are accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those projected in such statements. In connection with certain forward-looking statements contained in this Form 10-K and those that may be made in the future by or on behalf of the Company, the Company notes that there are various factors that could cause actual results to differ materially from those set forth in any such forward-looking statements. The forward-looking statements contained in this Form 10-K were prepared by management and are qualified by, and subject to, significant business, economic, competitive, regulatory and other uncertainties and contingencies, all of which are difficult or impossible to predict and many of which are beyond the control of the Company. Factors which could cause or contribute to such differences include, but are not limited to: (1) the ability of the Company to consummate acquisitions, integrate such acquisitions into existing operations, manage expansion, achieve operating efficiencies and control costs in its operations; (2) the Company's success in retaining key employees, including its CEO and CFO and the senior management teams of its primary operating units; (3) uncertainties and expenses resulting from the development of new business and websites; (4) pressures from competitors with greater resources than those of the Company, as well as competitive pressures arising from changes in technology and customer requirements; (5) the availability of raw intellectual property information from alternative sources for little or no cost; (6) the concentration of ownership among the Initial Stockholders, who have the ability to control the Company, including the election of directors and the direction of the affairs and operations of the business; (7) changes in Internet usage; (8) changes in customer and distributor relationships; (9) changes in U.S. or foreign government regulations; and (10) general economic conditions which may impact expenditures on the Company's products and services. - 17 - Accordingly, there can be no assurance that the forward-looking statements contained in this Form 10-K will be realized or that actual results will not be significantly higher or lower. The statements have not been audited by, examined by, compiled by or subjected to agreed-upon procedures by independent accountants, and no third-party has independently verified or reviewed such statements. Readers of this Form 10-K should consider these facts in evaluating the information contained herein. In addition, the business and operations of the Company are subject to substantial risks, which increase the uncertainty inherent in the forward-looking statements contained in this Form 10-K. The inclusion of the forward-looking statements contained in this Form 10-K should not be regarded as a representation by the Company or any other person that the forward-looking statements contained in this Form 10-K will be achieved. In light of the foregoing, readers of this Form 10-K are cautioned not to place undue reliance on the forward-looking statements contained herein. These risks and others that are detailed in this Form 10-K and other documents that the Company files from time to time with the Securities and Exchange Commission, including quarterly reports on Form 10-Q and any current reports on Form 8-K must be considered by any investor or potential investor of the Company. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA Reference is made to the financial statements, the report thereon, the notes thereto, and supplementary data commencing at page F-1 of this Annual Report on Form 10-K which financial statements, report, notes, and data are incorporated herein by reference. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) The following is a summary of the quarterly results of operations for the years ended December 31, 2000 and 1999, respectively (in thousands, except per share data):
QUARTER ENDED -------------------------------------------- 2000 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR Revenues $16,090 $16,180 $18,151 $22,868 $73,289 Gross profit 11,520 11,599 13,078 17,372 53,569 Net income 1,555 2,171 1,966 1,400 7,092 Net income per common share: Basic earnings $ 0.09 $ 0.10 $ 0.09 $ 0.06 $ 0.34 Diluted earnings $ 0.09 $ 0.10 $ 0.09 $ 0.06 $ 0.34
QUARTER ENDED -------------------------------------------- 1999 MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31 YEAR Revenues $12,055 $12,977 $14,833 $18,913 $58,778 Gross profit 8,854 9,435 10,986 13,761 43,036 Net income 1,112 1,107 1,287 2,511 6,017 Net income per common share: Basic earnings $ 0.07 $ 0.07 $ 0.08 $ 0.15 $ 0.36 Diluted earnings $ 0.07 $ 0.06 $ 0.08 $ 0.15 $ 0.35
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. - 18 - PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information relating to the identification, business experience and directorships of each director and nominee for director of IHI and the information relating to the identification and business experience of IHI's executive officers, required by Item 401 and 405 of Regulation S-K, will be presented in the sections entitled "Election of Directors" and "Executive Officers" of IHI's definitive proxy statement for the Annual Meeting of Stockholders for fiscal 2000, and is hereby incorporated by reference. If the definitive proxy statement for the 2000 annual meeting is not filed with the Securities and Exchange Commission within 120 days of the end of IHI's 2000 fiscal year, IHI will amend this Annual Report and include such information in the amendment. ITEM 11. EXECUTIVE COMPENSATION The information relating to the cash compensation of directors and officers required by Item 402 of Regulation S-K will be presented in the sections entitled "The Board and Its Committees - Compensation of Directors", "Executive Officers - Employment Agreements" and "Summary of Compensation Table" of IHI's definitive proxy statement for the Annual Meeting of Stockholders for fiscal 2000 and is hereby incorporated by reference. If the definitive proxy statement for the 2000 annual meeting is not filed with the Securities and Exchange Commission within 120 days of the end of IHI's 2000 fiscal year, IHI will amend this Annual Report and include such information in the amendment. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information relating to security ownership required by Item 403 of Regulation S-K will be presented in the section entitled "Security Ownership of Certain Beneficial Owners and Management" of IHI's definitive proxy statement for the Annual Meeting of Stockholders for fiscal 2000 and is hereby incorporated by reference. If the definitive proxy statement for the 2000 annual meeting is not filed with the Securities and Exchange Commission within 120 days of the end of IHI's 2000 fiscal year, IHI will amend this Annual Report and include such information in the amendment. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information relating to certain relationships and transactions required by Item 404 of Regulation S-K will be presented in the section "Certain Relationships and Related Transactions" of IHI's definitive proxy statement for the Annual Meeting of Stockholders for fiscal 2000 and is hereby incorporated by reference. If the definitive proxy statement for the 2000 annual meeting is not filed with the Securities and Exchange Commission within 120 days of the end of IHI's 2000 fiscal year, IHI will amend this Annual Report and include such information in the amendment. - 19 - PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a) Financial Statements Page Independent Auditors' Reports F-1 Consolidated Balance Sheets, December 31, 2000 and 1999 F-2 Consolidated Statements of Operations, Years Ended December 31, 2000, 1999 and 1998 F-3 Consolidated Statements of Stockholders'/Member' Equity, Years Ended December 31, 2000, 1999 and 1998 F-4 Consolidated Statements of Cash Flows, Years Ended December 31, 2000, 1999 and 1998 F-5 Notes to Consolidated Financial Statements F-6 to F-21 All schedules of the Registrant for which provision is made in the applicable accounting regulations of the Securities and Exchange Commission are not required under the related instructions, are inapplicable, or have been disclosed in the Notes to Consolidated Financial Statements and, therefore, have been omitted. (b) Reports on Form 8-K. On November 21, 2000, the Company filed a Current Report on Form 8-K (the Form 8-K) reporting that the Company had completed an acquisition of substantially all of the assets and certain liabilities of Transcender Corporation on November 6, 2000. On January 22, 2001, the Company filed an amendment to the Form 8-K containing the required financial statements of Transcender Corporation and pro forma condensed consolidated financial statements of the Company. (c) Exhibits EXHIBITS NO. DESCRIPTION 2.1 Stock Purchase Agreement, dated as of May 14, 1999, between Pearson Services Limited and Information Holdings Inc.** 3.1 Certificate of Incorporation* 3.2 Amended and Restated Bylaws 4.1 Specimen Common Stock Certificate* 4.2 Registration Rights Agreement among the Company, Warburg, Pincus Ventures, L.P., and Mason P. Slaine*** 10.1 Employment Agreement, dated as of March 15, 2000, between Information Holdings Inc. and Mason P. Slaine+++ - 20 - 10.2 Employment Agreement, dated as of January 19, 1998, between Information Ventures LLC and Vincent A. Chippari* 10.3 Employment Agreement, dated as of May 17, 1999, between CRC Press LLC and Norman R. Snesil++ 10.4 Employment Agreement, dated as of April 10, 2000, between Information Ventures LLC and Jay Nadler 10.5 Employment Agreement, dated as of November 6, 2000, between Transcender LLC and Aneel M. Pandey 10.6 Noncompetition Agreement, dated November 6, 2000, between Transcender LLC and Aneel M. Pandey 10.7 1998 Stock Option Plan of the Company (Amended and Restated as of March 26, 2001) 10.8 Asset Purchase Agreement, dated as of November 6, 2000, among Information Ventures LLC, Transcender LLC and Transcender Corporation**** 10.9 Lease Agreement, dated December 1, 1980, between CRC Press, Inc. and Starkoff Associates* 10.10 Modification and Extension of Leases, dated January 1, 1994, between CRC Press, Inc. and Starkoff Associates* 10.11 Lease Agreement, dated March 1, 1998, between R.P. Realty Company and MicroPatent LLC* 10.12 Credit Agreement, dated as of September 24, 1999, among the Company, Warburg, Pincus Information Ventures, Inc., Information Ventures LLC, and the lenders named herein, Bank of America, N.A., as Documentation Agent, Bankers Trust Company, as Administrative Agent+ 10.13 Form of Pledge Agreement, dated as of September 24, 1999, entered into by the Company and its subsidiaries and Bankers Trust Company, as Collateral Agent+ 10.14 Form of Security Agreement dated as of September 24, 1999, among the Company, Warburg, Pincus Information Ventures, Inc., Information Ventures LLC, certain of its subsidiaries and Bankers Trust Company, as Collateral Agent+ 10.15 Form of Subsidiaries Guaranty, dated as of September 24, 1999+ 21.1 List of subsidiaries of the Company 23.1 Consent of Ernst & Young LLP - ------------------- * Incorporated herein by reference to the Company's Registration Statement on Form S-1, Registration No. 333-56665. ** Incorporated herein by reference to the Current Report on Form 8-K, filed on August 20, 1999. *** Incorporated herein by reference to the Annual Report on Form 10-K for the fiscal year ended December 31, 1998. - 21 - **** Incorporated herein by reference to the Current Report on Form 8-K, filed on November 21, 2000. + Incorporated herein by reference to the Quarterly Report on Form 10-Q, filed on November 12, 1999. ++ Incorporated herein by reference to the Quarterly Report on Form 10-Q, filed on August 2, 1999. +++ Incorporated herein by reference to the Quarterly Report on Form 10-Q, filed on August 11, 2000. - 22 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. INFORMATION HOLDINGS INC. By: /s/ Vincent A. Chippari ---------------------------- Vincent A. Chippari, Executive Vice President and Chief Financial Officer Date: March 27, 2001 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated: /s/ Mason P. Slaine /s/ Vincent A. Chippari ----------------------- ----------------------------- Mason P. Slaine Vincent A. Chippari President, Chief Executive Officer and Executive Vice President and Director Chief Financial Officer (Principal Executive Officer) (Principal Financial and March 27, 2001 Accounting Officer) March 27, 2001 /s/ Michael E. Danziger /s/ David R. Haas ----------------------- ----------------------------- Michael E. Danziger David R. Haas Director Director March 27, 2001 March 27, 2001 /s/ Sidney Lapidus /s/ David E. Libowitz ----------------------- ----------------------------- Sidney Lapidus David E. Libowitz Director Director March 27, 2001 March 27, 2001 - 23 - 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, 2000 and 1999 and the related consolidated statements of operations, stockholders'/members' equity, and cash flows for each of the three years in the period ended December 31, 2000. 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 auditing standards generally accepted in the United States. 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, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP New York, New York February 22, 2001 F-1 INFORMATION HOLDINGS INC. CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, DECEMBER 31, 2000 1999 ASSETS CURRENT ASSETS: Cash and cash equivalents $ 96,375 $ 7,551 Short-term investments 11,731 -- Accounts receivable (NET OF ALLOWANCE FOR DOUBTFUL ACCOUNTS AND SALES RETURNS OF $3,575 AND $2,621, RESPECTIVELY) 23,378 16,997 Inventories 6,472 5,078 Prepaid expenses and other current assets 4,141 2,173 Deferred income taxes 2,489 2,137 -------- -------- Total current assets 144,586 33,936 Property and equipment, net 5,802 4,377 Pre-publication costs (NET OF ACCUMULATED AMORTIZATION OF $5,234 AND $3,249, RESPECTIVELY) 4,188 3,478 Publishing rights and other identified intangible assets, net 91,342 78,260 Goodwill (NET OF ACCUMULATED AMORTIZATION OF $1,622 AND $320, RESPECTIVELY) 61,272 15,629 Other assets 3,806 2,978 -------- -------- TOTAL $310,996 $138,658 ======== ======== LIABILITIES AND STOCKHOLDERS' EQUITY CURRENT LIABILITIES: Current portion of capitalized lease obligations $ 308 $ 279 Accounts payable 20,156 13,339 Accrued expenses 5,089 3,360 Accrued income taxes -- 2,119 Royalties payable 1,204 1,304 Deferred subscription revenue 10,429 9,280 -------- -------- Total current liabilities 37,186 29,681 Capital leases 2,107 2,415 Deferred income taxes 14,057 14,976 Other long-term liabilities 1,372 651 -------- -------- Total liabilities 54,722 47,723 -------- -------- COMMITMENTS AND CONTINGENCIES STOCKHOLDERS' EQUITY: Preferred stock, $.01 par value; 1,000,000 shares authorized; none issued $ -- $ -- Common stock, $.01 par value; 50,000,000 shares authorized; issued and outstanding 21,611,970 shares at December 31, 2000 and 16,953,550 at December 31, 1999 216 170 Additional paid-in capital 243,075 84,874 Retained earnings 12,983 5,891 -------- -------- Total stockholders' equity 256,274 90,935 -------- -------- TOTAL $310,996 $138,658 ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-2 INFORMATION HOLDINGS INC. CONSOLIDATED STATEMENTS OF OPERATIONS YEARS ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT SHARE DATA)
2000 1999 1998 Revenues $ 73,289 $ 58,778 $ 46,651 Cost of sales 19,720 15,742 11,707 ------------ ------------ ------------ Gross profit 53,569 43,036 34,944 ------------ ------------ ------------ Operating expenses: Selling, general and administrative 36,987 28,142 24,871 Depreciation and amortization 9,744 5,962 5,313 Impairment of long-lived assets 1,500 -- -- Special bonuses -- -- 1,050 ------------ ------------ ------------ Total operating expenses 48,231 34,104 31,234 ------------ ------------ ------------ Income from operations 5,338 8,932 3,710 ------------ ------------ ------------ Other income (expense): Interest income 7,575 1,687 1,444 Interest expense (570) (357) (327) Other income (expense) 2 (18) -- ------------ ------------ ------------ Income before income taxes 12,345 10,244 4,827 Provision for income taxes 5,253 4,227 42 ------------ ------------ ------------ Net income $ 7,092 $ 6,017 $ 4,785 ============ ============ ============ Basic earnings per common share $ 0.34 $ 0.36 ============ ============ Average number of basic common shares outstanding 20,583,190 16,945,210 ============ ============ Diluted earnings per common share $ 0.34 $ 0.35 ============ ============ Average number of diluted common shares outstanding 20,821,921 17,128,277 ============ ============ Pro forma income data (Unaudited): Income before income taxes, as reported $ 4,827 Pro forma income taxes 42 ------------ Pro forma net income $ 4,785 ============ Pro forma basic and diluted earnings per common share earnings per common share $ 0.28 ============ Pro forma average number of common shares outstanding 16,943,189 ============ SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
F-3 INFORMATION HOLDINGS INC. CONSOLIDATED STATEMENTS OF STOCKHOLDERS'/MEMBERS' EQUITY YEARS ENDED DECEMBER 31 (IN THOUSANDS, EXCEPT SHARE DATA)
COMMON STOCK ------------------------- ADDITIONAL RETAINED NUMBER OF PAID-IN EARNINGS MEMBERS' SHARES AMOUNT CAPITAL (DEFICIT) EQUITY TOTAL Balance at January 1, 1998 -- $ -- $ -- $ (4,911) $ 33,467 $ 28,556 Exchange 12,200,000 122 33,356 -- (33,478) -- Initial public offering, net 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 Common stock issued to employees from stock option exercises 10,361 1 124 -- -- 125 Net income -- -- -- 6,017 -- 6,017 ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 1999 16,953,550 170 84,874 5,891 -- 90,935 Issuance of common stock, net 4,500,000 45 155,088 -- -- 155,133 Common stock issued to employees from stock option exercises 158,420 1 1,918 -- -- 1,919 Income tax benefit from stock option exercises -- -- 1,195 -- -- 1,195 Net income -- -- -- 7,092 -- 7,092 ---------- ---------- ---------- ---------- ---------- ---------- Balance at December 31, 2000 21,611,970 $ 216 $ 243,075 $ 12,983 -- $ 256,274 ========== ========== ========== ========== ========== ==========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. F-4 INFORMATION HOLDINGS INC. CONSOLIDATED STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31 (IN THOUSANDS)
2000 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 7,092 $ 6,017 $ 4,785 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 2,210 1,592 1,192 Amortization of goodwill and other intangibles 7,534 4,370 4,121 Amortization of pre-publication costs 2,297 2,469 2,413 Deferred income taxes (1,862) (1,988) (814) Impairment of long-lived assets 1,500 -- -- (Gain) loss on disposal of property and equipment (3) 18 -- Other 142 36 250 Changes in operating assets and liabilities: Accounts receivable, net (5,112) (3,598) (4,318) Inventories (1,166) (299) (1,237) Prepaid expenses and other current assets (1,371) (116) (479) Accounts payable and accrued expenses 2,508 1,617 (566) Income tax benefit from stock options exercised 1,195 -- -- Royalties payable (100) (631) 186 Deferred subscription revenue 585 (325) 948 Other, net (999) (662) (543) --------- --------- --------- Net Cash Provided by Operating Activities 14,450 8,500 5,938 --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from disposal of property and equipment 14 11 2 Purchases of property and equipment (2,800) (1,397) (1,327) Pre-publication costs (3,020) (2,267) (2,390) Acquisitions of businesses and titles (64,862) (53,430) (4,202) Purchases of short-term investments (11,731) -- -- --------- --------- --------- Net Cash Used in Investing Activities (82,399) (57,083) (7,917) --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Principal payments on capital leases (279) (261) (233) Issuance of common stock in public offering, net 155,133 -- 51,191 Common stock issued from stock options exercised 1,919 125 -- Financing costs for new credit facility -- (1,000) -- Net repayments under revolving credit facility -- -- (2,000) Capital contributions -- -- 11 --------- --------- --------- Net Cash Provided by (Used in) Financing Activities 156,773 (1,136) 48,969 --------- --------- --------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 88,824 (49,719) 46,990 CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 7,551 57,270 10,280 --------- --------- --------- CASH AND CASH EQUIVALENTS, END OF YEAR $ 96,375 $ 7,551 $ 57,270 ========= ========= ========= SUPPLEMENTAL DISCLOSURE: Income taxes paid $ 8,531 $ 4,824 $ 187 ========= ========= ========= Interest paid $ 571 $ 372 $ 340 ========= ========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-5 INFORMATION HOLDINGS INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998 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 (CRC Press), MicroPatent LLC (MicroPatent), Master Data Center, Inc. (MDC), and Transcender LLC (Transcender), provides information products and services to professional end-users in intellectual property, scientific and technical information and information technology (IT) learning markets. The Company's intellectual property businesses, which include MicroPatent and MDC, provide a broad array of databases, information products and complementary services for intellectual property professionals. The scientific and technology information business is CRC Press, which publishes professional and academic books, journals, newsletters and electronic databases covering areas such as life sciences, environmental sciences, engineering, mathematics, physical sciences and business. Transcender is a leading online provider of IT certification test-preparation products. Its products include exam simulations for certifications from major hardware and software providers. IHI, together with IV and its subsidiaries are referred to as (the Company). Products are distributed on a worldwide basis, and IV has operating offices in the United States and in Europe. On August 12, 1998, the members of IV contributed all of their direct and indirect equity interests to IHI, then 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 were used primarily during fiscal 1999 to fund four strategic acquisitions in the intellectual property market (See Note 3). On March 14, 2000, the Securities and Exchange Commission declared effective the Company's registration statement on Form S-3, pursuant to which the Company completed a public offering on March 20, 2000 of 4,500,000 shares of its common stock at a price of $36.50 per share. The net proceeds to the Company, after deducting underwriting discounts, commissions and offering expenses was approximately $155,000,000. The net proceeds from this offering will be used to finance future acquisitions and for general corporate purposes (See Note 3). The consolidated financial statements presented as of and for the three years ended December 31, 2000 include the accounts of IHI and subsidiaries, all of which are wholly owned. Because IHI had no business operations prior to the Exchange, the statement of operations for IHI for periods prior to August 12, 1998 are not included herein. The consolidated financial statements for the period January 1, 1998 to August 12, 1998 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. F-6 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. SHORT-TERM INVESTMENTS - At December 31, 2000, the Company held short-term investments in commercial paper, which was classified as held-to-maturity. The investments have a maturity date within one year and are stated at their amortized cost. ACCOUNTS RECEIVABLE - The changes in the allowance for doubtful accounts receivable and sales returns consist of the following (in thousands):
YEARS ENDED DECEMBER 31, 2000 1999 1998 Allowance, beginning of year $ 2,621 $ 3,406 $ 803 Provision for uncollectible accounts and returns 1,116 332 2,133 (Write-off) recoveries of uncollectible accounts and deductions from reserves (162) (1,117) 470 ------- ------- ------- Allowance, end of year $ 3,575 $ 2,621 $ 3,406 ======= ======= =======
INVENTORIES - Inventories, consisting primarily of finished goods, are stated at the lower of cost (first-in, first-out method) or market. 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. ADVERTISING COSTS - The cost of advertising is expensed as incurred. The majority of these costs relate to direct response marketing and is expensed upon mailing. The Company incurred approximately $6,565,000, $6,446,000, and $6,460,000 in advertising costs during fiscal 2000, 1999 and 1998, respectively. Direct mail related costs of approximately $1,147,000 and $245,000 was included in prepaid expenses and other current assets at December 31, 2000 and 1999, respectively. PROPERTY AND EQUIPMENT - Depreciation is provided using the straight-line method over the following estimated useful lives: Furniture and equipment 3 - 7 years Computer equipment 3 - 5 years Leasehold improvements Shorter of useful life or lease term Property under capital leases Life of lease Gains or losses arising from dispositions are reported as income or expense. Maintenance and repair costs are charged to expense as incurred, and renewals and improvements that extend the useful lives of assets are capitalized. 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 2000 and 1999, the Company removed from its Balance Sheets fully amortized Pre-publication costs with a cost of approximately $3,554,000 and $1,645,000, respectively. F-7 PUBLISHING RIGHTS AND OTHER IDENTIFIED INTANGIBLE ASSETS - Publishing rights and other identified intangible assets consist primarily of publication agreements, subscriber lists, databases, 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 2-5 years. GOODWILL - 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 15-20 years. IMPAIRMENT OF LONG-LIVED ASSETS - The Company periodically 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. If the Company determines, based on such measures, that the carrying amount is impaired, the assets will be written down to its recoverable value with a corresponding charge to earnings. Based on these evaluations, there were no adjustments to the carrying value on long-lived assets in fiscal 1999 and 1998. During 2000 the Company formed an alliance with Intellectual Property Technology Exchange, Inc. (Techex) to jointly develop and market products to address the online needs of the technology licensing industry. In the fourth quarter of 2000, the Company determined that the value of its investment in Techex was impaired due to the inability of Techex to generate significant revenues. The evaluation of the recoverability of long-lived assets to be held and used is based on comparing the assets carrying amount with its fair value. Based on fair market value estimates, the Company recorded a charge of $1,500,000 to the Company's intellectual properties businesses to write down the carrying amount of the investment to estimated fair value. Due to uncertainties inherent in the estimation process, it is reasonably possible that the actual recovery of the remaining investment of $500,000 may vary from the current estimate. At December 31, 2000, the investment in Techex of $500,000 was included in the Consolidated Balance Sheet caption Other assets. REVENUE RECOGNITION - The Company recognizes revenues principally upon shipment of products to the customer. For products sold with the right of return, revenue is recognized net of a provision for estimated future returns. Subscription revenues are generally collected in advance and are deferred and recognized as revenue in the period in which the product is shipped. Revenue from annuity tax payment services is recognized in the period when the related annuity tax payments are made to various regulatory agencies. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin No. 101 (SAB 101), "Revenue Recognition in Financial Statements." SAB 101 summarizes certain of the SEC's views in applying generally accepted accounting principles to revenue recognition in financial statements. The Company adopted SAB 101 as required during 2000. The adoption of SAB 101 did not have a material effect on the Company's consolidated financial statements. DEFERRED REVENUE - In connection with the acquisition of companies, it is the Company's policy to record deferred revenue at the cost to fulfill plus an applicable gross profit margin, rather than based on the subscription payments received. F-8 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. Income taxes are calculated in accordance with Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes." SFAS 109 requires the asset and liability method of accounting for income taxes. 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 grants stock options for a fixed number of shares to employees with an exercise price equal to the fair value of the shares at the date of grant. The Company accounts for its stock option grants under the provisions of Accounting Principles Board (APB) Opinion No. 25, "Accounting for Stock Issued to Employees" and the disclosure-only provisions of SFAS No. 123, "Accounting for Stock-Based Compensations." Since stock options will be granted by the Company with exercise prices equal to the market price of the underlying stock at the date of grant, no compensation expense is recognized. FORWARD CONTRACTS - A subsidiary of the Company uses forward exchange contracts to hedge foreign currency transaction exposures of its operations. Deferred gains and losses are recognized in earnings when the underlying transactions are settled. COMPUTATION OF EARNINGS PER COMMON SHARE - Basic earnings per common share is computed based on the weighted average outstanding common shares during the respective period. Diluted earnings per common share is computed 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 or share data are presented for years prior to fiscal 1999, as the Company does not consider such historical data meaningful. The pro forma earnings per share presented 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, 1998. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," is effective for all fiscal years beginning after June 15, 2000. SFAS 133, as amended, establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities. Under SFAS 133, certain contracts that were not formerly considered derivatives may now meet the definition of a derivative. The Company adopted SFAS 133 effective January 1, 2001. The adoption of SFAS 133 did not have a significant impact on the consolidated financial position, results of operations, or cash flows of the Company. USE OF ESTIMATES - The preparation of the consolidated 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. Management bases its estimates on historical experience and on various assumptions, which are believed to be reasonable under the circumstances. Actual results could differ from those estimates. F-9 3. ACQUISITIONS On November 6, 2000, the Company acquired all of the assets of Transcender Corporation for cash consideration of approximately $60,000,000. Transcender is a leading provider of on-line IT certification products. Transcender develops content and related software distributed over the Internet and in other electronic media to information technology professionals seeking certification in numerous product areas and programming languages. The purchase price was allocated to net liabilities assumed of $1,654,000, publishing rights and other intangible assets of $14,900,000, goodwill of $46,354,000 and non-compete agreements of $400,000. Assets acquired and liabilities assumed have been recorded at their estimated fair values and useful lives. The Company has obtained an independent appraisal of the fair values of the identified intangible assets and their remaining useful lives. Goodwill is being amortized using the straight-line method over 15 years. On January 7, 1999, effective as of January 1, 1999, the Company acquired the stock of Optipat, Inc. (Optipat), for cash consideration of approximately $3,200,000. Optipat provides patent information in printed format and over the Internet to the corporate and legal markets. The purchase price was allocated to publishing rights and other intangible assets of $2,900,000 and net tangible assets of $300,000. 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 allocated to net tangible assets of $600,000, publishing rights and other intangible assets of $8,600,000 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., a Michigan corporation, for cash consideration of $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 as finalized in 2000 was allocated to net liabilities assumed of $8,700,000, and publishing rights and other intangible assets of $41,700,000. Assets acquired and liabilities assumed have been recorded at their estimated fair values and useful lives. 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 $16,249,000. This goodwill is being amortized using the straight-line method over 20 years. Amortization expense for the years ended December 31, 2000 and 1999 was $831,000 and $301,000, respectively. 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 Internet. The purchase price was allocated to publishing rights and other intangible assets of $7,900,000 and non-compete agreements of $100,000. 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. 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. F-10 The following unaudited pro forma information presents the results of operations of the Company, as if the 2000 acquisition of Transcender and the 1999 acquisitions of MDC, Optipat, and Faxpat had taken place as of January 1, 1999 and 1998, respectively are as follows (in thousands, except per share data):
YEARS ENDED DECEMBER 31, --------------------------------- 2000 1999 1998 Revenues $ 89,405 $ 81,768 $ 61,414 ======== ========= ======== Net income (loss) $ (208) $ (760) $ 4,126 ======== ========= ======== Basic earnings (loss) per common share $ (0.01) $ (0.04) $ 0.24 ======== ========= ======== Diluted earnings (loss) per common share $ (0.01) $ (0.04) $ 0.24 ======== ========= ========
These pro forma results of operations have been prepared for comparative purposes only and do not purport to be indicative of the operating results that would have occurred had the acquisitions been consummated as of the above date, 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, 2000 1999 Buildings $ 2,344 $ 2,344 Furniture and equipment 1,904 1,173 Computer equipment 6,207 3,820 Leasehold improvements 801 521 ------- ------- 11,256 7,858 Less accumulated depreciation 5,454 3,481 ------- ------- $ 5,802 $ 4,377 ======= =======
5. PUBLISHING RIGHTS AND OTHER IDENTIFIED INTANGIBLE ASSETS Publishing rights and other identified intangible assets consisted of the following (in thousands):
DECEMBER 31, DECEMBER 31, 2000 1999 Publishing rights and other identified intangibles $107,942 $89,178 Non-compete agreements 867 317 ------- ------- 108,809 89,495 Less accumulated amortization 17,467 11,235 ------- ------- $91,342 $78,260 ======= =======
6. SPECIAL BONUSES In conjunction with the initial public offering in August of 1998, a subsidiary entered into an employment agreement with an officer, whereby 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 agreement. Accrued expenses at December 31,1998 included $800,000 of costs related to this agreement, which was subsequently paid out in January 1999. F-11 7. 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 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 and for the periods ended December 31, 2000 and 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 December 31, 2000, 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. 8. INCOME TAXES The provision for income taxes consists of the following (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------- 2000 1999 1998 Current: Federal $ 6,133 $ 5,441 $ 663 State 922 830 220 Deferred: Federal (1,626) (1,874) (634) State (176) (170) (207) ------- ------- ------- $ 5,253 $ 4,227 $ 42 ======= ======= =======
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 income before income taxes:
YEARS ENDED DECEMBER 31, ------------------------- 2000 1999 Federal statutory rate $ 4,321 $ 3,585 State and local taxes, net of Federal tax benefits 508 429 Goodwill amortization not deductible for tax purposes 393 212 Non-deductible permanent items 31 19 Other, net - (18) ------- -------- $ 5,253 $ 4,227 ======= ========
F-12 Deferred income tax (liabilities) assets result from reporting income and expenses in different periods for tax and financial reporting purposes. Significant components of the Company's deferred tax liabilities and assets are as follows (in thousands):
DECEMBER 31, DECEMBER 31, 2000 1999 Current deferred tax assets: Allowance for accounts receivable $ 1,413 $ 1,021 Inventory 563 839 Other, net 513 277 -------- --------- Net current deferred tax assets $ 2,489 $ 2,137 ======== ========= Non-current deferred tax assets: Investment write-down $ 574 $ - Lease obligation 924 1,025 -------- --------- 1,498 1,025 -------- --------- Non-current deferred tax liabilities: Property and equipment (132) (566) Intangible assets (14,709) (15,377) Capitalized software (692) (58) Other (22) - -------- --------- (15,555) (16,001) -------- --------- Total long-term net deferred tax liabilities $(14,057) $ (14,976) ======== ========= Net deferred tax liabilities $(11,568) $ (12,839) ======== =========
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. The Pro forma income tax provision consists of the following (in thousands):
YEAR ENDED ---------- DECEMBER 31, 1998 Current: Federal $ 636 State 247 Deferred (841) ------- $ 42 =======
F-13 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:
YEAR ENDED ---------- DECEMBER 31, 1998 Federal statutory rate $ 1,641 State and local taxes, net of Federal tax benefits 342 Valuation allowance (1,960) Other, net 19 --------- $ 42 =========
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. 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 866,886 shares of Common Stock, subject to adjustment as provided in the Plan. On April 25, 2000, the stockholders of the Company approved a 500,000 share increase in the number of shares reserved for issuance under the Plan to a total of 1,366,886 shares reserved for issuance. 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 and for the years ended December 31, 1999 and 2000 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 -------------------------- Granted 115,563 18.51 Exercised (10,361) 12.00 Canceled or Lapsed (34,483) 12.09 -------------------------- Outstanding at December 31, 1999 600,052 13.26 -------------------------- Granted 501,408 32.67 Exercised (158,420) 12.11 Canceled or Lapsed (46,871) 16.75 -------------------------- OUTSTANDING AT DECEMBER 31, 2000 896,169 $ 24.14 -----------------------------------------------------------------------
F-14 Shares exercisable at December 31, 1998 109,482 $ 12.00 Shares exercisable at December 31, 1999 314,245 12.04 Shares exercisable at December 31, 2000 251,115 $ 12.82
---------------------------------------------------------------------- The following table summarizes information about stock options outstanding at December 31, 2000:
Weighted Range of Avg. Remaining Weighted Weighted Exercise Number Contractual Average Number Average Prices Outstanding Life Exercise Price Exercisable Exercisable -------------------------------------------------------------------------------------- $12.00-$16.25 309,088 5.4 years $ 12.07 222,465 $ 12.01 $18.13-$20.69 94,873 8.6 years 18.71 27,702 18.74 $24.75-$27.81 142,260 9.4 years 25.84 -- -- $31.63-$33.75 145,548 9.8 years 33.28 948 31.63 $36.75-$37.25 204,400 9.2 years 37.24 -- -- -------------------------------------------------------------------------- 896,169 7.9 Years $ 24.14 251,115 $ 12.82 ----------- --------------------------------------------------------------------------
At December 31, 2000, the total number of available shares to grant under the Plan was 301,936. 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):
YEARS ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 Net income applicable to common shareholders: As reported $ 7,092 $ 6,017 $ 4,785 Pro forma $ 5,943 $ 5,697 $ 4,691 Basic earnings per common share: As reported $ 0.34 $ 0.36 $ 0.28 Pro forma $ 0.29 $ 0.34 $ 0.28 Diluted earnings per common share: As reported $ 0.34 $ 0.35 $ 0.28 Pro forma $ 0.29 $ 0.33 $ 0.28
The effects on pro forma net income and earnings per share of expensing the estimated fair value of stock options are not necessarily representative of the effects on reported net income for future years due to such factors as the vesting period of the stock options and the potential for issuance of additional stock options in future years. F-15 The fair value of stock options granted in 2000, 1999 and 1998 was estimated at the dates of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used:
YEARS ENDED DECEMBER 31, ------------------------------ 2000 1999 1998 Risk free interest rate 6.4% 6.0% 5.5% Expected life of option grants (years) 5 5 5 Expected volatility 75.45% 67.62% 25.0% Expected dividend yield 0 0 0
11. 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. 12. EARNINGS PER SHARE The following table sets forth the computation of basic and diluted earnings per common share for the period indicated.
YEARS ENDED DECEMBER 31, ------------------------- (IN THOUSANDS, EXCEPT PER SHARE DATA) 2000 1999 Basic: Net income $ 7,092 $ 6,017 Average shares outstanding 20,583 16,945 -------- -------- Basic EPS $ 0.34 $ 0.36 ======== ======== Diluted: Net income $ 7,092 $ 6,017 ======== ======== Average shares outstanding 20,583 16,945 Net effect of dilutive stock options based on the treasury stock method 239 183 -------- -------- Total 20,822 17,128 ======== ======== Diluted EPS $ 0.34 $ 0.35 ======== ========
In 2000, 351,448 stock options were excluded from the computation of diluted earnings per common share due to their antidilutive effect. F-16 13. COMMITMENTS AND CONTINGENCIES LEASE COMMITMENTS - The Company primarily leases office and warehouse 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 leases include escalation clauses. The future noncancelable minimum lease payments under operating leases and under capital leases including estimated escalation amounts as of December 31, 2000 are as follows (in thousands):
OPERATING CAPITAL LEASES LEASES Year ending December 31, 2001 $ 2,063 $ 519 2002 1,862 536 2003 1,635 553 2004 1,650 572 2005 1,445 591 Thereafter 1,861 354 -------- ------- Total minimum lease payments $ 10,516 3,125 ======== ======= Less amount representing unamortized interest 710 ------- Present value of net minimum lease payments 2,415 Less current maturities 308 ------- Long-term obligation $ 2,107 =======
Assets recorded under capital leases and the related depreciation are included in Property and equipment as follows (in thousands):
DECEMBER 31, DECEMBER 31, 2000 1999 Buildings $ 2,344 $ 2,344 Computer equipment 86 86 ------- ------- 2,430 2,430 Less accumulated depreciation 1,066 820 ------- ------- $ 1,364 $ 1,610 ======= =======
Rental expense for operating leases amounted to approximately $1,706,000, $1,323,000 and $1,048,000 for each of the years ended December 31, 2000, 1999 and 1998, 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. 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. F-17 14. EMPLOYEE BENEFIT PLAN The Company sponsors a defined contribution 401(k) savings plan (the Plan). Employees are eligible to participate in the Plan upon the attainment of age 21 and the completion of one-year of credited service (effective January 1, 2000, six months of employment with the Company). Employees of Master Data Center, Inc. as of August 12, 1999 and Transcender employees as of November 6, 2000 will receive prior service credit in determining eligibility in the Plan. Participants may make pre-tax contributions subject to Internal Revenue Service limitations. The Company, via the subsidiaries, matches 50% of an employee's contribution up to a maximum of 6% of eligible compensation. In addition, at its discretion, the Company may make additional contributions to the Plan; no such contributions were made in fiscal years 2000, 1999 and 1998, respectively. Participant contributions and earnings thereon vest immediately. Matching contributions and earnings thereon vest in equal amounts over a three-year period. Nonvested balances are forfeited and used to offset future employer contributions. The Company's contributions under these plans for each of the three years ended December 31, 2000, 1999, and 1998 were approximately $320,000, $211,000 and $198,000, respectively. The significant increase in fiscal 2000 over amounts contributed in fiscal 1999 reflects the addition of employees as a result of acquisitions. 15. RELATED PARTY TRANSACTION During fiscal 1999 and 1998, a subsidiary of the Company transacted business in the amount of approximately $160,000 and $250,000, respectively, with a mail house owned by a brother-in-law of Dennis Buda, the former President of CRC Press. In October 1999, the subsidiary discontinued its relationship with this mail order house. The rates charged by this mail house were at comparable rates charged by other mail houses serving the Company. 16. SEGMENT INFORMATION Operating segments are defined as components of an enterprise for which separate financial information is available and regularly reviewed by the Company's senior management. The Company evaluates performance based on earnings before interest, taxes, depreciation and amortization (EBITDA) of the respective business units. The accounting policies of the operating segments are the same as those described in the summary of significant accounting policies. The Company has three reportable segments: intellectual property, scientific and technology information and information technology learning. The intellectual property segment, which includes MicroPatent and MDC, provides a broad array of databases, information products and complementary services for intellectual property professionals. The scientific and technology information segment is CRC Press, which publishes professional and academic books, journals, newsletters and electronic databases covering areas such as life sciences, environmental sciences, engineering, mathematics, physical sciences and business. The information technology learning segment was created in fiscal 2000 as a result of the Company's strategic acquisition of Transcender. Transcender is a leading online provider of IT certification test-preparation products. Other includes unallocated corporate items. F-18 The following tables set forth the information for the Company's reportable segments for the periods indicated (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------- 2000 1999 1998 REVENUES FROM EXTERNAL CUSTOMERS: Intellectual property $ 30,228 $ 17,571 $ 7,727 Scientific and technology information 38,984 41,207 38,924 Information technology learning 4,077 - - --------- -------- -------- $ 73,289 $ 58,778 $ 46,651 ========= ======== ======== EBITDA: Intellectual property $ 7,839 $ 7,383 $ 3,052 Scientific and technology information 10,262 11,695 10,920 Information technology learning 1,760 - - Other (2,480) (1,733) (2,536) --------- -------- -------- $ 17,381 $ 17,345 $ 11,436 ========= ======== ======== OPERATING INCOME: Intellectual property $ 1,072 $ 3,466 $ (520) Scientific and technology information 5,967 7,205 6,766 Information technology learning 790 - - Other (2,491) (1,739) (2,536) --------- -------- -------- $ 5,338 $ 8,932 $ 3,710 ========= ======== ======== SEGMENT ASSETS: Intellectual property $ 96,904 $ 88,477 $ 5,195 Scientific and technology information 42,825 43,330 43,245 Information technology learning 66,147 - - Other 105,120 6,851 56,351 --------- -------- -------- $ 310,996 $138,658 $104,791 ========= ======== ======== DEPRECIATION AND AMORTIZATION: (1) Intellectual property $ 6,769 $ 3,917 $ 3,572 Scientific and technology information 4,290 4,508 4,154 Information technology learning 971 - - Other 11 6 - --------- -------- -------- $ 12,041 $ 8,431 $ 7,726 ========= ======== ======== CAPITAL EXPENDITURES: Intellectual property $ 2,263 $ 821 $ 661 Scientific and technology information 444 546 666 Information technology learning 64 - - Other 29 30 - --------- -------- -------- $ 2,800 $ 1,397 $ 1,327 ========= ======== ========
(1) Depreciation and amortization includes $2,297,000, $2,469,000, and $2,413,000 of amortization of pre-publication costs, included in operations in cost of sales for each of the three years in the period ended December 31, 2000, respectively. F-19 A reconciliation of combined EBITDA for the intellectual property, scientific and technology information, and information technology learning segments to consolidated income before income taxes is as follows (in thousands):
YEARS ENDED DECEMBER 31, -------------------------------- 2000 1999 1998 Total EBITDA for reportable segments $ 19,861 $ 19,078 $ 13,972 Corporate expenses (2,480) (1,733) (2,536) Interest income 7,005 1,330 1,117 Depreciation and amortization (1) (12,041) (8,431) (7,726) --------- -------- -------- Income before income taxes $ 12,345 $ 10,244 $ 4,827 ========= ======== ========
The following table presents revenues by geographic location (in thousands):
YEARS ENDED DECEMBER 31, ------------------------------- 2000 1999 1998 United States $ 59,461 $ 40,845 $ 34,974 Europe 5,824 9,506 7,970 Others 8,004 8,427 3,707 --------- -------- -------- $ 73,289 $ 58,778 $ 46,651 ========= ======== ========
17. FINANCIAL INSTRUMENTS AND OFF BALANCE SHEET RISK CONCENTRATION OF CREDIT RISK - Financial instruments that potentially subject the Company to credit risks consists principally of trade accounts receivable and cash investments. The Company believes the concentration of credit risk in its trade 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. 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 commercial paper. 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, 2000, the Company had approximately $13,320,000 of cash in excess of FDIC insurance limits. The Company believes that the risk of any loss is minimal based on the financial condition of the institutions. FAIR VALUE OF FINANCIAL INSTRUMENTS - The carrying amounts of cash and cash equivalents, short-term investments, accounts receivable and accounts payable reported in the Consolidated Balance Sheets 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. The fair value of the Company's forward contracts is estimated based on quoted market prices of comparable contracts. F-20 OFF BALANCE SHEET RISK - The Company routinely enters into forward contracts to acquire various international currencies in an effort to hedge foreign currency transaction exposures of its operations. Such forward contracts have been designated as hedges for future annual patent payments to related international regulatory agencies. At December 31, 2000, the Company had entered into forward contracts to acquire various international currencies, all having maturities of less than three months, aggregating approximately $8,809,000. Realized gains and losses relating to the forward contracts were immaterial for the year ended December 31, 2000. F-21 EX-3.2 2 a2042989zex-3_2.txt EXHIBIT 3.2 Exhibit 3.2 INFORMATION HOLDINGS INC. Incorporated Under the General Corporation Law of the State of Delaware AMENDED AND RESTATED BYLAWS * * * * * ARTICLE I. OFFICES The registered office of INFORMATION HOLDINGS INC. (the "Corporation") in Delaware shall be at 1013 Centre Road, in the City of Wilmington, County of New Castle, in the State of Delaware, and Corporation Service Company shall be the resident agent of the Corporation in charge thereof. The Corporation may also have such other offices at such other places, within or without the State of Delaware, as the board of directors of the Corporation (the "Board of Directors") may from time to time designate or the business of the Corporation may require. ARTICLE II. STOCKHOLDERS SECTION 1. Annual Meeting. The annual meeting of stockholders for the election of directors and the transaction of any other business shall be held on such date, in such city and state and at such time and place as may be designated by the Board of Directors, which shall be set forth in the notice of such meeting. At the annual meeting any business may be transacted and any corporate action may be taken, whether stated in the notice of meeting or not, except as otherwise expressly provided by statute, the Certificate of Incorporation or these Bylaws. SECTION 2. Special Meetings. Special meetings of the stockholders for any purpose may be called at any time by the Board of Directors, the Chairman of the Board or the Chief Executive Officer and shall be called by the Chief Executive Officer at the request of the holders of a majority of the outstanding shares of capital stock entitled to vote. Special meetings shall be held at such place or places within or without the State of Delaware as shall from time to time be designated by the Board of Directors and stated in the notice of such meeting. At a special meeting no business shall be transacted and no corporate action shall be taken other than that stated in the notice of the meeting. SECTION 3. Notice of Meetings. Written notice of the time and place of any stockholders' meeting, whether annual or special, shall be given to each stockholder entitled to vote thereat, by personal delivery or by mailing the same to him at his address as the same appears upon the records of the Corporation at least ten (10) days but not more than sixty (60) days before the day of the meeting. Notice of any adjourned meeting need not be given except by announcement at the meeting so adjourned, unless otherwise ordered in connection with such adjournment. Such further notice, if any, shall be given as may be required by law. SECTION 4. Quorum. Any number of stockholders, together holding at least a majority of the capital stock of the Corporation issued and outstanding and entitled to vote, who shall be present in person or represented by proxy at any meeting duly called, shall constitute a quorum for the transaction of all business, except as otherwise provided by law, by the Certificate of Incorporation or by these Bylaws. SECTION 5. Adjournment of Meetings. If less than a quorum shall attend at the time for which a meeting shall have been called, the meeting may be adjourned from time to time by a majority vote of the stockholders present or represented by proxy and entitled to vote, without notice other than by announcement at the meeting until a quorum shall attend. Any meeting at which a quorum is present may also be adjourned in like manner and for such time or upon such call as may be determined by a majority vote of the stockholders present or represented by proxy and entitled to vote. At any adjourned meeting at which a quorum shall be present, any business may be transacted and any corporate action may be taken which might have been transacted at the meeting as originally called. SECTION 6. Voting List. The officer or agent having charge of the stock ledger of the Corporation shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at such meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purposes germane to the meeting, during ordinary business hours, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not so specified, at the place where the meeting is to be held, for said ten (10) days. The list shall also be produced and kept at the time and place of meeting during the whole time thereof and subject to the inspection of any stockholder who may be present. SECTION 7. Voting. Each stockholder entitled to vote at any meeting may vote either in person or by proxy, but no proxy shall be voted on or after three (3) years from its date, unless said proxy provides for a longer period. Each stockholder entitled to vote shall at every meeting of the stockholders be entitled to one vote for each share of stock registered in his name on the record of stockholders. At all meetings of stockholders, all matters, except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, and except for the election of directors which shall be determined by a plurality of the votes cast, shall be determined by the affirmative vote of the majority of shares present in person or by proxy and entitled to vote on the subject matter. Voting at meetings of stockholders need not be by written ballot. SECTION 8. Record Date of Stockholders. The Board of Directors is authorized to fix in advance a date not more than sixty (60) days nor less than ten (10) days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of rights, or the date when any change or conversion or exchange of capital stock shall go into effect, or as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting, and any adjournment thereof, or entitled to receive payment of -2- any such dividend, or to any such allotment of rights, or to exercise the rights in respect of any such change, conversion or exchange of capital stock, and, in such case, such stockholders and only such stockholders as shall be stockholders of record on the date so fixed shall be entitled to such notice of, and to vote at, such meeting, and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation, after such record date fixed as aforesaid. SECTION 9. Conduct of Meetings. The Chief Executive Officer or any Vice President designated by the Chief Executive Officer, shall preside at all regular or special meetings of stockholders. To the maximum extent permitted by law, such presiding person shall have the power to set procedural rules, including but not limited to rules respecting the time allotted to stockholders to speak, governing all aspects of the conduct of such meetings. ARTICLE III. DIRECTORS SECTION 1. Number and Qualifications. On the effective date of these Bylaws, the Board of Directors shall consist of three (3) directors and thereafter shall consist of such number as may be fixed from time to time by resolution of the Board of Directors. The directors need not be stockholders. SECTION 2. Election of Directors. The directors of the Corporation shall be elected by a plurality of the votes cast by the stockholders at the annual meeting of stockholders. SECTION 3. Removal and Resignation of Directors. Any director may be removed from the Board of Directors only for cause by the holders of a majority of the shares of capital stock entitled to vote, at any special meeting of the stockholders called for that purpose, and the office of such director shall forthwith become vacant. Any director may resign at any time. Such resignation shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the Chief Executive Officer or Secretary. The acceptance of a resignation shall not be necessary to make it effective, unless so specified therein. SECTION 4. Filling of Vacancies. Any vacancy among the directors, occurring from any cause whatsoever, may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director; provided, however, that the stockholders removing any director may at the same meeting fill the vacancy caused by such removal; and provided, further, that if the directors fail to fill any such vacancy, the stockholders may at any special meeting called for that purpose fill such vacancy. In case of any increase in the number of directors, the additional directors may be elected by the directors in office before such increase. Any person elected to fill a vacancy shall hold office, subject to the right of removal as hereinbefore provided, until the next annual election and until his successor is elected and qualifies. -3- SECTION 5. Regular Meetings. Regular meetings of the Board of Directors shall be held at such times as may be determined from time to time by resolution of the Board of Directors. SECTION 6. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board of Directors or by the Chief Executive Officer. SECTION 7. Notice and Place of Meetings. Meetings of the Board of Directors may be held at the principal office of the Corporation or at such other place as shall be stated in the notice of such meeting. Notice of any such meeting shall be given in compliance with applicable law. SECTION 8. Business Transacted at Meetings, etc. Any business may be transacted and any corporate action may be taken at any regular or special meeting of the Board of Directors at which a quorum shall be present, whether such business or proposed action be stated in the notice of such meeting or not, unless special notice of such business or proposed action shall be required by statute. SECTION 9. Quorum. A majority of the Board of Directors at any time in office shall constitute a quorum. At any meeting at which a quorum is present, the vote of a majority of the members present shall be the act of the Board of Directors unless the act of a greater number is specifically required by law or by the Certificate of Incorporation or these Bylaws. The members of the Board of Directors shall act only as the Board of Directors and the individual members thereof shall not have any powers as such. SECTION 10. Compensation. The directors shall not receive any salary for their services as directors, but by resolution of the Board of Directors a fee (payable in cash or securities, as determined by the Board of Directors) and expenses of attendance may be allowed for attendance at each meeting. Nothing herein contained shall preclude any director from serving the Corporation in any other capacity, as an officer, agent or otherwise, and receiving compensation therefor. SECTION 11. Action Without a Meeting. Any action required or permitted to be taken at any meeting of the Board of Directors, or of any committee of the Board of Directors (each a "Committee"), may be taken without a meeting if all members of the Board of Directors or Committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of the proceedings of the Board of Directors. SECTION 12. Meetings Through Use of Communications Equipment. Members of the Board of Directors, or any Committee, may, except as otherwise provided by law, the Certificate of Incorporation or these Bylaws, participate in a meeting of the Board of Directors, or any Committee, by means of a conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation shall constitute presence in person at the meeting. -4- ARTICLE IV. COMMITTEES SECTION 1. Executive Committee. The Board of Directors may, by resolution passed by a majority of the whole Board of Directors, designate one (1) or more of their number to constitute an Executive Committee to hold office at the pleasure of the Board of Directors, which Committee shall, during the intervals between meetings of the Board of Directors, have and exercise all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, subject only to such restrictions or limitations as the Board of Directors may from time to time specify, or as limited by law, and shall have power to authorize the seal of the Corporation to be affixed to all papers which may require it. Any member of the Executive Committee may be removed at any time, with or without cause, by a resolution passed by a majority of the whole Board of Directors. Any person ceasing to be a director shall ipso facto cease to be a member of the Executive Committee. Any vacancy in the Executive Committee occurring from any cause whatsoever may be filled from among the directors by a resolution passed by a majority the whole Board of Directors. SECTION 2. Other Committees. Other Committees may be appointed by resolution of the whole Board of Directors, which Committees shall hold office for such time and have such powers and perform such duties as may from time to time be assigned to them by the Board of Directors. SECTION 3. Resignation. Any member of a Committee may resign at any time. Such resignation shall be made in writing and shall take effect at the time specified therein, or, if no time be specified, at the time of its receipt by the Chief Executive Officer or Secretary. The acceptance of a resignation shall not be necessary to make it effective unless so specified therein. SECTION 4. Quorum. A majority of the members of a Committee shall constitute a quorum. The act of a majority of the members of a Committee present at any meeting at which a quorum is present shall be the act of such Committee. The members of a Committee shall act only as a Committee, and the individual members thereof shall not have any powers as such. SECTION 5. Record of Proceedings, etc. Each Committee shall keep a record of its proceedings, which record shall be filed with the minutes of the proceedings of the Board of Directors. SECTION 6. Organization, Meetings, Notices, etc. A Committee may hold its meetings at the principal office of the Corporation, or at any other place which a majority of the Committee may at any time agree upon. Each Committee may make such rules as it may deem expedient for the regulation and carrying on of its meetings and proceedings. Unless otherwise ordered by the Executive Committee, any notice of a meeting of such Committee may be given by the Secretary of the Corporation or by the chairman of the Committee and shall be sufficiently given if mailed to each member at his residence or usual place of business at least five (5) days before the day on which the meeting is to be held, or if sent to him at such place by facsimile, telegraph or cable, or delivered personally or by telephone not later than twenty-four (24) hours before the time at which the meeting is to be held. -5- SECTION 7. Compensation. The members of any Committee shall be entitled to such compensation as may be allowed them by resolution of the Board of Directors. ARTICLE V. OFFICERS SECTION 1. Number. The officers of the Corporation shall be a Chief Executive Officer, a President, one or more Vice Presidents, a Secretary, a Treasurer, and such other officers as may be appointed in accordance with the provisions of Section 3 of this Article V. The Board of Directors in its discretion may also elect a Chairman of the Board of Directors. SECTION 2. Election, Term of Office and Qualifications. The officers, except as provided in Section 3 of this Article V, shall be appointed by the Board of Directors. Each such officer shall, except as herein otherwise provided, hold office until his successor shall have been chosen and shall qualify. Except as otherwise provided by law, any number of offices may be held by the same person. SECTION 3. Other Officers. Other officers, including one or more additional executive or senior vice presidents, vice presidents, assistant secretaries or assistant treasurers, may from time to time be appointed by the Board of Directors or Executive Committee, which other officers shall have such powers and perform such duties as may be assigned to them by authority appointing them. SECTION 4. Removal of Officers. Any officer of the Corporation may be removed from office, with or without cause, by a vote of a majority of the Board of Directors. SECTION 5. Resignation. Any officer of the corporation may resign at any time. Such resignation shall be in writing and shall take effect at the time specified therein, and if no time be specified, at the time of its receipt by the Chief Executive Officer or Secretary. The acceptance of a resignation shall not be necessary in order to make it effective, unless so specified therein. SECTION 6. Filling of Vacancies. A vacancy in any office shall be filled by the Board of Directors or by the authority appointing the predecessor in such office. SECTION 7. Compensation. The compensation of the officers shall be fixed by the Board of Directors, or by any Committee upon whom power in that regard may be conferred by the Board of Directors. SECTION 8. Chairman of the Board of Directors. The Chairman of the Board of Directors shall be a director and shall preside at all meetings of the Board of Directors at which he shall be present, and shall have such power and perform such duties as may from time to time be assigned to him by the Board of Directors. SECTION 9. Chief Executive Officer and/or President. The Chief Executive Officer and/or President shall, when present, preside at all meetings of the stockholders. He shall have power to call special meetings of the stockholders or of the Board of Directors at any time. He shall be the chief executive officer of the Corporation, and shall have the general direction of the -6- business, affairs and property of the Corporation, and of its several officers, and shall have and exercise all such powers and discharge such duties as usually pertain to the office of Chief Executive Officer and/or President. SECTION 10. Vice Presidents. The Vice Presidents, or any of them, shall, subject to the direction of the Board of Directors, at the request of the Chief Executive Officer and/or President or in his absence, or in case of his inability to perform his duties for any cause, perform the duties of the Chief Executive Officer and/or President, and, when so acting, shall have all the powers of, and be subject to all restrictions upon, the Chief Executive Officer. The Vice Presidents shall also perform such other duties as may be assigned to them by the Board of Directors, and the Board of Directors may determine the order of priority among the Vice Presidents. SECTION 11. Secretary. The Secretary shall perform such duties as are usually incident to the office of Secretary, or as may from time to time be assigned to him by the Board of Directors, or as are prescribed by these Bylaws. SECTION 12. Treasurer. The Treasurer shall perform such duties and have powers as are usually incident to the office of Treasurer or may from time to time be assigned to him by the Board of Directors. ARTICLE VI. CAPITAL STOCK SECTION 1. Issuance of Certificates of Stock. Certificates of capital stock shall be in such form as shall be approved by the Board of Directors. They shall be numbered in the order of their issuance and shall be signed by (i) the Chairman of the Board of Directors, the Chief Executive Officer, the President, if any, or one of the Vice Presidents, and (ii) the Secretary or an Assistant Secretary or the Treasurer or an Assistant Treasurer, and the seal of the Corporation or a facsimile thereof shall be impressed or affixed or reproduced thereon; provided, however, that where such certificates are signed by a transfer agent or an assistant transfer agent or by a transfer clerk acting on behalf of the Corporation and a registrar, the signature of any such officers of the Corporation may be facsimile. In case any officer or officers who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered as though the person or persons who signed such certificate or certificates, or whose facsimile signature or signatures shall have been used thereon, have not ceased to be such officer or officers of the Corporation. SECTION 2. Registration and Transfer of Shares. The name of each person owning one or more shares of the capital stock of the corporation shall be entered on the books of the Corporation together with the number of shares held by him, the numbers of the certificates covering such shares and the dates of issuance of such certificates. The shares of stock of the Corporation shall be transferable on the books of the Corporation by the holders thereof in -7- person, or by their duly authorized attorneys or legal representatives, on surrender and cancellation of certificates for a like number of shares, accompanied by an assignment or power of transfer endorsed thereon or attached thereto, duly executed, and with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. A record shall be made of each transfer. The Board of Directors may make other and further rules and regulations concerning the transfer and registration of certificates for stock and may appoint a transfer agent or registrar or both and may require all certificates of stock to bear the signature of either or both. SECTION 3. Lost, Stolen, Destroyed and Mutilated Certificates. The holder of any stock of the Corporation shall immediately notify the Corporation of any loss, theft, destruction or mutilation of the certificates therefor. The Corporation may issue a new certificate of stock in the place of any certificate theretofore issued by it alleged to have been lost, stolen, destroyed or mutilated, and the Board of Directors may, in its discretion, require the owner of the lost, stolen, destroyed or mutilated certificate, or his legal representatives, to give the Corporation a bond, in such sum not exceeding double the value of the stock and with such surety or sureties as they may require, to indemnify it against any claim that may be made against it by reason of the issuance of such new certificate and against all other liability in the premises, or may remit such owner to such remedy or remedies as he may have under the laws of the State of Delaware. ARTICLE VII. DIVIDENDS, SURPLUS, ETC. SECTION 1. General Discretion of Directors. The Board of Directors shall have power to fix and vary the amount to be set aside or reserved as working capital of the Corporation, or as reserves, or for other proper purposes of the Corporation, and, subject to the requirements of the Certificate of Incorporation, to determine whether any part of the surplus or net profits of the Corporation shall be declared as dividends and paid to the stockholders, and to fix the date or dates for the payment of any dividends. -8- ARTICLE VIII. MISCELLANEOUS PROVISIONS SECTION 1. Fiscal Year. The fiscal year of the Corporation shall commence on the first day of January and end on the last day of December, or such other dates as may be determined by the Board of the Directors. SECTION 2. Corporate Seal. The corporate seal shall be in such form as approved by the Board of Directors and may be altered at their pleasure. The corporate seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. SECTION 3. Notices. Except as otherwise expressly provided, any notice required by these Bylaws to be given shall be sufficient if given by depositing the same in a post office or letter box in a sealed postpaid wrapper addressed to the person entitled thereto at his address, as the same appears upon the books of the Corporation, or transmitted by facsimile, telegraph or cable the same to such person at such address; and such notice shall be deemed to be given at the time it is mailed, transmitted by facsimile, telegraphed or cabled. SECTION 4. Waiver of Notice. Any stockholder or director may at any time, by writing or by facsimile, telegraph or cable, waive any notice required to be given under these Bylaws, and if any stockholder or director shall be present at any meeting his presence shall constitute a waiver of such notice. SECTION 5. Checks, Drafts, etc. All checks, drafts or other orders for the payment of money, notes or other evidences of indebtedness issued in the name of the Corporation, shall be signed by such officer or officers, agent or agents of the Corporation, and in such manner, as shall from time to time be designated by resolution of the Board of Directors. SECTION 6. Deposits. All funds of the Corporation shall be deposited from time to time to the credit of the Corporation in such bank or banks, trust companies or other depositories as the Board of Directors may select, and, for the purpose of such deposit, checks, drafts, warrants and other orders for the payment of money which are payable to the order of the Corporation, may be endorsed for deposit, assigned and delivered by any officer of the Corporation, or by such agents of the Corporation as the Board of Directors or the Chief Executive officer may authorize for that purpose. SECTION 7. Voting Stock of Other Corporations. Except as otherwise ordered by the Board of Directors or the Executive Committee, any executive officer of the Corporation shall have full power and authority on behalf of the Corporation to attend and to act and to vote at any meeting of the stockholders of any corporation of which the Corporation is a stockholder and to execute a proxy to any other person to represent the Corporation at any such meeting, and at any such meeting, such executive officer or the holder of any such proxy, as the case may be, shall possess and may exercise any and all rights and powers incident to ownership of such stock and which rights and powers the Corporation might have possessed and exercised if present. The Board of Directors or the Executive Committee may from time to time confer like powers upon any other person or persons. -9- SECTION 8. Indemnification of Officers and Directors. The Corporation shall indemnify any and all of its directors, officers, trustees, employees or agents in accordance with the Corporation's Certificate of Incorporation. SECTION 9. Interested Directors; Quorum. No contract or transaction between the Corporation and one or more of its directors or officers of a corporation, partnership, association, or other organization or entity in which one or more of its directors or officers are directors or officers, or have a financial interest, shall be void or voidable solely for this reason, or solely because the director or officer is present at or participates in the meeting of the Board of Directors or Committee thereof which authorizes the contract or transaction, or solely because his or their votes are counted for such purpose, if: (1) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the Board of Directors or the Committee, and the Board of Directors or Committee in good faith authorizes the contract or transaction by the affirmative votes of a majority of the disinterested directors, even though the disinterested directors be less than a quorum; or (2) the material facts as to his relationship or interest and as to the contract or transaction are disclosed or are known to the stockholders entitled to vote thereon, and the contract or transaction is specifically approved in good faith by vote of the Stockholders; or (3) the contract or transaction is fair as to the Corporation as of the time it is authorized, approved or ratified by the Board of Directors, a committee thereof, or the stockholders. Common or interested directors may be counted in determining the presence of a quorum at a meeting of the Board of Directors or of a Committee which authorizes the contract or transaction. ARTICLE IX. AMENDMENTS SECTION 1. Amendments. The Board of Directors shall have the power to make, rescind, alter, amend and repeal these Bylaws, provided, however, that the stockholders shall have power to rescind, alter, amend or repeal any bylaws made by the Board of Directors, and to enact bylaws which if so expressed shall not be rescinded, altered, amended or repealed by the Board of Directors. * * * * * -10- EX-10.4 3 a2042989zex-10_4.txt EXHIBIT 10.4 Exhibit 10.4 EMPLOYMENT AGREEMENT This EMPLOYMENT AGREEMENT (this "Agreement"), is made and entered into as of April 10, 2000, effective for all purposes and in all respects as of April 10, 2000 (the "Commencement Date") between INFORMATION VENTURES LLC, a Delaware corporation (the "Company"), and Jay Nadler (the "Executive"). R E C I T A L S: ---------------- WHEREAS, the Company recognizes that the future growth, profitability and success of the Company's business will be substantially and materially enhanced by the employment of the Executive by the Company; and WHEREAS, the Company desires to employ the Executive and the Executive has indicated his willingness to provide his services, on the terms and conditions set forth herein. NOW, THEREFORE, on the basis of the foregoing premises and in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: Section 1. EMPLOYMENT. (a) DUTIES. The Company hereby agrees to employ the Executive and the Executive hereby accepts employment with the Company, on the terms and subject to the conditions hereinafter set forth and subject to the terms and conditions imposed on the Executive by the Employment Agreement and Restrictive Covenants, dated January 1, 1998, between the Executive and TFS Database Group, as the same may be amended, superseded, modified or replaced (the "Ancillary Agreement"). Subject to the terms and conditions contained herein, the Executive shall serve as President of CorporateInteligence.com, a wholly owned subsidiary of the Company ("CI.com"), or in any other senior executive capacity designated by the Company and, as agreed to in writing by the Executive. In such capacity, the Executive shall report to the Chief Executive Officer of the Company (the "CEO") and shall have such duties as are typically performed by a President of a corporation, together with such additional duties, commensurate with the Executive's position as President of a subsidiary of the Company, as may be assigned to the Executive from time to time by the CEO or Board of Directors of the Company (the "Board of Directors"). (b) LOCATION. The principal location of the Executive's employment initially shall be in the greater New York metropolitan area. The Executive understands and agrees that he may be required to travel for business reasons. Section 2. TERM. Unless terminated pursuant to Section 6 hereof, the Executive's employment hereunder shall commence on the date hereof and shall continue during the initial period ending on the second anniversary of the date hereof (the "Initial Term"). Thereafter, the Executive's term of employment shall extend automatically for consecutive periods of one (1) year unless either party shall provide notice of nonrenewal not less than one hundred and twenty (120) days prior to the end of the Employment Term. The Initial Term, together with any extension pursuant to this Section 2, is referred to herein as the "Employment Term". In the event that the Company fails to renew the Employment Term by providing a notice of nonrenewal to the Executive, the Company shall permit the Executive to spend time, during the normal working hours of such one hundred and twenty (120) day period, pursuing future employment or similar opportunities and such actions on the part of the Executive shall not be a breach or violation of this Agreement; provided, that such endeavors by the Executive do not materially interfere with the Executive's duties hereunder or violate any of the provisions of Section 7 herein. Section 3. Compensation. (a) SALARY. As compensation for the performance of the Executive's services hereunder, the Company shall pay to the Executive a salary (the "Salary") of $250,000 per annum, increased as of January 1 of each calendar year during the Employment Term (beginning on January 1, 2001) by the then-current inflation rate as reflected by the Consumer Price Index for Urban Wage Earners and Clerical Workers for the New York Metropolitan Area, as published by the Bureau of Labor Statistics of the U.S. Department of Labor. The Salary shall be payable in accordance with the payroll practices of the Company as the same shall exist from time to time for its senior executive employees. In no event shall the Salary be decreased during the Employment Term. (b) BONUS PLAN. The Executive shall be eligible to receive an annual cash bonus ("Bonus") in an amount up to 50% of the Salary, based upon meeting performance goals for each calendar year during the Employment Term. Such performance goals shall be mutually determined by the Executive, on the one hand, and the CEO or the Board of Directors, on the other hand. Bonus amounts shall be paid on or before April 1 of the year immediately following the end of the calendar year to which the Bonus relates. In the event of a termination of employment pursuant to Section 6(a), (b), (e), (f) or (g) below, the Company -2- shall pay to the Executive or the Executive's estate a prorated portion, through the date of termination and assuming the maximum performance of the goals for the entire calendar year, of the Bonus for the calendar year in which such termination occurs. In the event of such termination of employment, the prorated Bonus amount shall be paid no later than three (3) months following such termination. For all purposes hereof, it is understood and agreed that the Executive need not be employed by the Company at the time that a Bonus amount is to be paid. (c) BENEFITS. In addition to the Salary and Bonus, if any, the Executive shall be entitled to participate in health, insurance, pension and other benefits provided to other senior executives of the Company on terms no less favorable than those available to such senior executives of the Company. The Executive shall also be entitled to the same number of vacation days, holidays, sick days and other benefits as are generally allowed to other senior executives the Company. (d) STOCK OPTIONS. On the April 25, 2000, the Company shall grant to Executive options to purchase 100,000 shares of the common stock of the Company, par value $0.01 per share (the "Common Stock") (the option to purchase any one share of Common Stock hereafter referred to as an "Option"). Each Option shall have an exercise price equal to the fair market value of one share of Common Stock as of its respective date of grant. The Options shall be unexercisable until vested. The Options shall vest and become exercisable at the rate of 25% per year at the end of each full year after the grant date, provided Executive is then employed. The Options shall be granted pursuant to the Information Holdings Inc. 1998 Stock Option Plan (the "Option Plan") and shall be "incentive stock options" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended ("Section 422"), to the maximum extent allowed under Section 422. The Options shall have such other terms and conditions (including accelerated vesting) as are set forth in the Stock Option Agreement attached hereto as Exhibit A. (e). RELOCATION EXPENSES; TEMPORARY LIVING EXPENSES. Upon submission of properly documented receipts, the Company shall reimburse Executive for (i) reasonable moving costs in connection with Executive's relocation of himself and his family from Maryland to a location near the Company's main headquarters in the greater New York City metropolitan area prior to the date that is six months from the Commencement Date, (ii) reasonable costs for trips to the greater New York City metropolitan area to search for a residence, (iii) reasonable real estate commissions and other closing costs and related expenses with respect to the sale of Executive's current residence in Maryland in connection with or following such -3- relocation and (iv) reasonable closing costs on a new residence in the greater New York City metropolitan area, including up to two points on a new mortgage. In addition, for a period of six months from the Commencement Date or until Executive relocates his family to such location, if earlier, the Company shall reimburse Executive for the reasonable costs of temporary housing in such New York location and reasonable travel between Maryland and such location for the purpose of visiting his family. Such reimbursement for temporary housing and reasonable travel shall not exceed $20,000 and shall be subject to submission of properly documented housing and travel receipts. If all or any portion of the amounts payable to or on behalf of the Executive under this Section 3(e) (the "Reimbursed Amounts") is subject to income tax payable by the Executive (after taking into account whether any such amounts are legally permissible income tax deductions to the Executive), the Company shall pay to the Executive an additional amount (the "Gross-up Amount") to the extent necessary to place the Executive in the same after-tax position as he would have been in had the Reimbursed Amounts not been subject to income tax. The determination of the Gross-up Amount shall be made by the Company's regular accounting firm and the computation supporting such determination shall be submitted to the Executive. If the Executive does not dispute such determination within fifteen (15) days after receipt of the computation from the Company, then the Company shall make payment of the Gross-up Amount within five (5) days of the conclusion of such fifteen (15)-day period. However if the Executive disputes the determination made by the Company's accounting firm, then the Executive shall give notice to the Company within such fifteen (15)-day period, and, within ten (10) days thereafter, the Company and the Executive shall mutually select a nationally recognized accounting firm (the "Second Firm") which shall make the aforesaid determination within ten (10) days after its selection. Such determination of the Gross-up Amount by the Second Firm shall be binding and conclusive on the parties. The Executive shall bear all costs and expenses of the Second Firm in the event that the determination of the Gross-up Amount by the Second Firm does not differ from the determination by the Company's accounting firm by more than twenty percent (20%); however, if such difference is greater than twenty percent (20%), then the Executive and the Company shall equally bear such costs and expenses. Section 4. EXCLUSIVITY. During the Employment Term, the Executive shall devote his full time to the business of CI.com and the Company, shall faithfully serve CI.com and the Company, shall in all respects conform to and comply with the lawful and reasonable directions and instructions given to him by the CEO and Board of Directors in accordance with the terms of this Agreement, shall use his reasonable best efforts to promote -4- and serve the interests of CI.com and the Company and shall not engage in any other business activity, whether or not such activity shall be engaged in for pecuniary profit, except that the Executive may (i) participate in the activities of professional trade organizations related to the business of CI.com and the Company and (ii) engage in personal investing activities, PROVIDED that activities set forth in these clauses (i) and (ii), either singly or in the aggregate, do not interfere in any material respect with the services to be provided by the Executive hereunder. Section 5. REIMBURSEMENT FOR EXPENSES. The Executive is authorized to incur reasonable expenses in the discharge of the services to be performed hereunder, including expenses for travel, entertainment, lodging and similar items in accordance with the CI.com's expense reimbursement policy for senior executives (which is understood to be substantially equivalent to the policy in effect for the Company's senior executives), as the same may be modified by the CEO or the Board of Directors from time to time. The Company shall reimburse the Executive for all such proper expenses upon presentation by the Executive of itemized accounts of such expenditures in accordance with the financial policy of CI.com, as in effect from time to time. Section 6. TERMINATION. (a) DEATH. This Agreement shall automatically terminate upon the death of the Executive, and upon such event, the Executive's estate shall be entitled to receive the amounts specified in Section 3(b) above and 6(h) below as if termination had occurred Without Cause (as defined below). (b) DISABILITY. If the Executive is fully unable to perform the essential duties required of him under this Agreement, with or without accommodation, because of illness, incapacity, or physical or mental disability, this Agreement shall remain in full force and effect and the Company shall pay all compensation required to be paid to the Executive hereunder, unless the Executive is fully unable to perform the duties required of him under this Agreement for an aggregate of 180 days (whether or not consecutive) during any 12-month period during the Employment Term, in which event this Agreement (other than Sections 7, 8 and 12 hereof), including, but not limited to, the Company's obligations to pay any Salary or other compensation or to provide any privileges under this Agreement, shall terminate at the end of the 180 days of complete disability. (c) CAUSE. The Company may terminate the Executive's employment during the Employment Term with "Cause" as that term is defined below. In the event of termination pursuant to this -5- Section 6(c) with Cause, the Company shall deliver to the Executive written notice setting forth the basis for such termination, which notice shall specifically set forth the nature of the Cause which is the reason for such termination. Termination of the Executive's employment hereunder shall be effective upon delivery of such notice of termination. For purposes of this Agreement, "Cause" shall mean: (i) the Executive's failure (except where due to a disability contemplated by Section 6(b) hereof), neglect or refusal to perform the essential duties of his position hereunder which failure, neglect or refusal shall not have been corrected by the Executive within 30 days of receipt by the Executive of written notice from the Company of such failure, neglect or refusal, which notice shall specifically and in detail set forth the nature of said failure, neglect or refusal; (ii) any willful or intentional act of the Executive that has the effect of injuring the reputation or business of the Company or its affiliates in any material respect; (iii) any continued or repeated absence from the Company, unless such absence is (A) approved or excused by the Board of Directors or (B) is the result of the Executive's illness, or incapacity (in which event the provisions of Section 6(b) hereof shall control); (iv) use of illegal drugs by the Executive or repeated drunkenness which drunkenness affects the Executive's ability to perform his duties hereunder; (v) conviction of the Executive for the commission of a felony; or (vi) the commission by the Executive of an act of fraud or embezzlement against the Company. (d) RESIGNATION. Unless otherwise provided in Section 6(f) below in the case of a termination of employment for Good Reason, the Executive shall have the right to terminate his employment at any time by giving notice of his resignation to the Company. (e) WITHOUT CAUSE. The Company may terminate the Executive's employment during the Employment Term "Without Cause", as that term is defined below, at any time by giving notice to the Executive. A termination of the Executive's employment "Without Cause" shall mean a termination initiated by the Company for any reason other than Cause or on account of a Disability. A termination Without Cause shall be effective immediately upon notice given by the Company to the Executive. (f) GOOD REASON. The Executive shall have the right to terminate his employment for Good Reason under the following circumstances: (i) the failure by the Company to pay to the Executive the Salary and Bonus, if any, in accordance with Sections 3(a) and 3(b) hereof; (ii) the failure of the Company to provide the benefits in accordance with Section 3(c) hereof; (iii) a material diminution in the Executive's responsibilities -6- or authority; (iv) a requirement that the Executive relocate outside of the greater New York metropolitan area; or (v) the failure of any successor to all or substantially all of the business and/or assets of the Company to assume the Agreement; provided, however, that Good Reason shall not exist upon a termination of employment described in Section 6(b), (c), (d) or (e). The date of termination of the Executive's employment under this Section 6(f) shall be the date the Executive gives the Company written notice of a termination for Good Reason setting forth the basis for such termination. (g) CHANGE OF CONTROL. During the 90-day period following a Change of Control, the Executive shall have the right to immediately resign his employment. A Change of Control shall be deemed to have occurred: (i) upon the acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person"), other than Warburg, Pincus Ventures, L.P., either directly or indirectly through one or more affiliated entities (collectively "Warburg"), of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (x) the then outstanding shares of common stock of the Company (the "Outstanding Company Common Stock") or (y) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); PROVIDED, HOWEVER, that for purposes of this subsection (i), the following acquisitions shall not constitute a Change of Control: (A) any acquisition by the Company, (B) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company or (C) any acquisition by any corporation pursuant to a transaction which complies with clauses (A), (B), and (C) of subsection (iii) of this Section 6(g); or (ii) if individuals who, as of the date hereof, constitute the Board of Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board of Directors; PROVIDED, HOWEVER, that any individual becoming a director subsequent to the date hereof whose election, or nomination for election by the Company's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or -7- other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (iii) upon the consummation of a reorganization, merger or consolidation or sale or other disposition of all or substantially all of the assets of the Company (a "Business Combination"), in each case, unless, following such Business Combination, (A) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Common Stock and Outstanding Company Voting Securities immediately prior to such Business Combination beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors, as the case may be, of the corporation resulting from such Business Combination (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) in substantially the same proportions as their ownership, immediately prior to such Business Combination, of the Outstanding Company Common Stock and Outstanding Company Voting Securities, as the case may be, (B) no Person (excluding (1) Warburg, (2) any corporation resulting from such Business Combination, or (3) any employee benefit plan (or related trust) of the Company or such corporation resulting from such Business Combination) beneficially owns, directly or indirectly, 50% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Business Combination or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Business Combination and (C) at least a majority of the members of the board of directors of the corporation resulting from such Business Combination were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Business Combination; or (iv) upon the approval by the shareholders of the Company of a complete liquidation or dissolution of the Company. (h) PAYMENTS. (i) In the event that the Executive resigns or the Executive's employment hereunder terminates for Cause, the Company shall pay to the Executive all amounts accrued but unpaid hereunder through the date of termination in respect of Salary, unused vacation or unreimbursed expenses. -8- (ii) In the event (A) the Executive's employment hereunder is terminated by the Company Without Cause, (B) the Executive's employment hereunder is terminated by the Executive for Good Reason or (C) the Executive resigns within 90 days following a Change of Control pursuant to Section 6(g) hereof, in addition to the amounts specified in (i) above, the Executive shall continue to receive the Salary (less any applicable withholding or similar taxes) at the rate in effect hereunder on the date of such termination periodically, in accordance with the Company's prevailing payroll practices, for the greater of (x) the remainder of the Employment Term or (y) six (6) months from the effective date of the termination of employment (the "Severance Term") and the Executive (and/or his covered dependents) shall continue to receive any health or insurance benefits provided to him as of the date of such termination in accordance with Section 3(c) hereof during the Severance Term. (iii) In the event that the Company fails to renew the Employment Term by providing to the Executive a notice nonrenewal pursuant to Section 2 herein, in addition to the amounts specified in (i) above, the Executive shall continue to receive the Salary (less any applicable withholding or similar taxes) at the rate in effect hereunder on the date of the expiration of the Employment Term periodically, in accordance with the Company's prevailing payroll practices, for a period of four (4) months from the expiration date of the Employment Term (the "Nonrenewal Term") and the Executive (and/or his covered dependents) shall continue to receive any health or insurance benefits provided to him as of the date of such termination in accordance with Section 3(c) hereof during the Nonrenewal Term. (iv) Amounts owed by the Company in respect of the Salary or reimbursement for expenses under the provisions of Section 5 hereof shall, except as otherwise set forth in this Section 6(h), be paid promptly upon any termination. Upon any termination of this Agreement, all of the rights, privileges and duties of the Executive hereunder shall cease, except for his rights under this Section 6(h) and his obligations under Sections 7, 8 and 12 hereunder. (v) If the Executive secures employment, any consulting or other similar arrangement during the period that any payment is continuing to the Executive pursuant to the provisions of this Section 6(h), then the Company shall not have the right to reduce the amounts to be paid hereunder by the amount of the Executive's earnings from such other employment, consulting or other arrangement. Section 7. NON-DISCLOSURE, NON-INTERFERENCE AND INVENTIONS. -9- (a) NO COMPETING EMPLOYMENT. The Executive acknowledges that the agreements and covenants contained in this Section 7 are essential to protect the value of the Company's business and assets and by his current employment with the Company and its subsidiaries, the Executive has obtained and will obtain such knowledge, contacts, know-how, training and experience and there is a substantial probability that such knowledge, know-how, contacts, training and experience could be used to the substantial advantage of a competitor of the Company or its subsidiaries and to the Company's substantial detriment. Therefore, the Executive agrees that for the period commencing on the date of this Agreement and ending on the first anniversary of the termination of the Executive's employment hereunder (such period is hereinafter referred to as the "Restricted Period"), the Executive shall not engage, directly or indirectly, for himself or on behalf of any person or entity, in any business activities which directly compete with the intellectual property information business or intellectual property transactional business of the Company or any of its subsidiaries or which directly compete with any other business line of the Company or any subsidiary that the Executive becomes directly responsible for in the course of his employment hereunder; PROVIDED, HOWEVER, that the foregoing shall not preclude the Executive from owning less than 1% of the shares of a public company; and PROVIDED, FURTHER, that the foregoing restrictions do not encompass working for those who license their own intellectual property. (b) NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Executive, except in connection with his employment hereunder, shall not disclose to any person or entity or use, either during the Employment Term or at any time thereafter, any proprietary information not in the public domain or generally known in the industry, in any form, acquired by the Executive while employed by the Company or any predecessor to the Company's business or, if acquired following the Employment Term, such information which, to the Executive's knowledge, has been acquired, directly or indirectly, from any person or entity owing a duty of confidentiality to the Company or any of its subsidiaries or affiliates, relating to the Company, its subsidiaries or affiliates. The Executive agrees and acknowledges that all of such information, in any form, and copies and extracts thereof, are and shall remain the sole and exclusive property of the Company, and upon termination of his employment with the Company, the Executive shall return to the Company the originals and all copies of any such information provided to or acquired by the Executive in connection with the performance of his duties for the Company, and shall return to the Company all files, correspondence and/or other communications received, maintained and/or originated by the Executive during the course of his employment. -10- (c) NO INTERFERENCE. During the Restricted Period, the Executive shall not, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company), directly or indirectly solicit, endeavor to entice away from the Company or its subsidiaries, or otherwise directly interfere with the relationship of the Company or its subsidiaries with, any person who, to the knowledge of the Executive, is employed by or otherwise engaged to perform services for the Company or its subsidiaries (including, but not limited to, any independent sales representatives or organizations) or who is, or was within the then most recent twelve-month period, a customer or client, of the Company, its predecessors or any of its subsidiaries. The placement of any general classified or "help wanted" advertisements and/or general solicitations to the public at large shall not constitute a violation of this Section 7(c) unless the Executive's name is contained in such advertisements or solicitations. (d) INVENTIONS, ETC. The Executive hereby sells, transfers and assigns to the Company or to any person or entity designated by the Company all of the entire right, title and interest of the Executive in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented, and copyrightable material, made or conceived by the Executive, solely or jointly, during his employment by the Company which relate to methods, apparatus, designs, products, processes or devices, sold, leased, used or under consideration or development by the Company or any of its subsidiaries, or which otherwise relate to or pertain to the business, functions or operations of the Company or any of its subsidiaries or which arise from the efforts of the Executive during the course of his employment for the Company. The Executive shall communicate promptly and disclose to the Company, in such form as the Company requests, all information, details and data pertaining to the aforementioned inventions, ideas, disclosures and improvements; and the Executive shall execute and deliver to the Company such formal transfers and assignments and such other papers and documents as may be necessary or required of the Executive to permit the Company or any person or entity designated by the Company to file and prosecute the patent applications and, as to copyrightable material, to obtain copyright thereof. Any invention relating to the business of the Company or any of its subsidiaries which is discovered, designed, implemented or developed by the Executive within one year following the termination of his employment with the Company shall be deemed to fall within the provisions of this paragraph unless proved to have been first conceived and made following such termination. -11- Section 8. INJUNCTIVE RELIEF. Without intending to limit the remedies available to the Company, the Executive acknowledges that a breach of any of the covenants contained in Section 7 hereof may result in material irreparable injury to the Company or its subsidiaries or affiliates for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary or permanent injunction, without the necessity of proving irreparable harm or injury as a result of such breach or threatened breach of Section 7 hereof, restraining the Executive from engaging in activities prohibited by Section 7 hereof or such other relief as may be required specifically to enforce any of the covenants in Section 7 hereof. Section 9. REPRESENTATIONS AND WARRANTIES OF THE EXECUTIVE. The Executive represents and warrants to the Company as follows: (a) This Agreement, upon execution and delivery by the Executive, will be duly executed and delivered by the Executive and (assuming due execution and delivery hereof by the Company) will be the valid and binding obligation of the Executive enforceable against the Executive in accordance with its terms. (b) Neither the execution and delivery of this Agreement nor the performance of this Agreement in accordance with its terms and conditions by the Executive (i) requires the approval or consent of any governmental body or of any other person or (ii) except as provided in the Ancillary Agreement, conflicts with or results in any breach or violation of, or constitutes (or with notice or lapse of time or both would constitute) a default under, any agreement, instrument, judgment, decree, order, statute, rule, permit or governmental regulation applicable to the Executive. Without limiting the generality of the foregoing, other than the provisions contained herein, except as provided in the Ancillary Agreement, the Executive is not a party to any non-competition, non-solicitation, no hire or similar agreement that restricts in any way the Executive's ability to engage in any business or to solicit or hire the employees of any person. The representations and warranties of the Executive contained in this Section 9 shall survive the execution, delivery and performance of this Agreement. Section 10. SUCCESSORS AND ASSIGNS; NO THIRD-PARTY BENEFICIARIES. This Agreement shall inure to the benefit of, and be binding upon, the successors and assigns of each of the -12- parties, including, but not limited to, the Executive's heirs and the personal representatives of the Executive's estate; PROVIDED, HOWEVER, that neither party shall assign or delegate any of the obligations created under this Agreement without the prior written consent of the other party. Notwithstanding the foregoing, the Company shall have the unrestricted right to assign this Agreement (subject to the Executive's rights hereunder) and to delegate all or any part of its obligations hereunder to any of its subsidiaries or affiliates, but in such event such assignee shall expressly assume all obligations of the Company hereunder and the Company shall remain fully liable for the performance of all of such obligations in the manner prescribed in this Agreement. Nothing in this Agreement shall confer upon any person or entity not a party to this Agreement, or the legal representatives of such person or entity, any rights or remedies of any nature or kind whatsoever under or by reason of this Agreement. Section 11. WAIVER AND AMENDMENTS. Any waiver, alteration, amendment or modification of any of the terms of this Agreement shall be valid only if made in writing and signed by the parties hereto; PROVIDED, HOWEVER, that any such waiver, alteration, amendment or modification is consented to on the Company's behalf by the Board of Directors. No waiver by either of the parties hereto of their rights hereunder shall be deemed to constitute a waiver with respect to any subsequent occurrences or transactions hereunder unless such waiver specifically states that it is to be construed as a continuing waiver. Section 12. VALIDITY, ENFORCEABILITY AND GOVERNING LAW. The Executive acknowledges and agrees that the covenants set forth in Section 7 hereof are reasonable and valid in geographical and temporal scope and in all other respects. The invalidity or unenforceability of any provision or provisions of this Agreement shall not affect the validity or enforceability of any other provision or provisions of this Agreement, which shall remain in full force and effect. If any provision of this Agreement is held to be invalid, void or unenforceable in any jurisdiction, any court or arbitrator so holding shall substitute a valid, enforceable provision that preserves, to the maximum lawful extent, the terms and intent of such provisions of this Agreement. If any of the provisions of, or covenants contained in, this Agreement are hereafter construed to be invalid or unenforceable in any jurisdiction, the same shall not affect the remainder of the provisions or the enforceability thereof in any other jurisdiction, which shall be given full effect, without regard to the invalidity or unenforceability in such other jurisdiction. Any such holding shall affect such provision of this Agreement, solely as to that jurisdiction, without rendering that or any other provisions of this Agreement invalid, illegal, -13- or unenforceable in any other jurisdiction. If any covenant should be deemed invalid, illegal or unenforceable because its scope, either geographical or temporal, is considered excessive, such covenant will be modified so that the scope of the covenant is reduced only to the minimum extent necessary to render the modified covenant valid, legal and enforceable. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE. Section 13. NOTICES. (a) All communications under this Agreement shall be in writing and shall be delivered by hand or mailed by overnight courier or by registered or certified mail, postage prepaid: (i) if to the Executive, to the last known address of the Executive as contained on the books of the Company, or (ii) if to the Company, to Information Holdings, Inc., 2777 Summer Street, Stamford, CT, 06905, marked for the attention of the President, or at such other address as it may have furnished in writing to the Executive. (b) Any notice so addressed shall be deemed to be given: if delivered by hand, on the date of such delivery; if mailed by courier, on the first business day following the date of such mailing; and if mailed by registered or certified mail, on the third business day after the date of such mailing. Section 14. SECTION HEADINGS. The headings of the sections and subsections of this Agreement are inserted for convenience only and shall not be deemed to constitute a part thereof, affect the meaning or interpretation of this Agreement or of any term or provision hereof. Section 15. ENTIRE AGREEMENT. This Agreement and Exhibit A constitute the entire understanding and agreement of the parties hereto regarding the employment of the Executive. This Agreement supersedes all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement. Section 16. COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original and all of which together shall be considered one and the same agreement. -14- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. INFORMATION HOLDINGS INC. By: /s/ MASON SLAINE -------------------------- Mason Slaine Chief Executive Officer By: /s/ JAY NADLER --------------------------- Jay Nadler -15- EX-10.5 4 a2042989zex-10_5.txt EXHIBIT 10.5 Exhibit 10.5 TRANSCENDER LLC PANDEY EMPLOYMENT AGREEMENT EMPLOYMENT AGREEMENT, dated as of this 6th day of November, 2000, between Transcender LLC, a Delaware limited liability company ("Transcender" and, together with its affiliates, subsidiaries and successors, the "Company"), and Aneel M. Pandey (the "Employee"). R E C I T A L S: WHEREAS, Transcender has entered into an Asset Purchase Agreement, dated as of November 6, 2000 by and among Transcender, Transcender Corporation, and other persons named therein (the "Purchase Agreement"); WHEREAS, the execution and delivery of this Agreement by the Employee to the Company is a condition to Transcender's obligation to consummate the transactions contemplated by the Purchase Agreement; WHEREAS, in connection with the transactions that are contemplated by the Purchase Agreement, the Company desires to employ the Employee and the Employee has indicated his willingness to provide his services, on the terms and conditions set forth herein; NOW, THEREFORE, on the basis of the foregoing premises and in consideration of the mutual covenants and agreements contained herein, the parties hereto agree as follows: Section 1. EMPLOYMENT. The Company hereby agrees to employ the Employee and the Employee hereby accepts employment with the Company, on the terms and subject to the conditions hereinafter set forth. Subject to the terms and conditions contained herein, during the Employment Term (as hereinafter defined), the Employee shall serve as Chief Executive Officer and President of the Company, and in such capacity, shall report directly to the Chief Executive Officer of Information Holdings, Inc., and shall have such duties as are typically associated with such title, together with such additional duties commensurate with the Employee's title as may be assigned to the Employee from time to time. The principal locations of the Employee's employment shall be at the Company's offices in Nashville, Tennessee, and the Employee's home office, although the Employee understands and agrees that he may be required to travel from time to time on a limited basis for business reasons. Section 2. TERM. Unless terminated pursuant to Section 6 hereof, the Employee's employment hereunder shall commence on November 6, 2000 and shall continue during the period ending on the first anniversary of the date hereof (the "Employment Term"); provided, however, the Employment Term shall extend automatically for consecutive periods of one (1) year, unless either party shall provide notice of termination not less than one hundred twenty (120) days prior to an anniversary date of this Agreement. Section 3. COMPENSATION. During the Employment Term, the Employee shall be entitled to the following compensation and benefits: (a) SALARY. As compensation for the performance of the Employee's services hereunder, the Company shall pay to the Employee a salary (the "Salary") of $200,000 per annum with increases, if any, as may be approved in writing by the Board of Directors. The Salary shall be payable in accordance with the payroll practices of the Company as the same shall exist from time to time. (b) ANNUAL BONUS. During the Employment Period, the Employee shall be eligible to receive an annual cash bonus of up to $100,000 ("Bonus"), which shall be determined by the Board of Directors, in its sole discretion. (c) BENEFITS. In addition to the Salary and Bonus, if any, the Employee shall be entitled to participate in health, insurance, pension and other benefits provided to other similarly situated employees of the Company. The Employee shall also be entitled to the same number of holidays, vacation, sick days and other benefits as are generally allowed to other similarly situated employees of the Company in accordance with the Company policy in effect from time to time. Section 4. EXCLUSIVITY. During the Employment Term, the Employee shall devote substantially all his full working time to the business of the Company, shall faithfully serve the Company, shall in all respects conform to and comply with the lawful and reasonable directions and instructions given to him in accordance with the terms of this Agreement, shall use his reasonable best efforts to promote and serve the interests of the Company, and shall not engage in any other business activity that interferes in any material respect with the services to be provided by the Employee hereunder. Notwithstanding the foregoing, the Employee may engage in activities related to publishing phonorecords and documentaries about the Apollo missions to the moon without breaching this Section 4 so long as he devotes substantially all of his full working time to the business of the Company. Section 5. REIMBURSEMENT FOR EXPENSES. The Employee is authorized to incur reasonable expenses in the discharge of the services to be performed hereunder, including expenses for travel, entertainment, lodging and similar items in accordance with the Company's expense reimbursement policy, as the same may be modified by the Board of Directors from time to time. The Company shall reimburse the Employee for all such proper expenses upon presentation by the Employee of itemized accounts of such expenditures in accordance with the financial policy of the Company, as in effect from time to time. Section 6. TERMINATION AND DEFAULT. (a) DEATH. The Employee's employment shall automatically terminate upon his death, and upon such event, the Employee's estate shall be entitled to receive the amounts specified in Section 6(e) below. (b) DISABILITY. If the Employee is unable to perform the duties required of him under this Agreement because of illness, incapacity, or physical or mental disability, the Employment Term shall continue and the Company shall pay all compensation required to be -2- paid to the Employee hereunder, unless the Employee is unable to perform the duties required of him under this Agreement for an aggregate of 120 days (whether or not consecutive) during any 12-month period during the term of this Agreement, in which event the Employee's employment shall terminate, and the Employee shall be entitled to receive the amounts specified in Section 6(e) below. (c) JUST CAUSE. The Employee's employment may be terminated by the Company for any reason (or for no reason) at its discretion at anytime during the Employment Term with or without Just Cause. A termination pursuant to this Section 6(c) for Just Cause shall be effective upon delivery of written notice of termination to the Employee, which notice shall set forth the basis for such termination. For purposes of this Agreement, "Just Cause" shall mean: (i) a breach by the Employee of any material obligation owed the Company under this Agreement; (ii) the Employee's engaging in any conduct which is dishonest or materially damages the reputation of the Company; or (iii) the Employee is convicted of, or pleads guilty or NOLO CONTENDERE to any criminal act (excluding traffic violations) or engages in any act of moral turpitude. (d) RESIGNATION. The Employee shall have the right to terminate his employment at any time by giving thirty (30) days written notice of his resignation. (e) PAYMENTS. In the event that the Employee's employment terminates for any reason, the Company shall pay to the Employee all amounts accrued but unpaid hereunder through the date of termination in respect of Salary, accrued but unused vacation and any unreimbursed expenses. (ii) In the event the Employee's employment is terminated by the Company without Just Cause (other than pursuant to Section 6(a) or Section 6(b) above), in addition to the amounts specified in subsection (i) above, (A) the Employee shall continue to receive the Salary (less any applicable withholding or similar taxes) at the rate in effect hereunder on the date of such termination for a period equal to the remainder of the Employment Term (assuming no termination had occurred) (the "Severance Term") and (B) to the extent permissible under the Company's health plans, during the Severance Term, the Employee shall continue to receive any health benefits provided to him as of the date of such termination. Amounts owed by the Company in respect of the payments under Section 6(e)(i) hereof or reimbursement for expenses under the provisions of Section 5 hereof shall, except as otherwise set forth in this Section 6(e), be paid promptly upon any termination. (f) SURVIVAL OF OPERATIVE SECTIONS. Upon any termination of the Employee's employment, the provisions of Section 6(e) and Section 7 through Section 16 of this Agreement shall survive to the extent necessary to give effect to the provisions thereof. Section 7. Secrecy and Non-Competition. (a) NO COMPETING EMPLOYMENT. The Employee acknowledges that the agreements and covenants contained in this Section 7 are essential to protect the value of the Company's business and assets and by his employment with the Company, the Employee has obtained and will obtain knowledge, contacts, know-how, training and experience and there is a -3- substantial probability that such knowledge, know-how, contacts, training and experience could be used to the substantial advantage of a competitor of the Company and to the Company's substantial detriment. Therefore, the Employee agrees that from the date hereof and until the earlier to occur of (i) the expiration of the Employment Term or (ii) the termination of the Employee's employment hereunder pursuant to Section 6 hereof (such period is hereinafter referred to as the "Restricted Period") with respect to any state or country in which the Company is engaged in business during the Employment Term, the Employee shall not participate or engage, directly or indirectly, for himself or on behalf of or in conjunction with any person, partnership, corporation or other entity, whether as an employee, agent, officer, director, shareholder, partner, joint venturer, investor or otherwise, in any business which competes with the Company; PROVIDED, HOWEVER, that the foregoing shall not prohibit the ownership by the Employee of equity securities of a public company in an amount not to exceed 5% of the issued and outstanding shares of such company. (b) NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Employee, except in connection with his employment hereunder, shall not disclose to any person or entity or use, either during the Employment Term or at any time thereafter any information not in the public domain or generally known in the industry and which is known only to the Company and those employees or other agents to whom it has been confided, in any form, acquired by the Employee while employed by the Company or any predecessor to the Company's business or, if acquired following the Employment Term, such information which, to the Employee's knowledge, has been acquired, directly or indirectly, from any person or entity owing a duty of confidentiality to the Company, relating to the Company, including but not limited to information regarding customers, vendors, suppliers, trade secrets, training programs, manuals or materials, technical information, contracts, systems, procedures, mailing lists, know-how, trade names, improvements, price lists, financial or other data (including the revenues, costs or profits associated with any of the Company's products or services), business plans, code books, invoices and other financial statements, computer programs, software systems, databases, discs and printouts, plans (business, technical or otherwise), customer and industry lists, correspondence, internal reports, personnel files, sales and advertising material, telephone numbers, names, addresses or any other compilation of information, written or unwritten, which is or was used in the business of the Company (collectively, "Confidential Information"). Notwithstanding the foregoing, Confidential Information shall not include any information that the Employee is required to disclose to, or by, any governmental or judicial authority; provided, however, if the Employee should be required in the course of judicial or other governmental proceedings to disclose any Confidential Information, the Employee shall give the Company prompt written notice thereof so that Company may seek an appropriate protective order and/or waive in writing compliance with the confidentiality provisions of this Agreement. If, in the absence of a protective order or the receipt of a waiver by the Company, the Employee is compelled to disclose Confidential Information to, or pursuant to the requirements of, a court or other governmental authority, the Employee may disclose such Confidential Information to such court or other governmental authority without liability to the Company or any other person or entity not a party to this Agreement. The Employee hereby agrees to protect all documents, records, tapes and other media in which Confidential Information is contained (the "Confidential Documents"). The Employee acknowledges that such Confidential Documents are and remain the sole and exclusive property of the Company. The Employee will not copy any Confidential Documents or remove any Confidential Documents, or copies thereof, from the Company -4- premises, except as required by the normal and proper course of his duties for the Company. The Employee agrees to return to the Company promptly upon the termination of his employment, or at any other time when requested by the Company, any and all property of the Company, including, but not limited to, all Confidential Documents and copies thereof in his possession or control. Notwithstanding any other provision to the contrary contained herein, nothing in this Agreement shall be construed to prevent the Employee from using any skills and/or knowledge developed and/or refined during his employment with the Company unless the use of that skill or knowledge would result in a breach of any of the provisions of this Agreement. (c) NO INTERFERENCE. During the Restricted Period, the Employee shall not, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company), directly or indirectly solicit, endeavor to entice away from the Company, or otherwise directly interfere with the relationship of the Company with any person who, to the knowledge of the Employee, is employed by or otherwise engaged to perform services for the Company or who is, or was within the then most recent twelve-month period, a customer or client of the Company or its predecessors for purposes of competing with the Company. (d) DISCLOSURE OF INTELLECTUAL PROPERTY AND ASSIGNMENT OF RIGHTS. The Employee hereby sells, transfers and assigns to the Company or to any person or entity designated by the Company all of the entire right, title and interest of the Employee in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented, and copyrightable material, made or conceived by the Employee, solely or jointly, during his employment by the Company which relate to methods, apparatus, designs, products, processes or devices, sold, leased, used or under consideration or development by the Company, or which otherwise relate to or pertain to the business, functions or operations of the Company or which arise from the efforts of the Employee during the course of his employment for the Company. The Employee shall communicate promptly and disclose to the Company, in such form as the Company requests, all information, details and data pertaining to the aforementioned inventions, ideas, disclosures and improvements; and the Employee shall, at the Company's cost and expense, execute and deliver to the Company such formal transfers and assignments and such other papers and documents as may be necessary or required of the Employee to permit the Company or any person or entity designated by the Company to file and prosecute the patent applications and, as to copyrightable material, to obtain copyright thereof. Any patentable invention relating to the business of the Company and disclosed by the Employee within one year following the termination of his employment with the Company shall be deemed to fall within the provisions of this Section 7(d) unless proved to have been first conceived and made following such termination. (e) INJUNCTIVE RELIEF. Without intending to limit the remedies available to the Company, the Employee acknowledges that a breach of any of the covenants contained in Section 7 hereof may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it will not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to obtain a temporary restraining order and/or a preliminary injunction, without the necessity of -5- proving irreparable harm or injury as a result of such breach or threatened breach of Section 7 hereof (and to a permanent injunction if the Company is able to prove actual damages), restraining the Employee from engaging in activities prohibited by Section 7 hereof or such other relief as may be required specifically to enforce any of the covenants in Section 7 hereof. (f) OTHER AGREEMENTS. The parties hereto acknowledge and agree that the provisions of this Section 7 shall govern the parties during the Restricted Period and that the Confidentiality and Noncompetition Agreement, dated as of November 6, 2000, by and between the Employee and the Company (the "Confidentiality Agreement") shall govern the parties upon the expiration of the Restricted Period. Section 8. EXTENSION OF RESTRICTED PERIOD. In addition to the remedies the Company may seek and obtain pursuant to Section 7(d) of this Agreement, the Restricted Period shall be extended by any and all periods during which the Employee shall be found by a court to have been in violation of the covenants contained in Section 7 hereof. Section 9. REPRESENTATIONS AND WARRANTIES OF THE EMPLOYEE. The Employee represents and warrants to the Company as follows: (a) This Agreement, upon execution and delivery by the Employee, will be duly executed and delivered by the Employee and (assuming due execution and delivery hereof by the Company) will be the valid and binding obligation of the Employee enforceable against the Employee in accordance with its terms. (b) Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby nor the performance of this Agreement in accordance with its terms and conditions by the Employee (i) requires the approval or consent of any governmental body or of any other person or (ii) conflicts with or results in any breach or violation of, or constitutes (or with notice or lapse of time or both would constitute) a default under, any agreement, instrument, judgment, decree, order, statute, rule, permit or governmental regulation applicable to the Employee. Without limiting the generality of the foregoing, the Employee is not a party to any non-competition, non-solicitation, no hire or similar agreement that restricts in any way the Employee's ability to engage in any business or to solicit or hire the employees of any person. (c) The representations and warranties of the Employee contained in this Section 10 shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. Section 10. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided in this Agreement, no party hereto shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other parties hereto and any such attempted assignment without such prior written consent shall be void and of no force and effect, PROVIDED, that the Company may assign its rights hereunder to an affiliate, PROVIDED FURTHER, that no such assignment shall reduce or otherwise vitiate any of the obligations of the Company hereunder. This Agreement shall inure to the benefit of and shall be binding upon the successors and permitted assigns of the parties hereto. -6- Section 11. AMENDMENTS; WAIVERS. This Agreement may be amended or modified, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by the parties hereto, or in the case of a waiver, by the party waiving compliance. Any waiver by any party of any condition, or of the breach of any provision, term, covenant, representation or warranty contained in this Agreement, in any one or more instances, shall not be deemed to be nor construed as further or continuing waiver of any such condition, or of the breach of any other provision, term, covenant, representation or warranty of this Agreement. Section 12. SEVERABILITY AND GOVERNING LAW. The Employee acknowledges and agrees that the covenants set forth in Section 7 hereof are reasonable and valid in geographical and temporal scope and in all other respects. If any of such covenants or such other provisions of this Agreement are found to be invalid or unenforceable by a final determination of a court of competent jurisdiction (a) the remaining terms and provisions hereof shall be unimpaired and (b) the invalid or unenforceable term or provision hereof shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision hereof. THIS AGREEMENT SHALL BE CONSTRUED, PERFORMED AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF TENNESSEE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THE PARTIES HERETO IRREVOCABLY ELECT AS THE SOLE JUDICIAL FORUM FOR THE ADJUDICATION OF ANY MATTERS ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT, AND CONSENT TO THE JURISDICTION OF, THE COURTS OF THE STATE OF TENNESSEE LOCATED IN NASHVILLE, TENNESSEE. Section 13. NOTICES. (a) All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (i) on the date of service if served personally on the party to whom notice is to be given, (ii) on the day of transmission if sent via facsimile transmission to the facsimile number given below, and telephonic confirmation of receipt is obtained promptly after completion of transmission, (iii) on the day after delivery to Federal Express or similar overnight courier or the Express Mail service maintained by the U.S. Postal Service or (iv) upon receipt, if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid and properly addressed, to the party as follows: (i) if to the Employee, at 242 Louise Avenue, Nashville, TN 37203, or at such other address as the Employee may have furnished the Company in writing, (ii) if to the Company, to Information Holdings, Inc., 2777 Summer Street, Suite 209, Stamford, CT 06905, marked for the attention of the President and CEO, or at such other address as it may have furnished in writing to the Employee. Section 14. SECTION AND PARAGRAPH HEADINGS. The section and paragraph headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. -7- Section 15. ENTIRE AGREEMENT. This Agreement and the Confidentiality Agreement constitute the entire understanding and agreement of the parties hereto regarding the employment of the Employee. This Agreement and the Confidentiality Agreement supersede all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement. Section 16. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one instrument. * * * * * * IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. TRANSCENDER LLC By: /s/ MASON SLAINE --------------------------- Name: Mason Slaine Title: CEO /s/ ANEEL M. PANDEY ---------------------------- Aneel M. Pandey -8- EX-10.6 5 a2042989zex-10_6.txt EXHIBIT 10.6 Exhibit 10.6 PANDEY CONFIDENTIALITY AND NONCOMPETITION AGREEMENT THIS CONFIDENTIALITY AND NONCOMPETITION AGREEMENT (this "Agreement") is entered into as of November 6, 2000, by and between Transcender LLC ("Transcender" and, together with its present and future affiliates, and subsidiaries, the "Company"), and Aneel M. Pandey (the "Employee"). WHEREAS, Transcender has entered into an Asset Purchase Agreement, dated as of November 6, 2000 by and among Transcender, Transcender Corporation and certain persons named therein (the "Purchase Agreement"); WHEREAS, the execution and delivery of this Agreement by the Employee to the Company is a condition to Transcender's obligation to consummate the transactions contemplated by the Purchase Agreement; WHEREAS, in connection with the transactions that are contemplated by the Purchase Agreement, the Company desires to employ the Employee and the Employee has indicated his willingness to provide his services to the Company; WHEREAS, the Company, as a condition of employment of the Employee, desires to obtain certain restrictive covenants from the Employee, as described below, and the Employee is willing to agree to such restrictive covenants in consideration of such employment. NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby covenant and agree as follows: 1. NO COMPETING EMPLOYMENT. The Employee acknowledges that the agreements and covenants contained in this Agreement are essential to protect the value of the Company's business and assets and by his employment with the Company, the Employee has obtained and will obtain knowledge, contacts, know-how, training and experience and there is a substantial probability that such knowledge, know-how, contacts, training and experience could be used to the substantial advantage of a competitor of the Company and to the Company's substantial detriment. Therefore, the Employee agrees that for the period commencing on the date of this Agreement and ending on the later of (i) the fifth anniversary of the Closing Date (as such term is defined in the Purchase Agreement and (ii) the third anniversary of the termination of the Employee's employment with the Company for any reason (such period is hereinafter referred to as the "Restricted Period") with respect to any state or country in which the Company is engaged in business during the course of the Employee's employment term, the Employee shall not participate or engage, directly or indirectly, for himself or on behalf of or in conjunction with any person, partnership, corporation or other entity, whether as an employee, agent, officer, director, shareholder, partner, joint venturer, investor or otherwise, in any business which competes with or resembles the Company; provided, however, that the foregoing shall not prohibit the ownership by the Employee of equity securities of a public company in any amount not to exceed 5% of the issued and outstanding shares of such company. 2. NONDISCLOSURE OF CONFIDENTIAL INFORMATION. The Employee, except in connection with his employment hereunder, shall not disclose to any person or entity or use, either during the course of his employment or at any time thereafter, any information not in the public domain or generally known in the industry and which is known only to the Company and those employees or other agents to whom it has been confided, in any form, acquired by the Employee while employed by the Company or any predecessor to the Company's business or, if acquired following the Employment Term, such information which, to the Employee's knowledge, has been acquired, directly or indirectly, from any person or entity owing a duty of confidentiality to the Company, relating to the Company, including but not limited to information regarding customers, vendors, suppliers, trade secrets, training programs, manuals or materials, technical information, contracts, systems, procedures, mailing lists, know how, trade names, improvements, price lists, financial or other data (including the revenues, costs or profits associated with any of the Company's products or services), business plans, code books, invoices and other financial statements, computer programs, software systems, databases, discs and printouts, plans (business, technical or otherwise), customer and industry lists, correspondence, internal reports, personnel files, sales and advertising material, telephone numbers, names, addresses or any other compilation of confidential and/or proprietary information, written or unwritten, which is or was used in the business of the Company but excluding that information, knowledge and other intellectual property developed by the Employee related to phonorecords and documentaries about the Apollo missions to the moon (the "Pandey Information") (the foregoing, excluding the Pandey Information, "Confidential Information"). Notwithstanding the foregoing, Confidential Information shall not include (i) any information that the Employee is required to disclose to, or by, any governmental or judicial authority; provided, however, if the Employee should be required in the course of judicial or other governmental proceedings to disclose any Confidential Information, the Employee shall give the Company prompt written notice thereof so that Company may seek an appropriate protective order and/or waive in writing compliance with the confidentiality provisions of this Agreement, (ii) any information that is or becomes generally available to the public other than as a result of a disclosure by the receiving party; or (iii) any information that becomes available to the receiving party on a nonconfidential basis from a source other than the delivering party (or an agent thereof) which is not prohibited from disclosing such information to the receiving party by a legal, contractual or fiduciary obligation to the delivering party. If, in the absence of a protective order or the receipt of a waiver by the Company, the Employee is compelled to disclose Confidential Information to, or pursuant to the requirements of, a court or other governmental authority, the Employee may disclose such Confidential Information to such court or other governmental authority without liability to the Company or any other person or entity not a party to this Agreement. The Employee herby agrees to protect all documents, records, tapes and other media in which Confidential Information is contained (the "Confidential Documents"). The Employee acknowledges that such Confidential Documents are and remain the sole and exclusive property of the Company. The Employee will not copy any Confidential Documents or remove any Confidential Documents, or copies thereof, from the Company premises, except as required by the normal and proper course of his duties for the Company. The Employee agrees to return to the Company promptly upon the termination of his employment, or at any other time when -2- requested by the Company, any and all property of the Company, including, but not limited to, all Confidential Documents and copies thereof in his possession or control. Notwithstanding anything to the contrary herein, nothing in this Agreement shall be construed to prevent Employee from using his general skills and knowledge and any skills and/or knowledge developed and/or refined during his employment with the Company as an information technology professional unless the use of that skill or knowledge would result in a breach of this Agreement or the Employment Agreement between the Employee and Transcender. 3. NO INTERFERENCE. During the Restricted Period, the Employee shall not, whether for his own account or for the account of any other individual, partnership, firm, corporation or other business organization (other than the Company), directly or indirectly solicit, endeavor to entice away from the Company, or otherwise directly interfere with the relationship of the Company with (collectively, "Solicit") any person who, to the knowledge of the Employee, is employed by or otherwise engaged to perform services for the Company. During the Restricted Period, the Employee shall not Solicit any person who is, or was within the then most recent twelve-month period, a customer or client of the Company or its predecessors for purposes of competing with the Company. 4. DISCLOSURE OF INTELLECTUAL PROPERTY AND ASSIGNMENT OF RIGHTS. The Employee hereby sells, transfers and assigns to the Company or to any person or entity designated by the Company all of the entire right, title and interest of the Employee in and to all inventions, ideas, disclosures and improvements, whether patented or unpatented, and copyrightable material, made or conceived by the Employee, solely or jointly, during his employment by the Company which relate to methods, apparatus, designs, products, processes or devices, sold, leased, used or under consideration or development by the Company, or which otherwise relate to or pertain to the business, functions or operations of the Company or which arise from the efforts of the Employee during the course of his employment for the Company. The Employee shall communicate promptly and disclose to the Company, in such form as the Company requests, all information, details and data pertaining to the aforementioned inventions, ideas, disclosures and improvements; and the Employee shall, at the Company's cost and expense, execute and deliver to the Company such formal transfers and assignments and such other papers and documents as may be necessary or required of the Employee to permit the Company or any person or entity designated by the Company to file and prosecute the patent applications and, as to copyrightable material, to obtain copyright thereof. Any patentable invention relating to the business of the Company and disclosed by the Employee within one year following the termination of his employment with the Company, excluding the Pandey Information, shall be deemed to fall within the provisions of this Agreement unless proved to have been first conceived and made following such termination. 5. INJUNCTIVE RELIEF. Without intending to limit the remedies available to the Company, the Employee acknowledges that a breach of any of the covenants contained in this Agreement may result in material irreparable injury to the Company for which there is no adequate remedy at law, that it may not be possible to measure damages for such injuries precisely and that, in the event of such a breach or threat thereof, the Company shall be entitled to seek a temporary restraining order and/or a preliminary injunction without the necessity of -3- proving irreparable harm as a result of such breach or threatened breach (and to a permanent injunction if the Company is able to prove actual damages), restraining the Employee from engaging in activities prohibited by this Agreement or such other relief as may be required specifically to enforce any of the covenants in this Agreement. 6. EXTENSION OF RESTRICTED PERIOD. In addition to the remedies the Company may seek and obtain pursuant to this Agreement, the Company may seek to extend the Restricted Period by any and all periods during which the Employee shall be found by a court to have been in violation of the covenants contained in this Agreement. 7. REPRESENTATIONS AND WARRANTIES OF THE EMPLOYEE. The Employee represents and warrants to the Company as follows: (a) This Agreement, upon execution and delivery by the Employee, will be duly executed and delivered by the Employee and (assuming due execution and delivery hereof by the Company) will be the valid and binding obligation of the Employee enforceable against the Employee in accordance with its terms. (b) Neither the execution and delivery of this Agreement, the consummation of the transactions contemplated hereby nor the performance of this Agreement in accordance with its terms and conditions by the Employee (i) requires the approval or consent of any governmental body or of any other person or (ii) conflicts with or results in any breach or violation of, or constitutes (or with notice or lapse of time or both would constitute) a default under, any agreement, instrument, judgment, decree, order, statute, rule, permit or governmental regulation applicable to the Employee. Without limiting the generality of the foregoing, the Employee is not a party to any non-competition, non-solicitation, no hire or similar agreement that restricts in any way the Employee's ability to engage in any business or to solicit or hire the employees of any person other than the Employee's existing written agreements with Transcender Corporation which have been disclosed to the Company in the Schedules to the Purchase Agreement. (c) The representations and warranties of the Employee contained in this Section 7 shall survive the execution and delivery of this Agreement and the consummation of the transactions contemplated hereby. 8. SURVIVAL. This Agreement shall continue in effect after the termination of the Employee's employment, regardless of the reason for termination, and shall be binding upon the Employee's heirs, executors, administrators, representatives and assigns. 9. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided in this Agreement, no party hereto shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other parties hereto and any such attempted assignment without such prior written consent shall be void and of no force and effect, PROVIDED, that the Company may assign its rights hereunder to an affiliate, PROVIDED FURTHER, that no such assignment shall reduce or otherwise vitiate any of the obligations of the Company hereunder. This Agreement shall inure to the benefit of and shall be binding upon the successors and permitted assigns of the parties hereto. -4- 10. AMENDMENTS; WAIVERS. This Agreement may be amended or modified, and any of the terms, covenants, representations, warranties or conditions hereof may be waived, only by a written instrument executed by the parties hereto, or in the case of a waiver, by the party waiving compliance. Any waiver by any party of any condition, or of the breach of any provision, term, covenant, representation or warranty contained in this Agreement, in any one or more instances, shall not be deemed to be nor construed as further or continuing waiver of any such condition, or of the breach of any other provision, term, covenant, representation or warranty of this Agreement. 11. SEVERABILITY AND GOVERNING LAW. The Employee acknowledges and agrees that the covenants set forth in this Agreement are reasonable and valid in geographical and temporal scope and in all other respects. If any of such covenants or such other provisions of this Agreement are found to be invalid or unenforceable by a final determination of a court of competent jurisdiction (a) the remaining terms and provisions hereof shall be unimpaired and (b) the invalid or unenforceable term or provision hereof shall be deemed replaced by a term or provision that is valid and enforceable and that comes closest to expressing the intention of the invalid or unenforceable term or provision hereof. THIS AGREEMENT SHALL BE CONSTRUED, PERFORMED AND ENFORCED IN ACCORDANCE WITH, AND GOVERNED BY, THE LAWS OF THE STATE OF TENNESSEE, WITHOUT GIVING EFFECT TO THE PRINCIPLES OF CONFLICTS OF LAWS THEREOF. THE PARTIES HERETO IRREVOCABLY ELECT AS THE SOLE JUDICIAL FORUM FOR THE ADJUDICATION OF ANY MATTERS ARISING UNDER OR IN CONNECTION WITH THIS AGREEMENT, AND CONSENT TO THE JURISDICTION OF, THE COURTS OF THE STATE OF TENNESSEE LOCATED IN NASHVILLE, TENNESSEE. 12. NOTICES. (a) All notices, requests, demands and other communications under this Agreement shall be in writing and shall be deemed to have been duly given (i) on the date of service if served personally on the party to whom notice is to be given, (ii) on the day of transmission if sent via facsimile transmission to the facsimile number given below, and telephonic confirmation of receipt is obtained promptly after completion of transmission, (iii) on the day after delivery to Federal Express or similar overnight courier or the Express Mail service maintained by the U.S. Postal Service or (iv) on the fifth day after mailing, if mailed to the party to whom notice is to be given, by first class mail, registered or certified, postage prepaid and properly addressed, to the party as follows: (i) if to the Employee, at 242 Louise Avenue, Nashville, TN 37203, or at such other address as the Employee may have furnished the Company in writing, (ii) if to the Company, to Information Holdings, Inc., 2777 Summer Street, Suite 209, Stamford, CT 06905, marked for the attention of the Board of Directors, or at such other address as it may have furnished in writing to the Employee. 13. SECTION AND PARAGRAPH HEADINGS. The section and paragraph headings in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. -5- 14. ENTIRE AGREEMENT. This Agreement and any employment agreement between the Company and the Employee constitute the entire understanding and agreement of the parties hereto regarding the employment of the Employee. This Agreement and any such employment agreement supersede all prior negotiations, discussions, correspondence, communications, understandings and agreements between the parties relating to the subject matter of this Agreement. 15. COUNTERPARTS. This Agreement may be executed in counterparts, each of which shall be deemed an original, but all of which shall constitute one instrument. * * * -6- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first above written. TRANSCENDER LLC By: /s/ MASON SLAINE ------------------------------- Name: Mason Slaine Title: CEO /s/ ANEEL M. PANDEY ------------------------------------ Aneel M. Pandey -7- EX-10.7 6 a2042989zex-10_7.txt EXHIBIT 10.7 Exhibit 10.7 INFORMATION HOLDINGS INC. 1998 STOCK OPTION PLAN (AMENDED AND RESTATED AS OF MARCH 26, 2001) * * * ARTICLE I PURPOSE This 1998 Stock Option Plan (the "Plan") is intended to encourage stock ownership in Information Holdings Inc. (the "Company") by employees and directors of the Company and its subsidiaries in order to increase their proprietary interest in the Company's success and to encourage such employees and directors to remain in the service of the Company and its subsidiaries. ARTICLE II CERTAIN DEFINITIONS (a) "AFFILIATE" of an entity shall mean any person or entity controlling, controlled by or under common control with, such entity, where "control" means the power to exercise a controlling influence over the management or policies of such person or entity. (b) "BOARD" shall mean the Board of Directors of the Company. (c) "CHANGE OF CONTROL" shall have the meaning set forth in Article XI. (d) "CODE" shall mean the Internal Revenue Code of 1986, as amended. (e) "COMMITTEE" shall mean (i) the Stock Option Committee of the Board which, if and to the extent practicable, shall be comprised of at least two persons who qualify as "non-employee directors" under Rule 16b-3 promulgated by the Securities and Exchange Commission under the Securities Exchange Act of 1934, and as "outside directors" under Section 162(m) of the Code or (ii) if a Stock Option Committee has not been designated by the Board, the Board. (f) "COMMON STOCK" shall mean the voting common stock of the Company, par value $0.01 per share. (g) "ELIGIBLE EMPLOYEE" shall mean any person employed on a full-time basis by the Company or any of its subsidiaries, or any director of the Company. (h) "EXERCISE PRICE" shall have the meaning assigned to such term in Article VI hereof. (i) "ISO" shall mean an "incentive stock option" within the meaning of Section 422 of the Code. (j) "NON-QUALIFIED OPTION" shall mean an Option which is not an ISO. (k) "OPTION" shall mean any option granted under the Plan. (l) "OPTIONEE" shall mean any holder of an Option. (m) "OPTION AGREEMENT" shall mean the agreement between an Optionee and the Company governing Options granted under the Plan, the forms of which shall be consistent with the terms of the Plan but need not be identical. (n) "WP VENTURES" shall mean Warburg, Pincus Ventures, L.P., any Affiliate thereof, or any successor thereto. ARTICLE III STOCK (a) The stock to be issued upon the exercise of Options shall be shares of authorized but unissued Common Stock or previously issued shares of Common Stock reacquired by the Company. The aggregate number of shares of Common Stock as to which Options may be granted under the Plan at any time shall not exceed 1,966,866, subject to adjustment from time to time in accordance with the provisions of Article X hereof. No more than 350,000 shares of Common Stock may be issued to any one individual pursuant to awards of Options hereunder during any calendar year. (b) The number of shares of Common Stock available for grant of Options at any time under the Plan shall be decreased by the sum of (i) the number of shares with respect to which Options have been issued and have not lapsed or been canceled, in each case, prior to such time and (ii) the number of shares issued prior to such time upon exercise of Options. In the event that any outstanding Option under the Plan lapses in accordance with Articles VII or VIII hereof, prior to the end of the period during which Options may be granted, the shares of Common Stock subject to the unexercised portion of such Option shall again be available for the granting of Options under the Plan. -2- ARTICLE IV PARTICIPATION Optionees shall be limited to Eligible Employees who have received written notice of their selection to participate in the Plan and who have entered into an Option Agreement. Each Option Agreement shall state the total number of shares of Common Stock which are subject to the Option granted. No Eligible Employee shall at any time have a right to be selected as a participant. ARTICLE V ADMINISTRATION The Plan shall be administered by the Committee which shall have sole authority, in its absolute discretion: (a) to select which Eligible Employees shall be granted Options; (b) to determine the number of Options to be granted to such Eligible Employees and whether such Options shall be ISOs or Non-Qualified Options; (c) to prescribe the form or forms of the Option Agreements under the Plan; (d) to adopt, amend or rescind such rules and regulations as, in its opinion, may be advisable for the administration of the Plan; and (e) to construe and interpret the Plan, and all such rules and regulations, and to make all other determinations deemed necessary or advisable for the administration of the Plan. All decisions, determinations and interpretations of the Committee made in good faith shall be final and binding on all participants. Neither the Committee nor any member of the Committee shall be liable for any act, omission, interpretation, construction or determination made in connection with the Plan in good faith, and the members of the Committee shall be entitled to indemnification and reimbursement by the Company in respect of any claim, loss, damage or expense (including, without limitation, counsel fees) arising therefrom to the full extent permitted by Delaware law and under any directors' and officers' liability insurance coverage which may be in effect from time to time. ARTICLE VI EXERCISE PRICE The Exercise Price per share of Common Stock covered by Options granted under the Plan shall be established on or prior to the date of grant by the Committee and shall be set forth in the Optionee's Option Agreement. Payment shall be made in full upon exercise of the Option by delivering to the Company at its principal executive offices cash or a certified check, bank draft or money order payable to the order of the Company in the aggregate amount of the Exercise Price, or in accordance with any cashless exercise procedures adopted by the Committee from time to time. -3- ARTICLE VII VESTING OF OPTIONS All Options granted under the Plan shall vest and become exercisable in accordance with Article XI hereof and vesting schedules established by the Committee at the time of grant. ARTICLE VIII TERMINATION OF EMPLOYMENT Each Option will have a ten-year term from the date of grant, subject to earlier termination upon termination of the Optionee's employment, as determined by the Committee. ARTICLE IX TRANSFERABILITY Options and any Optionee's rights and interest under the Plan, including amounts payable, may not be sold, assigned, donated, or transferred or otherwise disposed of, mortgaged, pledged or encumbered except, in the event of an Optionee's death, by will or the laws of descent and distribution; PROVIDED, HOWEVER, the Committee may, in its sole discretion, allow for transfer of Options other than ISOs to other persons or entities, subject to such conditions or limitations as it may establish. ARTICLE X ADJUSTMENT FOR RECAPITALIZATION, MERGER, ETC. (a) The aggregate number of shares of Common Stock which may be purchased pursuant to Options granted hereunder, the maximum number of shares of Stock with respect to which Options may be granted to any single Optionee during any calendar year, the number of shares of Common Stock covered by each outstanding Option and the price per share thereof shall be appropriately adjusted for any increase or decrease in the number of outstanding shares of Common Stock resulting from a stock split or other subdivision or consolidation of shares of Common Stock, or for other capital adjustments or payments of stock dividends or distributions or other increases or decreases in the outstanding shares of Common Stock effected without receipt of consideration by the Company. (b) If the Company shall be sold, reorganized, consolidated, or merged with another corporation, or if all or substantially all of the assets of the Company shall be sold or exchanged (a "Corporate Event"), (i) each Optionee shall, at the time of such Corporate Event, be entitled to receive upon the exercise of his Option the same number and kind of shares of -4- common stock or the same amount of property, cash or other securities as he would have been entitled to receive upon the occurrence of such Corporate Event as if he had been, immediately prior to such event or on the record date relating to such event, the holder of the number of shares of Common Stock covered by his Option, and (ii) if the Company is not the surviving corporation in such Corporate Event, the Company shall require the successor corporation or parent thereof to assume such outstanding Options; PROVIDED, HOWEVER, that the Committee may, in its discretion and in lieu of requiring such assumption, provide that all outstanding Options shall terminate as of the consummation of such Corporate Event and accelerate the exercisability of all outstanding Options to any date prior to the date of such Corporate Event. (c) The foregoing adjustments and the manner of application of the foregoing provisions shall be determined by the Committee in its sole discretion. Any such adjustment may provide for the elimination of any fractional share which might otherwise become subject to an Option. ARTICLE XI CHANGE OF CONTROL In the event of a Change of Control, each outstanding Option under the Plan shall vest and become immediately exercisable in full as of the date immediately preceding the date of such Change of Control, or such other date, not later than the date of such Change of Control, as shall be established by the Committee in its discretion. For purposes of the Plan, a "Change of Control" shall mean: (a) The acquisition by any individual, entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of the Securities Exchange Act of 1934, as amended (the "Exchange Act")) (a "Person") of beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act) of 50% or more of either (i) the then outstanding shares of Common Stock (the "Outstanding Company Stock") or (ii) the combined voting power of the then outstanding voting securities of the Company entitled to vote generally in the election of directors (the "Outstanding Company Voting Securities"); provided, however, that for purposes of this subsection (a), the following acquisitions shall not constitute a Change of Control: (i) any acquisition directly from the Company, (ii) any acquisition by the Company, (iii) any acquisition by any employee benefit plan (or related trust) sponsored or maintained by the Company, (iv) any acquisition by WP Ventures, or (v) any acquisition by any corporation pursuant to a transaction which complies with clauses (i), (ii), and (iii) of subsection (c) of this Article XI; (b) Individuals who, as of the date hereof, constitute the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to the effective date of the Plan whose election, or nomination for election by the Company's stockholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be -5- considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of an actual or threatened election contest with respect to the election or removal of directors or other actual or threatened solicitation of proxies or consents by or on behalf of a Person other than the Board; or (c) Consummation of a Corporate Event, unless, following such Corporate Event, (i) all or substantially all of the individuals and entities who were the beneficial owners, respectively, of the Outstanding Company Stock and Outstanding Company Voting Securities immediately prior to such Corporate Event beneficially own, directly or indirectly, more than 50% of, respectively, the then outstanding shares of common stock and the combined voting power of the then outstanding voting securities entitled to vote generally in the election of directors of the corporation resulting from such Corporate Event (including, without limitation, a corporation which as a result of such transaction owns the Company or all or substantially all of the Company's assets either directly or through one or more subsidiaries) upon consummation of such Corporate Event in substantially the same proportions as their ownership, immediately prior to such Corporate Event, of the Outstanding Company Stock and Outstanding Company Voting Securities, as the case may be, (ii) no Person other than (1) WP Ventures, (2) any corporation resulting from such Corporate Event, or (3) any employee benefit plan (or related trust) of the Company or such corporation resulting from such Corporate Event, beneficially owns, directly or indirectly, 50% or more of, respectively, the then outstanding shares of common stock of the corporation resulting from such Corporate Event or the combined voting power of the then outstanding voting securities of such corporation except to the extent that such ownership existed prior to the Corporate Event, and (iii) at least a majority of the members of the board of directors of the corporation resulting from such Corporate Event were members of the Incumbent Board at the time of the execution of the initial agreement, or of the action of the Board, providing for such Corporate Event; or (d) Approval by the stockholders of the Company of a complete liquidation or dissolution of the Company. ARTICLE XII RIGHTS AS A STOCKHOLDER An Optionee or a transferee of an Option shall have no rights as a stockholder with respect to any shares covered by his Option until he shall have become the holder of record of such shares, and he shall not be entitled to any dividends or distributions or other rights in respect of such shares for which the record date is prior to the date on which he shall have become the holder of record thereof. -6- ARTICLE XIII EMPLOYMENT RIGHTS Nothing in the Plan or in any Option Agreement entered into hereunder shall confer on any Optionee who is an employee of the Company or any of its subsidiaries any right to continue in the employ of the Company or any of its subsidiaries or to interfere in any way with the right of the Company or any of its subsidiaries to terminate the Optionee's employment at any time. ARTICLE XIV TRANSFER RESTRICTIONS Appropriate legends shall be placed on the stock certificates evidencing shares issued upon exercise of Options to reflect any relevant transfer restrictions. ARTICLE XV AMENDMENT OR DISCONTINUANCE OF PLAN The Board may from time to time, to the extent permitted by applicable law, amend, suspend, or discontinue the Plan; provided, however, that the Board may not take any action which would have a material adverse effect on outstanding Options or any unexercised rights under outstanding Options without the consent of the Optionee whose options would be adversely affected thereby. ARTICLE XVI CANCELLATION OF OPTIONS The Committee, in its discretion, may, with the express written consent of the Optionee to be affected, cancel any Option held by such consenting Optionee hereunder. ARTICLE XVII MISCELLANEOUS (a) Notwithstanding any other provision of the Plan, the Company or a subsidiary, as appropriate, shall have the right to deduct from all Option exercises Common Stock, valued at fair market value on the date of payment, in an amount necessary to satisfy all Federal, state or local taxes as required by law to be withheld with respect to such Options. In the alternative, in the sole discretion of the Company, the Optionee or other person receiving such Common Stock may be required to pay to the Company or a subsidiary, as appropriate, -7- prior to delivery of such Common Stock, the amount of any such taxes which the Company or subsidiary is required to withhold, if any, with respect to such Common Stock. Subject in particular cases to the disapproval of the Committee, the Company may accept shares of Stock of equivalent fair market value in payment of such withholding tax obligations if the Optionee elects to make payment in such manner. (b) The obligation of the Company to make payment of Option exercises in shares of Common Stock or otherwise shall be subject to all applicable laws, rules, and regulations, and to such approvals by governmental agencies as may be required. Notwithstanding any terms or conditions of any Option to the contrary, the Company shall be under no obligation to offer to sell or to sell and shall be prohibited from offering to sell or selling any shares of Common Stock pursuant to an Option unless such shares have been properly registered for sale pursuant to the Securities Act of 1933 with the Securities and Exchange Commission or unless the Company has received advice of counsel, satisfactory to the Company, that such shares may be offered or sold without such registration pursuant to an available exemption therefrom and the terms and conditions of such exemption have been fully complied with. The Company shall be under no obligation to register for sale under the Securities Act of 1933 any of the shares of Common Stock to be offered or sold under the Plan. If the shares of Stock offered for sale or sold under the Plan are offered or sold pursuant to an exemption from registration under the Securities Act of 1933, the Company may restrict the transfer of such shares and may legend the Stock certificates representing such shares in such manner as it deems advisable to ensure the availability of any such exemption. (c) The Plan shall be governed by and construed in accordance with the laws of the State of Delaware without reference to the principles of conflicts of law thereof. (d) No provision of the Plan shall require the Company, for the purpose of satisfying any obligations under the Plan, to purchase assets or place any assets in a trust or other entity to which contributions are made or otherwise to segregate any assets, nor shall the Company maintain separate bank accounts, books, records or other evidence of the existence of a segregated or separately maintained or administered fund for such purposes. (e) Except as otherwise specifically provided in the relevant plan document, no payment under the Plan or other amount required to be reported as income for Federal income tax purposes shall be taken into account in determining any benefits under any pension, retirement, profit sharing, group insurance or other benefit plan of the Company. (f) The expenses of administering the Plan shall be borne by the Company. The proceeds received by the Company from the exercise of any Options pursuant to the Plan will be used for general corporate purposes. (g) Masculine pronouns and other words of masculine gender shall refer to both men and women. -8- (h) The titles and headings of the sections in the Plan are for convenience of reference only, and in the event of any conflict, the text of the Plan, rather than such titles or headings, shall control. (i) Except as otherwise specifically provided in the Plan, no person shall be entitled to the privileges of ownership in respect of shares of Common Stock which are subject to Options hereunder until such shares have been issued to that person. ARTICLE XVIII SPECIAL PROVISIONS FOR ISOS (a) ISOs must be granted within ten years from the date the Plan is adopted, or the date the Plan is approved by the stockholders of the Company, whichever is earlier. (b) ISOs may not be exercised after the expiration of ten years from the date such ISOs are granted. (c) The Exercise Price of ISOs may not be less than the fair market value of a share of Common Stock at the time such ISOs are granted, as determined by the Committee. In such case, fair market value shall be determined in a manner consistent with the rules and regulations under Section 422 of the Code. (d) ISOs may not be granted to a person who owns stock possessing more than 10% of the total combined voting power of all classes of stock of the Company or any "subsidiary corporation" of the Company within the meaning of Section 424(f) of the Code. (e) To the extent the aggregate fair market value of the Common Stock with respect to which ISOs are exercisable for the first time by any Optionee during a calendar year (under all plans of the Company and all "subsidiary corporations" of the Company within the meaning of Section 424(f) of the Code) exceeds $100,000, such ISOs shall be treated as Non-Qualified Options. For purposes of the preceding sentence, the fair market value of the Common Stock shall be determined by the Committee at the time the ISO covering such stock is granted. (f) No ISOs may be granted under the Plan unless the Plan has been approved by the stockholders of the Company within 12 months before or after the date of the Plan's adoption by the Board. * * * -9- EX-21.1 7 a2042989zex-21_1.txt EXHIBIT 21.1 Exhibit 21.1 SUBSIDIARIES OF INFORMATION HOLDINGS INC.
STATE OF INCORPORATION NAME OR ORGANIZATION ------------------------------------ ----------------------- CRC Press LLC ...................... Delaware MicroPatent LLC .................... Delaware Information Ventures LLC ........... Delaware Optipat, Inc. ...................... Virginia MicroPatent (UK) LLC ............... Delaware Master Data Center, Inc. ........... Michigan Transcender LLC .................... Delaware CRC Press Inc. ..................... Delaware CRC Press (U.K.) LLC ............... Delaware
EX-23.1 8 a2042989zex-23_1.txt EXHIBIT 23.1 Exhibit 23.1 CONSENT OF INDEPENDENT AUDITORS We consent to the incorporation by reference in the Registration Statement (Form S-8 No. 333-41460) pertaining to the Information Holdings Inc. 1998 Stock Option Plan of our report dated February 22, 2001 with respect to the consolidated financial statements of Information Holdings Inc. and subsidiaries included in the Annual Report (Form 10-K) for the year ended December 31, 2000. ERNST & YOUNG LLP New York, New York March 27, 2001 -----END PRIVACY-ENHANCED MESSAGE-----