-----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, TDBwLYiSLUdA21A/cudUj7ERzmOMm/tIIqg/ji2wFzq02rwtW3YC3vFRWy7USJlm jw9Cq9tOWxBbvMgpftLogw== 0000950136-01-000605.txt : 20010409 0000950136-01-000605.hdr.sgml : 20010409 ACCESSION NUMBER: 0000950136-01-000605 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20001231 FILED AS OF DATE: 20010402 FILER: COMPANY DATA: COMPANY CONFORMED NAME: OFFICIAL INFORMATION CO CENTRAL INDEX KEY: 0000847841 STANDARD INDUSTRIAL CLASSIFICATION: PERIODICALS: PUBLISHING OR PUBLISHING AND PRINTING [2721] IRS NUMBER: 731341805 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 033-57587 FILM NUMBER: 1591664 BUSINESS ADDRESS: STREET 1: 250 WEST 57TH STREET STREET 2: SUITE 2421 CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: 2122475160 MAIL ADDRESS: STREET 1: 250 WEST 57TH STREET CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: T SF COMMUNICATIONS CORP DATE OF NAME CHANGE: 19920703 10-K 1 0001.txt FORM 10-K 2 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 (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 FOR THE TRANSITION PERIOD FROM __________________ TO __________________ COMMISSION FILE NUMBER 1-10263 THE OFFICIAL INFORMATION COMPANY (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) DELAWARE 73-1341805 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 250 West 57th Street, Suite 2421, New York, New York 10019 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (212) 247-5160 SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OR 12(G) OF THE ACT: NONE INDICATE BY CHECK MARK WHETHER THE REGISTRANT: (1) HAS FILED ALL REPORTS REQUIRED TO BE FILED BY SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING 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 this Form 10-K. [X] As of March 30, 2001, 112,367 shares of common stock were outstanding, of which 72,367 were owned by VS&A T/SF, L.L.C. and 36,000 and 4,000 were owned by Fir Tree Value Fund LP. and Fir Tree Institutional Value Fund L.P., respectively. ITEM 1. DESCRIPTION OF BUSINESS GENERAL The Official Information Company (formerly known as T/SF Communications Corporation), a Delaware corporation formed in 1989 (together with its subsidiaries, the "Company"), is a business-to-business, communications and information services company which principally operates in two lines of business: (i) business-to-business and professional database information services ("Information Services") and (ii) business-to-business communications, publishing and related marketing services ("Business-to-Business Communications"). Information Services includes our subsidiary, Total Information Services, Inc. ("TISI"), which, with its proprietary databases, is a leading provider through DAC Services ("DAC") of comprehensive pre-employment screening information used by the trucking industry to facilitate compliance with U.S. Government regulations and is a leading provider of pre-employment screening services to the retail industry through United States Mutual Association ("USMA") acquired in March 2000, the healthcare industry through Healthcare Employment Screening ("HES") and various other industries through Record Search, Inc. ("RSI"), acquired by TISI in August 1999. In January 2000, TISI acquired STA United ("STA"), a leading provider of drug testing services to the trucking and other industries. The Company believes that TISI is the leading supplier of specialized pre-employment screening information to selected vertical markets. In connection with the acquisition of USMA in March 2000, TISI issued non-voting common stock to certain owners of the USMA business equal to approximately 4.5% of the outstanding stock of TISI. Business-to-Business Communications is conducted through several individual businesses, each of which is characterized by leading competitive positions within specialized vertical markets. Business to Business Communications includes: (i) Atwood Publishing, LLC (together with its subsidiary and affiliates, "Atwood"), the largest domestic independent publisher of exposition and association related publications and directories; (ii) ExpoExchange, LLC (together with its subsidiary and affiliates, "ExpoExchange"), formerly Galaxy Information Services, LLC ("Galaxy"), the largest independent provider of housing, travel, registration, exhibitor information and "lead" management services to the trade show and convention industry in the United States and (iii) GEM Communications, LLC (together with its subsidiaries and affiliates, "GEM"), which owns and operates the World Gaming Congress(R), the world's largest trade show catering to the legalized gaming industry, and publishes trade magazines directed to the legalized gaming industry, including IGWB (formerly International Gaming and Wagering Business), a leading publication catering to gaming industry executives and UK based InterGame, InterGaming and InterPark, a leading series of publications for the international coin-operated amusement and gaming machines and amusement park businesses and Gaming for Africa a leading trade publication to the Sub-Saharan gaming industry. In April 1999, Galaxy acquired substantially all of the assets of International Travel Services, Inc. ("ITS"), a leading provider of housing and travel services to the trade show and convention industry. In June 2000 Galaxy (subsequently renamed ExpoExchange) acquired substantially all of the assets of the e-Products Division from Third Millennium Communications, Inc. ("3MC"). The Company's consolidated net revenues and EBITDA (as defined herein) for the year ended December 31, 2000 were approximately $137 million and $31 million, respectively. Of such consolidated net revenues, approximately 42% represented Information Services and approximately 58% represented Business-to-Business Communications. Of such EBITDA, approximately 53% represented Information Services and approximately 47% represented Business-to-Business Communications. In November 1999, the Company sold Corsearch, Inc., the second largest provider in the United States of trademark and trade name research to law firms and corporations. Pursuant to a tender offer (the "Tender Offer") completed on October 9, 1997 by the Company for its common stock, a purchase consummated on October 9, 1997 (the "Stock Purchase") by a subsidiary of VS&A-T/SF, L.L.C. ("VS&A-T-SF") of 881,988 shares of common stock, the repurchase consummated on October 9, 1997 by the Company of certain employee stock options (the "Option Repurchase"), a reverse stock split of the shares of common stock consummated on February 27, 1998 that resulted in the elimination of all shares of common stock other than those held by VS&A-T/SF and Fir Tree Value Fund, LP., Fir Tree Institutional Value Fund L.P., and Fir Tree Value Partners L.D.C. (collectively, "Fir Tree" and, together with VS&A-TSF, the "Equity Investors") (together with certain related transactions, the "Second Step Transaction"), and the drop down restructuring consummated on February 27, 1998 (the "Drop Down Restructuring"), in each case as described below, the Company was recapitalized and VS&A-T/SF and Fir Tree own approximately 64.4% and 35.6% of the common stock, respectively. The Tender Offer, Stock Purchase, Option Repurchase, Second Step Transaction and Drop Down Restructuring are collectively referred to herein as the "Recapitalization." Unless otherwise indicated, references herein to numbers of shares of common stock reflect the capitalization of the Company after giving effect to the reverse stock split effected on February 27, 1998 as part of the Second Step Transaction. As part of the Recapitalization, VS&A-T/SF and Fir Tree caused the Company, directly or indirectly, to contribute to TOIC Holdings, LLC, a subsidiary of the Company ("Holdings LLC"), substantially all of the assets and liabilities of the predecessors of Atwood, Galaxy and GEM in exchange for a $45.0 million preferred equity interest in Holdings LLC and VS&A-T/SF and Fir Tree contributed $4.5 million to acquire the common equity interests in Holdings LLC in the same proportion as their ownership of the common stock immediately following the consummation of the Recapitalization. These common equity interests in Holdings LLC and all earnings and losses in excess of the preferred stockholders' annual distributions are reflected as minority interests. The preferred equity interest held, directly or indirectly, by the Company carries an 11% annual distribution and, together with a voting agreement, gives the Company total voting, operational and management control of Holdings LLC. As part of the Recapitalization, Holdings LLC contributed substantially all of the assets of the predecessors of Galaxy, Atwood and GEM into several limited liability companies (the "Operating LLCs"). At the time of the Recapitalization, (i) 99% of the common equity interests of each Operating LLC were owned by Holdings LLC , which gave Holdings LLC voting, operational and management control of such entities and (ii) a 1% common equity interest of each Operating LLC was owned by T/SF Operating, LLC ("Operating LLC"). The preferred equity interest in Operating LLC was owned by Holdings LLC, which gave Holdings LLC voting, operational and management control of Operating LLC and the common equity interests of Operating LLC were held by VS&A-T/SF and Fir Tree in the same proportion as their ownership of the common stock immediately following the consummation of the Recapitalization. On December 31, 1998, Operating LLC was merged into Holdings LLC, with Holdings LLC being the surviving entity. As a result of such merger, Holdings LLC owned all of the common equity interests of each Operating LLC. In connection with the acquisition of ITS in April 1999, Galaxy issued non-voting membership units to certain former owners of the ITS business equal to approximately 6.9% of the outstanding membership units. In connection with the acquisition of the e-Products Division of 3MC in June 2000, Galaxy (renamed ExpoExchange) exchanged non-voting membership units to 3MC equal to approximately 20% of outstanding membership units for the e-Product Division assets. In January 2001, Holdings LLC acquired these membership units from 3MC. A chart illustrating the Company's ownership structure set forth above is available upon request. In lieu of such chart, which is unavailable on EDGAR, the following description is useful: The Company conducts its business through several corporate and limited liability company subsidiaries as follows: 1. Corporate Subsidiaries: The Company owns, directly or indirectly, several active corporate subsidiaries through which it conducts certain of its businesses such as TISI. 2. Limited Liability Company Subsidiaries: The Company, together with certain of its active corporate subsidiaries, owns all of the outstanding preferred interest in Holdings LLC, which holds all of the outstanding voting interest in the several operating limited liability companies through which TOIC conducts certain of its business, such as GEM, Atwood and ExpoExchange. There are also common interests of Holdings LLC, which are held by Company's stockholders as described above. Holdings LLC, Operating LLC and the Operating LLCs are collectively referred to herein as the "LLC's." As a result of the control of the LLCs by the Company, the financial results of the LLCs are included in the consolidated financial statements of the Company as described more fully in the Notes of the Company's consolidated financial statements included herein. 2 INFORMATION SERVICES Information Services provides specialized information and database service principally to the pre-employment screening market through TISI. In November 1999, the Company sold Corsearch, the second largest supplier in the United States of trademark and trade name searches and information research. TOTAL INFORMATION SERVICES, INC. PRE-EMPLOYMENT SCREENING SERVICES TISI, through its on-line databases, provides pre-employment screening information and services to selected vertical markets that by government regulation or business characteristic require a comprehensive candidate background investigation prior to hiring. TISI has virtually instantaneous computer access to Motor Vehicle Records (MVRs) maintained by 30 states and alternative methods to access the MVRs of the remaining states. In addition, TISI maintains a database which contains certain workers' compensation records from 14 states, which may be used by prospective employers either to detect employers that have been omitted by a prospective employee in his or her employment application or to determine job suitability. In 1998, TISI began offering a manual searching capability for many of those states which the workers' compensation records are not in TISI's database. TISI obtains its MVRs, workers' compensation and criminal records information from state or county archives, utilizing a nationwide network of agents and representatives, direct computer connections and proprietary databases. The information is resold at a mark-up over state and county fees for such information. In 2000, the information was resold to approximately 15,000 customers. Criminal records are maintained by approximately 3,300 jurisdictions in the U.S. and there is no single source for all such records. However, TISI can access for its customers criminal records from any U.S. jurisdiction requested by a customer. TISI's 20/20 criminal record database includes approximately 4.5 million records. Management believes that the pre-employment databases being created by TISI will become an increasingly valuable asset that will facilitate providing a full range of pre-employment products and services to a variety of vertical industries. In 1999, TISI acquired RSI, a leading provider of pre-employment screening services to the airline, staffing, high-tech and healthcare markets. In 2000, TISI acquired STA, a provider of pre and post-employment drug testing services, and USMA, a leading providor of pre-employment screening services to the retail industry, including a proprietary database of employee theft incident records. Employers who access TISI's services have the option to choose a customized package, including only those records that meet their specific pre-employment information needs through RSI and DAC's "Total Applicant Screening Services" product. For customers that want to perform their own background checks, TISI publishes The Guide, a publication available to the general public. The Guide lists thousands of telephone numbers and addresses for criminal record jurisdictions, state motor vehicle departments and colleges and universities, among others, which may be found helpful to those conducting their own background searches. TRANSPORTATION INDUSTRY TISI, which since 1983 has operated its transportation services business under the trade name DAC Services, is the largest on-line supplier of comprehensive pre-employment screening information to the trucking industry and a provider of driving record-related and other risk assessment and underwriting information to the insurance industry. DAC, endorsed by the American Trucking Associations since 1986 and the trucking associations of 41 states, currently maintains a computer network providing on-line electronic access to a proprietary employment history database of over 3 3.9 million job records concerning over 2.2 million truck drivers. Management believes the demand for the information in its DAC database is driven primarily by federal government regulation, the Company's ability to provide the information on a timely basis and the Company's success in marketing to the "truckload" segment of the trucking industry, which historically exhibits high driver turnover. "Truckload" carriers, such as J.B. Hunt and Schneider, typically are differentiated from "route" carriers and "private fleet" carriers in that "truckload" carriers are hired by third parties and do not have the steady, predetermined routes of a "route" carrier, nor do they operate as an individual corporation's captive "private fleet" (e.g., a retailer's "private fleet" of delivery trucks). As a result, the Company believes the unpredictable nature of a driver's job for a "truckload" carrier leads to inherently high driver turnover, which can be more than 100% per year for some trucking companies. As federal regulations require extensive screening of new truck drivers, this high turnover rate creates demand for DAC's services. RETAIL INDUSTRY On March 15, 2000, the Company acquired a group of ten affiliated companies collectively referred to as United States Mutual Association (USMA), a leading provider of pre-employment screening services to the vertical retail industry. Collectively, USMA is the nation's largest provider of retail employee theft incident records through its database of over 625,000 proprietary records. Similar to the DAC model, USMA's database consists of theft incident records contributed by USMA's clients. Through this proprietary relationship, USMA also provides criminal records, MVR's, drug tests and other pre-employment screening services to the retail industry. HEALTHCARE INDUSTRY TISI formed Healthcare Employment Screening (HES) during 1998 to provide pre-employment screening services to the healthcare industry including home healthcare and nursing home markets. Much like the trucking industry, employers in these industries are required by Federal and various state regulations to conduct comprehensive background checks on prospective employees. HES offers a comprehensive pre-employment screening service to this industry. CRIMINAL RECORDS SERVICES CrimeSearch, Inc., a wholly owned subsidiary of TISI, is a leading provider of criminal and civil court records and criminal record research to the pre-employment screening and legal industries. Through its network of over 750 researchers, CrimeSearch accesses criminal records in all counties in the United States, Puerto Rico, all US territories, the Canadian provinces and several other foreign countries. DRUG TESTING SERVICES In January 2000, TISI acquired substantially all of the assets of STA, a leading provider of pre and post-employment drug screening services. With 14,000 clients, STA is believed to be the largest third party administrator of drug and alcohol testing services to the transportation industry and is endorsed by the American Trucking Association and 35 state trucking associations. INSURANCE INDUSTRY SERVICES In addition to providing MVRs to the transportation industry, the Company is also a leading supplier of MVRs to the insurance industry for the screening of insurance applications. The Company, endorsed by the Professional Insurance Agents' Association, provides over 5,000 insurance industry customers' access to the Company's computer network to request MVRs and other information. Approximately 85% of these customers are insurance agents, with the remaining 15% representing branch offices, managing general agents, brokers and a small number of regional and home office locations. These customers primarily utilize the Company's data in assessing insurance underwriting risk and also purchase the Company's workers' compensation and credit report information. 4 BUSINESS-TO-BUSINESS COMMUNICATIONS The Company's Business-to-Business Communications operations are conducted through several individual businesses, each of which is characterized by leading competitive positions within specialized vertical markets. Business-to-Business Communications includes: (i) GEM, the world's leading owner and operator of trade shows and publisher of trade magazines directed to the international legalized gaming industry; (ii) Atwood, the largest domestic independent publisher of exposition and association related publications and directories; and (iii) ExpoExchange, the largest independent provider of housing, travel, registration, exhibitor information and sales-lead management services to the trade show and convention industry in the United States GEM COMMUNICATIONS GEM, founded in 1986, is the leading global provider of business information and marketing resources for the legalized gaming industry. GEM's trade show division owns and operates the World Gaming Congress and EXPO (WGC), the largest legalized gaming industry tradeshow in the world, as well as a number of regional tradeshows including Bingo World (operated but not owned), California Indian Gaming Summit and Slot Manager Institute. WGC traditionally has been held annually in Las Vegas during September or October of each year. Consequently, GEM's financial results are skewed towards the second half of the year. In 2000, WGC sold approximately 227,000 square feet of exhibition space and attracted approximately 28,000 attendees. GEM publishes several trade magazines directed to the legalized gaming industry, including IGWB and UK based InterGame, InterGaming and InterPark, a leading series of publications for the international coin-operated amusement and gaming machines and amusement park businesses. IGWB, with a qualified audited circulation of over 21,500, is a leading trade journal directed to the worldwide-legalized gaming industry. IGWB includes three quarterly publications - - Indian Gaming Business, Lottery Business and Slot Manager. In addition, the Company publishes Casino Executive, a trade magazine directed to casino management executives in North America. Effective January 1, 2001, the Company acquired Casino Journal Publishing Group's trade assets which include the publications: Casino Journal, a monthly trade publication for domestic casino operators and manufacturers and The National Gaming Summary, an industry weekly newsletter. In addition, there are several tradeshows/conferences: Casino Ops; Southern Gaming Summit; American Gaming Summit; North American Gaming Summit and the Greater Atlantic City Chamber of Commerce Business to Business Expo, all GEM managed joint ventures. During 1998, GEM had a 49% interest in a company that owned Gaming for Africa Expo, a gaming tradeshow and conference held in South Africa, and Gaming for Africa, a leading trade magazine for gaming in Sub-Saharan Africa. Effective as of January 1, 1999, GEM acquired, in a series of transactions, 100% of the business of Gaming for Africa Expo and Gaming for Africa. On March 8, 2000, the Company announced that it was combining certain aspects of the businesses of Atwood and GEM. The combined business, is focused on (i) e-business solutions and enterprise portal web sites for specific vertical markets, (ii) trade magazine publishing and tradeshow organization and (iii) custom publishing. In September 2000, GEM launched an international gaming portal WorldGamingLive.com. The site is a full service industry portal putting buyers and sellers together. Content includes World Gaming News, a free weekly newsletter, virtual tradeshow gaming stocks, tradeshow news and GEM news. The site is powered by ExpoEvent Services software. ATWOOD PUBLISHING Atwood, founded in 1982, is a leading independent publisher of daily tradeshow and convention newspapers, directories, and related custom publishing products that are directed to the attendees of US tradeshows and conventions. Atwood competes primarily with trade magazines and the owners and operators of expositions with in-house publishing capabilities who participate only in their particular industry and do not have diverse markets or the capabilities of Atwood. Atwood also publishes the trade journal EXPO, the official publication of the International 5 Association of Exposition Management, and Presenting: Communications, a publication covering the audio-visual presentation industry, and maintains an Internet website which is a database for tradeshow managers and exhibitors. Approximately 77% of Atwood's 2000 revenues were derived from its publication of dailies and directories. During 2000, Atwood provided publishing, communication or promotional services to approximately 61,000 exhibitors at approximately 166 tradeshows and conventions, including 22 of the "Tradeshow 200" exhibitions. Of the 166 tradeshows to which Atwood provided services in 2000, 60% represented tradeshows served by Atwood in 1999. Related products provided by Atwood include pre- and post-convention materials, literature kiosks and LeSack, a plastic bag filled with literature, publications, product samples and other marketing information that is distributed to attendees. Atwood also produces advertising and marketing products such as Internet Guides, specialty products and restaurant and city guides distributed to show attendees. Atwood provides magazine publishing related services to trade associations, including editorial content, layout and design of trade publications, advertising sales and circulation services. EXPOEXCHANGE Formed in June 2000, by the combination of Galaxy (founded in 1982), ITS (founded in 1948 and acquired in April 1999) and the e-Products Division of 3MC (acquired in June 2000). ExpoExchange markets its comprehensive housing, travel, registration, automated lead management and information services and Web event development services on an exclusive basis to trade associations, show managers, exhibitors and attendees of expositions, tradeshows and conventions. ExpoExchange serves over 75,000 exhibitors and over 4 million attendees annually. Among ExpoExchange's active clients are 72 of the "Tradeshow Week 200" exhibitions, including three of the top five such exhibitions. Of the 400 plus shows ExpoExchange provided services to in 2000, 81% represented tradeshows served in 1999. ExpoExchange's proprietary ExpoCards are utilized in the registration process to allow convention and trade show exhibitors to digitally capture and utilize attendee information for sales lead collection and management. ExpoExchange ExpoCard technology encodes attendee registration data on a magnetic stripe attached to a plastic card or on a computer chip "smartcard" which can be read by tradeshow and convention exhibitors renting ExpoExchange ExpoCard readers. ExpoExchange Show Floor Services allow attendees to leave and retrieve messages on-line at internet cafes and kiosks established on site for a fee, and permit show operators to receive information on-line including demographic data, attendance results and exhibit visitation patterns. In 2000, several new registration, housing and sales lead products were introduced. ExpoCard Connect allows exhibitors to create a custom qualification survey and lead capture system on their own laptop computer. ExpoCard Connect Pro allows exhibitors to transfer sales leads directly from their booths to their offices or fulfillment houses via the internet. ExpoCard Connect Mobile is a compact, wireless lead collection and qualification system. ExpoCard Web uses internet technology to transfer lead data from ExpoCard systems to the exhibitor's own ExpoCard lead management web site. ExpoExchange Web Registration offers the ability to conveniently register for an event "anyplace, anytime" online. ExpoExchange Registration Manager gives clients direct 24-hour access to their registration database over the Internet. For housing clients, ExpoExchange Destination Manager allows tradeshow attendees to register, purchase event tickets, browse listings of available hotels, book a room, and arrange flights over the Internet. ExpoExchange Online Services include a suite of internet based products that enable trade associations and show managers to extend and compliment their physical tradeshow event with an all year Web based event where exhibitors, attendees and other industry professionals can interact before, during and after the physical show. 6 Several of ExpoExcxhange's customers hold tradeshows on a bi-annual or tri-annual basis. Consequently, Expo Exchange's revenues vary from year to year. The following table sets forth, for the years ended December 31, 2000, 1999 and 1998, the percentage of revenues of ExpoExchange generated from trade shows of varying frequencies.
YEARS ENDED DECEMBER 31, -------------------------- 2000 1999 1998 ---- ---- ---- Annual Shows................................................... 92% 93% 90% Bi-Annual Shows................................................ 5 3 9 Tri-Annual Shows............................................... 2 4 1 Other Shows.................................................... 1 0 0 ----- ------ ----- 100% 100% 100% ==== ==== ====
COMPETITION Each of the Company's businesses is in competition with other suppliers and vendors of services or products similar to those provided by the Company and several of such competitors are significantly larger and have greater resources than the Company. The following is a brief description of the competitive environment in which each of the Company's businesses operates. TISI TISI has a leading market position in the trucking and retail industries. In the insurance industry, there are two TISI competitors, which are significantly larger and sell significantly more MVRs than TISI, as well as many regional providers. Choice Point, Pinkerton, Hirecheck and Kroll Background America are the largest national competitors in the employment screening market along with several regional competitors. Some of these competitors have significantly greater resources than TISI. Management believes that no other competitor has developed a national vertical market strategy based on the DAC proprietary employment history database concept. ExpoExchange ExpoExchange competes in a variety of exhibition services segments including registration, lead management, show floor services, housing and travel. ExpoExchange has two significant competitors, both of which provide services to fewer shows in any given year than ExpoExchange and management believes that they do not possess the resources of the Company. There are also smaller and regional competitors as well as some large companies which provide other exposition services which compete in certain aspects of ExpoExchange's business. ExpoExchange also encounters competition from a number of start-up companies offering Internet based housing and registration services. Atwood As a custom publisher, Atwood competes primarily on price, quality and service and has been successful by targeting the publishing needs of the tradeshow, convention and trade association market. Outside of that market, there are many custom publishers, some with significantly greater resources than the Company. In the tradeshow, convention and trade association market, there are competitors which, while concentrating on another set of services they perform for their customers, will also provide publishing services as part of their package of services. While several of these competitors are significantly larger than Atwood, management believes that stronger competitors are tradeshows or associations with "in house" publishing capabilities and trade magazine publishers with specialized knowledge in the industry that is the subject of the tradeshow or convention. 7 GEM In the gaming tradeshow business, there are a number of smaller US shows, a large show held in London each year (ATEI), and a variety of smaller niche or regional shows and conferences throughout the world. A few of these are owned or managed by competitors which are significantly larger than GEM. From a publishing standpoint, there are several successful magazines and newsletters serving vertical niches of the gaming industry in the US and worldwide industry, such as lotteries and pari-mutuals. Internationally, there are a few magazines, particularly in Europe, which successfully serve the casino industry and compete with the Company. To management's knowledge, none of such competitors are significantly larger than GEM. In addition, GEM must compete with other media for advertising dollars, such as direct mail and direct selling. The latter is particularly important for potential US casino advertisers, as so much of the industry is concentrated in a few locations. SEASONAL FACTORS The exposition services business is affected by the timing of conventions and tradeshows, with most such shows operating in the March-May and September-November time frames. GEM's results are significantly impacted by the timing of WGC, its largest owned tradeshow, which was held in September 1998 and 1999, and October 2000. EMPLOYEES As of February 28, 2001, the Company employed 1,091 persons on a full-time basis including 459 in Information Services, 625 in Business-to-Business Communications and seven at the Company's corporate offices. None of the Company's employees are subject to collective bargaining agreements. The Company considers relations with its employees to be satisfactory. Most employees are salaried, with sales personnel receiving commissions on sales. FINANCIAL INFORMATION For financial information regarding the Company's business segments, see Note 10 of Notes to Consolidated Financial Statements. GOVERNMENT REGULATION As a "consumer-reporting agency," TISI is subject to the provisions of the Fair Credit Reporting Act ("FCRA") and similar acts existing in the states and is regulated by the FTC under the Federal Trade Commission Act. Under the FCRA, a consumer-reporting agency may furnish a "consumer report" to a customer only for a permissible purpose allowed by the FCRA. Permissible purposes include extension or review of credit, collecting an account, employment purposes, underwriting of insurance, determining eligibility for a license or permit granted by a governmental entity, or in connection with a business transaction involving the consumer. All reports of TISI are treated by TISI as consumer reports for purposes of the FCRA. In addition, TISI's Total Applicant Screening reports are treated by TISI as "investigative consumer reports" within the meaning of that term under the FCRA because they involve contacting third parties. Certain additional restrictions apply to these reports. The FCRA requires a consumer-reporting agency to maintain reasonable procedures designed to ensure that the restrictions on the use of certain information are not violated. In addition, a consumer reporting agency must follow reasonable procedures to assure maximum possible accuracy of the information concerning the consumer about whom the report relates. The FCRA also requires a consumer-reporting agency, upon request from a consumer, to disclose all information about that consumer in its file, together with the source and the recipients of the information. In some cases, this information must be delivered to the consumer at no cost, and in others the agency may charge a reasonable fee. TISI does not charge a fee to a driver or other individual or entity about whom or which data is provided to a customer if that individual or entity has been turned down for a job or denied insurance within the last 30 days. Otherwise, TISI may charge a $10 fee. 8 The Americans with Disabilities Act ("ADA") contains pre-employment inquiry and confidentiality restrictions designed to prevent discrimination against individuals in the hiring process. Although TISI's business is not directly regulated by the ADA, the use by its customers of certain information sold to them, such as workers' compensation histories or drug and alcohol test results, is regulated, both with respect to the type of information and the timing of its use. Similar state laws also affect TISI's business. Some states have human rights laws that provide more protection than the ADA. A large number of states also regulate the type of information which can be made available to the public or to a third party or impose conditions to the release of the information. While the FCRA provides for civil liability sanctions against a consumer-reporting agency by a consumer for willful or negligent noncompliance with the FCRA, and criminal penalties for willful violations, by complying in good faith with the FCRA, TISI is protected from liability by the FCRA even if there are inadvertent errors in the information provided. TISI has developed and implemented internal policies designed to help ensure that background information retrieved by it concerning a consumer is accurate and that it otherwise complies with the provisions of the FCRA and applicable state laws. In addition, each customer of TISI is required to sign a user agreement, in which the customer agrees to accept responsibility for using information provided by TISI in accordance with the provisions of the FCRA, the ADA and local laws. TISI also has internal checks in place regarding access and release of such information. The Company currently maintains liability insurance to cover claims by customers or the subjects of reports for alleged inaccurate information or misuse of information. In the 16 years it has been in business, TISI has not been found liable for any violations of the FCRA, the ADA or similar state laws. The Company did settle a few cases out of court for a nominal amount to avoid litigation expenses. There can be no assurance, however, that the Company will not be found liable for any such violations and that, if found so liable, the Company will not be subject to adverse judgments in substantial amounts. In addition, there can be no assurance that the FCRA, the ADA or similar state laws will not be amended or subjected to different judicial or administrative interpretation in the future. It is not possible at this time to predict the impact that any such change might have on the Company's results of operations, financial condition or liquidity. The Department of Transportation ("DOT") is in the process of proposing and promulgating revised regulations which, among other things, concern the requirements for pre-employment screening of truck drivers. It is not possible at this time to predict the impact that such regulations, if adopted, might have on the Company's results of operations, financial condition or liquidity. If adopted in their current form, such regulations would likely provide a greater demand for access to employment history, MVRs and drug and alcohol test results of truck drivers, such as the information provided by the Company. The Driver's Privacy Protection Act ("DPPA") and similar state laws restrict disclosures of certain information held by state department of motor vehicles. The DPPA currently permits disclosure of this information in connection with matters relating to motor vehicle or driver safety and to verify information relating to a holder of a commercial driver's license Some of the states have adopted laws that are more restrictive than the DPPA. There can be no assurance that the DPPA or similar state laws will not be amended or subjected to different judicial or administrative interpretation in the future that restrict TISI's ability to obtain such information. FOREIGN SALES The Company's net revenues for 2000, 1999, and 1998 to customers outside the U.S. and Canada were $4.1 million, $8.1 million, and $5.1 million, respectively, representing 3.0%, 7.5%, and 5.8% of net revenues, respectively. All of such net revenues are attributable to Business-to-Business Communications. TRADEMARKS, LICENSES AND PATENTS The Company has registered numerous trademarks, including ExpoExchange(R), DAC Services(R), EXPO(R), World Gaming Congress(R) and IGWB(R), in the United States and, in certain cases, in foreign countries in which the Company does business. The Company believes that it owns or licenses all intellectual property rights necessary to conduct its business. 9 ITEM 2. PROPERTIES The Company conducts its principal operations at the facilities set forth below:
LOCATION SQUARE FOOTAGE LEASED/OWNED -------- -------------- ------------ Information Services: Tulsa, Oklahoma (TISI) 62,178 Leased (Expires October 2006) Hollywood, Florida (TISI/RSI) 13,958 Leased (Expires December 2001) Lincolnwood, Illinois (TISI/CrimeSearch) 6,915 Leased (Expires May 2001) Chicago, Illinois (TISI/CrimeSearch) 846 Leased (Expires 2001) Lincoln, Nebraska (TISI/STA) 11,719 Leased (Expires 2003) Business to Business Communications: Frederick, Maryland (ExpoExchange) 56,000 Leased (Expires January 2003) Deerfield, Illinois (ExpoExchange/ITS) 30,730 Leased (Expires September 2005) Atlanta, Georgia (ExpoExchange 8,848 Leased (Expires May 2001) Overland Park, Kansas (Atwood) 23,179 Leased (Expires September 2005) New York, New York (GEM) 2,504 Sub-leased (Expires October 2001) Las Vegas, Nevada (GEM) 2,676 Leased (Expires May 2003) Norwalk, Connecticut (GEM) 1,500 Leased (Expires December 2003) Corporate: New York, New York 1,679 Leased (Expires October 2003)
Management believes that its facilities are suitable and adequate for its immediate needs and that additional or substitute space is available if needed to accommodate expansion. In connection with the USMA acquisition, the Company acquired a 16,235 square foot facility in Simi Valley, California, which is currently for sale. The Company sold its corporate office in Tulsa, Oklahoma in 1998. In 1998, the Company sold its interest in 1995 Land Company for $1,425,000 and recognized a gain of approximately $80,000. ITEM 3. LEGAL PROCEEDINGS In the ordinary course of its business, the Company and its subsidiaries have been named as defendants in lawsuits and a party in various governmental proceedings from time to time. While in the past, such matters have not had a material adverse effect on the financial position, results of operation or liquidity of the Company, and management does not anticipate that such matters will have such an effect in the future, the outcome of suits and proceedings cannot be predicted with certainty and, due to such inherent uncertainty of litigation, there can be no assurance that the Company will not be subject to adverse judgments in substantial amounts. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matter was submitted to a vote of security holders during the fourth quarter of the fiscal year covered by this report. 10 PART II ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS After giving effect to the Recapitalization consummated on February 27, 1998, VS&A-T/SF and Fir Tree owned approximately 64.4% and 35.6% of the common stock, respectively. VS&A-T/SF is controlled by VS&A Communications Partners II, L.P. ("VS&A Fund II"), a private equity fund affiliated with Veronis, Suhler & Associates, Inc. ("VS&A"), an investment banking and research firm specializing in the media and communications industry. Other investors in VS&A-T/SF include two institutional investors and an affiliate of Ian L. M. Thomas, the President and Chief Executive Officer of the Company. There is no established public trading market for the Company's common stock. No dividends were declared or paid during 1998, 1999 and 2000. The terms of the Company's $25 million Credit Agreement (increased to $40 million on February 2, 2001) and 10 3/8 % Senior Subordinated Notes due 2007 (the "Notes") currently restrict the ability of the Company to pay dividends or make distributions to its shareholders. See the consolidated financial statements of the Company and the notes thereto. ITEM 6. SELECTED FINANCIAL DATA The following table presents selected financial data for each of the last five years.
YEARS ENDED DECEMBER 31, ------------------------------------------------------------------- 2000 1999 (2) 1998 (2) 1997 (2) 1996 ---- -------- -------- -------- ---- (DOLLARS IN THOUSANDS) STATEMENT OF OPERATIONS DATA (1): Revenues, net Information Services (a)............... $ 57,474 $ 41,832 $ 36,055 $ 31,363 $ 23,925 Business-to-Business Communications (b).... 79,208 65,877 52,166 43,353 42,891 -------- -------- -------- ---------- -------- Total revenues........................ 136,682 107,709 88,221 74,716 66,816 Costs and Expenses Operating costs............................ 62,110 48,435 39,520 35,735 40,314 General and administrative expenses........ 44,367 34,046 27,033 24,814 15,207 Recapitalization and reorganization expenses 593 - - 21,774 - Depreciation and amortization.............. 19,717 10,998 7,078 4,996 4,018 -------- -------- -------- ---------- -------- Total expenses............................... 126,787 93,479 73,631 87,319 59,539 -------- -------- -------- ---------- -------- Operating income (loss)...................... 9,895 14,230 14,590 (12,603) 7,277 Interest and other income.................. 939 84 422 1,091 1,826 Interest expense............................. 11,580 10,792 10,676 3,696 581 -------- -------- -------- ---------- -------- (Loss) income before income taxes and other items (746) 3,522 4,336 (15,208) 8,522 Impairment of investment .................. (4,518) - - - - Income tax benefit (expense)............... 449 (2,944) (1,329) 2,636 (3,101) Minority interest in consolidated subsidiaries 5,160 (455) (2,491) - - Net (loss) gain on disposal of subsidiaries.. (59) 4,842 - - - -------- -------- -------- ---------- -------- Net income (loss).......................... $ 286 $ 4,965 $ 516 $(12,572) $ 5,421 ======== ======== ======== ========== ========
YEARS ENDED DECEMBER 31, ----------------------------------------------------------------- 2000 1999 1998 1997 1996 ---------- ---------- ------------- ----------- ------------- (DOLLARS IN THOUSANDS) OTHER FINANCIAL DATA (1): Capital expenditures......................... $ 7,570 $ 6,692 $ 6,503 $ 5,541 $ 2,641 EBITDA (3)................................... 30,205 26,067 22,044 15,258 13,121 EBITDA margin (3)............................ 22.1% 24.2% 24.9% 20.1% 19.1% Ratio of earnings to fixed charges (4)....... .55x 1.3x 1.4x -- 15.7x
11
AS OF DECEMBER 31, ---------------------------------- 2000 1999 ---- ---- BALANCE SHEET DATA: Cash and equivalents......................................................... $ 795 $ 32,162 Total assets................................................................. 157,338 122,130 Total debt................................................................... 116,274 122,317 Stockholders' deficit........................................................ (40,387) (49,228)
(1) In the merger of Tribune/Swab-Fox, then the owner of 78% of the common stock, with and into the Company on May 25, 1995, the Company was the surviving entity, from a legal standpoint. However, from an accounting standpoint, the transaction was treated as a downstream merger. Thus, for financial reporting purposes, the transaction was treated as a recapitalization of Tribune/Swab-Fox, with Tribune/Swab-Fox as the survivor. Accordingly, the historical financial statements of the Company, as the surviving legal entity, are those historical financial statements of Tribune/Swab-Fox prior to the merger. In addition, the Company was a party to several events/transactions which affect the comparability of the historical information presented above. See the Notes to Consolidated Financial Statements for additional information on certain of these events/transactions. (a) With respect to Information Services, the Company acquired Corsearch and CrimeSearch in August 1996. Corsearch was sold in November 1999. In September 1999, the Company acquired RSI. In January 2000, the Company acquired STA and in March 2000, the Company acquired USMA. (b) With respect to Business -to- Business Communications, the Company: (i) acquired 88% of Casino Publishing Co. effective February 1, 1997 and the remainder effective January 31, 1998 (ii) acquired a majority of Galaxy Expocard Europe, B.V. in May 1997, (iii) acquired IGBE in June 1998 and (iv) acquired InterGame, Limited in September 1998. In January 1999, the Company acquired the remaining 51% interest in Gaming for Africa and in April 1999, acquired substantially all of the assets of ITS. In April 2000, the Company purchased a 4.7% common equity interest in 3MC (subsequently sold back to 3MC in January 2001) and in June 2000 acquired the e-Products Division of 3MC. (2) Certain 1999, 1998 and 1997 account balances have been reclassified to conform to the 2000 consolidated financial statement presentation. (3) EBITDA is included because management believes that such information is considered by certain investors to be an additional basis on which to evaluate the Company's ability to pay interest expense, repay debt and make capital expenditures. Excluded from EBITDA are interest expense, income taxes, depreciation and amortization, recapitalization and reorganization expenses, unusual gains and losses (including gains on disposition of real estate in 1998, provision for loss on disposition of subsidiary in 1999, and impairment of investments in 2000), minority interest in consolidated subsidiaries, discontinued operations, extraordinary loss, net of tax, each of which can significantly affect the Company's results of operations and liquidity and should be considered in evaluating the Company's financial performance. EBITDA is not intended to represent and should not be considered more meaningful than, or an alternative to, measures of operating performance as determined in accordance with generally accepted accounting principles. EBITDA margin represents EBITDA as a percentage of total revenues. (4) In computing the ratio of earnings to fixed charges: (a) earnings have been based on income from continuing operations before income taxes and fixed charges and (b) fixed charges consist of interest and amortization of debt discount expense, and the interest component of rent expense. Such component was estimated at the current year weighted average interest rate for capital leases. 12 FORWARD-LOOKING STATEMENTS This Annual Report for the year ended December 31, 2000, as well as other public documents of the Company contains forward-looking statements which involve risks and uncertainties. The Private Securities Litigation Reform Act of 1995 provides a "safe harbor" for certain forward-looking statements. When used in this Annual Report, the words "estimate," "project," "anticipate," "expect," "intend," "believe," "seek," "plan," as well as variations of such words and similar expressions, are intended to identify forward-looking statements. While management believes these statements are reasonable, actual results could differ materially from those projected by such forward-looking statements. See "Business," and "Management's Discussion and Analysis of Financial Condition and Results of Operations". ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW The Company is a business-to-business, communications and information services company which principally operates two lines of business: (i) business-to-business and professional database information services ("Information Services") and (ii) business-to-business communications, publishing and related marketing services ("Business to Business Communications"). Effective January 31, 1998, the Company acquired the remaining 12% minority interest in Casino Publishing Company. In June, 1998, GEM acquired all the assets and rights to the International Gaming Business Exposition, a conference and trade show serving the casino gaming industry. On September 1, 1998, GEM acquired all the stock of UK based InterGame Limited, the publisher of a leading series of publications for the international coin-operated amusement and gaming machines and amusement park businesses. During 1998, GEM had a 49% interest in a company that owned Gaming for Africa Expo, a gaming trade show and conference held in South Africa, and Gaming for Africa, a leading trade magazine for gaming in Sub-Saharan Africa. Effective as of January 1, 1999, GEM acquired, in a series of transactions, the business of Gaming for Africa Expo and Gaming for Africa. In May 1999, the Company acquired substantially all of the assets of ITS, a major provider of housing and travel services to the tradeshow and convention industry. In connection with this transaction, two of the former owners of ITS, who remain as key executives, invested $2 million of their proceeds in non-voting membership units of ExpoExchange. In September 1999, the Company acquired all of the outstanding stock of RSI, a leading provider of pre-employment screening services. In November 1999, the Company sold 100% of the outstanding stock of Corsearch. On December 24, 1999, Galaxy Expocard Europe B.V. (Galaxy Europe), a 73% owned subsidiary of Galaxy, was placed in court supervised administrative reorganization process. As a result, the Company no longer has effective management control over Galaxy Europe. Accordingly, effective January 1, 2000, Galaxy Europe is no longer included in the Company's consolidated results. Efforts to structure a reorganization of Galaxy Europe have not been successful and the Dutch court has placed Galaxy Europe into liquidation. In December 1999, the Company wrote off its investment in Galaxy Europe. On January 31, 2000, the Company acquired substantially all of the assets of STA, a leading provider of drug testing services to the pre-employment screening industry. On March 15, 2000, the Company acquired the stock and/or assets of a group of ten companies collectively known as United States Mutual Association ("USMA"), a leading provider of pre-employment screening services to the retail industry, principally through a proprietary database of employee theft incident records. On April 14, 2000, the Company purchased a 4.7% common equity interest in Third Millennium Communications, Inc. ("3MC") for $5.0 million. 3MC provides development and consulting services primarily to Internet related entities. 13 On June 1, 2000, the Company acquired substantially all of the assets of the e-Products Division of 3MC, in exchange for non-voting LLC units valued at approximately $30.0 million in Galaxy Information Services, LLC. The e-Products Division is a leading provider of internet-based market place and e-commerce services to the tradeshow industry. The combined entity was renamed ExpoExchange, LLC. All of the above acquisitions have been accounted for as purchase business combinations and are included in the Company's consolidated results from the date of acquisition. During the fourth quarter of 2000, the Company determined that its investment in Gaming for Africa had become impaired and a provision has been recorded to recognize this impairment. Subsequent to December 31, 2000, the Company sold its stock in 3MC back to 3MC for $500,000. A write down to recognize the impairment of this investment has been recorded at December 31, 2000. On February 2, 2001, the Company acquired the 3MC non-voting units in ExpoExchange for $15.5 million. The Company has subsequently restructured the e-Products Division organization and management at a cost of approximately $720,000. The restructuring resulted in the elimination of approximately 40 positions. CONSOLIDATED OPERATIONS The following table summarizes the Company's historical results of operations as a percentage of revenue for the years ended December 31, 2000, 1999, and 1998:
YEARS ENDED DECEMBER 31, --------------------------------------- 2000 1999 1998 ---- ---- ---- Revenues: Information Services............................................. 42.0% 38.8 % 40.9 % Business-to-Business Communications.............................. 58.0 61.2 59.1 ----- ----- ----- Total revenues.............................................. 100.0 100.0 100.0 Costs and Expenses: Operating costs.................................................. 45.5 45.0 44.8 General and administrative expenses.............................. 32.5 31.6 30.6 Reorganization expenses.......................................... 0.4 -- -- Depreciation and amortization.................................... 14.4 10.2 8.0 ----- ----- ----- Total expenses.............................................. 92.8 86.8 83.6 ----- ----- ----- Operating Income before interest and income taxes.................... 7.2% 13.2% 16.5% ===== ===== ===== EBITDA margin......................................................... 22.1% 24.2% 24.9% ===== ===== =====
RESULTS OF OPERATIONS Year Ended December 31, 2000 Versus Year Ended December 31, 1999 Revenues. Net revenues of $136.7 million for the year ended December 31, 2000 were $29.0 million (27%) higher than 1999. Business-to-Business Communications segment revenue totaled $79.2 million for the year ended December 31, 2000, an increase of $13.3 million (20%), over 1999. ExpoExchange contributed $11.2 million to the 2000 revenue growth. ExpoExchange's growth resulted principally from increased registration and exhibitor volume, the growth of new lead management and interactive services, inclusion of a full year of ITS compared with eight months in 1999 ($6.5 million impact) and inclusion of e-Products Division from June 1, 2000. Excluding the impact of ITS and the e-Products Division, ExpoExchange's revenue increased 18%, including the effect of several bi-annual shows. At Atwood, growth in new dailies and directories business and continued expansion of proprietary publishing led to an 18% increase in revenue for the year ended December 31, 2000, compared with 1999. At GEM, continuing consolidation of suppliers in the gaming industry resulted in reduced industry advertising expenditures. For the year ended December 31, 2000, net revenue at GEM's domestic and international publications declined approximately 13% compared with the same 1999 period. A record 17% increase in revenue from World Gaming 14 Congress & Expo held in October 2000, was mostly offset by cancellation of the Western Gaming Congress and Gaming for Africa Expo. The Information Services segment produced revenue of $57.5 million for the year ended December 31, 2000, an increase of $15.6 million (37%) over the same period in 1999. TISI's 2000 revenue increase of 66% over 1999 more than offset the $7.1 million revenue reduction resulting from sale of Corsearch in November 1999. TISI's 2000 revenue growth resulted principally from increased criminal record volume, higher pre-employment screening volume at DAC ($3.0 million) and inclusion of a full year of RSI (acquired September 1, 1999), STA from February 1, 2000 and USMA from March 15, 2000, which together added $18.7 million to revenue growth. Excluding the impact of acquisitions and the Corsearch sale, 2000 Information Services segment revenue increased 13%. Operating Costs. Operating costs of $62.1 million for the year ended December 31, 2000, increased by $13.7 million (28%) compared with the same period in 1999. Operating costs of the Business-to-Business Communications segment of $40.2 million, increased by $6.5 million (19%) during 2000, on 20% higher revenue, compared with 1999. This growth was attributable principally to increased volume at Atwood and Expo and the inclusion of acquisitions completed during 1999 and 2000. Operating costs of the Information Services segment of $21.9 million, increased $7.2 million (49%) during 2000, compared with 1999, on 37% higher revenue. The increase was attributable principally to higher criminal record and pre-employment screening volume at TISI, inclusion of RSI, STA and USMA offset partially by exclusion of Corsearch from the segment after November 11, 1999. General and Administrative Expenses. General and administrative expenses of $45.0 million, increased $10.9 million (32%) for the year ended December 31, 2000, compared with the same period in 1999. Higher general and administrative expenses were principally due to the inclusion of RSI ($2.0 million), STA ($1.5 million), USMA ($1.6 million) and e-Products Division ($3.9 million); increased corporate infrastructure ($4.1 million) at TISI, ExpoExchange and Atwood to support business expansion and acquisition integration; offset partially by cost reductions at GEM, lower Corporate business development costs and the exclusion of Corsearch. General and administrative expenses at TISI include $593,000 of non-recurring reorganization expenses incurred in connection with integration of the USMA acquisition. Depreciation and Amortization. Depreciation and amortization totaled $19.7 million during 2000, an increase of $8.7 million (79%) compared with 1999. The increase resulted principally from amortization of intangible assets associated with the acquisitions of RSI, STA, USMA and e-Products Division, and capital spending to acquire data, expand exposition and trade show capacity and upgrade information technology, offset partially by exclusion of Corsearch. Depreciation and amortization also included additional amortization ($618,000) resulting from the Company's decision to reduce the period of amortization from 15 to 10 years for intangible assets associated with the 1998 acquisition of a UK subsidiary, and on the basis of an independent valuation, to shorten the period of amortization for certain identified intangible assets related to the acquisition of ITS. During the fourth quarter of 2000, the Company determined that certain intangible assets related to a foreign subsidiary and a domestic acquisition had become impaired. Accordingly, the Company recorded a $983,000 provision, which is included in depreciation and amortization, to recognize this impairment. Interest Expense. Interest expense totaled $11.6 million for the year ended December 31, 2000, compared with $10.8 million during 1999. Interest expense results primarily from debt incurred in connection with the Recapitalization. The increase of $788,000 (7%) resulted from increased utilization of the Company's Senior Credit Facility. EBITDA. EBITDA increased $4.1 million (16%) to $30.2 million for the year ended December 31, 2000, compared with $26.1 million for the same period in 1999. The increase over 1999 was attributable principally to higher EBITDA in the Information Services segment (up $4.2 million - 31%), and lower corporate and business development costs (down $1.3 million), partially offset by lower EBITDA in the Business-to-Business Communications segment ($1.2 million). EBITDA in the Information Services segment excludes the non-recurring reorganization costs ($593,000) incurred at TISI. Excluding the impact of acquisitions and dispositions, EBITDA in the Business-to-Business Communications and Information Services segments increased 26% and 14%, 15 respectively, for the year ended December 31, 2000, compared with the same period in 1999. 2000 EBITDA in total, excluding the impact of acquisitions, increased 21% over 1999. EBITDA is included because management believes that such information is considered by certain investors to be an additional basis on which to evaluate the Company's ability to pay interest expense, repay debt and make capital expenditures. Excluded from EBITDA are interest expense, income taxes, depreciation and amortization, recapitalization and reorganization expenses, unusual gains and losses (including gains on disposition of real estate in 1998, provision for loss on disposition of subsidiary in 1999, and impairment of investments in 2000), minority interest in consolidated subsidiaries, discontinued operations, extraordinary loss, net of tax, each of which can significantly affect the Company's results of operations and liquidity and should be considered in evaluating the Company's financial performance. EBITDA is not intended to represent and should not be considered more meaningful than, or an alternative to, measures of operating performance as determined in accordance with generally accepted accounting principles. EBITDA margin represents EBITDA as a percentage of total revenues. ACQUISITIONS AND DIVESTITURE On April 30, 1999, the Company, through Galaxy (now ExpoExchange), acquired substantially all of the assets and assumed substantially all of the liabilities of ITS for an aggregate purchase price of $22.6 million plus transaction costs. Of the total purchase price of this transaction, $11.1 million was paid out of proceeds from the Company's line of credit, $2.0 million was paid from a contemporaneous minority equity investment in Galaxy by certain former ITS shareholders, and the remainder was paid from existing cash. On August 31, 1999, the Company, through TISI, acquired all the stock of RSI for an aggregate purchase price of $12.8 million plus transaction costs. Of the total purchase price of this transaction, $9.0 million was paid out from existing cash and the balance in the form of a note to be paid over three years. On August 31, 2000, the Company paid the remaining balance due under the notes in connection with settlement of certain issues with the sellers of RSI. In connection with this settlement two sellers, who had also been employees of RSI, terminated their employment with the Company. On November 11, 1999, the Company sold all of the outstanding stock of Corsearch and executed a non-compete agreement for approximately $20.0 million, plus additional consideration of $1.6 million for certain defined net assets. On January 31, 2000, the Company acquired substantially all of the assets of STA for approximately $8.3 million. STA is a leading provider of drug testing services to the pre-employment industry. On March 15, 2000, the Company acquired the stock and/or assets of a group of ten companies collectively known as USMA. The Company paid approximately $23.5 million plus transaction costs, with $15.2 million paid in cash and the balance in non-voting stock of TISI. The Company incurred $196,000 of severance costs which were accrued as a liability assumed in the acquisition. USMA provides pre-employment screening services to the retail industry, principally through a proprietary database of employee theft incident records. On April 14, 2000, the Company purchased a 4.7% common equity interest in 3MC for $5.0 million. 3MC provides development and consulting services primarily to Internet related entities. On June 1, 2000, the Company acquired substantially all of the assets of the e-Products Division of 3MC, in exchange for non-voting LLC units valued at approximately $30.0 million in Galaxy. These acquisitions were accounted for under the purchase method of accounting. Year Ended December 31, 1999 Versus Year Ended December 31, 1998 Revenues. Revenues of $107.8 million for the year ended December 31, 1999 were $19.2 million (22%) higher than 1998. Business-to-Business Communications segment revenue totaled $65.9 million for the year ended 16 December 31, 1999, an increase of $13.7 million (26%) over 1998. Galaxy (now ExpoExchange) contributed $9.3 million to the 1999 revenue growth. Galaxy's growth resulted principally from increased registration and exhibitor volume, the growth of new lead management and interactive services and inclusion of ITS ($8.0 million) from May 1, 1999. Excluding the impact of ITS, Galaxy's revenue increased 8%, despite the absence of several bi-annual shows. At Atwood, growth in new directories business, a strong increase in new digital products and expansion of proprietary publishing led to a 7% increase in revenue for the year ended December 31, 1999 compared with 1998. The inclusion of InterGame ($3.2 million) and Gaming for Africa ($628,000) which were not included in consolidated results until September 1, 1998 and January 1, 1999, respectively, contributed to a 26% increase in 1999 revenue at GEM. Excluding the impact of acquisitions, Business-to-Business Communications segment revenue increased 8% in 1999. The Information Services segment produced revenue of $41.8 million for the year ended December 31, 1999, an increase of $5.8 million (16%) over the same period in 1998. TISI's 1999 revenue increased 26% over 1998. TISI's 1999 revenue growth resulted principally from increased criminal record volume, higher pre-employment screening volume at DAC, inclusion of RSI from September 1, 1999 ($2.6 million) and the launch of WGN. WGN provides pre-employment screening services to the casino gaming industry based on the successful DAC model. TISI's CrimeSearch affiliate experienced a 51% increase in 1999 revenue reflecting the ongoing growth in demand for criminal records. Corsearch revenue reported during 1999 decreased 16% compared with full year 1998. Corsearch was sold effective November 11, 1999. Excluding the impact of acquisitions and the Corsearch sale, 1999 Information Services segment revenue increased 16%. Operating Costs. Operating Costs of $48.4 million for the year ended December 31, 1999, increased by $8.9 million (23%) compared with the same period in 1998. Operating Costs of the Business-to-Business Communications segment of $33.8 million, increased by $7.3 million (28%) during 1999, on 26% higher revenue, compared with 1998. This growth was attributable principally to increased volume at Atwood and Galaxy and the inclusion of InterGame, Gaming for Africa and ITS, which were not included in consolidated results until September 1, 1998, January 1, 1999 and May 1, 1999, respectively. Operating Costs of the Information Services segment of $14.7 million, increased $1.6 million (12%) during 1999, compared with 1998, on 16% higher revenue. The increase was attributable principally to higher criminal record and pre-employment screening volume at TISI and inclusion of RSI from September 1, 1999, offset partially by cost control measures instituted at Corsearch and exclusion of Corsearch after November 11, 1999. General and Administrative Expenses. General and Administrative Expenses of $34.0 million, increased $7.0 million (26%) for the year ended December 31, 1999, compared with the same period in 1998. Higher general and administrative expenses were principally due to the inclusion of InterGame, Gaming for Africa, ITS and RSI from September 1, 1998, January 1, 1999 and May 1, 1999, respectively, increased staff to support volume growth, new product development at TISI and corporate business development costs, offset partially by cost control actions taken at Corsearch and exclusion of Corsearch after November 11, 1999. Corporate business development costs consisted principally of expenses related to acquisition activity that could not be capitalized and provisions for potential cost associated with the court supervised administrative process involving Galaxy Europe, B.V., including a $736,000 provision for the potential loss on Galaxy U.S. assets as part of the disposition or liquidation process. Depreciation and Amortization. Depreciation and Amortization of $11 million, increased $3.9 million (55%) during the year ended December 31, 1999, compared with 1998. During the fourth quarter of 1999, the Company determined that its investment in a trade show acquired in 1998 had become permanently impaired. Accordingly, during the fourth quarter of 1999, the Company wrote off the balance of its investment ($1.8 million), which is included in depreciation and amortization to recognize this impairment. The balance of the increase in depreciation and amortization resulted principally from 1999 capital expenditures ($6.7 million) to acquire data, expand exposition and trade show capacity and upgrade information technology and increased amortization of goodwill due to acquisitions. 17 Interest Expense. Interest Expense totaled $10.8 million for the year ended December 31, 1999, compared with $10.7 million for the same period in 1998. Interest expense results primarily from debt incurred in connection with the Recapitalization. EBITDA. EBITDA increased $4.0 million (18%) to $26.1 million for the year ended December 31, 1999, compared with $22.0 million for the same period in 1998. The increase over 1998 was attributable principally to higher EBITDA in the Business-to-Business Communications segment (up $3.7 million - 32%) and the Information Services segment (up $2.0 million - 17%), partially offset by higher corporate business development costs. Excluding the impact of acquisitions, EBITDA in the Business-to-Business Communications and Information Services segments increased 22% and 13%, respectively, for the year ended December 31, 1999, compared with the same period in 1998. 1999 EBITDA in total, excluding the impact of acquisitions, increased 13% over 1998. EBITDA is included because management believes that such information is considered by certain investors to be an additional basis on which to evaluate the Company's ability to pay interest expense, repay debt and make capital expenditures. Excluded from EBITDA are interest expense, income taxes, depreciation and amortization, recapitalization and reorganization expenses, unusual gains and losses (including gains on disposition of real estate in 1998 and provision for loss on disposition of subsidiary in 1999), minority interest in consolidated subsidiaries, discontinued operations, extraordinary loss, net of tax, each of which can significantly affect the Company's results of operations and liquidity and should be considered in evaluating the Company's financial performance. EBITDA is not intended to represent and should not be considered more meaningful than, or an alternative to, measures of operating performance as determined in accordance with generally accepted accounting principles. EBITDA margin represents EBITDA as a percentage of total revenues. LIQUIDITY AND CAPITAL RESOURCES Liquidity. In connection with the Recapitalization, the Company: (i) borrowed $13 million under a $25.0 million revolving senior credit facility (the "Senior Credit Facility") with First Union National Bank ("FUNB"); (ii) issued $80.0 million aggregate principal amount of notes pursuant to a facility (the "Bridge Financing Facility") provided by First Union Corporation; and (iii) received $40.0 million of equity contributions (the "Equity Contributions") from VS&A-T/SF and Fir Tree. On October 29, 1997, the Company completed the private sale to First Union Capital Markets Corp. (the "Initial Purchaser") of $100.0 million principal amount of the Old Notes at a price of 97% of the principal amount thereof. The Initial Purchaser resold the Old Notes to a limited number of qualified institutional buyers at an initial price to investors of 100% of the principal amount thereof, with net proceeds to the Company of $97.0 million (the "Offering"). The Offering was a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Rule 144A and Section 4 thereof. The net proceeds of the Notes sold pursuant to the Offering were applied to repay indebtedness incurred in connection with the Recapitalization under the Senior Credit Facility and the Bridge Financing Facility. On February 10, 1998, the Company offered to exchange up to $100.0 million aggregate principal amount of Old Notes for up to an equal aggregate principal amount of new notes (the "New Notes" and, together with the Old Notes, the "Notes"). The New Notes are obligations of the Company entitled to the benefits of the Indenture (the "Indenture") relating to the Old Notes and the form and terms of the New Notes are identical in all material respects to the form and terms of the Old Notes except that the New Notes have been registered under the Securities Act and do not contain terms with respect to transfer restrictions or interest rate increases as described herein. On September 1, 1998 the Company purchased $1.5 million of the New Notes at a price below par. The Company recorded a $60,000 gain on this transaction. The Notes are unsecured obligations of the Company, ranking subordinate in right of payment to all Senior Debt of the Company. The Notes are guaranteed on a subordinated basis by all of the active wholly owned subsidiaries of the Company. The Notes are limited in aggregate principal amount to $100.0 million and mature on November 1, 2007. Interest on the Notes accrues at the rate of 10-3/8% per annum and will be payable semiannually in cash on each May 1 and November 1, commencing on May 1, 1998. Interest on the Notes will accrue from the most recent date to which interest has been paid or, if no interest has been paid, from and including the date of issuance. The Notes will not be entitled to the benefit of any mandatory sinking fund. The Notes may be redeemed, at the Company's option, in whole at any time or in part from time to time, on and after November 1, 2002, upon not less than 30 nor more than 60 days' notice, at certain specified redemption prices, plus, in each case, accrued and 18 unpaid interest thereon, if any, to the date of redemption. At any time, or from time to time, on or prior to November 1, 2000, the Company may, at its option, use the net cash proceeds of one or more Public Equity Offerings (as defined in the Indenture) to redeem the Notes at a redemption price equal to 110.375% of the principal amount thereof plus accrued and unpaid interest thereon, if any, to the date of redemption; provided that at least 65% of the principal amount of Notes originally issued remains outstanding immediately after any such redemption. In order to effect the foregoing redemption with the proceeds of any Public Equity Offering, the Company shall make such redemption not more than 90 days after the consummation of any such Public Equity Offering. The Indenture provides that upon the occurrence of a Change of Control, each Holder will have the right to require that the Company purchase all or a portion of such Holder's Notes, at a purchase price equal to 101% of the principal amount thereof plus accrued interest to the date of purchase. The Indenture contains covenants, among others, restricting the ability of the Company and the Guarantors to: (i) declare dividends or redeem or repurchase capital stock; (ii) prepay, redeem or purchase debt; (iii) make investments, (iv) transact with affiliates, (v) incur additional indebtedness, (vi) restrict the ability of subsidiaries to declare dividends of make loans to the Company, (vii) amend or otherwise alter certain interests in TOIC Holdings, LLC, (viii) sell assets, (ix) permit restricted subsidiaries to issue preferred stock, (x) incur liens or (xi) alter the business. The Indenture also contains certain customary affirmative covenants and events of default. On February 2, 2001, the Senior Credit Facility was increased to $40 million which is due and payable at maturity in September 2004. The Senior Credit Facility is secured by a first priority lien on substantially all of the properties and assets of the Company and its subsidiaries, owned now or acquired later. The Senior Credit Facility is guaranteed by certain of the subsidiaries of the Company (the "Guarantors"). At the Company's option, the interest rate per annum applicable to the Senior Credit Facility will be a fluctuating rate of interest measured by reference either to: (i) LIBOR plus the applicable borrowing margin or (ii) FUNB's base rate, which is the greater of the published prime rate of FUNB or the overnight federal funds rate plus 0.5% (the "FUNB Rate") plus the applicable borrowing margin. The applicable borrowing margin for the Senior Credit Facility will range from 1.75% to 2.75% for LIBOR based borrowings and 0.5% to 1.5% for FUNB Rate based borrowings. The Company has agreed to pay certain fees with respect to the Senior Credit Facility including (i) upfront facility fees, (ii) agent and arrangement fees and (iii) commitment fees of 0.5% per annum on the unused portion of the Senior Credit Facility. The entire amount of the Senior Credit Facility was made available to the Company concurrently with the closing of the Tender Offer. The commitments under the Senior Credit Facility are required to be permanently reduced with: (i) 100% of the net cash proceeds of all non-ordinary-course asset sales or other dispositions of the property by the Company and its subsidiaries, including insurance and condemnation proceeds, subject to limited exceptions and (ii) 100% of the net proceeds of issuance of equity or debt obligations of the Company and its subsidiaries, subject to limited exceptions (including the Offering). The Company may voluntarily reduce the commitment in amounts of $1.0 million or more at any time without premium or penalty. The Senior Credit Facility contains covenants, among others, restricting the ability of the Company and the Guarantors to: (i) declare dividends or redeem or repurchase capital stock; (ii) prepay, redeem or purchase debt; (iii) incur liens and engage in sale-leaseback transactions; (iv) make loans and investments; (v) issue more debt; (vi) amend or otherwise alter debt and other material agreements; (vii) make capital expenditures; (viii) engage in mergers, acquisitions and asset sales; (ix) transact with affiliates and (x) alter its lines of business. The Company must also make certain customary indemnification's of the lenders and their agents and will also be required to comply with financial covenants (based on adjusted pro forma EBITDA) with respect to: (i) a maximum leverage ratio; (ii) a maximum senior leverage ratio; (iii) a minimum interest coverage ratio and (iv) a minimum fixed charge coverage ratio. The Senior Credit Facility also contains certain customary affirmative covenants. Events of default under the Senior Credit Facility include: (i) the Company's failure to pay principal or interest when due; (ii) the Company's material breach of any covenant, representation or warranty contained in the loan documents; (iii) customary cross-default provisions; (iv) events of bankruptcy, insolvency or dissolution of the Company or the Guarantors; (v) the levy of certain judgments against the Company, any Guarantor, or its assets; (vi) certain adverse events under ERISA plans of the Company or the Guarantors; (vii) the actual or asserted invalidity of security documents or guarantees of the Company or the Guarantors and (viii) a change of control of the Company. 19 The Company's principal sources of funds are anticipated to be cash flows from operating activities and borrowings under the $40 million Senior Credit Facility. Based upon the successful implementation of management's business and operating strategy, the Company believes that these funds will provide the Company with sufficient liquidity and capital resources for the Company to meet its current and future financial obligations, including the payment of principal and interest on the Notes, as well as to provide funds for the Company's working capital, capital expenditures and other needs. No assurance can be given, however, that this will be the case. At December 31, 2000 the Company had $17.2 million outstanding under the Senior Credit Facility. The Company's future operating performance and ability to service or refinance the Notes and to repay, extend or refinance the Senior Credit Facility will be subject to future economic conditions and to financial, business and other factors, many of which are beyond the Company's control. In addition, any future acquisitions by the Company would likely require additional financing. In the event of a Change of Control (as defined in the Indenture), the Company will be required to make an offer for cash to repurchase the Notes at 101% of the principal amount thereof, plus accrued and unpaid interest and Additional Interest (as defined in the Indenture), if any, thereon to the repurchase date. Certain events involving a Change of Control would result in an event of default under the Senior Credit Facility or other indebtedness of the Company that may be incurred in the future. Moreover, the exercise by the holders of the Notes of their right to require the Company to repurchase the Notes may cause an event of default under the Senior Credit Facility or such other indebtedness, even if the Change of Control does not. Finally, there can be no assurance that the Company will have the financial resources necessary to repurchase the Notes upon a Change of Control. Capital Expenditures. Management anticipates that capital expenditures in 2001 will be approximately $10.2 million. The primary capital expenditures will be for computer equipment and software and database acquisitions at TISI. TISI continues to offer its customers in the trucking industry credits for providing employment information to be utilized in its database, which credits can be used against charges for future services from such division. All of the credits earned are considered capital expenditures for the acquisition of such data. Management anticipates positive cash flow from operations in 2001, even after the anticipated capital expenditures for 2001. Thus, with the Company's available cash reserves and cash flow, management does not anticipate a need for additional capital during 2001 except for possible future acquisitions. NEW ACCOUNTING PRONOUNCEMENTS The Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 133, Accounting for Derivative Instruments and Hedging Activities (SFAS No. 133). SFAS No. 133 establishes accounting and reporting standards for derivative instruments and hedging activities. Subsequently, the FASB issued SFAS No. 137, which deferred the effective date of SFAS No. 133. SFAS No. 137 is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. This Statement is not expected to have a material impact on the Company's financial reporting. On December 3,1999, the Securities Exchange Commission issued Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements (SAB No. 101). SAB No.101 provides the SEC's views on revenue recognition including upfront fees received where the seller has continuing involvement. SAB No.101 states that in certain circumstances where the seller has continuing involvement or performance obligations, fees for licenses at the outset of an arrangement should be deferred and recognized as revenue systematically over the related period of performance. SAB No. 101 requires companies to adopt the accounting guidance contained therein by no later than the fourth fiscal quarter of the fiscal year beginning after December 15,1999 (quarter ending June 30, 2001 for the Company). The Company believes its revenue recognition policies are in compliance with the provisions of SAB No. 101. Item 8. Financial Statements and Supplementary Data See Item 14, Exhibits, Financial Statements, Schedules and Reports on Form 8-K. 20 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The following table sets forth information with respect to the current Directors and executive officers of the Company and certain other key employees of the Company and its subsidiaries. All Directors of the Company hold office until the next Annual Meeting of Stockholders and until the election and qualification of their successors. Each individual listed below is a citizen of the United States, except for Ian L.M. Thomas who is a citizen of the United Kingdom.
NAME AGE POSITION ---- --- -------- John S. Suhler...................... 57 Chairman of the Board and Director Ian L. M. Thomas.................... 63 President, Chief Executive Officer and Director John J. Veronis..................... 73 Director Jeffrey T. Stevenson................ 40 Director Scott Troeller...................... 32 Director Jeffrey Tannenbaum.................. 38 Director John Rolfe.......................... 32 Director Steven J. Hunt...................... 56 Chief Financial Officer and Treasurer Brian A. Meyer...................... 40 General Counsel and Secretary Wayne Gregus........................ 52 Director, Business Development Richard A. Wimbish.................. 57 President and Chief Operating Officer of TISI W. Michael Goodwin.................. 50 President and Chief Operating Officer of ExpoExchange William Newman...................... 51 President and Chief Executive Officer of GEM/ Atwood
John S. Suhler co-founded VS&A in 1981, VS&A Communications Partners I, L.P. ("VS&A Fund I") in 1987, VS&A Fund II in 1994 and VS&A Communications Partners III, L.P. ("VS&A Fund III") in 1999 with Mr. Veronis. Mr. Suhler currently is President and Co-Chief Executive of VS&A and is a Founding General Partner of VS&A Fund I. Prior to forming VS&A, Mr. Suhler was a Corporate Vice President of CBS and President of CBS Publishing Group. Ian L. M. Thomas was previously employed as a Managing Director at VS&A. Until June 15, 1998, Mr. Thomas' services were provided to the Company by VS&A, with whom Mr. Thomas had an employment arrangement, and the Company reimbursed VS&A for such services at cost. On June 15, 1998, Mr. Thomas entered into an employment agreement which provides for his employment as President, Chief Executive Officer and a Director through October 2002. Prior to his employment at VS&A, Mr. Thomas completed a 24-year career at Reed Elsevier plc, where he served as Chairman and Chief Executive Officer of Reed Telepublishing Ltd. and as a member of the Board of Directors of both Reed Elsevier plc and Reed International plc. John J. Veronis co-founded VS&A in 1981, VS&A Fund I in 1987, VS&A Fund II in 1994 and VS&A Fund III in 1999 with Mr. Suhler. Mr. Veronis currently is Chairman and Co-Chief Executive of VS&A and is a Founding General Partner of VS&A Fund I. Prior to forming VS&A, Mr. Veronis co-founded Psychology Today and its parent company, CRM; served as President of Curtis Magazines and Publisher of its Ladies Home Journal and was a general corporate executive at Interpublic Group of Companies. Jeffrey T. Stevenson has served as President and General Partner of VS&A Fund III since February 1999, as President and General Partner of VS&A Fund II since November 1994 and as President of VS&A Fund I since 1989. Mr. Stevenson joined VS&A in 1982 and prior to joining VS&A Fund I was Executive Vice President of VS&A in charge of corporate finance. 21 Scott Troeller, Managing Director and Principal, joined VS&A Communications Partners, L.P. in July 1996. From 1991 through 1996 Mr. Troeller was an investment banker at JP Morgan & Co. Jeffrey Tannenbaum founded Fir Tree Partners, a private investment firm, in January 1994. From 1988 through 1993, Mr. Tannenbaum was an investment professional at Kohlberg & Co., a corporate acquisition firm. John Rolfe is a co-founder of Argand Capital Advisors, a private investment firm. From 1997 through 1999, Mr. Rolfe was an investment professional with Fir Tree Partners. Prior to joining Fir Tree, Mr. Rolfe was an investment banker with Donaldson, Lufkin & Jenrette specializing in media and communications. Steven J. Hunt was appointed Chief Financial Officer in November 1997. Prior to joining the Company, he was the founder of Value Growth Partners, International, a strategic and financial consulting firm, from 1995 to October 1997. Mr. Hunt previously served as Executive Vice President Business Development and Planning and Chief Financial Officer of Patrick Media Group, Inc., a subsidiary of GE Capital Corp. from 1991 to 1995. Brian A. Meyer was appointed General Counsel in November 1997. Prior to joining the Company, Mr. Meyer served as Senior Counsel at Revlon, Inc. from May 1993 to October 1997. From January 1990 to April 1993, he was an attorney at the law firm of Latham & Watkins. Richard A. Wimbish joined TISI, a wholly owned subsidiary of the Company, as Controller in 1987 and became Executive Vice President in 1990. Mr. Wimbish was made President and Chief Operating Officer of TISI in 1991. Prior to joining TISI, Mr. Wimbish was Controller and Chief Financial Officer of Carlson Reserve Corporation from 1981 through 1986. Wayne Gregus joined the Company on December 31, 1999 as Director, Business Development. Prior to joining the Company Mr. Gregus was owner and CEO of Interim Management Group, LLC and G&G Publishing Services, LLC. From 1990 to 1996 Mr. Gregus was Senior Vice President, Operations for Reed Travel Group, a unit of Reed Elsevier, Inc. William Newman joined the Company in June 1998 as President and Chief Executive Officer of Atwood. Prior to joining the Company, from 1985, Mr. Newman was President of Kansas' leading radio stations: KCFX-FM (Classic Rock); KCIY-FM (Smooth Jazz); KXTR-FM (Classical); KQLR-FM (Rock) and the Kansas City Chiefs Radio Network. W. Michael Goodwin joined the Company in December 1996 as President and Chief Executive Officer of the predecessors of both Atwood and Galaxy and in June 1998 resigned his positions with Atwood. Prior to joining the Company, Mr. Goodwin was founder and President of Falcon Sports Group, Inc., a company which focused on developing and introducing new sports media properties. Prior to this, Mr. Goodwin was Executive Vice President and Chief Operating Officer of Professional Sports Publications, a publisher of sporting event game day magazines (1992-1995). 22 ITEM 11. EXECUTIVE COMPENSATION Set forth below is certain information with respect to the compensation of each of the five most highly compensated executive officers of the Company and its subsidiaries, based on salary and bonus earned during 2000, for services in all capacities to the Company and its subsidiaries during each of the Company's last three fiscal years. SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION (1) ---------------- ALL OTHER NAME AND PRINCIPAL POSITION YEAR SALARY BONUS (2) COMPENSATION (3) - --------------------------- ---- ------ --------- ---------------- Ian L.M. Thomas (4) 2000 $190,000 $157,700 -- President and Chief Executive 1999 185,000 185,000 -- Officer 1998 175,000 168,998 -- Steven J. Hunt 2000 $190,000 $ 95,000 $ 6,800 Chief Financial Officer 1999 185,000 107,500 66,854 1998 175,000 35,000 53,162 Brian A. Meyer 2000 $175,000 $100,000 $ 6,800 General Counsel 1999 170,000 100,000 6,400 1998 160,000 32,000 Richard Wimbish 2000 $185,000 $ 74,500 $ 6,800 President TISI 1999 180,000 61,200 6,400 1998 175,000 49,000 6,542 Michael Goodwin 2000 $180,000 $ 79,200 $ 6,800 President/COO ExpoExchange 1999 169,808 54,400 6,400 1998 165,000 52,800 --
- --------------- (1) No cash compensation other than the annual amounts described was paid to any of the named executives attributable to the periods shown. (2) Includes bonuses earned for the year, even if paid in another year. (3) These amounts include the total value of the Company's contributions made or accrued to the Company's 401(k) plan. All such persons are 100 percent vested in their accounts under the Company's plan. In the case of Mr. Hunt, this includes relocation expenses paid of $60,454 paid in 1999. The amount in 1998 also represents relocation expenses. (4) Mr. Thomas served as President and Chief Executive Officer from October 9, 1997. Until Mr. Thomas' U.S. Visa was transferred from VS&A to the Company, Mr. Thomas' services were provided to the Company by VS&A, with whom Mr. Thomas had an employment arrangement, and the Company reimbursed VS&A for such services at cost. On June 15, 1998, Mr. Thomas entered into an employment agreement with the Company that provides for his employment through October 2002. 23 OPTIONS. The Company did not grant any options during 2000, 1999 or 1998. ExpoExchange issued unit options in 2000. The Company never granted any stock appreciation rights. In 1997, the Company terminated all stock option plans, except for the Company's 1994 Incentive Stock Plan, under which Mr. Wimbish was granted options exercisable into 16,750 shares of common stock (1,675 shares after giving effect to a 10-for-1 reverse stock split effected in 1998). The plan will survive solely with respect to such options and no further options are outstanding, or will be granted, under such plan. COMPENSATION OF DIRECTORS. Directors receive no additional compensation for service on the Board of Directors or any committee thereof. Directors are reimbursed by the Company for out-of-pocket expenses incurred by them in connection with their service on the Board of Directors and any committee thereof. EMPLOYMENT AGREEMENTS. The Company is subject to employment agreements with certain directors, officers or key employees, as follows: Ian L.M. Thomas is President and Chief Executive Officer and a Director of the Company. Until Mr. Thomas' U.S. Visa was transferred from VS&A to the Company, Mr. Thomas' services were provided to the Company by VS&A, with whom Mr. Thomas had an employment arrangement, and the Company reimbursed VS&A for such services at cost. On June 15, 1998, Mr. Thomas entered into an employment agreement with the Company that provides for his employment through October 2002 at a base salary of $175,000 per year, with annual increases based upon the Consumer Price Index, plus a bonus (of up to 100% of his base salary) based upon certain performance targets. Mr. Thomas also participates in the Company's Chief Executive Officer Equity Appreciation Plan and Supplemental Chief Executive Officer Equity Appreciation Plan. See "--Phantom Stock Plans."' Steven J. Hunt, hired by the Company in November 1997, is the Chief Financial Officer of the Company. Mr. Hunt is party to an employment agreement with the Company that provides for a five-year term at a base salary of $175,000 per year, with annual increases based upon the Consumer Price Index, plus a bonus (of up to 50% of his base salary) based upon certain performance targets. Mr. Hunt also participates in the Company's Corporate Executive Equity Appreciation Plan. See "--Phantom Stock Plans." Brian A. Meyer, hired by the Company in November 1997, is the General Counsel of the Company. Mr. Meyer is party to an employment agreement with the Company that provides for a five-year term at a base salary of $160,000 per year, with annual increases based upon the Consumer Price Index, plus a bonus (of up to 50% of his base salary) based upon certain performance targets. Mr. Meyer also participates in the Company's Corporate Executive Equity Appreciation Plan. See "--Phantom Stock Plans." W. Michael Goodwin was hired by the Company in December 1996, to serve as President and Chief Executive Officer of the predecessors of both Atwood and Galaxy. After a full-time Chief Executive Officer was hired for Atwood, Mr. Goodwin relinquished his position with Atwood and became the full-time Chief Executive Officer of Galaxy. Mr. Goodwin entered into an employment agreement as of January 1, 1998 which provided for his employment through December 31, 2000 as President and Chief Executive Officer of Galaxy Registration, LLC at a base salary of $165,000 annually, with annual increases based upon the Consumer Price Index, and various incentives and bonus opportunities. Effective as of June 1, 2000, Mr. Goodwin's employment agreement was amended to increase the base salary to $180,000 annually and to extend the term until May 31, 2003. At that time, Mr. Goodwin ceased to participate in the Company's Key Equity Appreciation Plan and was granted options in ExpoExchange's Unit Option Plan. Mr. Goodwin is currently the President and Chief Operating Officer of ExpoExchange. Richard A. Wimbish entered into a new employment agreement with TISI as of January 1, 1998 which provides for his employment through December 31, 2000 (with automatic one-year extensions thereafter) as President and Chief Operating Officer of TISI at a base salary of $175,000 annually, with annual increases based upon the Consumer Price Index, and various incentives and bonus opportunities, including participation in the Company's Key Executive Equity Appreciation Plan. Mr. Wimbish continues to hold options granted under the Company's 1994 Incentive Stock Plan, 1,675 shares of common stock are issuable upon exercise of such options, 1,000 of which have an exercise price of $13.874 per share and 675 of which have an exercise price of $4.25 per share. The Company's 1994 Incentive Stock Plan, under which such options were granted, therefore will survive (solely with respect to such options). 24 William Newman was hired by the Company in June 1998 to serve as President and Chief Executive Officer of Atwood. Mr. Newman entered into an employment agreement as of June 22, 1998 which provides for his employment through December 31, 2000 (with automatic one-year extensions thereafter) as President and Chief Executive Officer of Atwood Publishing, LLC at a base salary of $165,000 annually, with annual increases based upon the Consumer Price Index, and various incentives and bonus opportunities, including participation in the Company's Key Executive Equity Appreciation Plan. Wayne Gregus was hired by the Company on December 31, 1999 to serve as Director, Business Development. Mr. Gregus entered into an employment agreement as of December 31, 1999 which provides for his employment through December 31, 2002 at a base salary of $165,000 annually, with annual increases based upon the Consumer Price Index, and various incentives and bonus opportunities, including participation in the Company's Corporate Executive Executive Equity Appreciation Plan. PHANTOM STOCK PLANS The Company has established a Key Executive Equity Appreciation Plan (the "Key Executive Phantom Stock Plan") for executives of the Company. Pursuant to the Key Executive Phantom Stock Plan, executives can be awarded Equity Appreciation Units ("Units") which constitute a "phantom" equity interest in any appreciation in the value of the equity of the Company above the $59.6 million originally invested by VS&A-T/SF and Fir Tree in the Company and Holdings LLC (the "Equity Appreciation") payable only in the event of a change in control of the Company, as defined, or termination event, as defined. Effective as of October 1, 2000, the Units vest at the rate of 33.3% per year, provided that the executive remains an employee of the Company and the annual EBITDA budget for the Company is achieved (or, if not achieved, that 110% of the annual EBITDA budget for the next year is achieved). Messrs. Wimbish and Newman were awarded Units equal to .3% each of the Equity Appreciation under the Key Executive Phantom Stock Plan. Until June 1, 2000, Mr. Goodwin participated in the Key Executive Phantom Stock Plan. Effective June 1, 2000, Mr. Goodwin was granted options in ExpoExchange and his participation in the Key Executive Phantom Stock Plan ceased and the amount of his payment upon a change of control was fixed at $186,185. Ian L.M. Thomas, President and Chief Executive Officer of the Company, was awarded Units equal to 2.5% of the Equity Appreciation under the Chief Executive Officer Equity Appreciation Plan, which Units vest 20% per year over five years, provided that Mr. Thomas remains an employee of the Company. Mr. Thomas was awarded Units equal to an additional 2.5% of the Equity Appreciation under the Supplemental Chief Executive Officer Equity Appreciation Plan, which Units vest 100% upon a Change of Control (as defined in the Supplemental Chief Executive Officer Equity Appreciation Plan), in the event that VS&A-T/SF has received an internal rate of return on its investment in the common stock of greater than 20% per annum. Mr. Hunt, Chief Financial Officer of the Company, Mr. Meyer, General Counsel of the Company, and Mr. Gregus, Director - Business Development, were awarded Units equal to 1.5%, 1% and .3%, respectively, of the Equity Appreciation under the Corporate Executive Equity Appreciation Plan (together with the Key Executive Phantom Stock Plan, the Chief Executive Officer Equity Appreciation Plan and the Supplemental Chief Executive Officer Equity Appreciation Plan, the "Phantom Stock Plans"), which Units vest 20% per year over five years, provided, in each case, that such individual remains an employee of the Company. Upon termination of an executive's employment by the Company for any reason (other than Cause (as defined in the Key Executive Phantom Stock Plan) or voluntary termination by the executive), the executive is entitled to receive an amount equal to the value of his or her vested Units, payment of which can be deferred until a Change in Control (as defined in the Key Executive Phantom Stock Plan) of the Company. All Units awarded under the Chief Executive Officer Equity Appreciation Plan and the Corporate Executive Equity Appreciation Plan vest on a Change in Control (as defined in each plan), and the executive is entitled to receive an amount equal to the value of his or her Units (unless his or her employment terminated prior to the Change in Control). The maximum number of Units issuable under the Phantom Stock Plans would constitute approximately 10% of the common equity interests of the Company. 25 ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT On March 31, 1998, following the consummation of the Recapitalization on February 27, 1998 and a 10-for-1 reverse stock split effected on March 30, 1998, VS&A-T/SF held 72,367 shares (or approximately 64.4%) and Fir Tree held 40,000 shares (or approximately 35.6%) of the common stock, constituting all of the outstanding common stock. Upon consummation of the Tender Offer, Stock Purchase and Option Repurchase, pending the Second Step Transaction on February 27, 1998, public shareholders held 101,969 shares of the common stock (or approximately 7%), and VS&A-T/SF's shares constituted approximately 60% and Fir Tree's shares constituted approximately 33% of the outstanding shares of the common stock. No directors or executive officers of the Company own any shares of the common stock. An affiliate of Ian L. M. Thomas, President and Chief Executive Officer of the Company, has invested $750,000 to purchase 1.95% of VS&A-T/SF.
NAME AND ADDRESS AMOUNT AND NATURE OF OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS - ------------------- --------------------- ---------------- VS&A-T/SF, LLC 72,367 64.4% 350 PARK AVENUE NEW YORK, NEW YORK 10022 FIR TREE VALUE FUND LP. 535 5TH AVENUE, 31ST FLOOR NEW YORK, NEW YORK 10017 36,000 32.0% FIR TREE INSTITUTIONAL VALUE FUND L.P. 535 5TH AVENUE, 31ST FLOOR NEW YORK, NEW YORK 10017 4,000 0.6% ------- ----- 112,367 100.0% ======= =====
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS STOCKHOLDERS AGREEMENT VS&A-T/SF, Fir Tree (each, a "Stockholder") and the Company are parties to a Stockholders Agreement (the "Stockholders Agreement"), dated as of October 9, 1997, with respect to the management of the Company and their ownership of shares of the common stock. The Stockholders Agreement provides each Stockholder the right to "tag" along on any sale of shares by the other Stockholder, provides to VS&A-T/SF the right to "drag" along Fir Tree on any sale of all of the common stock and provides preemptive rights to each Stockholder. The Stockholders Agreement provides that VS&A-T/SF and Fir Tree will vote for a board consisting of a majority of members designated by VS&A-T/SF and a number of Fir Tree designees in proportion to Fir Tree's ownership of common stock. Accordingly, the Board of Directors of the Company consists of eight members, five designated by VS&A-T/SF and three designated by Fir Tree. The Board currently consists of seven members, two of whom are Fir Tree nominees. Fir Tree has the right to appoint a third nominee if it so desires. See "Management." The Stockholders Agreement provides that certain actions require approval by a majority of the Fir Tree designees on the Board, including an amendment of the Certificate of Incorporation or By-Laws, a transaction with VS&A-T/SF or an affiliate, certain borrowings or management equity plans pursuant to which management receives more than 10% of the common equity interests of the Company. 26 At any time after October 9, 2002, Fir Tree has the right to force a sale of the Company or its assets and the Stockholders are required to sell their shares or vote in favor of a sale. If a definitive agreement for the sale of the Company is not executed within 18 months after the notice from Fir Tree, the Stockholders will vote their shares to elect a Board consisting of a majority of members designated by Fir Tree. The Stockholders Agreement terminates in 2007 or upon an earlier underwritten initial public offering of common stock. In 1999, VS&A was paid a monitoring fee of $90,000 and fees of $534,000 in connection with advisory services provided to the Company with respect to the acquisitions of ITS and RSI, and the disposition of Corsearch. In 2000, VS&A was paid a monitoring fee of $90,000 and fees of $670,000 in connection with advisory services provided to the Company with respect to the acquisitions of STA, USMA and e-Products Division of 3MC. Approximately 18% of both such fees were shared with Fir Tree pursuant to the Stockholders Agreement. 27 PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) List of documents filed as part of this Report: (1) Consolidated Financial Statements and Independent Auditors' Reports included herein: See Index on page F-1 (2) Financial Statement Schedule: The Financial Statement Schedules are omitted as they are inapplicable or the required information is furnished in the Consolidated Financial Statements of the Company or the Notes thereto. (3) List of Exhibits: EXHIBIT NUMBER DESCRIPTION ------- ------------ 2.1 Stock Purchase Agreement, dated as of August 15, 1997, among VS&A Communications Partners II, L.P., VS&A-T/SF Inc. and T/SF Communications Corporation (incorporated herein by reference to Exhibit 2.1 to the Company's Registration Statement on Form S-4 dated February 10, 1998 (the "Registration Statement")) 2.2 Stock Purchase Agreement dated as of September 1, 1998 by and among GEM Communications, LLC and the shareholders of InterGame Limited (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated September 1, 1998). 2.3 Asset Purchase Agreement dated as of March 25, 1999 among TOIC Acquisition, LLC, The Official Information Company, International Travel Service, Inc. and William A. Patterson Jr., Stephen T. Martin and Edward A. Harris (incorporated herein by reference to Exhibit 2.1 to the Company's Annual Report on Form 10-K for the period ended December 31, 1998). 2.4 Agreement for Stock Purchase dated as of August 31, 1999 among Total Information Services, Inc., Records Search, Inc. and the stockholders thereof (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated August 31, 1999). 2.5 Stock Purchase Agreement dated as of October 6, 1999, by and among CT Corporation System, The Official Information Company, and Corsearch, Inc. (incorporated herein by reference to Exhibit 2.1 to the Company's Quarterly Report on Form 10-Q for the period ended September 30, 1999). 2.6 Form of Stock Acquisition Agreement dated as of March 15, 2000 among TISI Holdings, Inc., The Official Information Company and the transferor(s)(incorporated herein by reference to Exhibit 2.1 to the Company's Current report on Form 8-K dated March 15, 2000). 2.7 Form of Asset Acquisition Agreement dated as of March 15, 2000 among TISI Holdings, Inc., The Official Information Company and the transferor(s)(incorporated herein by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K dated March 15, 2000). 2.8 Stockholders Agreement dated as of March 15, 2000 among TISI Holdings, Inc., The Official Information Company and the other signatories thereto (incorporated herein by reference to Exhibit 2.3 to the Company's Current Report on Form 8-K dated March 15, 2000). 2.9 Asset Contribution Agreement dated as of May 3, 2000 by and among Third Millennium Communications, Inc, Galaxy Information Services, LLC and The Official Information Company (incorporated herein by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K dated June 1, 2000). 2.10 Securities Purchase Agreement dated as of April 14, 2000, between Third Millennium Communications, Inc. and the Official Information Company (incorporated herein by reference to Exhibit 2.2 to the Company's Current Report on Form 8-K dated June 1, 2000). 3.1 Amended and Restated Certificate of Incorporation of the Company (incorporated herein by reference to Exhibit 3.1 to the Company's Annual Report on Form 10-K for the period ended December 31, 1997 (the "1997 Form 10-K")) 3.2 Amended and Restated By-laws of the Company (incorporated herein by reference to Exhibit 3.2 to the Registration Statement) 28 4.1 Indenture, dated as of October 29, 1997, by and among T/SF Communications Corporation, the Guarantors named therein and IBJ Schroder Bank & Trust Company, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Registration Statement) 4.1(a) Form of Supplemental Indenture, by and among T/SF Communications Corporation, the Guarantors named therein and IBJ Schroder Bank & Trust Company, as Trustee (incorporated herein by reference to Exhibit 4.1(a) to the Registration Statement) 4.2 Registration Rights Agreement, dated as of October 29, 1997, by and among T/SF Communications Corporation, the Guarantors named therein and First Union Capital Markets Corp. (incorporated herein by reference to Exhibit 4.1(a) to the Registration Statement) 4.3 Form of Old Note (included in Indenture filed as Exhibit 4.1) 4.4 Form of New Note (included in Indenture filed as Exhibit 4.1) 10.1 Credit Agreement, dated as of October 9, 1997, among T/SF Communications Corporation and First Union Corporation (as Lender and Agent) (incorporated herein by reference to Exhibit 10.2 to the Registration Statement) 10.1(a)* Second Amendment to Credit Agreement and Consent dated as of February 1, 2001 10.2 Security Agreement, dated as of October 9, 1997, among T/SF Communications Corporation, the Guarantors (as defined therein) and First Union National Bank (incorporated herein by reference to Exhibit 10.3 to the Registration Statement) 10.3 Stock Pledge Agreement, dated as of October 9, 1997, made by VS&A-T/SF, Inc. and Fir Tree Value Fund, L.P., Fir Tree Institutional Value Fund, L.P., and Fir Tree Value Partners, LDC, in favor of First Union National Bank (incorporated herein by reference to Exhibit 10.4 to the Registration Statement) 10.4 Stock Pledge Agreement, dated as of October 9, 1997, made by T/SF Communications Corporation in favor of First Union National Bank (incorporated herein by reference to Exhibit 10.5 to the Registration Statement) 10.5 Stock Pledge Agreement, dated as of October 9, 1997, made by T/SF Holdings, LLC, in favor of First Union National Bank (incorporated herein by reference to Exhibit 10.6 to the Registration Statement) 10.6 Stock Pledge Agreement, dated as of October 9, 1997, made by Atwood Convention Publishing, Inc., Galaxy Registration, Inc., G.E.M. Communications, Inc., Transportation Information Services, Inc., T/SF Investment Co. and T/SF of Nevada, Inc., in favor of First Union National Bank (incorporated herein by reference to Exhibit 10.7 to the Registration Statement) 10.7 Employment Agreement by and between William Newman and Atwood Publishing, LLC, dated as of June 22, 1998. 10.9 Employment Agreement by and between Richard A. Wimbish and Transportation Information Services, Inc., dated as of January 1, 1998 (incorporated herein by reference to Exhibit 10.8 to the Registration Statement) 10.10 Form of Employment Agreement by and between Ian L.M. Thomas and T/SF Communications Corporation (incorporated herein by reference to Exhibit 10.9 to the Registration Statement) 10.10(a) Letter Agreement, dated October 9, 1997, by and between VS&A Communications Partners, II, L.P., Veronis, Suhler & Associates, Inc. and Ian L.M. Thomas (incorporated herein by reference to Exhibit 10.9(a) to the Registration Statement) 10.11 Employment Agreement by and between Steven J. Hunt and T/SF Communications Corporation, dated as of November 10, 1997 (incorporated herein by reference to Exhibit 10.10 to the Registration Statement) 10.11(a) Amendment dated January 1, 2000 to Employment Agreement by and between Steven J. Hunt and The Official Information Company (incorporated herein by reference to Exhibit 10.11(a) to the Company's Annual Report on Form 10-K for the period ended December 31, 1999 (the "1999 Form 10-K")) 10.12 Employment Agreement by and between Brian A. Meyer and T/SF Communications Corporation, dated as of November 10, 1997 (incorporated herein by reference to Exhibit 10.11 to the Registration Statement) 10.12(a) Amendment dated January 1, 2000 to Employment Agreement by and between Brian A. Meyer and The Official Information Company (incorporated herein by reference to Exhibit 10.12(a) to the 1999 Form 10-K) 10.13* Amended and Restated Employment Agreement by and between Michael Goodwin and Galaxy Registration, LLC, dated as of June 1, 2000 10.14 T/SF Communications Corporation Chief Executive Officer Equity Appreciation Plan (incorporated herein by reference to Exhibit 10.14 to the Registration Statement) 29 10.15 T/SF Communications Corporation Supplemental Chief Executive Officer Equity Appreciation Plan (incorporated herein by reference to Exhibit 10.15 to the Registration Statement) 10.16 The Official Information Company Corporate Executive Equity Appreciation Plan (incorporated herein by reference to Exhibit 10.16 to the 1999 Form 10-K) 10.17* The Official Information Company Amended and Restated Key Executive Equity Appreciation Plan 10.18 Stockholders' Agreement, dated as of October 9, 1997, among T/SF Communications Corporation, VS&A-T/SF, L.L.C. and Fir Tree Value Fund, L.P., Fir Tree Institutional Value Fund, L.P. and Fir Tree Value Partners, LDC (incorporated herein by reference to Exhibit 10.18 to the Registration Statement) 10.19 T/SF Communications Corporation 1994 Incentive Stock Plan (incorporated herein by reference to Exhibit A to the Registrant's Proxy Statement for Annual Meeting of Stockholders dated May 23, 1994 10.20 T/SF Communications Corporation and T/SF Holdings, LLC Key Employee Bonus Plan (incorporated herein by reference to Exhibit 10.29 to the Registration Statement) 10.21 Voting Agreement dated as of February 6, 1998 among the Company and certain subsidiaries (incorporated by reference to Exhibit 10.27 of the 1997 Form 10-K) 10.22 Employment Agreement by and between Wayne Gregus and The Official Information Company (incorporated herein by reference to Exhibit 10.27 to the 1999 Form 10-K) 12* Statement re: computation of ratios 21* Subsidiaries of the Company * Filed herewith. (b) Reports on Form 8-K None 30 INDEX TO FINANCIAL STATEMENTS THE OFFICIAL INFORMATION COMPANY PAGE ---- Independent auditors' report F-2 Consolidated balance sheets as of December 31, 2000 and 1999 F-3 Consolidated statements of operations and comprehensive income for the years ended December 31, 2000, 1999 and 1998 F-5 Consolidated statements of changes in stockholders' deficit for the years ended December 31, 2000, 1999 and 1998 F-6 Consolidated statements of cash flows for the years ended December 31, 2000, 1999 and 1998 F-7 Notes to consolidated financial statements F-9 F-1 INDEPENDENT AUDITORS' REPORT The Board of Directors and Stockholders The Official Information Company: We have audited the accompanying consolidated balance sheets of The Official Information Company, as of December 31, 2000 and 1999, and the related consolidated statements of operations and comprehensive income, changes in stockholders' deficit and cash flows for each of the years in the three-year period ended December 31, 2000. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. 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 The Official Information Company, as of December 31, 2000 and 1999, and the consolidated results of their operations and their cash flows for each of the years of the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. /s/ KPMG LLP New York, New York March 30, 2001 F-2 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) DECEMBER 31, 2000 AND 1999
ASSETS 2000 1999 ------ ---- ---- Current assets: Cash and cash equivalents $ 795 $ 32,162 Accounts receivable, less reserve for doubtful accounts of $1,378 in 2000 and $995 in 1999 27,640 22,772 Inventories 121 191 Deferred tax assets 288 137 Other current assets 2,859 2,390 -------- ---------- Total current assets 31,703 57,652 Notes receivable and investments 679 216 Property and equipment, at cost: 34,400 25,515 Less accumulated depreciation 19,481 14,595 -------- ---------- Property and equipment, net 14,919 10,920 Intangibles and other assets, net 110,037 53,342 ------- ---------- $157,338 $ 122,130 ======== ========
See accompanying notes to consolidated financial statements. F-3 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA) DECEMBER 31, 2000 AND 1999
LIABILITIES AND STOCKHOLDERS' DEFICIT 2000 1999 ------------------------------------- ---- ---- Current liabilities: Accounts payable $ 4,757 $ 3,681 Accrued liabilities 17,113 15,098 Deferred revenue 7,235 6,594 Borrowings under credit facility 17,189 20,000 Customer deposits 15,398 13,315 Current portion of long-term debt 31 1,733 -------- --------- Total current liabilities 61,723 60,421 Long-term debt, less current portion 99,054 100,584 Other liabilities 719 907 Minority interest 36,229 9,446 Stockholders' deficit: Common stock, $.10 par value, 150,000 shares authorized 42 42 Additional paid-in capital 56,497 48,197 Translation adjustment 255 - Retained earnings 17,295 17,009 -------- --------- 74,089 65,248 Treasury stock (114,476) (114,476) -------- --------- Total stockholders' deficit (40,387) (49,228) --------- --------- $157,338 $122,130 ======== ========
See accompanying notes to consolidated financial statements. F-4 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (IN THOUSANDS) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 ---- ---- ---- Revenues, net $136,682 $107,709 $88,221 Costs and expenses: Operating costs 62,110 48,435 39,520 General and administrative 44,960 34,046 27,033 Depreciation and amortization 19,717 10,998 7,078 ------ -------- ------- Operating income 9,895 14,230 14,590 Interest and other income 939 84 422 Interest expense (11,580) (10,792) (10,676) (Loss) gain on sale of subsidiary (59) 4,842 - Write down of investment (4,518) - - ------- -------- ------- (Loss) income before minority interest income taxes (5,323) 8,364 4,336 Income tax benefit (expense) 449 (2,944) (1,329) Minority interest in loss (earnings) of consolidated subsidiaries 5,160 (455) (2,491) ------- -------- ------- Net income $286 $ 4,965 $ 516 Foreign currency translation gain 255 - - --- ---------- ------ Total comprehensive income $541 $ 4,965 $516 ===== ======== ====
See accompanying notes to consolidated financial statements. F-5 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' DEFICIT (IN THOUSANDS) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 ---- ---- ---- Common stock: Balance at beginning of year $42 $42 $419 Reverse stock split - - (377) --------- --------- ----- Balance at end of year 42 42 42 --------- --------- ----- Additional paid-in capital: Balance at beginning of year 48,197 48,197 47,820 Issuance of common stock in subsidiary 8,300 - - Reverse stock split - - 377 --------- --------- --------- Balance at end of year 56,497 48,197 48,197 --------- --------- --------- Retained earnings: Balance at beginning of year 17,009 12,044 11,528 Net income 286 4,965 516 --------- --------- --------- Balance at end of year 17,295 17,009 12,044 --------- --------- ------- Translation adjustment 255 - - --- --------- --------- Treasury stock: (284 shares) Balance at beginning of year (114,476) (114,476) (110,369) Repurchase of shares - - (3,600) Minority shareholder conversion - - (507) ---------- ------- --------- Balance at end of year (114,476) (114,476) (114,476) --------- -------- --------- Total stockholders' deficit $ (40,387) $ (49,228) $ (54,193) ========== ========= ========= Common shares outstanding: Balance at beginning of year 421 421 4,191 Reverse stock split - - (3,770) --------- --------- --------- Balance at end of year $ 421 $ 421 $ 421 ========= ========= =========
See accompanying notes to consolidated financial statements. F-6 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 ---- ---- ---- Cash flows from operating activities: Net income $ 286 $ 4,965 $ 516 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 19,717 10,998 7,078 Loss (gain) on sale of subsidiary 59 (4,842) - Loss (gain) loss on sale of assets 26 19 (46) Write down of investment 4,518 - - Gain on debt repurchase - - (60) Deferred income taxes (3,035) 1,308 1,225 Minority interest (5,160) 455 2,491 Changes in assets and liabilities, net of effect of acquired companies: Accounts receivable and refundable income taxes (3,250) (149) (2,639) Inventories 70 40 98 Current notes receivable and other current assets (210) (556) (360) Intangibles and other assets - - 308 Accounts payable and accrued liabilities 1,819 4,924 (1,646) Deferred revenue 314 (104) 3,837 Customer deposits 1,154 (2,936) - Other liabilities (72) 256 - -------- ------- ------- Total adjustments 15,950 9,413 10,286 -------- ------- ------ Net cash provided by operating activities 16,236 14,378 10,802 -------- ------- ------ Cash flows from investing activities: Collections on contract and notes receivable 37 7 41 Equity investments (5,000) 828 - Capital expenditures (7,570) (6,692) (6,503) Proceeds from sale of subsidiary - 20,000 - Proceeds from sale of assets - - 1,625 Payments for acquisitions, net of cash acquired (28,230) (20,461) (10,246) Payments on deferred contract liabilities (187) (151) (290) -------- -------- ------- Net cash used in investing activities (40,950) (6,469) (15,373) -------- -------- -------
Continued on next page F-7 THE OFFICIAL INFORMATION COMPANY CONSOLIDATED STATEMENTS OF CASH FLOWS, CONTINUED (IN THOUSANDS) YEARS ENDED DECEMBER 31, 2000, 1999 AND 1998
2000 1999 1998 ---- ---- ---- Cash flows from financing activities: Borrowing under long-term debt $ - $ 590 $ - Principal payments of long-term debt (3,842) (2,215) (1,281) (Repayments) borrowings under bank line of credit-net (2,811) 20,000 - Debt financing costs - - (294) Retirement of bonds - - (1,440) Minority interest - 2,000 4,500 Repurchase of common stock - - (3,600) --------- --------- --------- Net cash (used in) provided by financing activities (6,653) 20,375 (2,115) --------- --------- --------- Net (decrease) increase in cash and cash equivalents (31,367) 28,284 (6,686) Cash and cash equivalents at beginning of year 32,162 3,878 10,564 --------- --------- --------- Cash and cash equivalents at end of year $ 795 $ 32,162 $ 3,878 ========= ========= ========= Supplemental disclosure of cash flow information: Cash paid (received) for: Interest $ 11,457 $ 10,411 $ 10,778 Income taxes 3,161 216 (3,410) ---------- --------- --------- $ 14,618 $ 10,627 $ 7,368 ========= ========= ========= Non-cash transactions: Receivable relating to sale of subsidiary - $ 1,588 - Note given on acquisition - $ 3,780 - LLC units issued to TMC $ 30,000 - - Stock of TISI issued to USMA $ 8,300 - -
See accompanying notes to consolidated financial statements. F-8 THE OFFICIAL INFORMATION COMPANY NOTES TO CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2000, 1999 AND 1998 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BUSINESS The Official Information Company, its subsidiaries and controlled affiliates (collectively, the "Company", unless the context indicates otherwise) is a diversified business-to-business communication and information services company which principally operates two lines of business: 1) business and professional database information services ("Information Services") and 2) business to business communications, publishing and related marketing services ("Business-to-Business Communications"). Business -to- Business Communications is conducted through several subsidiaries whose specialized services include: 1) providing media services to the gaming industry with trade magazines, newsletters, conferences and tradeshows; 2) providing exposition services, primarily housing, travel, registration and sales-lead management and 3) publication services, primarily convention/trade show newspapers and directories. Information Services includes pre-employment screening information, primarily for the trucking, insurance, retail and healthcare industries. PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts of the Company, its majority-owned subsidiaries and controlled affiliates. All significant intercompany accounts and transactions have been eliminated in consolidation. Minority interest at December 31, 2000 consists of the equity interests in Holdings LLC owned by VSA-T/SF, Fir Tree Value Fund LP and Fir Tree Institutional Value Fund LP; non-voting equity interest in ExpoExchange, LLC held by Third Millennium Communications, Inc. and two individual sellers of International Travel Services, LLC; and non-voting equity interest in TISI held by several individual sellers of United States Mutual Association. INVENTORIES Inventories are recorded at the lower of cost or market determined on a first-in, first-out and average cost methods. DEPRECIATION Depreciation of property and equipment is provided using the straight-line method based on estimated useful lives of 3 years for exposition equipment and ranging from 3 to 15 years for data processing and office furniture and printing equipment. SALE OF SUBSIDIARY STOCK The Company does not recognize gains on the sale of stock by its subsidiaries. The difference between the basis in the stock of a subsidiary and its selling price is reflected as additional paid-in capital. F-9 INTANGIBLES AND OTHER ASSETS Intangibles and other assets include mainly goodwill and other intangible assets related to acquisitions and credits granted for truck driver employment history files. These assets consist of the following:
Amortization December 31, -------------------------- Period 2000 1999 ------ ---- ---- (In thousands) Goodwill 3-30 years $ 106,083 $ 53,771 Employment information costs 4 years 3,698 3,626 Customer lists 3 years 6,900 - Developed technology 3 years 8,150 - Debt financing costs 10 years 3,852 3,852 Other various 5,456 1,549 --------- -------- 134,139 62,798 Accumulated amortization (24,102) (9,456) --------- -------- $ 110,037 $ 53,342 ========= ========
The Company's policy is to recognize an impairment of the carrying value of goodwill when management's best estimate of undiscounted future cash flows over the remaining amortization period is less than the carrying amount. Under this method, in 1998, the Company determined that its investment in certain foreign subsidiaries had become impaired. Accordingly, during the third quarter of 1998, the Company reduced the carrying value by $820,000, which is included in depreciation and amortization. During the fourth quarter of 1999, the Company determined that its investment in a trade show acquired in 1998 had become permanently impaired. Accordingly, during the fourth quarter of 1999, the Company wrote off the balance of its investment ($1.8 million), which is included in depreciation and amortization in 1999. Depreciation and amortization in 2000 included additional amortization ($618,000), recorded in third quarter of 2000, resulting from the Company's decision to reduce the period of amortization from 15 to 10 years for intangible assets associated with the 1998 acquisition of a UK subsidiary, and on the basis of an independent valuation, to shorten the period of amortization for certain identified intangible assets related to the acquisition of ITS. During the fourth quarter of 2000, the Company determined that certain intangible assets related to a foreign subsidiary and a domestic acquisition had become impaired. Accordingly, the Company reduced the net carrying value of these assets by $983,000, which is included in depreciation and amortization in 2000. TRANSLATION OF FOREIGN CURRENCY The financial position and results of operations of the Company's foreign subsidiaries are measured using local currency as the functional currency. Revenues and expenses of such subsidiaries have been translated into U.S. dollars at average exchange rates prevailing during the period. Assets and liabilities have been translated at the rates of exchange at the balance sheet date and are recorded in the translation adjustment account. Translation gains and losses were not significant prior to the year ended December 31, 2000. Aggregate foreign currency transaction gains and losses are included in determining net income (loss). REVENUE RECOGNITION Information Services revenues are recognized when the research is completed and reports are transmitted to the customer. The cost of charges from state motor vehicle record departments or other agencies, which are incurred by the Company as an agent for its customers, are netted against revenue. F-10 As provided in the agreements with customers, the Company charges a fee for its service and is also reimbursed for direct charges. Exposition services revenues are recognized when the services are provided. Advertising revenues from publishing are recognized when each publication is published and distributed. Subscription revenue is recognized ratably over the subscription period. INCOME TAXES Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. CASH EQUIVALENTS The Company considers all highly liquid debt instruments purchased with original maturities of three months or less to be cash equivalents. USE OF ESTIMATES The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. INVESTMENTS Investments in the common stock of an affiliate in which the Company had owned a 49% interest were accounted for by the equity method, during 1998. The excess of cost of the investment over the Company's share of its net assets at the acquisition date had been amortized on a straight-line basis over 20 years. See note 3. Effective January 1, 1999, the Company acquired, through a series of transactions, the remaining 51% interest. On April 14, 2000, the Company purchased a 4.7% common equity interest in Third Millennium Communications, Inc. ("3MC") for $5.0 million. This common equity interest was sold to 3MC for $500,000 on January 19, 2001. The Company recorded a charge of $4.5 million to reflect the decline in value of this investment in its December 31, 2000 financial statements. CAPITALIZED SOFTWARE In 1998, the Company adopted AICPA Statement of Position ("SOP") No. 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use." SOP No. 98-1 requires certain costs incurred in connection with developing or obtaining internally used software, that previously would have been expensed as incurred, to be capitalized. The adoption of SOP No. 98-1 resulted in the capitalization of approximately $265,000 and $229,000 related to software development cost as of F-11 December 31, 2000 and 1999, respectively, which is being amortized on a straight-line basis over three years. STOCK BASED COMPENSATION Statement of Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock- Based Compensation", permits entities to recognize as expense over the vesting period the fair value of all stock-based awards on the date of grant. Alternatively, SFAS No, 123 allows entities to continue to apply the provisions of Accounting Principles Board ("APB") Opinion No. 25 "Accounting for Stock Issued to Employees", and provide pro forma net earnings (loss) disclosures for employees stock option grants as if the fair-value-based method defined in SFAS No. 123 had been applied. The Company has elected to apply the provisions of APB Opinion No. 25 and provide pro forma disclosure provisions of SFAS No. 123. COMPREHENSIVE INCOME (LOSS) The Company reports comprehensive income in accordance with the provisions of SFAS No. 130, "Reporting Comprehensive Income". SFAS No. 130 establishes standards for reporting comprehensive income and its components in the body of the financial statements. Comprehensive income includes net income (loss) as currently reported under generally accepted accounting principles, all changes in equity during a period from non-owner sources including, as applicable, foreign currency items, minimum pension liability adjustments and unrealized gains and losses on certain investments in debt and equity securities. Comprehensive (loss) income consisting of net (loss) income and foreign currency translation adjustment is presented in the consolidated statements of operations and comprehensive (loss) income. FAIR VALUE OF FINANCIAL INSTRUMENTS The Company defines the fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. The carrying value of cash and cash equivalents, trade accounts receivable, trade accounts payable, accrued liabilities, customer deposits, and other liabilities approximates the fair value because of the short maturity of those instruments. The carrying amounts of notes payable (see note 4) approximates the fair value due to these debt instruments having variable interest rates similar to those that are currently available to the Company. The fair value of the Senior Subordinated Notes (see note 4) at December 31, 2000, approximates its carrying value. RECLASSIFICATIONS Certain 1999 and 1998 account balances have been reclassified to conform to the 2000 consolidated financial statement presentation. 2. RECAPITALIZATION During 1997, the Company adopted a two-phased leverage recapitalization plan of the Company's ownership and capital structure. Phase I included a tender offer for substantially all of the Company's outstanding common stock (the "Tender Offer"); selling newly-issued common stock to a new investor, VS&A-T/SF, L.L.C. (the "Stock Purchase"); and repurchasing substantially all of the outstanding stock options under the Incentive Stock Option Plan and the 1994 Incentive Stock Plan (the "Option Repurchase"). F-12 Phase II of the leveraged recapitalization plan of the Company was completed on February 27, 1998 which included a reverse stock split and a drop down restructuring. The reverse stock split provides that each then outstanding share of common stock other than treasury stock and stock owned by the Equity Investors (as defined below) is converted into the right to receive $40.25 for each pre-split share resulting in the elimination of all shares of common stock other than those held by Equity Investors. Under the drop down restructuring plan, the Company contributed substantially all of the assets and liabilities of the Business-to-Business Communication Segment into T/SF Holdings LLC (Holdings LLC) and related operating LLC's in exchange for a $45 million preferred equity interest. The preferred equity interest will carry an 11% annual distribution and the Company will have total voting, operational and management control of Holdings LLC. The Equity Investors purchased common equity interests in Holdings LLC for approximately $4.5 million in the same proportion as their ownership of the common stock immediately following the consummation of the Recapitalization. These common equity interests in Holdings LLC and all earnings or losses in excess of the preferred stockholders' annual distributions are reflected as minority interest. Following the consummation of the Recapitalization, VS&A-T/SF and Fir Tree Partners, an existing stockholder, (together referred to as the Equity Investors) own 64.4% and 35.6% of the Company's common stock, respectively. The Tender Offer was consummated on October 9, 1997 for 2,742,092 shares of common stock at $40.25 per share in cash or approximately $110.4 million. These shares are held in treasury. Excluding shares owned by the Equity Investors, an aggregate of 10,197 shares remained outstanding. The Stock Purchase between the Company and VS&A-T/SF, was consummated simultaneously with the Tender Offer whereby the Company sold 881,988 shares of newly issued common stock at $40.25 per share or approximately $35.5 million. In connection with the Tender Offer and Stock Purchase, holders of stock options under the Company's two incentive stock option plans became fully vested in all previously issued options and received an amount equal to 1) the product of the number of shares of common stock issued upon exercise of such options, multiplied by $40.25, less 2) the exercise price of such options. The total cost of repurchasing these options was approximately $10.0 million and has been included in Recapitalization expense in the accompanying consolidated statement of operations. The Incentive Stock Plan was terminated upon repurchase of all of the outstanding options. The 1994 Incentive Stock Plan survives solely with respect to options held by one individual currently employed by the Company to purchase 1,675 shares, all of which are exercisable and have an exercise price of $4.25 per share. No further options are outstanding, or will be granted under this plan. The Company borrowed $13.0 million and $80.0 million under a Senior Credit Facility and a Bridge Facility, respectively, to finance the Tender Offer and Option Repurchase. In October 1997, the Company issued $100.0 million in 10 3/8% Senior Subordinated Notes (the "Subordinated Notes") the proceeds from which were used to repay amounts owed under the Senior Credit Facility and the Bridge Facility. On September 1, 1998, the Company purchased $1.5 million of the Subordinated Notes at a price below par. The Company recorded a $60,000 gain on this transaction. 3. ACQUISITIONS AND DISPOSITION OF ASSETS In June 1998, GEM acquired all the assets and rights to the International Gaming Business Exposition, a conference and trade show serving the casino gaming industry. In September 1998, GEM acquired all the stock of UK based InterGame Limited, the publisher of a leading series of publications for the international coin-operated amusement and gaming machines and amusement park industries. The Company paid approximately $8.1 million in cash. Cost in excess of net F-13 assets acquired was approximately $7.8 million and is recorded in "Intangible and other assets". Pro forma results for 1998 assuming the acquisition has been made at the beginning of the year would not be materially different from reported results. During 1998, GEM had a 49% interest in Gaming for Africa Expo, a gaming trade show and conference held in South Africa, and Gaming for Africa, a leading trade magazine for gaming in Sub-Saharan Africa. Effective as of January 1, 1999, GEM acquired, in a series of transactions, the remaining 51% interest in the business of Gaming for Africa Expo and Gaming for Africa for approximately $640,000. On April 30, 1999, the Company, through ExpoExchange (formerly Galaxy), acquired substantially all of the assets and assumed substantially all of the liabilities of International Travel Services, LLC ("ITS") for an aggregate purchase price of $22.6 million, plus transaction costs. Of the total purchase price of this transaction, $11.1 million was paid out of proceeds from the Company's line of credit, $2.0 million was paid from a contemporaneous minority equity investment in ExpoExchange by certain former ITS shareholders and the remainder was paid from existing cash. The acquisition was accounted as a purchase business combination. The excess of the purchase price over the estimated fair value of the net assets acquired was approximately $18.9 million. On the basis of an independent appraisal, acquired intangibles are being amortized on a straight-line basis over periods ranging from 2 to 15 years, the expected period of benefit. On August 31, 1999, the Company, through TISI, acquired all the stock of Record Search, Inc. ("RSI") for an aggregate purchase price of $12.8 million, plus transaction costs. Of the total purchase price of this transaction, $9.0 million was paid out from existing cash and the balance in the form of a note to be paid over three years. The acquisition was accounted for as a purchase business combination. The excess of the purchase price over the estimated fair value of the net assets acquired was approximately $11.5 million, and has been recorded as goodwill, which is being amortized on a straight-line basis over 15 years, the expected period of benefit. On August 31, 2000, the Company paid the remaining balance due under the notes in connection with settlement of certain issues with the sellers of RSI. In connection with this settlement, two sellers, who had also been employees of RSI, terminated their employment with the Company. On November 11, 1999, the Company sold all of the outstanding stock of Corsearch and executed a non-compete agreement in consideration for approximately $20.0 million, plus additional consideration of $1.6 million for certain defined net assets resulting in a gain of $4.8 million. On January 31, 2000, the Company, through TISI, acquired substantially all of the assets of STA United, Inc. ("STA") for approximately $8.3 million. STA is a leading provider of drug testing services to the pre-employment screening industry. On March 15, 2000, the Company, through TISI, acquired the stock and/or assets of a group of ten companies collectively known as United States Mutual Association ("USMA"). The Company paid approximately $23.5 million plus transaction costs, with $15.2 million paid in cash and the balance ($8.3 million) in non-voting stock of TISI representing approximately 4.5% of the Company's interest in TISI. USMA provides pre-employment screening services to the retail industry, principally through a proprietary database of employee theft incident records. These acquisitions F-14 were accounted for under the purchase method of accounting. On the basis of an independent appraisal, acquired intangibles are being amortized on a straight-line basis over periods ranging from 2 to 15 years, the expected period of benefit. As a result of this transaction, the Company recorded a $6.0 million increase in additional paid-in capital on the issuance of 8,300 non-voting shares of TISI stock representing the difference between the Company's equity interest in TISI before and after the transaction. TISI incurred $593,000 of reorganization expenses related to the integration of the USMA operations. The Company incurred $196,000 of severance costs which were accrued as a liability assumed in the acquisition. On June 1, 2000, the Company, through Galaxy (now ExpoExchange), acquired substantially all of the assets of the e-Products division (ExpoEvent Services) of 3MC, in exchange for 6,133,590 non-voting LLC units of Galaxy (the "LLC units") valued at approximately $30.0 million and representing approximately 20% of Holdings LLC's interest in Galaxy. The Company has accounted for these transactions under the purchase method of accounting. As a result of this transaction, the Company recorded approximately $30.0 million increase in minority interest on the issuance of the LLC units. On the basis of an independent valuation, identifiable intangible assets of $6.7 million and goodwill of $23.0 million are being amortized on a straight-line basis primarily over a three-year life. On February 2, 2001, the Company acquired the 3MC non-voting units in ExpoExchange for $15.5 million. The Company has subsequently restructured the e-Products Division organization and management at a cost of approximately $720,000. The following unaudited pro forma information is presented as if the Company had completed the acquisitions as of January 1, 1999. The pro forma information is not necessarily indicative of what the results of operations would have been had the acquisitions taken place at January 1, 1999, or of the future results of operations. For the year ended December 31, ----------------------------- 2000 1999 ---- ---- (In thousands) (Unaudited) Revenues $ 139,251 $ 128,481 --------- --------- Net (loss) income $ 360 $ 7,043 -------- --------- EBITDA $ 26,861 $ 27,316 --------- --------- 4. LONG-TERM DEBT AND CREDIT FACILITY Long-term debt outstanding consists of the following:
DECEMBER 31, ------------------------------------ 2000 1999 ---- ---- (In thousands) 10 3/8% Senior Subordinated Notes, interest payable semi- F-15 annually with principal due at maturity in 2007 (A). $ 98,500 $ 98,500 Note payable under a purchase agreement, discounted at 8.5% annual payments per agreement with final payment in April 2000. - 460 Promissory notes, unsecured, payable quarterly, plus interest, through December 2000, interest rate adjusts semi-annually to the base rate of Chase Manhattan Bank (8.5% at December 31, 1999). - 83 7.25% promissory notes, unsecured. - 3,192 Building mortgage dated June 27, 1996, including interest at 10% per annum, payable in monthly installments of $5, with the balance due July 1, 2003 498 - Building mortgage dated June 13, 1996, payable monthly, including interest at 10.5 % per annum, through July 1, 2006 81 - Capital lease obligation 6 72 Other - 10 -------- --------- 99,085 102,317 Less portion due within one year (31) (1,733) -------- --------- $ 99,054 $ 100,584 ======== =========
Installments due on long-term debt during each of the five years subsequent to December 31, 2000, are as follows: (In thousands) 2001 $ 31 2002 28 2003 483 2004 16 2005 17 Thereafter 98,510 -------- Total $ 99,085 ====== (A) On October 24, 1997, the Company issued $100.0 million of 10-3/8% senior subordinated notes due 2007. The notes are general unsecured obligations of the Company subordinated in right of payment to all existing and future senior debt. The proceeds of the offering were used to repay borrowing under the Senior Credit Facility and Bridge Financing Facility incurred in connection with the Recapitalization transaction. On October 29, 1997, the Company completed the private sale to First Union Capital Markets Corp. (the "Initial Purchaser") of $100.0 million principal amount of Senior Subordinated Notes due 2007 (the "Old Notes") at a price of 97% of the principal amount thereof. The Initial Purchaser resold the Old Notes to a limited number of qualified institutional buyers at an initial price to investors of 100% of the principal amount thereof, with net proceeds to the Company of $97.0 million (the "Offering"). The Offering was a private placement transaction exempt from the registration requirements of the Securities Act pursuant to Rule 144A and Section 4 thereof. The net F-16 proceeds of the Notes sold pursuant to the Offering were applied to repay indebtedness incurred in connection with the Recapitalization under the Senior Credit Facility and the Bridge Financing Facility. On February 10, 1998, the Company offered to exchange up to $100.0 million aggregate principal amount of Old Notes for up to an equal aggregate principal amount of new notes (the "New Notes" and, together with the Old Notes, the "Notes"). The New Notes are obligations of the Company entitled to the benefits of the Indenture (the "Indenture") relating to the Old Notes and the form and terms of the New Notes are identical in all material respects to the form and terms of the Old Notes except that the New Notes have been registered under the Securities Act and do not contain terms with respect to transfer restrictions. The Notes contain restricted covenants which include, but are not limited to: 1) incurring additional indebtedness; (2) paying dividends; (3) selling assets; and (4) making certain investments. The Notes may be redeemed in whole or in part by the Company on or after November 1, 2002. Prior to that time, only $35.0 million can be redeemed at 110.375% of the principal amount. On September 1, 1998, the Company purchased $1.5 million of the New Notes at a price below par. CREDIT FACILITY The Company has a Senior Credit Facility ("Senior Facility") with a bank which provides for maximum borrowings of $40.0 million ($25.0 million at December 31, 2000). Borrowings are secured by a first priority lien on substantially all assets and properties of the Company and its subsidiaries owned now or acquired in the future. Interest is computed upon either the LIBOR plus the applicable borrowing margin (based on the achievement of total leverage ratio) from 1.75% to 2.75% or a base rate indexed to the prime rate plus the applicable borrowing margin of 0.5% to 1.5%. An annual commitment fee of 0.5% is charged on the unused portion of the Senior Facility. In December 1999, the Company borrowed $20 million under the Senior Facility, with an effective borrowing rate of 9%. This amount was repaid in January 2000. The Senior Facility contains covenants similar to the Subordinated Notes, as well as financial covenants with respect to: 1) a maximum leverage ratio; 2) a maximum senior leverage ratio; 3) a minimum interest coverage ratio; and 4) a minimum fixed charge coverage ratio. The Senior Facility continues through September 2004. 5. DEBT GUARANTORS Atwood Publishing LLC and subsidiaries; ExpoExchange, LLC (formerly Galaxy Information Services, LLC) and subsidiaries; GEM Communications LLC and subsidiaries; and Holdings LLC (collectively the "LLC Guarantors"), TISI Holdings, Inc. and subsidiaries; and Corsearch (until November 11, 1999), (collectively, the "Subsidiary Guarantors" and, together with the LLC Guarantors, the "Guarantors") are included in the consolidated results of the Company. Because the Company, directly or indirectly, owns all of the voting interests in the LLC Guarantors, the LLC Guarantors are considered wholly owned subsidiaries of the Company as defined by Regulation S-X. The Company indirectly owns all of the voting shares of the Subsidiary Guarantors. Each of the Guarantors jointly and severally guarantee all of the Company's debt, on a full and unconditional basis. For accounting purposes, all Guarantors are consolidated. Separate financial statements and other disclosures concerning the Guarantors are not presented because the Company's management has determined that they are not material to investors. The Senior Facility contains covenants, among others, restricting the ability of the Company and the Guarantors to: (i) declare dividends or redeem or purchase capital stock; (ii) prepay, redeem or purchase debt; (iii) incur liens and engage in sale-leaseback transactions; (iv) make loans and investments; (v) issue more debt; (vi) amend or otherwise alter debt and other material agreements; F-17 (vii) make capital expenditures; (viii) engage in mergers, acquisitions and asset sales; (ix) transact with affiliates; and (x) alter its lines of business. The net assets of the Guarantors approximated $86.8 million and $109.8 million as of December 31, 2000 and December 31, 1999, respectively. Included in the 1999 and 2000 financial results of the LLC Guarantors are the twelve months activity of Atwood, ExpoExchange, GEM and Holdings LLC. Included in the 1999 financial results of the Subsidiary Guarantors are the twelve months activity of TISI and 10 months activity of Corsearch, Inc. Included in the 2000 financial results of the Subsidiary Guarantors are the twelve months activities of TISI. Coresearch was sold in November 1999. Included in the 1998 financial results of the LLC Guarantors are the ten months activity of Atwood Publishing LLC, Galaxy Information Services LLC, GEM Communications LLC and Holdings LLC. Included in the 1998 financial results of the Subsidiary Guarantors are the two months of operations of Atwood Publishing, Inc., Galaxy Information Services, Inc., GEM Communications, Inc. and the full year results of TISI and Corsearch. F-18 The following are condensed consolidating financial statements of The Official Information Company and the Guarantors for each period presented: 2000 CONSOLIDATED BALANCE SHEET
ASSETS - ------ TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ---------- ------------ ------------ Current assets $ 3,170 $17,466 $11,067 $ 28,533 $- $ 31,703 Notes receivable and 500 - 179 179 - 679 Investments in subsidiaries & affil. 36,578 (179) (22,475) (22,654) (13,924) - PPE-Net 192 7,923 6,804 14,727 - 14,919 Intangibles and other 1,692 54,410 53,935 108,345 - 110,037 -------------------------------------------------------------------------------------------- Total assets $42,132 $79,620 $49,510 $129,130 $(13,924) 157,338 ======= ======= ======= ======== ========= ======== LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities $22,006 $29,248 $10,469 $ 39,717 $- $ 61,723 Long term debt 98,500 - 554 554 - 99,054 Other liabilities 642 - 77 77 - 719 Minority interest 34,229 2,000 2,000 - 36,229 Total stockholders' equity (113,245) 48,372 38,410 86,782 (13,924) (40,387) -------------------------------------------------------------------------------------------- Total liabilities and stockholders' $42,132 $79,620 $49,510 $129,130 $(13,924) $157,338 equity (deficit) ======= ======= ======= ======== ======== ========
2000 CONSOLIDATED BALANCE SHEET
TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ---------- ------------ ------------ Revenue, net $- $79,208 $57,474 $136,682 $ - $136,682 Costs and expenses: Operating costs - 40,242 21,868 62,110 - 62,110 General & admin. 2,559 23,816 18,585 42,401 - 44,960 Deprec. & amort. 438 13,647 5,632 19,279 - 19,717 ------------------------------------------------------------------------------------------------- Total costs 2,997 77,705 46,085 123,790 - 126,787 ------------------------------------------------------------------------------------------------- Operating income (loss) (2,997) 1,503 11,389 12,892 - 9,895 Interest & other income 916 22 1 23 - 939 Interest expense (5,637) (252) (5,691) (5,943) - (11,580) Loss on sale of subsidiary (59) - - - - (59) Write down of investment (4,518) - - - - (4,518) ------------------------------------------------------------------------------------------------- (Loss) income before income (12,295) 1,273 5,699 6,972 - (5,323) Minority interest - - - - 5,160 5,160 Income tax benefit (expense) 3,450 (7) (2,994) (3,001) - 449 Preferred distribution from LLC's 4,999 - - - (4,999) - ------------------------------------------------------------------------------------------------- Net income $(3,846) $1,266 $2,705 $3,971 $161 $286 ============= ====== ====== ====== ==== ====
F-19 2000 CONSOLIDATED BALANCE SHEET
TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ---------- ------------ ------------ Net (loss) income $ (3,846) $1,266 $2,705 $3,971 $161 $ 286 Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities (3,021) 13,673 5,634 19,307 (161) 16,125 Changes in assets and liabilities, net of effect of acquired companies (269) (6,455) 6,549 94 - (175) ----------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (7,136) 8,484 14,888 23,372 - 16,236 Cash flows from investing activities: Collections on notes receivable - - 37 37 - 37 Investments (5,000) - - - - (5,000) Capital expenditures (35) (4,751) (2,784) (7,535) (7,570) Payments for acquisitions, net of cash acquired (15,535) (4,089) (8,606) (12,695) - (28,230) Payments on deferred contract liabilities (84) (3) (100) (103) - (187) ----------------------------------------------------------------------------------------------- Net cash used in investing activities (20,654) (8,845) (11,453) (20,296) - (40,950) Cash flows from financing activities: Principal payments of long-term debt - - (3,842) (3,842) - (3,842) Payments under bank line of Credit (2,811) - - - - (2,811) ----------------------------------------------------------------------------------------------- Net cash used in financing activities (2,811) - (3,842) (3,842) - (6,653) ----------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (30,601) (359) (407) (766) - (31,367) Cash and cash equivalents at beginning of year 30,626 332 1,204 1,536 - 32,162 ----------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $25 $(27) $797 $770 $- $795 =================================================================================================================================
F-20 1999 CONSOLIDATED BALANCE SHEET
ASSETS - ------ TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ---------- ------------ ------------ Current assets $ 35,061 $ 10,196 $12,395 $ 22,591 $- $ 57,652 Notes receivable and investments 18 15 183 198 - 216 Investment in subsidiaries & affil. 89,660 57,037 7,097 64,134 (153,794) - PPE-net 213 6,202 4,505 10,707 - 10,920 Deferred tax assets - - - - - - Intangibles and other 3,080 32,515 17,747 50,262 - 53,342 ------------------------------------------------------------------------------------------------- Total assets $128,032 $105,965 $41,927 $147,892 $(153,794) $122,130 ================================================================================================= LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) - -------------------- Current liabilities $ 26,554 $ 27,632 $6,235 $ 33,867 $- $60,421 Long term debt 98,500 - 2,084 2,084 - 100,584 Other liabilities 727 3 177 180 - 907 Minority interest 7,446 2,000 - 2,000 - 9,446 Total stockholders' equity (5,195) 76,330 33,431 109,761 (153,794) (49,228) ------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity (deficit) $128,032 $105,965 $41,927 $147,892 $(153,794) $122,130 =================================================================================================
1999 CONSOLIDATED BALANCE SHEET
TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ---------- ------------ ------------ Revenue, net $- $65,877 $41,832 $107,709 $ - $107,709 Costs and expenses: Operating costs - 33,750 14,685 48,435 - 48,435 General & admin. 420 18,992 14,634 33,626 - 34,046 Deprec. & amort. 512 6,373 4,113 10,486 - 10,998 ----------------------------------------------------------------------------------------------- Total costs 932 59,115 33,432 92,547 - 93,479 ----------------------------------------------------------------------------------------------- Operating income (loss) (932) 6,762 8,400 15,162 - 14,230 Interest & other income 84 - - - 84 Interest (expense) 270 (1,897) (9,165) (11,062) - (10,792) Gain on sale of subsidiary 4,842 - - - - 4,842 ----------------------------------------------------------------------------------------------- Income (loss) before income taxes 4,264 4,865 (765) 4,100 - 8,364 Minority interest - - - - (455) (455) Income tax expense (2,837) (107) - (107) - (2,944) ----------------------------------------------------------------------------------------------- Net income (loss) $ 1,427 $4,758 $(765) $3,993 $(455) $ 4,965 ===============================================================================================
F-21 1999 CONSOLIDATED STATEMENT OF CASH FLOWS
TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED -------- ---------- ---------- ---------- ------------ ------------ Net income (loss) $ 1,427 $4,758 $(765) $3,993 $(455) $ 4,965 Adjustments to reconcile net income (loss) to net cash provided by operating (3,003) 6,373 4,113 10,486 455 7,938 activities, net Changes in assets and liabilities, net of effect of 10,547 (10,233) 1,161 (9,072) - 1,475 acquired companies ------------------------------------------------------------------------------------------------ Net cash provided by operating activities 8,971 898 4,509 5,407 - 14,378 Cash flows from investing activities: Collections on notes receivable 7 - - - - 7 Capital expenditures (21) (2,905) (3,766) (6,671) - (6,692) Proceeds from the sale of Corsearch 20,000 - - - - 20,000 Payments for acquisitions, net of cash acquired (20,461) - - - - (20,461) Equity investments 828 - - - - 828 Payments on deferred contract liabilities (151) - - - - (151) ------------------------------------------------------------------------------------------------ Net cash provided by (used in) investing activities 202 (2,905) (3,766) (6,671) - (6,469) Cash flows from financing activities: Principal payments of long-term debt (2,215) - - - - (2,215) Borrowings under long-term debt 590 - - - - 590 Borrowing under bank line of credit 20,000 - - - - 20,000 Minority interest 2,000 - - - - 2,000 ------------------------------------------------------------------------------------------------ Net cash provided by financing activities 20,375 - - - - 20,375 ------------------------------------------------------------------------------------------------ Net increase (decrease) in cash and cash equivalents 29,548 (2,007) 743 (1,264) - 28,284 Cash and cash equivalents at beginning of year 1,078 2,339 461 2,800 - 3,878 ------------------------------------------------------------------------------------------------ Cash and cash equivalents at end of year $30,626 $332 $1,204 $1,536 $- $32,162 ================================================================================================
F-22 1998 CONSOLIDATED STATEMENT OF OPERATIONS ------------------------------------
TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ---------- ------------ ------------ Revenue, net $748 $45,610 $42,118 $87,728 (255) $88,221 Costs and expenses: Operating costs - 22,760 16,760 39,520 - 39,520 General & admin. (205) 12,870 14,368 27,238 - 27,033 Deprec. & amort. 467 3,075 3,536 6,611 - 7,078 -------------------------------------------------------------------------------------------------- Total costs 262 38,705 34,664 73,369 - 73,631 -------------------------------------------------------------------------------------------------- Operating income 486 6,905 7,454 14,359 (255) 14,590 Interest and other income 132 198 173 371 (81) 422 Interest expense 10,676 338 97 435 (435) 10,676 -------------------------------------------------------------------------------------------------- Income (loss) before income (10,058) 6,765 7,530 14,295 99 4,336 taxes Minority interest - (67) - (67) (2,424) (2,491) Income tax expense - (119) (1,210) (1,329) - (1,329) Preferred distribution from 4,191 67 - 67 (4,258) - LLC's -------------------------------------------------------------------------------------------------- Net income (loss) $(5,867) 6,646 $6,320 $12,966 $(6,583) $516 ==================================================================================================
F-23 1998 CONSOLIDATED STATEMENT OF CASH FLOWS
TOIC LLC SUBSIDIARY SUBTOTAL TOIC CORPORATE GUARANTORS GUARANTORS GUARANTORS ELIMINATIONS CONSOLIDATED --------- ---------- ---------- ---------- ------------ ------------ Net income (loss) $ (5,867) $6,646 $6,320 $12,966 $(6,583) $ 516 Adjustments to reconcile net income (loss) to net cash (used in) provided by 1,501 3,160 3,536 6,696 2,491 10,688 operating activities Changes in assets and liabilities, net of effect of (1,148) 3,532 (6,878) (3,346) 4,092 (402) acquired companies -------------------------------------------------------------------------------------------------- Net cash (used in) provided by operating activities (5,514) 13,338 2,978 16,316 - 10,802 Cash flows from investing activities: Collections on contract & notes receivable 41 - - - - 41 Capital expenditures (210) (2,923) (3,370) (6,293) - (6,503) Proceed from the sale of assets 1,625 - - - - 1,625 Payments for Acquisitions, net of cash acquired - (10,246) - (10,246) - (10,246) Payments on deferred contract liabilities (290) - - - - (290) -------------------------------------------------------------------------------------------------- Net cash provided by (used in) investing activities 1,166 (13,169) (3,370) (16,539) - (15,373) Cash flows from financing activities: Principal payments of long-term debt (1,281) - - - - (1,281) Debt financing cost (294) - - - - (294) Retirement of bonds (1,440) - - - - (1,440) Minority interest 4,500 4,500 Repurchase of common stock (3,600) - - - - (3,600) -------------------------------------------------------------------------------------------------- Net cash used in financing activities (2,115) - - - - (2,115) -------------------------------------------------------------------------------------------------- Net increase (decrease) in cash and cash equivalents (6,463) 169 (392) (223) - (6,686) Cash and cash equivalents at beginning of year 7,541 2,170 854 3,024 - 10,564 -------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year $1,078 $2,339 $461 $2,800 $ - $3,878 ==================================================================================================
F-24 6. INCOME TAXES The provision for income tax (benefit) expense is comprised of the following: Year Ended December 31, 2000 1999 1998 ---- ---- ---- (In thousands) Current: Federal $ 2,290 $ 1,407 $ (119) State 296 122 104 Foreign - 107 119 ------- ------- ------- 2,586 1,636 104 ------- ------- ------- Deferred: Federal (3,750) 1,176 1,118 State 715 132 107 ------- ------- ------- (3,035) 1,308 1,225 ------- ------- ------- $ (449) $ 2,944 $ 1,329 ======= ======= ======= F-25 The reconciliation of income tax computed at the federal statutory rate (34%) to income tax expense is as follows:
Year Ended December 31, 2000 1999 1998 ---- ---- ---- (In thousands) Income tax (benefit) provision at statutory rates $(1,810) $ 2,808 $ 1,474 Minority share of LLC earnings 1,755 (155) (847) Amortization of acquired assets not deductible for income tax purposes 573 410 362 State income taxes 674 168 141 Reduction in previously provided taxes related to settlement of tax examination (1,186) - - Sale of subsidiary - (510) - Foreign taxes - 107 119 Reversal of accruals (217) - - Other (238) 116 80 ------- ------- ------- $ (449) $ 2,944 $ 1,329 ======= ======= =======
Significant components of deferred tax assets and liabilities are as follows: December 31, 2000 1999 ---- ---- (In thousands) Deferred tax assets: Income recognized in different accounting period for income tax purposes $ - $ 69 Deferred severance benefits payable 481 441 Write down of assets 2,058 324 Accrued expenses deductible when paid 335 311 Net operating loss carryforwards 658 1240 Fixed asset basis differences - 118 ------- ------- 3,532 2,503 Less valuation allowance - (1,786) ------- ------- 3,532 717 Deferred tax liabilities: Fixed asset basis difference (2,119) - Deductions recognized in different accounting periods (1,125) (580) ------- ------- Net deferred tax assets $ 288 $ 137 ======= ======= In 2000, the Company was notified that the examination of its 1995, 1996, and 1997 Federal income tax returns was favorably concluded. Accordingly, the Company reversed $1,186,000 of liability previously accrued in connection therewith. At December 31, 2000, the Company had no net operating loss ("NOL") carryforwards for federal income tax purposes. The Company has state NOL's available of approximately $16.6 million, which, expire at various dates beginning in 2009 through 2012. F-26 A valuation allowance is required when it is more likely than not that all or a portion of the deferred tax assets will not be realized. The ultimate realization of the deferred tax assets is dependent upon future profitability. The Company has historically been profitable not withstanding 1997 in which the Company incurred recapitalization expenses. Management believes that such expenses are non-recurring. The ability to utilize the state NOL's is further dependent on tax planning strategies surrounding the drop down restructuring described in note 2. Management believes that the elimination of non-recurring expenses will result in future taxable income, however, there is no assurance of that fact. Accordingly, a valuation allowance had been established in years prior to 2000, to reduce the deferred tax assets to a level, which, more likely than not, would be realized. Based upon the favorable ruling in 2000 for prior years Federal tax positions, historical taxable income trends and projections for future taxable income over the periods which the items giving rise to deferred tax assets are deductible, management believes it is more likely than not that the Company will realize the benefits of the net deferred tax assets, net of the existing valuation allowance, at December 31, 2000. Accordingly, the Company eliminated the valuation allowance in 2000. 7. CAPITAL STOCK RECAPITALIZATION AND STOCK OPTIONS The Company completed a tender offer for substantially all of its outstanding common stock during 1997 as part of a recapitalization plan (see note 2). In 1997 and 1996, the Company purchased and retired 50,000 shares ($27.50 per share) and 7,900 shares ($24.94 per share), respectively, of its Common Stock owned by certain officers, directors and other related parties. All outstanding options under the Company's Incentive Stock Option Plan were repurchased in connection with the Recapitalization Plan described in footnote 2 and the option plan was terminated following the repurchase. Prior to termination of the Plan in 1997, options had been granted at the discretion of the Board of Directors' Compensation Committee at a minimum exercise price of 100 percent of the market value of the Company's Common Stock at the date of grant. In connection with the Recapitalization, substantially all of the outstanding options under the 1994 Incentive Stock Plan were repurchased. A total of 1,675 options remain outstanding to an individual at December 31, 2000, all of which are exercisable and have an exercise price of $4.25 per share. This plan will survive solely with respect to such options; no further options will be granted. Options for 33,881 shares were exercised in 1997 for a total price of $153,000 prior to the recapitalization transaction. The Company has adopted the disclosure-only provision of Statement of Financial Accounting Standards No. 123, "Accounting for Stock - Based Compensation" (SFAS No. 123). SFAS No. 123 established financial accounting and reporting standards for stock-based compensation plans and to transactions in which an entity issues its equity instruments to acquire goods and services from non-employees. STOCK APPRECIATION PLAN The Company has established a Key Executive Equity Appreciation Plan ("Stock Appreciation Plan") for certain executives of the Company. Pursuant to the Stock Appreciation Plan, executives can be awarded Equity Appreciation Units ("Units") which constitute a "phantom" equity interest in any appreciation in the value of the equity of the Company above the $59.6 million originally invested by VS&A-T/SF and Fir Tree in the Company and Holdings LLC payable only in the event of a change in F-27 control, as defined, or termination event, as defined. The Units vest ratably over either 3 or 5 years, provided the executive remains an employee of the Company and annual EBITDA target, as defined, for the Company is achieved (or, if not achieved, that 110% of the annual EBITDA target for the next year is achieved). The maximum number of Units issuable under the Stock Appreciation Plan constitutes approximately 10% of the common equity interests of the Company. Certain executives were issued Units in 1998, under the Stock Appreciation Plan, which constitute approximately 9.2% of the common equity interest of the Company. Compensation expense associated with these Units, as well as future Units, will be recorded once a change in control or termination event, as defined, are deemed to be probable in accordance with SFAS No. 5 Accounting for Contingencies. UNIT OPTION PLAN In June 2000, ExpoExchange established a Unit Option Plan (the"Plan"), which provides for the grant of options to employees to purchase up to 3,333,333 Series C Units (the "C Units") of equity interest in ExpoExchange. The options expire 10 years from the date of grant and their exercise price shall be no less than 100% of the fair value of the C Units at the time of the grant. These options may be exercised upon the earlier of (a) change of control, as defined; (b) registration of the C Units under the Securities Exchange Act of 1933; and (c) seven years from the date of grant. During 2000, the Company granted 2,897,333 options to employees with an exercise price of $4.89 per unit, the fair value of the units at the time of grant, and vesting period over three years commencing on the first anniversary in June 2001. A summary of ExpoExchange's unit option activity and weighted average exercise price is as follows: Weighted average Options exercise price -------- ---------------- Balance at December 31, 1999 - - Granted 2,897,333 $ 4.89 Cancelled - - Exercised - - --------- ---------- Balance at December 31, 2000 2,897,333 $ 4.89 ========= ========== Exercisable at December 31, 2000 - - ========= ========== Available for grant at December 31,2000 436,000 ========= The following table summarizes information about unit options outstanding and exercisable at December 31, 2000:
Options outstanding Options exercisable --------------------------- ------------------------------ Weighted Weighted Weighted average average average Exercise remaining exercise Number exercise price Options contract life price outstanding price - -------- --------- ------------- --------- ------------ -------- $4.89 2,897,333 9.42 yrs. $4.89 -0- $ - ======== ========= ============ ========= ============= ========
ExpoExchange applies APB No.25 and related interpretations in accounting for its unit option grants to employees. Accordingly, no compensation expense has been recognized as the fair value of ExpoExchange's Units on the grant date equaled the exercise price of the options granted. Had the compensation cost for ExpoExchange's unit option grants been determined based on the fair value at the grant date for options consistent with the provisions of SFAS No. 123, the Company's net income would have been as follows for the year ended December 31, 2000: F-28 Net income (loss): As reported $286 ==== Pro forma $(366) ====== The resulting effect on the pro forma net loss disclosed for the year ended December 31, 2000 is not likely to be representative of the effects on the net loss on a pro forma basis in future years, because the pro forma results include the impact of only one period of grants and related vesting, while subsequent years will include additional grants and vesting. The per unit weighted average fair value of unit options granted during 2000 was $1.16 per unit. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions used for grants in 2000: dividend yield of zero percent, risk-free interest rate of 5.50%, expected volatility of zero percent and expected life of five years. STOCKHOLDERS AGREEMENT VS&A-T/SF and Fir Tree (each a "Stockholder") and the Company are parties to a Stockholders Agreement (the "Agreement"), dated October 9, 1997, with respect to the management of the Company and their ownership of shares of the common stock. The Agreement terminates at the earlier of an underwritten initial public offering of common stock or ten years. The Agreement provides that the Board of Directors be determined based on the ownership percentages of VS&A-T/SF and Fir Tree which is 64.4% and 35.6%, respectively. The Agreement provides that certain actions require approval by a majority of the Fir Tree designees on the board and that at any time after October 9, 2002, Fir Tree has the right to force the sale of the Company or its assets and the Stockholders are required to sell their shares or vote in favor of a sale. 8. COMMITMENTS AND CONTINGENCIES Operating lease agreements of the Company are principally for office facilities and equipment and expire at various dates through 2006 Rent expense in 2000, 1999, and 1998 under operating leases was approximately $ 2.0 million, $2.3 million and $2.0 million respectively. As of December 31, 2000, future minimum lease payments are as follows: Year Ending December 31, ------------ (In thousands) 2001 $ 2,621 2002 2,404 2003 2,376 2004 1,821 2005 1,581 Thereafter 826 -------- $ 11,629 ======== F-29 The Company is a defendant in certain litigation arising out of operations in the normal course of business. However, it is the opinion of management that the ultimate liabilities relating thereto, if any, will not have a material adverse effect on the financial position or results of operations of the Company. 9. RELATED PARTY TRANSACTIONS In 1998, VS&A was paid a fee of $20,000 in connection with advisory services provided to the Company with respect to the acquisition of International Gaming Business Exposition and a monitoring fee of $90,000. In 1999, VS&A was paid a monitoring fee of $90,000 and fees of $534,000 in connection with advisory services provided to the Company with respect to the acquisitions of ITS and RSI and the disposition of Corsearch. In 2000, VS&A was paid a monitoring fee of $90,000 and fees of $670,000 in connection with advisory services provided to the Company with respect to the acquisitions of STA, USMA and EES. Approximately 18% of both such fees were shared with Fir Tree pursuant to the Agreement. These costs are included in the accompanying consolidated statements of operations. 10. BUSINESS SEGMENT INFORMATION Operations of the Company are conducted primarily through two business segments primarily within the continental United States. These segments and the primary operations of each are as follows: BUSINESS-TO-BUSINESS COMMUNICATIONS Atwood is a publisher of various convention/trade show publications and trade journals. ExpoExchange is a provider of registration housing, travel, exhibitor marketing and information services all to the exposition industry and GEM is the owner of several trade shows, including World Gaming Congress, a trade show catering to the legalized gaming industry, and the publisher of several trade magazines and newsletters. INFORMATION SERVICES TISI is a provider of pre-employment screening information including motor vehicle reports, truck driver employment information, worker's compensation information, credit reports, criminal record reports and other pre-employment screening information and services to the trucking and other industries and motor vehicle reports to the insurance industry. Corsearch a provider of trademark research and information services, using both proprietary and public databases was sold in November 1999. Corporate revenues consist principally of revenues from covenants-not-to-compete and miscellaneous non-operating income. Operating profit is net revenues less applicable operating expenses and segment general and administrative expenses. Corporate general and administrative expenses are allocated to each segment in proportion to each segment's net revenue. Identifiable assets by segment are those assets that are used in the operations of each segment. Corporate assets consist principally of cash and cash equivalents, notes receivable, prepaid expenses and corporate furniture, fixtures and equipment. Capital expenditures include additions to property, plant and equipment, goodwill and truck driver employment information files. F-30 During 2000, 1999 and 1998, no customer represented ten percent or more of the Company's revenue or operating profit. Summarized financial information by industry segment is as follows:
Year Ended December 31, 2000 1999 1998 ---- ---- ---- (In thousands) NET REVENUES FROM SALES TO UNAFFILIATED CUSTOMERS: Business to Business Communications $ 79,208 $ 65,877 $ 52,166 Information Services 57,474 41,832 36,055 --------- --------- --------- $ 136,682 $ 107,709 $ 88,221 ========= ========= ========= OPERATING INCOME ( LOSS): Business to Business Communications $ 1,503 $ 6,762 $ 8,297 Information Services 11,389 8,400 8,082 --------- --------- --------- Operating profit from segments 12,892 15,162 16,379 Interest and other income 939 84 422 Corporate expenses, net (2,997) (932) (1,789) Write down of investment (4,518) - - (Loss) gain on sale of investment (59) 4,842 - Interest expense (11,580) (10,792) (10,676) --------- --------- --------- (Loss) income before income taxes $ (5,323) $ 8,364 $ 4,336 ========= ========= ========= IDENTIFIABLE ASSETS AT DECEMBER 31: Business to Business Communications $ 79,799 $ 48,928 $ 34,206 Information Services 71,985 34,830 33,804 Corporate 5,554 38,372 6,524 --------- --------- --------- $ 157,338 $ 122,130 $ 74,534 ========= ========= ========= DEPRECIATION AND AMORTIZATION: Business to Business Communications $ 13,647 $ 6,373 $ 3,407 Information Services 5,632 4,113 3,204 Corporate 438 512 467 --------- --------- --------- $ 19,717 $ 10,998 $ 7,078 ========= ========= ========= CAPITAL EXPENDITURES: Business to Business Communications $ 4,751 $ 3,476 $ 2,924 Information Services 2,784 3,139 3,370 Corporate 35 77 209 --------- --------- --------- $ 7,570 $ 6,692 $ 6,503 ========= ========= =========
F-31 FOREIGN SALES The Company's net revenues for 2000, 1999, and 1998 to customers outside the U.S. and Canada were approximately $4.1 million, $8.1 million and $5.1 million, respectively, representing 3.0%, 7.5% and 5.8%, of net revenues, respectively. All of such net revenues are attributable to Business-to-Business Communications. 11. SUBSEQUENT EVENT Effective January 1, 2001, the Company announced the acquisition of Casino Journal Publishing Group's trade assets which include the publications: Casino Journal, a monthly trade publication for domestic casino operators and manufacturers and The National Gaming Summary, an industry weekly newsletter and several tradeshows/conferences: Casino Ops; Southern Gaming Conference; American Gaming Conference and the North American Gaming Conference, which are managed joint ventures. The Company paid $2,625,000 in cash and 100,000 units of GEM Communications, LLC, subject to certain future working capital and earnings adjustments. F-32 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. Date: March 31, 2000 THE OFFICIAL INFORMATION COMPANY By /s/ Ian L.M. Thomas ------------------------------------- IAN L. M. THOMAS PRESIDENT AND CHIEF EXECUTIVE OFFICER Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant on March 30, 2000 and in the capacities indicated. SIGNATURE TITLE /s/ John s. Suhler Chairman of the Board and Director - ------------------------------- (John S. Suhler) /s/ Ian L.M. Thomas President, Chief Executive Officer - ------------------------------- and Director (Ian L.M. Thomas) /s/ Steven J. Hunt Chief Financial Officer and Treasurer - ------------------------------- (Steven J. Hunt) /s/ John J. Veronis Director - ------------------------------- (John J. Veronis) /s/ Jeffrey T. Stevenson Director - ------------------------------- (JeffreyT. Stevenson) /s/ Scott Troeller Director - ------------------------------- (Scott Troeller) /s/ Jeffrey Tannenbaum Director - ------------------------------- (Jeffrey Tannenbaum) /s/ John Rolfe Director - ------------------------------- (John Rolfe) EX-10.1(A) 2 0002.txt SECOND AMENDMENT TO CREDIT AGREEMENT AND CONSENT SECOND AMENDMENT TO CREDIT AGREEMENT AND CONSENT THIS SECOND AMENDMENT TO CREDIT AGREEMENT AND CONSENT dated as of February 1, 2001 (the "Amendment") relating to the Credit Agreement referenced below, is by and among THE OFFICIAL INFORMATION COMPANY, a Delaware corporation (the "Company"), the subsidiaries of the Company listed on the signature pages hereto (collectively referred to as the "Subsidiary Guarantors" or individually referred to as a "Subsidiary Guarantor"), each of those financial institutions identified as Lenders on the signature pages hereto (together with each of their successors and assigns, referred to individually as a "Lender" and, collectively, as the "Lenders"), and FIRST UNION NATIONAL BANK, acting in the manner and to the extent described in Section 8 of the Credit Agreement (in such capacity, the "Agent"). Capitalized terms used herein but not otherwise defined herein shall have the meanings provided in the Credit Agreement. W I T N E S S E T H WHEREAS, a $25,000,000 credit facility was extended to the Company pursuant to the terms of that certain Credit Agreement dated as of October 9, 1997 (as amended, modified or otherwise supplemented from time to time, the "Credit Agreement") among the Company, as borrower, the Lenders identified therein and the Agent; WHEREAS, the Company has requested that the Credit Agreement be amended as described herein and the Lenders are willing to make such amendments; NOW, THEREFORE, in consideration of these premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: (A) Amendments. 1. Section 1.1 of the Credit Agreement is hereby amended by deleting the following definitions and replacing them with the following: "Applicable Interest Rate Percentage": for any day, the rate per annum set forth below opposite the applicable Total Leverage Ratio then in effect, it being understood that the Applicable Interest Rate Percentage for (i) Base Rate Loans shall be the percentage set forth under the column "Base Rate Margin", and (ii) LIBOR Rate Loans shall be the percentage set forth under the column "LIBOR Rate Margin":
------------------------ ----------------------- ----------------------------- Total Leverage Ratio Base Rate Margin LIBOR Rate Margin ------------------------ ----------------------- ----------------------------- (less than or equal to) 5.50 1.50% 2.75% ------------------------ ----------------------- ----------------------------- (greater than or equal to) 5.0 but (less than) 5.5 1.25% 2.50% ------------------------ ----------------------- ----------------------------- (greater than or equal to) 4.5 but (less than) 5.0 1.00% 2.25% ------------------------ ----------------------- ----------------------------- (greater than or equal to) 4.0 but (less than) 4.5 0.75% 2.00% ------------------------ ----------------------- ----------------------------- (less than) 4.0 0.50% 1.75% ------------------------ ----------------------- -----------------------------
provided, that, in the event that the Revolving Committed Amount has not been permanently reduced to an amount less than or equal to $25,000,000 on or before April 30, 2001, each of the percentages shown in the above table shall be increased by 0.25%. The Applicable Interest Rate Percentage shall, in each case, be determined and adjusted quarterly on the date five (5) Business Days after the date of delivery of the quarterly compliance certificate and financial information provided in accordance with Sections 5.1(b) and 5.2(b) (each an "Interest Determination Date"). Such Applicable Interest Rate Percentage shall be effective from such Interest Determination Date until the next such Interest Determination Date. "Senior Leverage Ratio": at any time, the ratio of Consolidated Senior Funded Debt at such time less Cash Equivalents in excess of $1,000,000 owned by the Borrower and the Restricted Subsidiaries as of the last day of the twelve month period then ending to Consolidated Adjusted EBITDA for the twelve month period then ending. "Total Leverage Ratio": at any time, the ratio of Consolidated Total Funded Debt at such time less Cash Equivalents in excess of $1,000,000 owned by the Borrower and the Restricted Subsidiaries as of the last day of the twelve month period then ending to Consolidated Adjusted EBITDA for the twelve month period then ending. 2. Section 1.1 of the Credit Agreement is hereby amended by the addition of the following definitions in appropriate alphabetical order: "Second Amendment": shall mean that certain Second Amendment to Credit Agreement and Consent dated as of February 1, 2001 by and among the Borrower, the subsidiaries of the Borrower identified on the signature pages thereto, the lenders identified on the signature pages thereto and the Administrative Agent. "Second Amendment Effective Date": shall mean the date upon which all of the conditions in Section (D) of the Second Amendment have been satisfied or waived. 2 3. Section 2.1(a) of the Credit Agreement is hereby deleted in its entirety and replaced with the following: (a) Revolving Commitment. During the Commitment Period, subject to the terms and conditions hereof, each Lender severally agrees to make revolving credit loans ("Revolving Loans") to the Borrower from time to time for the purposes hereinafter set forth; provided, however, that (i) with regard to each Lender individually, such Lender's share of outstanding Revolving Loans shall not exceed such Lender's Revolving Committed Amount, and (ii) with regard to the Lenders collectively, the sum of the aggregate amount of outstanding Revolving Loans shall not exceed FORTY MILLION DOLLARS ($40,000,000) (as such aggregate maximum amount may be reduced from time to time as provided herein, the "Revolving Committed Amount"). Revolving Loans may consist of Base Rate Loans or LIBOR Rate Loans, or a combination thereof, as the Borrower may request, and may be repaid and reborrowed in accordance with the provisions hereof. LIBOR Rate Loans shall be made by each Lender at its LIBOR Lending Office and Base Rate Loans at its Domestic Lending Office. 4. Section 2.6(b)(i) of the Credit Agreement is hereby deleted in its entirety and replaced with the following: (i) Net Sales Proceeds. (A) From the Second Amendment Effective Date until the date upon which the Revolving Committed Amount has been reduced to $25,000,000 or less, the Borrower shall make a prepayment of the Revolving Loans in an amount equal to 100% of Net Sales Proceeds from Asset Dispositions; and (B) after the Revolving Committed Amount has been reduced to $25,000,000 or less, the Borrower shall make a prepayment of the Revolving Loans in an amount equal to the Net Sales Proceeds from Asset Dispositions in excess of $1,000,000 which are not reinvested by the Borrower and the Restricted Subsidiaries in businesses permitted to be engaged in by the Borrower and the Restricted Subsidiaries pursuant to Section 6.4 within 270 days after the applicable date of disposition. Any prepayment of Net Sales Proceeds required by this subclause (B) shall be made on or prior to the date 270 days from the date of the applicable Asset Disposition and shall be applied to the outstanding principal balance of the Revolving Loans. 5. Section 2.6(b) of the Credit Agreement is hereby amended by adding the following new clause (iv) to the end thereof: (iv) Mandatory Reduction of Revolving Commitments. The Revolving Committed Amount shall be automatically permanently reduced by the amount of any mandatory prepayment required pursuant to clause (i) or (ii) of this Section 2.6(b). 6. Section 2.7 of the Credit Agreement is hereby deleted in its entirety and replaced with the following: 3 Commitment Fee. In consideration of the Revolving Commitments, the Borrower agrees to pay to the Administrative Agent for the ratable benefit of the Lenders a commitment fee (the "Commitment Fee") for each calendar quarter (or portion thereof) during the Commitment Period, computed at the rate of .50% per annum on the average daily amount by which the Aggregate Revolving Committed Amount exceeds the aggregate principal amount of Revolving Loans outstanding (for the subject calendar quarter). Notwithstanding the foregoing, in the event that the aggregate principal amount of Revolving Loans outstanding constitutes less than 50% of the Aggregate Revolving Committed Amount, then the Commitment Fee shall be computed at the rate of .625% per annum on the average daily amount by which the Aggregate Revolving Committed Amount exceeds the aggregate principal amount of Revolving Loans outstanding (for the subject calendar quarter). The Commitment Fee shall be payable quarterly in arrears on the last Business Day of each March, June, September and December (commencing March 31, 2001) and on the Termination Date. 7. Section 5.9(b) of the Credit Agreement is hereby deleted in its entirety and replaced with the following: (b) Senior Leverage Ratio. The Borrower will maintain, as of the end of each fiscal quarter to occur during the periods shown, a Senior Leverage Ratio of not greater than: Second Amendment Effective Date 3.0 to 1.0 through December 31, 2001 January 1, 2002 and thereafter 2.5 to 1.0 (B) Representations and Warranties. The Company hereby represents and warrants that (i) the representations and warranties contained in Section 3 of the Credit Agreement are true and correct on and as of the date hereof as though made on and as of such date (except for those representations and warranties which by their terms relate solely to an earlier date) and after giving effect to the amendments contained herein, (ii) no Default or Event of Default exists under the Credit Agreement on and as of the date hereof and after giving effect to the amendments contained herein, (iii) it has the corporate power and authority to execute and deliver this Amendment and to perform its obligations hereunder and has taken all necessary corporate action to authorize the execution, delivery and performance by it of this Amendment and (iv) it has duly executed and delivered this Amendment, and this Amendment constitutes its legal, valid and binding obligation enforceable in accordance with its terms except as the enforceability thereof may be limited by bankruptcy, insolvency or other similar laws affecting the rights of creditors generally or by general principles of equity. (C) Conditions to Effectiveness. This Amendment shall become effective upon satisfaction of the following conditions precedent: 4 1. Second Amendment. The Agent shall have received a copy of this Amendment duly executed by the Company and each of the Subsidiary Guarantors. 2. Corporate Documents. The Agent shall have received each of the following: (a) Copies of the articles or certificates of incorporation or other charter documents of the Company certified to be true and complete as of a recent date by the appropriate Governmental Authority of the state or other jurisdiction of its incorporation and certified by a secretary or assistant secretary of the Company to be true and correct as of the date hereof. (b) A copy of the bylaws of the Company certified by a secretary or assistant secretary of the Company to be true and correct as of the date hereof. (c) Copies of resolutions of the Board of Directors of the Company approving and authorizing execution and delivery of this Amendment, certified by a secretary or assistant secretary of the Company to be true and correct and in force and effect as of the date hereof. (d) Copies of (i) certificates of good standing, existence or its equivalent with respect to the Company certified as of a recent date by the appropriate governmental authorities of the state or other jurisdiction of incorporation and each other jurisdiction in which the failure to so qualify and be in good standing could reasonably be expected to have a Material Adverse Effect and (ii) to the extent available, a certificate indicating payment of all corporate franchise taxes certified as of a recent date by the appropriate governmental taxing authorities. (e) An incumbency certificate of the Company certified by a secretary or assistant secretary to be true and correct as of the date hereof. 3. Personal Property Collateral. The Agent shall have received each of the following: (a) New and/or amended UCC-1 financing statements for the Company, as appropriate and necessary to perfect or continue the perfection of the Agent's security interest in the Company's collateral; (b) all stock certificates evidencing the Capital Stock pledged to the Agent pursuant to the Pledge Agreements, together with duly executed in blank undated stock powers attached thereto; and (c) such patent/trademark/copyright filings as requested by the Agent in order to perfect the Agent's security interest in the Company's collateral, including, without limitation, new notices of grants of security interests in favor of the Agent. 5 4. Opinion of Counsel. The Agent shall have received an opinion (which shall cover, among other things, authority, legality, validity, binding effect and enforceability of this Amendment), satisfactory to the Agent, addressed to the Agent and the Lenders and dated the Second Amendment Effective Date, from legal counsel to the Company and the Subsidiary Guarantors. 5. Fee Letter. The Agent shall have received a duly executed original copy of a fee letter dated as of the date hereof from First Union National Bank to the Company, acknowledged by the Company (the "Fee Letter") and the Agent shall have received all fees owing pursuant to the Fee Letter. 6. Revolving Note. The Agent shall have received a replacement Revolving Note for each Lender which has been duly authorized, executed and delivered by the Company and which is in full force and effect. 7. Stock and Stock Powers. The Agent shall have received certificates representing all of the membership interests of ExpoExchange, LLC purchased by TOIC Holdings, LLC ("TOIC Holdings"), a subsidiary of the Company, from Third Millennium Communications, Inc. ("3MC") pursuant to that certain Purchase Agreement dated as of January 19, 2001 (the "Purchase Agreement") by and between TOIC Holdings and 3MC, together with duly executed in blank undated stock powers attached thereto. 8. Consummation of Sale and Purchase. The Agent shall have received evidence satisfactory to the Agent in its sole discretion that the transactions contemplated in (i) the Purchase Agreement and (ii) that certain Securities Purchase Agreement dated as of January 19, 2001 by and between 3MC and the Company have been consummated. 9. Repayment of Secured Promissory Note. The Agent shall have received evidence that simultaneously with the effectiveness of this Amendment, the promissory note in the principal amount of $12,000,000 given by TOIC Holdings to 3MC as partial consideration for the membership interests of ExpoExchange will be repaid in full from the proceeds of the Revolving Loans. 10. Pro Forma Compliance with Financial Covenants. The Agent shall have received from an Authorized Signatory a compliance certificate substantially in the form of Schedule 4.1(f) to the Credit Agreement demonstrating, among other things, the Borrower's compliance on a pro forma basis with the financial covenants set forth in Section 5.9 of the Credit Agreement. (D) Acknowledgment of Subsidiary Guarantors. Each of the Subsidiary Guarantors acknowledges and consents to all of the terms and conditions of this Amendment and agrees that (i) this Amendment and all documents executed in connection herewith do not operate to reduce or discharge the Subsidiary Guarantor's obligations under the Guaranty or any other Credit Document and (ii) the Guaranty guarantees the payment and performance of all of the obligations of the 6 Company under the Credit Documents as such obligations may be increased after giving effect to this Amendment. (E) Continuing Agreements. Except as specifically modified hereby, all of the terms and provisions of the Credit Agreement and the other Credit Documents (and Exhibits and Schedules thereto) shall remain in full force and effect, without modification or limitation, and this Amendment shall not affect, modify or diminish the obligations of the Credit Parties which have accrued prior to the effectiveness of the provisions hereof. This Amendment shall not operate as a consent to any other action or inaction by any Credit Party, or as a waiver or amendment of any right, power, or remedy of any Lender or the Agent under the Credit Documents nor constitute a consent to any such action or inaction, or a waiver or amendment of any provision contained in any Credit Document except as specifically provided herein. The waivers contained herein shall be effective only in the specific instance, for the specific purpose for which given and for the period of time set forth herein. (F) Payment of Fees and Expenses. The Company agrees to pay all reasonable costs and expenses of the Agent in connection with the preparation, execution and delivery of this Amendment, including, without limitation, the reasonable fees and expenses of Moore & Van Allen, PLLC. (G) Multiple Counterparts. This Amendment may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed an original and it shall not be necessary in making proof of this Amendment to produce or account for more than one such counterpart. (H) Governing Law. This Amendment and the Credit Agreement as amended hereby shall be governed by and construed and interpreted in accordance with the laws of the State of North Carolina. [Remainder of page intentionally left blank] 7 IN WITNESS WHEREOF, each of the parties hereto has caused a counterpart of this Amendment to be duly executed and delivered as of the date first above written. COMPANY: THE OFFICIAL INFORMATION COMPANY By: ------------------------------- Name: ----------------------------- Title: ---------------------------- SUBSIDIARY GUARANTORS: I.T.S. INFORMATION SERVICES, LLC By: ------------------------------- Name: ----------------------------- Title: ---------------------------- TOIC HOLDINGS, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- TOIC HOLDINGS, LLC By: ------------------------------- Name: ----------------------------- Title: ---------------------------- EXPO MAGAZINE, LLC By: ------------------------------- Name: ----------------------------- Title: ---------------------------- VEGAS PEOPLE, LLC By: ------------------------------- Name: ----------------------------- Title: ---------------------------- ATWOOD PUBLISHING, LLC By: ------------------------------- Name: ----------------------------- Title: ---------------------------- GEM COMMUNICATIONS, LLC By: ------------------------------- Name: ----------------------------- Title: ---------------------------- GEM COMMUNICATIONS HOLDINGS, LLC By: ------------------------------- Name: ----------------------------- Title: ---------------------------- CRIMESEARCH, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- EXPOEXCHANGE, LLC By: ------------------------------- Name: ----------------------------- Title: ---------------------------- RECORDS SEARCH, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- TISI HOLDINGS, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- UNITED STATES MUTUAL ASSOCIATION, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- BUSINESS MUTUAL ASSOCIATION OF MASS., INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- STORES PROTECTIVE ASSOCIATION, INC By: ------------------------------- Name: ----------------------------- Title: ---------------------------- EMPLOYERS SCREENING SERVICE, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- STORES MUTUAL ASSOCIATION OF ILLINOIS, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- STA UNITED, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- TOTAL INFORMATION SERVICES, INC By: ------------------------------- Name: ----------------------------- Title: ---------------------------- TOIC NEVADA, INC. By: ------------------------------- Name: ----------------------------- Title: ---------------------------- AGENT AND LENDERS: FIRST UNION NATIONAL BANK, individually in its capacity as a Lender and in its capacity as Agent By: ------------------------------- Name: ----------------------------- Title: ---------------------------- EX-10.13 3 0003.txt AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT AMENDED AND RESTATED EMPLOYMENT AGREEMENT, dated as of June 1, 2000, by and between ExpoExchange, LLC, a Delaware limited liability company ("Employer"), and Michael Goodwin ("Executive"): Background On January 1, 1998, Employer and Executive entered into an Employment Agreement (the "1998 Employment Agreement") pursuant to which Executive was offered employment with Employer as the President and Chief Executive Officer of Employer. On May 31, 2000, Galaxy Information Services LLC acquired the E-Products Division of Third Millennium Communications and changed its name to ExpoExchange, LLC (collectively, the "Business"). The Board of ExpoExchange wishes to appoint Executive as the President of the Galaxy Division of Employer with effect from June 1, 2000. As a result of the acquisition, the parties desire to amend and restate the 1998 Employment Agreement. In consideration of the mutual covenants and agreements set forth herein, the parties hereto, intending to be legally bound hereby, agree as follows: ARTICLE I TERM OF AGREEMENT AND EMPLOYMENT Section 1.01 Commencing on the date of this Agreement and for a period ending on the third anniversary hereof (the "Term"), subject to earlier termination as provided in Article VI hereof, Employer hereby employs Executive and Executive hereby accepts employment with Employer as the President of the Galaxy Division of Employer. Subject to the direction and ultimate authority of the Chairman of the Board, the Chief Executive Officer and the Board of Directors of Employer, Executive shall be responsible for the overall performance of the Galaxy Division and, in particular, Executive's responsibilities are set forth on Exhibit A. Employer and Employer's subsidiaries are collectively referred to below as the "Related Entities." Section 1.02 The term of this Agreement shall continue from year to year after May 31, 2003, unless terminated by written notice, given by either party to the other, on or before the date which is one year prior to the expiration date of the term hereof or prior to the expiration of any extended term. ARTICLE II DUTIES AND OBLIGATIONS OF EXECUTIVE Section 2.01 At all times during the performance of this Agreement, Executive shall adhere to each Related Entity's policies, rules and regulations governing the conduct of its employees, now in effect, or as subsequently adopted or amended. Section 2.02 Executive shall devote substantially all of his business time, ability and attention to the operations of the Business during the term of this Agreement and shall not, whether directly or indirectly, render any services to any other person or organization, whether for compensation or otherwise, except with Employer's prior written consent. ARTICLE III COMPENSATION Section 3.01 As full compensation for his services hereunder, Employer shall pay Executive an annual salary of One Hundred Eighty Thousand ($180,000), payable in equal semi-monthly installments (the "Base Salary"). On each December 31, the Base Salary shall be increased by an amount equal to the percentage increase during the previous calendar year in the Consumer Price Index, All Items, in the Fredrick, Maryland metropolitan area. Section 3.02 In addition to the Base Salary, Executive shall be eligible to participate in The Official Information Company's (TOIC) Key Employee Bonus Plan (the "Bonus Plan"). The Chief Executive Officer of TOIC has the authority in its sole and absolute discretion to select the participants in the Bonus Plan and to determine the bonus formula for each participant. Executive shall continue to participate in the Bonus Plan with respect to 2000. If Executive is selected to participant in the Bonus Plan for any year after 2000, Executive shall be notified in writing prior to the beginning of such year. Section 3.03 Contemporaneously with the execution of this Agreement, Employer and Executive are executing an agreement in the form attached as Exhibit A pursuant to which TOIC and Executive agree that Executive's participation in TOIC's Key Executive Equity Appreciation Plan shall be frozen. Section 3.04 Contemporaneously with the execution of this Agreement, Employer and Executive are executing an agreement in the form attached as Exhibit B pursuant to which Executive is being granted 200,000 Options under the ExpoExchange, LLC 2000 Unit Option Plan. The Option Agreement will provide, among other things, that: CLASS A OPTIONS: 2 (1) 80,000 of the Options will vest upon the earlier of (x) the third anniversary of the date of grant and (y) the date of a Change of Control (as defined below); and (2) 20,000 of the Options will vest upon the earlier of (x) the third anniversary of the date of grant and (y) on the first anniversary of a Change of Control, but only if the Executive remains employed by Employer or the surviving company for one year following the Change of Control, except that the remaining 20,000 Options shall become immediately vested if Executive is not offered continuation of employment by Employer or the surviving company at a comparable position and at a salary and other compensation arrangements at least as favorable as then in effect or if Executive accepts employment and subsequently is terminated without Cause or terminates his employment for Good Reason. Such Options, together with the 80,000 Options referred to in clause (1) above, are referred to herein as the "Class A Options." CLASS B OPTIONS: (3) In addition, Executive will be granted an additional 100,000 Options (the "Class B Options") which will vest in accordance with the vesting schedule set forth in clauses (1) and (2) above; provided, however, that Executive will only be able to exercise 20,000 of such number of Class B Options for each 1% (rounded to the nearest whole percentage) by which EBITDA (as defined below) for 2001 exceeds One Hundred Five percent (105%) of Employer's Annual EBITDA Budget (as defined below) for 2001 (the "2001 Performance Condition") (but in no event more than 175,000 Options). "Annual EBITDA Budget" means the budgeted EBITDA for Employer prepared by management and jointly approved by the Chairman of the Board and the Chief Executive Officer of Employer, as it may be adjusted by the Chairman of the Board and the Chief Executive Officer of Employer to reflect special factors (including material changes in accounting policies or practices, material acquisitions or dispositions or other unusual or unplanned items) which, in their reasonable judgment, should or should not be taken into account, in whole or part, in furtherance of the equitable administration of the Plan. "EBITDA" means the consolidated earnings of Employer before all interest, taxes, depreciation and amortization, excluding any extraordinary or unusual nonrecurring items of income and expenses, as determined in accordance with generally accepted accounting principles. EBITDA shall be calculated after taking into account the payment of any bonuses with respect to that fiscal year pursuant to any existing bonus programs. Notwithstanding the foregoing, (i) if Executive's employment is terminated with Cause (other than pursuant to Section 6.01(e) at any time after November 30, 2001) or Executive 3 terminates his employment without Good Reason, all unvested Options shall immediately terminate and be of no further force or effect, (ii) if Executive's employment is terminated with Cause pursuant to Section 6.01(e) at any time after November 30, 2001, his Options will be deemed to have vested, if at all, at the rate of 34% on the first anniversary of the date of grant and at the rate of 8.25% at the end of each 3-month period commencing on the first anniversary of the grant date and ending on the date of termination (up to 100% vested), (iii) if Executive's employment is terminated due to his death or disability, his Options will be deemed to have vested, if at all, at the rate of 34% on the first anniversary of the date of grant and at the rate of 8.25% at the end of each 3-month period commencing on the first anniversary of the grant date and ending six months after the date of death or disability (up to 100% vested) and (iv) except as provided in clause (2) above after a Change of Control with respect to the 20,000 Class A Options and 20,000 Class B Options, if Executive's employment is terminated without Cause or Executive terminates his employment for Good Reason, his Options will be deemed to have vested, if at all, at the rate of 34% on the first anniversary of the date of grant and at the rate of 8.25% at the end of each 3-month period commencing on the first anniversary of the grant date and ending on the first anniversary of the date of termination (up to 100% vested); provided, however, that with respect to any Class B Options, exercise of such Options is subject to the satisfaction of the 2001 Performance Condition (except if Executive's employment is terminated without Cause or Executive terminates his employment for Good Reason prior to December 31, 2001). The term "Change of Control" shall mean (i) a sale of all or substantially all of the assets of Employer or (ii) a sale by TOIC Holdings, LLC (other than to an affiliate) or a merger or other transaction or series of transactions which results in TOIC Holdings, LLC or its affiliates owning less than 35% of the outstanding LLC Units or stock of Employer; provided, however, if TOIC Holdings, LLC and its affiliates collectively are not the single largest equity holder after giving effect to such transaction(s), then a "Change of Control" shall mean a sale by TOIC Holdings, LLC (other than to an affiliate) or a merger or other transaction or series of transactions which results in TOIC Holdings, LLC or its affiliates owning less than 40% of the outstanding LLC Units or stock of Employer. ARTICLE IV BENEFITS Section 4.01 Executive shall be entitled to participate in all benefit plans generally available to employees of Employer and, subject to Section 6, to receive vacation, sick leave and leaves of absence in accordance with general employee policies. 4 ARTICLE V BUSINESS EXPENSES Section 5.01 Employer shall reimburse Executive, in accordance with Employer's policies, for all reasonable out-of-pocket business expenses incurred by Executive in the performance of his duties hereunder. Executive shall furnish to Employer documentary evidence of each such expense in the form required to comply with Employer's policies and all applicable federal and state tax statutes and regulations issued thereunder for the substantiation of such expense as a tax deduction. ARTICLE VI TERMINATION OF EMPLOYMENT Section 6.01 Termination with Cause. Employer may terminate Executive's employment at any time for Cause by giving written notice of such termination to Executive. For purposes of this Agreement, cause shall mean: (a) The conviction of Executive of a felony that has a material adverse effect on Employer or its reputation or has a material adverse effect on Executive's ability to perform his duties and responsibilities hereunder; (b) Fraud, embezzlement or other material and intentional misappropriation by Executive of funds or property of Employer or any Related Entities; (c) A material breach of Executive's fiduciary duties as an employee of Employer (if uncured after 15 days written notice thereof); (d) Any gross misconduct of Executive which is injurious in any material respect to Employer or any Related Entity (if uncured after 15 days written notice thereof); or (e) Executive's failure to perform in any material respect his material obligations under this Agreement (if uncured after 15 days written notice thereof), other than as a result of death or disability. If Employer terminates Executive's employment for Cause under this Section 6.01, Executive shall be entitled to receive his accrued Base Salary through the date of such termination and shall not be entitled to any severance pay. Section 6.02 Termination Resulting from Death or Disability. If, as the result of any physical or mental disability, Executive shall fail or be unable to perform in a satisfactory manner a material portion of his duties and obligations hereunder for a period of 180 consecutive days or for a total of 180 days in any twelve (12) month period, Employer may, upon thirty (30) days prior written notice to Executive, terminate Executive's employment hereunder. Any dispute as to a disability shall be resolved by a medical doctor selected jointly by Employer and Executive. 5 The death of Executive shall terminate his employment hereunder, effective at the time of death. In the event of termination resulting from disability or death, Executive or his estate, as the case may be, shall receive Executive's Base Salary through the date of termination and a pro-rated portion (based on the number of days in the year in which Executive was employed) of the Bonus, if any, calculated for the portion of such calendar year through the last day of the month preceding the month in which Executive's employment terminated. Section 6.03 Termination for Other Reasons. Employer may terminate Executive's employment for any reason at any time by giving written notice of such termination to Executive. If Executive's employment is terminated by Employer pursuant to this provision (i.e., other than pursuant to Section 6.01, 6.02 or 6.04), Executive shall cease receiving his Base Salary as of the date of such termination and (a) Employer shall pay Executive severance pay in an amount equal to Executive's Base Salary (calculated at the rate of Executive's annual salary at the time of such termination) through the earlier of (i) the then current term of this Agreement and (ii) one (1) year after the date of such termination (the "Severance Period") and a pro-rated portion (based on the number of days in the year in which Executive was employed) of the bonus, if any, calculated for the portion of such calendar year through the last day of the month preceding the month in which Executive's employment terminated and (b) Employer shall maintain in full force and effect Executive's continued participation in the benefit plans generally available to employees of Employer in which Executive was participating immediately prior to such termination until the earlier of (i) one (1) year after the date of such termination and (ii) Executive's commencement of Executive's eligibility for benefit coverage with a new employer; provided, however, such severance payments are expressly conditioned upon Executive providing to Employer a release of Employer and its affiliates, in form and substance reasonably satisfactory to Employer and Executive, from any and all claims which Executive may have in respect of such termination or under this Agreement. At the end of the period of participation in such benefit plans, Employer will assure that Executive receives all additional benefits required by law, e.g., COBRA. The payment of the severance pay referred to in clause (a) above shall be payable during the Severance Period in accordance with the same schedule of payments provided for Executive's Base Salary pursuant to Section 3.01. Section 6.04 Termination by Executive for Good Reason. The Executive shall be entitled to terminate his employment with the Employer for "Good Reason" (as defined below). For purposes of this Agreement, "Good Reason" shall mean the occurrence, without the Executive's express written consent, of any of the following circumstances: (i) the relocation of the Executive's base office to an office that is more than 50 highway miles from Frederick, Maryland or (ii) a material breach of this Agreement by the Employer. If the Executive terminates his employment for Good Reason, the Executive shall be considered to have been terminated by the Employer for reasons other than Cause, death or disability and the Executive shall be entitled to severance pay and benefits to the same extent as a termination described in Section 6.03. 6 Section 6.05 Off-set. If during the Severance Period the Executive accepts other employment or consultancy, the portion of the severance pay awarded to the Executive hereunder that is based upon Executive's Base Salary shall be reduced by the amount of any compensation payable as a result of such other employment or consultancy. Section 6.06. Benefits. Upon termination of employment hereunder, Executive shall be entitled to continue receiving benefits to the extent expressly provided for in the benefit plans in which Executive participates at the time of termination and as otherwise required by law. ARTICLE VII NON-COMPETITION, CONFIDENTIALITY AND NON-SOLICITATION COVENANTS Section 7.01 Executive acknowledges that Executive's employment hereunder will provide Executive with access on a continual basis to confidential and proprietary information concerning the Business, which is not readily available to the public; and that Employer would not enter into this Agreement but for the covenants (the "Restrictive Covenants") contained in this Article VII. Accordingly, Executive agrees that: (a) During the term of employment hereunder and, for a period of one (1) year thereafter (the "Restricted Period"), Executive shall not, directly or indirectly, (i) engage in any business that is competitive with the Business for his own account; or (ii) render any services which constitute engaging in any business that is competitive with the Business in any capacity to any person (other than with the consent or at the direction of Employer); nor shall Executive own an equity interest in any person which is engaged in any business that is competitive with the Business, provided, however, that Executive may own, directly or indirectly, solely as a passive investment, securities of any person which are traded on any national securities exchange or NASDAQ, if Executive is not a controlling person of, or a member of a group which controls, such person, and does not, directly or indirectly, own five percent (5%) or more of any class of securities of such person. (b) Executive shall forever maintain in strictest confidence all information relating to the Business and to each of the Related Entities, which is known or becomes known to Executive, including, without limitation, trade secrets, know-how, financial statements and data, contracts (whether oral or written), customer and advertiser lists, rate schedules, pricing policies, marketing plans and strategies, and business acquisition plans (collectively, the "Confidential Information"), and shall not, except in connection with the business affairs of Employer and its affiliates, disclose any Confidential Information to any person, other than with the express written consent of Employer. Confidential Information shall not include information which Executive can demonstrate (A) has become generally available to the public other than as a result of a disclosure by Executive, (B) was available to Executive on a non-confidential basis prior to its disclosure to Executive by Employer, or (C) has become available to Executive on a non-confidential basis from a source other than Employer, provided that such source is not known by 7 Executive after reasonable inquiry to be bound by a confidentiality agreement with Employer or otherwise prohibited from transmitting the information to Executive by a legally binding obligation. Notwithstanding anything in this Agreement to the contrary, in the event that a request or demand is made upon Executive, by written interrogatory, request for information or documents, subpoena, court order, civil investigative demand or other legal process, to disclose any Confidential Information, which disclosure is not otherwise permitted hereunder, Executive will provide Employee with prompt notice of any such request or demand so that Employer may seek an appropriate protective order or waive compliance with the provisions of this Agreement. Executive will not oppose action by, and will cooperate with, Employer in any effort to obtain an appropriate protective order. All memoranda, notes, lists, records and other documents (and all copies thereof) constituting Confidential Information heretofore or hereafter made or compiled by Executive or made available to Executive concerning the Businesses shall be the property of the respective Related Entities, shall be kept confidential in accordance with the provisions of this Section 7.01(b), and shall be delivered to the respective Related Entities promptly upon termination of this Agreement or at any earlier or later time upon the request of Employer. (c) During the Restricted Period, Executive shall not, directly or indirectly, solicit or encourage any current employee, officer or director of any of the Related Entities to leave the employment of his employer, or hire any current or former employee, officer or director of, any of the Related Entities. (d) During the Restricted Period, Executive shall not, directly or indirectly, solicit or encourage any person who is a customer or advertiser of any of the Related Entities, or the affiliates or associates thereof, to discontinue such person's business relationship with any of the Related Entities. Section 7.02 Executive acknowledges and agrees that (i) Executive has had an opportunity to seek advice of counsel in connection with this Agreement; (ii) the Restrictive Covenants are reasonable in scope and in all other respects; (iii) any violation of the Restrictive Covenants will result in irreparable injury to the Related Entities; (iv) money damages would be an inadequate remedy at law for the Related Entities in the event of a breach of any of the Restrictive Covenants by Executive; and (v) specific performance in the form of injunctive relief would be an adequate remedy for the Related Entities. Employer and Executive hereby submit to the jurisdiction of the Courts of the State of New York to enforce the Restrictive Covenants and agree that if Executive breaches or threatens to breach a Restrictive Covenant, Employer (or any of the other Related Entities) shall be entitled, in addition to all other remedies, to an injunction restraining any such breach, without any bond or other security being required and without the necessity of showing actual damages. 8 ARTICLE VIII ARBITRATION Section 8.01 Except as otherwise set forth in Section 7.02 above, Employer and Executive each waives any right each may have to a civil lawsuit and trial by jury in connection with any dispute between them arising out of, concerning or connected with this Agreement and each agrees that, upon the written request of the other party, any such dispute shall be submitted to arbitration. Arbitration shall take place in the City of Baltimore, or such other place as the parties may agree, and shall be governed by the rules of the American Arbitration Association. Section 8.02 Employer and Executive shall select one (1) arbitrator to hear and determine the dispute from a list of five (5) candidates provided by the American Arbitration Association. Section 8.03 The arbitrator's award shall be final and binding on the parties and the arbitrator may invoke any remedy available in equity or at law, including, without limitation, injunctions and restraining orders. The parties agree to the jurisdiction of the Courts of the State of Maryland for confirmation and enforcement of the arbitrator's award. ARTICLE IX GENERAL PROVISIONS Section 9.01 In the event of arbitration or an action at law or in equity to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees and costs. The arbitrator's fees and costs incurred shall be borne by the losing party. Section 9.02 This Agreement supersedes any and all other agreements, whether oral or in writing, between the parties hereto with respect to the subject matter hereof, including, without limitation, the 1998 Employment Agreement. Each party acknowledges that no representations, inducements, promises or agreements, whether oral or in writing, have been made by any party, or on behalf of any party, which are not embodied herein. No agreement, promise or statement not contained in this Agreement shall be valid and binding, unless agreed to in writing and signed by the parties sought to be bound thereby. Section 9.03 Any notice or other communication required or permitted hereunder shall be in writing and shall be delivered personally, faxed, or sent by courier service (with next day delivery requested) or the U.S. Postal Service by express mail (with next day delivery requested). Any such notice or communication shall be deemed given and effective, in the case of personal delivery, upon receipt by the other party, in the case of faxed, upon transmission of the fax, in the case of a courier service or the U.S. Postal Service, upon the next business day, after dispatch of the notice or communication. Any such notice or communication shall be addressed as follows: 9 If to Employer: C/o The Official Information Company 250 West 57th Street, Suite 2421 New York, New York 10019 Attn: President If to Executive: Michael Goodwin 7071 St. George Place Ijamsville, MD Any person named above may designate another address or fax number by giving notice in accordance with this Section to the other persons named above. Section 9.04 This Agreement shall be governed by, and construed in accordance with, the law of the State of Maryland, without regard to principles of conflicts of law, except that the provisions of Section 9.09 shall be governed by, and construed in accordance with, the law of the State of Delaware. Section 9.05 No breach of any provision hereof may be waived unless in writing. Waiver of any breach of any provision hereof shall not be deemed a waiver of any other breach of the same or any other provision hereof. This Agreement may be amended only by a written agreement, executed by the parties hereto. Section 9.06 In the event any one or more of the provisions contained in this Agreement shall be held by an arbitrator or court of competent jurisdiction to be invalid or unenforceable in any respect, the validity and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby and the parties will attempt to agree upon a valid and enforceable provision which shall be a reasonable substitute for such invalid and unenforceable provision in light of the tenor of this Agreement, and, upon so agreeing, shall incorporate such substitute provision in this Agreement. Section 9.07 This Agreement may be executed in any number of counterparts and each such duplicate counterpart shall constitute an original, any one of which may be introduced in evidence or used for any other purpose without the production of its duplicate counterpart. Moreover, notwithstanding that any of the parties did not execute the same counterpart, each counterpart shall be deemed for all purposes to be an original, and all such counterparts shall constitute one and the same instrument, binding on all the parties hereto. 10 Section 9.08 Both parties hereto acknowledge that they have had the advice of counsel before entering into this Agreement, have fully read the Agreement and understand the meaning and import of all the terms hereof. Section 9.09 Employer shall indemnify and hold harmless Executive to the fullest extent permitted by the General Corporation Law of Delaware, as amended from time to time, (as if Employer were a corporation since, currently, it is not) against all costs, charges, expenses, liabilities and losses (including attorneys' fees, judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid in settlement) reasonably incurred or suffered by Executive in connection any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding") in which he is a party or is threatened to be made a party to or is involved in by reason of the fact that he is or was a director or officer of Employer or is or was serving at the request of Employer as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust or other enterprise. The right to indemnification conferred herein shall include the right to be paid by Employer the expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, the payment of such expenses incurred by Executive in his capacity as a director or officer in advance of the final disposition of a proceeding shall be made only upon delivery to Employer of an undertaking, by or on behalf of Executive, to repay all amounts so advanced if it shall ultimately be determined that such director or officer is not entitled to be indemnified hereunder. Employer shall have no obligation to indemnify Executive hereunder if Executive has failed to meet a standard of conduct that makes it permissible under Delaware law for a corporation to indemnify Executive for the amount claimed. 11 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed and delivered as of the day and year first above written. EXPOEXCHANGE, LLC By: ---------------------------------- ------------------------------------- Michael Goodwin 12 EXHIBIT A RESPONSIBILITIES PRESIDENT - GALAXY DIVISION As President of the Galaxy Division, you will be responsible to the Chairman of the Board and the Chief Executive Officer of ExpoExchange for the following: 1. Building and leading a well-motivated team of professionals. 2. Preparation of the Strategic and Business Plan for the Galaxy division on an annual basis. 3. Implementing the plans for the Galaxy division which are designed to achieve Revenue and EBITDA forecasts for the Galaxy division. 4. Support the ExpoExchange CFO to produce monthly accounts for the Galaxy division in a timely and accurate fashion. 5. Developing and executing sales marketing plans designed to grow the Galaxy division at rates reasonably established by the Chairman of the Board and the Chief Executive Officer of ExpoExchange. 6. Work with the CEO of ExpoExchange to introduce and implement the agreed development projects, information technology operations, production, sales, marketing, customer, financial and management information systems 13 EX-10.17 4 0004.txt KEY EXECUTIVE EQUITY APPRECIATION PLAN THE OFFICIAL INFORMATION COMPANY KEY EXECUTIVE EQUITY APPRECIATION PLAN 1. Purpose. The purpose of this Key Executive Equity Appreciation Plan is to motivate and retain key employees who are responsible for the attainment of the TOIC Group's primary long-term performance goals. 2. Definitions. As used in the Plan, the following terms shall have the indicated meanings: "Administrator" means TOIC's board of directors or any committee or individual appointed by the board of directors as Administrator of the Plan. "Annual EBITDA Budget" means the budgeted EBITDA prepared by management and approved by the Administrator for each Fiscal Year, as it may be adjusted by the Administrator to reflect special factors (including material changes in accounting policies or practices, material acquisitions or dispositions or other unusual or unplanned items) which, in the Administrator's sole judgment, should or should not be taken into account, in whole or part, in furtherance of the equitable administration of the Plan. "Base Amount" means $59.6 million with respect to Equity Appreciation Units awarded on January 1, 1998; with respect to Equity Appreciation Units awarded after that date, "Base Amount" means an amount determined by the Administrator at the time of the award. "Cause" means (a) conviction of a felony; (b) fraud, embezzlement or other misappropriation by Participant of funds or property of a member of the TOIC Group; (c) a breach of any of the Participant's fiduciary duties as an employee of a member of the TOIC Group; (d) any gross misconduct of the Participant which is injurious in any material respect to any member of the TOIC Group; or (e) Participant's failure or refusal in any material respect to perform the duties of employment or to follow the lawful or proper directives of the Administrator or the President and Chief Executive Officer of TOIC (or of any superior officer of a member of the TOIC Group having supervisory authority over the Participant). "Change-in-Control" means a sale of a common equity interest of 50% or more in TOIC to persons who are not affiliates of VS&A Communications Partners II, L.P. ("VS&A"), or a merger of TOIC with, or a sale of all or substantially all of the assets of the TOIC Group to, any other entity in which VS&A does not in the aggregate own at least 50% of the equity interests; provided, however, that a Change-in-Control shall not be deemed to have occurred if, following a sale of common equity interests of TOIC pursuant to a public offering, VS&A and its affiliates continue to have a controlling interest in TOIC, even though such interest may constitute less than 50% of the equity interests of TOIC. "Closing Value" means: (i) in the event a Participant's employment is terminated on account of a Qualified Termination Event, an amount equal to the Fair Market Value as of the date of such Qualified Termination Event; (ii) in the event of a Company Sale prior to a Qualified Termination Event, an amount equal to the Fair Market Value as of the effective date of the Company Sale; or (iii) in the event of a Change in Control prior to a Qualified Termination Event, an amount equal to the Fair Market Value as of the effective date of the Change in Control. "Company Sale" means the sale of all or substantially all of the business of a member of the TOIC Group. "EBITDA" means the consolidated earnings of the members of the TOIC Group before all interest, taxes, depreciation and amortization, excluding deductions attributable to the Plan and extraordinary or unusual nonrecurring items of income and expenses, as determined in accordance with generally accepted accounting principles; provided that such earnings shall be appropriately adjusted to reflect any acquisitions or dispositions or other fundamental changes referred to in Section 8(b). "Equity Appreciation Unit" means a hypothetical unit of interest in the TOIC Group granted to a Participant. "Fair Market Value" means the fair market value of the equity of the TOIC Group (including any undistributed proceeds from any Company Sale) as determined by the Administrator in its sole discretion. "Fiscal Year" means the period beginning on January 1 and ending on December 31. "Participant" means any senior management employee of a member of the TOIC Group who is selected to participate in the Plan in accordance with Section 4. "Person" means any individual, partnership, firm, trust, corporation, limited liability company or other similar entity. "Plan" means this Key Executive Equity Appreciation Plan. "Qualified Termination Event" means the termination of a Participant's employment with a member of the TOIC Group on account of death, disability or termination by a member of the TOIC Group without Cause prior to a Company Sale. 2 "TOIC" means The Official Information Company, a Delaware corporation, or any successor thereto. "TOIC Group" means TOIC and any entity in which TOIC and its shareholders own at least a majority of the preferred and common equity interests. "Vested Appreciation Amount" shall mean, on the day of determination (i) the excess of the Closing Value as of such day over the Base Amount multiplied by (ii) the quotient obtained by dividing the number of vested Equity Appreciation Units held by the Participant as of such day by one million. 3. Administration. The Plan shall be administered by the Administrator. Subject to the provisions of the Plan, the Administrator shall have the authority to (a) select the Participants; (b) determine the number of Equity Appreciation Units to be granted to each Participant; and (c) establish from time to time regulations for the administration of the Plan, interpret the Plan, delegate in writing administrative matters to employees or other persons, and make such other determinations and take such other action as it deems necessary or advisable for the administration of the Plan. All decisions, actions and interpretations of the Administrator shall be final, conclusive and binding upon all parties. 4. Participation. The Participants in the Plan shall be limited to senior management employees of the members of the TOIC Group who have been notified in writing by the Administrator that they have been selected to participate in the Plan. 5. Equity Appreciation Units Subject to the Plan. Equity Appreciation Units may be granted by the Administrator to a Participant from time to time, provided that not more than an aggregate of 25,000 Equity Appreciation Units may be granted under the Plan. 6. Vesting of Equity Appreciation Units. Except as otherwise provided in the Plan: (a) Vesting. (i) For any Participant who had been granted Equity Appreciation Units on or prior to September 30, 2000 and who has not elected to accept the vesting schedule set forth in section 6(a)(ii) below, 20% of the Equity Appreciation Units granted to a Participant shall vest on the last day of each Fiscal Year in which the award is made and every Fiscal Year thereafter provided that (i) a Participant is an employee of a member of the TOIC Group on that date and (ii) the Annual EBITDA Budget for that year has been achieved. (ii) For any Participant who had been granted Equity Appreciation Units on or prior to September 30, 2000 and who has elected to accept the vesting schedule set forth in this Section 6(a)(ii) and for any Participant who had been granted Equity Appreciation Units after September 30, 2000, one-third of the Equity 3 Appreciation Units granted to a Participant shall vest on the last day of each Fiscal Year in which the award is made and every Fiscal Year thereafter provided that (i) a Participant is an employee of a member of the TOIC Group on that date and (ii) the Annual EBJTDA Budget for that year has been achieved. (b) Carryover. If any Equity Appreciation Unit does not vest on the last day of any Fiscal Year because the Annual EBITDA Budget has not been achieved, that Equity Appreciation Unit shall vest on the last day of the next Fiscal Year if (i) the Participant is an employee of a member of the TOIC Group on that date and (ii) 110% of the Annual EBITDA Budget for that Fiscal Year has been achieved. This carryover provision shall not cumulatively be carried forward. 7. Entitlement to Payments Under the Plan. (a) Qualified Termination Event. If a Participant's employment is terminated on account of a Qualified Termination Event, the Participant shall be entitled to receive from the shareholders of TOIC, following a Change in Control, in full payment of all amounts payable to the Participant under the Plan, an amount, payable in cash within thirty days after the effective date of the Change in Control, equal to the Vested Appreciation Amount. In the event of the death of a Participant after such Qualified Termination Event and prior to payment, the payment shall be made to such beneficiary as the Participant may have designated in writing during his or her lifetime or, if none, to his or her estate. (b) Change in Control. (i) For Participants who received a grant of Equity Appreciation Units on or prior to September 30, 2000 (other than those Participants who elect in writing the vesting provisions set forth in Section 6(a)(ii) above), if there is a Change in Control, each Participant (other than a Participant referred to in paragraph (a) or (c) of this Section 7) shall be entitled to receive from the shareholders of TOIC, in full payment of all amounts payable to the Participant under the Plan, an amount. payable in cash within thirty days after the effective date of the Change in Control, equal to the Vested Appreciation Amount. TOIC shall give each Participant written notice of the Change in Control as promptly as practicable thereafter. (ii) For Participants who received an award after September 30, 2000 or who elect in writing the vesting provisions set forth in Section 6(a)(ii) above, if there is a Change in Control, each Participant (other than a Participant referred to in paragraph (a) or (c) of this Section 7) shall be entitled to receive from the shareholders of TOIC, in full payment of all amounts payable to the Participant under the Plan, (A) within thirty days after the effective date of the Change in Control, a cash payment equal to 75% of the Vested Appreciation Amount and (B) on the later of (x) the first anniversary of a Company Sale and (y) thirty days after the effective date of a Change of Control, in each case, if the Participant 4 remains employed by the former TOIC Group company or its successor for one year following the effective date of a Company Sale, a cash payment equal to 25% of the Vested Appreciation Amount (such amount being referred to as the "Holdback Amount"); provided, however, the Holdback Amount shall become payable promptly if a Participant is not offered continuation of employment by the former TOIC Group company or its successor at a comparable position and at a salary and other compensation arrangements at least as favorable as then in effect or if the Participant accepts employment and subsequently are terminated without Cause or terminate his or her employment for Good Reason. "Good Reason" shall mean the occurrence, without the Participant's express written consent, of any of the following circumstances: (i) a substantial adverse alteration in the nature or status of the Participant's responsibilities, titles or authority, (ii) a reduction in the Participant's base compensation or (iii) the relocation of the Company's base office to an office that is more than 50 highway miles from the Participant's current office location. TOIC shall give each Participant written notice of the Change in Control as promptly as practicable thereafter. (c) Termination of Employment for Cause or Voluntary Termination. If a Participant's employment is terminated for Cause or a Participant voluntary terminates his employment, all Equity Appreciation Units granted to that Participant under the Plan, whether or not vested, shall be forfeited and the Participant shall not be entitled to any payment with respect to those Units. 7. Other Terms and Conditions of Equity Appreciation Units. (a) Agreements. Each Equity Appreciation Unit granted under the Plan shall be evidenced by a written agreement, in form approved and executed by the Administrator, which shall be subject to the terms and conditions of the Plan and to such other terms and conditions (including covenants by the employee not-to-compete or hire employees of any member of the TOIC Group) as the Administrator may consider appropriate. (b) Adjustments in Event of Change in Units. In the event of any issuance of new equity, capital raising, recapitalization, reorganization, merger, consolidation, split-up, or of any similar change affecting the equity interest in any member of the TOIC Group, the number and terms of the Equity Appreciation Units (whether or not then outstanding) and the Base Amount shall be appropriately adjusted consistent with those changes and in such manner as the Administrator may determine equitable to prevent dilution or enlargement of the rights of Participants in the Plan. (c) Participants Not to Have Rights as Partners. No Participant shall be, or have any rights as, a shareholder or member of any member of the TOIC Group by virtue of having been granted Equity Appreciation Units. 5 (d) Plan and Equity Appreciation Units Not to Confer Certain Rights. Neither the Plan nor any action taken under the Plan shall be construed as giving any employee the right to be retained in the employ of a member of the TOIC Group or shall interfere in any way with the Administrator's right to terminate any Participant's employment at any time with or without Cause, whether or not there are then pending negotiations with respect to any transaction that would give rise to a payment to the employee under the Plan. In addition, nothing in the Plan or any agreement evidencing the grant of Equity Appreciation Rights shall limit the Administrator's right to determine in its sole discretion the terms of any such transaction or limit the Administrator's right to manage the business and affairs of TOIC and the other members of the TOIC Group or give any Participant any claim against the TOIC or any such other entity with respect to any good faith decision relating to the business or affairs of TOIC or any other member of the TOIC Group (whether or not that decision affects any payment to which the employee would be entitled under the agreement). 8. No Claim or Right Under the Plan. No employee shall at any time have the right to be selected as a Participant in the Plan or, having been selected as a Participant and granted an Equity Appreciation Unit, to be granted any additional Equity Appreciation Unit. 9. Disposition of Equity Appreciation Units. Neither all nor any portion of the Equity Appreciation Units granted under the Plan nor any economic interest therein may be sold, conveyed, transferred, assigned, mortgaged, pledged, hypothecated or in any way otherwise encumbered or disposed of (each, a "Disposition") to any Person. Any attempted Disposition shall be null and void and have no effect. 10. Taxes. TOIC may make such provisions and take such steps as the Administrator may determine necessary or appropriate for the withholding of all federal, state, local and other taxes required by law to be withheld with respect to Equity Appreciation Units under the Plan, including, but not limited to, deduction of the amount of withholding taxes from the amount otherwise payable to a Participant under the Plan. 11. No Liability. No officer, director or shareholder of the Administrator shall be personally liable to any employee of TOIC or any other member of the TOIC Group by reason of any action taken on behalf of the Administrator in connection with the Plan or for any mistake of judgment made in good faith with respect to the Plan. 12. General Creditor Status. All payments from the Plan shall be made by the shareholders of TOIC (who are also members of the other members of the TOIC Group) from the amounts received by them on a Change of Control (net of any withholding taxes referred to in Paragraph 11) and no special or separate fund shall be established to assure payment with respect to any Equity Appreciation Units. 13. Amendment or Termination. The Administrator may, with prospective or retroactive effect, amend, suspend or terminate the Plan or any portion of the Plan at any time, except that no 6 such amendment, suspension or termination shall deprive any Participant of any right with respect to any Equity Appreciation Unit granted under the Plan unless a Participant shall consent in writing to the amendment, suspension or termination. 14. Captions. The captions preceding the sections of the Plan have been included solely as a matter of convenience and shall not in any manner define or limit the scope or intent of any provision of the Plan. 15. Governing Law. The Plan and all rights under the Plan shall be governed by and construed in accordance with the law of the State of New York applicable to agreements made and to be performed entirely within New York. 16. Effective Date. The Plan shall become effective as of January 1, 1998 (as amended on October 1, 2000). 7 EX-12 5 0005.txt COMPUTATION OF RATIOS EXHIBIT 12 STATEMENT RE: COMPUTATION OF RATIOS (In thousands)
Years Ended December 31, ------------------------ 2000 1999 1998 1997 1996 ----- ---- ---- ---- ---- Fixed charges, as defined: Interest on long-term debt, amortization of debt discount, and interest component of rent expense $11,782 $11,019 $ 10,878 $ 3,842 $ 581 ======= ======= ======== ======== ======= Earnings, as defined: Income (loss) before income taxes $ (5,323) $ 8,364 $ 4,336 $(15,208) $8,522 Total fixed charges (as shown above) 11,782 11,019 10,878 3,842 581 ------ -------- -------- --------- -------- Earnings available for fixed charges $6,459 $19,383 $15,214 $(11,366) $ 9,103 ------ ------- ====== ======== ======= Ratio of earnings to fixed charges and preferred dividend requirements .55x 1.8x 1.4x - 15.7x ====== ======= ======== ======== =======
EX-21 6 0006.txt SUBSIDIARIES OF THE COMPANY EXHIBIT 21 SUBSIDIARIES OF THE COMPANY AT DECEMBER 31, 2000 Jurisdiction of Entity Incorporation - ------ ------------- Atwood Publishing, LLC Delaware EXPO Magazine, LLC Delaware GEM Communications, LLC Delaware InterGame, Limited United Kingdom Afro Games (Proprietary) Limited South Africa ExpoExchange, LLC Delaware I.T.S. Information Services, Inc. Delaware Total Information Services, Inc. Oklahoma Record Search, Inc. Delaware Crimesearch, Inc. Oklahoma STA United, Inc. Delaware United States Mutual Association, Inc Delaware Store Protective Association, Inc. California Business Mutual Association of Mass., Inc. Massachusetts Employers Screening Services, Inc. Alabama Stores Mutual Association of Illinois, Inc. Illinois TOIC Holdings, LLC Delaware -----END PRIVACY-ENHANCED MESSAGE-----