SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
(Amendment No. 4)
infoUSA Inc.
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(Name of Issuer)
Common Stock, $.0025 Par Value Per Share
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(Title of Class of Securities)
456818301
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(CUSIP Number)
Cardinal Capital Management, LLC
One Fawcett Place
Greenwich, Connecticut 06830
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
March 21, 2006
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(Date of Event which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to
report the acquisition that is the subject of this Schedule 13D, and is filing
this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [].
CUSIP No. 456818301
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1. NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Cardinal Capital Management, LLC - 06 1422705
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
3. SEC USE ONLY
4. SOURCE OF FUNDS
WC, AF
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON
7. SOLE VOTING POWER
1,479,900
8. SHARED VOTING POWER
0
9. SOLE DISPOSITIVE POWER
3,336,810
10. SHARED DISPOSITIVE POWER
0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
3,336,810
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
6.2%
14. TYPE OF REPORTING PERSON
IA
CUSIP No. 456818301
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1. NAME OF REPORTING PERSONS
I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS (ENTITIES ONLY)
Cardinal Value Equity Partners, LP - 06 1425087
2. CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [_]
(b) [_]
3. SEC USE ONLY
4. SOURCE OF FUNDS
WC
5. CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEMS 2(d) OR 2(e) [_]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF SHARES BENEFICIALLY OWNED BY EACH REPORTING PERSON
7. SOLE VOTING POWER
154,500
8. SHARED VOTING POWER
0
9. SOLE DISPOSITIVE POWER
154,500
10. SHARED DISPOSITIVE POWER
0
11. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
154,500
12. CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES
13. PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
0.29%
14. TYPE OF REPORTING PERSON
PN
CUSIP No. 456818301
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Item 1. Security and Issuer.
The name of the issuer is infoUSA Inc. (the "Issuer"). The address of the
Issuer's offices is 5711 South 86th Circle, Omaha, Nebraska 68127. This schedule
13D relates to the Issuer's Common Stock, $.0025 Par Value Per Share (the
"Shares").
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Item 2. Identity and Background.
(a)-(c), (f) This Schedule 13D is being filed by Cardinal Capital
Management, LLC, a Delaware limited liability company ("Cardinal") and Cardinal
Value Equity Partners, LP, a Delaware limited partnership (collectively, the
"Reporting Persons"). The principal business address of the Reporting Persons is
One Fawcett Place, Greenwich, Connecticut 06830. The Managing Partner and a
Member of Cardinal is Ms. Amy K. Minella. Mr. Eugene Fox and Mr. Robert B.
Kirkpatrick are each Managing Directors and Members of Cardinal and Mr. Thomas
J. Spelman is the Chief Compliance Officer. (Ms. Minella, Mr. Fox, Mr.
Kirkpatrick and Mr. Spelman are collectively referred to herein as the "Members
and Executive Officers").
(d) None of the Reporting Persons nor any of Cardinal's Members and
Executive Officers has, during the last five years, been convicted in a criminal
proceeding (excluding traffic violations or similar misdemeanors).
(e) None of the Reporting Persons nor any of Cardinal's Members and
Executive Officers has, during the last five years, been a party to a civil
proceeding of a judicial or administrative body of competent jurisdiction and as
a result of such proceeding was or is subject to a judgment, decree or final
order enjoining future violations of, or prohibiting or mandating activities
subject to, Federal or state securities laws or finding any violation with
respect to such laws.
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Item 3. Source and Amount of Funds or Other Consideration.
This Schedule 13D contains information regarding Shares that may be deemed to be
beneficially owned by Cardinal. Such Shares are held by various investment
management clients, including Cardinal Value Equity Partners, L.P., of Cardinal
("Cardinal Clients") in accounts with respect to which Cardinal has investment
discretion and in certain instances has obtained sole voting power.
As of the date hereof, the Reporting Persons may be deemed to beneficially own
3,336,810 Shares.
The funds for the purchase of the Shares by Cardinal Capital Management, LLC
came from the funds and/or managed accounts managed by Cardinal Capital
Management, LLC.
The funds for the purchase of the Shares by Cardinal Value Equity Partners, LP
came from its working capital.
The total cost for the Shares held by the Cardinal Clients is $35,086,841.62
No borrowed funds were used to purchase the Shares, other than any borrowed
funds used for working capital purposes in the ordinary course of business.
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Item 4. Purpose of Transaction.
(a-j) The Shares held by the Reporting Persons were acquired for, and are being
held by Cardinal Clients for, investment purposes on the Reporting Persons'
behalf. The acquisitions of the Shares were made in the ordinary course of the
Reporting Persons' business or investment activities, as the case may be.
The Reporting Persons have certain concerns regarding the conduct of the Board
of Directors, and, as previously disclosed on the Reporting Persons' initial
filing on Schedule 13D, on September 2, 2005, Cardinal Value Equity Partners, LP
sent a letter to the Issuer expressing these concerns. On February 22, 2006,
Cardinal Value Equity Partners, LP filed under seal a derivative and class
action complaint, Cardinal Value Equity Partners, LP v. Gupta et al. Civil
Action No. 1959-N in the Court of Chancery of the State of Delaware (the
"Complaint"). The Complaint was sealed in accordance with the terms of a
confidentiality agreement between Cardinal Value Equity Partners, LP and the
Issuer, dated September 23, 2005 entered into in connection with the Cardinal
Value Equity Partners, LP's demand for inspection of corporate records under
Section 220 of Delaware Corporation Law. On February 22, 2006 a letter was sent
on behalf of the Issuer to Cardinal Value Equity Partners, LP's counsel
regarding the Complaint and on February 23, 2006, Cardinal Value Equity
Partners, LP sent Issuer's counsel a response to the letter. Both letters were
included as exhibits in the Reporting Persons' last filing on Schedule 13D,
dated February 27, 2006. On March 20, 2006, defendants' counsel sent a letter to
the Court of Chancery stating that the defendants did not object to the
unsealing of Complaint. This Amendment No. 4 to the Schedule 13D is being filed
to include the unsealed Complaint. The Complaint is attached as Exhibit B.
In an effort to protect the investment of Cardinal Clients and the investments
made on behalf of the investors in Cardinal Value Equity Partners, LP, as well
as to maximize shareholder value, the Reporting Persons may acquire additional
Shares, dispose of all or some of these Shares from time to time, in each case
in open market or private transactions, block sales or purchases or otherwise,
or may continue to hold the Shares, depending on business and market conditions,
its continuing evaluation of the business and prospects of the Issuer and other
factors.
Although the Reporting Persons have no concrete plans to do so, the Reporting
Persons may also engage in and may plan for their engagement in:
(1) the acquisition of additional Shares of the Issuer, or the
disposition of Shares of the Issuer;
(2) an extraordinary corporate transaction, such as a merger,
reorganization or liquidation, involving the Issuer;
(3) a sale or transfer of a material amount of assets of the Issuer;
(4) any change in the present board of directors or management of the
Issuer, including any plans or proposals to change the number or
term of directors or to fill any existing vacancies on the board;
(5) any material change in the present capitalization or dividend
policy of the Issuer;
(6) any other material change in the Issuer's business or corporate
structure;
(7) changes in the Issuer's charter, by-laws or instruments
corresponding thereto or other actions which may impede the
acquisition of control of the Issuer by any person;
(8) causing a class of securities of the Issuer to be delisted from a
national securities exchange or to cease to be authorized to be
quoted on an inter-dealer quotation system of a registered
national securities association;
(9) a class of equity securities of the Issuer becoming eligible for
termination of registration pursuant to Section 12(g)(4) of the
Act; and/or
(10) any action similar to those enumerated above.
Any future decisions of the Reporting Persons to take any such actions with
respect to the Issuer or its securities will take into account various factors,
including the prospects of the Issuer, general market and economic conditions
and other factors deemed relevant.
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Item 5. Interest in Securities of the Issuer.
(a-e) As of the date hereof, Cardinal Capital Management, LLC and Cardinal Value
Equity Partners, LP may be deemed to be the beneficial owner of 3,336,810 Shares
and 154,500 Shares, respectively, constituting 6.2% and 0.29% of the Shares of
the Issuer, respectively.
Cardinal Capital Management, LLC has the sole power to vote or direct the vote
of 1,497,900 Shares and dispose or direct the disposition of 3,336,810 Shares to
which this filing relates. Cardinal Value Equity Partners, LP has the sole power
to vote or direct the vote of and dispose or direct the disposition of 154,500
Shares to which this filing relates.
The Reporting Persons specifically disclaim beneficial ownership in the Shares
reported herein except to the extent of their pecuniary interest therein.
All transactions in the Shares which have been effected by the Reporting Persons
since the date of the Reporting Persons' last filing are listed as Exhibit C.
The 3,336,810 Shares were acquired for investment purposes. The Reporting
Persons may acquire additional Shares, dispose of all or some of these Shares
from time to time, in each case in open markets or private transactions, block
sales or purchases or otherwise, or may continue to hold the Shares.
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Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
The Reporting Persons do not have any contract, arrangement, understanding or
relationship with any person with respect to the Shares.
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Item 7. Material to be Filed as Exhibits.
A Joint Filing Agreement on behalf of the Reporting Persons is filed herewith as
Exhibit A
The unsealed derivative and class action compliant, Cardinal Value Equity
Partners, LP v. Gupta et al. Civil Action No. 1959-N is attached as Exhibit B
Transactions in the Shares which have been effected by the Reporting Persons
since the date of the reporting persons' last filing are listed on Exhibit C
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
March 22, 2006
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(Date)
CARDINAL VALUE EQUITY PARTNERS, LP
By: Cardinal Capital Management, LLC
General Partner
/s/ Amy K. Minella
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(Signature)
Amy K. Minella
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(Name/Title)
CARDINAL CAPITAL MANAGEMENT, LLC*
/s/ Amy K. Minella
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(Signature)
Amy K. Minella
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(Name/Title)
* The Reporting Person disclaims beneficial ownership except to the extent of
its pecuniary interest therein.
Exhibit A
JOINT FILING AGREEMENT
The undersigned agree that this Amendment No. 4 to Schedule 13D dated
March 22, 2006, relating to the Common Stock of infoUSA Inc. shall be filed
on behalf of the undersigned.
CARDINAL VALUE EQUITY PARTNERS, LP*
By: Cardinal Capital Management, LLC
General Partner
/s/ Amy K. Minella
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(Signature)
Amy K. Minella
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(Name/Title)
CARDINAL CAPITAL MANAGEMENT, LLC*
/s/ Amy K. Minella
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(Signature)
Amy K. Minella
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(Name/Title)
Exhibit B
EFiled: Feb 22 2006 5:17PM EST [SEAL OF THE
Transaction ID 10637215 COURT OF CHANCERY
OF THE STATE
OF DELAWARE]
IN THE COURT OF CHANCERY FOR THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
CARDINAL VALUE EQUITY PARTNERS, LP, :
derivatively and on behalf of :
nominal defendant, :
:
:
Plaintiff, :
:
v. : C.A. No. __________
:
Vinod Gupta, George F. Haddix, :
Elliott S. Kaplan, and Dennis P. :
Walker, :
:
Defendants, :
and :
:
infoUSA Inc., :
:
Nominal Defendant.
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YOU ARE IN POSSESSION OF A DOCUMENT FILED IN THE COURT OF
CHANCERY OF THE STATE OF DELAWARE THAT IS CONFIDENTIAL
AND FILED UNDER SEAL.
IF YOU ARE NOT AUTHORIZED BY COURT ORDER TO VIEW OR
RETRIEVE THIS DOCUMENT READ NO FURTHER THAN THIS PAGE. YOU
SHOULD CONTRACT THE FOLLOWING PERSON;
R. Bruce McNew, Esquire
Taylor & McNew LLP
2710 Centerville Road, Suite 210
Wilmington, DE 19808
Tel: 302/655-9200
IN THE COURT OF CHANCERY FOR THE STATE OF DELAWARE
IN AND FOR NEW CASTLE COUNTY
CARDINAL VALUE EQUITY PARTNERS, LP, :
derivatively and on behalf of :
nominal defendant, :
:
:
Plaintiff, :
:
v. : C.A. No. __________
:
Vinod Gupta, George F. Haddix, :
Elliott S. Kaplan, and Dennis P. :
Walker, :
:
Defendants, :
and :
:
infoUSA Inc., :
:
Nominal Defendant.
DERIVATIVE AND CLASS ACTION COMPLAINT
Plaintiff, Cardinal Value Equity Partners, LP ("Cardinal" or
"plaintiff'), by and through its attorneys, brings this action against the
defendants and for its complaint states as follows:
I. Nature of The Action and the Parties
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A. Nature of The Action
1. This is an action brought by Cardinal, derivatively on behalf of
infoUSA Inc. ("infoUSA" or the "Company") and as a class action on behalf of the
Class, as defined herein, against certain of the directors of the Company. The
action seeks relief with respect to defendant Vinod Gupta's ("V. Gupta"), the
dominant stockholder of the Company, abuse of his position for his personal
benefit whereby, through his domination and control of the Board of Directors,
he terminated the exploration of strategic alternatives designed to benefit all
shareholders. Historically, V. Gupta's domination and control has resulted in
numerous inappropriate actions designed to benefit V. Gupta and his family,
including interested party transactions, excessive compensation, and perquisites
and the employment of relatives. The most recent abuse of authority manifested
itself in the termination of the Company's investigation of strategic
alternatives because V. Gupta determined that such activity was not in his
personal interest. This action seeks to invalidate the Board action terminating
the Special Committee and its search for strategic alternatives.
B. The Parties
2. Cardinal is the record owner of 100 shares of the Company and
beneficially owns or has sole investment authority with respect to approximately
3,260,000 shares of the Company, approximately 6.1% of the Company's issued
shares and 9.5% of the shares not owned or controlled by V. Gupta. Cardinal is
the second largest owner of shares not affiliated with management. Cardinal has
beneficially owned and had investment authority with respect to shares of the
Company since March 31, 2004. Cardinal has continuously owned shares since that
time.
3. Defendant V. Gupta is Chairman of the Board and Chief Executive
Officer of the Company. He has served as the director of the Company since he
founded it in 1972, V. Gupta, along with his wife and sons, currently owns in
excess of 20,000,000 shares of the Company's common stock, representing
approximately 38% equity in the Company.
4. Defendant George F. Haddix ("Haddix") is Chairman of the Governance
and Nominating Committee and a member of the Compensation Committee of the Board
and has served as a director since 1995.
5. Defendant Elliott S. Kaplan ("Kaplan") is a member of the Finance
Committee and has served as a director since 1988.
6. Defendant Dennis P. Walker ("Walker") has served as a director
since 2003 and is a member of the Governance and Nominating and Compensation
Committees.
7. The Defendants referred to in paragraphs 3 through 6 hereof are
collectively referred to as the Individual Defendants and constitute half of the
eight member Board.
8. Nominal Defendant, infoUSA, is a Delaware corporation with its
principal place of business in Omaha, Nebraska.
9. infoUSA is a leading provider of business and consumer information
products, database marketing services, data processing services and sales and
marketing solutions. infoUSA's principal source of business is its proprietary
database of information related to 250,000,000 consumers and 14,000,000
businesses. infoUSA provides such data both directly to end users and also to
wholesalers who resell the data to end users. infoUSA has approximately three
million customers.
C. Non-Defendant Directors
10. Martin F. Kahn ("Kahn") has served as a director since 2004 and is
a member of the Governance and Nominating and Finance Committees. Vasant H.
Raval ("Raval") is Chairman of the Audit Committee and a member of the Finance
Committee of the Board and has served as a director since 2002. Anshoo Gupta
("A. Gupta") has been a director of the Company since April, 2005. A. Gupta is
not related to V. Gupta. William Fairfield ("Fairfield") joined the Board in
November 11, 2005. Collectively, Kahn, Raval, A. Gupta and former director
Charles Stryker ("Stryker") were a four person special committee formed in
response to an offer received by infoUSA from V. Gupta to acquire all the
outstanding publicly held common shares of the Company for $11.75 per share (the
"Gupta Offer"). At that time the Board had nine members, Stryker served as a
director from May, 2005 until his resignation in January, 2006.
II. Substantive Allegations
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A. Background
11. In February of 2005, V. Gupta wrote to the Company's second
largest stockholder stating he was committed to taking the stock of the Company
to $20 per share and higher in 2005.
12. In March 2005, V. Gupta purchased 61,000 shares at an average
price of $10.13 bringing his holdings to approximately 34.5%. At that time he
stated, in a public press release, "I continue to believe that infoUSA's stock
is worth in excess of $18 per share based on the Company's strong financial
condition and earnings momentum. Additionally, it is trading at a discount to
its peer group as measured by multiple of EBITDA and free cash flow."
13. On Wednesday June 8, 2005, after market close, infoUSA issued an
earnings warning lowering its earnings guidance by about approximately 5%. The
share price dropped from $11.94 to $9.85.
14. The earnings forecast purportedly was lowered because of the
impact of a change in the Company's pricing policies with respect to a high
margin portion of its business. The new pricing policy was initiated at the
direction of V. Gupta. The Company was aware that the change in pricing policy
would have an immediate short-term negative impact on its cash flows and
earnings, however, the Company and V. Gupta, expected that in the long run the
change in policy would produce superior financial effects. The Company did not
disclose the expectation of an improvement in earnings as the policy became
fully implemented and the Company's plan reached fruition.
B. V Gupta's Going Private Offer
15. On Monday June 13, 2005, V. Gupta announced an offer to acquire
all the outstanding shares of the Company for $11.75 per share. The price of
$11.75 per share was less than the price at which infoUSA shares had been
trading before the Company adjusted its earnings forecast just five days earlier
and well below the $18 per share minimum value placed on the Company's stock by
V. Gupta in March.
16. V. Gupta's offer was made opportunistically right after when the
initial, and expected, negative impact of the new pricing policy took effect on
the price of the stock.
17. On June 24, 2005, the Company announced that it had formed, on
June 14, a Special Committee consisting of Mssrs. Kahn, Stryker, Raval and A.
Gupta. The Special Committee also announced that it had engaged the law firm of
Fried Frank Harris Shriver and Jacobson LLP as legal advisor. The Company stated
that the authority of the Special Committee was to "review Mr. Vinod Gupta's
proposal and potential alternatives" (emphasis added).
18. On July 22, 2005, the Special Committee announced that it had
engaged Lazard Freres & Co. as financial advisor. The Company further announced
that as of July 18, 2005 V. Gupta had entered into an agreement, ending October
16, 2005, to refrain from taking certain actions related to acquisition of
infoUSA securities. The agreement provided he would not be subject to these
restrictions if the Company announced that it had entered into an agreement with
a third parry contemplating a merger consolidation, sale of assets or other
similar transaction.
19. On July 22, 2005 the Company reiterated that:
the Special Committee was formed to take all actions on behalf of the
InfoUSA Board of Directors with respect to V. Gupta's proposal, including any
actions that the Committee deems proper for the discharge of its fiduciary
duties. The Board of Directors authorized the Committee to determine whether the
Company should become a party to a transaction pursuant to V. Gupta's proposal
or otherwise; negotiate, accept or reject the proposal in its sole discretion;
solicit, consider or negotiate alternative proposals; engage independent
advisors; and take any other actions that the Committee deems to be appropriate
or necessary. (emphasis added).
20. On June 23, 2005, V. Gupta had stated "I think this Company and
this Company's employees would be better served if we were private and not have
to worry about all the regulations and stock price and analysts."
21. Without dissent, the Board concluded that the going private
transaction was in the best interest of all stockholders and determined to seek
a transaction eliminating the public stockholders equity interest in the
Company.
22. On August 25, 2005, the Company announced that the Special
Committee, based on its preliminary review, advised V. Gupta that his current
proposal was inadequate. The Company also stated that the Special Committee
further advised V. Gupta that while the Committee had made no decision about
alternatives, it would continue to explore potential strategic alternatives for
the Company.
23. In response, V. Gupta advised the Special Committee that he was
withdrawing his $11.75 per share offer and reiterated his intention not to sell
his shares or to vote in favor of any other transaction. Despite these
statements, the Special Committee, in a press release, stated that it intended
to continue to explore a range of strategic alternatives.
24. On August 26, 2005, Kahn presented a report to the Board on behalf
of the Special Committee. He reported that: (1) the Committee had retained
Fried, Frank, Harris, Schriver and Jacobson, LLP as its legal counsel and Lazard
Freres & Co. LLC as its financial advisors; (2) at a Special Committee meeting
on August 23, Lazard had presented a preliminary report which caused the Special
Committee to unanimously conclude that V. Gupta's offer of $11.75 was too low
and (3) the Special Committee concluded that any transaction should be subjected
to a "market check". Kahn indicated that he had communicated these conclusions
to V. Gupta on August 24 at which point V. Gupta advised the Special Committee
he was withdrawing his proposal.
25. The same day, it was reported that "infoUSA, Inc. will continue to
explore strategic alternatives after its Board of Directors on Thursday, August
25, rejected the $390 million dollar offer for the business and consumer data
company from CEO, Vinod Gupta."
26. V. Gupta publicly reiterated, on August 24, 2005, that he did not
desire to dispose of any of his shares and would not vote in favor of any
alternative transaction. Of course, because V. Gupta did not control a majority
of the stock of infoUSA, he did not have the legal ability to prohibit or block
a transaction that received sufficient support from other stockholders.
27. In a research report Brad Eichler, an equity analyst with the
Little Rock, Arkansas investment bank, Stephens, Inc., which followed infoUSA
and was also advising V. Gupta with respect to his offer, claimed that infoUSA's
Board had stated that it would negotiate with V. Gupta only "if he was willing
to vote his shares in favor of the best deal" that the Directors brought
forward. Eichler further wrote that if the Board did not have a credible higher
offer it had made a mistake. He stated "seeing that an advisor was hired only a
month ago, it is hard to imagine that the Board has received a higher bid". The
only possible source of Eichler's information was V. Gupta. V. Gupta was
attempting to poison the waters and twist the real reason for the withdrawal of
his offer.
28. V. Gupta also publicly indicated that the reason for his
withdrawal was that the Special Committee required, as a condition of any
negotiations, that he agree to support sale of the Company at a higher offer if
one was obtained. This statement was false.
29. In fact, the Special Committee determined that there needed to be
a market check and offered V. Gupta a choice, The Special Committee said it
would agree to negotiate exclusively with V. Gupta with the understanding that
"there would be a post-signing market check and that V. Gupta would be required
to commit to support a sale of the Company if a higher offer were ultimately
obtained." Alternatively, the Special Committee said it would agree to negotiate
with V. Gupta "along with other interested parties in an exploration of
potential strategic alternatives, but [V. Gupta] would not be given any
exclusivity and would not be required to commit to support an alternative
transaction." Under the first alternative, an exclusivity arrangement, V. Gupta
could have matched any offer which came forward. In this light, it is clear that
V. Gupta withdrew his offer because he was unwilling to see that the public
shareholders receive fair value.
30. At the August 26 board meeting, following the withdrawal of his
buyout offer, V. Gupta stated that from his perspective "the Company was not for
sale" and he would not sell his shares to a third party. Immediately following
this statement, the directors decided that there was no need for the Special
Committee.
31. The minutes reflect that certain directors discussed whether it
was desirable to "proactively seek alternative proposals". Then they purportedly
discussed the potential disruption to Company operations, the potential adverse
effect on key employees, the uncertainty and possible adverse effect on
employees in general and the consequential adverse impact on the interests of
the stockholders. In other words, V. Gupta and those directors under his control
were laying the boilerplate framework for the termination of not only the
Special Committee but of the consideration of all strategic alternatives other
than any which might be presented by V. Gupta in the future.
32. Immediately, after these "discussions" a formal vote abolishing
the Special Committee was conducted. By a vote of 5-3 with one abstention, the
directors terminated the search for strategic alternatives and dissolved the
Special Committee, notwithstanding its prior mandate to seek alternative
transactions. Those opposing the dissolution were three members of the Special
Committee, A. Gupta, Kahn and Stryker. The fourth member of the Special
Committee, Raval, abstained. The defendants also determined that V. Gupta was
not conflicted, notwithstanding the rejection of his offer, from voting to
terminate the pursuit of alternatives to his proposal.
33. The justifications advanced by the directors who voted to dissolve
the Special Committee were in direct contravention to the express mandate of the
Special Committee previously granted unanimously by the Board and, in direct
contravention to their determinations on those same issues made only six weeks
earlier. The only pertinent factor which had changed in those six weeks was V.
Gupta's decision that he was unwilling to offer more than $11.75 per share.
Because V. Gupta did not want the Company sold to anyone else, admittedly to
protect his interests, he and those under his control decided that the Company
was no longer for sale.
34. V. Gupta and the entire Board had previously decided only six
weeks earlier that it was in the best interest of the Company and all the
shareholders to pursue a potential sale of the Company to third parties. One and
only one fact changed from that time and when the Board abruptly changed its
decision: V. Gupta's decision not to offer more than $11.75 per share. The only
thing that changed was V. Gupta's inability to acquire the Company on the cheap.
Indeed, had V. Gupta abstained from the vote on dissolving the Special
Committee, as he should have, and had Raval acted free of V. Gupta's domination,
the Board would have been deadlocked 4-4 on the motion to dissolve and the
resolution would have failed. The dissolution of the Special Committee was
undertaken for one and only one purpose, to serve the personal interest of V.
Gupta in maintaining his personal fiefdom over the Company.
35. There was no rational basis, other than the protection of V.
Gupta's personal interest, for the decision of the Board to dissolve the Special
Committee and terminate the consideration of strategic alternatives. The
decision to undertake this action for the personal interest of its largest
stockholder was a violation of the directors' fiduciary duties and an improper
self-interested decision involving V. Gupta. It was achieved only through the
direct participation of and domination by V. Gupta and the support of those
dominated and controlled by him.
36. V. Gupta's conflict of interest remained notwithstanding his
decision to withdraw his offer rather than negotiate with the Special Committee.
V. Gupta's conflict of interest existed because of his personal interest in
blocking the sale to a third party while preserving his options and
opportunities to acquire the Company on his own.
37. Notwithstanding his abrupt withdrawal of his offer, V. Gupta is
not precluded from recommencing an offer at any time under any circumstances
and, indeed, he remains exempted from the Company's Shareholder Rights Plan. Of
course, while V. Gupta, has the right to hold and not sell his shares, he does
not have the right as a Board Member to block a sale of the Company to serve his
personal interest, nor to block action in the best interest of the Company.
38. Members of the Board, other than members of the Special Committee,
have stated subsequently that the reason the Board dissolved the Special
Committee was that the it was empowered to only consider V. Gupta's offer. This
explanation is obviously inconsistent with the Company's public announcements
and the Special Committee's actual authority. This false explanation was created
to attempt to justify V. Gupta's decision to terminate the Special Committee in
order to preclude the exploration of strategic alternatives for the Company.
Defendants terminated the Special Committee not because it had not been
authorized to consider such alternatives but, because V. Gupta did not wish the
Company to even consider, let alone engage in, any transactions other than his
own opportunistic offer.
39. In any event, the false explanation that the Special Committee was
never authorized to consider alternatives to V. Gupta's proposed transaction, if
accepted, would establish that the Company's prior disclosures regarding the
role and scope of the Special Committee were intentionally false and misleading.
The only logical explanation for overstating the Special Committees authority
would be an attempt to protect V. Gupta's effort to take the Company private
from shareholder scrutiny and challenge. Publicly stating that the Special
Committee had the ability to look at strategic alternatives, but secretly
denying it that authority would leave the false impression of an open and fair
process thereby bolstering shareholder support for V. Gupta's proposal and
insulating it from legal challenge. In other words, if the Special Committee did
not actually have the authority to consider alternatives, it was a sham designed
to defraud stockholders.
40. Another claim advanced by members of the Board other than the
Special Committee is that because V. Gupta has withdrawn his proposal there is
no reason that the entire Board cannot consider strategic alternatives and
offers received by the Company. However, given V. Gupta's stated opposition to
all such alternatives and given his withdrawal of his own offer in light of the
Special Committee's indication that it was too low, V. Gupta suffers from a
disabling conflict of interest and is not in a position to consider fairly
alternatives to his own still unfulfilled ambition. He has not disavowed a
continuing interest in pursuing a going private transaction.
41. The defendant directors in voting to terminate the Special
Committee were aware of V. Gupta's conflict of interest and were aware that they
were terminating the Special Committee in order to terminate the exploration of
strategic alternatives to V. Gupta's offer because V. Gupta did not wish there
to be an alternative to an acquisition by himself. Given V. Gupta's domination
and control, as well as the company's Poison Pill, no third party is likely to
come forward with an unsolicited offer.
42. The individual defendants were aware that the action they were
supporting, and indeed causing as a result of their support, was inconsistent
with their fiduciary duties to act on behalf of all shareholders and was one
which was intended to and did confer an improper personal benefit on V. Gupta,
at the expense of the majority of shareholders of infoUSA and the Company. The
individual defendants did not act out of a good faith belief that the Company
was better off pursuing no strategic alternative, because had they had such a
belief they would have rejected V. Gupta's offer out of hand from the start.
Instead, it is clear that the individual defendants, in breach of their
fiduciary duties, determined to use their Board positions to assure that infoUSA
would be sold, if at all, to V. Gupta and only to V. Gupta. To the extent the
public majority shareholders of infoUSA are bought out, their interest is in
receiving the highest price and the identity of the buyer is of no consequence.
43. V. Gupta's offer at $11.75 per share was 100% financed. V. Gupta
was not required to inject any new equity into the Company in order to acquire
sole ownership of it. Further, the price of $11.75 per share was sufficiently
low that he had room to raise his offer well above that level and still not be
required to provide any additional equity to complete the transaction. The only
consideration which would cause V. Gupta to withdraw immediately was his desire
to see that the Company be sold to himself and only to himself, and at a price
determined by him, not by fairness or the market.
44. In a conference call on October 26, 2005, V. Gupta continued his
inaccurate characterizations of his conduct and the reason for dissolving the
Special Committee. He stated:
While I believe my proposal was fair to the
shareholders, the Special Committee indicated that they
did not intend to proceed with my proposal on a prompt
basis. I decided to withdraw my proposal [following]
the decision of the Special Committee. Since a Special
Committee was formed to evaluate my going-private
proposal and that proposal had been withdrawn, the
Board of Directors determined that the Special
Committee should be dissolved.....
The Board of Directors will continue to act in the best
interests of all infoUSA shareholders. Also, as a
founder of infoUSA, I, along with my wife and three
sons, have a 40% ownership of the Company. And my
interests are aligned with the interests of other
infoUSA shareholders.
45. The foregoing statements by V. Gupta were false in that the reason
that V. Gupta withdrew his going-private proposal had nothing to do with whether
the Special Committee could proceed on a "prompt basis". His proposal was
withdrawn because the Special Committee insisted on a "market check". V. Gupta
opposed adamantly to having any market check of his proposal.
46. V. Gupta's desire to avoid a market check of his proposal
highlights the falsity of his claim that his interests are aligned with other
shareholders. V. Gupta did not want a market check because he was aware that
such a check would yield well in excess of his $11.75 per share. Indeed, V.
Gupta and the Board are aware that the Company had previously received an
unsolicited offer of $20 per share from Acxiom sometime in 1998. Acxiom
continues to be a major player in the Company's business sector and a major
competitor. There are no factors which would indicate that Acxiom has in any way
lost interest in acquiring the Company.
47. The $20 per share offer was rejected by the Board because V. Gupta
did not want to sell his stock. Of course, V. Gupta does not own a majority of
the stock and the decision to reject the $20 per share offer was improperly
based on V. Gupta's personal interests and not on the interests of all
stockholders.
48. Sometime in late September or early October of 2005, V. Gupta had
meetings with Acxiom senior officials at Acxiom's headquarters. Such visits were
not social visits as it is well-known that V. Gupta and the CEO of Acxiom do not
get along well. Given this lack of personal friendship, the fact that Acxiom and
the Company are direct competitors and V. Gupta's decision (supported by the
other defendants) to quash any effort to sell the Company as a whole, V. Gupta's
visit can only have been for his own self-interest. Based on this information it
is believed and therefore averred that V. Gupta continues to explore the
possibility of a transaction for the Company which would benefit him to the
detriment of the remaining stockholders
49. Stephens & Co., in assisting V. Gupta in his offer, were given
confidential Company financial projections at least as early as June 16, 2005
notwithstanding that it was not until July 18, that V. Gupta executed a
Confidentiality Agreement which allowed him to use certain non-public
information in connection with his offer. The Company's Code of Ethics
prohibited any employee from using Confidential Company Information without
express permission from the Board. V. Gupta used Stephens & Company as his
investment advisor in connection with his offer to acquire the Company. Stephens
& Company also had an analyst who provided research on the Company's stock.
III. Demand Excused Allegations
--------------------------
50. The plaintiff has not made demand on the Board of Directors as to
Derivative Count I and such demand is excused because it would be futile.
51. V. Gupta has personally and directly benefited from the alleged
wrongs herein. The remaining 3 individual defendants are unable to properly
consider a demand because they are dominated and controlled by and/or beholden
to V. Gupta. Further, Raval is also dominated and controlled. Despite personal
knowledge that V. Gupta abuses his control for his personal gain, these
defendants and Raval permit and in fact support such actions. Further in certain
instances, as more fully alleged herein, these defendants and Raval have
financial ties with the Company and have benefited from V. Gupta's abuses which
adversely affected their ability to properly assess any demand of the matters
raised herein. The Individual Defendants constitute half of the Board of
Directors. Further, as more fully alleged herein, Raval is dominated and
controlled by V. Gupta and is unable to properly consider a demand. All board
members were selected personally by V. Gupta and all could be removed by him at
will.
52. V. Gupta is personally interested in the matters alleged herein
and could not properly consider a demand from Cardinal. Further, V. Gupta has
operated the Company for his personal benefit without appropriate oversight by
the Board. V. Gupta has engaged in numerous interested party transactions,
received large, unjustified and unregulated perquisites, has employed members of
his personal family and has used the Company for personal liquidity purposes.
53. V. Gupta through his 38% ownership of the Company is not in a
position to assure a vote on an alternative merger would fail. While, under
Delaware law, V. Gupta, as a shareholder, is entitled to vote his shares against
any proposed transaction even if motivated solely out of his own financial
self-interest, he is not permitted to use his membership on the Board, nor his
domination and control of the board, to pursue his personal benefit rather than
the interests of the Company and all its stockholders. As more fully alleged
herein, V. Gupta has engaged in just such conduct.
54. As more fully alleged herein, the Defendants are aware that the
Special Committee was terminated, not because it was in the best interests of
the Company and all of its stockholders, but because it was solely in V. Gupta's
interests. They were aware that, unless stopped, the Special Committee's efforts
almost certainly would yield a strategic partner at a price far in excess of V.
Gupta's offer and that such an offer would receive overwhelming support from all
of the Company stockholders, except V. Gupta. The abrupt about face of these
Directors in first determining that it was in the best interest of the Company
to pursue strategic alternatives and then, terminating that effort when it did
not suit V. Gupta, is clear evidence that they will not act contrary to V.
Gupta's personal interests.
55. Further, these individual Defendants have also assisted V. Gupta
in a campaign designed to hide the real reason for the termination of the
Special Committee effort. Each of these Defendants has espoused and supported
the claim that the reasons for the termination of the Special Committee were
that it was not empowered to seek alternatives and V. Gupta's withdrawal of his
offer removed his conflict of interest and, thus, the Board as a whole could
consider strategic alternatives. The defendant's claim does not explain,
however, why the Board as a whole is not continuing to pursue the strategic
alternatives which the Board, only six weeks before, had decided unanimously
were appropriate.
56. These Individual Defendants determined to terminate the
exploration of strategic alternatives for one reason only, to benefit V. Gupta.
The only fact which had changed from the time these Board members decided to
pursue such alternatives and then, later, decided not to pursue such
alternatives, was V. Gupta's decision that he could not acquire the Company on
terms sufficiently favorable to him. There was no reason in the best interests
of the Company or all of its shareholders to terminate this search. Each of
these defendants was personally selected by V. Gupta to be on the board and V.
Gupta could remove any at will.
57. V. Gupta's domination and control of these defendants is also
shown by the exemption of V. Gupta from the Company's Shareholders Rights Plan.
V. Gupta and his family are exempt from the Shareholder Rights Plan (or "Poison
Pill"). The Poison Pill is designed to prohibit unsolicited acquisitions in
excess of 15% of the Company's stock. After his offer was made, V. Gupta entered
into a temporary standstill because the Company's Shareholder's Rights Plan did
not apply to him. However, there continues to be no logical justification as to
why the Company would not amend its Shareholder Rights Plan to seek to preclude
V. Gupta from acquiring additional shares including acquiring majority control
of the Company when the Board has concluded it needs that authority with respect
to all other potential purchasers. Indeed, how could someone acquiring 16% of
the Company's stock be more of a threat than V. Gupta acquiring an additional
16% of the Company's stock and thereby gaining majority control?
58. Despite efforts of certain members of the Board to either renew
the standstill with V. Gupta or include V. Gupta, and his family in the
Company's "Poison Pill", V. Gupta, through his domination and control of the
Defendants and Raval has frustrated all such attempts.
59. Defendant Kaplan is a named partner of and former Chairman of the
Executive Board of Robbins, Kaplan, Miller & Ciresi L.L.P., the Company's legal
counsel. In 2004, 2003 and 2002, the Company paid $576,000, $415,000 and
$685,000 respectively to this firm. Thus, the Company has paid on average in
excess of $550,000 per year for the last three years to Kaplan's law firm. For
the year 2004 the American Lawyer reported that the Robbins Kaplan firm had
approximately $164 million dollars in revenue and 244 lawyers, for an average
revenue of approximately of $672,000 per lawyer. Thus, the amounts paid by the
Company represented an amount equal almost to the average revenue generated per
lawyer for the Robbins Kaplan firm. Robbins Kaplan continues as counsel to the
Company. Such payments were and are material to Kaplan. Kaplan also received
$60,000 and $48,000 in directors fees in 2004 and 2003, respectively.
60. Defendant Kaplan is incapable of considering the demand because he
is under the domination and control of V. Gupta. As more fully alleged herein,
defendant Kaplan actively supported the termination of the Special Committee,
despite the inherent conflict of interest V. Gupta suffers in this circumstance.
He has indicated that he does not believe V. Gupta's offer presented the Company
with any issue of conflict of interest. He has indicated that despite V. Gupta's
personal interests in seeing that the Company is sold to no one other than
himself and despite the public statements that the Special Committee was formed
to consider strategic alternatives, the Special Committee was properly
terminated once V. Gupta withdrew his offer and that any potential offer by a
third party should be considered by the entire Board, including V. Gupta. He
also supported the termination of the search for strategic alternatives, which
establishes that the termination of the Special Committee was not for the
purpose of allowing the entire Board to control the process, but was to protect
V. Gupta's interests as a stockholder. Further, although he is aware that the
Special Committee rejected V. Gupta's offer as inadequate, he did not feel it
was necessary to inform himself as to the basis for that conclusion.
61. Defendant Walker is President and CEO of JetLinks Aviation.
Defendant Walker has received previously undisclosed financial benefits for the
Company including free office space for his private business from Everest, a
company affiliated with V. Gupta, and subsequent to the Company's acquisition of
that building, from the Company. Walker has received $36,000 and $60,000 in
director's fees in 2003 and 2004, respectively. Like defendant Kaplan he
supported termination of the Special Committee, the strategic process and has
supported V. Gupta's improper perks and use of Company assets.
62. Defendant Haddix is also incapable of properly considering a
demand. Defendant Haddix has supported V. Gupta in his use of his position for
personal gain and is under the domination and control of V. Gupta. Haddix has
stated that he views there being no conflict between V. Gupta having made an
offer for the Company and V. Gupta's participation in and decision to terminate
the Special Committee. He has stated he sees no conflict between V. Gupta's
interest in acquiring the Company, and his desire to see the Company is not sold
to a third parry, and V. Gupta, being in charge of any process which considers
potential offers from third party acquirers. Haddix stated that he considered
that the Special Committee authority to "consider other alternatives" authorized
it only to consider other alternatives involving V. Gupta. He did not view it as
appropriate for V. Gupta to abstain from the vote to disband the Special
Committee. Although Haddix as a member of the Governance Committee and the
Compensation Committee has exercised no independence as more fully alleged
herein
63. Further, Haddix has expressed a view that because V. Gupta already
owns 35% of the Company, it is appropriate to provide V. Gupta a preference in
considering offers from V. Gupta as opposed to third parties. Like Walker,
Haddix also received free office space from Everest and, later, the Company.
Haddix received fees of $84,000 in 2004 and $66,000 in 2003. Defendant Haddix
runs a company called PK Ware, a software company, with offices in Chicago.
Haddix, however, lives in Omaha and conducts his operations from the free office
space provided by the Company.
64. Ravel cannot properly consider a demand because Raval is dominated
and controlled and beholden to V. Gupta. Raval holds his position on the Board
solely because of V. Gupta's decision to place him on the Board, and were V.
Gupta dissatisfied with his role on the Board he would be removed. Raval is a
college professor at Creighton University. As reported in the Chronicle of
Higher Education the average fu11 professor's at Creighton is $86,300 plus
$3,000 as department chair. Ravel received $96,000 dollars and $139,000 dollars
respectively for his role as a member of the Board in 2004 and 2005. He also
recently received a $50,000 grant, which was controlled by V. Gupta, from the V.
Gupta School of Business Administration. These amounts were and are material to
Raval. Further, V. Gupta and Haddix have substantial social and financial
connections with Creighton University. V. Gupta is a substantial economic
contributor to the university and Haddix sits on the Board of Creighton
University and on the advisory counsel to the school of Business Administration
where Raval is a professor. V. Gupta has made multimillion dollar grants to fund
the V. Gupta School of Business Administration in India associated with
Creighton, and which has an exchange relationship with Creighton. infoUSA is one
of the leading recruiters of students from the college of business
administration, including accounting majors. These factors, in addition to the
history of Raval's acquiescence in, or in compliance with, V. Gupta's exercise
of domination and control establishes Raval is incapable of properly considering
a demand.
65. Charles Stryker joined the Board in May of 2005 as a "independent'
director. Stryker also served on the Special Committee. Stryker resigned from
the Board in January of 2006, after only nine months, ostensibly because of
business conflicts. However, these business relationships were the very business
relationships which were touted when Stryker joined the Board. Stryker voted to
have the Special Committee consider other alternatives, voted to inform V. Gupta
that his offer was too low and voted to oppose the dissolution of the Special
Committee. In addition, it is believed that Stryker attempted to press for
reforms in the company's corporate governance. Stryker's abrupt resignation can
be attributed to only one factor, frustration with the inability of he and the
other independent Board members, who are in the minority, to act against
domination and control exercised by V. Gupta over the other Board members. For
example, related party transactions abuses are legion, well documented and known
to all Board members. V. Gupta has assured shareholders, falsely, that the
transactions are appropriate, receive appropriate oversight and through Board
action have been "virtually eliminated". All of these statements are false, the
Board members know these statements are false yet these Defendants, with the
support of Raval, act to assure that the Board takes no action to stop these
abuses.
66. For many years the Board has allowed V. Gupta to run the Company
and its affairs including matters at the board level with little or inadequate
supervision. Even matters in which Mr. Gupta had an obvious self interest they
are acted upon with only a cursory, at best, examination and often in the
presence of V. Gupta himself who does not recuse himself while such matters were
being discussed or decided.
67. Documents produced by the Company reveal a stunning abuse of
Company resources by V. Gupta and his family for their personal expenses
including private jets, vacation homes, yachts and automobiles. Use of corporate
funds for personal expenses is so extensive that the company apparently even
paid the expenses of V. Gupta's aborted going private offer. These defendants
and Raval are fully aware of these abuses and have not acted to terminate them.
68. V. Gupta and his family, as well as certain Directors, have made
extensive use of corporate aircraft at Company expense for personal matters
without any compensation to the Company. Despite an overwhelming knowledge of
these Defendants regarding these abuses, they have taken no effort to terminate
such abuses and instead have actively sought to conceal these abuses by causing
the Company to acquire these assets, such as buildings, a yacht and corporate
aircraft in an effort to obscure the extent to which they are used for personal
purposes without compensation to the Company. These Defendants, and Raval's
tolerance of, and in certain instances active acceptance of, such benefits
demonstrates their inability to take any action which would be adverse to V.
Gupta's personal interests.
69. Transactions with Harold Anderson until, November 11, 2005 an
"independent" director are a further example. Anderson was a director of two of
the mutual funds of the Everest Mutual Funds of Family. The Everest Mutual Funds
of Family is a privately held mutual fund group. V. Gupta is President and owns
100% of the voting stock in Everest Funds Management, LLC, a Delaware
corporation, and 100% of Everest Asset Management. In 2002 the Company paid
Everest Asset Management $415,000 for acquisition related expenses. In 2001 the
Company invested $1,000,000 in the Everest3 Fund which is managed by Everest
Funds Management, LLC.
70. Although ostensibly independent as the Chairman of the
Compensation Committee and Audit Committee, Anderson in fact had substantial
economic and personal ties to V. Gupta. Anderson, a co-director of Everest
Investments with an undisclosed compensation, is provided rent free office space
within Everest Investments building, and later, after its acquisition by
infoUSA, in infoUSA's building. Anderson was provided extensive free use of
corporate aircraft for obviously personal reasons and additionally received
sizeable compensation. Anderson received $85,821 and $87,091 in 2003 and 2004,
respectively. Although aware of these relationships the defendants wrongly told
stockholders Anderson was part of an independent oversight of V. Gupta's
compensation and actions. In fact, the Audit Committee and the Compensation
Committee have acceded to virtually all of V. Gupta's demands and personal
interests. The committees have never conducted any independent verification of
any of the related party transactions or any of the compensation ever awarded to
V. Gupta. Indeed despite such matters being brought to the committee's
attention, the committee took no action to terminate improper related party
transactions and further approved the plan to convert the related party
transactions into direct company expenses thereby further obscuring the extent
to which V. Gupta and his family (and a even members of the Committee) used
corporate assets for personal purposes. The Committee's current membership is as
follows; William Fairfield, George F. Haddix and Dennis P. Walker.
71. In a conference call on October 26, 2005, V. Gupta in response to
questions about interested party transactions stated that as a result of Board
decisions several days earlier "virtually all" of them would disappear.
Critically, V. Gupta qualified all of his remarks with adjectives that left room
for continued interested party transactions. Further, from V. Gupta's remarks
and company documents, it is clear that one way the Company believes it can make
interested party transactions "disappear" is by having the Company acquire the
asset in question and thereby eliminate a third-party payment. For example,
rather than reimburse V. Gupta for V. Gupta's use of his own yacht, the Company
assumed the $2.2 million dollar obligation for the yacht and lets V. Gupta use
it. In the Company's parlance, this eliminated an interested party transaction.
A review of the minutes of October 23, 2005, just recently obtained by
plaintiffs however, reveal that the Board took no action and had no discussion
of related party transactions. Despite their knowledge that V. Gupta has
publicly claimed that the Board is exercising oversight over related party
transactions, the Board takes no action.
72. At the July 21, 2005 meeting of the Audit Committee, Raval
presented a summary of transactions between the company and related parties for
the first six months of 2005. The committee again reviewed its Related Parties
Transactions Policy which had been considered, but not adopted in the preceding
year. The Audit Committee agreed to adopt the policy, however only after
explicitly exempting from the policy "board-approved compensation of directors
or officers of the company, [and] ... normal reimbursement of business
expenses". The overwhelming majority of the related party transactions and the
bulk of the unregulated perquisites to V. Gupta are in the form of
"board-approved compensation" and "reimbursement expenses". Therefore, despite
overwhelming evidence of abuses and unregulated interested party transactions,
after years of fiddling about the issue, the Audit Committee's efforts result
only in a policy which specifically exempts the vast majority of the problems.
73. As alleged in detail herein, the purported criteria for
compensation of V. Gupta have been nothing but a ruse designed to justify the
compensation. V. Gupta's compensation, as "controlled" by the Compensation
Committee, is a heads he wins, tails the shareholders lose proposition because
no matter what the Company's performance, V. Gupta receives the compensation he
desires.
74. Specific examples of the lack of oversight by the Board include:
A. At a July 16, 2001 meeting the Audit Committee with V. Gupta
present, approved retroactively the Company's investment of $IM in a blended
index fund with Everest Investments. The matter was presented to the Audit
Committee because V. Gupta served as a director of Everest Investments and held
an undisclosed ownership interest in Everest. Anderson, a member of the Audit
Committee also served as a director of Everest, but did not recuse himself.
There is no indication that the investment was selected for any reasons relating
to the Company's business or business operations and there was no discussion by
the Audit Committee of why Everest Investments was selected even if the Company
were to decide to engage in such types of investing. There was no inquiry as to
why the matter had not previously been brought to the attention of the Audit
Committee nor why Anderson, as an Audit Committee member, had not seen fit to
bring it up previously. Further, there was no discussion of the propriety of
having Anderson and V. Gupta present during consideration of these matters.
B. The Board on July 16, 2001, directed that management prepare an
analysis of the compensation of directors at comparable companies and prepare a
proposed compensation plan to be presented to the Compensation Committee. On
July 31, 2001, the Compensation Committee received that report. However, instead
of adopting the report which recommended $4,000 per quarterly meeting and $2,000
for each additional special meeting i.e. $16,000 annually if the Board member
attended all meetings; the compensation committee determined to award $24,000
per year regardless of attendance and set a policy of expecting directors to
attend only 50% of meetings in person.
C. At the July 16, 2001 board meeting, the Board approved 700,000
shares of common stock to be distributed under the Company's 1992 stock option
plan. The Board did not make the allocation however and instead, simply
identified the executive officers who were to receive such compensation. The
Board provided to V. Gupta in his sole discretion the authority to determine who
would receive such compensation. The Board did not even require that V. Gupta's
recommendations receive Board authorization but instead gave V. Gupta carte
blanche.
D. At the October 15, 2001 Audit Committee meeting, the Audit
Committee with members of management present, retroactively approved the
Company's assumption of a building owned by Everest Investments, with whom both
V. Gupta and defendant Anderson, Chairman of the Audit Committee, had
affiliations. The Audit Committee received no written appraisals, no written
analysis of the terms of the transaction, no financial analysis of the benefit
to the Company. Instead, they received an oral report from two members of
management as to "the basis for determining the purchase price and the
anticipated financial impact on the Company of owning the building rather than
renting it." The full Board met immediately following that meeting and without
even disclosure of the relationships of Mr. Anderson and Gupta to Everest
Investments or the basis on which the Audit Committee considered recommending
approval of ratification of the investment, the full Board ratified.
E. On November 20, 2001 the Compensation Committee determined to award
V. Gupta the base salary of $560,000 per year and a bonus of 10% of the
company's EBITDA in excess of $80 million dollars. The Compensation Committee
purportedly did this based on an examination of compensation of officers of
other publicly traded companies, however, the Compensation Committee received no
report from any compensation consultant, no written evaluation of the
compensation presently paid to V. Gupta and no written evaluation of the
compensation paid to other chief executive officers of other publicly traded
companies.
F. At the March 14, 2002 Audit Committee meeting, matters related to
interested party transactions consumed one sentence. It states "members of the
Audit Committee and representatives of KPMG LLP discussed the Company's policies
and practices with respect to related party transactions and disclosures of such
transactions in the Company's public reports." At that time the Company had no
written policy regarding related party transactions. The Committee received no
written report or analysis of the Company's practices or policies either with
respect to such transactions or to the reporting of them. Indeed, there
apparently were no written documents relating to such policies or practices at
all as of that time.
G. On April 15, 2002 the Audit Committee conducted a joint discussion
with the Compensation Committee. Again, the Minutes simply referred to their
being a "joint discussion of the Company's policies and practices" with respect
to related party transactions and executive compensation. Again there was
absolutely no documentation which was reviewed by either the Audit Committee or
the Compensation Committee, and there were apparently no documents which existed
in any form whatsoever setting forth any Company policy or practice with respect
to related party transactions or executive compensation as of that time.
H. On April 15, 2002 the Compensation Committee again considered V.
Gupta's compensation and reaffirmed the compensation previously approved in
November, 2001 with the additional proviso that the bonus would not exceed
$940,000 dollars and that total compensation would not exceed that deductible
maximum for federal income tax purposes. It was also determined that the
compensation program for the year 2003 for V. Gupta would be presented to the
Company stockholders for approval. This revision of the previously established
compensation was apparently as a result of a memo written by Anderson to the
Board indicating that he, defendant Haddix and V. Gupta had met "as we agreed we
would when the subject of bonus payments to Vin was discussed in an informal
meeting involving members of the Audit Committee, representatives of our outside
auditors and Eric Matson in a telephone conference call on April 1." Eric Matson
is company counsel. In that memo Anderson informed the Board that, without there
having been any formal meeting approving changes in executive compensation, it
was "agreed that the Company would issue a check to V. Gupta for $940,000 as an
advance payment on a bonus expected to be earned in 2002." The memo stated "if
final figures fail to justify the payment of a bonus of that size, based on a
formula developed by the Compensation Committee, Vin would repay any unearned
amount." The memo noted that this would give V. Gupta a potential compensation
of $1,500,000, $500,000 which would not be deductible. In a circular
explanation, the memo explained that this arrangement was fair to the Company if
one assumed that V. Gupta had received higher compensation in the past.
Specifically, the memo states "if a $1,520,000 performance bonus were to have
been payable for Vin for either 2001 or 2002 performance, (which would have been
the scenario if the bonus formula approved by the Committee in November had been
previously authorized at the shareholders' meeting) ..... would produce
approximately the same after tax cost to the Company . . . as the current
proposal." (emphasis added). Left out of the Compensation Committee's analysis
and the analysis of the Board was that the Company had not agreed previously to
pay such amounts to V. Gupta nor had any such amounts been presented to the
shareholders for authorization.
I. At the January 13, 2003 Compensation Committee meeting which were
attended by V. Gupta and company counsel, the Company analyzed the bonus payable
to V. Gupta for the year 2003. Under the previously agreed program, the bonus
payable to V. Gupta was 10% of the Company's EBITDA in excess of $80 million
dollars or $290,000. The Compensation Committee, with V. Gupta present
nevertheless determined to pay V. Gupta an additional bonus of $140,000
notwithstanding that it was unearned on the executive compensation program "in
recognition of his services to the Company in fiscal year 2002." The
Compensation Committee further agreed that notwithstanding that it had advanced
an additional $510,000 to V. Gupta pursuant to the prior arrangement informally
reached and never approved by formal Board or Committee activity, V. Gupta would
not be required to immediately repay that and would be given 12 months to repay.
Further, as it was apparent that V. Gupta was unable to meet his own
self-selected goals for compensation, and in order to assure that he would not
have to repay the $510,000, V. Gupta's compensation for 2003 was set at the rate
of $490,000 per year plus a $510,000 bonus if the Company achieved consolidated
revenues of at least $318 million dollars and earnings before taxes and
amortization ("EBTA") of at least $66 million dollars. The Company's reported
revenues and EBTA for 2002 were $302 million dollars and $52 million dollars
respectively. There was no presentation by any independent compensation
consultant nor any review of the alleged compensation to be paid to comparable
chief executives. Indeed, the compensation figure of $1 million dollars appears
to have been selected simply because it would not require shareholder approval
and would be fully tax deductible.
J. On July 23, 2003 the Audit Committee was informed that management
intended to buy V. Gupta's interest in the right to use his skybox at Memorial
Stadium, home of the University of Nebraska Cornhuskers. The Committee requested
that management provide the Committee with documentation supporting the price to
be paid. Prior to providing that information, management went ahead with the
acquisition and only on October 20, 2003 provided its justification for the
price which was paid. The justification is nothing more than a calculation
wherein the Company pays for all future costs, $607,600 out of the original
purchase price of $617,400. The justification for the cost is that the box
brought with it the right to purchase 28 home game tickets per game at a price
of $150 per ticket. In other words the Company was paying full retail price
without any volume discounts or present value adjustment and, without any
analysis of why the Company was acquiring the skybox in the first place, who
would be using it and for what purposes.
K. At the January 19, 2004 Board Compensation Committee meeting, V.
Gupta's 2003 bonus was discussed. The Committee noted that based on the
compensation formula proposed that he was entitled to no bonus for the year
2003. In a heads he wins - tails shareholders lose analysis, the Compensation
Committee determined to award V. Gupta a bonus of $250,000 in recognition of the
Company's increased earnings and increased EBITDA, notwithstanding that these
were the very criteria under which V. Gupta was entitled to no bonus. The
Company also agreed to advance V. Gupta $260,000 on his fiscal 2004 salary so
that he would have sufficient funds with this advance and the award of the
unearned bonus to repay the money he owed the companies as of April 2002.
Finally, it having become clear that V. Gupta, having twice set formulas
designed to provide him large bonuses, failed to meet the performance criteria
he selected, the Committee decided to change V. Gupta's compensation to a
straight salary of $750,000, an increase of 53% for the year 2004.
L. Although the Board did submit the Company's Stock Option Plan for a
shareholder vote at the Company's annual meeting, the Plan passed only because
V. Gupta, the principal recipient of the stock options, voted his shares in
favor of the transaction. Had his shares been recused from the vote, the Plan
would have overwhelmingly failed. Indeed, at the meeting, after the conclusion
of the vote on the option plan, he was heard to quip "it's a good thing I own
40% of the stock
M. On November 22, 2004 the Audit Committee noted the need to update
its policies with respect to the review and approval of related party
transactions. Prior to that time the Company had no written policy regarding
such matters. That policy was presented to the Committee on December 14, 2004.
The Audit Committee recommended approval of the policy to the Board of
Directors. The policy required that the Company would not enter into a Material
Related Party Transaction, in excess of $60,000, without prior review and
approval by the Audit Committee. The Board Minutes reflect, however, that this
matter was never presented to the Board of Directors nor was it ever approved by
the Board of Directors.
N. On January 24, 2005 the Audit Committee met with, among others, V.
Gupta and his sons Alexander, Benjamin and Jess for the purpose of reviewing a
summary of related party transactions which, the Audit Committee later then
reviewed with the full Board. Those transactions showed the following: (i)
transactions with Annapurna (100% owned by V. Gupta) of $2,218,136 and
$1,524,381 for years 2003 and 2004 respectively; (ii) $420,108 and $575,875 with
Robbins, Kaplan, Miller & Ciresi (defendant Kaplan, a member of the Board) for
years 2003 and 2004 respectively; (iii) $40,878 and $57,543 with Aspen Leasing
Services (100% owned by V. Gupta) for the years 2003 and 2004; (iv) $57,000 and
$48,000 to Jess Gupta for the years 2003 and 2004 respectively, $75,696 and
$39,000 with the Gupta family 1999 irrevocable trust (a trust for V. Gupta) for
the years 2003 and 2004 respectively; (v) $33,000 and $31,200 with Financial
Communications (100% owned by Laurel Gupta, wife of V. Gupta) for the years 2003
and 2004 respectively; (vi) $110,221 and $2,794 with Everest Investment
Management (40% owned by V. Gupta) for the years 2003 and 2004 respectively;
(vii) $36,000 and $60,000 with Dennis Walker for the years 2003 and 2004
respectively; (viii) $48,000 and $60,000 with defendant Kaplan for the years
2003 and 2004 respectively; (ix) $85,821 and $87,091 with Anderson for the years
2003 and 2004 respectively; (x) $66,000 and $84,000 with defendant Haddix for
the years 2003 and 2004 respectively. The details of these transactions showed
that the Company was in fact paying for personal automobiles of V. Gupta and for
apartments and consulting services to his wife and family. The itemization has
also shown the numerous uses of airplanes by V. Gupta for obviously personal
trips (i.e. Christmas and New Years in Hawaii for V. Gupta and his family, trips
to Nassau, Bahamas for V. Gupta, his wife, and defendant Anderson). The
itemization also shows overseas travel on Company aircraft for V. Gupta and his
family. The transaction with Aspen Leasing indicates the Company was paying
leases on Gupta family items such as a H2 Hummer, a gold Honda Odyssey, a
Glacier Bay Catamaran, a Mini-Cooper, a Lexus 330, a Mercedes SL500. The
payments to Jess Gupta were for rent on his Maui condominium.
O. These items were also presented to the Baud on January 24, 2005
meeting. Notwithstanding the obvious personal nature of these transactions, the
Board took no action except to suggest that director Raval obtain additional
information and present it to the Board in the future at a meeting. Without
resolving the question of propriety of the numerous related party transactions,
the Compensation Committee determined to increase V. Gupta's annual salary to
$1,100,000 per year, an increase of 46.6%, and granted him another 500,000 stock
options, potentially with millions of dollars more.
P. Director Raval's report on related party transactions and
recommendation included that the use of jet aircraft and personal properties
including the Hillsbourgh Estate, the Maui condo, the automobiles, and boats. It
also highlighted that certain directors' related party transactions did not have
a sufficient record to show authorizations and whether the services could be
procured from other sources at comparable prices. The report further concludes
that the acquisition of the jets by infoUSA eliminated any question of "related
party payment to Annapurna." It notes, however, that the use of the aircraft
needed to be well-documented and personal use should be paid for by the
employee. The report concludes that the monthly fixed payments in anticipation
of use of personal property could not be easily supported and that the Company
should not allow such reimbursements. The Company noted that a portion of the
building acquired from Everest by the Company had as its occupants businesses
related to defendant Haddix, defendant Walker, and Everest (with whom V. Gupta
and then director Anderson had relationships). The report notes that no
compensation is made to infoUSA for the use of these facilities. Implicit in the
main report was that such persons and entities had not been making any payment
to Everest for the use of these facilities when the facilities were owned by
Everest. As to certain insurance payments to the Gupta family irrevocable
trusts, the report stated only that the payments should be made directly by V.
Gupta. The propriety of the existence of these payments or their reimbursement
was never examined. The minutes reflect no action was ever authorized by the
Board, the Audit Committee or the Compensation Committee in response to this
report. Indeed V. Gupta's next action was to propose taking the Company private.
75. The Company employs L. Gupta, V. Gupta's spouse as Director of
Investor Relations and Jess Gupta, V. Gupta's son as Business Development
Manager.
76. In 2001, the Company paid Everest Investment Management $120,000
for rented office space in the building adjacent to the Company's facility.
Everest Investment Management is 40% owned by V. Gupta. In 2001 the Company
purchased this facility, through the assumption of an existing mortgage, for a
purchase price of $2.8 million dollars.
77. In the four years through 2004 infoUSA paid $13.5 million dollars
to Annapurna for the use of their aircraft in addition to the actual purchases
in 2004. The jet aircraft served no legitimate business purpose and are in fact,
unregulated and unsupervised perquisites which the Board grants to V. Gupta. All
of infoUSA's primary facilities were within driving distance of its
headquarters. Although the Company ostensibly has a policy for the corporate use
and private use of planes, V. Gupta is not held to that policy and the Board
regularly grants exceptions. While other executives are technically permitted to
use the planes, most of the use is by V. Gupta, often in conjunction with family
members or friends. Senior officials of the Company have openly questioned the
need for aircraft. However, the Board has acceded to Gupta's demand to keep
them. V. Gupta informed the Board that the propriety of use of corporate
aircraft was monitored by the Company's auditors, KPMG. The Board subsequently
learned, however that KPMG's representatives only verified that actual use
occurred and made no effort to assess or inquire into the propriety of the use
of the aircraft or that the aircraft was actually used for appropriate business
functions. Notwithstanding having learned this information, the Board has taken
no action to rein in the use of corporate aircraft.
78. The Company yacht is similarly a basically unregulated perk
granted to V. Gupta. V. Gupta determines directly what functions occur on the
boat and whether that function constitutes an appropriate corporate function.
There is no independent oversight or review. Among the perks for which the yacht
is noted is its' "all female crew" as reported in the Triton Nautical News for
captains and crews. In June 2005, the Company entered into a long term lease
agreement for ownership of a yacht previously leased by Annapurna, for $2.2
million dollars
79. The acquisition of the skybox at the University of Nebraska
football stadium, again from Annapurna, is another unregulated unrestrained
perquisite granted to V. Gupta. V. Gupta received his MBA from the University of
Nebraska. Given that the Company serves national and international clientele,
the likelihood that there could possibly be the need for extensive entertainment
of clients and potential clients at the University of Nebraska football games is
at best highly unlikely.
D. Class Allegations
80. Plaintiff also brings this action as a class action pursuant to
Rule 23 of the Rules of this Court on behalf of itself and all other holders of
infoUSA Common Stock (except for the Defendants herein and any persons, firms,
trusts, corporations, family members or other entities related to or affiliated
with any of them and their successors in interest) (the "Class").
81. This action is properly maintainable as a class action because:
A. The Class is so numerous that joinder of all members is not
practical. While the exact number of beneficial owners is not known, it is
believed that the Company has in excess of 200 stockholders.
B. The members of the Class are situated throughout the United States
and are so numerous as to make it impractical to bring them all before this
Court.
C. There are questions of law and fact which are common to the Class
which predominate over other matters affecting any individual members, including
but not limited to whether the Defendants have breached their fiduciary duties
as alleged herein.
82. Plaintiff's claims are typical of the claims of other members of
the Class and that all members of the Class have been damaged by the Defendants'
action.
83. Plaintiffs are committed to prosecuting this action and have
retained competent counsel to bring litigation of this nature. Plaintiff is an
adequate representative to the Class.
84. A class action is superior to any other method for the fair and
efficient adjudication of this controversy.
85. This action is properly maintainable as a class action because a
direct action exists in that the stockholders will receive the benefit
individually of any remedy sought herein.
86. While Plaintiffs do not claim a right as shareholders to have the
Board of Directors agree to enter into a merger agreement or other business
combination, once the Board of Directors decided to explore such alternatives,
the shareholders, individually, would receive the benefit of any successful
pursuit of that goal. Here the action challenges the Defendants' breach of
fiduciary duty in terminating the exploration of such alternatives by the
Special Committee. Should the requested relief be granting, voiding that the
Defendants' actions in terminating the Special Committee activities, a
successful pursuit of the Special Committee's mission would benefit the
stockholders individually.
COUNT I
Derivatively On Behalf of infoUSA
87. Plaintiff incorporates paragraphs 1 through 86 hereof as if fully
set forth herein.
88. The decision of the defendants to terminate the Special
Committee's exploration of strategic alternatives was in breach of their
fiduciary duties and was for the sole purpose of protecting V. Gupta's interest
as a stockholder
89. The Company and the Company stockholders have no adequate remedy
at law to compensate for the loss of the Special Committee process and
exploration of strategic alternatives.
90. Only voiding the termination of the Special Committee and the
continuation of the strategic process will provide an adequate and fair remedy
for the Company and its stockholders.
91. Further, plaintiffs are entitled to damages in the amount provable
at trial including but not limited to the expenses of the Company in responding
to V. Gupta's offer.
COUNT II
On Behalf of The Class
92. Plaintiffs incorporate paragraphs 1 through 91 hereof as if more
fully set forth herein.
93. Plaintiffs bring this action in the alternative as a class action
because the remedy sought herein will inure to the benefit of stockholders as
stockholders.
94. Specifically, pursuit of strategic alternatives is likely to yield
a merger or acquisition which would provide such shareholders a favorable
opportunity to dispose of their stock.
95. As such, because the remedy will inure to the benefit of
stockholders, this action is properly brought as a class action.
WHEREFORE, plaintiff respectfully asks this Court for an order or
orders as follows:
A. Declaring that demand was properly excused with respect to Count I;
B. Declaring that Count II is properly brought as a class action;
C. Finding and determining that the defendants breached their
fiduciary duties as more fully alleged herein;
D. Finding the termination of the Special Committee was a breach of
defendants' fiduciary duties and voiding the Board action terminating the
Special Committee;
E. Awarding the Company and the Class such damages as they have
sustained;
F. Awarding plaintiff its litigations expenses, including attorneys
and expert fees and expenses; and
G. Such other and further belief as the Court deems just and
appropriate.
Dated: February 22, 2005 TAYLOR & MCNEW LLP`
By: /s/ Bruce McNew
-------------------
R. Bruce McNew (# 967)
2710 Centerville Road, Suite 210
Wilmington, DE 19808
Tel: (302)655-9200
COUNSEL FOR PLAINTIFF
Exhibit C
Schedule of Transactions in Shares Since the Last Filing
Tran Trade Settle Trade
Code Date Date Quantity Amount
--------------------------------------------------------------------------
Long in 3/2/2006 3/2/2006 22,500 259,060.50
Long in 3/2/2006 3/2/2006 56,300 639,646.82
Long out 3/2/2006 3/2/2006 -6,070 71,868.80
Buy 3/6/2006 3/9/2006 6,900 82,185.21
Sell 3/6/2006 3/9/2006 -200 2,349.12
Sell 3/13/2006 3/15/2006 -100 1,183.96
Sell 3/15/2006 3/20/2006 -1,280 15,399.58
Sell 3/20/2006 3/23/2006 -2,670 32,563.39
Sell 3/20/2006 3/23/2006 -2,510 30,612.02