-----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, STxB0D4VJKfWmatalDHOSpa7+bVih3NpXwYIR3IYp4+6L1W5s696l1iXDIW4H7wV 7XpbUvFbxEJS4wPUZ3pwoA== 0000950131-97-002265.txt : 19970918 0000950131-97-002265.hdr.sgml : 19970918 ACCESSION NUMBER: 0000950131-97-002265 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19961231 FILED AS OF DATE: 19970331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BUSINESS INFORMATION INC /DE CENTRAL INDEX KEY: 0000879437 STANDARD INDUSTRIAL CLASSIFICATION: 7331 IRS NUMBER: 470751545 STATE OF INCORPORATION: NE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: SEC FILE NUMBER: 000-19598 FILM NUMBER: 97569851 BUSINESS ADDRESS: STREET 1: 5711 S 86TH CIRCLE CITY: OMAHA STATE: NE ZIP: 68127 BUSINESS PHONE: 4025934500 MAIL ADDRESS: STREET 1: 5711 SOUTH 86TH CIRCLE CITY: OMAHA STATE: NE ZIP: 68127 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Act of 1934 [Fee Required] For the fiscal year ended December 31, 1996 or [_] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from _________ to ________ Commission file number: 0-19598 AMERICAN BUSINESS INFORMATION, INC. (Exact name of registrant as specified in its charter) Delaware 47-0751545 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 5711 South 86th Circle, Omaha, Nebraska 68127 (Address of principal executive offices) Registrant's telephone number, including area code: (402) 593-4500 __________________________________________ Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.0025 par value __________________________________________ 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] 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 _____ ----- The aggregate market value of the voting stock held by non-affiliates of the registrant, based upon the closing sale price of the Common Stock on March 7, 1997 as reported on the NASDAQ National Market System, was approximately $203,975,000. Shares of Common Stock held by each officer and director and by each person who owns 5% of more of the outstanding Common Stock have been excluded in that such persons may be deemed to be affiliates. This determination of affiliate status is not necessarily a conclusive determination for other purposes. As of March 7, 1997 registrant had outstanding 24,479,007 shares of Common Stock. DOCUMENTS INCORPORATED BY REFERENCE The Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 23, 1997, which will be filed within 120 days of the end of fiscal year 1996, is incorporated into Part III hereof by reference. PART I ITEM 1. BUSINESS. -------- The Company is a leading provider of business-to-business marketing information which it supplies from its proprietary database containing information on approximately 10 million businesses in the United States and 1 million businesses in Canada. The increased cost of marketing efforts has caused many businesses to seek more efficient methods to identify and target potential customers. These efforts have been hindered by the lack of comprehensive, accurate and affordable information on such prospects from a single source. To address this business opportunity, the Company has made substantial investments to create, maintain and enhance its database. In 1996, over 500,000 customers purchased the Company's products and services for market analysis, customer profile analysis, sales lead generation, direct mail and telemarketing campaigns, competitive analysis, sales territory assignment, business reference and other purposes. The Company believes its business information database is one of the most comprehensive and accurate in the United States. The Company's database is compiled and updated annually from approximately 5,000 yellow page telephone directories as well as other publicly available sources including business white pages directories, annual reports and other SEC information, press releases, business magazines, newsletters and top newspapers. The Company then places telephone calls to each business to verify the information and capture or verify additional information such as: name of owner or manager, number of employees, and primary line of business. The Company makes approximately 15 million of these calls per year. From this database, the Company extracts, manipulates and sorts information to create multiple products and services, such as prospect lists, mailing labels, 3x5 sales lead cards, diskettes, magnetic tapes, CD-ROMs, business directories, maps, market research services, internet/on-line information services and 800-number telephone and fax information services. Information from the database can be readily customized to meet the user's specific marketing needs. The Company believes its future growth will be a combination of internal growth and growth through acquisitions. During the second half of 1996, the Company completed 4 strategic acquisitions including the acquisition of Phonedisc, and in the first quarter of 1997 completed the acquisition of Database America Companies, Inc. BACKGROUND The use of direct marketing by businesses to target and communicate with the customers most likely to buy their products has increased rapidly in the last decade. In the years prior to and during the 1970's, the costs associated with selling products and services on a mass market basis were relatively low, while the costs of computer processing and data management were prohibitive for all but the largest businesses. In the 1980's, the cost of computer technology declined while marketing and selling costs increased dramatically. Businesses have responded to these trends by increasing the use of computer technology to collect information about prospective customers thereby allowing them to use direct marketing techniques to target potential customers more precisely and efficiently. In addition, the declining cost of computer resources has afforded businesses, particularly smaller businesses, the opportunity to develop and implement more sophisticated marketing programs in-house. Business-to-business marketing has created a substantial need for accurate and timely information to identify potential purchasers from the millions of businesses in the United States and Canada. Such information may be used in all aspects of business marketing: market sizing, distribution channel selection and balancing, sales lead generation, territorial resource allocation, and customer prioritization and qualification. In the absence of this information, the selling process often results in prohibitively high expense per sales contact or lost revenues from unidentified prospects. -2- These factors have created increasing demand for lower cost information regarding the identity, location, and status of small businesses. For many small businesses with limited resources, the purchase of business information can be one of their most fundamental marketing tools. Despite this need, comprehensive information from any single source was not readily available. Moreover, the available information was often inaccurate due to significant and frequent changes in the ownership, size, address, phone number, or operating status of businesses. Publicly available sources including the yellow pages, white pages, association membership lists and other available resources are often fragmented by design and are therefore not comprehensive. The Company was formed in 1972 in response to this market opportunity and has made substantial investments to create and maintain its database. Since its founding, the Company has continuously expanded the breadth and depth of its database and developed new products and services. The Company has also expanded its channels of distribution to include direct mail, telemarketing, internet, mass merchandisers, direct sales through local field sales offices, licensees, and sales through value-added resellers such as advertising agencies and list brokers. Since mid-1996, the Company has completed five acquisitions of other businesses including, among other acquisitions, Digital Directory Assistance, Inc. and DBA Holdings, Inc., through merger of assets and liability acquisitions for which the Company has paid an aggregate of approximately $62.8 million in cash and issued approximately 3,628,000 shares of its common stock. Effective in August 1996, the Company acquired certain of the assets and liabilities of Digital Directory Assistance, Inc., a Maryland corporation, for approximately $17.145 million in cash, promissory notes, and shares of the Company's Common Stock. In February 1997, the Company acquired certain of the assets and liabilities of DBA Holdings, Inc., for approximately $100 million in cash and stock. See also Notes 3 and 17 of the Notes to Consolidated Financial Statements. The Company believes the comprehensiveness and accuracy of its database combined with the breadth of its product offerings present significant barriers to entry to potential competitors. STRATEGY The Company's strategy is to focus on developing and marketing business information products and services utilizing its copyrighted database. The Company's strategy comprises the following elements: Comprehensive, accurate database. The Company has invested significant -------------------------------- resources to develop what the Company believes is one of the most comprehensive and accurate business information databases available in the United States. The Company continues to devote significant resources to increase the accuracy of its database and to enhance its content. Product delivery. Based on the customer requirements for timeliness, cost ---------------- and convenience, the Company extracts, manipulates and sorts information from its database to create products and services which are available in various formats. New product offerings are designed to leverage the Company's database, to focus on increasing the efficiency and effectiveness of a customer's marketing program and to ease access to the information. Affordability. The Company has emphasized pricing and packaging options ------------- that are generally affordable to even the smallest businesses. The Company is able to achieve attractive margins at low price points based on the low variable costs associated with incremental sales of its information and the overall efficiency of its operations. Focus on small business customers. The Company believes its combination of --------------------------------- reliable information, broad product offerings, affordable pricing and a high level of service are particularly attractive to small businesses. The Company believes these factors have enabled it to maintain a leadership position within the small business segment of the business information market and to achieve high levels of repeat orders. -3- Multiple distribution channels. The Company employs a multi-channel ------------------------------ distribution strategy. Historically, the Company has relied primarily on direct mail to develop its customer base. In recent years, the Company has made important acquisitions to expand its distribution capabilities with national accounts, sales through third party resellers and direct sales. The Company intends to continue to expand its marketing efforts in each of these channels. In 1995, the Company began to re-evaluate its field sales office activities, and expects direct selling activities to become a more important component of its overall distribution strategy over time. The Company currently has 11 field sales offices which employ approximately 100 employees. In addition, the Company seeks to establish strategic alliances, and may seek to make acquisitions, to expand its distribution channels and customer base to further leverage the Company's investment in its database. Strategic Alliances. The Company believes that a significant opportunity ------------------- exists to market additional business information that is not available from the Company's database. An example of this relationship is the Company's agreement with Experian, formerly TRW Business Credit Services ("TRW"), whereby the Company offers business credit profiles to its customers to assist them in their credit management decisions. Other possibilities include national information services and additional databases. Providing a total customer solution. The Company is looking for opportunities to acquire businesses which will enhance its ability to provide additional services to its customer base. In 1996 the Company completed four such strategic acquisitions, which provide additional database information and customer solutions. In addition, the Company's acquisition of Database America Companies, Inc. during the first quarter of 1997 enhanced the Company's ability to provide data processing services to its Fortune 1000 customers, and to provide proprietary information on consumers. THE COMPANY'S DATABASE The Company's products and services are created from the information contained in its database. Due to the formation of new businesses, entities going out of business and changes among existing businesses, the database must be continually maintained to keep the information up-to-date and accurate. The Company believes it has developed one of the most comprehensive and accurate databases of business information in the United States. This proprietary, copyrighted database contains information on approximately 10 million U.S. businesses and 1 million Canadian businesses. Information in the database is compiled in two phases. First, the Company inputs from over 5,000 yellow page telephone directories as well as other publicly available sources the following information, where available, for each business entry: name of business; contact person; street address, city, state; phone number, fax number; yellow page classification, SIC code; product brands sold by businesses; franchises; professional specialties and size of yellow page advertisement; year of first appearance in the yellow pages; zip code, zip+4, carrier route; county code, population code, metropolitan statistical area and area code. Second, the Company makes telephone calls to the businesses in the database to verify the information and to obtain or confirm additional information for inclusion in the database. This information includes: name of the owner or manager; number of employees; primary business activity; and address verification (including suite numbers). The Company has devoted significant time and resources to the creation, maintenance and enhancement of its proprietary database and related applications software. The database requires sophisticated computer hardware and software to handle rapid compilation, order processing, accounting, storage and sorting, and quality control. The computer system must allow a sizable work force to compile, program and process data simultaneously. More than 1,500 proprietary software programs operate the data compilation, demographic enhancement and order fulfillment process. -4- On-line proprietary data compilation software allows the Company's data entry clerks to access the database, update, change or verify each record at a rate of approximately 1.5 million records per month. A separate quality control group checks input quality to ensure that the information that reaches the Company's database is approximately 99% accurate from the original source. The Company has implemented a proprietary automated dialing system and a predictive dialing system which greatly improves the overall efficiency of the telephone verification process. The Company has also developed proprietary software to check the database for spelling, abbreviations and phone prefixes, and to verify that no inappropriate language appears in the database. PRODUCTS AND SERVICES The Company offers an extensive suite of business information products designed to assist business-to-business marketers with a variety of marketing activities, such as identifying and qualifying prospective business customers, initiating direct mail programs, telemarketing, estimating market potential, monitoring the effectiveness of marketing efforts, and surveying competitive markets. The Company offers its products in multiple formats at the cutting edge of information delivery: customers can obtain information on CD-ROM or internet/online as well as on hard copy, on diskettes, and by telephone or fax. Due to the continuous change in business information, the Company's customers often need to obtain new information-based products and services regularly. With the addition of our Non-Stop Sales Leads program, customers can now subscribe to obtain continuous sales leads and updates every month. The Company's acquisition of County Data Corporation clearly enhances its Non-Stop Sales Leads product by providing customers with information on newly formed business on a much more timely basis. For each of the last three years, approximately two- thirds of the Company's revenues were from existing customers. Sales Lead Generation Products The Company's principal products are its sales lead generation products which are used by its customers primarily for new customer acquisitions. Lead generation products are compiled from the Company's database using any combination of sorting criteria to meet the specific marketing objectives of the customer. Typically, a business wants to learn basic information about its prospective customers to market efficiently to that targeted group. The customer may wish to sort the information according to type of business, geographic area, size of business or credit rating code. For example, a customer may want a list of manufacturers and service companies with over 20 employees in the Phoenix area in order to market its fax machines to such businesses. Lead generation products can be delivered in the following formats: prospect lists, mailing labels, 3x5 sales lead cards, computer diskettes and magnetic tapes. In addition, the Company offers a mailing list software package for IBM-compatible personal computers that facilitates the sorting of information and the generation of mailing labels, lists, cards and reports. Because a substantial amount of the Company's revenue is derived from small businesses that are not large enough to employ sophisticated marketing techniques, the Company believes that customer service is an important part of its custom business information products. Larger, more sophisticated businesses generally can specify their orders with a higher degree of precision. Small businesses, however, are often unsure of the type of information they want or how to use it. The Company's telemarketing sales representatives work with prospective customers to help them understand how the -5- database can be sorted and how the information can be used. The Company believes that this emphasis on service leads to greater usage of the Company's products by both its prospective and existing customers. Generally, business information products are priced on a per name basis. Pricing varies according to the number of names supplied, the type of information delivered (standard database information or enhanced database information) and the medium on which the information is delivered. Business Directories The Company offers a variety of printed business directories derived from its database including State Business Directories, SIC Business Directories, an American Manufacturers Directory, a Big Business Directory and a Credit Reference Directory, which are updated and printed annually. The business directories were developed to serve the special needs of both small and large business-to-business marketers. The Company found many companies were not initially interested in lists, but were receptive to the use of directories for lead generation, telemarketing and reference. Customers are attracted to business directories due to their affordability, convenience and reference value. In addition, to provide a full range of services to its customers, the Company also resells government directories that provide listings of federal, state, county and municipal agencies and officials. The Company now bundles its directories with a CD-Rom for those customers wanting to view the information via their personal computer. Information Brokerage Services As a result of its marketing efforts to prospective customers, the Company receives numerous customer requests for other information. In response to these customer needs, the Company leases information from other compilers and owners for resale to its customers. This service allows the Company to be a single source for virtually all information requested by a customer and also generates additional sales of the Company's other products. Examples of brokered information include consumers identified by age or income, millionaires, car and boat owners, high school and college students, international businesses, and real estate and insurance agents. Business-to-consumer marketers can select a consumer list by age group, income ranges, homeowners, hobbies or interests, or geographical area and order from the Company a range of lead generation products. Brokered information is priced on a per name basis. Market Research Services The Company uses its database to offer a variety of market research services to its customers. These services include customer and market profile analyses, market segmentation reports, statistical marketing reports, list enhancements to update a customers in-house database, a computerized name search service, and other analytical tools and reports. The information provided by these services allows customers to make more informed business decisions, whether for identifying the highest potential prospect group, determining the size of a market, budgeting, lead generation, competitive analysis or determining sales goals, marketing plans, site locations, or territory assignments. The Company's acquisition of Marketing Data Systems enhances our ability to sell data warehousing, research and analysis services to our small and medium sized customers. -6- The Company's market research services provide an effective way to cross- sell the Company's other products and services. For example, when the Company's statistical reports or market profiles suggest industries or geographic areas of opportunity, a customer may subsequently order a business information product to identify and target specific prospects in those industries or geographic areas. Internet/ On-Line Information Services During 1996, the Company continued to build its product offering through Internet and On-Line services. The Company introduced its own Internet services called Lookup USA in March 1996. The service contains free Directory Assistance and Yellow Page listings as well as Business Profiles for $3.00. American Business Lists-Online provides a customer with immediate access to the Company's database 24-hours a day, seven days a week. Using a personal computer with a modem, a customer can define a target, retrieve a count of the number of businesses in a particular market or obtain a profile on a particular company, and then download the information directly into a personal computer. Through a licensing arrangement with Experian, American Business Lists-Online customers download full Experian credit reports on current or potential customers or suppliers. Customers may either pay for individual sessions using a major credit card or may pay an annual subscription fee and be billed according to their usage. Billing is based on connect time and the number of names retrieved. Additionally, American Business Lists-Online is available to Dialog, Compuserve and America Online; national on-line information services that license the Company's service and offer it to their customers as part of an integrated information package. CD-ROM Products The Company has developed a variety of CD-ROM products, which allow customers to access and manipulate the Company's database on a personal computer. The Company has products for both businesses and consumers. The Company's "desktop marketing" or business CD-ROM products allow the customer to research markets, generate sales leads and create direct mail and telemarketing lists. These products include Business America on CD-ROM, which contains the Company's complete database of U.S. businesses, 177,000 Big Businesses, 575,000 Physicians and Surgeons, 4.5 Million Small Business Owners and many others. The Company's consumer CD-ROM products are the perfect reference tool for home or office. They are an affordable way to look up addresses and phone numbers of businesses and people anywhere in the country. Theses products include 130 Million Listings; The Ultimate Phone Book, 104 Million Businesses and Households, Streets USA and many others. The Company also purchased Digital Directory Assistance, Inc., the publisher of PhoneDisc CD-ROM products which adds depth to its existing line of CD-ROM phone directory products. These products include PhoneDisc Powerfinder, Powerfinder Pro and U.S. Homes and Businesses. The customer can view and select information for printing lists, labels or cards or download information to a disk drive. An annual license fee enables a customer to access and use a specified number of names. Proprietary metering and clock technologies monitor the number of names printed or downloaded, and the length of time since the product was installed. When the specified number of names is reached, the customer must contact the Company to purchase additional names. An internal clock prohibits use of the product after one year from the installation date. Customers that renew the annual license receive an updated version of the product immediately. -7- Telephone Business Information Services The Company's InfoAccess service provides business directory assistance for business and consumer callers, company profiles and business credit profiles for use in making credit management decisions. This service enables callers dialing 1-800-808-INFO to obtain business information quickly from live operators, which often cannot be obtained using telephone company directory assistance. For example, through InfoAccess, a caller can learn, within seconds, the name of all the Mazda dealers in the Chicago area or detailed information on a company known as "ACME Manufacturing" which the caller believes is located somewhere in the Midwest. Business Credit Profiles allows callers to obtain Experian credit reports over the phone or fax machine to determine whether a prospective customer is likely to pay bills on time, or to check credit histories on suppliers or competitors. Products for Niche Markets As existing customers seek greater amounts of information on narrower ranges of potential customers, the Company expects products directed at niche markets to play an increasingly important part in its business in the future. The Company currently offers products specific to the healthcare and medical industry, small business owners and female executives and will continue to specialize information as market opportunities are identified. SALES AND MARKETING The Company markets its products and services through direct marketing, sales through third party resellers, licensees, and direct sales. The Company maintains separate marketing staffs for each product category described above which enables the marketing personnel to keep abreast of customer demands and market developments. The Company advertises its products and services through direct mail, space advertising and trade shows. The Company is currently expanding its marketing efforts through third party resellers, direct sales to national accounts and local sales offices. COMPUTER AND TELECOMMUNICATIONS OPERATIONS The Company's computer system consists of redundant systems located at its Omaha, Nebraska and Carter Lake, Iowa facilities. The computers in Omaha are used primarily for compiling and enhancing the database. By maintaining its data entry operations in one location, the Company believes it enhances its ability to control the accuracy and costs of the compilation process. The computers in the Carter Lake facility are used to fulfill orders, produce directories and develop new software applications. The Company's decision to maintain redundant computer equipment at each of its two data centers provides the Company with backup in the event of a disaster. Each of the data centers is protected by a Halon fire suppression system which is designed to extinguish a fire without damaging the computer equipment. The centers are further protected by uninterrupted power supply battery backup systems. The data is backed up nightly and stored off-site weekly. The Company believes its computer systems are adequate for its present requirements although configured to permit expansion. -8- The Company's telecommunication equipment is also redundant. In the event of a disaster at either location, calls could be redirected to the other location within 12 hours, thereby minimizing the effect of the disaster. INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS The Company regards its database and software as proprietary. The Company's database is copyrighted, and the Company depends on trade secret and non- disclosure safeguards for protection of its software. The Company distributes its products under agreements that grant customers a license to use the Company's products in the ordinary course of their businesses and contain terms and conditions prohibiting the unauthorized reproduction of the Company's products. In addition, the Company generally enters into confidentiality agreements with its management and programming staff and limits access to and distribution of its proprietary information. While there can be no assurance that the steps taken by the Company will be adequate to deter misappropriation of its proprietary rights or independent third party development of substantially similar products and technology, the Company believes that legal protection of its database and software is less significant than the knowledge and experience of the Company's management and personnel, and their ability to develop, enhance and market existing and new products and services. COMPETITION The business environment in which the Company competes is highly competitive and fragmented. A number of small and large competitors are active in specific aspects of the Company's business. The Company faces competition from different types of companies including data vendors, directory publishers, list brokers, marketing consultants, advertising agencies, and the Regional Bell Operating Companies ("RBOCs"). Many such competitors have substantially greater financial, technical and marketing resources than the Company. Data vendors, such as Dun's Marketing Services ("DMS"), a division of Dun & Bradstreet, Inc., Equifax Inc. ("Equifax") and Experian compete with the Company with respect to customized business information products. DMS, which relies upon information compiled from Dun & Bradstreet's credit database, tends to focus on large companies. Equifax and Experian primarily provide information on consumers rather than businesses. The Company believes that its focus on small businesses enables it to compete effectively against these companies. In business directory publishing, the Company competes primarily with RBOCs, Donnelley Marketing, Inc., and many smaller, regional directory publishers. In contrast to the broad directory offerings of the Company, competing directory publishers tend to serve narrow markets, either focusing on a single industry or on a limited region. In market research services the Company competes with many computer services bureaus. In information brokerage services, the Company both competes with and sells to a variety of list brokers, marketing consultants and advertising agencies, and competes with DMS, Acxiom Corporation and many regional computer service bureaus. Competition in this area is significantly dependent upon the level of service provided, particularly for smaller business which rely upon the vendor to provide a variety of consulting and creative marketing services. -9- In the Company's markets, the primary competitive factors include the quality, accuracy and completeness of the database, the quality and timeliness of service provided and pricing. The Company believes that its business information database is one of the most comprehensive and accurate in the United States and Canada and enables the Company to compete favorably on the basis of these factors. EMPLOYEES As of December 31, 1996, the Company employed a total of 1,100 persons on a full-time basis. None of the Company's employees is represented by a labor union or is the subject of a collective bargaining agreement. The Company has never experienced a work stoppage and believes that its employee relations are good. ITEM 2. PROPERTIES. ---------- The Company's headquarters are located in a 108,000 square foot facility in Omaha, Nebraska, where the Company performs data compilation, telephone verification, data development services, and sales and administrative activities. Order fulfillment and shipping are conducted at the Company's 30,000 square foot Carter Lake, Iowa facility, which is located 15 miles from its headquarters. The Company owns both of these facilities, as well as adjacent land for possible future expansion. The Company also leases sales office space at various locations, the aggregate rental obligations of which are not significant. The Company is currently expanding its headquarters in Omaha to accommodate growth. The expansion is expected to be complete sometime in mid- 1997. ITEM 3. LEGAL PROCEEDINGS. ----------------- Not Applicable. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITYHOLDERS. -------------------------------------------------- Not Applicable. -10- EXECUTIVE OFFICERS OF THE REGISTRANT
Name Positions Held Age ---- -------------- --- Vinod Gupta Chairman of the Board and Chief Executive Officer 50 since its incorporation in 1972, President since its inception in 1972 through September 1991 and from December 1995 to January 1997. Jon H. Wellman President & Chief Operating Officer since January 45 1997; Executive Vice President from 1996 to 1997; Chief Financial Officer and Secretary from 1995 to present. Vice President and Chief Financial Officer at Signal Technology Corporation from 1994 to 1995; Partner with Coopers and Lybrand from 1989 to 1994. Edward C. Mallin Senior Vice President since August 1994; Vice 47 President from 1990-1994. Fred Vakili Senior Vice President since January 1994; Vice 43 President from 1992-1994; various other marketing and sales management positions; joined the Company in 1985. Monica Messer Executive Vice President since January 1997; Senior Vice President from 1996 - 1997; Vice 34 President from 1988-1996; Vice President of Data Processing from 1985-1988; Research and Development Manager from 1984-1985. Jack Betts Senior Vice President from January 1996; Vice 46 President from 1994-1995; Senior Vice President from 1988-1994; other various management positions; joined the Company in 1982. William Chasse Executive Vice President since October 1996; 38 Senior Vice President from 1995-1996; Vice President from 1992-1995; Director of Online Information from 1988-1991. William Kerrey Senior Vice President since August 1994; Vice 49 President from 1989-1994.
-11-
Name Positions Held Age ---- -------------- --- Ed Fuxa Corporate Controller since 1991; Audit Supervisor 34 for Coopers & Lybrand from 1985-1991. Eric Groves Vice President since September 1996; Director of 32 Corporate Development for MFS Communications Company, Inc. during 1996; Manager, Corporate Development for SBC Communications, Inc. from 1993-1996; Graduate School of Management - University of Iowa from 1991-1993. Tom Lingelbach Senior Vice President since October 1996; Vice 49 President from 1991-1996; Senior Vice President of Custom Products from 1988-1991; Senior Vice President of Marketing and Sales from 1987-1988; Vice President of Sales 1986-1987; various others sales management positions from 1983-1985. Elliott Katz Senior Vice President since January 1997; Vice 53 President from 1996-1997; Vice President of Corporate Development and Sales Training for Superior Coffee and Foods, a division of the Sara Lee Corporation from 1981-1996. Claude Schoch Senior Vice President since 1996; President of 42 Digital 42 Directory Assistance, Inc. from 1986-1996.
-12- PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER ----------------------------------------------------------------- MATTERS. ------- The Company's Common Stock $0.0025 par value, is traded on the NASDAQ National Market System under the symbol ABII. The high and low closing prices for the Company's Common Stock during 1995 and 1996, as adjusted for the stock dividend in August 1995, were as follows:
1995 High Low ---- ------ ----- First Quarter............................. $14.83 $10.83 Second Quarter............................ $19.83 $14.17 Third Quarter............................. $21.50 $17.17 Fourth Quarter............................ $21.25 $16.75 1996 High Low ---- ------ ----- First Quarter............................. $19.38 $15.00 Second Quarter............................ $19.75 $16.00 Third Quarter............................. $18.63 $11.75 Fourth Quarter............................ $22.75 $16.38
As of March 7, 1997, there were 134 stockholders of record. The Company currently intends to retain future earnings to fund the development and growth of its business and, therefore, does not anticipate paying cash dividends within the foreseeable future. Any future payment of dividends will be determined by the Company's Board of Directors and will depend on the Company's financial condition, results of operations and other factors deemed relevant by its Board of Directors. Recent Sales of Unregistered Common Stock - - ----------------------------------------- In September 1996, the Company issued 600,000 unregistered shares of its Common Stock, $.0025 par value, to Digital Directory Assistance, Inc. ("DDAI"), as partial consideration for certain assets and liabilities of DDAI. In addition, in the fourth quarter of 1996, the Company issued 828,000 unregistered shares of its Common Stock, $.0025 par value, in a series of unrelated acquisitions. In February 1997, the Company issued approximately 2,200,000 unregistered shares of its Common Stock, $.0025 par value, as partial consideration for the acquisition of the outstanding stock of DBA Holdings, Inc. The shares were issued either to the stockholders of the acquired companies in exchange for their stock, or to the acquired companies themselves in exchange for certain of the assets and liabilities of such companies. In each of the above referenced transactions, the Company relied upon the exemption provided for under Section 4(2) of the Securities Act of 1933, as amended, for transactions by an issuer not involving a public offering. Exemption under Section 4(2) was claimed in each instance because each of the above referenced transactions was an unrelated negotiated transaction, in no single transaction did more than 7 entities or individuals become the direct or indirect owners of the Company's Common Stock, and in no case was there any form of general solicitation, advertising or plan of distribution. See also Notes 3 and 17 of the Notes to Consolidated Financial Statements. -13- ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA. ------------------------------------ The selected consolidated financial data below have been derived from the Company's Consolidated Financial Statements and should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Consolidated Financial Statements and related notes appearing elsewhere herein.
Year Ended December 31, ------------------------------------------------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ----- (in thousands, except per share data) STATEMENT OF OPERATIONS DATA: Net sales...................................................... $108,298 $86,766 $69,603 $55,752 $48,517 Costs and expenses: Database and production costs................................ 29,272 23,999 18,321 13,973 11,774 Selling, general and administrative.......................... 45,766 34,000 28,249 23,072 20,051 Depreciation and amortization................................ 4,855 3,469 2,957 2,651 - One-time, non-cash items (1)................................. 21,500 - - - - -------- ------- ------- ------- ------- Total costs and expenses....................................... 101,393 61,468 49,527 39,696 34,235 -------- ------- ------- ------- ------- Operating income............................................... 6,905 25,298 20,076 16,056 14,282 Other income (expense): Investment income............................................ 3,194 1,322 1,109 1,172 607 Interest expense............................................. (209) (157) (247) (298) (605) Other........................................................ (943) - - - 58 -------- ------- ------- ------- ------- Income before income taxes and discontinued operation.................................................... 8,947 26,463 20,938 16,930 14,342 Income taxes................................................... 3,400 9,800 7,710 5,941 4,435 -------- ------- ------- ------- ------- Income from continuing operations.............................. 5,547 16,663 13,228 10,989 9,907 Loss on discontinued operation................................. (355) (2,317) (404) (214) - Loss from abandonment of subsidiary............................ (1,373) - - - - -------- ------- ------- ------- ------- Net income..................................................... $ 3,819 $14,346 $12,824 $10,775 $ 9,907 ======== ======= ======= ======= ======= Historical and pro forma information(2) Net income................................................... $ 3,819 $14,346 $12,824 $10,775 $ 9,162 ======== ======= ======= ======= ======= Earnings per share: Income from continuing operations............................ $0.26 $0.80 $0.64 $0.53 $0.45 Loss on discontinued operation and abandonment of subsidiary.................................. (0.08) (0.11) (0.02) (0.01) - -------- ------- ------- ------- ------- Net income................................................... $0.18 $0.69 $0.62 $0.52 $0.45 ======== ======= ======= ======= ======= Weighted average shares outstanding............................ 21,033 20,738 20,678 20,658 20,165 ======== ======= ======= ======= ======= December 31, ------------------------------------------------------------------ 1996 1995 1994 1993 1992 ---- ---- ---- ---- ----- (In thousands) BALANCE SHEET DATA: Working capital................................................ $ 46,668 $47,708 $35,411 $30,765 $23,465 Total assets................................................... 108,576 90,791 77,783 61,027 47,807 Long-term debt, including current portion...................... 1,135 2,039 3,821 4,587 5,306 Shareholders' equity........................................... 88,052 78,429 63,326 50,665 39,508
____________________ (1) Represents charges for the purchased research and development of approximately $10 million relating to the acquisition of Digital Directory Assistance, Inc. in August 1996, and the change in estimated useful lives of approximately $11.5 million due to management's evaluation of the remaining lives of certain intangibles related to acquisitions prior to 1995. (2) Prior to February 1992, the Company was taxed as an S corporation. Accordingly, net income prior to February 1992 contained no provision for federal and state income taxes. Pro forma net income reflects a pro forma tax combined federal and state income tax rate of 36% in 1992. The Company ceased being taxed as an S corporation February 1992. -14- ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND --------------------------------------------------------------- RESULTS OF OPERATIONS. --------------------- OVERVIEW The Company is a leading provider of business-to-business marketing information which it supplies from its proprietary database containing information on approximately 10 million businesses in the United States and 1 million businesses in Canada. The Company generally recognizes revenues from sales of its products and services at the time the product is delivered or the service is performed. The pricing of the products and services varies according to the number of names supplied, the type of information purchased, the medium through which the information is delivered, and the channel of distribution. In 1996, over 100,000 customers purchased the Company's products and services. The Company's primary expenses relate to maintaining, updating, and telephone verifying its database and the direct marketing costs associated with selling its products and services. The Company has been profitable on an operating basis in each year since its inception in 1972. The Company believes inflation has not had a significant impact on its operations. The Company's net sales on a quarterly basis can be affected by seasonal characteristics, the timing of acquisitions, and certain other factors including the timing and extent of the Company's own direct marketing activity. The Company completed five acquisitions in the second half of 1996 and the first quarter 1997. As a result of the acquisitions in 1996, the Company wrote- off $10 million of in-process research and development costs. The Company will be taking a significant write-off in the first quarter of 1997 as a result of its acquisition of Database America Companies, Inc. (DBA). The write off will amount to roughly $70 million and will result in a net loss for the Company in 1997. In addition, the Company entered into a $65 million credit facility to finance a portion of the DBA acquisition, which prohibits the Company from declaration of dividends without prior approval from the lenders. Borrowings under the facility will result in a significant increase in interest expense. This discussion and analysis contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and Section 27A of the Securities Act of 1933, which are subject to the "safe harbor" created by that section. The Company's actual future results could differ materially from those projected in the forward-looking statements. Some factors which could cause future actual results to differ materially from the company's recent results or those projected in the forward-looking statements are described in "Factors Affecting Operating Results" below. The Company assumes no obligation to update the forward-looking statements or such factors. -15- RESULTS OF OPERATIONS The following table sets forth, for the periods indicated, certain items from the Company's statement of operations data expressed as a percentage of net sales:
Year Ended December 31 ------------------------- 1996 1995 1994 ---- ---- ---- Net sales........................................................ 100% 100% 100% Costs and expenses: Database and production costs................................. 27 28 26 Selling, general and administrative........................... 42 39 41 Depreciation and amortization................................. 5 4 4 One-time, non-cash items...................................... 20 - - ---- ---- ---- Total costs and expenses......................................... 94 71 71 ---- ---- ---- Operating income................................................. 6 29 29 Other income (expense)........................................... 2 1 1 ---- ---- ---- Income before income taxes and discontinued operation............ 8 30 30 Income taxes..................................................... 3 11 11 ---- ---- ---- Income from continuing operations................................ 5 19 19 Loss on discontinued operation and abandonment of subsidiary.. 1 2 1 ---- ---- ---- Net income....................................................... 4% 17% 18% ==== ==== ====
_______________ 1996 COMPARED TO 1995 Net sales increased 25% to $108.3 million in 1996 from $86.8 million in 1995. The Company's sales lead and directory products accounted for $10.0 million of this increase while sales from CD-ROM products increased $7.3 million from the prior year. Database and production costs for 1996 increased to $29.3 million, or 27% of net sales, from $24.0 million, or 28% of net sales, in 1995. These amounts primarily represent the costs of compiling and telephone verifying information in the database, fulfilling customer orders, the direct costs associated with the production of CD-ROM titles, and royalty costs. Selling, general and administrative expenses increased in 1996 to $45.8 million, or 42% of net sales, from $34.0 million, or 39% of net sales in 1995. The increased spending as a percentage of net sales was primarily attributable to an overall increase in direct marketing activities for all of the Company's products and services, continued investment in a field sales organization and promotional marketing of CD-ROM products. Depreciation and amortization expense increased to $4.9 million in 1996 from $3.5 million in 1995, primarily due to the increased amortization related to acquisitions. During the third quarter of 1996, the Company recorded one-time, non-cash charges to continuing operation of $10.0 million for purchased in-process research and development associated with the August 1996 acquisition of Digital Directory Assistance, Inc. and $11.5 million associated with a change in the estimated useful lives of certain intangible assets related to acquisitions prior to 1995. Operating income in 1996 was $6.9 million, or 6% of net sales, compared to $25.3 million, or 29% of net sales, in 1995. Excluding the one-time, non-cash items described above, operating income for 1996 would have been $28.4 million, or 26% of net sales. -16- Investment income during 1996 increased to $3.2 million from $1.3 million in 1995, due to net realized gains of $1.3 million on the sale of marketable securities during 1996 compared to net realized losses of $339 thousand on the sale of marketable securities during 1995. Interest expense increased slightly to $209 thousand in 1996 from $157 thousand in 1995 due to the addition of capitalized equipment leases during early 1996. Other expenses consists of a $740 thousand permanent write-down on an equity investment included in other assets of the consolidated balance sheet and $203 thousand of costs associated with the pooling-of-interests transaction. 1995 COMPARED TO 1994 Net sales increased 25% to $86.8 million in 1995 from $69.6 million in 1994. The Company's sales lead and directory products accounted for $9.6 million of this increase with the remaining $7.6 million increase coming from CD-ROM products. Revenue increases for all products were the result of an increase in both the number and average size of orders placed by customers. There were no significant price increases for the Company's products and services during the year. Database and production costs for 1995 increased to $24.0 million, or 28% of net sales, from $18.3 million, or 26% of net sales, in 1994. These amounts primarily represent the costs of compiling and telephone verifying information in the database and fulfilling customer orders, the direct costs associated with the production of CD-ROM titles, and royalty costs. The increase in database and production costs as a percentage of net sales was primarily attributable to increased sales of CD-ROM products which bear a slightly higher level of costs then the Company's traditional lead generation products. Selling, general and administrative expenses increased in 1995 to $34.0 million from $28.2 million in 1994. The increased spending was primarily attributable to an overall increase in direct marketing activities for all of the Company's products and services, continued investment in a field sales organization and promotional marketing of CD-ROM products. Overall spending levels were in line with revenue generation as selling, general and administrative expenses decreased in 1995 to 39% of net sales compared to 41% of net sales in 1994. Depreciation and amortization expense increased to $3.5 million in 1995 from $3.0 million in 1994, primarily due to the increased amortization related to acquisitions. Operating income in 1995 was $25.3 million, or 29% of net sales, compared to $20.1 million, or 29% of net sales, in 1994. Investment income during 1995 increased to $1.3 million compared to $1.1 in 1994 due to the increase in cash and cash equivalents and investments. Interest expense decreased to $157 thousand in 1995 from $247 thousand in 1994 due to lower outstanding debt balances during 1995. -17- LIQUIDITY AND CAPITAL RESOURCES As of December 31, 1996, the Company's principal sources of liquidity included cash and cash equivalents of $7.5 million and short term investments of $22.8 million. The Company has revolving lines of credit totaling $10.0 million, which had no outstanding balance at December 31, 1996. Net cash provided by operating activities for 1996 totaled $13.7 million compared to $15.8 million in the same period of 1995. The decrease is due primarily to a higher level of outstanding trade accounts receivable. The Company spent $2.9 million on upgrades to data processing equipment and $1.8 million for land and building improvements to its Omaha, Nebraska and Carter Lake, Iowa facilities. The Company anticipates spending an additional $4.0 million over the next twelve months for equipment and facility expansion. The Company paid $4.0 million in September 1996 as part of the estimated purchase price of $17.1 million for Digital Directory Assistance, Inc. A promissory note of $7.9 million was paid the Seller in January 1997, which was funded using the Company's cash equivalents. The remaining amount due the Seller of approximately $5.2 million was paid through the issuance of the Company's common stock. Subsequent to December 31, 1996, the Company entered into a $65 million Credit Facility with First Union Bank. The purpose of the facility was to finance a portion of the acquisition of Database America Companies, Inc. In addition, the bank syndicate led by First Union Bank recently approved an additional $10 million of availability under the Credit Facility. This will increase the Credit Facility to $75 million and provide the Company with additional access to working capital. The Company believes that cash flows from operations and its cash and short term investments will be sufficient to fund its foreseeable operating and capital expenditure needs for at least the next twelve months. Additional financing may be required in the event that other capital investment, business expansion or acquisition opportunities arise. FACTORS THAT MAY AFFECT OPERATING RESULTS. Fluctuations in Operating Results. The Company believes that future operating results may be subject to quarterly and annual fluctuations based on numerous factors. The Company's net sales on a quarterly basis can be affected by seasonal characteristics and certain other factors including the timing and extent of the Company's own direct marketing activity. In addition, the expenses associated with acquiring data, direct marketing campaigns and the timing of acquisitions and the costs and expenses associated therewith may also affect operating results. Risks Associated With Recent and Future Acquisitions. During the past year, the Company has made a number of strategic acquisitions. Acquisitions may result in the diversion of management's attention from day-to-day operations and may include numerous other risks and costs, including risks and costs relating to difficulties in the integration of operations, products and personnel. To the extent that efforts to pursue acquisition opportunities have in the past resulted, or may in the future result, in a diversion of resources or that efforts to integrate recent and future acquisitions fail, there could be a material adverse effect on the Company's business, results of operations and financial condition. Acquisitions may result in dilutive issuances of equity securities, the incurrence of additional debt, and amortization expenses related to goodwill and other intangible assets. While there are currently no commitments with respect to any particular material acquisitions, the Company's mamagement has historically evaluated on an ongoing basis the strategic opportunities available to the Company. The Company may in the near- or long-term future pursue acquisitions of complementary products, technologies or businesses. Competition. The business information industry is highly competitive. In particular, the rapid expansion of the Internet creates a substantial new channel for distributing business information to the market, and a new avenue for future entrants to the business information industry. There is no guarantee that the Company will be successful in this new market. Many of the Company's principal competitors have substantially greater resources than the Company. In addition, the Company has no control over the possible future entry into the marketplace of other potential competitors, some of which may be much larger than the Company and may have much larger capital bases from which to develop and compete with the Company. -18- Direct Marketing Regulation and Postal Rates. The Company and many of its customers engage in direct marketing. Any negative impact on direct marketing, including changes to existing laws or regulations or future laws and regulations, may adversely affect the Company's operating results. The direct mail industry depends and will continue to depend upon the services of the United States Postal Service and other private mail carriers. Any modification by the Postal Service of its rate structure or any increase in public or private postal rates generally could have a negative impact on the demand for business information, direct mail activities and the cost of the Company's direct mail activities. In addition to the risk of rate increases, the direct mail industry, and thus the Company's operating results, could be adversely affected by postal strikes. Loss of Data Centers. The Company's business depends on computer systems contained in the Company's two data centers. The Company's disaster recovery program is based upon maintaining redundant computer equipment at each of its data centers. The data centers are protected by Halon fire suppression systems, designed to extinguish a fire without damaging the computer equipment. The centers are further protected by uninterrupted power supply backup systems. There can be no guarantee that a fire or other disaster affecting one or both of its data centers would not disable the Company's computer systems. Any significant damage to either or both of the data centers could have a material adverse affect on the Company. Limited Protection of Intellectual Property and Proprietary Rights. The Company relies on a combination of copyright, trademark and trade secret laws, employee and third-party nondisclosure agreements and other methods to protect its proprietary rights. Despite these precautions, it may be possible for unauthorized third parties to copy certain portions of the company's products or reverse engineer or obtain and use information that the Company regards as proprietary. The Company generally licenses its software products to end-users on a "right to use" basis pursuant to a perpetual license. The Company licenses some of its products under "shrink-wrap" licenses (i.e., licenses included as part of the product packaging). Shrink-wrap licenses are not negotiated with or signed by individual licensees, and purport to take effect upon the opening of the product package. Certain license provisions protecting against unauthorized use, copying, transfer and disclosure of the licensed program may be unenforceable under the laws of certain jurisdictions and foreign countries. In addition, the laws of some foreign countries do not protect proprietary rights to the same extent as do the laws of the United States. There can be no assurance that the foregoing measures will be adequate to protect the Company's intellectual property. -19- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. ------------------------------------------- The information required by this item (other than selected quarterly financial data which is set forth below) is incorporated by reference to the Consolidated Financial Statements set forth on pages F-1 through F-17 hereof. The following table sets forth selected financial information for each of the eight quarters in the two-year period ended December 31, 1996. This information has been prepared by the Company on the same basis as the consolidated financial statements and includes all normal recurring adjustments necessary to present fairly this information when read in conjunction with the Company's audited consolidated financial statements and the notes thereto.
1996 Quarter Ended 1995 Quarter Ended ------------------------------------------ ---------------------------------------- March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 -------- ------- -------- ------- -------- ------- -------- ------- (in thousands, except per share data) Net sales......................... $24,785 $24,325 $ 27,585 $31,603 $20,696 $21,209 $21,501 $23,360 Costs and expenses: Database and production costs... 6,274 6,654 7,745 8,599 5,141 5,986 6,149 6,723 Selling, general and administrative................ 10,152 10,113 11,409 14,092 8,255 8,103 8,366 9,276 Depreciation and amortization... 1,164 1,165 962 1,564 790 807 796 1,076 One-time, non-cash items........ - - 21,500 - - - - - ------- ------- -------- ------- ------- ------- ------- ------- Total costs and expenses.......... 17,590 17,932 41,616 24,255 14,186 14,896 15,311 17,075 ------- ------- -------- ------- ------- ------- ------- ------- Operating income (loss)........... 7,195 6,393 (14,031) 7,348 6,510 6,313 6,190 6,285 Other income (expense), net...... 399 613 (238) 1,268 (25) 430 334 426 ------- ------- -------- ------- ------- ------- ------- ------- Income before income taxes and discontinued operation........... 7,594 7,006 (14,269) 8,616 6,485 6,743 6,524 6,711 Income taxes...................... 2,885 2,630 (5,389) 3,274 2,420 2,465 2,420 2,495 ------- ------- -------- ------- ------- ------- ------- ------- Income (loss) from continuing operations............ 4,709 4,376 (8,880) 5,342 4,065 4,278 4,104 4,216 Loss on discontinued operation.. - - (355) - (251) (1,896) - (170) Loss from abandonment of subsidiary.................. - - (1,373) - - - - - ------- ------- -------- ------- ------- ------- ------- ------- Net income (loss)................. $ 4,709 $ 4,376 $(10,608) $ 5,342 $ 3,814 $ 2,382 $ 4,104 $ 4,046 ======= ======= ======== ======= ======= ======= ======= ======= Earnings (loss) per share: Income (loss) from continuing operations....................... $ 0.23 $ 0.21 $ (0.43) $ 0.25 $ 0.20 $ 0.20 $ 0.20 $ 0.20 Loss on discontinued operation and abandonment of subsidiary.................... - - (.08) - (0.01) (0.09) - (0.01) ------- ------- -------- ------- ------- ------- ------- ------- Net income (loss)................. $0.23 $0.21 $(0.51) $0.25 $0.19 $0.11 $0.20 $0.19 ======= ======= ======== ======= ======= ======= ======= ======= Weighted average shares outstanding...................... 20,783 20,801 20,840 21,701 20,685 20,719 20,768 20,775 ======= ======= ======== ======= ======= ======= ======= ======= 1996 Quarter Ended 1995 Quarter Ended ------------------------------------------ ---------------------------------------- March 31 June 30 Sept. 30 Dec. 31 March 31 June 30 Sept. 30 Dec. 31 -------- ------- -------- ------- -------- ------- -------- ------- AS A PERCENTAGE OF NET SALES: Net sales......................... 100% 100% 100% 100% 100% 100% 100% 100% Costs and expenses: Database and production costs.. 25 27 28 27 25 28 29 29 Selling, general and administrative................ 41 42 41 45 40 38 39 40 Depreciation and amortization.. 5 5 4 5 4 4 4 5 One-time, non-cash items....... - - 78 - - - - - ---- ---- ---- ----- ----- ---- ---- ---- Operating income (loss)........ 29 26 (51) 23 31 30 29 27
-20- ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND --------------------------------------------------------------- FINANCIAL DISCLOSURE. --------------------- Not applicable. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. --------------------------------------------------- The required information regarding Directors of the registrant is incorporated by reference to the information under the caption "Nominees for Election at the Annual Meeting" and "Incumbent Directors whose Terms of Office Continue After the Annual Meeting" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 23, 1997. The required information regarding Executive Officers of the registrant is contained in Part I of this Form 10-K. The required information regarding compliance with Section 16(a) of the Securities Exchange Act is incorporated by reference to the information under the caption "Compliance with Section 16(a) of the Exchange Act" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 23, 1997. ITEM 11. EXECUTIVE COMPENSATION. ----------------------- Incorporated by reference to the information under the captions "Executive Compensation" and "Certain Transactions" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 23, 1997. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. --------------------------------------------------------------- Incorporated by reference to the information under the caption "Stock Ownership" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 23, 1997. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. ----------------------------------------------- Incorporated by reference to the information under the captions "Certain Transactions" in the Company's definitive proxy statement for the Annual Meeting of Stockholders to be held on May 23, 1997. -21- PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. --------------------------------------------------------------- (a) The following documents are filed as a part of this Report: 1. Financial Statements. The following Consolidated Financial -------------------- Statements of American Business Information, Inc. and Report of Independent Accountants are included at pages F-1 through F-17 of this Form 10-K:
DESCRIPTION PAGE NO. -------------------------- -------- Report of Independent Accountants.......................... F-2 Consolidated Balance Sheets as of December 31, 1996 and 1995................................................... F-3 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995, and 1994.................... F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995, and 1994.......... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995, and 1994.................... F-6 Notes to Consolidated Financial Statements................. F-7
2. Financial Statement Schedule. The following consolidated ---------------------------- financial statement schedule of American Business Information, Inc. and Subsidiaries for the years ended December 31, 1996, 1995 and 1994 is filed as part of this Report and should be read in conjunction with the Consolidated Financial Statements.
DESCRIPTION PAGE NO. -------------------------- -------- Schedule II Valuation and Qualifying Accounts........... S-1
Schedules not listed above have been omitted because they are not applicable or are not required or the information required to be set forth therein is included in the consolidated financial statements or notes thereto. -22- 3. Exhibits. The following Exhibits are filed as part of, or -------- incorporated by reference into, this report:
Exhibit No. Description ------- ------------------------------------ 3.1 Certificate of Incorporation, Amended as of September, 1996 3.2 (1) By-laws 4.1 (1) Specimen Certificate representing the Common Stock 10.1 1992 Stock Option Plan, Amended as of March, 1997 10.2 (2) Form of Indemnification Agreement with Officers and Directors 10.8 (4) Asset Purchase Agreement between the Company and Digital Directory Assistance, Inc. 10.9 (5) Agreement and Plan of Reorganization between the Company and the Shareholders of DBA Holdings, Inc. 10.10 (5) Agreement and Plan of Merger between the Company and DBA Holdings, Inc. 10.11 (5) Loan Agreement between the Company and First Union National Bank of North Carolina 10.12 Registration Rights Agreement between the Company and 3319977 Canada Inc. 10.13 Registration Rights Agreement between the Company and the Shareholders of Digital Directory Assistance, Inc. 10.14 Registration Rights Agreement between the Company and the Shareholders of County Data Corp. 11 Statement re: computation of per share earnings 21 Subsidiaries and State of Incorporation 23 Consent of Independent Accountants 24 Power of Attorney (included on signature page) 27 Financial Data Schedule
_________ (1) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-1 (No. 33-42887) which became effective February 18, 1992. -23- (2) Incorporated by reference to exhibits filed with Registrant's Registration Statement on Form S-1 (No. 33-51352) which became effective September 16, 1992. (3) Incorporated by reference to exhibits filed with Registrant's year end report on Form 10-K for the year ended December 31, 1993. (4) Incorporated by Reference to exhibits filed with registrant's current report on Form 8-K dated September 10, 1996. (5) Incorporated by reference to exhibits filed with Registrant's report on Form 8-K dated February 28, 1997. (b) Reports on Form 8-K: On September 10, 1996, the Company filed a current report on Form 8-K, which was subsequently amended by a Form 8-K/A, related to the acquisition of Digital Directory Assistance, Inc. On February 28, 1997, the Company filed a current report on Form 8-K related to the acquisition of DBA Holdings, Inc. -24- 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. AMERICAN BUSINESS INFORMATION, INC. By: /s/ Vinod Gupta -------------------------------- Vinod Gupta Chairman of the Board and Chief Executive Officer Dated: March 28, 1997 -25- POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Vinod Gupta and Jon Wellman, jointly and severally, his attorneys-in-fact, each with the power of substitution, for him in any and all capacities, to sign any amendments to this Report on Form 10-K, and to file the same, with exhibits thereto and other documents in connection therewith, with the Securities and Exchange Commission, hereby ratifying and confirming all that each of said attorneys-in-fact, or his substitute or substitutes, may do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - - ------------------- ----------------- -------- /s/ Vinod Gupta Chairman of the Board, Chief March 28, 1997 - - ------------------------- Executive Officer (principal Vinod Gupta executive officer) /s/ Jon H. Wellman President, Chief Operating Officer, March 28, 1997 - - ------------------------- acting Chief Financial Officer Jon H. Wellman (principal financial and accounting officer) /s/ Jon D. Hoffmaster Director March 28, 1997 - - ------------------------- Jon D. Hoffmaster /s/ Gautam Gupta Director March 28, 1997 - - ------------------------- Gautam Gupta /s/ Elliot S. Kaplan Director March 28, 1997 - - ------------------------- Elliot S. Kaplan /s/ Harold Andersen Director March 28, 1997 - - ------------------------- Harold Andersen /s/ George F. Haddix Director March 28, 1997 - - ------------------------- George F. Haddix /s/ George J. Kubat Director March 28, 1997 - - ------------------------- George J. Kubat /s/ Paul A. Goldnor Director March 28, 1997 - - ------------------------- Paul A. Goldnor
-26- AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE ---- American Business Information, Inc. and Subsidiaries: Report of Independent Accountants..................................... F-2 Consolidated Balance Sheets as of December 31, 1996 and 1995.......... F-3 Consolidated Statements of Operations for the Years Ended December 31, 1996, 1995 and 1994................................... F-4 Consolidated Statements of Stockholders' Equity for the Years Ended December 31, 1996, 1995 and 1994................................... F-5 Consolidated Statements of Cash Flows for the Years Ended December 31, 1996, 1995 and 1994................................... F-6 Notes to Consolidated Financial Statements............................ F-7
REPORT OF INDEPENDENT ACCOUNTANTS To the Stockholders and Board of Directors of American Business Information, Inc.: We have audited the consolidated financial statements and the financial statement schedule of American Business Information, Inc. and subsidiaries listed in Item 14(a) of this Form 10-K. These financial statements and the financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of American Business Information, Inc. and subsidiaries as of December 31, 1996 and 1995, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1996, in conformity with generally accepted accounting principles. In addition, in our opinion the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, presents fairly, in all material respects, the information required to be included therein. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Omaha, Nebraska January 24, 1997, except for Note 17, for which the date is February 15, 1997 F-2 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS _____________________________________ AS OF DECEMBER 31, 1996 AND 1995 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS 1996 1995 ------ ---- ---- Current assets: Cash and cash equivalents............................................. 7,497 $11,999 Marketable securities................................................. 22,810 23,350 Trade accounts receivable, net of allowances of $2,061 and $1,161, respectively................................................ 30,293 19,215 Income taxes receivable............................................... 1,141 - Prepaid expenses...................................................... 3,761 1,733 Deferred marketing costs.............................................. 1,263 996 ------- ------- Total current assets................................................ 66,765 57,293 ------- ------- Property and equipment, net............................................ 18,886 13,885 Net assets of business transferred under contractual arrangement....... - 2,972 Intangible assets, net of accumulated amortization..................... 16,916 14,642 Deferred income taxes.................................................. 5,388 - Other assets........................................................... 621 1,999 ------- ------- $108,576 $90,791 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Current portion of long-term debt..................................... 708 $ 969 Note payable to shareholders.......................................... 7,925 - Accounts payable...................................................... 5,520 4,254 Accrued payroll expenses.............................................. 2,352 2,205 Accrued expenses...................................................... 711 241 Income taxes payable.................................................. - 143 Deferred revenue...................................................... 2,117 1,650 Deferred income taxes................................................. 764 123 ------- ------ Total current liabilities........................................... 20,097 9,585 ------- ------ Long-term debt, net of current portion................................. 427 1,070 Deferred income taxes.................................................. - 1,707 Commitments and contingencies Stockholders' equity: Preferred stock, $.0025 par value. Authorized 5,000,000 shares; none issued or outstanding......................................... - - Common stock, $.0025 par value. Authorized 25,000,000 shares; issued and outstanding 22,100,960 shares at December 31, 1996, and 20,776,860 shares at December 31, 1995......................... 55 51 Paid-in capital....................................................... 35,370 27,342 Retained earnings..................................................... 55,287 51,282 Treasury stock, at cost, 165,000 shares held at December 31, 1996, and 0 shares held at December 31, 1995.............................. (2,281) - Unrealized holding loss, net of tax................................... (379) (246) ------- ------- Total stockholders' equity........................................... 88,052 78,429 ------- ------- $108,576 $90,791 ======= =======
The accompanying notes are an integral part of the consolidated financial statements. F-3 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS ______________________________________ FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994 ---- ---- ---- Net sales................................................. $108,298 $86,766 $69,603 Costs and expenses: Database and production costs........................... 29,272 23,999 18,321 Selling, general and administrative..................... 45,766 34,000 28,249 Depreciation and amortization........................... 4,855 3,469 2,957 One-time, non-cash items................................ 21,500 - - -------- ------- ------- 101,393 61,468 49,527 -------- ------- ------- Operating income.......................................... 6,905 25,298 20,076 Other income (expense): Investment income....................................... 3,194 1,322 1,109 Interest expense........................................ (209) (157) (247) Other................................................... (943) - - -------- ------- ------- Income before income taxes and discontinued operation..... 8,947 26,463 20,938 Income taxes.............................................. 3,400 9,800 7,710 -------- ------- ------- Income from continuing operations......................... 5,547 16,663 13,228 Loss on discontinued operation.......................... (355) (2,317) (404) Loss from abandonment of subsidiary..................... (1,373) - - -------- ------- ------- Net income................................................ $ 3,819 $14,346 $12,824 ======== ======= ======= Earnings per share: Income from continuing operations........................ $ 0.26 $ 0.80 $ 0.64 Loss on discontinued operation and abandonment of subsidiary........................................... (0.08) (0.11) (0.02) -------- ------- ------- Net income............................................... $ 0.18 $ 0.69 $ 0.62 ======== ======= ======= Weighted average shares outstanding....................... 21,033 20,738 20,678 ======== ======= =======
The accompanying notes are an integral part of the consolidated financial statements. F-4 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY _____________________________________ FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Net Total Common Paid-in Retained Treasury Unrealized Stockholders Stock Capital Earnings Stock Holdings Loss Equity ----- ------- -------- ------ ------------- ------ Balances, December 31, 1993.................... $34 $26,519 $24,112 $ - $ - $50,665 Issuance of 6,750 shares of common stock....... - 54 - - - 54 Unrealized holding loss, net of tax............ - - - - (217) (217) Net income..................................... - - 12,824 - - 12,824 --- ------- ------- ------- ----- ------- Balances, December 31, 1994.................... 34 26,573 36,936 - (217) 63,326 Issuance of 94,125 shares of common stock...... - 786 - - - 786 Unrealized holding loss, net of tax............ - - - - (29) (29) 3 for 2 stock split............................ 17 (17) - - - - Net income..................................... - - 14,346 - - 14,346 --- ------- ------- ------- ----- ------- Balances, December 31, 1995.................... 51 27,342 51,282 - (246) 78,429 Issuance of 1,220,975 shares of common stock... 3 12,155 - - - 12,158 Issuance of 560,000 shares of common stock..... in pooling-of-interests transaction......... 2 86 186 - - 274 Repurchase and retirement of 291,875 shares of common stock...................... (1) (5,588) - - - (5,589) Tax benefit related to employee stock options.. - 1,375 - - - 1,375 Acquisition of treasury stock.................. - - - (2,281) - (2,281) Unrealized holding loss, net of tax............ - - - - (133) (133) Net income..................................... - - 3,819 - - 3,819 --- ------- ------- ------- ----- ------- Balances, December 31, 1996 $55 $35,370 $55,287 $(2,281) $(379) $88,052 === ======= ======= ======= ===== =======
The accompanying notes are an integral part of the consolidated financial statements. F-5 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS ________________________________ FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS)
1996 1995 1994 ---- ---- ---- Cash flows from operating activities: Net income....................................................... $ 3,819 $ 14,346 $ 12,824 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization.................................. 4,855 3,469 3,125 Deferred income taxes.......................................... (6,307) 914 574 Impairment of other assets..................................... 740 630 - One-time non-cash items........................................ 21,500 - - Loss on discontinued operation and abandonment of subsidiary... 2,788 1,833 - Net realized (gains) losses on sale of marketable securities... (1,267) 339 - Changes in assets and liabilities, net of effect of acquisitions and disposals: Trade accounts receivable...................................... (7,762) (4,771) (2,166) Prepaid expenses............................................... (1,611) (796) 211 Deferred marketing costs....................................... (267) (996) - Accounts payable............................................... (1,422) 2,480 615 Income taxes receivable and payable............................ (1,291) (203) 573 Accrued expenses............................................... (50) (1,426) 2,330 -------- -------- -------- Net cash provided by operating activities................ 13,725 15,819 18,086 Cash flows from investing activities: Proceeds from sales of marketable securities................... 18,865 15,787 15,248 Purchases of marketable securities............................. (17,348) (24,792) (15,316) Purchases of property and equipment............................ (6,755) (3,554) (3,580) Acquisitions of businesses, including minority interest........ (6,484) (1,174) (8,246) Software development costs..................................... (1,955) (512) - Other.......................................................... 347 (660) (500) -------- -------- -------- Net cash used in investing activities.................... (13,330) (14,905) (12,394) Cash flows from financing activities: Repayment of long-term debt.................................... (1,450) (3,192) (5,566) Proceeds from long-term debt................................... - - 4,800 Issuance of common stock....................................... 3,048 786 54 Tax benefit related to employee stock options.................. 1,375 - - Acquisition of treasury stock.................................. (2,281) - - Repurchase and retirement of common stock...................... (5,589) - - -------- -------- -------- Net cash used in financing activities.................... (4,897) (2,406) (712) -------- -------- -------- Net increase (decrease) in cash and cash equivalents............... (4,502) (1,492) 4,980 Cash and cash equivalents, beginning............................... 11,999 13,491 8,511 -------- -------- -------- Cash and cash equivalents, ending.................................. $ 7,497 $ 11,999 $ 13,491 ======== ======== ======== Supplemental cash flow information: Interest paid.................................................. $ 78 $ 165 $ 259 ======== ======== ======== Income taxes paid.............................................. $ 8,280 $ 8,226 $ 6,328 ======== ======== ========
The accompanying notes are an integral part of the consolidated financial statements. F-6 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) GENERAL American Business Information, Inc. ("ABI") and its subsidiaries, ("the Company"), provide business information to organizations engaged in business-to- business marketing through products and services derived from the Company's database. These products include customized business lists, business directories and other information services. (2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Use of Estimates and Assumptions: The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Principles of Consolidation: The consolidated financial statements include the accounts of ABI and its subsidiaries. Intercompany accounts and transactions have been eliminated. Revenue Recognition: The Company recognizes revenue from the sale of product or license of information at the time of delivery. A portion of the revenue is deferred and recognized over the license term when the Company is required to provide updated information. Allowance is made currently for estimated returns and for estimated uncollectable amounts. Actual experience has been within management's expectations. Database Costs: Costs to maintain and enhance the Company's database are expensed as incurred. Advertising Costs: Certain direct-response advertising costs are capitalized and amortized over periods that correspond to the estimated revenue stream of the individual advertising activity. All other advertising costs are expensed as the advertising takes place. Total unamortized marketing costs at December 31, 1996 and 1995, was $1.3 million and $1.0 million, respectively. Total advertising expense included in net income for the years ending December 31, 1996, 1995, and 1994 was $11.0 million, $10.8 million and $8.6 million, respectively. Software Capitalization: Until technological feasibility is established, software development costs are expensed as incurred. After that time, direct costs are capitalized and amortized using the straight-line method over the estimated economic life, generally one to three years. Unamortized software costs included in intangible assets at December 31, 1996 and 1995, was $1.4 million and $431 thousand, respectively. Amortization of capitalized costs during 1996 and 1995 totaled approximately $1.0 million and $81 thousand, respectively. F-7 Income taxes: The Company recognizes income taxes using the liability method, under which deferred tax assets and liabilities are determined based on the difference between financial and tax bases of assets and liabilities using enacted tax rates. Earnings Per Share: Earnings per share are based on the weighted average number of common shares outstanding. Common equivalent shares arise as a result of stock options and have not been included in the calculation since their dilutive effect is less than 3%. Financial Accounting Standards No. 128, Earnings Per Share, (FASB 128) was ------------------ issued in February 1997 and is effective for financial statements issued for periods ending after December 15, 1997, including interim periods. The standard revises the calculation and presentation of earnings per share and requires the presentation of "basic earnings per share" and "diluted earnings per share." Management believes the amount reported as earnings per share in the accompanying income statement would approximate basic earnings per share under FASB 128. Management has not calculated diluted earnings per share under FASB 128, which requires the assumption that options, including those that expired or are canceled during the period, were exercised at the beginning of the period, using the treasury stock method. Invested Cash: Cash equivalents consist of highly liquid debt instruments purchased with an original maturity of three months or less and are carried at cost which approximates fair value. Marketable securities have been classified as available-for-sale and therefore net unrealized gains and losses are reported as a separate component of stockholders' equity. Unrealized and realized gains and losses are determined by specific identification and fair values are estimated based on quoted market prices. Long-Lived Assets: Property and equipment are stated at cost. Depreciation and amortization are computed using primarily the straight-line method, based on the following estimated useful lives: buildings and improvements - 30 years; office furniture and equipment - 5 to 7 years; and capitalized equipment leases- 5 years. Intangible assets are stated at cost and are amortized over the periods benefited on a straight-line basis. Prior to 1996, goodwill, distribution networks, and noncompete agreements were amortized on a straight-line basis over 30 years, 15 years, and the terms of the agreements, respectively. In 1996, the Company shortened the lives for goodwill and distribution networks in recognition of more rapid changes in the businesses acquired to 8 years and 2 years, respectively. All of the Company's long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. If the sum of the expected future cash flows is less than the carrying amount of the asset, a loss is recognized. Reclassifications: Certain reclassifications were made to the 1994 and 1995 financial statements to conform to the 1996 presentation. F-8 (3) ACQUISITIONS Effective August 1996, the Company acquired certain assets and assumed certain liabilities of Digital Directory Assistance, Inc. ("DDA"), a publisher of PhoneDisc CD-ROM products. The total purchase price, subject to adjustment, was estimated to be approximately $17.1 million of which $4.0 million was paid in September 1996, $7.9 million in the form of a promissory note issued to the sellers due January 1997, and the remaining amount through the issuance of 600,000 unregistered shares of the Company's common stock in September 1996. The acquisition was accounted for under the purchase method of accounting. Substantially all of the purchase price consisted of intangibles and resulted in a one-time charge of approximately $10 million ($6.2 million after tax) representing purchased in-process research and development which relates to projects that have not met technological feasibility and that management believes has no alternative future use. The Company has allocated substantially all of the remaining purchase price to goodwill which is being amortized over its useful life of 8 years. Subsequent to December 31, 1996, the purchase price was adjusted to be $13.3 million pursuant to the purchase price calculation, and is subject to additional re-valuation at future determination dates. The next determination date is as of March 31, 1997. Adjustments to the purchase price will be reflected as adjustments to goodwill. The $7.9 million promissory note due in January 1997 was used to fund an escrow account for holding funds potentially due the sellers, of which $2.3 million was paid to the sellers in February 1997 based on the first determination date of December 31, 1996. Effective November 1996, the Company acquired the common stock of County Data Corporation (CDC), the leading national new business database compiler. Total consideration for the acquisition was 560,000 unregistered shares of the Company's common stock. The acquisition was accounted for under the pooling-of- interests method of accounting. The accompanying consolidated financial statements have not been restated to reflect this acquisition, as the net sales and net income of CDC were not significant for the periods presented. Effective November 1996, the Company acquired certain assets and assumed certain liabilities of Marketing Data Systems, Inc. (MDS), a provider of data warehousing, research and analysis services for target marketing applications to Fortune 1000 companies. Total consideration for the acquisition was $2.4 million, consisting of $1.0 million in cash and 118,000 unregistered shares of the Company's common stock. The acquisition has been accounted for under the purchase method of accounting. The Company has allocated substantially all of the purchase price to goodwill which is being amortized over its useful life of 8 years. Effective December 1996, the Company acquired certain assets and assumed certain liabilities of BJ Hunter, the Canadian leader in the sale of lead generation products. Total consideration for the acquisition was $3.1 million, consisting of $876 thousand in cash and 150,000 unregistered shares of the Company's common stock. The acquisition has been accounted for under the purchase method of accounting. The Company has allocated substantially all of the purchase price to goodwill which is being amortized over its useful life of 8 years. Effective August 1994, the Company acquired certain assets of Zeller & Letica ("Z&L") and Nationwide Mail Marketing ("NMM") for total consideration of $2.4 million which was accounted for under the purchase method. The Company has allocated substantially all of the purchase price to a distribution network which is being amortized over its estimated useful life of 2 years. Effective March 1994, the Company acquired certain assets from Business Mailers, Inc. ("BMI") for total consideration of $5.8 million which was accounted for under the purchase method. The Company has allocated substantially all of the purchase price to a distribution network which is being amortized over its estimated useful life of 2 years. F-9 Operating results for each of these acquisitions are included in the accompanying consolidated statements of operations from the respective acquisition dates. Assuming the above described companies had been acquired on January 1, 1995, unaudited pro forma consolidated revenues, net income and net income per share would have been as follows:
Years Ended December 31, 1996 1995 ---- ---- (In thousands except per share amounts) Net sales..................... $120,111 $101,404 Net income.................... $ 3,131 $ 13,922 Net income per share.......... $ 0.14 $ 0.63
The pro forma information provided above does not purport to be indicative of the results of operations that would actually have resulted if the acquisitions were made as of those dates or of results which may occur in the future. The Company paid $48 thousand, $148 thousand, and $280 thousand in 1996, 1995 and 1994, respectively, to Annapurna Corporation for consulting services and related expenses in connection with acquisition activity conducted by the Company. Annapurna Corporation is 100% owned by a significant stockholder. The Company also paid $156 thousand in 1996 to a Director of the Company for consulting services in connection with acquisition activity conducted by the Company. (4) MARKETABLE SECURITIES
Amortized Unrealized Unrealized Fair Cost Gross Gain Gross Loss Value --------- ---------- ---------- ----- At December 31, 1996 (In thousands) Municipal bonds $11,450 $ 35 $ (132) $11,354 U.S. government and agency 808 7 (5) 811 Corporate bonds 5,751 17 (58) 5,709 Common stock 5,365 18 (496) 4 ,886 Preferred stock 47 3 - 50 ------- ----- ------- ------- $23,421 $ 80 $ (691) $22,810 ======= ===== ======= =======
Gross Gross Amortized Unrealized Unrealized Fair Cost Holding Gain Holding Loss Value --------- ------------ ------------ ----- At December 31, 1995 (In thousands) Municipal bonds $12,027 $ 68 $ (55) $12,040 U.S. government and agency 1,513 46 - 1,559 Corporate bonds 7,189 114 (5) 7,298 Common stock 1,148 11 (248) 911 Preferred stock 1,804 4 (266) 1,542 ------- ----- ------- ------- $23,681 $ 243 $ (574) $23,350 ======= ===== ======= =======
F-10 Scheduled maturities of marketable debt securities at December 31, 1996, are as follows:
Less Than One to Five to More than 1 Year 5 Years 10 Years 10 Years --------- ------- -------- --------- (In thousands) Municipal bonds $1,738 $ 6,294 $ 732 $2,589 U.S. government and agency - 811 - - Corporate bonds 1,869 3,840 - - ----- ------ ----- ----- $3,607 $10,945 $ 732 $2,589 ===== ====== ===== =====
During 1996, proceeds from sales of available-for-sale securities approximated $18.9 million with realized gains of $1.6 million and realized losses of $343 thousand. In 1995, proceeds approximated $15.8 million with realized gains of $747 thousand and realized losses of $1.1 million. (5) PROPERTY AND EQUIPMENT
December 31, 1996 1995 ---- ---- (In thousands) Land and improvements.................... $ 1,220 $ 1,032 Buildings and improvements............... 9,084 7,157 Furniture and equipment.................. 21,597 15,439 Capitalized equipment leases............. 1,437 1,437 ------- ------- 33,338 25,065 Less accumulated depreciation and amortization: Owned property.......................... 14,188 11,036 Capitalized equipment leases............ 264 144 ------- ------- Property and equipment, net............ $18,886 $13,885 ======= =======
Under the terms of its capital lease agreements, the Company is required to pay ownership costs, including taxes, licenses and maintenance. The Company also leases office space under operating leases expiring at various dates through February, 2005. Certain of these leases contain renewal options. Rent expense was $952 thousand in 1996, $593 thousand in 1995, and $603 thousand in 1994. Following is a schedule of the future minimum lease payments under these leases as of December 31, 1996.
Capital Operating ------- --------- (In thousands) 1997..................................... $516 $1,009 1998..................................... 438 784 1999..................................... 35 551 2000..................................... - 358 2001..................................... - 238 ---- ------ Total future minimum lease payments 989 $2,940 ====== Less amounts representing interest 79 ---- Present value of net minimum lease payments.. $910 ====
F-11 (6) OTHER INVESTMENTS Included in other assets at December 31, 1996 and 1995, are investments of $571 thousand and $1.3 million, respectively, in two companies that are partially owned by certain members of the Board of Directors of the Company. At December 31, 1996, the investments include $500 thousand in Trident Capital Partners CSG Acquisition Fund, L.P. and $71 thousand in IDE Corporation. The Company owns less than 10% of either company and accounts for these investments on the cost method. No dividends have been received from these investments. (7) INTANGIBLE ASSETS
December 31, 1996 1995 ---- ---- (In thousands) Goodwill......................... $18,188 $ 6,331 Distribution networks............ - 11,871 Noncompete agreements............ - 150 Software development costs....... 1,955 512 ------ ------ 20,143 18,864 Less accumulated amortization.... 3,227 4,222 ------ ------ $16,916 $14,642 ====== ======
(8) FINANCING ARRANGEMENTS The Company has two secured revolving lines of credit totaling $10.0 million, none of which was outstanding at December 31, 1996. One $5.0 million line of credit expires in May 1997. A second line of credit of $5.0 million expires in January 2000. Any borrowings would accrue interest at the bank's base rate and would be payable upon demand. Long-term debt consisted of the following:
December 31, 1996 1995 ---- ---- (In thousands) Bank note, repaid in March 1996.............................. $ - $ 687 Bank note assumed in acquisition, repaid in January 1997..... 225 - Computer lease obligations, discounted at 4.9% (See Note 5).. 910 1,352 ------ ------ 1,135 2,039 Less current portion......................................... 708 969 ------ ------ Long-term debt............................................ $ 427 $1,070 ====== ======
The maturities of long-term debt are as follows: 1997..................................... $ 708 1998..................................... 427 ----- $1,135 =====
F-12 (9) INCOME TAXES The provision for income taxes on continuing operations consists of the following:
Years ended December 31, 1996 1995 1994 ---- ---- ---- (in thousands) Current: Federal $ 8,782 $8,249 $6,559 State 925 637 577 ------ ----- ----- 9,707 8,886 7,136 ------ ----- ----- Deferred: Federal (6,159) 849 443 State (148) 65 131 ------ ----- ----- (6,307) 914 574 ------ ----- ----- $ 3,400 $9,800 $7,710 ====== ===== =====
Loss on discontinued operation and abandonment of subsidiary is presented net of income tax benefits of $1.1 million in 1996, $1.3 million in 1995 and $235 thousand in 1994. The effective income tax rate varied from the federal statutory rate as follows:
Years ended December 31, 1996 1995 1994 ---- ---- ---- (in thousands) Tax provision computed at statutory rate of 35%........ $3,131 $9,262 $7,328 State taxes, net....................................... 530 471 418 Nondeductible expense, nontaxable income and other..... (261) 67 (36) ----- ----- ----- $3,400 $9,800 $7,710 ===== ===== ======
The components of the net deferred tax asset (liability) were as follows:
Years ended December 31, 1996 1995 ---- ---- (in thousands) Deferred tax assets: Marketable securities.................. $ 232 $ 85 Intangible assets...................... 5,758 - Accrued vacation....................... 291 185 Accrued expenses....................... 369 409 Accounts receivable.................... 65 137 Other assets........................... 521 239 Other.................................. - 208 ------ ------ 7,236 1,263 ------ ------ Deferred tax liabilities: Intangible assets...................... - (1,439) Depreciation........................... (824) (801) Prepaid expenses and other............. (1,788) (853) ------ ------ (2,612) (3,093) ------ ------ Net deferred tax asset (liability)....... $ 4,624 $(1,830) ====== ======
F-13 (10) STOCK INCENTIVES The Company has a stock option plan under which a total of 4.0 million (1.9 million prior to 1996) shares of the Company's common stock have been reserved for issuance to officers, key employees and non-employee directors. Options are generally granted at the stock's fair market value on the date of grant, vest generally over a four year period and expire five years from date of grant. Options issued to shareholders holding 10% or more of the Company's stock are generally issued at 110% of the stock's fair market value on the date of grant and vest over periods ranging from five to six years with early vesting if certain financial goals are met. Certain options issued to directors at the stock's fair market value vested immediately and expire five years from grant date. The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation". Accordingly, no compensation cost has been recognized for the stock option plan. Had compensation cost for the Company's stock option plan been determined based on the fair value at the grant date for awards in 1995 and 1996 consistent with the provisions of SFAS No. 123, the Company's net income and earnings per share would have been reduced to the pro forma amounts indicated below:
Year Ended December 31, 1996 1995 ----------------------- ---- ---- (In thousands, expect per share amounts) Net income - as reported $3,819 $14,346 Net income - pro forma $3,103 $14,124 Earnings per share - as reported $ 0.18 $ 0.69 Earnings per share - pro forma $ 0.15 $ 0.68
The above pro forma results are not likely to be representative of the effects on reported net income for future years since options vest over several years and additional awards generally are made each year. The fair value of the weighted average of each year's option grants is estimated as of the date of grant using the Black-Scholes option-pricing model with the following weighted-average assumptions used for grants in 1996 and 1995, respectively: dividend yield of 0%; expected volatility of 15.52%; risk free interest rate based on the U.S. Treasury strip yield at the date of grant; and expected lives of 4.0 years for options other than those issued to 10% or more shareholders for which the expected lives were equal to the vesting periods of 5 to 6 years. F-14
1996 1995 1994 ------------------------- ------------------------- ------------------------- Weighted Weighted Weighted Average Exercise Average Exercise Average Exercise Shares Price Shares Price Shares Price ------ ----- ------ ----- ------ ----- Outstanding on January 1, 1,456,875 $10.97 1,094,250 $ 8.65 694,500 $ 8.28 Granted 1,937,000 $16.34 498,000 $15.38 436,500 $ 9.18 Exercised (352,975) $ 8.63 (94,125) $ 8.36 (6,750) $ 7.94 Forfeited / Expired (484,000) $12.00 (41,250) $ 8.45 (30,000) $ 8.13 --------- ----- --------- ----- --------- ---- Outstanding on December 31, 2,556,900 $15.16 1,456,875 $10.97 1,094,250 $ 8.65 ========= ===== ========= ===== ========= ==== Options exercisable at end of year 292,525 $11.07 378,750 $10.99 189,000 $12.54 ========= ===== ========= ===== ========= ===== Shares available on December 31, for options that may be granted 1,443,100 443,125 805,750 ========= ========= ========= Weighted-average grant date fair value of options, granted during the year - exercise price equals stock market price at grant $3.94 $3.82 ==== ==== Weighted-average grant date fair value of options granted during the year - exercise price exceeds stock market price at grant $4.19 $ - ==== ====
The following table summarizes information about stock options outstanding at December 31, 1996:
Options Outstanding Options Exercisable ------------------------------------------ --------------------------- Weighted- Average Weighted- Weighted- Remaining Average Average Number Contractual Exercise Number Exercise Range of Exercise Prices Outstanding Life Price Exercisable Price ------------------------ ----------- ----------- ----- ----------- ----- $8.00 36,500 0.3 years $ 8.00 36,500 $ 8.00 $7.59 71,375 1.3 years $ 7.77 46,250 $ 7.79 $8.66 to $9.50 197,025 2.5 years $ 9.03 87,525 $ 8.98 $11.00 to $11.50 157,500 3.1 years $11.48 39,375 $11.48 $15.50 to $17.50 157,500 3.5 years $17.12 61,875 $16.53 $13.25 to $18.50 1,937,000 4.4 years $16.34 21,000 $15.50 --------- ------ ------- ------ $7.59 to $18.50 2,556,900 $15.16 292,525 $11.07 ========= ====== ======= ======
F-15 (11) SAVINGS PLAN Employees who meet certain eligibility requirements can participate in the Company's 401(k) Savings and Investment Plan. Under the plan, the Company may, at its discretion, match a percentage of the employee contributions. The Company recorded expenses related to its matching contributions of $115 thousand, $80 thousand and $71 thousand in 1996, 1995 and 1994, respectively. (12) DISCONTINUED OPERATIONS On June 1, 1995, the Company transferred substantially all of the assets and liabilities of its wholly-owned subsidiary, American Business Communications, Inc. ("ABC") to a wholly-owned subsidiary of Baker University. The Company received $3.0 million in the form of a 7.52% non-recourse promissory note, due in equal monthly installments through 2005. The note is listed as "net assets of business transferred under contractual arrangement" on the accompanying consolidated balance sheet since it is non-recourse to Baker University. ABC recorded net sales of $2.9 million and $6.7 million during 1995 and 1994, respectively. During 1996, Baker University defaulted on the note and the Company abandoned any remaining net assets of the business. As a result, the Company recorded a loss from abandonment of subsidiary of $1.4 million, net of tax. The Company originally reported the transfer of assets in 1995 as a loss on sale of discontinued operations. However, the prior year amount has been reclassified in accordance with Staff Accounting Bulletins 5-E and 5-Z, as an impairment of net assets transferred under contractual arrangement. Since the remaining net assets have been abandoned in 1996, all 1995 amounts related to ABC have been reclassified as discontinued operations. (13) SUPPLEMENTAL CASH FLOW INFORMATION The Company made certain acquisitions in 1996 and 1994 (See Note 3) and assumed liabilities as follows:
1996 1994 ---- ---- (In thousands) Fair value of assets $28,107 $ 9,333 Cash paid (5,910) (8,200) Promissory note issued (7,925) - Common stock issued (9,382) - ------ ------ Liabilities assumed $ 4,890 $ 1,133 ====== ======
In conjunction with the transfer of ABC in 1995, approximately $6.8 million of assets, less liabilities of $1.0 million, were exchanged for a $3.0 million note receivable. As a result, the Company recognized an impairment of $1.8 million net of a tax benefits, which is included in loss on discontinued operations. F-16 (14) FAIR VALUE OF FINANCIAL INSTRUMENTS The carrying amount of the Company's financial instruments approximates their estimated fair value at December 31, 1996. The fair value of cash and cash equivalents was based on the carrying value of such assets. The estimated fair value of marketable securities were based on quoted market prices. The fair value of notes receivable and long-term debt, including capital lease obligations, were estimated based on discounted cash flows using market rates at the balance sheet date. The use of discounted cash flows can be significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. The derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, could not be realized in immediate settlement of the instrument. (15) CONTINGENCIES The Company and its subsidiaries are involved in legal proceedings, claims and litigation arising in the ordinary course of business. Management believes that any resulting liability should not materially affect the Company's financial position, results of operations, or cash flows. (16) ONE-TIME, NON-CASH ITEMS One-time, non-cash items represent charges for the purchased in-process research and development of approximately $10 million relating to the acquisition of DDA (See Note 3) and the change in estimated useful lives of approximately $11.5 million due to management's evaluation of the remaining lives of certain intangibles related to acquisitions prior to 1995. (17) SUBSEQUENT EVENT Effective February 15, 1997, the Company acquired all issued and outstanding common stock of DBA Holdings, Inc., the parent company of Database America Companies, Inc. (DBA), a leading provider of data processing and analytical services for marketing applications, and compiler of information on consumers and businesses in the United States. Total consideration for the acquisition was approximately $100 million, consisting of approximately $50 million in cash and approximately 2.2 million shares of the Company's common stock. The acquisition will be accounted for under the purchase. The Company expects to immediately write-off a significant portion of the purchase price in the first quarter of 1997. The remaining intangibles and goodwill will be written off over 8 years. F-17 AMERICAN BUSINESS INFORMATION, INC. AND SUBSIDIARIES SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (IN THOUSANDS)
ADDITIONS ------------------------ BALANCE AT CHARGED TO BALANCE AT BEGINNING COSTS AND CHARGED TO END OF DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS PERIOD ----------- --------- -------- -------------- ---------- ------ Allowance for doubtful accounts receivable: December 31, 1994............................... $250 $ 936 $ - $ 782 $ 404 December 31, 1995............................... $404 $ 922 $ - $ 965 $ 361 December 31, 1996............................... $361 $1,485 $ 364 * $1,284 $ 926 Allowance for sales returns: December 31, 1994............................... $ - $ - $ - $ - $ - December 31, 1995............................... $ - $ 800 $ - $ - $ 800 December 31, 1996............................... $800 $3,401 $ 929 * $ 3,995 $1,135
* Recorded as a result of acquisitions S-1 EX-3.1 2 CERTIFICATE OF INCORPORATION Exhibit 3.1 CERTIFICATE OF INCORPORATION OF AMERICAN BUSINESS INFORMATION, INC. The undersigned, for the purpose of incorporating and organizing a corporation under the General Corporation Law of Delaware, does hereby certify and adopt the following Certificate of Incorporation: ARTICLE I. Name The name of the Corporation shall be American Business Information, Inc. ARTICLE II. Registered Office and Agent The address of the Corporation's registered office in the State of Delaware is 1209 Orange Street, in the City of Wilmington, County of New Castle, 19801, and the name of the Registered Agent at such address is The Corporation Trust Company. ARTICLE III. Purpose The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware. ARTICLE IV. Authorized Stock The aggregate number of shares which the Corporation shall have authority to issue is Eighty Million (80,000,000), divided into Seventy-five Million (75,000,000) shares of Common Stock with a par value of One Fourth of One Cent ($0.0025) per share, and Five Million (5,000,000) shares of Preferred Stock with a par value of One Fourth of One Cent ($0.0025) per share. Each holder of shares of Common Stock of the Corporation shall be entitled to one vote for each share of Common Stock held in the name of such holder on the books of the Corporation. The holder of each share of a series of Preferred Stock shall be entitled to such voting rights as may be authorized by the Board of Directors pursuant to Article V of this Certificate. ARTICLE V. Rights and Preferences of Holders of Preferred Stock The Board of Directors is authorized, subject to limitations prescribed by law and the provisions of Article IV, to provide for the issuance of the shares of Preferred Stock in series, and by filing a Certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions thereof. The authority of the Board of Directors with respect to each series of Preferred Stock shall include, but not be limited to, determination of the following: A. The number of shares constituting that series and the distinctive designation of that series; B. The dividend rate on the shares of that series, whether dividends shall be cumulative, and if so, from which data or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; C. Whether that series shall have voting rights, in addition to the voting rights provided by law, and if so, the terms of such voting rights; D. Whether that series shall have conversion privileges, and if so, the terms and conditions of such conversion privileges, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; E. Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or date upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; F. Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking funds; G. The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; H. Any other relative rights, preferences and limitations of that series. Dividends on outstanding shares of Preferred Stock shall be paid or declared and set apart for payment before any dividend shall be paid or declared and set apart for payment on the Common Stock with respect to the same dividend period. If upon any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, the assets available for distribution to holders of shares of Preferred Stock of all series shall be insufficient to pay such holders the full preferential amount to which they are entitled, then such assets shall be distributed ratably among the shares of each series of Preferred Stock in accordance with each such series respective preferential amounts (including unpaid cumulative dividends, if any). ARTICLE VI. Incorporator The name and mailing address of the Incorporator is Vinod Gupta, 5711 South 86/th/ Circle, Omaha, Nebraska 68127. Until the directors are elected, the Incorporator shall manage the affairs of the Corporation and may do whatever is necessary and proper to effect the organization of the Corporation and the election of directors. ARTICLE VII. Preemptive Rights The holders of Common Stock or Preferred Stock of the Corporation shall have no preemptive rights to subscribe for any shares of any class of stock of the Corporation whether now or hereafter authorized. ARTICLE VIII. Board of Directors A. The number of Directors constitution the entire Board shall be not less than three (3) nor more than fifteen (15), as fixed from time to time by vote of the majority of the entire Board; provided, however, that the number of Directors shall not be reduced so as to shorten the term of any Director at the time in office. B. The Board of Directors shall be divided into three classes, as nearly equal in numbers as the then total number of Directors constitution the entire Board permits with the term of office of one class expiring each year. At the first annual meeting of shareholders in 1992, the term of office of the first class of Directors will expire and at which them their successors shall be elected for a term expiring at the third succeeding annual meeting after their election. At the annual meeting of the shareholders in 1993, the term of office of the second class of Directors will expire and at which time their successors shall be elected for a term expiring at the third succeeding annual meeting after their election. At the annual meeting of the shareholders in 1994, the term of office of the third class of Directors will expire and at which time their successors shall be elected for a term expiring at the third succeeding annual meeting after their election. Any vacancies in the Board of Directors, acting by a majority of the Directors then in office, although less than a quorum, and any Director so chosen shall hold office until the next election of the class for which such Director shall have been chosen. Subject to the foregoing, at each annual meeting of shareholders, the successors to the class of Directors whose term shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting after their election. C. Notwithstanding any other provisions of this Certificate of Incorporation or the Bylaws of the Corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Certificate of Incorporation or the Bylaws of the Corporation), any director or the entire Board of Directors of the Corporation may be removed at any time, but only for cause and only by affirmative vote of the holders of fifty percent (50%) or more of the outstanding shares of capital stock of the Corporation entitled to vote generally in the election of Directors (considered for this purpose as one class) cast at a meeting of the shareholders called for that purpose. ARTICLE IX. Bylaws All of the powers of the Corporation, insofar as the same may be lawfully vested by this Certificate of Incorporation in the Board of Directors, are hereby conferred upon the Board of Directors of the Corporation. Except as otherwise provided in this Article IX, and in furtherance, and not in limitation of that power, the Board of Directors shall have the power to make, adopt, alter, amend and repeal from time to time the Bylaws of the corporation, subject to the right of the shareholders entitled to vote with respect thereto to adopt, alter, amend and repeal Bylaws made by the Board of Directors. The shareholders may expressly provide in any bylaw that such bylaw may not be altered, amended or repealed by the Board of Directors; and a bylaw so providing may not be altered, amended or repealed by the Board of Directors. ARTICLE X. Amendment of Articles Notwithstanding any other provision of this Certificate of Incorporation or the Bylaws of the Corporation (in addition to any other vote that may be required by law, this Certificate of Incorporation or the Bylaws), the affirmative vote of the holders of at least sixty percent (60%) of the outstanding shares of the Common Stock of the Corporation, and any series of Preferred Stock entitled to vote generally in the election of Directors (considered for this purpose as one class) shall be required to amend, alter or repeal any provision of this Certificate of Incorporation. ARTICLE XI. Liability of Directors No Director of the Corporation shall be personally liable to the Corporation or its shareholders for monetary damages for breach or fiduciary duty as a Director; provided, however, that the foregoing clause shall not apply to any liability of a Director: ( i ) for any breach of the Director's duty of loyalty to the Corporation or its shareholders; ( ii ) for acts or omissions not in good faith or which involved intentional misconduct or a knowing violation of law; ( iii ) under Section 174 of the General Corporation Law of the State of Delaware; or ( iv ) for any transaction from which the Director derived an improper personal benefit. If the General Corporation Law of the State of Delaware is amended to authorize corporate action further eliminating or limiting the personal liability of the Directors, then the liability of the Director of the Corporation shall be eliminated or limited to the fullest extent permitted by the General Corporation Law of the State of Delaware, as so amended. Any repeal or modification of this Article XI shall not adversely effect any right or protection of a Director of the Corporation existing hereunder with respect to any act or omission occurring prior to such repeal or modification. ARTICLE XII. Director Voting Unless otherwise provided by resolution by the Board of Directors, it shall not be required that elections of Directors be conducted by written ballot. ARTICLE XIII. Indemnification The Corporation shall to the extent required, and may, to the extent permitted, by Section 145 of the Delaware General Corporation Law, as amended from time to time, indemnify and reimburse all persons whom it may indemnify and reimburse pursuant thereto. Notwithstanding the foregoing, the indemnification provided for in this Article XIII shall not be deemed exclusive of any other rights to which those entitled to receive indemnification or reimbursement hereunder may be entitled under any bylaw of this Corporation, agreement, vote or consent of shareholders or disinterested directors or otherwise. The undersigned Incorporator hereby acknowledges that the foregoing Certificate of Incorporation is his act and deed and that the facts stated therein are true. DATED: September 5, 1996 /s/ Vinod Gupta --------------------------- Vinod Gupta, Incorporator /s/ Jon H. Wellman --------------------------- Jon H. Wellman, Secretary EX-10.1 3 1992 STOCK OPTION PLAN (AMENDED) Exhibit 10.1 AMERICAN BUSINESS INFORMATION, INC. 1992 STOCK OPTION PLAN (as amended March, 1997) 1. Purpose. The purpose of the 1992 Stock Option Plan (hereinafter called the "Plan"), is to promote the interests of American Business Information, Inc., a Delaware corporation (hereinafter called the "Company"), by affording an incentive to certain directors, officers, key employees and consultants to remain in the employ of the Company and to use their best efforts in its behalf; and further to aid the Company in attracting, maintaining, and developing capable personnel of a caliber required to insure the Company's continued success, by means of an offer to such persons of an opportunity to acquire or increase their proprietary interest in the Company through the granting of options to purchase the Company's stock pursuant to the terms of this Plan. 2. Shares Subject to Plan. (a) The shares to be delivered upon exercise of options granted under the Plan shall be made available, at the discretion of the Board of Directors (the "Board"), from the authorized unissued shares of the Company's quarter cent ($.0025) Common Stock of the Company (herein the "Common Stock"), or from shares of Common Stock reacquired by the Company, including shares purchased in the open market. (b) Subject to adjustments made pursuant to provisions of Section 13, the aggregate number of shares which may be issued upon exercise of all options which may be granted under the Plan shall not exceed 4,000,000 shares of the Common Stock of the Company. (c) In the event that any option granted under the Plan expires or terminates for any reason whatsoever without having been exercised in full, the shares subject to, but not delivered under, such option shall become available for other options to the same optionee or other eligible persons without decreasing the aggregate number of shares which may be granted under the Plan; or shall be available for any lawful corporate purpose. (d) The following limitations shall apply to grants of options to employees: (i) No employee shall be granted, in any fiscal year of the company, options to purchase more than 900,000 Shares. (ii) The foregoing limitation shall be adjusted proportionately in connection with any change in the Company's capitalization as described in Section 13. (iii) If an option is canceled in the same fiscal year of the Company in which it was granted (other than in connection with a transaction described in Section 13), the canceled option shall be counted against the limit set forth in subsection (i) above. For this purpose, if the exercise price of an option is reduced, the transaction will be treated as a cancellation of the option and the grant of a new option. 3. Option Agreements. ----------------- (a) Each option under the Plan shall be evidenced by an option agreement, which shall be signed by an officer of the Company and by the optionee and which shall contain such provisions as may be approved by the Administrator (as defined in Section 4). (b) The option agreements shall constitute binding contracts between the Company and the optionee, and every optionee, upon acceptance of such option agreement, shall be bound by the terms and restrictions of this Plan and of the option agreement. (c) The terms of the option agreement shall be in accordance with this Plan, but may include additional provisions and restrictions, provided that the same are not inconsistent with the Plan. 4. Administration. -------------- (a) Procedure. --------- (i) Multiple Administrative Bodies. The Plan may be administered by different bodies with respect to different groups of employees, directors or consultants. (ii) Section 162(m). To the extent that the Board determines it to be desirable to qualify options granted hereunder as "performance-based compensation" within the meaning of Section 162(m) of the Internal Revenue Code of 1986, as amended (the "Code"), the Plan shall be administered by a committee of two or more "outside directors" within the meaning of Section 162(m) of the Code. (iii) Rule 16b-3. To the extent desirable to qualify transactions hereunder as exempt under Rule 16b-3 of the Securities Exchange Act of 1934, as amended ("Rule 16b-3"), the transactions contemplated hereunder shall be structured to satisfy the requirements for exemption under Rule 16b-3. (iv) Other Administration. Other than as provided above, the Plan shall be administered by (A) the Board or (B) a committee which shall be constituted to satisfy applicable laws. (b) Powers of the Board or its Committee (hereinafter the "Administrator"). Subject to the provisions of this Plan, and in the case of a committee, subject to the specific duties delegated by the Board to such committee, the Administrator shall have the authority, in its discretion: -2- (i) to determine the fair market value of the Common Stock, in accordance with Section 6 of this Plan; (ii) to select the persons to whom options may be granted hereunder provided such persons are eligible to receive option under the Plan as provided in Section 5 hereof; (iii) to determine the number of shares of Common Stock to be covered by each option granted hereunder; (iv) to approve forms of agreement for use under this Plan; (v) to determine the terms and conditions, not inconsistent with the terms of this Plan, of any award granted hereunder. Such terms and conditions include, but are not limited to, the exercise price, the time or times when options may be exercised (which may be based on performance criteria), any vesting acceleration or waiver of forfeiture restrictions, and any restriction or limitation regarding any option or the shares of Common Stock relating thereto, based in each case on such factors as the Administrator, in its sole discretion, shall determine; (vi) to reduce the exercise price of any option to the then current fair market value if the fair market value of the Common Stock covered by such option shall have declined since the date the option was granted; (vii) to construe and interpret the terms of this Plan; (viii) to prescribe, amend and rescind rules and regulations relating to this Plan; (ix) to modify or amend each option (subject to Section 14 of this Plan); (x) to allow optionees to satisfy withholding tax obligations by electing to have the Company withhold from the shares to be issued upon exercise of an option that number of shares having a fair market value equal to the amount required to be withheld. The fair market value of the shares to be withheld shall be determined on the date that the amount of tax to be withheld is to be determined. All elections by an optionee to have shares withheld for this purpose shall be made in such form and under such conditions as the Administrator may deem necessary or advisable; (xi) to authorize any person to execute on behalf of the Company any instrument required to effect the grant of an option previously granted by the Administrator; and (xii) to make all other determinations deemed necessary or advisable for administering this Plan. -3- (c) Effect of Administrator's Decision. The Administrator's decisions, determinations and interpretations shall be final and binding on all optionees and any other holders of options. 5. Eligibility. Nonstatutory Stock Options (options not intended to qualify as Incentive Stock Options) may be granted to employees (including officers and directors who are also employees), non-employee directors and consultants. Incentive Stock Options (as defined below) may be granted only to employees (including officers and directors who are also employees). An employee shall not cease to be an employee in the case of (i) any leave of absence approved by the Company or (ii) transfers between locations of the Company or between the Company, its parent, any subsidiary, or any successor. For purposes of Incentive Stock Options, no such leave may exceed ninety days, unless reemployment upon expiration of such leave is guaranteed by statute or contract. If reemployment upon expiration of a leave of absence approved by the Company is not so guaranteed, on the 181st day of such leave any Incentive Stock Option held by the optionee shall cease to be treated as an Incentive Stock Option and shall be treated for tax purposes as a Nonstatutory Stock Option. Neither service as a director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. If otherwise eligible, an optionee who has been granted an option may be granted additional options. The fact that an optionee has been granted an option under this Plan shall not in any way affect or qualify the right of the Company employer to terminate his or her employment relationship, directorship or consulting relationship at any time. Nothing contained in this Plan shall be construed to limit the right of the Company to grant options otherwise than under the Plan for any proper and lawful corporate purpose, including but not limited to options granted to persons eligible to receive options under the Plan. Eligible persons to whom options may be granted under the Plan will be those selected by the Administrator from time to time who, in the sole discretion of the Administrator, have contributed in the past or who may be expected to contribute materially in the future to the successful performance of the Company. 6. Option Price. The per share exercise price for the shares to be issued pursuant to exercise of an option shall be determined by the Administrator, subject to the following: (a) In the case of an Incentive Stock Option granted to any employee, the per share exercise price shall be no less than 100% of the fair market value per share on the date of grant. However, under no circumstances shall the fair market value as determined by the Administrator be less than the book value of the Company's Common Stock as reflected in the Company's most recent financial statements, prepared by the certified public accountant who is then servicing the Company's account, which are prepared in accordance with generally accepted accounting principles. For all purposes of this Plan, the fair market value of shares subject to option shall be deemed conclusive, upon the determination of the Administrator made in good faith. The option price will be subject to adjustments in accordance with provisions of Section 13 herein. -4- (b) In the case of a Nonstatutory Stock Option, the per share exercise price shall be determined by the Administrator. In the case of a Nonstatutory Stock Option intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the per share exercise price shall be no less than 100% of the fair market value per share on the date of grant. (c) Notwithstanding the foregoing, options may be granted with a per share exercise price of less than 100% of the fair market value per share on the date of grant pursuant to a merger or other corporate transaction. 7. Exercise of Options. ------------------- (a) Subject to the provisions of the Plan with respect to termination of employment under Section 12 herein, the period during which each option may be exercised shall be fixed by the Administrator at the time such option is granted, but in the case of an Incentive Stock Option, such period shall expire not later than ten years from the date the option is granted. (b) Each option granted under the Plan may be exercised, except as provided in Section 12, only during the continuance of the optionee's employment relationship, directorship or consulting relationship with the Company or one of its subsidiaries. Subject to the foregoing limitations and the terms and conditions of the option agreement, each option shall be exercisable in whole or in part in installments at such time or times as the Administrator may prescribe and specify in the applicable option agreement. (c) No shares shall be delivered pursuant to any exercise of an option until the requirements of such laws and regulations as may be deemed by the Administrator to be applicable to them are satisfied and until payment in full of the option price for them is received by the Company. Payment of the option price may consist entirely of: (i) cash; (ii) check; (iii) promissory note; (iv) other shares which (A) in the case of shares acquired upon exercise of an option, have been owned by the optionee for more than six months on the date of surrender, and (B) have a fair market value on the date of surrender equal to the aggregate exercise price of the shares as to which said option shall be exercised; (v) delivery of a properly executed exercise notice together with such other documentation as the Administrator and the broker, if applicable, shall require to effect an exercise of the option and delivery to the Company of the sale or loan proceeds required to pay the -5- exercise price; (vi) any combination of the foregoing methods of payment; or (vii) such other consideration and method of payment for the issuance of shares to the extent permitted by applicable laws. (d) No optionee, or the legal representative, legatee, or distributee of an optionee, shall be deemed to be a holder of any shares subject to any option unless and until the certificate or certificates for them have been issued. 8. Ten-Percent Owners. Notwithstanding the provisions of paragraphs 6 and 7 above, the following terms and conditions shall apply to Incentive Stock Options granted hereunder to a "10-percent owner." For this purpose, a "10- percent-owner" shall mean an optionee who, at the time the option is granted, owns stock possessing more than 10 percent of the total combined voting power of all classes of stock of the Company or of any subsidiary thereof. With respect to a 10-percent owner: (a) the price at which shares of stock may be purchased under an Incentive Stock Option granted pursuant to this Plan shall be not less than 110% of the fair market value thereof, said fair market value being determined in the manner described at Section 6, above; and (b) the period during which any such Incentive Stock Option may be exercised, to be fixed by the Administrator in the manner described at paragraph 7, above, shall expire not later than five years from the date the option is granted. 9. Annual Limit on Incentive Stock Option Vesting. Each option shall be designated in the option agreement as either an Incentive Stock Option or a Nonstatutory Stock Option. However, notwithstanding such designations, to the extent that the aggregate fair market value (i) of shares subject to an optionee's Incentive Stock Options granted by the Company, any parent or subsidiary, which (ii) become exercisable for the first time during any calendar year (under all plans of the Company or any parent or subsidiary) exceeds $100,000, such excess options shall be treated as Nonstatutory Stock Options. For purposes of this Section 9, Incentive Stock Options shall be taken into account in the order in which they were granted, and the fair market value of the shares shall be determined as of the time of grant. 10. Other Terms and Conditions. Any option granted hereunder shall contain such other and additional terms, not inconsistent with the terms of this Plan, which are deemed necessary or desirable by the Administrator, which such terms, together with the terms of this Plan, shall constitute such option as an "Incentive Stock Option" within the meaning of Section 422 of the Code and lawful regulations thereunder. 11. Transferability of Options. Unless determined otherwise by the Administrator, an option may not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any manner -6- other than by will or by the laws of descent or distribution and may be exercised, during the lifetime of the optionee, only by the optionee. If the Administrator makes an option transferable, such option shall contain such additional terms and conditions as the Administrator deems appropriate. 12. Termination of Employment. In the event that employment of an optionee by the Company or any subsidiary is terminated for any reason other than disability or death, an option granted hereunder shall be exercisable by the optionee at any time prior to the expiration date of the option or within three months after the date of such termination, whichever is earlier, but only to the extent the optionee had the right to exercise such option at the date of such termination. In the event optionee ceases to be an employee, director or consultant as a result of the optionee's disability (a total and permanent disability as defined in Section 22(e)(3) of the Code), the optionee may exercise his or her option within such period of time as is specified in the option agreement to the extent the option is vested on the date of termination (but in no event later than the expiration of the term of such option as set forth in the option agreement). In the absence of a specified time in the option agreement, the option shall remain exercisable for three months following the optionee's termination. If, on the date of termination, the optionee is not vested as to his or her entire option, the shares covered by the unvested portion of the option shall revert to the Plan. If, after termination, the optionee does not exercise his or her option within the time specified herein, the option shall terminate, and the shares covered by such option shall revert to the Plan. In the event of the death of an optionee while in the employ of the Company (or within three months after termination of employment by reasons of retirement with the consent of the Company), his option shall be exercisable by the person or persons to whom such optionee's rights pass by will or by the laws of descent and distribution at any time prior to the expiration date of the option or within three months after the date of such death, whichever is earlier, but only to the extent the optionee had the right to exercise such option on the date of his death. 13. Adjustments Upon Changes in Capitalization, Dissolution, Merger, Asset ---------------------------------------------------------------------- Sale or Change of Control. - - ------------------------- (a) Changes in Capitalization. Subject to any required action by the stockholders of the Company, the number of shares of Common Stock covered by each outstanding option, and the number of shares of Common Stock which have been authorized for issuance under the Plan but as to which no options have yet been granted or which have been returned to the Plan upon cancellation or expiration of an option, as well as the price per share of Common Stock covered by each such outstanding option, shall be proportionately adjusted for any increase or decrease in the number of issued shares of Common Stock resulting from a stock split, reverse stock split, stock dividend, combination or reclassification of the Common Stock, or any other increase or decrease in the number of issued shares of Common Stock effected without receipt of consideration by the Company; provided, however, that conversion of any convertible securities of the Company shall not be deemed to have been "effected without receipt of consideration." Such adjustment shall be made by the Board, whose determination in that respect shall be final, binding and conclusive. Except as expressly provided herein, no issuance by the -7- Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall affect, and no adjustment by reason thereof shall be made with respect to, the number or price of shares of Common Stock subject to an option. (b) Dissolution or Liquidation. In the event of the proposed dissolution or liquidation of the Company, to the extent that an option has not been previously exercised, it will terminate immediately prior to the consummation of such proposed action. The Board may, in the exercise of its sole discretion in such instances, declare that any option shall terminate as of a date fixed by the Board and give each optionee the right to exercise his or her option as to all or any part of the stock covered by such option, including shares as to which the option would not otherwise be exercisable. (c) Merger or Asset Sale. In the event of a merger of the company with or into another corporation, or the sale of substantially all of the assets of the Company, each outstanding option shall be assumed or an equivalent option substituted by the successor corporation or a parent or subsidiary of the successor corporation. In the event that the successor corporation refuses to assume or substitute for the option, the optionee shall have the right to exercise the option as to all of the optioned stock, including shares as to which it would not otherwise be exercisable. If an option is exercisable in lieu of assumption or substitution in the event of a merger or sale of assets, the Administrator shall notify the optionee that the option shall be fully exercisable for a period of fifteen (15) days from the date of such notice, and the option shall terminate upon the expiration of such period. For the purposes of this paragraph, the option shall be considered assumed if, following the merger or sale of assets, the option confers the right to purchase or receive, for each share of optioned stock subject to the option immediately prior to the merger or sale of assets, the consideration (whether stock, cash, or other securities or property) received in the merger or sale of assets by holders of Common Stock for each share held on the effective date of the transaction (and if holders were offered a choice of consideration, the type of consideration chosen by the holders of a majority of the outstanding shares); provided, however, that if such consideration received in the merger or sale of assets was not solely common stock of the successor corporation or its parent, the Administrator may, with the consent of the successor corporation, provide for the consideration to be received upon the exercise of the option, for each share of optioned stock subject to the option to be solely common stock of the successor corporation or its parent equal in fair market value to the per share consideration received by holders of Common Stock in the merger or sale of assets. 14. Amendments, Alteration, Suspension, or Termination. -------------------------------------------------- (a) Amendment and Termination. The Board may at any time amend, alter, suspend or terminate the Plan. (b) Stockholder Approval. The Company shall obtain stockholder approval of any Plan amendment to the extent necessary and desirable to comply with Section 422 of the Code (or any successor rule or statute or other applicable law, rule or regulation, including the requirements of any exchange or quotation system on which the Common Stock is listed or -8- quoted). Such stockholder approval, if required, shall be obtained in such a manner and to such a degree as is required by the applicable law, rule or regulation. (c) Effect of Amendment or Termination. No amendment, alteration, suspension or termination of the Plan shall impair the rights of any optionee, unless mutually agreed otherwise between the optionee and the Administrator, which agreement must be in writing and signed by the optionee and the Company. 15. Effective Date, Term, and Approval. The Plan shall take effect on January 1, 1992. This Plan will terminate on December 31, 2001, and no options may be granted under the Plan after that date, unless an earlier termination date after which no options may be granted under the Plan is fixed by action of the Board, but any option granted prior thereto may be exercised in accordance with its terms. The Plan and all options granted pursuant to it are subject to all laws, approvals, requirements and regulations of any governmental authority which may be applicable thereto and, notwithstanding any provisions of the Plan or option agreement, the holder of an option shall not be entitled to exercise his option nor shall the Company be obligated to issue any shares to the holder if such exercise or issuance shall constitute a violation by the holder or the Company of any provisions of any such approval requirements, law or regulation. 16. Unfunded Plan. The Plan is intended to constitute an "unfunded" plan for incentive compensation. With respect to any payments not yet made to a participant or optionee by the Company, nothing contained herein shall give any participant or optionee any rights that are greater than those of a general creditor of the Company. In its sole discretion, the Administrator may authorize the creation of trusts or other arrangements to meet the obligations created under the Plan, provided that the trusts or other arrangements are consistent with the unfunded status of the Plan. 17. Long-Term Capital Gains. Incentive Stock Options granted pursuant to this Plan are intended to qualify for long-term capital gains treatment, if available, under the provisions of Section 422 of the Code. As of January 1, 1992, eligibility for such tax treatment required that no disposition of the shares of stock be made by the optionee: (i) within two years from the date the Incentive Stock Option is granted; or (ii) within one year of the date the stock underlying the Incentive Stock Option is transferred to the employee. 18. General Provisions. The Administrator may require each person purchasing shares pursuant to a stock option under the Plan to represent to and agree with the Company in writing that the optionee is requiring the shares without a view to distribution thereof. The certificate for such shares may include any legend which the Administrator deems appropriate to reflect any restriction on transfer. All certificates for shares delivered under the Plan pursuant to any stock option shall be subject to such stock transfer orders and other restrictions as the Administrator may deem advisable under the rules, regulations and other requirements of the Securities and Exchange Commission, any stock exchange upon which the stock is listed, and any applicable federal or state securities laws, and the Administrator may cause a legend or legends to be put on such certificates to make appropriate reference to such restrictions. -9- EX-10.12 4 REGISTRATION RIGHTS AGREEMENT (CANADA) Exhibit 10.12 AMERICAN BUSINESS INFORMATION, INC. REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made effective as of December 10, 1996 (the "Effective Date"), by and among American Business Information, Inc., a Delaware corporation (the "Company") and 3319971 Canada Inc, a Canadian corporation (the "Shareholder"). RECITALS -------- A. The Company and the Shareholder, among others, are parties to certain Share Purchase Agreements dated December 10, 1996 (together with the exhibits and schedules thereto, the "Purchase Agreement,") pursuant to which the Company, through a wholly owned subsidiary, is acquiring all of the shares of Kadobec Investments Inc. and CD-PowerMedia Productions Inc., both Canadian corporations. B. Pursuant to the Purchase Agreement, Shareholder has agreed to subscribe for 150,000 shares of Common Stock, U.S. $.0025 par value, of the Company (the "Shares"), subject to certain escrow and other arrangements set forth in the Purchase Agreement. AGREEMENT --------- NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, all parties hereto agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "Black-Out Period" means any period during which executive officers and directors of the Company are generally prohibited from engaging in trades in the Company's securities pursuant to the Company's Insider Trading Policy, including, without limitation, black-out periods for management related to quarterly reports of financial results of the Company. "Commission" means the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar Federal rule or statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Holder" means the Shareholder, for so long as the Shareholder holds any Registrable Securities, or any person holding Registrable Securities to whom the rights under this Agreement have been transferred in accordance with Section 11 hereof. "Insider Trading Policy" means the policy adopted by the Company's Board of Directors, as such may be amended from time to time, relating to transactions in the Company's securities by the Company's executive officers and directors. "Permitted Window" means the period during which a Holder entitled to sell Registrable Securities pursuant to a registration statement under Section 5(a) of this Agreement shall be permitted to sell Registrable Securities pursuant to such a registration. Except as otherwise set forth in this Agreement, a Permitted Window shall (i) commence upon the tenth business day following receipt by the Company of a written notice from a Holder to the Company that such Holder intends to sell Shares pursuant to such registration statement, or such earlier date as the Company may agree to (or, if such date falls within a Blackout Period, then upon the termination of such Blackout Period), and shall (ii) terminate upon the commencement of the next occurring Black-Out Period. Without the Company's written consent, a Permitted Window shall not commence prior to the first anniversary of the Effective Date. "Registrable Securities" means the Shares and any Common Stock of the Company issued or issuable in respect thereof upon any conversion, stock split, stock dividend, recapitalization, merger or other reorganization; provided, however, that securities shall only be treated as Registrable Securities if and so long as they have not been registered or sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction. "Register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" means all expenses, except as otherwise stated below, incurred by the Company in complying with Section 5 hereof, including without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "Restricted Securities" means the securities of the Company required to bear a legend as described in Section 3 hereof. "Securities Act" means the Securities Act of 1933, as amended, or any similar Federal rule or statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Selling Expenses" means all underwriting discounts, selling commissions and stock -2- transfer taxes applicable to the securities registered by the Holders and all fees and disbursements of counsel for any Holder. 2. Restrictions on Transferability. Without limitation to the holdback and escrow provisions contemplated in the Purchase Agreement, the Restricted Securities and any other securities issued in respect of such securities upon any stock split, stock dividend, recapitalization, merger or other reorganization, shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. Each Holder or transferee will cause any proposed purchaser, assignee, transferee, or pledgee of any such securities held by the Holder or transferee to agree to take and hold such securities subject to the restrictions and upon the conditions specified in this Agreement, including without limitation the restrictions set forth in Section 4. 3. Restrictive Legend. Each certificate representing the Shares or any other securities issued in respect of such securities upon any stock split, stock dividend, recapitalization, merger or other reorganization shall be stamped or otherwise imprinted with legends restricting the transferability thereof, in substantially the form set forth below: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. SUCH SHARES GENERALLY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT. Each Holder consents to the Company making a notation on its records and giving instructions to any transfer agent of its capital stock in order to implement the restrictions on transfer established in this Agreement and the Purchase Agreement. 4. Notice of Proposed Transfers. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 4. Without in any way limiting the immediately preceding sentence, the provisions of Section 2, or the holdback or escrow provisions in the Purchase Agreement, no sale, assignment, transfer or pledge (other than (i) a sale made pursuant to a registration statement filed under the Securities Act and declared effective by the Commission or (ii) a sale made in accordance with the applicable provisions of Rule 144 and Rule 145) of Restricted Securities shall be made by any holder thereof to any person unless such person shall first agree in writing to be bound by the restrictions of this Agreement, including without limitation this Section 4. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities, unless there is in effect a registration statement under -3- the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail, and, if requested by the Company, the holder shall also provide, at such holder's expense, a written opinion of legal counsel (who shall be, and whose legal opinion shall be, reasonably satisfactory to the Company) addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act and under applicable state securities laws and regulations. Upon delivery to the Company of such notice and, if required, such opinion, the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of such notice. The Company agrees that it shall not request such an opinion of counsel with respect to (i) a transfer not involving a change in beneficial ownership, including without limitation interspousal transfer (ii) a transaction involving the distribution without consideration of Restricted Securities by the holder to its constituent equity holders in proportion to their equity holdings in the holder or (iii) a transaction involving the transfer without consideration of Restricted Securities by an individual holder during such holder's lifetime by way of gift or on death by will or intestacy. Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 3 above, except that such certificate shall not bear such restrictive legend if, in the opinion of counsel for such holder and counsel for the Company, such legend is not required in order to establish or ensure compliance with any provision of the Securities Act. 5. Registration on Form S-3. (a) Registration. The Company shall use its commercially reasonable efforts to cause a registration statement on Form S-3 covering all Registrable Securities to be filed and declared effective no later than the first anniversary of the date of this Agreement, and the initial Permitted Window (the "Initial Permitted Window") for trading the Shares shall commence as of the effective date of such registration (or, if such date falls within a Blackout Period, then upon the termination of such Blackout Period), and continue until the commencement of the next occurring Black-Out Period. The Company shall use its commercially reasonable efforts to keep such registration statement effective until the second anniversary of the date of this Agreement, or such earlier date upon which no Holder holds any Registrable Securities. After the Initial Permitted Window, upon receipt of a notice from any Holder that such Holder intends to sell Registrable Securities during a Permitted Window, the Company shall, prior to the commencement of the Permitted Window, inform the other Holders of the commencement of the Permitted Window. The Company shall notify each of the Holders of the termination of a Permitted Window no later than the time the Company notifies its executive officers and directors of the corresponding Black-Out Period; provided, however, that the Company need not notify the Holders of regularly scheduled Black-Out Periods relating to the end of the Company's fiscal quarters, which Black-Out Periods begin thirty days prior to the end of each fiscal quarter and continue until 48 hours after the announcement of results of operations for such period. -4- (b) Limitations on Registration and Sale of Registrable Securities. Notwithstanding anything in this Agreement to the contrary, the Company's obligations and the Holders' rights under this Section 5 are subject to the limitations and qualifications set forth below, which may be waived in writing by the Company. (i) The Holders will sell Registrable Securities pursuant to a registration effected hereunder only during a Permitted Window. (ii) If the Company furnishes to the Holders a certificate signed by the President of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company for a Form S-3 registration to be effected, or a Permitted Window to be in effect, due to (A) the existence of a material development involving the Company which the Company would be obligated to disclose in the prospectus contained in the Form S-3 registration statement, which disclosure would in the good faith judgment of the Board of Directors be premature or otherwise inadvisable, (B) the existence of other facts or circumstances as a result of which the prospectus contained or to be contained in the Form S-3 registration statement includes or would include an untrue statement of a material fact or omits or would omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made or then existing or (C) the Company's bona fide intention to effect the filing of a registration statement with the Commission within sixty (60) days of the receipt of a notice from a Holder that it intends to sell Registrable Securities during a Permitted Window, the Company may defer the filing of the Form S-3 registration statement or delay the commencement of a Permitted Window or may effect an early termination of a Permitted Window that has commenced, as the case may be; provided however that in the case of clause (A) or (B) above, that such deferral, delay or termination shall expire upon the earlier of the termination of the existence of such material development or other facts or forty-five days from the date such certificate. (iii) The obligations of the Company hereunder are conditioned upon its being eligible to register its securities on Form S-3 at the time any such registration is otherwise required hereunder; provided, however, that if the Company ceases to be eligible to register its securities on Form S-3 at any time during which any Holder would otherwise be entitled to sell Registrable Securities pursuant to a registration in accordance with the terms of this Agreement, the Company shall use its commercially reasonable efforts to become eligible to register its securities on Form S-3 as soon as practicable. (iv) At any time that the Company is obligated under this Agreement to permit the Holders to sell Registrable Securities pursuant to a registration statement on Form S-3, the Company may, instead of maintaining an effective registration statement on Form S-3 for the benefit of the Holders, include such Registrable Securities in a registration effected for the benefit of the Company and/or other selling stockholders. In the event that such registration is in connection with an underwritten offering, the Holders participating in such registration shall enter into an underwriting agreement in customary form with the managing underwriter selected by the Company, -5- notwithstanding the provisions of Section 5(c). (v) Notwithstanding anything to the contrary in this Agreement, the Company shall have no obligation to effect a registration hereunder, and no Permitted Window will exist, with respect to any Registrable Securities during the time that such Registrable Securities are subject to the escrow provisions of the Purchase Agreement (including any agreement which is an exhibit thereto) or during the time that such Registrable Securities are subject to an actual or contingent obligation to be returned to the Company or one of its subsidiaries pursuant to Sections 2.5 and following of the Purchase Agreement, and no Holder shall sell any such Registrable Securities pursuant to a registration hereunder, or pursuant to Rule 144 or Rule 145, during any such period. (c) Underwriting. At the election of the Holders representing a majority of the Registrable Securities that are proposed to be sold during a Permitted Window (the "Deciding Holders"), all sales of Registrable Securities under this Section 5 during such Permitted Window shall be made through an underwriting managed by an underwriter selected by the Deciding Holders and reasonably acceptable to the Company (the "Managing Underwriter"). The Company shall, together with all Holders proposing to distribute their Registrable Securities though such underwriting, enter into an underwriting agreement in customary form with the Managing Underwriter. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company. Any Holder so withdrawing shall not sell any Registrable Securities pursuant to a registration effected under this Agreement until after the completion of such underwritten distribution. (d) Registration Procedures. In connection with any registration required under this Agreement, the Company shall take the actions set forth below. (i) Prior to filing any registration statement, prospectus, amendment or supplement with the Commission in connection with any registration hereunder, the Company shall furnish to one counsel selected by the Holders of a majority of the Registrable Securities copies of such documents. (ii) The Company shall notify each Holder of any stop order issued or threatened by the Commission and will take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (iii) The Company shall comply with the provisions of the Securities Act with respect to the disposition of all securities covered by a registration statement filed pursuant to this Agreement with respect to the disposition of all Registrable Securities covered by such registration statement in accordance with the intended methods of disposition by the Holders as set forth in such registration statement. (iv) The Company shall furnish to each Holder and each underwriter, if -6- any, of Registrable Securities covered by a registration statement filed pursuant to this Agreement such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto), and the prospectus included in such registration statement (including each preliminary prospectus), in conformity with the requirements of the Securities Act, and such other documents as a selling Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder. (v) The Company shall use its best efforts to register or qualify the Registrable Securities under the securities or "blue sky" laws of each State of the United States of America as any of the Holders or underwriters, if any, of the Registrable Securities covered by a registration statement filed hereunder reasonably requests, and shall do any and all other acts and things which may be reasonably necessary or advisable to enable each selling Holder and each underwriter, if any, to consummate the disposition in such States of the Registrable Securities owned by such selling Holders; provided that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subsection (v), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (vi) The Company shall immediately notify each Holder entitled to sell Registrable Securities during a Permitted Window of the happening of any event which comes to the Company's attention if, as a result of such event, the prospectus included in the registration statement filed under this Agreement contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Company shall promptly prepare and furnish to each Holder and file with the Commission a supplement or amendment to such prospectus so that such prospectus will no longer contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (vi) The Company shall take all such other reasonable and customary actions as each Holder or the underwriters, if any, may reasonably request in order to expedite or facilitate the disposition of the Registrable Securities in accordance with the terms of this Agreement. (vii) The Company shall make available for inspection by the Holders, any underwriter participating in any disposition pursuant to a registration statement filed under this Agreement, and any attorney, accountant or other agent retained by such Holders or underwriters, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, as such person may reasonably request for the purpose of confirming that such registration statement does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided that the Company obtains reasonably satisfactory assurances that such information will be used solely for such purpose and will be held in confidence -7- (except to the extent that it is included in the registration statement). The Company shall cause the officers, directors and employees of the Company and each of its subsidiaries to supply such information and respond to such inquiries as any Holder or underwriter may reasonably request or make for the purpose of confirming that such registration statement does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided that the Company obtains reasonably satisfactory assurances that such information will be used solely for such purpose and will be held in confidence (except to the extent that it is included in the registration statement). (ix) The Company shall use its commercially reasonable efforts to obtain a "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the Holders or the underwriters reasonably request. (x) The Company shall otherwise use its best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as reasonably practicable, an earnings statement covering a period (which may begin with the first fiscal quarter ending after the effective date of the registration statement) of at least twelve months after the effective date of the registration statement (as the term "effective date" is defined in Rule 158(c) under the Securities Act), which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder. (xi) The company shall use its best efforts to cause the Shares to be listed on the same exchange and/or quotation system as its Common Stock is traded generally. 6. Other Registration Rights. The Holders acknowledge that certain other stockholders of the Company may now or hereafter have registration rights, and that such other stockholders may be entitled to sell their securities at the same time, or pursuant to the same registration and underwriting, as the Holders hereunder. 7. Expenses of Registration. All Registration Expenses incurred in connection with the Company's obligations hereunder shall be borne by the Company. All Selling Expenses relating to securities proposed to be registered hereunder shall be borne by the Holders of such securities pro rata on the basis of the number of shares proposed to be sold by each of them during the applicable Permitted Window. 8. Indemnification. (a) The Company will indemnify each Holder, each of its officers, directors, members and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration has been effected pursuant to this Agreement, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including -8- any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act, the Exchange Act, state securities law or any rule or regulation promulgated under the laws applicable to the Company in connection with any such registration, and the Company will reimburse each such Holder, each of its officers, directors members and partners, and each person controlling such Holder, for any legal and any other expenses reasonably incurred, as such expenses are incurred; in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder or controlling person, and stated to be specifically for use therein; and provided further, that the foregoing indemnity agreement is subject to the condition that, insofar as it relates to any such untrue statement, alleged untrue statement, omission or alleged omission made in a preliminary prospectus, such indemnity agreement shall not inure to the benefit of any person, if a copy of the final prospectus or an amended or supplemented prospectus, as applicable, was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act, and if the final prospectus or the amended or supplemented prospectus, as applicable, would have cured the defect giving rise to the loss, liability, claim or damage. In no event, however, shall the Company have any indemnification obligation to the extent that the expenses, claims, losses, damages or liabilities as to which indemnification is sought are in connection with an offer or sale made by a person other than the Company in violation of the terms of this Agreement (a "Violation"). (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which a registration hereunder is effected, indemnify the Company, each of its directors and officers, each person who controls the Company within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on (i) a Violation by such Holder or (ii) any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers or control persons for any legal or any other expenses reasonably incurred, as such expenses are incurred, in connection with investigating or defending any such claim, loss, damage, liability or action, but, in the case of clause (ii) above, only to the extent that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with -9- information furnished to the Company by such Holder in writing specifically for use in a registration statement. Notwithstanding the foregoing, the liability of each Holder under this subsection 5.7(b) shall be limited in an amount equal to the initial public offering price of the shares sold by such Holder, unless such liability arises out of or is based on a Violation or willful misconduct by such Holder. (c) Each party entitled to indemnification under this Section 8 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or there are separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party (whose consent may be withheld in each indemnified party's discretion), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 9. Information by Holder. The Holder or Holders of Registrable Securities included in any registration hereunder shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall be required in connection with any registration referred to in this Agreement. 10. Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may permit the sale of the Restricted Securities to the public without registration the Company agrees to use all reasonable efforts, at any time after the second anniversary of the Effective Date, to: (a) Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act; (b) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and (c) So long as a Holder owns any Restricted Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting -10- requirements of said Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as the Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing the Holder to sell any such securities without registration. 11. Transfer of Registration Rights. The rights to cause the Company to register securities granted to Holders under Section 5 may be assigned to a transferee or assignee reasonably acceptable to the Company in connection with any transfer or assignment of Registrable Securities by the Holder, provided that (i) such transfer is otherwise effected in accordance with applicable securities laws and the terms of this Agreement, (ii) such assignee or transferee acquires at least 75,000 shares of Registrable Securities (as adjusted for stock splits, stock dividends, stock combinations and the like), (iii) written notice is promptly given to the Company and (iv) such transferee agrees to be bound by the provisions of this Agreement. Notwithstanding the foregoing, the rights to cause the Company to register securities may be assigned without compliance with item (ii) above to (x) any constituent equity holder of a Holder which is a partnership, limited liability company, or a corporation or (y) a family member or trust for the benefit of a Holder who is an individual, or a trust for the benefit of a family member of such a Holder. 12. Amendment. Except as otherwise provided above, any provision of this Agreement may be amended or the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and holders of two thirds of the Registrable Securities. 13. Governing Law. This Agreement shall be governed in all respects by the laws of the State of Delaware, without regard to conflict of laws provisions. 14. Entire Agreement. This Agreement constitutes the full and entire understanding and Agreement among the parties regarding the matters set forth herein. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon the successors, assigns, heirs, executors and administrators of the parties hereto. 15. Notices, etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by facsimile transmission, by hand or by messenger, addressed: (a) if to a Holder, at such Holder's address as set forth below such Holder's signature on this Agreement, or at such other address as such Holder shall have furnished to the Company, with a copy to: Mendelsohn Rosentzveig Shacter 1000 Sherbrooke West 27th Floor -11- Montreal, Quebec, Canada H3A 3G4 (b) if to the Company, to: American Business Information, Inc. 5711 South 86th Circle Omaha, NE 68127 Fax: (402) ____-______ Attn: Corporate Secretary or at such other address as the Company shall have furnished to the Holders, with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, CA 94304-1050 Attn: Francis S. Currie, Esq. Fax: (415) 493-6811 Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally or by facsimile transmission, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. -12- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. "THE COMPANY" American Business Information, Inc., a Delaware corporation By: _____________________________ Title: _____________________________ 3319971 Canada Inc., a Canadian corporation By: _____________________________ Title: _____________________________ Address: __________________________ __________________________ EX-10.13 5 REGISTRATION RIGHTS AGREEMENT (DIGITAL) Exhibit 10.13 AMERICAN BUSINESS INFORMATION, INC. REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Agreement") is made effective as of September 10, 1996 (the "Effective Date"), by and among American Business Information, Inc., a Delaware corporation (the "Company"), Digital Directory Assistance, Inc., a Maryland corporation ("DDAI") and Claude M. Schoch, Robert N. Snyder and Philip E. Hixon (each a "Shareholder" and collectively the "Shareholders"). RECITALS -------- A. The Company, the Company's wholly-owned subsidiary, American Business Information Marketing, Inc., a Delaware corporation ("Buyer"), DDAI and the Shareholders are parties to the Asset Purchase Agreement dated the date hereof (together with the exhibits and schedules thereto, the "Purchase Agreement"), pursuant to which Buyer is acquiring substantially all of the assets and certain of the liabilities of DDAI. B. As partial consideration for such acquisition, DDAI will receive 600,000 shares of Common Stock, $.0025 par value, of the Company (the "Shares"), subject to certain escrow and other arrangements set forth in the Purchase Agreement. C. Pursuant to the terms of the Purchase Agreement, DDAI may transfer some or all of the Shares to the Shareholders. AGREEMENT --------- NOW, THEREFORE, in consideration of the mutual promises and covenants hereinafter set forth, all parties hereto agree as follows: 1. Certain Definitions. As used in this Agreement, the following terms shall have the following respective meanings: "Black-Out Period" means any period during which executive officers and directors of the Company are prohibited from engaging in trades in the Company's securities pursuant to the Company's Insider Trading Policy. "Commission" means the Securities and Exchange Commission or any other Federal agency at the time administering the Securities Act. "Exchange Act" means the Securities Exchange Act of 1934, as amended, or any similar Federal rule or statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. "Holder" means any of DDAI and the Shareholders, for so long as such person holds any Registrable Securities, or any person holding Registrable Securities to whom the rights under this Agreement have been transferred in accordance with Section 11 hereof. "Insider Trading Policy" means the policy adopted by the Company's Board of Directors, as such may be amended from time to time, relating to transactions in the Company's securities by the Company's executive officers and directors, a copy of which shall be provided to each of the Shareholders within 7 days of the date hereof. "Permitted Window" means the period during which a Holder entitled to sell Registrable Securities pursuant to a registration statement under Section 5(a) of this Agreement, shall be permitted to sell Registrable Securities pursuant to such a registration. Except as otherwise set forth in this Agreement, a Permitted Window shall (i) commence upon the tenth business day following receipt by the Company of a written notice from a Holder to the Company that such Holder intends to sell Shares pursuant to such registration statement, or such earlier date as the Company may agree to, and shall (ii) terminate upon the commencement of a Black Out Period. Without the Company's written consent, a Permitted Window shall not commence prior to the first anniversary of the Effective Date. "Registrable Securities" means the Shares and any Common Stock of the Company issued or issuable in respect thereof upon any conversion, stock split, stock dividend, recapitalization, merger or other reorganization; provided, however, that securities shall only be treated as Registrable Securities if and so long as they have not been registered or sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction. "Register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of the effectiveness of such registration statement. "Registration Expenses" means all expenses, except as otherwise stated below, incurred by the Company in complying with Section 5 hereof, including without limitation, all registration, qualification and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "Restricted Securities" means the securities of the Company required to bear a legend as described in Section 3 hereof. "Securities Act" means the Securities Act of 1933, as amended, or any similar Federal rule or statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time. -2- "Selling Expenses" means all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and all fees and disbursements of counsel for any Holder. 2. Restrictions on Transferability. The Restricted Securities and any other securities issued in respect of such securities upon any stock split, stock dividend, recapitalization, merger or other reorganization, shall not be sold, assigned, transferred or pledged except upon the conditions specified in this Agreement, which conditions are intended to ensure compliance with the provisions of the Securities Act. Each Holder or transferee will cause any proposed purchaser, assignee, transferee, or pledgee of any such securities held by the Holder or transferee to agree to take and hold such securities subject to the restrictions and upon the conditions specified in this Agreement, including without limitation the restrictions set forth in Section 4. 3. Restrictive Legend. Each certificate representing the Shares or any other securities issued in respect of such securities upon any stock split, stock dividend, recapitalization, merger or other reorganization shall be stamped or otherwise imprinted with legends restricting the transferability thereof, as described in the Purchase Agreement. Each Holder consents to the Company making a notation on its records and giving instructions to any transfer agent of its capital stock in order to implement the restrictions on transfer established in this Agreement and the Purchase Agreement. 4. Notice of Proposed Transfers. The holder of each certificate representing Restricted Securities by acceptance thereof agrees to comply in all respects with the provisions of this Section 4. Without in any way limiting the immediately preceding sentence or the provisions of Section 2, no sale, assignment, transfer or pledge (other than (i) a sale made pursuant to a registration statement filed under the Securities Act and declared effective by the Commission or (ii) a sale made in accordance with the applicable provisions of Rule 144 and Rule 145) of Restricted Securities shall be made by any holder thereof to any person unless such person shall first agree in writing to be bound by the restrictions of this Agreement, including without limitation this Section 4. Prior to any proposed sale, assignment, transfer or pledge of any Restricted Securities, unless there is in effect a registration statement under the Securities Act covering the proposed transfer, the holder thereof shall give written notice to the Company of such holder's intention to effect such transfer, sale, assignment or pledge. Each such notice shall describe the manner and circumstances of the proposed transfer, sale, assignment or pledge in sufficient detail, and, if requested by the Company, the holder shall also provide, at such holder's expense, a written opinion of legal counsel (who shall be, and whose legal opinion shall be, reasonably satisfactory to the Company) addressed to the Company, to the effect that the proposed transfer of the Restricted Securities may be effected without registration under the Securities Act and under applicable state securities laws and regulations. Upon delivery to the Company of such notice and, if required, such opinion, the holder of such Restricted Securities shall be entitled to transfer such Restricted Securities in accordance with the terms of such notice. The Company agrees that it shall not request such an opinion of counsel with respect to (i) a transfer not involving a change in beneficial ownership, (ii) a transaction involving the distribution without consideration of Restricted Securities by the holder to its constituent equity -3- holders in proportion to their equity holdings in the holder or (iii) a transaction involving the transfer without consideration of Restricted Securities by an individual holder during such holder's lifetime by way of gift or on death by will or intestacy Each certificate evidencing the Restricted Securities transferred as above provided shall bear, except if such transfer is made pursuant to Rule 144, the appropriate restrictive legend set forth in Section 3 above, except that such certificate shall not bear such restrictive legend if, in the opinion of counsel for such holder and counsel for the Company, such legend is not required in order to establish or ensure compliance with any provision of the Securities Act. 5. Registration on Form S-3. ------------------------- Registration. The Company shall use its commercially reasonable best efforts to cause a registration statement on Form S-3 covering all Registrable Securities to be filed and declared effective no later than the first anniversary of the date of this Agreement. The Company shall use its commercially reasonable best efforts to keep such registration statement effective until the fourth anniversary of the date of this Agreement, or such earlier date upon which no Holder holds any Registrable Securities. Upon receipt of a notice from any Holder that such Holder intends to sell Registrable Securities during a Permitted Window, the Company shall, prior to the commencement of the Permitted Window, inform the other Holders of the commencement of the Permitted Window. The Company shall notify each of the Holders of the termination of a Permitted Window no later than the time the Company notifies its executive officers and directors of the corresponding Black-Out Period; provided, however, that the Company need not notify the Holders of regularly scheduled Black-Out Periods relating to the closing of the Company's fiscal quarters. (b) Limitations on Registration and Sale of Registrable Securities. Notwithstanding anything in this Agreement to the contrary, the Company's obligations and the Holders' rights under this Section 5 are subject to the limitations and qualifications set forth below, which may be waived in writing by the Company. (i) The Company shall have no obligation to keep effective a registration statement hereunder following such time as each Holder is eligible to sell all of its Registrable Securities in a three month period under the applicable provisions of Rule 144 and Rule 145. (ii) The Holders will sell Registrable Securities pursuant to a registration effected hereunder only during a Permitted Window. (iii) Each of Robert N. Snyder and Philip E. Hixon may sell up to 30,000 shares (and all Registrable Securities issued in respect thereof) during any twelve-month period (with Messrs. Snyder's and Hixon's sales being aggregated with the sale of their respective transferees for the purpose of calculating such number). (iv) Claude M. Schoch may sell up to 180,000 Shares (and all Registrable Securities issued in respect thereof) during any twelve-month period (with Mr. -4- Schoch's sales being aggregated with the sales of his transferees for the purposes of calculating such number). (v) If the Company furnishes to the Holders a certificate signed by the President of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company for a Form S-3 registration to be effected, or a Permitted Window to be in effect, due to (A) the existence of a material development or potential material development involving the Company which the Company would be obligated to disclose in the prospectus contained in the Form S-3 registration statement, which disclosure would in the good faith judgment of the Board of Directors be premature or otherwise inadvisable, or (B) the existence of other facts or circumstances as a result of which the prospectus contained or to be contained in the Form S-3 registration statement includes or would include an untrue statement of a material fact or omits or would omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made or then existing, the Company may defer the filing of the Form S-3 registration statement or delay the commencement of a Permitted Window or may effect an early termination of a Permitted Window that has commenced, as the case may be. The Company may elect to so defer, delay or terminate under clause (A) above only to the extent that the event described in clause (A) also gives rise to a Black-Out Period applicable to all of the Company's executive officers and directors under the Company's Insider Trading Policy. If the Company elects to so defer, delay or terminate under clause (B) above, the Company shall, subject to its obligations under Section 5(d)(i), use its commercially reasonable best efforts to amend the registration statement or take such other action as may be necessary to eliminate the situation described in clause (B) as soon as practicable. Any Holder receiving any notice from the Company with respect to the matters covered by this Section 5(b)(v) shall keep the fact and content of such notice, and the event or circumstances giving rise to such notice, confidential. (vi) The obligations of the Company hereunder are conditioned upon its being eligible to register its securities on Form S-3 at the time any such registration is otherwise required hereunder; provided, however, that if the Company ceases to be eligible to register its securities on Form S-3 at any time during which any Holder would otherwise be entitled to sell Registrable Securities pursuant to a registration in accordance with the terms of this Agreement, the Company shall use its commercially reasonable best efforts to become eligible to register its securities on Form S-3 as soon as practicable. (c) Underwriting. At the election of the Holders representing a majority of the Registrable Securities that are proposed to be sold during a Permitted Window (the "Deciding Holders"), all sales of Registrable Securities under this Section 5 during such Permitted Window shall be made through an underwriting managed by an underwriter selected by the Deciding Holders and acceptable to the Company (the "Managing Underwriter"). The Company shall, together with all Holders proposing to distribute their Registrable Securities through such underwriting, enter into an underwriting agreement in customary form with the -5- Managing Underwriter. If any Holder of Registrable Securities disapproves of the terms of the underwriting, such person may elect to withdraw therefrom by written notice to the Company. Any Holder so withdrawing shall not sell any Registrable Securities pursuant to a registration effected under this Agreement until after the completion of such underwritten distribution. (d) Registration Procedures. In connection with any registration required under this Agreement, the Company shall take the actions set forth below. (i) Prior to filing any registration statement, prospectus, a mendment or supplement with the Commission in connection with any registration hereunder, the Company shall furnish to one counsel selected by the Holders of a majority of the Registrable Securities copies of all such documents, proposed to be filed, which documents will be subject to review of such counsel. (ii) The Company shall notify each Holder of any stop order issued or threatened by the Commission and will take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (iii) The Company shall comply with the provisions of the Securities Act with respect to the disposition of all securities covered by a registration statement filed pursuant to this Agreement with respect to the disposition of all Registrable Securities covered by such registration statement in accordance with the intended methods of disposition by the Holders as set forth in such registration statement. (iv) The Company shall furnish to each Holder and each underwriter, if any, of Registrable Securities covered by a registration statement filed pursuant to this Agreement such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto), and the prospectus included in such registration statement (including each preliminary prospectus), in conformity with the requirements of the Securities Act, and such other documents as a selling Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder. (v) The Company shall use its commercially reasonable best efforts to register or qualify the Registrable Securities under the securities or "blue sky" laws of each State of the United States of America as any of the Holders or underwriters, if any, of the Registrable Securities covered by a registration statement filed hereunder reasonably requests, and shall do any and all other acts and things which may be reasonably necessary or advisable to enable each selling Holder and each underwriter, if any, to consummate the disposition in such States of the Registrable Securities owned by such selling Holders; provided that the Company shall not be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise by required to qualify but for this subsection (v), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (vi) The Company shall immediately notify each Holder entitled to sell Registrable Securities during a Permitted Window of the happening of any event which comes to -6- the Company's attention if, as a result of such event, the prospectus included in the registration statement filed under this Agreement contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Company shall promptly prepare and furnish to each Holder and file with the Commission a supplement or amendment to such prospectus so that such prospectus will no longer contain any untrue statement of a material fact or omit to state any material fact necessary to make the statement therein, in light of the circumstances under which they were made, not misleading. (vii) The Company shall take all such other reasonable and customary actions as each Holder or the underwriters, if any, may reasonably request in order to expedite or facilitate the disposition of the Registrable Securities in accordance with the terms of this Agreement. (viii) The Company shall make available for inspection by the Holders, any underwriter participating in any disposition pursuant to a registration statement filed under this Agreement, and any attorney, accountant or other agent retained by such Holders or underwriters, all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, as such person may reasonably request for the purpose of confirming that such registration statement does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided that the Company obtains reasonably satisfactory assurances that such information will be used solely for such purpose and will be held in confidence (except to the extent that it is included in the registration statement). The Company shall cause the officers, directors, and employees of the Company and each of its subsidiaries to supply such information and respond to such inquiries as any Holder or underwriter may reasonably request or make for the purpose of confirming that such registration statement does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided that the Company obtains reasonably satisfactory assurances that such information will be used solely for such purpose and will be held in confidence (except to the extent that it is included in the registration statement). (ix) The Company shall use its commercially reasonable best efforts to obtain a "cold comfort" letter from the Company's independent public accountants in customary form and covering such matters of the type customarily covered by "cold comfort" letters as the Holders or the underwriters reasonably request. (x) The Company shall otherwise use its best commercially reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make generally available to its security holders, as soon as reasonably practicable, an earnings statement covering a period (which may begin with the first fiscal quarter ending after the effective date of the registration statement) of at least twelve months after the effective date of the registration statement (as the term "effective date" is defined in Rule 158(c) under the -7- Securities Act), which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder. 6. Other Registration Rights. The Holders acknowledge that certain other stockholders of the Company may now or hereafter have registration rights, and that such other stockholders may be entitled to sell their securities at the same time, or pursuant to the same registration and underwriting, as the Holders hereunder. The Company represents and warrants to the Holders that any such rights of other stockholders will not diminish the rights of the Holders hereunder, including without limitation the number of Registrable Securities which the Holders are entitled to sell hereunder, or otherwise conflict with the provisions of this Agreement. 7. Expenses of Registration. All Registration Expenses incurred in connection with the Company's obligations, hereunder shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities proposed to be registered hereunder and all other registration expenses shall be borne by the Holders of such securities pro rata on the basis of the number of shares proposed to be sold by each of them during the applicable Permitted Window. 8. Indemnification. --------------- The Company will indemnify each Holder, each of its officers and directors and partners, and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration has been effected pursuant to this Agreement, against all expenses, claims, losses, damages or liabilities (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement, prospectus, offering circular or other document, or any amendment or supplement thereto, incident to any such registration, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances in which they were made, not misleading, or any violation by the Company of the Securities Act, the Exchange Act, state securities law or any rule or regulation promulgated under the such laws applicable to the Company in connection with any such registration, and the Company will reimburse each such Holder, each of its officers, directors and partners, and each person controlling such Holder, for any legal and any other expenses reasonably incurred, as such expenses are incurred, in connection with investigating, preparing or defending any such claim, loss, damage, liability or action, provided that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder or controlling person, and stated to be specifically for use therein; provided, however, that the foregoing indemnity Agreement is subject to the condition that, insofar as it relates to any such untrue statement, alleged untrue statement, omission or alleged omission made in a preliminary -8- prospectus, such indemnity agreement shall not inure to the benefit of any person, if a copy of the final prospectus or an amended or supplemented prospectus, as applicable, was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act, and if the final prospectus or the amended or supplemented prospectus, as applicable, would have cured the defect giving rise to the loss, liability, claim or damage. In no event, however, shall the Company have any indemnification obligation to the extent that the expenses, claims, losses, damages, or liabilities as to which indemnification is sought are in connection with an offer or sale made by a person other than the Company in violation of the terms of this Agreement (a "Violation"). Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which a registration hereunder is effected, indemnify the Company, each of its directors and officers, each person who controls the Company within the meaning of Section 15 of the Securities Act, and each other such Holder, each of its officers and directors and each person controlling such Holder within the meaning of Section 15 of the Securities Act, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on (i) a Violation by such Holder or (ii) any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company, such Holders, such directors, officers or control persons for any legal or any other expenses reasonably incurred, as such expenses are incurred, in connection with investigating or defending any such claim, loss, damage, liability or action, but, in the case of clause (ii) above, only to the extent that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular or other document in reliance upon and in conformity with information furnished to the Company by such Holder. Notwithstanding the foregoing, the liability of each Holder under this subsection 5.7(b) shall be limited in an amount equal to the initial public offering price of the shares sold by such Holder, unless such liability arises out of or is based on a Violation or willful misconduct by such Holder. Each party entitled to indemnification under this Section 8 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (whose approval shall not unreasonably be withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action and provided further, that the Indemnifying Party shall not assume the defense for matters as to which there is a conflict of interest or there are separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party -9- (whose consent shall not be unreasonably withheld), consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. 9. Information by Holder. The Holder or Holders of Registrable Securities included in any registration hereunder shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may request in writing and as shall by required in connection with any registration referred to in this Agreement. 10. Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations of the Commission which may permit the sale of the Restricted Securities to the public without registration the Company agrees to use its commercially reasonable best efforts, at any time after the fourth anniversary of the Effective Date, to: Make and keep public information available, as those terms are understood and defined in Rule 144 under the Securities Act. File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act; and So long as a Holder owns any Restricted Securities, to furnish to the Holder forthwith upon request a written statement by the Company as to its compliance with the reporting requirements of said Rule 144 and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents of the Company and other information in the possession of or reasonably obtainable by the Company as the Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing the Holder to sell any such securities without registration. 11. Transfer of Registration Rights. The rights to cause the Company to register securities granted to Holders under Section 5 may not be assigned. Notwithstanding the foregoing, the rights to cause the Company to register securities may be assigned to transferees for whom the holding period under Rule 144 may be tacked onto that of the transferor. 12. Amendment. Except as otherwise provided above, any provision of this Agreement may be amended or the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and each of the Holders. 13. Governing Law. This Agreement shall be governed in all respects by the laws of the State of Delaware, without regard to conflict of laws provisions. -10- 14. Entire Agreement. This Agreement constitutes the full and entire understanding and Agreement among the parties regarding the matters set forth herein. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon the successors, assigns, heirs, executors and administrators of the parties hereto. 15. Notices, etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, or otherwise delivered by facsimile transmission, by hand or by messenger, addressed: if to a Holder, at such Holder's address as set forth below such Holder's signature on this Agreement, or at such other address as such Holder shall have furnished to the Company. if to the Company, to: American Business Information, Inc. 5711 South 86/th/ Circle Omaha, NE 68127 Fax: (402) 593-4584 Attn: Jon Wellman or at such other address as the Company shall have furnished to the Holders, with a copy to: Wilson Sonsini Goodrich & Rosati, P.C. 650 Page Mill Road Palo Alto, CA 94304-1050 Attn: Francis S. Currie, Esq. Fax: (415) 493-6811 Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally or by facsimile transmission, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid. 16. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. -11- IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date first written above. "THE COMPANY" American Business Information, Inc., a Delaware corporation By: ___________________________________ Jon H. Wellman Executive Vice President "THE HOLDERS" Digital Directory Assistance, Inc., a Maryland corporation By: ____________________________________ Claude M. Schoch President Address: 6931 Arlington Road Bethesda, MD 20814 ________________________________________ Claude M. Schoch Address: 7134 River Road Bethesda, MD 20817 ________________________________________ Robert N. Snyder Address: c/o Cambridge Information Group 7200 Wisconsin Avenue Bethesda, MD 20814 -12- ________________________________________ Philip E. Hixon Address: c/o Cambridge Information Group 7200 Wisconsin Avenue Bethesda, MD 20814 -13- EX-10.14 6 REGISTRATION RIGHTS AGREEMENT (ALLEN) Exhibit 10.14 REGISTRATION RIGHTS AGREEMENT This Registration Rights Agreement (the "Rights Agreement") is entered into as of the 4th day of November, 1996 by and among each of the persons set forth in Schedule 1 hereto (collectively referred to herein as "Shareholders") and American Business Information, Inc. (the "Company"). Section 1. Definitions. Certain terms utilized in this Rights Agreement shall have the meanings indicated herein: "Commission" means the United States Securities and Exchange Commission. "Exchange Act" means the Securities Exchange Act of 1934, as amended. "Registrable Securities" means the shares of the Company's Common Stock, par value $.0025 per share, that have been issued to the Shareholders pursuant to the terms of an Agreement and Plan of Reorganization, dated as of the date hereof, by and among the Company, County Data Corporation, a Vermont corporation, and the Shareholders. Registrable Securities shall not include, and the Company shall have no obligation to keep effective a registration statement hereunder with respect to, any such shares that are no longer subject to any restrictions on transfer by the Shareholders pursuant to the applicable provisions of Rules 144 or 145 under the Securities Act or which have been registered or sold to or through a broker or dealer or underwriter in a public distribution or a public securities transaction. "Registration Expenses" means all expenses incurred by the Company in connection with the registration of Registrable Securities pursuant to this Rights Agreement, including (a) all registration and filing fees paid to the Commission; (b) fees and expenses of compliance with state securities or blue sky laws (including reasonable fees and disbursements of counsel in connection with blue sky qualifications of the Registrable Securities); (c) printing expenses; (d) internal expenses (including, without limitation, all salaries and expenses of the Company's officers and employees performing legal or accounting duties); (e) the fees and expenses incurred in connection with any listing of the Registrable Securities on the NASDAQ Stock Market or similar facility; (f) fees and expenses of counsel for the Company and fees and expenses for independent certified public accountants retained by the Company; and (g) the reasonable fees and expenses of any special experts retained by the Company in connection with such registration. "Securities Act" means the Securities Act of 1933, as amended. "Selling Expenses" means all underwriting fees, discounts, commissions or expenses attributable to any sale by a Shareholder of all or part of the Registrable Securities. Section 2. Registration on Form S-3. (a) The Company shall use its commercially reasonable best efforts to cause a registration statement on Form S-3 covering the resale (or pledge as collateral) by the Shareholders of the Registrable Securities to be filed with Commission and declared effective under the Securities Act by no later than March 1, 1997 and to keep such registration statement effective under the Securities Act until the date which is two (2) years from the date hereof, or such earlier date upon which no Shareholder owns any Registrable Securities. If the Company is not eligible to register its securities on Form S-3 at any such time, it shall use its commercially reasonable best efforts to file such registration statement on a form (including Form S-1) which it is eligible to use to register securities under the Securities Act. (b) Notwithstanding anything in this Rights Agreement to the contrary, if the Board of Directors of the Company determines, in its sole discretion, that it would be seriously detrimental to the Company for a Form S-3 registration to be filed or become effective under the Securities Act due to (A) the existence of a material development or potential material development involving the Company which the Company would be obligated to disclose in the prospectus contained in the Form S-3 registration statement, which disclosure would be premature or otherwise inadvisable in the good faith judgment of the Board of Directors, or (B) the existence of other facts or circumstances as a result of which the prospectus contained or to be contained in the Form S-3 registration statement includes or would include an untrue statement of a material fact or omits or would omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in light of the circumstances under which they were made or then existing, the Company may defer the filing or effective date of the Form S-3 registration statement to be filed hereunder. If the Company elects to defer the filing or effective date of the Form S-3 registration statement, it shall furnish prompt notice thereof to the Shareholders, which notice shall specify the reason for the delay and the estimated length of the delay, and will use its commercially reasonable best efforts to amend the registration statement or take such other action as may be necessary to allow for the filing or effectiveness of the registration statement as soon as practicable. Shareholders receiving any notice from the Company with respect to the matters covered by this Section 2(b) shall keep the fact and content of such notice, and the event or circumstances giving rise to such notice, confidential. (c) In connection with the registration of Registrable Securities required under this Rights Agreement, the Company shall take the actions set forth below: (i) The Company shall notify each Shareholder of any stop order issued or threatened by the Commission with respect to the registration statement filed in connection therewith and will take all reasonable actions required to prevent the entry of such stop order or to remove it if entered. (ii) The Company shall furnish to each Shareholder, such number of copies of such registration statement, each amendment and supplement thereto (in each case including all exhibits thereto), and the prospectus included in such registration statement (including each preliminary prospectus), in conformity with the requirements of the Securities Act, and such other documents as a selling Shareholder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Shareholder. (iii) The Company shall use its commercially reasonable best efforts to register or qualify the Registrable Securities under the securities or "blue sky" laws of each state of the United States of America as any Shareholder requests to the extent such request is deemed reasonable by the Board of Directors of the Company in its sole discretion, and shall do any and all other acts and things which may be reasonably necessary or advisable to enable each selling Shareholder to consummate the disposition in such states of the Registrable Securities owned by selling Shareholder; provided that the Company shall not 2 be required to (A) qualify generally to do business in any jurisdiction where it would not otherwise be required to qualify but for this subsection (iii), (B) subject itself to taxation in any such jurisdiction or (C) consent to general service of process in any such jurisdiction. (iv) During any period in which a Shareholder is required to deliver a prospectus in connection with the sale of Registrable Securities, the Company shall immediately notify each Shareholder entitled to sell Registrable Securities of the happening of any event which comes to the Company's attention if, as a result of such event, the prospectus included in the registration statement filed under this Rights Agreement contains any untrue statement of a material fact or omits to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and the Company shall promptly prepare and furnish to each Shareholder and file with the Commission a supplement or amendment to such prospectus so that such prospectus will no longer contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading; provided, however, that if the Board of Directors of the Company, in its sole discretion, determines that the disclosure of such event would be seriously detrimental to the Company, then the Company may defer the preparation of such a supplement or amendment and, in such case, the Company shall furnish prompt notice thereof to the Shareholders, which notice shall specify the reason for the delay and the estimated length of the delay, and will use its commercially reasonable best efforts to prepare and furnish such amendment or supplement as soon as practicable. Shareholders receiving any such notice from the Company shall (i) not sell or otherwise dispose of Registrable Securities until such amendment or supplement to the prospectus has been prepared and filed with the Commission and (ii) keep the fact and content of such notice, and the event or circumstances giving rise to such notice, confidential. (v) The Company shall make available for inspection by the Shareholders and any attorney, accountant or other agent retained by such Shareholders all financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, as such person may reasonably request for the purpose of confirming that such registration statement does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided that the Company obtains reasonably satisfactory assurances that such information will be used solely for such purpose and will be held in confidence (except to the extent that it is included in the registration statement). The Company shall cause the officers, directors and employees of the Company and each of its subsidiaries to supply such information and respond to such inquiries as any Shareholder or underwriter may reasonably request or make for the purpose of confirming that such registration statement does not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, provided that the Company obtains reasonably satisfactory assurances that such information will be used solely for such purpose and will be held in confidence (except to the extent that it is included in the registration statement). (vi) The Company shall otherwise use its commercially reasonable best efforts to comply with all applicable rules and regulations of the Commission, and make 3 generally available to its security holders, as soon as reasonably practicable, an earnings statement covering a period (which may begin with the first fiscal quarter ending after the effective date of the registration statement) of at least 12 months after the effective date of the registration statement (as the term "effective date" is defined in Rule 158(c) under the Securities Act), which earnings statement shall satisfy the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder. (vii) The Company shall use its commercially reasonable best efforts (if the offering is underwritten) to furnish, at the request of any Shareholder, on the date that Registrable Securities are delivered to the underwriters for sale pursuant to such registration: (1) an opinion, dated such date, of counsel representing the Company for the purposes of such registration, addressed to the underwriters and to such Shareholder, stating that such registration statement has become effective under the Securities Act and that (A) to the best knowledge of such counsel, no stop order suspending the effectiveness thereof has been issued and no proceedings for that purpose have been instituted or are pending or contemplated under the Securities Act, (B) the registration statement, the related prospectus, and each amendment or supplement thereof, comply as to form in all material respects with the requirements of the Securities Act and the applicable rules and regulations of the Commission thereunder (except that such counsel need not express any opinion as to financial statements contained therein) and (C) to such other effects as may reasonable be requested by counsel for the underwriters or by such Shareholder or his counsel; and (2) a letter dated such date from the independent public accountants retained by the Company, addressed to the underwriters and to such Shareholder, stating that they are independent public accountants within the meaning of the Securities Act and that, in the opinion of such accountants, the financial statements of the Company included in the registration statement or prospectus, or any amendment or supplement thereof, comply as to form in all material respects with the applicable accounting requirements of the Securities Act, and such letter shall additionally cover such other financial matters (including information as to the period ending no more than five business days prior to the date of such letter) with respect to the registration in respect of which such letter is being given as such underwriters or such Shareholder may reasonably request. Section 3. Other Registration Rights. The Shareholders acknowledge that certain other stockholders of the Company may now or hereafter have registration rights, and that such other stockholders may be entitled to sell their securities at the same time, or pursuant to the same registration statement, as the Shareholders hereunder. Section 4. Expenses of Registration. All Registration Expenses incurred in connection with the Company's obligations hereunder shall be borne by the Company. Unless otherwise stated, all Selling Expenses relating to securities proposed to be registered hereunder and all other registration expenses shall be borne by the Shareholders of such securities pro rata on the basis of the number of shares proposed to be sold by each of them. Section 5. Limitation on Timing of Sales. Notwithstanding the registration of Registrable Shares pursuant to this Rights Agreement, Terry F. Allen, Andrew F. Allen, Jared P. Allen and Seth W. Allen (the "Management Shareholders") agree with the Company that they will not sell, assign or otherwise dispose of Registrable Securities during any period in which executive officers and directors of the Company are prohibited from engaging in trades in the Company's securities pursuant to the Company's insider trading policy (a "Black-out Period"). The Company will advise the Management Shareholders of the commencement and termination 4 of any Black-out Period no later than the time the Company notifies its executive officers and directors thereof; provided, however, that the Company need not notify the Management Shareholders of regularly scheduled Black-Out Periods relating to the closing of the Company's fiscal quarters. Section 6. Holdback Agreement. Each Management Shareholder agrees not to effect any public sale or distribution of any security of the Company, including a sale pursuant to Rule 144 or 145 under the Securities Act, during a period beginning up to 14 days prior to the anticipated effective date and continuing up to 180 days after the effective date of any registration statement filed by the Company under the Securities Act, except as part of such registration, if and to the extent requested in writing by the Company (in the case of a non- underwritten public offering) or by the managing underwriter (in the case of an underwritten public offering). Section 7. Indemnification and Contribution. (a) Indemnification by the Company. The Company shall indemnify and hold harmless each selling Shareholder and each person, if any, who controls such selling Shareholder within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act from and against any and all losses, claims, damages, liabilities and expenses (including reasonable costs of investigation) arising out of or based upon any untrue statement or alleged untrue statement of a material fact contained in any registration statement or prospectus relating to the Registrable Securities or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or based upon any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, except insofar as such losses, claims, damages, liabilities or expenses (i) result from a breach by the selling Shareholder of any of its obligations under this Rights Agreement or (ii) arise out of, or are based upon, any such untrue statement or omission or allegation thereof based upon information furnished to the Company by such selling Shareholder or on such selling Shareholder's behalf; and provided, further, that with respect to any untrue statement or omission or alleged untrue statement or omission made in any preliminary prospectus, the indemnity contained in this paragraph shall not apply to the extent that any such loss, claim, damage, liability or expense results from the fact that a current copy of the prospectus was not sent or given to the persons or entities asserting any such loss, claim, damage, liability or expense at or prior to the written confirmation of the sale of the Registrable Securities concerned to such persons or entities with a current copy of the prospectus and such current copy of the prospectus would have cured the defect giving rise to such loss, claim, damage, liability or expense. The Company agrees to indemnify any underwriters of the Registerable Securities, their officers and directors and each person who controls such underwriters on terms consistent with industry standards in effect at such time. (b) Indemnification by Shareholders. Each selling Shareholder agrees to indemnify and hold harmless the Company and each person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act to the same extent as the foregoing indemnity from the Company to such selling Shareholder, but only with respect to losses, claims, damages, liabilities or expenses which (i) result from a breach of such selling Shareholders obligations under this Rights Agreement or (ii) arise out of, or are based upon, information furnished in writing by such selling Shareholder or on such selling Shareholder's behalf. Each seller Shareholder agrees to indemnify and hold harmless the underwriters of the Registrable Securities, their officers and directors and each person who controls such underwriters on terms consistent with industry standards in effect at such time. 5 (c) Contribution. If the indemnification provided for in this Section 7 is unavailable to any indemnified parties in respect of any losses, claims, damages, liabilities or judgments referred to herein, then each indemnifying party, in lieu of indemnifying such indemnified party, shall contribute to the amount paid or payable by such indemnified party as a result of such losses, claims, damages, liabilities and judgments (i) as between the Company and the selling Shareholders on the one hand and the underwriters on the other, in such proportion as is appropriate to reflect the relative benefits received by the Company and the selling Shareholders on the one hand and the underwriters on the other, from the offering of the Registrable Securities, or if such allocation is not permitted by applicable law, in such proportion as is appropriate to reflect not only such relative benefits but also the relative fault of the Company and the selling Shareholders on the one hand and of the underwriters on the other in connection with the statements or omissions which resulted in such losses, claims, damages, liabilities or judgments, as well as any other relevant equitable considerations and (ii) as between the Company on the one hand and each selling Shareholder on the other, in such proportion as is appropriate to reflect the relative fault of the Company and of each selling Shareholder in connection with such statements or omissions, as well as any other relevant equitable considerations. Section 8. Miscellaneous. (a) Notices. All notices that are required or may be given pursuant to the terms of this Rights Agreement shall be in writing and shall be sufficient in all respects if given in writing and delivered personally or by a recognized courier service or by registered or certified mail, postage prepaid, to any party at its address set forth below, with a copy of same by any of the authorized means to the indicated person or persons: If to Company: American Business Information, Inc. Post Office Box 27347 5711 South 86th Circle Omaha, NE 68127 Attention: Vinod Gupta and Jon H. Wellman with a copy to: Kutak Rock 1650 Farnam Street Omaha, NE 68102 Attention: Steven P. Amen, Esq. If to a Shareholder: To the address set forth in Schedule 1 Any notice or other communication shall be deemed to have been given on the day it is personally delivered or delivered by a recognized courier service as aforesaid or, if mailed, on the fifth day after it is mailed. Any party may change its address for notices or the person or persons authorized to receive notices for it by providing notice to the other parties in accordance with this Section. (b) Invalidity of Provisions. If any provision of this Rights Agreement is determined to be invalid, illegal or unenforceable, in whole or in part, then the parties shall be relieved of all obligations arising under such provision to the extent it is invalid, illegal or unenforceable, and such provision shall be reformed to the extent necessary to make it legal and enforceable while preserving its intent or, if that is not possible, by substituting therefor another provision that is legal and enforceable and achieves the same objectives. 6 (c) Section Titles. All section titles and captions in this Rights Agreement are for convenience only, shall not be deemed part of this Rights Agreement and in no way shall define, limit, extend or describe the scope or intent of any provisions of this Rights Agreement. (d) Further Acts. The parties shall execute all documents, provide all information and take all such actions as may be reasonably necessary or appropriate to achieve the purposes of this Rights Agreement and to accomplish the transactions contemplated hereby. (e) Entire Agreement; Waiver. This Rights Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings relating to the subject matter hereof. This Rights Agreement cannot be modified or amended except in writing signed by the party against whom enforcement is sought. No waiver by a party of any of the provisions of this Rights Agreement shall be deemed or shall constitute a waiver of any other provision of this Rights Agreement, nor shall any such waiver constitute a continuing waiver. (f) Counterparts. This Rights Agreement may be executed in multiple counterparts, all of which together shall constitute one agreement binding on the parties hereto, notwithstanding that the parties are not signatories to the same counterpart. (g) Governing Law. This Rights Agreement shall be governed by and construed in accordance with the substantive laws of the State of Delaware and the United States, as applicable, without giving effect to any conflict of laws provisions that might result in the application of the laws of another jurisdiction. 7 IN WITNESS WHEREOF, the parties hereto have caused this Rights Agreement to be duly executed as of date first above written. AMERICAN BUSINESS INFORMATION, INC. By --------------------------------- Its -------------------------------- SHAREHOLDERS ----------------------------------- Terry F. Allen ----------------------------------- Andrew F. Allen ----------------------------------- Jared P. Allen ----------------------------------- Seth W. Allen ----------------------------------- Winston Lewis ----------------------------------- Brian L. O'Connell ----------------------------------- Leslie P. Allen 8 SCHEDULE 1 SHAREHOLDERS
Shares of Name/Address Company Stock - - ------------ ------------- Terry F. Allen 285,600 K-1 Gardenside Townhouses Shelburne, VT 05482 Andrew F. Allen 44,800 1160 Old Stage Road Westford, VT 05494 Jared P. Allen 44,800 P.O. Box 62 Winooski, VT 05404 Seth W. Allen 44,800 26 Grove Street Burlington, VT 05401 Winston Lewis 67,200 152 DeForest Road Burlington, VT 05401 Brian L. O'Connell 50,400 26 Harte Circle Williston, VT 05495 Leslie P. Allen 22,400 26 Grove Street Burlington, VT 05401
EX-11 7 COMPUTATION OF PER SHARE EARNINGS EXHIBIT 11 AMERICAN BUSINESS INFORMATION, INC. STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994 (IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
1996 1995 1994 ------- ------- ------- Average shares outstanding.............................. 21,033 20,738 20,678 Net additional common equivalent shares (1)............. 341 632 174 ------- ------- ------- Average number of common and common equivalent shares outstanding...................................... 21,374 21,370 20,852 ======= ======= ======= Net income for per share computation (1)................ $ 3,819 $14,346 $12,824 ======= ======= ======= Net income per average common and common equivalent share outstanding............................ $ 0.18 $ 0.67 $ 0.62 ======= ======= =======
______________________________ (1) This calculation is submitted in accordance with Regulation S-K item 601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion No. 15 because it results in dilution of less than 3 percent. EX-21 8 AMERICAN BUSINESS SUBSIDIARIES EXHIBIT 21 AMERICAN BUSINESS INFORMATION, INC. SUBSIDIARIES AND STATE OF INCORPORATION American Business Communications, Inc.........................Delaware BMI Medical Information, Inc..................................Delaware County Data Corp..............................................Vermont American Business Information Marketing, Inc..................Delaware CD-ROM Technologies...........................................Delaware Contacts Influential, Inc.....................................Delaware EX-23 9 CONSENT OF INDEENDENT ACCOUNTANTS EXHIBIT 23 CONSENT OF INDEPENDENT ACCOUNTANTS We consent to the incorporation by reference in the Registration Statement on Form S-8 (File No. 33-59256) of American Business Information, Inc. of our report dated January 24, 1997, on our audits of the consolidated financial statements and financial statement schedule of American Business Information, Inc. as of December 31, 1996 and 1995, and for each of the three years in the period ended December 31, 1996, which report is included in this Annual Report on Form 10-K. /s/ Coopers & Lybrand L.L.P. COOPERS & LYBRAND L.L.P. Omaha, Nebraska March 28, 1997 EX-27 10 FINANCIAL DATA SCHEDULE
5 12-MOS DEC-31-1996 DEC-31-1996 7,497 22,810 30,293 0 0 66,775 33,338 14,452 108,576 20,097 427 0 0 55 87,997 108,576 0 108,298 0 101,393 0 0 209 8,947 3,400 5,547 1,728 0 0 3,819 0.18 0.18
-----END PRIVACY-ENHANCED MESSAGE-----