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SCHEDULE 14A INFORMATION
(RULE 14-101)
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
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Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted
by Rule 14a-6(e)(2))
/ / Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11 or
Section 240.14a-12
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INTELLIQUEST INFORMATION GROUP, INC.
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(Name of Registrant as Specified in its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than Registrant)
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Payment of Filing Fee (Check the appropriate box):
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/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction
applies:
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(2) Aggregate number of securities to which transaction
applies:
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(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how
it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by
Exchange Act Rule 0-11(a)(2) and identify the filing for which
the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or
Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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INTELLIQUEST INFORMATION GROUP, INC.
SPECIAL MEETING OF STOCKHOLDERS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
On November 1, 1999 we announced that our stockholders had approved the merger
between WPP Group U.S. Finance Corp. and IntelliQuest Information Group, Inc. at
a special meeting of stockholders. Subsequent to that announcement, we
determined that our stockholders did not receive timely notice of that meeting
and of their appraisal rights under Delaware law. As a result, we are holding a
new special meeting of stockholders to vote upon the merger described in this
proxy statement.
You are cordially invited to attend the special meeting of our stockholders at
which you will be asked to vote on the proposed merger which will result in:
- - WPP Group U.S. Finance's paying a fixed amount of cash per share, which will
be set in accordance with a formula described in this proxy statement. Our
current estimate of the amount that WPP Group U.S. Finance will pay per share
is approximately $12.70, for each of your shares of our common stock. If the
actual amount, which won't be determined until after you vote, is less than
$12.25, we will either seek your approval again or terminate the agreement
with WPP Group U.S. Finance; and
- - IntelliQuest's merging with WPP Acquisition Corp., a newly-formed,
wholly-owned subsidiary of WPP Group U.S. Finance, and IntelliQuest becoming a
wholly-owned subsidiary of WPP Group U.S. Finance.
Because our board of directors has determined that the terms of the merger
agreement and the merger are fair to and in the best interests of our
stockholders, the board unanimously approved and adopted the merger agreement
and is soliciting your proxy and approval of the merger agreement. Our board of
directors considered the opinion of U.S. Bancorp Piper Jaffray Inc. that the
cash to be paid in the merger is fair to our stockholders from a financial point
of view. OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR"
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT.
YOUR VOTE IS VERY IMPORTANT.
The date, time and place of the meeting is: December 20, 1999 at 10:00 a.m.,
local time:
IntelliQuest Information Group
1250 Capital of Texas Highway South
Building One, Suite 600
Austin, Texas 78746
Whether or not you plan to attend the meeting, please complete and mail the
enclosed proxy card to us. If you sign, date and mail your proxy without
indicating how you want to vote, your proxy will be counted as a vote in favor
of the merger. If you abstain or do not vote, it will have the effect of a vote
against the merger.
This proxy statement provides you with detailed information about the proposed
merger. We encourage you to read the entire document carefully.
[SIG]
F. S. (KIT) WEBSTER III
CHIEF FINANCIAL OFFICER AND SECRETARY
PROXY STATEMENT DATED [ ], 1999 AND
FIRST MAILED TO STOCKHOLDERS ON [ ], 1999.
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INTELLIQUEST INFORMATION GROUP, INC.
1250 CAPITAL OF TEXAS HWY. SOUTH
BUILDING ONE, SUITE 600
AUSTIN, TEXAS 78746
---------------------
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON DECEMBER 20, 1999
------------------------
To our stockholders:
Notice is hereby given that a special meeting of stockholders of
IntelliQuest Information Group, Inc. will be held on December 20, 1999 at
10:00 a.m., local time, at our executive offices located at 1250 Capital of
Texas Highway South, Building One, Suite 600, Austin, Texas 78746 for the
following purposes:
1. To consider and vote upon a proposal to adopt and approve:
- the agreement and plan of merger dated as of August 12, 1999, among
IntelliQuest, WPP Group U.S. Finance Corp., and WPP Acquisition Corp.,
a newly-formed, wholly-owned subsidiary of WPP Group U.S. Finance; and
- the merger of WPP Acquisition Corp. with and into IntelliQuest, as a
result of which each of our stockholders other than stockholders who
are entitled to and have perfected their appraisal rights will become
entitled to receive a fixed amount of cash per share, which will be set
in accordance with a formula described in the accompanying proxy
statement. Our current estimate of the amount that WPP Group U.S.
Finance will pay per share is approximately $12.70 for each of your
shares of common stock. If the actual amount, which won't be determined
until after you vote, is less than $12.25, we will either seek your
approval again or terminate the merger agreement. A copy of the merger
agreement is attached as Appendix A to, and is described in, the
accompanying proxy statement.
2. To consider and act upon such other matters as may properly come before
the special meeting or any adjournment or postponement of the special
meeting.
Our board of directors has determined that only holders of our common stock
of record at the close of business on November 15, 1999, will be entitled to
notice of, and to vote at, the special meeting or any adjournment or
postponement of the special meeting. A list of such stockholders will be
available for inspection at our offices located at 1250 Capital of Texas Hwy.
South, Building One, Suite 600, Austin, Texas 78746, at least ten days prior to
the special meeting.
The accompanying proxy statement describes the merger agreement, the
proposed merger and certain actions to be taken in connection with the merger.
You are cordially invited to attend the meeting in person. To ensure that your
vote will be counted, please complete, date and sign the enclosed proxy card and
return it promptly in the enclosed postage-paid envelope, whether or not you
plan to attend the special meeting. You may revoke your proxy in the manner
described in the accompanying proxy statement at any time before it is voted at
the special meeting. Executed proxies with no instructions indicated thereon
will be voted "FOR" approval and adoption of the merger and the merger
agreement.
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OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" APPROVAL
AND ADOPTION OF THE MERGER AND THE MERGER AGREEMENT.
By order of our board of directors
[SIG]
F. S. (Kit) Webster III
CHIEF FINANCIAL OFFICER AND SECRETARY
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ENCLOSED PROXY CARD AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PREPAID ENVELOPE, WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING.
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME. IF THE
MERGER IS CONSUMMATED, YOU WILL BE SENT INSTRUCTIONS REGARDING THE SURRENDER OF
YOUR CERTIFICATES.
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TABLE OF CONTENTS
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QUESTIONS AND ANSWERS ABOUT THE INTELLIQUEST/WPP GROUP U.S.
FINANCE MERGER............................................ 1
SUMMARY..................................................... 3
Date, Time And Place of the Special Meeting............. 3
Purpose of the Special Meeting.......................... 3
Record Date and Quorum.................................. 3
Vote Required........................................... 3
Parties to the Merger................................... 4
The Proposed Merger..................................... 4
Effective Date of the Merger; Payment for Shares........ 4
Background of the Merger................................ 5
Our Board of Directors' Recommendation.................. 5
Opinion of our Financial Advisor........................ 5
Conflicts of Interest................................... 5
Certain Effects of the Merger........................... 5
Conditions to the Merger................................ 6
Termination of the Merger Agreement..................... 6
Termination Fee and Payment of Expenses................. 7
Financing for the Merger................................ 7
Material Federal Income Tax Consequences................ 7
Rights of Dissenting Stockholders....................... 8
Market Prices for Common Stock and Dividends............ 8
Selected Consolidated Financial Data.................... 8
FORWARD-LOOKING STATEMENTS.................................. 10
TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING.............. 10
RECORD DATE AND VOTING OF COMMON STOCK...................... 10
SOLICITATION OF PROXIES..................................... 11
THE MERGER.................................................. 11
Background of the Merger................................ 11
Recommendation of our Board of Directors................ 16
Opinion of our Financial Advisor........................ 17
WPP Group U.S. Finance's Reasons for the Merger......... 20
Persons Interested in the Merger........................ 21
The Merger Agreement.................................... 23
Regulatory Compliance................................... 32
Financing for the Merger................................ 33
Appraisal Rights........................................ 33
Material Federal Income Tax Consequences................ 35
Certain Effects of the Merger........................... 36
Litigation.............................................. 36
INFORMATION REGARDING INTELLIQUEST.......................... 37
INFORMATION REGARDING WPP GROUP U.S. FINANCE CORP........... 43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS................................. 44
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT...... 54
STOCKHOLDER PROPOSALS....................................... 55
INDEPENDENT PUBLIC ACCOUNTANTS.............................. 56
ADDITIONAL INFORMATION...................................... 56
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INTELLIQUEST INDEX TO FINANCIAL STATEMENTS.................. F-1
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APPENDICES:
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A. Agreement and Plan of Merger, as amended and
restated.................................................... A-1
B. Opinion of U.S. Bancorp Piper Jaffray Inc............. B-1
C. Delaware General Corporation Law Section 262:
Appraisal Rights............................................ C-1
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QUESTIONS AND ANSWERS ABOUT THE INTELLIQUEST/WPP GROUP U.S. FINANCE MERGER
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Q: WHAT AM I BEING ASKED TO VOTE UPON? WHAT A: We have agreed to merge IntelliQuest
WILL I RECEIVE IN THE MERGER? Information Group, Inc. with WPP
Acquisition Corp., a newly-formed,
wholly- owned subsidiary of WPP Group
U.S. Finance Corp., in exchange for WPP
Group U.S. Finance's paying a fixed
amount of cash per share, which will be
set in accordance with the formula set
forth on pages 23 and 24 of this proxy
statement. Our current estimate of the
amount WPP Group U.S. Finance will pay is
approximately $12.70 in cash for each of
your shares. If the actual amount, which
we won't determine until after you vote,
is less than $12.25, we will either seek
your approval again or terminate the
merger agreement. In determining the
current estimate of the merger
consideration payable to you, we have
included an estimate of the costs
associated with a lawsuit and certain
severance amounts, each of which is
described in this proxy statement.
Following the merger, you will no longer
own any interest in the combined company,
and we will be a wholly-owned subsidiary
of WPP Group U.S. Finance.
Q: WHY CAN'T YOU DETERMINE THE PRICE PER A. Two components of the purchase price,
SHARE BEFORE I VOTE? cash on our balance sheet and working capital
as of October 31, 1999, have not yet been
determined. Since we have not calculated
those numbers, we can only give you an
estimate of what we think the price per
share will be.
Q: WHEN AND WHERE IS THE SPECIAL MEETING? A: The special meeting will take place at
1250 Capital of Texas Highway South, Building
One, Suite 600, Austin, Texas 78746, on
December 20, 1999 at 10:00 a.m., local
time.
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Q: WHAT DO I NEED TO DO NOW? A: After carefully reading and considering
the information contained in this proxy
statement, indicate on your proxy card
how you want to vote, and sign and mail
it in the enclosed return envelope as
soon as possible, so your shares will be
represented at the special meeting. If
you sign and send in your proxy and do
not indicate how you want to vote, your
proxy will be counted as a vote for the
merger. If you do not send in your proxy
or you abstain, it will have the effect
of a vote against the merger and the
merger agreement.
Q: WHAT DO I DO IF I WANT TO CHANGE MY VOTE? A: Just mail or deliver a later-dated,
signed proxy card so that the proxy card is
received by us before the special
meeting, or attend the special meeting in
person and tell the secretary you want to
cancel your proxy and vote in person.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY A: No. Your broker will vote your shares for
MY BROKER, WILL MY BROKER VOTE MY SHARES you only if you provide instructions on how
FOR ME? to vote. You should instruct your broker
to vote your shares, following the
directions provided by your broker.
Without instructions, your broker will
not vote your shares, which will have the
same effect as a vote against the merger
and the merger agreement.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES A: No. After the merger is completed, WPP
NOW? Group U.S. Finance will send you written
instructions for exchanging your stock
certificates.
Q: WHEN DO YOU EXPECT THE MERGER TO BE A: We are working toward completing the
COMPLETED? merger as quickly as possible. We hope to
complete the merger before the end of
1999.
Q: WHAT DOES THE INTELLIQUEST BOARD OF A: Our board of directors unanimously
DIRECTORS RECOMMEND? approved the merger and the merger agreement
and unanimously recommends that you vote
"FOR" the proposal to approve the merger
and the merger agreement.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE A: The merger will be taxable to you unless
MERGER TO ME? you are exempt from tax. For more details,
please see "The Merger--Material Federal
Income Tax Consequences."
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT. YOU ARE URGED TO READ THIS PROXY STATEMENT AND ITS APPENDICES IN
THEIR ENTIRETY BEFORE VOTING. YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED
IN THIS PROXY STATEMENT. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
A special meeting of stockholders of IntelliQuest Information Group, Inc.
will be held at 10:00 a.m., local time, on December 20, 1999 at our executive
offices located at 1250 Capital of Texas Highway South, Building One, Suite 600,
Austin, Texas 78746.
PURPOSE OF THE SPECIAL MEETING
At the special meeting, our stockholders will consider and vote on a
proposal to adopt and approve the agreement and plan of merger, attached to this
proxy statement as Appendix A, dated as of August 12, 1999, among IntelliQuest,
WPP Group U.S. Finance Corp., and WPP Acquisition Corp., a newly-formed,
wholly-owned subsidiary of WPP Group U.S. Finance, and the merger of WPP
Acquisition Corp. with and into IntelliQuest. As a result of the merger, we will
become a wholly-owned subsidiary of WPP Group U.S. Finance. Each issued and
outstanding share of our common stock will be converted automatically into the
right to receive a fixed amount of cash, payable to the holder thereof, without
interest, other than shares held by any stockholders who are entitled to and who
have perfected their appraisal rights. The actual price per share that WPP Group
U.S. Finance will pay depends upon the amount of cash on our balance sheet and
working capital at October 31, 1999. Based upon our current estimates of such
amounts, we estimate that the price per share will be approximately $12.70. If
after determining the cash and working capital levels, the per share price is
less than $12.25, we will either seek your approval again or terminate the
merger agreement. In determining the current estimate of the merger
consideration payable to you, we have included an estimate of the costs
associated with a lawsuit and certain severance amounts, which will be paid
after the closing of the merger. Once we have determined the per share price, we
will issue a press release to inform you of the price. For more detailed
information, see "The Merger--Person Interested in the Merger,"--"The Merger
Agreement," and --"Litigation."
RECORD DATE AND QUORUM
Our board of directors has fixed the close of business on November 15, 1999
as the record date for the determination of stockholders entitled to notice of,
and to vote at, the special meeting and any adjournment or postponement of the
special meeting. Each holder of record of our common stock at the close of
business on the record date is entitled to one vote for each share then held on
each matter submitted to a vote of our stockholders. At the record date there
were 7,909,682 shares of our common stock outstanding. The holders of a majority
of the outstanding shares entitled to vote at the special meeting must be
present in person or represented by proxy to constitute a quorum for the
transaction of business. For more information see "Record Date and Voting of
Common Stock."
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of our common stock entitled to vote at the special meeting pursuant to Delaware
law is required to adopt and approve the merger agreement and the merger.
Therefore, a failure to vote or a vote to abstain will have the same legal
effect as a vote cast against adoption and approval of the merger agreement and
the merger. In addition, brokers who hold shares of our common stock as nominees
will not have discretionary
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authority to vote such shares in the absence of instructions from the beneficial
owners; thus, such "broker non-votes" will have the same legal effect as a vote
cast against adoption and approval of the merger agreement and the merger. For
more information, see "Record Date and Voting of Common Stock."
PARTIES TO THE MERGER
INTELLIQUEST INFORMATION GROUP, INC.
We are a provider of information solutions and services which help
technology companies and Internet marketers improve their marketing performance.
Our primary line of business is marketing research. We provide services
supporting clients' needs to understand and improve the strategic position of
their brands, products, media, channels and use of the Internet. Since our
founding in 1985, we have focused on meeting the specialized marketing
information needs of companies whose businesses and clients are driven by
technology. On September 15, 1999 we closed the sale of our IQ2.net division,
which included all of the capital stock of IQ2.net and certain other related
assets. The purchase price was $46.5 million.
WPP GROUP U.S. FINANCE CORP. AND WPP ACQUISITION CORP.
WPP Group U.S. Finance Corp. acts as the main financing company for all of
the United States operations of WPP Group plc and manages the centralized cash
management system for such operations. WPP Group U.S. Finance also acts as a
holding company for certain companies within the WPP Group of companies.
WPP Acquisition Corp. is a newly-formed, wholly-owned subsidiary of WPP
Group U.S. Finance formed for the purpose of being merged with and into us
pursuant to the terms and conditions of the merger agreement.
THE PROPOSED MERGER
The merger agreement provides that, subject to satisfaction of certain
conditions, WPP Acquisition Corp. will be merged into us, the separate existence
of WPP Acquisition Corp. will cease and we will continue to exist as a
wholly-owned subsidiary of WPP Group U.S. Finance. At the effective date of the
merger and subject to the conditions and procedures set forth in the merger
agreement, each share of our issued and outstanding common stock, other than
shares as to which statutory appraisal rights are properly perfected and not
withdrawn, shares held in our treasury or by any of our subsidiaries or shares
held by WPP Group U.S. Finance, WPP Acquisition Corp. or any other subsidiary of
WPP Group U.S. Finance, will, by virtue of the merger, be converted into the
right to receive the cash consideration described above in "Purpose of the
Special Meeting," without interest. For more information see "The Merger."
EFFECTIVE DATE OF THE MERGER; PAYMENT FOR SHARES
The merger will become effective at the time and date when a copy of a
certificate of merger is filed with the Secretary of State of the State of
Delaware pursuant to the Delaware General Corporation Law. The time of such
filing is currently expected to occur as soon as practicable after the special
meeting, subject to adoption and approval of the merger agreement and the merger
at the special meeting, satisfaction or waiver of the terms and conditions of
the merger agreement and the final determination of the purchase price. We will
not make a final determination of the purchase price until after the time of
your approval of the merger at the special meeting. Pursuant to the merger
agreement, during this time following the special meeting WPP Group U.S. Finance
will assume responsibility for the operation of our business subject to
consultation and review with Brian Sharples
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and our current board of directors. WPP Group U.S. Finance must consult with and
seek approval from Mr. Sharples and our board on all matters, other than matters
in the ordinary course of business.
A paying agent will forward to you detailed instructions with regard to the
surrender of certificates, together with a letter of transmittal, as soon as
reasonably practicable following the special meeting. You should not submit your
certificates to the paying agent until you have received these materials.
Payment for shares will be made to you as promptly as practicable following the
determination of the merger consideration and receipt by the paying agent of
your certificates and other required documents. No interest will be paid or
accrued on the cash payable upon the surrender of certificates. See "The
Merger--The Merger Agreement."
YOU SHOULD NOT SEND ANY SHARE CERTIFICATES AT THIS TIME.
BACKGROUND OF THE MERGER
For a discussion of the background of the merger, see "The
Merger--Background of the Merger."
OUR BOARD OF DIRECTORS' RECOMMENDATION
Our board of directors unanimously determined that the merger agreement and
the merger are advisable and fair to, and in the best interest of, our
stockholders and recommended that you vote to adopt and approve the merger
agreement and the merger. In reaching these conclusions our board of directors
was favorably influenced by numerous factors, including, among others, the
fairness opinion presented by U.S. Bancorp Piper Jaffray Inc.
For a discussion of the factors considered by our board, see "The
Merger--Recommendation of our Board of Directors."
OPINION OF OUR FINANCIAL ADVISOR
We retained U.S. Bancorp Piper Jaffray to act as our exclusive financial
advisor in connection with a possible transaction and to render its opinion to
our board of directors as to the fairness from a financial point of view of the
consideration to be received by you in any proposed transaction. U.S. Bancorp
Piper Jaffray provided to our board an oral opinion on August 11, 1999,
subsequently confirmed by its written opinion dated August 11, 1999, that, as of
that date, and subject to the assumptions, limitations and qualifications set
forth in such opinion, the consideration to be received by you in the merger
pursuant to the merger agreement is fair to you from a financial point of view.
The full text of the written opinion of U.S. Bancorp Piper Jaffray, which sets
forth a description of assumptions made, matters considered and limitations on
its review, is attached as Appendix B to this proxy statement. You are urged to
read this opinion carefully in its entirety. For more information about this
opinion, see "The Merger--Opinion of our Financial Advisor."
CONFLICTS OF INTEREST
In considering the recommendation of our board of directors with respect to
the merger, you should be aware that certain of our officers and directors have
interests in connection with the merger which may present them with actual or
potential conflicts of interest. See "The Merger--Persons Interested in the
Merger."
CERTAIN EFFECTS OF THE MERGER
As a result of the merger, all of our equity interests will be owned by WPP
Group U.S. Finance. You will no longer have any interest in, and will not be a
stockholder of, IntelliQuest, and therefore will not participate in our future
earnings and growth. Instead, you will have the right to receive the cash
consideration described above in "Purpose of the Special Meeting," without
interest, for each
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share held, other than shares in respect of which appraisal rights have been
perfected. In addition, our common stock will no longer be traded on the Nasdaq
National Market, price quotations will no longer be available and the
registration of our common stock under the Securities Exchange Act of 1934 will
be terminated. See "The Merger--Certain Effects of the Merger."
CONDITIONS TO THE MERGER
The obligations of WPP Group U.S. Finance, WPP Acquisition Corp. and us to
complete the merger are subject to the fulfillment of a number of conditions
including the following:
- we shall have obtained our stockholders' approval of the merger;
- no legal restraint shall be in effect preventing consummation of the
merger;
- certain individuals shall have entered into employment and/or
non-competition agreements with WPP Group U.S. Finance;
- WPP Group U.S. Finance, WPP Acquisition Corp. and we shall have
performed and complied with in all material respects all covenants and
agreements required by the merger agreement; and
- the purchase price per share payable to our stockholders shall be no
less than the minimum amount set forth in this proxy statement.
TERMINATION OF THE MERGER AGREEMENT
The merger agreement may be terminated and the merger may be abandoned at
any time prior to the filing of the certificate of merger with the Delaware
Secretary of State as follows:
(1) by mutual written consent of WPP Group U.S. Finance and ourselves; or
(2) by WPP Group U.S. Finance or WPP Acquisition Corp.:
- if we have breached in any material respect any representation,
warranty, covenant or other agreement contained in the merger agreement
which (a) cannot be or has not been cured within 20 business days after
the giving of written notice to us and (b) has not been waived by WPP
Group U.S. Finance;
- if our board of directors withdraws or modifies its recommendation of
the merger or resolves or publicly announces its intention to do so;
- if we recommend a superior proposal to you or resolve to do so; or
- if we enter into an agreement to engage in a superior proposal with any
person other than WPP Group U.S. Finance or an affiliate of WPP Group
U.S. Finance.
(3) by us:
- if WPP Group U.S. Finance or WPP Acquisition Corp. has breached in any
material respect any representation, warranty, covenant or other
agreement contained in the merger agreement which (a) cannot be or has
not been cured within 20 business days after the giving of written
notice to WPP Group U.S. Finance or WPP Acquisition Corp. and (b) has
not been waived by us; or
- if our board of directors determines to accept a superior proposal.
(4) by either WPP Group U.S. Finance or us:
- if the merger has not occurred on or prior to the close of business on
December 31, 1999; provided, that the right to terminate the merger
agreement pursuant to this clause will not
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be available to any party whose failure to fulfill any material
obligation of the merger agreement or other material breach of the
merger agreement has been the cause of, or resulted in, the failure of
the merger to have occurred on or prior to that date;
- if any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have
issued an order, decree or ruling or taken any other action permanently
restricting, enjoining, restraining or otherwise prohibiting the
transactions contemplated by the merger agreement and that order,
decree, ruling or other action becomes final and non-appealable;
- if at a duly held meeting of our stockholders held for the purpose of
voting on the merger agreement and the merger, the holders of a
majority of the outstanding shares of our common stock shall not have
approved the merger agreement and the merger; or
- if at the time of the determination of working capital, the condition
precedent relating to the minimum purchase price shall not have been
satisfied and WPP Group U.S. Finance shall not otherwise agree to pay
the amount of merger consideration necessary to satisfy the condition.
TERMINATION FEE AND PAYMENT OF EXPENSES
We will be required to pay $1,500,000 to WPP Group U.S. Finance on the fifth
business day following termination of the merger in the event that the merger
agreement is terminated:
- By WPP Group U.S. Finance if:
(1) our board of directors withdraws or modifies its recommendation
of the merger or resolves or publicly announces its intention to
do so;
(2) there is any willful or intentional action or inaction by us
which causes us to breach in any material respect any
representation, warranty, covenant or other agreement contained
in the merger agreement, and within six months of that
termination, we enter into any agreement with respect to any
takeover proposal;
(3) we recommend a superior proposal to you or resolve to do so; or
(4) we enter into an agreement to engage in a superior proposal with
any person other than WPP Group U.S. Finance or an affiliate of
WPP Group U.S. Finance.
- By us if our board determines to accept a superior proposal.
FINANCING FOR THE MERGER
WPP Group U.S. Finance has adequate funds to finance the payments to you
required in connection with the merger. The merger is not conditioned on
obtaining financing.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The receipt of cash in exchange for shares of our common stock pursuant to
the merger will be a taxable transaction for federal income tax purposes, unless
you are exempt from taxes. For a more detailed discussion of the federal income
tax consequences of the merger, see "The Merger--Material Federal Income Tax
Consequences." You are urged to consult your tax adviser to determine the effect
of the merger on you under federal, state, local and foreign tax laws.
7
<PAGE>
RIGHTS OF DISSENTING STOCKHOLDERS
Any stockholder who does not wish to accept the consideration provided for
in the merger agreement in exchange for his or her shares has the right under
the Delaware General Corporation Law to receive the "fair value" of his or her
shares of our common stock as determined by a Delaware court. This "appraisal
right" is subject to a number of restrictions and technical requirements.
Generally, in order to perfect appraisal rights a dissenting stockholder must:
- not vote in favor of adopting and approving the merger agreement and
the merger; and
- make a written demand for appraisal before the vote on the merger
agreement and the merger.
Merely voting against the merger agreement and the merger will not protect
the right of appraisal. Appendix C to this proxy statement contains the
applicable provisions of the Delaware General Corporation Law relating to
appraisal rights. See "The Merger--Appraisal Rights."
MARKET PRICES FOR COMMON STOCK AND DIVIDENDS
Our common stock trades on the Nasdaq National Market under the symbol
"IQST." The following table sets forth, for the fiscal year periods indicated,
the high and low sale prices of our common stock as reported by Nasdaq.
<TABLE>
<CAPTION>
HIGH LOW
-------- --------
<S> <C> <C>
1997
First Quarter............................................. $26.50 $14.00
Second Quarter............................................ 22.75 12.00
Third Quarter............................................. 24.75 17.00
Fourth Quarter............................................ 21.75 12.63
1998
First Quarter............................................. $14.25 $ 6.75
Second Quarter............................................ 12.63 9.38
Third Quarter............................................. 10.31 7.00
Fourth Quarter............................................ 8.63 4.13
1999
First Quarter............................................. $13.00 $ 7.00
Second Quarter............................................ 12.38 7.00
Third Quarter............................................. 11.75 7.38
Fourth Quarter (through November 15, 1999)................ 12.00 10.88
</TABLE>
On August 12, 1999 (the last trading day before the announcement of the
merger agreement), the high and low sale prices of our common stock were $9.50
and $9.25, and the closing sales price was $9.25. No cash dividends have been
paid on our common stock, and we do not currently intend to pay cash dividends
on our common stock.
SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents our selected consolidated financial data as of
and for each of the five years in the period ended December 31, 1998 and for the
nine-month periods ended September 30, 1998 and September 30, 1999. This
financial data was derived from our audited and unaudited historical
consolidated financial statements and should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements and related notes contained elsewhere
in this proxy statement.
8
<PAGE>
The selected financial data set forth below do not purport to be complete
and should be read in conjunction with, and are qualified in their entirety by,
our interim unaudited financial statements and annual audited financial
statements, including the related notes, which are contained elsewhere in this
proxy statement.
<TABLE>
<CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
SEPTEMBER 30, SEPTEMBER 30,
1998 1999
1994 1995 1996 1997 1998 (UNAUDITED) (UNAUDITED)
-------- -------- -------- -------- -------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues:
Continuous services.......... $10,921 $16,782 $23,719 $31,778 $39,440 $17,281 $15,829
Other services............... 3,647 2,930 4,648 4,765 6,259 2,804 6,364
------- ------- ------- ------- ------- ------- -------
Total revenues............. 14,568 19,712 28,367 36,543 45,699 20,085 22,193
------- ------- ------- ------- ------- ------- -------
Operating expenses:
Costs of revenues............ 8,635 10,253 13,949 19,703 24,604 11,488 11,822
Sales, general and
administrative............. 4,404 6,031 7,738 12,214 20,325 8,940 9,638
Product development.......... 1,545 1,979 3,644 2,796 4,272 2,610 1,032
Depreciation and
amortization............... 275 328 701 1,032 1,326 850 661
------- ------- ------- ------- ------- ------- -------
Total operating expenses... 14,859 18,591 26,032 35,745 50,527 23,888 23,153
------- ------- ------- ------- ------- ------- -------
Operating (loss) income........ (291) 1,121 2,335 798 (4,828) (3,803) (960)
Loss from discontinued
operations (net of tax)...... -- -- -- -- -- (1,270) (1,580)
Gain on sale of discontinued
operations (net of tax)...... -- -- -- -- -- -- 21,196
Interest income, and other... 12 49 875 1,955 1,404 1,086 722
------- ------- ------- ------- ------- ------- -------
Interest expense............. (25) (31) (17) (9) (1) -- --
------- ------- ------- ------- ------- ------- -------
(Loss) income before income
taxes........................ (304) 1,139 3,193 2,744 (3,425) (3,987) 19,378
Provision for (benefit from)
income taxes................. 2 593 984 583 (1,846) 2,052 301
------- ------- ------- ------- ------- ------- -------
Net (loss) income.............. $ (306) $ 546 $ 2,209 $ 2,161 $(1,579) $(1,935) $19,679
======= ======= ======= ======= ======= ======= =======
Basic net (loss) income per
share........................ $ (0.16) $ 0.08 $ 0.32 $ .026 $ (0.19) $ .23 $ 2.50
Diluted net (loss) income per
share........................ $ (0.16) $ 0.07 $ 0.30 $ 0.25 $ (0.19) $ .23 $ 2.37
Basic weighted average shares
outstanding.................. 3,550 3,550 6,667 8,372 8,311 8,413 7,879
Diluted weighted average shares
outstanding.................. 3,550 3,972 7,317 8,519 8,311 8,413 8,315
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- 1999
1994 1995 1996 1997 1998 (UNAUDITED)
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital............................. $1,167 $1,956 $54,817 $46,636 $41,653 $72,006
Total assets................................ 6,074 8,107 64,282 67,407 62,587 99,351
Common stockholders' (deficit) equity....... (1,892) (974) 57,202 59,870 53,541 74,254
</TABLE>
9
<PAGE>
FORWARD-LOOKING STATEMENTS
Some statements contained in this proxy statement regarding future financial
performance and results and other statements that are not historical facts are
forward-looking statements. These statements relate to, among other things, the
merger, and future capital expenditures, cost reduction, cash flow and operating
results. The words "expect," "project," "estimate," "predict," "anticipate,"
"believe," "plan," "intend," and similar expressions are also intended to
identify forward-looking statements. These statements are subject to numerous
risks, uncertainties and assumptions, including but not limited to:
- general business and economic conditions in our operating region,
including the rate of inflation, population, employment and job growth in
our markets;
- pricing pressures and other competitive factors;
- results of our efforts to reduce costs;
- our ability to achieve operating improvements;
- issues arising from addressing year 2000 information technology issues;
- conditions to the consummation of the merger, including regulatory
approval, which could affect the timing of the merger;
- our estimates of cash balances and working capital, as they relate to the
calculation of the merger consideration;
- legal proceedings; and
- changes in state or federal legislation or regulations.
Other factors and assumptions not identified above could also cause the
actual results to differ materially from those set forth in the forward-looking
statements. WPP Group U.S. Finance and we do not undertake to update
forward-looking information contained in this proxy statement to reflect actual
results, changes in assumptions or changes in other factors affecting the
forward-looking information. Should one or more of these risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those indicated in, contemplated by or implied by such
statements.
TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING
Our board of directors is soliciting your proxy. These proxies will be used
at the special meeting to be held at 10:00 a.m., local time, on December 20,
1999 at our executive offices located at 1250 Capital of Texas Highway South,
Building One, Suite 600, Austin, Texas 78746, and at any and all adjournments or
postponements of the special meeting. The purpose of the special meeting is to
consider and vote on a proposal to adopt and approve the merger agreement and
the merger. Our board of directors has unanimously approved the merger agreement
and the merger. OUR BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR
ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
RECORD DATE AND VOTING OF COMMON STOCK
Stockholders of record at the close of business on November 15, 1999 will be
entitled to vote at the special meeting. On November 15, 1999 there were
7,909,682 shares of our common stock issued and outstanding. The presence, in
person or by proxy, of the holders of shares representing at least a majority of
the outstanding shares of our common stock at the special meeting will
constitute a quorum. Shares represented by proxies that reflect abstentions or
broker non-votes, which are shares
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<PAGE>
held by a broker or nominee that are represented at the special meeting, but
with respect to which the broker or nominee is not empowered to vote on a
particular proposal, will be counted as shares that are present and entitled to
vote for purposes of determining the presence of a quorum.
All shares represented by properly executed and unrevoked proxies will be
voted at the special meeting. Each share of our common stock is entitled to one
vote. You may revoke your proxy before it is voted by executing another proxy at
a later date, by notifying our corporate secretary in writing of your revocation
or by attending the special meeting and voting in person.
At the special meeting, you will vote on the proposal to adopt and approve
the merger agreement and the merger. Holders of a majority of all the issued and
outstanding shares of our common stock must vote in favor of adopting and
approving the merger agreement and the merger in order for the proposal to be
adopted. Votes withheld, abstentions and broker non-votes will not be counted as
votes cast and will not be voted. A failure to vote, a vote to abstain or a
broker non-vote will have the same legal effect as a vote cast against adoption
of the merger agreement and the merger.
If the enclosed proxy is duly executed and received in time for the special
meeting, and if no contrary instructions are included on the proxy, the persons
named as proxies intend to vote those shares of our common stock in favor of the
merger proposal to adopt and approve the merger agreement and the merger, and in
the discretion of the persons named as proxies in connection with any other
business that may properly come before the special meeting or any adjournment or
postponement of the special meeting.
At this time, we know of no other matters that may be presented for
stockholder action at the special meeting. However, if any matters, other than
the proposal for the merger agreement and the merger, should properly come
before the special meeting, the persons named in the enclosed proxy intend to
vote such proxy in accordance with their best judgment.
In the event that there are not sufficient votes to adopt the proposal for
the merger agreement and the merger, we expect that the special meeting will be
postponed or adjourned in order to permit further solicitation of proxies by us.
The delivery of this proxy statement will not, under any circumstances,
create any implication that the information contained herein is correct after
the date hereof.
OUR BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ADOPTION AND APPROVAL OF THE
MERGER AGREEMENT AND THE MERGER.
SOLICITATION OF PROXIES
Our officers and regular employees may solicit proxies from stockholders by
telephone, facsimile or in person. We will not pay these individuals any
additional compensation for such services, except for the reimbursement of any
reasonable out-of-pocket expenses that they incur. We will pay all additional
expenses of the solicitation of proxies for the special meeting, including the
cost of mailing.
THE MERGER
BACKGROUND OF THE MERGER
1998
In October 1998, our board, after hearing presentations from various members
of management on the prospects for our two divisions, decided to engage an
investment banking firm to assist it in reviewing and analyzing strategic and
financial alternatives, in part because of increasing competition and
consolidation in our industry and the need for greater financial resources to
successfully compete. In early November 1998, our board engaged U.S. Bancorp
Piper Jaffray for this analysis and asked U.S.
11
<PAGE>
Bancorp Piper Jaffray to consider a number of alternatives, including continuing
the business independently under current or modified strategic objectives;
merger, sale or divestiture opportunities involving all or a portion of our
businesses or assets; consideration of significant acquisitions; and a potential
going private transaction. During November, representatives of IntelliQuest and
U.S. Bancorp Piper Jaffray met to discuss strategic and financial alternatives,
our financial results and prospects and potential strategic partners.
On December 11, 1998, representatives of U.S. Bancorp Piper Jaffray had
discussions with our board concerning potential strategic transactions involving
all or a part of our business. At the conclusion of this meeting, our board
authorized U.S. Bancorp Piper Jaffray to contact potential strategic partners to
acquire all or part of our business beginning in January 1999.
JANUARY/FEBRUARY 1999
Between January 4, 1999 and February 14, 1999, U.S. Bancorp Piper Jaffray
and we contacted approximately 35 potential strategic partners and provided
information about us to approximately 20 of them. On February 4, 1999, U.S.
Bancorp Piper Jaffray sent letters to potential strategic partners requesting a
preliminary indication of interest in acquiring our entire company or one or
both of our two business divisions.
On January 6, 1999, Brian Sharples, our Chief Executive Officer and
President, contacted Martin Sorrell, Chief Executive Officer of WPP Group, WPP
Group U.S. Finance's indirect parent, to discuss a potential transaction. On
January 20, 1999, WPP Group executed a confidentiality/standstill agreement with
us.
In early February 1999, WPP submitted an indication of interest with a range
of $10-12 per share, payable in cash or WPP stock. Representatives of U.S.
Bancorp Piper Jaffray had subsequent telephone conversations with Andrew Hall,
Executive Vice President of WPP Group USA, Inc., to discuss the valuation range
set forth in WPP's indication of interest. Subsequently, and prior to
February 14, 1999, WPP submitted a revised indication of interest with a range
of $15-18 per share.
On February 14, 1999, our board of directors considered indications of
interest from a number of potential buyers of all or a portion of our business.
Representatives of U.S. Bancorp Piper Jaffray participated in the discussion by
telephone. All of these indications of interest were preliminary and were
subject to completion of due diligence and various other contingencies. From
mid-February through early March, our management met with several interested
buyers of the entire company or one of our divisions.
MARCH/APRIL 1999
On March 3, 1999, we met with WPP. Participants included Mr. Sharples (by
telephone), Kit Webster, our Chief Financial Officer, Marianne Grogan, President
of Research Operations, Charles Stryker, President of IQ2.net Operations,
Mr. Hall, Richard Beanland, Chief Financial Officer of The Kantar Group Limited,
Bob Meyers, Group Chief Executive Officer for Millward Brown International, a
subsidiary of The Kantar Group Limited, and a representative of U.S. Bancorp
Piper Jaffray. At this meeting, we made a preliminary due diligence presentation
and the parties determined to continue the diligence process.
On March 10, 1999, U.S. Bancorp Piper Jaffray sent letters to potential
buyers involved in the process requesting firm offers for the purchase of all of
our outstanding stock or one or both of our divisions. Two parties submitted
indications of interest in accordance with U.S. Bancorp Piper Jaffray's
instructions. One party ("Third Party 1") proposed purchasing the assets of the
research business for $32-35 million cash, and the other party ("Third Party 2")
reaffirmed its preliminary interest in
12
<PAGE>
acquiring our stock for between $11.50 and $13.00 per share. Each of these
indications of interest was subject to numerous assumptions and qualifications.
On March 23, 1999, our board met with representatives of U.S. Bancorp Piper
Jaffray to discuss the status of discussions with potential buyers. Our board
determined to continue to explore a possible sale of our outstanding stock or
one or both of our divisions.
On March 26, 1999, WPP submitted a proposal to purchase our outstanding
stock for approximately $42 million, subject to certain assumptions.
In late March, Mr. Stryker contacted Naviant Technology Solutions, Inc. and
certain financial investors regarding a possible purchase of the IQ2.net
business by Naviant. In April 1999, Naviant submitted an indication of interest
to purchase the IQ2.net business.
Also during April, Third Party 1 submitted two revised indications of
interest--first, a proposed purchase of the assets of the research business for
$40 million in cash plus an amount equal to our cash balances at closing and
second, later that month, the same proposed purchase for $42 million plus cash
balances. In addition, Third Party 1 proposed an alternative transaction to
purchase all of our outstanding stock for $117.4 million based on certain
assumptions, including an assumed sale of the IQ2.net business for
$59.5 million and cash balances of $34 million.
On April 16, 1999, after conducting due diligence Third Party 2 submitted a
revised indication of interest to purchase all of our outstanding stock for
$9.00 per share in cash, which continued to contain numerous assumptions and
qualifications.
On April 30, 1999, our board of directors met to discuss the proposals from
Naviant, WPP and the other interested parties. Representatives of U.S. Bancorp
Piper Jaffray joined the meeting for the discussion with our board. Our board
determined to continue the process of exploring a possible sale of our
outstanding stock or one or both of our divisions.
MAY 1999
Throughout the month of May, our representatives, including
Messrs. Sharples and Stryker, and representatives of U.S. Bancorp Piper Jaffray
had discussions with additional interested parties relating to a sale of all or
part of our business as well as strategic alliances, but those discussions did
not advance beyond the preliminary stage.
Also during the first part of May, Third Party 1 submitted a letter
indicating its interest in acquiring all of our outstanding stock in exchange
for cash in the amount of $113 million based upon certain assumptions concerning
the sale of the IQ2.net business and our cash balances. After reaffirming its
interest, the Chairman of Third Party 1 and Mr. Stryker met and discussed the
IQ2.net business and potential mutual opportunities for Third Party 1 and us.
Following this meeting, Third Party 1 submitted a revised indication of interest
with a proposed purchase price of $121 million for all of our outstanding stock
under certain assumptions but subsequently indicated in writing to us that it
was withdrawing its indication of interest. However, on May 20, 1999, after
Mr. Sharples provided written information to Third Party 1's financial advisor
about the status of the process for selling all or part of us, Third Party 1,
through its financial advisor, submitted yet another indication of interest to
purchase our outstanding stock for $47 million plus an amount equal to our cash
balances, assuming we made an election under 338(h)(10) of the Internal Revenue
Code, which would have resulted in the "double taxation" of us and our
stockholders, thereby reducing the amount that our stockholders would receive.
From late April until May 21, 1999, WPP and we, directly and through our
advisors, had a number of conversations regarding the term of a proposed
transaction and a potential no shop agreement. On May 7, 1999, WPP submitted an
indication of interest to purchase our research business for
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<PAGE>
$42-48 million based on certain assumptions. On May 12, 1999, WPP submitted a
revised indication of interest to purchase our research business for
$50 million based on certain assumptions, including an assumption that we would
retain a 2-10% interest in the IQ2.net business. On May 21, 1999, we entered
into a no shop agreement providing WPP with an exclusive period to negotiate the
purchase of our outstanding stock based on WPP's indication of interest to
purchase our research business for $50 million, the basic terms of which were
set forth in a negotiated term sheet.
On May 27, 1999, our board met and discussed the status of negotiations with
WPP and Naviant. Representatives of U.S. Bancorp Piper Jaffray participated in
the discussions.
JUNE/JULY 1999
During the months of June and July, our legal counsel and Naviant's legal
counsel negotiated a definitive purchase agreement. On July 22, 1999, we entered
into a definitive agreement to sell the IQ2.net business to Naviant for
approximately $46.5 million in cash. We did not retain an interest in the
IQ2.net business.
After negotiating a term sheet in early June, WPP and we directed our legal
counsel to negotiate a definitive merger agreement based on the terms contained
in the term sheet. During the first half of June, representatives of WPP and
their accountants conducted due diligence by reviewing documents provided by us
and participating in a number of telephone conferences with our management. On
June 22, 1999, WPP's exclusivity period under its no shop agreement expired, and
on June 24, 1999, our board met to discuss the status of the negotiations with
WPP. After hearing an update on the status of the definitive agreements from
legal counsel and on the status of business discussions between WPP and us from
a representative of U.S. Bancorp Piper Jaffray, our board determined not to
extend WPP's exclusivity period but did direct management to continue to
finalize the terms of a definitive agreement with WPP based on the term sheet.
On June 30, 1999, in a telephone conversation with a representative of U.S.
Bancorp Piper Jaffray, Mr. Hall proposed holding back at least $5 million of the
purchase price which would be released if we met certain performance objectives
during 1999. Between June 30, 1999 and August 9, 1999, WPP and we, directly and
through representatives of U.S. Bancorp Piper Jaffray, had several conversations
regarding the terms of the proposed transaction. WPP expressed concerns about
assuming liabilities that could be related to the IQ2.net division, our 1999
performance to date and our level of working capital.
On July 6, 1999, Mr. Gettle, Group Financial Director of Millward Brown
International, and Mr. Hall met with Messrs. Sharples, Webster and Frazier in an
attempt to address these concerns. At the end of the meeting, Messrs. Gettle and
Hall requested further financial information and the details of the potential
transaction with Naviant. At the July 21 board meeting where our board approved
the sale of the IQ2.net business, after receiving advice and counsel from
representatives of U.S. Bancorp Piper Jaffray and our legal counsel, our board
authorized management to work with U.S. Bancorp Piper Jaffray to seek new
opportunities for a sale of the remainder of the company or another strategic
alliance. Following this board meeting, Mr. Hall telephoned a representative of
U.S. Bancorp Piper Jaffray to propose a new purchase price of $40 million cash
plus an amount equal to our cash balances, assuming a maintained level of
working capital at closing, plus a contingent amount of up to $5 million, to be
released if we met certain gross margin targets through September 30, 1999.
AUGUST 1999
On August 5, 1999, Mr. Sharples and a representative of U.S. Bancorp Piper
Jaffray met with Messrs. Sorrell and Hall. Mr. Sharples and a representative of
U.S. Bancorp Piper Jaffray also met with representatives of Third Party 1 and
representatives from two other companies that had not previously submitted
indications of interest. All of these discussions focused on a sale of our
outstanding stock to
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<PAGE>
a strategic investor or our combination with another company. Following these
meetings, on August 6, 1999:
- Mr. Hall spoke with a representative of U.S. Bancorp Piper Jaffray to
reaffirm WPP's interest in purchasing our outstanding stock, after the
sale of the IQ2.net business, for $42.5 million plus an amount equal to
our cash balances, assuming a maintained level of working capital at
closing, plus a contingent payment of up to $2.5 million based on our
gross margins through September 30, 1999. Mr. Hall understood that we
would not retain any interest in the IQ2.net business following its sale
to Naviant. Mr. Hall reassured a representative of U.S. Bancorp Piper
Jaffray that WPP was committed to moving forward, that he would direct his
legal counsel to finalize the documentation with all due speed and that
WPP would not conduct any additional due diligence; and
- a representative from Third Party 1 spoke with Mr. Sharples and a
representative of U.S. Bancorp Piper Jaffray to indicate its interest in
purchasing our outstanding stock, after the sale of the IQ2.net business,
for $13.00 per share. This price was based on certain assumptions
concerning the sale of the IQ2.net business and our cash balances and
subject to due diligence which the representative assured would be
commenced promptly.
On August 9, 1999, our legal counsel and WPP's legal counsel began
finalizing the documentation for the transaction outlined by Messrs. Hall and
Sharples, and Mr. Sharples requested Third Party 1 to submit its indication of
interest in writing and without qualification. Mr. Sharples also invited
representatives from Third Party 1 to commence due diligence as soon as
possible. Third Party 1 did not respond to this invitation.
During the negotiations, as legal counsel finalized the formula for
determining the merger consideration, WPP's representatives again raised the
issue of maintaining a level of working capital as of the closing and maintained
that balance sheet cash had to be calculated as of closing. We resisted setting
these calculations as of closing because of the inability to calculate a final
per share merger consideration before our stockholders meeting. After extensive
discussions, the parties agreed that working capital and balance sheet cash
would be calculated as of the date of the stockholders meeting, WPP would be
allowed to take over our operations following approval at our stockholders
meeting and we would be able to terminate the merger agreement if the final
merger consideration fell below an agreed upon amount per share. In addition, we
negotiated a reduction in the termination fee (from $4.0 million to
$1.5 million) we would have to pay if we terminated the merger agreement in
order to accept a "superior proposal" from another party.
On August 11, 1999, our board met to consider the final terms of the
transaction with WPP, as well as the other proposals. Our board focused on the
contingent portions of the purchase price, including the $2.5 million holdback
for meeting September 30, 1999 gross margins and the required level of working
capital at closing, the ability to terminate the merger agreement or seek
approval again from the stockholders if the merger consideration fell below an
agreed upon amount per share and the impact of the "no solicitation" provisions
of the agreement which imposed a $1.5 million termination fee upon us if we
terminated the merger agreement in order to accept a "superior proposal." Our
board also discussed Third Party 1's indication of interest and noted its
continuing lack of willingness to commit to a firm offer and its insistence on
conducting additional due diligence which it had yet to commence. Our board
concluded that Third Party 1's indication of interest was not firm enough to
risk endangering the transaction with WPP. Our board also focused on the factors
set forth below under "--Recommendation of our Board of Directors."
At the meeting, U.S. Bancorp Piper Jaffray rendered an oral opinion to the
effect that, as of such date, subject to certain assumptions (including those
discussed in "--Opinion of our Financial Advisor"), the consideration to be
received in the merger was fair, from a financial point of view, to our
stockholders (other than Kantar Media Research and its affiliates) as of that
date. Our board
15
<PAGE>
approved the merger and the merger agreement and unanimously recommended that
the stockholders adopt and approve the merger and the merger agreement.
On August 12, 1999, the parties executed the merger agreement.
The parties subsequently amended the merger agreement as of October 14, 1999
to change the acquiring party to WPP Group U.S. Finance Corp.
The parties amended the merger agreement further on November 18, 1999 to
clarify the definition of working capital and change the measurement date for
calculating balance sheet cash and working capital to October 31, 1999, so long
as the stockholders meeting to approve the transaction occurs on or before
December 20, 1999, and the end of the month immediately prior to the date of any
stockholders meeting that occurs after December 20.
RECOMMENDATION OF OUR BOARD OF DIRECTORS
Our board of directors unanimously determined that the merger agreement and
the merger are advisable and fair to, and in the best interest of, our
stockholders, and our board of directors recommends that you vote to adopt and
approve the merger agreement and the merger. Our board of directors based these
conclusions upon a number of factors, including:
(1) information provided to our board by members of our management, and
information presented by U.S. Bancorp Piper Jaffray at our August 11,
1999 board of directors meeting, including the opinion of U.S. Bancorp
Piper Jaffray to the effect that, based upon and subject to the matters
set forth in their opinion, as of the date of that opinion, the
consideration to be received by our stockholders pursuant to the merger
agreement is fair to our stockholders from a financial point of view, as
more fully described in the following section under the heading "Opinion
of our Financial Advisor";
(2) current industry, economic and market conditions, including the
potential for further consolidation within our industry and the need for
substantial capital in order for us to compete effectively and that
stockholder value may be maximized by selling us to a larger, better
capitalized company;
(3) our financial condition, results of operations, cash flow, business and
prospects, both on a historical and a prospective basis, including the
increasingly competitive nature of the markets in which we operate and
our position in these markets; and
(4) the terms and conditions of the merger agreement, including the ability
of our board to respond to alternative proposals to acquire us, the size
of the breakup fee payable under the merger agreement and the fact that
the transaction is subject to the approval of a majority of our issued
and outstanding shares of common stock.
Our board did not assign relative weights to the factors discussed above or
determine that any one factor was of particular importance; rather our board
viewed its determinations as being based on the totality of the information
presented to and considered by it.
In approving the transaction, our board of directors was aware of and
considered as a negative factor that as a result of the merger, our current
stockholders would no longer participate in our future growth and earnings. It
considered the possibility that our common stock could significantly increase in
value. However, our board of directors believed that our sale would achieve
greater value at this time for our current stockholders as compared with
remaining a public company.
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OPINION OF OUR FINANCIAL ADVISOR
U.S. Bancorp Piper Jaffray was retained by our board to assist it in its
evaluation of possible strategic or financial alternatives and, at the request
of the board, to render an opinion to the board concerning the fairness, from a
financial point of view, of the consideration to be received by you in the
merger.
U.S. Bancorp Piper Jaffray delivered to the board on August 11, 1999 its
oral opinion (subsequently confirmed by its written opinion) to the effect that,
as of the date of the opinion, based on and subject to the assumptions, factors
and limitations set forth in the opinion and as described below, the
consideration proposed to be paid to our stockholders in the merger pursuant to
the merger agreement was fair, from a financial point of view, to our
stockholders. A copy of the opinion is attached as Appendix B to this proxy
statement. You should read the attached opinion in its entirety.
U.S. Bancorp Piper Jaffray was not asked to, and did not, make any
recommendation to the board as to the form or amount of the consideration to be
received by our stockholders in the merger, which was determined through
negotiations between the parties to the merger. The opinion was rendered to our
board and does not constitute a recommendation as to how you should vote with
respect to the merger. The opinion does not address our underlying business
decision to proceed with or effect the merger, the IQ2.net sale or any
alternative transaction.
In arriving at its opinion, U.S. Bancorp Piper Jaffray reviewed:
- a draft of the merger agreement dated August 10, 1999;
- publicly available financial, operating and business information
related to IntelliQuest;
- our internal forecasted financial information furnished by our
management;
- publicly available securities and market data related to us;
- to the extent publicly available, financial terms of selected
acquisition transactions; and
- financial and securities data of public companies deemed comparable to
us giving effect to the IQ2.net sale.
In addition, U.S. Bancorp Piper Jaffray engaged in discussions with members
of our management concerning our financial condition, current operating results
and business outlook on a stand alone basis after giving effect to the IQ2.net
sale.
In delivering the opinion to our board on August 11, 1999, U.S. Bancorp
Piper Jaffray presented information containing various analyses material to the
opinion. The following is a summary of these analyses:
PROPOSED CONSIDERATION
For purposes of its analyses, U.S. Bancorp Piper Jaffray calculated an
enterprise value for IntelliQuest giving effect to the IQ2.net sale of
$41.139 million based on the stated purchase price of $42.5 million and
estimates from management of fees and expenses related to the merger and debt
attributable to the business of IntelliQuest following the IQ2.net sale. Giving
effect to management's estimate of the net after tax proceeds from the IQ2.net
sale and cash balances outstanding at June 30, 1999, U.S. Bancorp Piper Jaffray
calculated an aggregate consideration payable in the merger of $104.269 million
or $12.22 per share on a fully diluted basis. In this connection, U.S. Bancorp
Piper Jaffray assumed:
- no portion of the $2.5 million of contingent purchase price contemplated
by the merger agreement would be paid to our stockholders;
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<PAGE>
- no reduction in the estimated cash consideration to be paid would result
from the various provisions in the merger agreement relating to working
capital adjustments;
- there would be no change in the amount of cash outstanding between
June 30, 1999 and the closing of the merger; and
- management's estimates of the amount of cash to be paid to cash-out the
holders of options to purchase our common stock in connection with the
merger were accurate.
MARKET ANALYSIS
U.S. Bancorp Piper Jaffray reviewed market and stock trading information
concerning us. U.S. Bancorp Piper Jaffray presented the following stock price
data for our common stock for specified periods prior to the date of its
opinion:
<TABLE>
<S> <C>
Closing stock price as of 8/10/99........................... $9.25
30 to 180 trading day average as of 8/10/99................. $9.04 - 10.17
Market capitalization (based on 8/10/99 close).............. $77.462 million
12-month high and low stock price (as of 8/10/99)........... $4.13 - $13.00
Latest 12 months volume weighted average stock price........ $8.84
</TABLE>
U.S. Bancorp Piper Jaffray also presented a comparison of weekly price
performance of our common stock relative to the NASDAQ composite index and the
comparable group described below.
COMPARABLE COMPANY ANALYSIS
U.S. Bancorp Piper Jaffray compared financial information relating to us
giving effect to the IQ2.net sale to corresponding data and ratios from a group
of nine selected publicly traded companies deemed comparable to us giving effect
to the IQ2.net sale. These comparable companies included AC Nielsen, Information
Resources, NFO Worldwide, Forrester, M/A/R/C, Opinion Research, Gartner Group,
Meta Group and Total Research.
U.S. Bancorp Piper Jaffray presented the following valuation multiple data
for us, based on the portion of the consideration relating to our marketing
research business, and the comparable companies:
<TABLE>
<CAPTION>
COMPARABLE COMPANIES
-----------------------------------------
INTELLIQUEST LOW MEAN MEDIAN HIGH
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Enterprise value/LTM revenue......................... 1.6x 0.8x 1.6x 1.3x 2.6x
Enterprise value/estimated Calendar 1999 revenue..... 1.3x 0.5x 1.4x 1.3x 2.4x
Enterprise value/estimated Calendar 2000 revenue..... 1.0x 0.4x 1.2x 1.1x 1.9x
Enterprise value/LTM operating income................ neg 11.5x 15.0x 13.4x 23.5x
Equity value/LTM net income.......................... neg neg 24.1x 22.1x 40.3x
Equity value/estimated Calendar 1999 net income...... nm 9.3x 19.6x 19.3x 27.2x
Equity value/estimated Calendar 2000 net income...... 9.9x 13.8x 17.5x 16.5x 23.0x
</TABLE>
MERGER AND ACQUISITION MULTIPLE ANALYSIS
U.S. Bancorp Piper Jaffray reviewed eight recent merger and acquisition
transactions since January 1, 1997 for which information was publicly available
involving companies engaged in businesses comparable to our market research
business.
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<PAGE>
U.S. Bancorp Piper Jaffray calculated the following valuation multiple data
for this comparable transactions group:
<TABLE>
<CAPTION>
COMPARABLE TRANSACTIONS
-----------------------------------------
INTELLIQUEST LOW MEAN MEDIAN HIGH
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Enterprise value/LTM revenue.......................... 1.6x 0.8x 1.9x 1.6x 3.8x
Enterprise value/LTM operating income................. neg neg 22.6x 18.7x 35.6x
Equity value/LTM net income........................... neg neg 39.8x 35.6x 57.5x
</TABLE>
PREMIUMS PAID ANALYSIS
U.S. Bancorp Piper Jaffray analyzed the implied premium or discount paid in
acquisitions relative to recent public market pre-announcement trading prices
for completed transactions since January 1, 1998 of $50 million to
$150 million.
U.S. Bancorp Piper Jaffray calculated a one-day, one-week and one-month
implied premium based upon the $12.22 per share estimated cash proceeds payable
to our stockholders in the merger as a percentage of our closing stock price on
the corresponding date prior to an assumed public announcement on August 11,
1999.
<TABLE>
<CAPTION>
IMPLIED (DISCOUNT) PREMIUM
-----------------------------------------
INTELLIQUEST LOW MEAN MEDIAN HIGH
------------ -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
One day prior to announcement...................... 30.3% (29.1)% 32.2% 22.9% 167.6%
One week prior to announcement..................... 26.6% (26.0)% 38.3% 28.5% 159.2%
One month prior to announcement.................... 33.9% (43.8)% 47.0% 36.4% 273.2%
</TABLE>
DISCOUNTED CASH FLOW ANALYSES
Using discounted cash flow analysis, U.S. Bancorp Piper Jaffray estimated
the present value of our projected cash flows giving effect to the IQ2.net sale
(but without reinvestment of the estimated net proceeds from that sale or
existing cash balances) using internal financial planning data prepared by our
management. U.S. Bancorp Piper Jaffray applied a range of terminal value
multiples of projected revenue of 1.0x to 1.5x and a range of discount rates of
24.0% to 28.0%. This analysis yielded a range of estimated present values of our
enterprise value of approximately $37.6 million to $55.3 million, with a
midpoint of $46.0 million.
In reaching its conclusion as to the fairness of the merger consideration
and in its presentation to our board, U.S. Bancorp Piper Jaffray did not rely on
any single analysis or factor described above, assign relative weights to the
analyses or factors considered by it, or make any conclusion as to how the
results of any given analysis, taken alone, supported its opinion. The
preparation of a fairness opinion is a complex process and not necessarily
susceptible to partial analysis or summary description. U.S. Bancorp Piper
Jaffray believes that its analyses must be considered as a whole and that
selection of portions of its analyses and of the factors considered by it,
without considering all of the factors and analyses, would create a misleading
view of the processes underlying the opinion.
The analyses of U.S. Bancorp Piper Jaffray are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by the analyses. Analyses relating to the value of
companies do not purport to be appraisals or valuations or necessarily reflect
the price at which companies may actually be sold. No company or transaction
used in any analysis for purposes of comparison is identical to us giving effect
to IQ2.net sale. Accordingly, an analysis of the results of the comparisons is
not mathematical; rather, it involves complex considerations and judgments about
differences in the companies to which we were compared and other factors that
could affect the public trading value of the companies.
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<PAGE>
For purposes of its opinion, U.S. Bancorp Piper Jaffray relied upon and
assumed the accuracy, completeness and fairness of the financial statements and
other information provided to it by us or otherwise made available to U.S.
Bancorp Piper Jaffray and did not assume responsibility for the independent
verification of such information. U.S. Bancorp Piper Jaffray relied upon the
assurances of our management that:
- the information provided to it by us was prepared on a reasonable basis;
- the financial planning data and other business outlook information and
anticipated net proceeds from the IQ2.net sale and other cash balances
reflect the best currently available estimates of management; and
- management was not aware of any information or facts that would make the
information provided to U.S. Bancorp Piper Jaffray incomplete or
misleading.
In arriving at its opinion, U.S. Bancorp Piper Jaffray did not perform any
appraisals or valuations of any of our specific assets or liabilities, and were
not furnished with any such appraisals or valuations. U.S. Bancorp Piper Jaffray
analyzed us as a going concern and accordingly expressed no opinion as to our
liquidation value. U.S. Bancorp Piper Jaffray expressed no opinion as to the
price at which shares of our common stock have traded or at which these shares
may trade at any future time. The opinion is based on information available to
U.S. Bancorp Piper Jaffray and the facts and circumstances as they existed and
were subject to evaluation on the date of the opinion. Events occurring after
that date could materially affect the assumptions used in preparing the opinion.
U.S. Bancorp Piper Jaffray, as a customary part of its investment banking
business, evaluates businesses and their securities in connection with mergers
and acquisitions, underwritings and secondary distributions of securities,
private placements and valuations for estate, corporate and other purposes. Our
board selected U.S. Bancorp Piper Jaffray because of its expertise, reputation
and familiarity with us and the business information services industry in
general. In the ordinary course of its business, U.S. Bancorp Piper Jaffray and
its affiliates may actively trade securities of IntelliQuest or WPP Group, an
affiliate of WPP Group U.S. Finance, for their own accounts or the accounts of
their customers and, accordingly, may at any time hold a long or short position
in those securities.
Under the terms of the engagement letter dated November 4, 1998, as amended,
we paid U.S. Bancorp Piper Jaffray $75,000 upon its engagement and presentation
of strategic alternatives, and have agreed to pay $1.120 million upon
consummation for financial advisory services rendered in connection with the
merger. In addition, we have agreed to pay U.S. Bancorp Piper Jaffray $250,000
for rendering its opinion, which fee is not contingent on consummation of the
merger. We have paid U.S. Bancorp Piper Jaffray $1.130 million in connection
with the IQ2.net sale. Whether or not the merger is consummated, we have agreed
to pay the reasonable out-of-pocket expenses of U.S. Bancorp Piper Jaffray and
to indemnify U.S. Bancorp Piper Jaffray against liabilities incurred. These
liabilities include liabilities under the federal securities laws in connection
with the engagement of U.S. Bancorp Piper Jaffray by our board.
WPP GROUP U.S. FINANCE'S REASONS FOR THE MERGER
WPP Group U.S. Finance's board of directors has unanimously approved WPP
Group U.S. Finance's acquisition of IntelliQuest and authorized management to
negotiate and enter into the merger agreement. WPP Group U.S. Finance is not
required to obtain the approval of its stockholders to consummate the merger.
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<PAGE>
In reaching its conclusion to approve the merger agreement and the merger,
WPP Group U.S. Finance's board of directors considered a number of factors,
including:
- Leveraging IntelliQuest's excellent reputation and capabilities for
servicing Information Technology clients; and
- Enhancing the development of WPP Group U.S. Finance and Millward Brown's
Internet research capabilities.
WPP Group U.S. Finance believes that IntelliQuest is a leader in this arena
and works closely with many high technology clients, including IBM, Microsoft,
Compaq and Hewlett Packard. The resulting depth of knowledge of the industry has
allowed IntelliQuest to have a consultative positioning with their clients,
rather than a traditional research role. With the very specific marketing needs
of the high technology arena, including shorter product lifecycles and
significant time pressures, the industry-dedicated model has significant
advantages. Also, similar to Millward Brown, IntelliQuest is highly focused on
brand research. As a result, from both a capability and a cultural perspective,
IntelliQuest is a very good fit for Millward Brown. Because of the skill-sets of
the organization and its people, we believe that Millward Brown products can be
very effectively leveraged within IntelliQuest.
The license of data from IQ2.net provides WPP Group U.S. Finance and
Millward Brown with access for research purposes to the "panel" of individuals
whose details are obtained through IQ2.net's business. With several million
people being potentially available through this source WPP Group U.S. Finance
believes that it will be possible to conduct research via the Internet using
large and high quality respondent sample sizes. IQ2.net has software that can
accelerate WPP Group U.S. Finance's and Millward Brown's ability to address
client needs using the Internet. For example, SurveyNet, IntelliQuest's core
survey preparation system, allows the researcher to move quickly, and
efficiently report survey data at the end of the survey. SurveyNet will also
provide a platform allowing further automation of the research process.
PERSONS INTERESTED IN THE MERGER
In considering the merger, you should be aware that certain of our directors
and officer have interests in the merger, as described below.
SEVERANCE AND BONUS ARRANGEMENTS
We have in effect severance agreements with Brian Sharples, Kit Webster,
Peter Zandan and Ed Frazier. Our obligations under each severance agreement are
triggered if such person's employment is terminated without cause. The merger
agreement provides that Brian Sharples, Kit Webster, and Ed Frazier will be
terminated without cause immediately following the effective time of the merger.
Upon termination, Brian Sharples, Kit Webster, Peter Zandan and Ed Frazier will
be entitled to the following benefits:
1. All salary, vacation pay and PRO RATA bonus that they have accrued and
not yet been paid through the date of termination;
2. All rights they possess with respect to their outstanding stock options;
3. Continuation of any health care insurance in effect at the date of
termination for a period of 12 months at the same rates then in effect
for our other employees; and
4. An aggregate amount, payable in bi-weekly installments over 12 months in
accordance with our normal payroll practices, equal to:
- $250,000, in the case of Brian Sharples;
- $185,000, in the case of Kit Webster; and
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<PAGE>
- $200,000, in the case of Ed Frazier.
Peter Zandan will receive $250,000 in the aggregate as severance and as
consideration for executing a non-competition agreement with us.
We have created a bonus pool, out of which payments aggregating $210,000
will be made to certain employees for their services prior to closing of the
merger.
STOCK OPTIONS
Holders of our stock options outstanding at the time of the merger will
receive a cash payment for each option in the amount equal to the difference
between the exercise price of the option and the per share consideration
received by our stockholders in connection with the merger. Under the terms of
our stock options, all options will become fully vested and exercisable in
connection with the merger.
The following table indicates for each person who is one of our current
executive officers or directors and who holds stock options:
(1) the number of shares of our common stock subject to those options that
were vested on August 16, 1999;
(2) the number of shares of our common stock subject to those options that
were not vested August 16, 1999; and
(3) the aggregate value, net of the exercise price, for those options if
those options were fully vested and cashed out based on a per share price
of $12.70.
<TABLE>
<CAPTION>
NAME VESTED OPTIONS UNVESTED OPTIONS VALUE OF OPTIONS
- ---- -------------- ---------------- ----------------
<S> <C> <C> <C>
Peter Zandan ..................................... 19,207 78,972 $ 755,978
Chairman
Brian Sharples ................................... 42,605 88,647 $1,010,640
Chief Executive Officer, President and Director
Ed Frazier ....................................... 21,352 78,648 $ 707,500
Chief Operating Officer
F. S. (Kit) Webster III .......................... 17,187 57,813 $ 577,500
Chief Financial Officer
Marianne Grogan .................................. 35,557 36,692 $ 552,067
President, Research Operations
Lee Walker ....................................... 22,130 27,620 $ 383,075
Director
William Wood ..................................... 13,435 36,565 $ 385,000
Director
</TABLE>
LIMITATION OF LIABILITY OF OUR DIRECTORS AND OFFICERS; DIRECTORS AND OFFICERS
INSURANCE
The merger agreement provides that WPP Group U.S. Finance and the surviving
corporation will cause to be maintained in effect for a period of six years
following the time of the merger:
- the current provisions in our certificate of incorporation, bylaws and
indemnification agreements regarding indemnification of our current and
former officers and directors; and
- an insurance and indemnification policy that provides coverage for the
benefit of our officers and directors for events occurring at or prior to
the time of the merger that is no less favorable than the existing
policies; provided that WPP Group U.S. Finance will not be required to pay
an
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<PAGE>
annual premium for this insurance in excess of 1.5 times the last annual
premium paid prior to the date of the merger agreement, but in that case
will purchase as much coverage as possible for such amount.
THE MERGER AGREEMENT
The following summary of the material terms of the merger agreement is
subject to, and qualified in its entirety by, the complete text of the merger
agreement which is attached to this proxy statement as Appendix A. The terms of
the merger agreement are the result of arm's-length negotiations between us on
the one hand and WPP Acquisition Corp. and WPP Group U.S. Finance on the other.
TERMS OF THE MERGER. Subject to and as soon as practicable following the
receipt of the requisite vote of our stockholders and the satisfaction or waiver
of the conditions to the consummation of the merger set forth in the merger
agreement, the parties will cause the merger to be consummated by filing a
certificate of merger as contemplated by the Delaware General Corporation Law.
The merger will be effective at the time the certificate of merger is filed with
the Delaware Secretary of State.
When the certificate of merger is filed with the Delaware Secretary of
State, WPP Acquisition Corp. will be merged with and into us, the separate
corporate existence of WPP Acquisition Corp. will cease, and we will continue as
the surviving corporation and a wholly-owned subsidiary of WPP Group U.S.
Finance.
The merger agreement provides that at the time the certificate of merger is
filed, our certificate of incorporation will be amended to read in its entirety
as the certificate of incorporation of WPP Acquisition Corp. as in effect when
the certificate of merger is filed. The merger agreement further provides that
the bylaws of WPP Acquisition Corp., as in effect when the certificate of merger
is filed, will be our bylaws immediately after the certificate of merger is
filed. The merger agreement further provides that those persons who are the
directors and officers of WPP Acquisition Corp. when the certificate of merger
is filed will be the directors and officers of the surviving corporation
immediately after the certificate of merger is filed.
CONVERSION OF SECURITIES. At the time the certificate of merger is filed,
each share of our common stock that is issued and outstanding immediately prior
to the filing of the certificate of merger with the Delaware Secretary of State,
other than shares held in our treasury or by any of our subsidiaries, shares
held by WPP Group U.S. Finance, WPP Acquisition Corp. or any other subsidiary of
WPP Group U.S. Finance and shares as to which appraisal rights have been
demanded and perfected in accordance with Section 262 of the Delaware General
Corporation Law, will, by virtue of the merger and without any action on the
part of the holder thereof, be converted into and represent the right to
receive, in cash and without interest, a cash payment equal to the sum of
(1) the aggregate purchase price, as described below and (2) the aggregate
amount of cash to be paid to our option holders, as described below, divided by
the sum of (3) the number of issued and outstanding shares and (4) the number of
shares subject to our in-the-money stock options. Stock options are in-the-money
if the option holder will receive a cash payment in connection with the cashing
out of the option as a result of the merger.
The aggregate purchase price is equal to (A) $42.5 million plus balance
sheet cash plus database proceeds plus a holdback amount, if any, less (B) the
amount of balance sheet cash necessary, if any, to provide a minimum of
$4,000,000 of working capital on the following date: (i) October 31, 1999 solely
in the event the stockholders approve the merger on or before December 20, 1999
or (ii) in the event the stockholders approve the merger at any time after
December 20, the last day of the calendar month in which the merger is approved
by the stockholders (the "Determination Date"). For purposes of the merger
agreement, the following terms have the following definitions:
- "Balance sheet cash" means all cash and cash equivalents, calculated in
accordance with U.S. generally accepted accounting principles, excluding
database proceeds and excluding any taxes
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<PAGE>
with respect ot the database proceeds which have not yet been paid, set
forth on our balance sheet as of the Determination Date.
- "Database proceeds" means cash proceeds actually received by us with
respect to our sale of our database business multiplied by one minus our
effective tax rate for the database business transaction as determined by
PricewaterhouseCoopers.
- "Deduction amount" means the product of 4 times the difference between
$10,525,000 and the gross margin, if less than $10,525,000.
- "Direct costs" means all costs and expenses incurred by us during the
measuring period which are related to the projects and services performed
by us during the measuring period, all determined in accordance with U.S.
generally accepted accounting principles as consistently applied by us.
- Gross margin for the measuring period will be equal to revenues less
direct costs.
- "Holdback amount" means (1) in the event the gross margin equals or
exceeds $10,525,000, which is known as the "margin target," an amount
equal to $2,500,000 or (2) in the event the gross margin is less than
$10,525,000, an amount equal to $2,500,000 less the deduction amount,
except that in no event will the deduction amount exceed $2,500,000.
- "Measuring period" means the period commencing on January 1, 1999 and
ending on September 30, 1999.
- Revenues will be revenues generated by us during the measuring period as
determined in accordance with U.S. generally accepted accounting
principles as consistently applied by us.
- "Working capital" means our current assets which are realizable in one
year or less, minus our current liabilities, calculated in accordance with
U.S. generally accepted accounting principles. For purposes hereof current
liabilities shall include, without limitation, the following accruals
whether paid before or after the determination of Working Capital:
1. All amounts payable by the Company relating to severance agreements
or arrangements as described under--"Persons Interested in the
Merger."
2. All amounts payable by the Company relating to restrictive covenants
and non-competition arrangements with employees or former employees
entered into on or before the Closing Date.
3. All costs, including without limitation, legal, accounting, printing
and filing fee costs incurred by the Company in connection with the
litigation referred to under--"Litigation" or resulting from the need
to hold a second meeting of stockholders.
Two components of the purchase price, balance sheet cash and working capital
as of the Determination Date, will not be determined until after the special
meeting. Since we have not yet determined those numbers, we can only give you an
estimate of what we think the price per share will be. Our current estimate of
the amount WPP Group U.S. Finance will pay you in cash per share is
approximately $12.70. If the actual amount is less than $12.25, we will either
seek your approval again or terminate the merger agreement. Once we have
determined the per share amount, we will issue a press release to inform you of
the amount.
Upon the merger, all shares of our common stock, by virtue of the merger and
without any action on the part of the holders, will no longer be outstanding and
will be canceled and retired and will cease to exist, except for the right to
receive a cash payment in exchange for shares. Each holder of a certificate
formerly representing any such shares will cease to have any rights with respect
to such shares other than the right to receive a cash payment for the shares
upon surrender of the certificate.
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<PAGE>
Upon filing of the certificate of merger with the Delaware Secretary of State,
each share of our common stock held in our treasury or by one of our
subsidiaries and each share of our common stock held by WPP Group U.S. Finance,
WPP Acquisition Corp. or any of WPP Group U.S. Finance's other subsidiaries
immediately prior to the filing will be canceled and cease to exist, and no
payment shall be made with respect to those shares.
TREATMENT OF STOCK OPTIONS. Each outstanding option to purchase shares of
our common stock that was granted under any stock option plan, will, to the
extent not previously vested, become fully vested immediately prior to the
filing of the certificate of merger with the Delaware Secretary of State. We
will cancel each stock option, and the holders of each of those options will
receive a cash payment equal to the difference between the per share amount paid
to our stockholders and the exercise price of each option.
PAYMENT FOR SHARES. Prior to the filing of the certificate of merger with
the Delaware Secretary of State, WPP Group U.S. Finance will deposit in trust
with a paying agent or agents as may be appointed by WPP Group U.S. Finance and
WPP Acquisition Corp., cash in U.S. dollars in an amount necessary to make all
of the payments to our stockholders and option holders pursuant to the merger
agreement. Out of this fund, the paying agent will, pursuant to instructions
from our stockholders and option holders, make the payments to our stockholders
and option holders referred to in the merger agreement. Any amount remaining in
the fund twelve months after the time of the merger will be repaid to the
surviving corporation. After that time, you will need to look to either WPP
Group U.S. Finance or the surviving corporation to receive a cash payment in
exchange for your stock certificates.
Upon surrender to the paying agent of a certificate representing our common
stock for cancellation in accordance with the merger agreement, that certificate
will be canceled and cease to exist, and each holder of a certificate or
certificates that represented shares of our common stock issued and outstanding
immediately prior to the filing of the certificate of merger with the Delaware
Secretary of State will cease to have any rights as a stockholder of
IntelliQuest with respect to the shares of our common stock represented by the
certificate or certificates, except for the right to receive the payment
provided pursuant to the merger agreement. Until so surrendered, after the
certificate of merger is filed, each certificate will be deemed after the merger
to represent only the right to receive a cash payment upon such surrender,
without interest. No transfer of shares of our common stock issued and
outstanding immediately prior to the filing of the certificate of merger will be
made on our stock transfer books after that time.
DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO YOU
PROMPTLY FOLLOWING THE FILING OF THE CERTIFICATE OF MERGER EXPLAINING THE METHOD
OF EXCHANGING CERTIFICATES FORMERLY REPRESENTING SHARES OF COMMON STOCK FOR THE
CASH PAYMENT DUE UNDER THE MERGER AGREEMENT. YOU SHOULD NOT SEND CERTIFICATES
REPRESENTING YOUR SHARES OF COMMON STOCK TO THE PAYING AGENT OR TO US PRIOR TO
RECEIPT OF THE TRANSMITTAL LETTER.
REPRESENTATIONS AND WARRANTIES. We have made various representations and
warranties in the merger agreement, in respect of us and our subsidiaries,
including those relating to the following customary matters, which
representations and warranties are subject, in certain cases, to specified
exceptions:
- corporate organization, authority and good standing;
- capitalization;
- consents, approvals and absence of violations;
- SEC reports and financial statements;
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- absence of certain changes and events;
- litigation;
- compliance with applicable law;
- employee benefit plans and labor matters;
- taxes;
- intellectual property; and
- contracts.
The merger agreement specifies that the representations and warranties with
respect to us do not include IQ2.net.
WPP Group U.S. Finance and WPP Acquisition Corp. have made various customary
representations and warranties in the merger agreement including having
necessary financing to make the payments required by the merger agreement.
CONDUCT OF BUSINESS PENDING THE MERGER. The merger agreement provides that,
except as described in the merger agreement, in the schedules to the merger
agreement, or with respect to the sale of IQ2.net, from the date of the merger
agreement through the filing of the certificate of merger with the Delaware
Secretary of State, we will, and will cause each of our subsidiaries to, in all
material respects conduct our operations only in the ordinary course of business
and seek to preserve our relationships with customers, suppliers and others
having business dealings with us. The merger agreement provides that, except as
described in the merger agreement, in the schedules to the merger agreement, or
with respect to the sale of IQ2.net, from the date of the merger agreement
through the filing of the certificate of merger with the Delaware Secretary of
State, neither we nor any of our subsidiaries will do any of the following
without the prior written consent of WPP Group U.S. Finance and WPP Acquisition
Corp.:
- declare, set aside or pay any dividends on, or make any actual,
constructive or deemed distributions in respect of, any of our capital
stock, or otherwise make any payments to our stockholders, other than
dividends payable to us declared by any of our subsidiaries;
- split, combine or reclassify any of our capital stock or issue or
authorize the issuance of any other securities in respect of, in lieu of
or in substitution for shares of our capital stock;
- purchase, redeem or otherwise acquire any shares of capital stock or other
securities of ours or any of our subsidiaries or any rights, warrants or
options to acquire any such shares or other securities, except pursuant to
the terms of our stock option plans;
- except for the disposition of shares of IQ2.net in connection with the
IQ2.net sale, issue, deliver, sell, pledge, dispose of or otherwise
encumber any shares of our capital stock, any other voting securities or
equity equivalent or any securities convertible into or exchangeable or
exercisable for, or any rights, warrants or options to acquire, any such
shares, voting securities or convertible securities or equity equivalent,
other than, in the case of us, the issuance of shares during the period
from the date of the merger agreement through the merger upon the exercise
of stock options outstanding or the issuance of stock options in the
ordinary course of business consistent with past practice in accordance
with our current terms or enter into any agreement or contract with
respect to the sale or issuance of any of our securities;
- amend our charter or bylaws;
- acquire or agree to acquire by merging or consolidating with, or by
purchasing assets of or equity in, or by any other manner, any business or
any corporation, partnership, association or
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other business organization or division thereof or otherwise acquire or
agree to acquire any material assets, other than in the ordinary course of
business consistent with past practice;
- sell, lease or otherwise dispose of, or agree to sell, lease or otherwise
dispose of, any of our material assets, other than IQ2.net or in the
ordinary course of business consistent with past practice;
- incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others, except for borrowings or guarantees incurred in the
ordinary course of business consistent with past practice for working
capital purposes, or make any loans, advances or capital contributions to,
or investments in, any other person or entity, other than to us, any of
our wholly-owned subsidiaries, or other than in the ordinary course of
business;
- alter through merger, liquidation, reorganization, restructuring or in any
other fashion the corporate structure or ownership of any of our
subsidiaries or adopt any plan with respect to any of the foregoing, other
than with respect to our database business;
- other than as provided in the agreements related to the sale of our
database business, grant any severance or termination pay not currently
required to be paid under existing severance plans or enter into, adopt,
or amend any existing severance plan, agreement or arrangement or, other
than in the ordinary course of business, enter into or amend any employee
benefit plan, including, without limitation, stock option plans, or enter
into or amend any employment or consulting agreement, except as required
by law or as set forth in the merger agreement;
- enter into any contract or commitment with respect to capital expenditures
with a value in excess of, or requiring expenditures by us and our
subsidiaries in excess of, $150,000, individually, or enter into contracts
or commitments with respect to capital expenditures with a value in excess
of, or requiring expenditures by, us and our subsidiaries in excess of,
$200,000, in the aggregate;
- except to the extent required under existing employee and director benefit
plans, agreements or arrangements as in effect on the date of the merger
agreement, increase the compensation or fringe benefits of any of our
directors, officers or employees provided that, with respect to employees
that are not executive officers or directors, we may increase compensation
associated with promotions and regular reviews in the ordinary course of
business consistent with past practice;
- agree to the settlement of any material claim or litigation;
- make or rescind any material tax election or settle or compromise any
material tax liability;
- except as required by applicable law or generally accepted accounting
principles, make any material change in our method of accounting;
- except as required under stock option plans or any existing agreements we
have made available to WPP Group U.S. Finance or WPP Acquisition Corp. or
by law, and as otherwise provided in the merger agreement, the agreements
related to the sale of our database business, or any employment-related
agreements in connection with the sale of our database business,
accelerate the payment, right to payment or vesting of any bonus,
severance, profit sharing, retirement, deferred compensation, stock
option, insurance or other compensation or benefits;
- pay, discharge or satisfy any claims, liabilities or obligations,
absolute, accrued, asserted or unasserted, contingent or otherwise, other
than the payment, discharge or satisfaction of any claims, liabilities or
obligations in the ordinary course of business and consistent with past
practice or as provided in the agreements related to the sale of our
database business, or of
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claims, liabilities or obligations reflected or reserved against in, or
contemplated by, the consolidated financial statements, or the related
notes, contained in our SEC reports;
- except as provided in the agreements related to the sale of our database
business, enter into any agreement, understanding or commitment that
restrains, limits or impedes our or any of our subsidiaries' ability to
compete with or conduct any business or line of business, including, but
not limited to, geographic limitations on our or any of our subsidiaries'
activities;
- except as provided in the agreements related to the sale of our database
business, modify, amend or terminate any material contract to which we are
a party or waive any of our material rights or claims except in the
ordinary course of business consistent with past practice; and
- incur, assume or suffer to exist any material liability or obligation in
connection with the sale of our database business which is not reflected
in the agreements related to the sale of our database business.
THIRD PARTY STANDSTILL AGREEMENTS. Prior to the delivery of the certificate
of merger to the Delaware Secretary of State, we may not terminate, amend,
modify or waive any provision of any confidentiality or standstill agreement to
which we or any of our subsidiaries is a party, other than any involving WPP
Group U.S. Finance.
OTHER POTENTIAL ACQUIRERS. We, our affiliates, as such term is defined
under Rule 12b-2 under the Exchange Act, and our officers, directors, employees,
advisors, attorneys and other representatives and agents have agreed that we
will immediately cease any discussions or negotiations which may be ongoing with
third parties with respect to any takeover proposal, as defined below, except in
connection with the sale of our database business. We will not, and we will not
authorize or permit anyone to:
- solicit, initiate or encourage the submission of a takeover proposal; or
- enter into any agreement with respect to any takeover proposal or enter
into any arrangement requiring us to abandon or fail to consummate the
merger.
We may, however, in response to an unsolicited takeover proposal,
participate in discussions or negotiations with or furnish information to any
third party which makes a superior proposal, as defined below, if our board of
directors believes it would be in the best interests of our stockholders to do
so.
As used in the merger agreement, "takeover proposal" means
- any inquiry, proposal or offer from any person or entity relating to any
direct or indirect acquisition or purchase of a substantial amount of our
assets or any of our subsidiaries, or of over 20% of any class of our
equity securities or of any of our subsidiaries (other than the securities
and assets related to the sale of our database business);
- any tender offer or exchange offer that, if consummated, would result in
any person's or entity's beneficially owning 20% or more of any class of
our equity securities or of any of our subsidiaries, other than IQ2.net;
or
- any merger, consolidation, business combination, sale of all, or
substantially all, of our assets or similar transaction involving us or
any of our subsidiaries, other than any transaction relating to the
securities and assets related to the sale of our database business.
As used in the merger agreement, "superior proposal" means a bona fide
takeover proposal on terms which our board of directors determines in its good
faith reasonable judgment to be more favorable to our stockholders than the
transactions contemplated by the merger agreement with WPP Group U.S. Finance
for which financing is then available, and which is not subject to any financing
or due diligence condition.
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Except as described below, neither our board of directors nor any committee
thereof may:
- withdraw or modify, or propose to withdraw or modify in a manner adverse
to WPP Group U.S. Finance their approval or recommendation of the merger;
- approve or recommend, or propose to approve or recommend, any takeover
proposal; or
- cause us to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any takeover
proposal.
In the event we receive a superior proposal, our board of directors may
enter into an agreement relating to the superior proposal and recommend the
superior proposal to our stockholders. In such case, our board of directors may
withdraw, modify or refrain from making its recommendation of the merger with
WPP Group U.S. Finance, and, to the extent it does so, we may refrain from
calling, providing notice of and holding the stockholders meeting to adopt and
approve the merger with WPP Group U.S. Finance and from soliciting proxies or
consents to secure the vote or written consent of our stockholders to adopt and
approve the merger with WPP Group U.S. Finance and may terminate the merger with
WPP Group U.S. Finance; provided, however, that we:
- provide WPP Group U.S. Finance at least 24 hours prior written notice of
our intention to execute or enter into an agreement relating to the
superior proposal;
- terminate the merger agreement by written notice to WPP Group U.S. Finance
provided no sooner than 48 hours after WPP Group U.S. Finance's receipt of
a copy of the superior proposal, or a description of the significant terms
and conditions thereof; and
- pay $1,500,000 to WPP Group U.S. Finance within five business days of
terminating the merger agreement with WPP Group U.S. Finance.
Notwithstanding anything else in the merger agreement, we may take or
disclose to our stockholders any position contemplated by the Exchange Act or
make any disclosure to our stockholders if, in the good faith judgment of our
board of directors, such disclosure is required by applicable state or federal
securities laws or is necessary in order to comply with its fiduciary duties to
our stockholders under applicable law.
PAYMENT OF ACQUISITION EXPENSES. We have agreed that we will pay all legal,
accounting, printer's and investment banking fees in connection with the merger
agreement prior to the delivery of the certificate of merger to the Delaware
Secretary of State.
ADDITIONAL COVENANTS. Pursuant to the merger agreement, we have agreed,
among other things, to:
- call a meeting of our stockholders for the purpose of voting upon the
merger and take all action necessary or advisable to obtain stockholder
approval of the merger;
- recommend to our stockholders the approval of the merger;
- prepare and file a preliminary proxy statement with the SEC, respond to
any comments of the SEC or its staff and cause the proxy statement to be
cleared by the SEC;
- take all such action as may be reasonably necessary or advisable to obtain
the necessary approvals by our stockholders of the merger; and
- afford to WPP Group U.S. Finance, and to WPP Group U.S. Finance's
accountants, counsel, financial advisers and other representatives,
reasonable access to our books and records and permit them to make such
inspections as they may reasonably request during normal business hours.
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WPP Group U.S. Finance and WPP Acquisition Corp. have agreed, among other
things, to cause shares of our common stock owned by WPP Group U.S. Finance, WPP
Acquisition Corp. or any of WPP Group U.S. Finance's subsidiaries to be voted in
favor of the approval of the merger.
We, WPP Group U.S. Finance and WPP Acquisition Corp. each have agreed to:
- consult with each other before issuing any press release or otherwise
making any public statements with respect to the merger agreement, and to
not issue any press release or make any public statement prior to
consultation, except as may be required by applicable law or regulation or
by obligations pursuant to any listing agreement with any national
securities exchange or the Nasdaq National Market; and
- take all such action as may be necessary or advisable to obtain such
approvals and take such actions as are necessary or advisable under any
statute or regulation that shall become applicable to the merger
agreement, so that the merger agreement may be consummated as promptly as
practicable, and otherwise act to minimize the effects of any such statute
or regulation on the merger agreement.
INDEMNIFICATION, DIRECTORS' AND OFFICERS' INSURANCE. Under the terms of the
merger agreement the current provisions regarding indemnification of current or
former officers and directors will be maintained for a period of six years after
the merger. Furthermore, for a period of six years after the merger, WPP Group
U.S. Finance will maintain an insurance and indemnification policy for the
benefit of our current directors and officers that provides coverage for events
occurring at or prior to the merger that is no less favorable than the existing
policies.
TERMINATION OF EMPLOYMENT. Immediately following the merger, WPP Group U.S.
Finance will terminate Brian Sharples, Kit Webster and Ed Frazier without cause.
The severance cost of such terminations, and the severance costs relating to the
termination of any accounting personnel and any other personnel who have
severance arrangements with us, (including, without limitation, all payments to
be made to Peter Zandan with respect to both severance and non-competition
arrangements) will be charged to us as an expense for purposes of determining
our working capital and therefore may reduce the amount being paid to our
stockholders.
OTHER AGREEMENTS RELATING TO STOCK OPTIONS. We have agreed to obtain the
consent of at least 90% of the holders of stock options under the 1994 Incentive
Stock Option Plan, the IntelliQuest Information Group, Inc. 1996 Stock Plan, and
the IntelliQuest Information Group, Inc. 1997 Supplemental Stock Plan to the
termination of their option agreements in exchange the cash payment.
INTERIM OPERATIONS. WPP Group U.S. Finance will assume responsibility for
our operation, subject to consultation and review with Brian Sharples and our
board of directors, during the period between (1) your approval of the merger
and (2) the merger, while we make a final determination of the purchase price,
or the termination of the merger agreement. Approval of Brian Sharples and our
board of directors will be required for all matters, other than matters in the
ordinary course of business.
CONDITIONS TO THE MERGER. The obligations of ourselves, WPP Group U.S.
Finance and WPP Acquisition Corp. to complete the merger are subject to the
fulfillment of the following conditions:
- we shall have obtained our stockholders' approval of the merger;
- no legal restraint shall be in effect preventing consummation of the
merger;
- six of our key employees shall have entered into employment agreements.
Brian Sharples shall have entered into a consulting agreement in a form
mutually acceptable to himself and WPP Group U.S. Finance;
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- Brian Sharples shall have entered into a two-year extension of a
non-competition agreement previously made with us;
- Peter Zandan shall have entered into a non-competition agreement mutually
acceptable to him and WPP Group U.S. Finance;
- WPP Group U.S. Finance, WPP Acquisition Corp. and we shall have performed
and complied with in all material respects all covenants and agreements
required by the merger agreement;
- the purchase price per share payable to our stockholders shall be no less
than the minimum amount set forth in this proxy statement; and
- we shall have either amended Section 2.2 of the cooperation agreement
between us and Naviant Technology Solutions, Inc. in order to extend the
exclusive offer period another 90 days beyond the 120 day period set forth
therein, or requested affinity marketing services to be provided to us
pursuant to the terms of the cooperation agreement in a manner sufficient
to satisfy the requirements for extending the period of exclusivity under
the cooperation agreement.
TERMINATION OF MERGER AGREEMENT. The merger agreement may be terminated and
the merger may be abandoned at any time prior to the filing of the certificate
of merger with the Delaware Secretary of State in the event of any of the
following:
(1) by mutual written consent of WPP Group U.S. Finance and us.
(2) by WPP Group U.S. Finance or WPP Acquisition Corp.:
- if we have breached in any material respect any representation,
warranty, covenant or other agreement contained in the merger agreement
which (1) cannot or has not been cured prior to 20 business days after
the giving of written notice of such breach to us and (2) has not been
waived by WPP Group U.S. Finance;
- if our board of directors withdraws or modifies its recommendation of
the merger or resolves or publicly announces its intention to do so;
- if we recommend any superior proposal to our stockholders or resolve to
do the same; or
- if we enter into an agreement to engage in a superior proposal with any
person other than WPP Group U.S. Finance or an affiliate of WPP Group
U.S. Finance.
(3) by us:
- if WPP Group U.S. Finance or WPP Acquisition Corp. has breached in any
material respect any representation, warranty, covenant or other
agreement contained in the merger agreement which (1) cannot be or has
not been cured within 20 business days after the giving of written
notice to WPP Group U.S. Finance or WPP Acquisition Corp. and (2) has
not been waived by us; or
- if our board of directors determines to accept a superior proposal.
(4) by either WPP Group U.S. Finance or us:
- if the merger has not occurred on or prior to the close of business on
December 31, 1999; provided, that the right to terminate the merger
agreement pursuant to this clause will not be available to any party
whose failure to fulfill any material obligation of the merger
agreement or other material breach of the merger agreement has been the
cause of, or resulted in, the failure of the merger to have occurred on
or prior to that date;
- if any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have
issued an order, decree or ruling or taken any other
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action permanently restricting, enjoining, restraining or otherwise
prohibiting the transactions contemplated by the merger agreement and
that order, decree, ruling or other action shall have become final and
non-appealable;
- if at a duly held meeting of our stockholders, including any
adjournment thereof, held for the purpose of voting on the merger
agreement and the merger, the holders of a majority of the outstanding
shares of our common stock shall not have approved the merger agreement
and the merger; or
- if at the time of the determination of working capital, the condition
precedent related to the minimum purchase price shall not have been
satisfied and WPP Group U.S. Finance shall not otherwise agree to pay
the amount of merger consideration necessary to satisfy such condition.
EFFECT OF TERMINATION. In the event of termination of the merger agreement
by either WPP Group U.S. Finance or us, the merger agreement will become void
and there will be no liability thereunder on the part of us, WPP Group U.S.
Finance or WPP Acquisition Corp. or our respective officers or directors;
provided, however, that nothing will relieve us, WPP Group U.S. Finance or WPP
Acquisition Corp. from any liability for any willful breach of any covenant or
agreement contained in the merger agreement. We have also agreed to pay
$1,500,000 to WPP Group U.S. Finance on the fifth business day following
termination of the merger agreement in the event that the merger agreement is
terminated:
- By WPP Group U.S. Finance as a result of any willful or intentional action
or inaction by us which causes us to breach in any material respect any
representation, warranty, covenant or other agreement contained in the
merger agreement, and within six months of that termination we enter into
any agreement with respect to any takeover proposal;
- By WPP Group U.S. Finance if:
(1) our board of directors withdraws or modifies its recommendation of
the merger or resolves or publicly announces its intention to do so;
(2) we recommend a superior proposal to you or resolve to do so; or
(3) we enter into an agreement to engage in a superior proposal with any
person other than WPP Group U.S. Finance or an affiliate of WPP Group
U.S. Finance.
- By us if our board determines to accept a superior proposal.
AMENDMENT. WPP Group U.S. Finance, WPP Acquisition Corp., and ourselves may
amend the merger agreement in writing at any time before or after approval of
the merger by our stockholders, but, after such stockholder approval, no
amendment will be made that requires the approval of our stockholders under
applicable law without their approval.
ACCOUNTING TREATMENT. The merger will be treated as a "purchase" for
accounting purposes.
STOCKHOLDER RIGHTS AGREEMENT. Because our board has approved the merger
agreement and the merger, the rights issued under our stockholder rights
agreement are not triggered by the merger agreement or the merger and will
terminate at the time of the merger.
REGULATORY COMPLIANCE
A certificate of merger must be filed on behalf of WPP Group U.S. Finance,
WPP Acquisition Corp. and us with the Secretary of State of Delaware in order to
effect the merger.
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Under the Hart-Scott-Rodino Improvements Act and the rules that have been
promulgated under the that act, acquisitions of a sufficient size may not be
consummated unless information has been furnished to the Antitrust Division of
the U.S. Department of Justice and to the FTC and applicable waiting period
requirements have been satisfied or early termination of the waiting period has
been granted. The acquisition of shares of our common stock pursuant to the
merger is subject to the provisions of that act.
WPP Group U.S. Finance and we each filed on October 4, 1999, with the
Antitrust Division of the U.S. Department of Justice and the FTC, a
Hart-Scott-Rodino Notification and Report Form with respect to the acquisition
of the shares of our common stock by WPP Group U.S. Finance and received early
termination of the waiting period on October 27, 1999.
FINANCING FOR THE MERGER
The total amount required to make all payments to our stockholders in
exchange for their shares, including amounts payable with respect to outstanding
stock options, and to pay related fees, expenses and other transaction costs of
WPP Group U.S. Finance and WPP Acquisition Corp., will be paid for by WPP Group
U.S. Finance with current cash balances. The merger is not conditioned upon the
receipt of financing.
APPRAISAL RIGHTS
If the merger is consummated, a holder of record of shares of our common
stock who objects to the terms of the merger may seek an appraisal under
Section 262 of the Delaware General Corporation Law of the "fair value" of such
holder's shares. The following is a summary of the principal provisions of
Section 262 and does not purport to be a complete description. A copy of
Section 262 is attached to this proxy statement as Appendix C. Failure to take
any action required by Section 262 will result in a termination or waiver of a
stockholder's rights under Section 262.
(1) A stockholder electing to exercise appraisal rights must (a) deliver to
us, before our stockholders vote on the merger agreement, a written
demand for appraisal that is made by or on behalf of the person who is
the holder of record of our common stock for which appraisal is demanded
and (b) not vote in favor of adopting the merger agreement. The demand
must be delivered to us at 1250 Capital of Texas Hwy. South, Building
One, Austin, Texas 78746. A proxy or vote against adopting the merger
agreement does not constitute a demand. A stockholder electing to take
this action must do so by a separate written demand that reasonably
informs us of the identity of the holder of record and of the
stockholder's intention to demand appraisal of the holder's shares of our
common stock. Because a proxy left blank will, unless revoked, be voted
FOR adoption of the merger agreement, a stockholder electing to exercise
appraisal rights who votes by proxy must not leave the proxy blank but
must vote AGAINST adoption of the merger agreement or ABSTAIN from voting
for or against adoption of the merger agreement.
(2) Only holders of record of our common stock are entitled to demand
appraisal rights for their shares of our common stock registered in their
name. The demand must be executed by or for the holder of record, fully
and correctly, as the holder's name appears on the holder's stock
certificates. If our common stock is owned of record in a fiduciary
capacity, such as by a trustee, guardian or custodian, the demand should
be executed in that capacity. If our common stock is owned of record by
more than one person, as in a joint tenancy or tenancy in common, the
demand should be executed by or for all owners. An authorized agent,
including one of two or more joint owners, may execute the demand for
appraisal for a holder of record; however, the agent must identify the
owner or owners of record and expressly
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disclose the fact that, in executing the demand, the agent is acting as
agent for the owner or owners of record.
A holder of record, such as a broker, who holds shares of our common
stock as nominee for beneficial owners may exercise a holder's right of
appraisal with respect to shares of our common stock held for all or less
than all of the beneficial owners. In that case, the written demand
should set forth the number of shares of our common stock covered by the
demand. Where no number of shares is expressly mentioned, the demand will
be presumed to cover all shares of our common stock standing in the name
of the holder of record.
(3) Within 10 days after the filing of the certificate of merger with the
Delaware Secretary of State, we will send notice of the effectiveness of
the merger to each person who prior to that time satisfied the foregoing
conditions.
(4) Within 120 days after the filing of the certificate of merger with the
Delaware Secretary of State, we or any stockholder who has satisfied the
foregoing conditions may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of our common stock.
Stockholders seeking to exercise appraisal rights should not assume that
we will file a petition to appraise the value of their shares of our
common stock or that we will initiate any negotiations with respect to
the "fair value" of such common stock. Accordingly, holders of our common
stock should initiate all necessary action to perfect their appraisal
rights within the time periods prescribed in Section 262.
(5) Within 120 days after the filing of the certificate of merger with the
Delaware Secretary of State, any stockholder who has complied with the
requirements for exercise of appraisal rights, as discussed above, is
entitled, upon written request, to receive from us a statement setting
forth the aggregate number of shares of our common stock not voted in
favor of the merger and with respect to which demands for appraisal have
been made and the aggregate number of holders of that common stock. We
are required to mail such statement within 10 days after we receive a
written request to do so.
(6) If a petition for an appraisal is timely filed, after a hearing on the
petition, the Delaware Court of Chancery will determine the stockholders
entitled to appraisal rights and will appraise our common stock owned by
such stockholders, determining its "fair value" exclusive of any element
of value arising from the accomplishment or expectation of the merger and
will determine the amount of interest, if any, to be paid upon the value
of our common stock of the stockholders entitled to appraisal. Any such
judicial determination of the "fair value" of our common stock could be
based upon considerations other than or in addition to the price paid in
the merger and the market value of our common stock, including asset
values, the investment value of our common stock and any other valuation
considerations generally accepted in the investment community. The value
so determined for our common stock could be more than, less than or the
same as the consideration paid pursuant to the merger agreement. The
court may also order that all or a portion of any stockholder's expenses
incurred in connection with an appraisal proceeding, including, without
limitation, reasonable attorneys' fees and fees and expenses of experts
utilized in the appraisal proceeding, be charged pro rata against the
value of all shares of our common stock entitled to appraisal.
(7) Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the filing of the certificate of merger with
the Delaware Secretary of State, be entitled to vote the shares subject
to such demand for any purpose or be entitled to dividends or other
distributions on those shares of our common stock, other than those
payable or deemed to be payable to stockholders of record as of a date
prior to the filing of the certificate of merger.
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(8) Holders of our common stock lose the right to appraisal if no petition
for appraisal is filed within 120 days after the filing of the
certificate of merger with the Delaware Secretary of State, or if a
stockholder delivers to us a written withdrawal of that stockholder's
demand for an appraisal and an acceptance of the merger, except that any
such attempt to withdraw made more than 60 days after the filing of the
certificate of merger requires our written approval. If appraisal rights
are not perfected or a demand for appraisal rights is withdrawn, a
stockholder will be entitled to receive the consideration otherwise
payable pursuant to the merger agreement.
(9) If an appraisal proceeding is timely instituted, that proceeding may not
be dismissed as to any stockholder who has perfected a right of appraisal
without the approval of the Delaware Court of Chancery.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
Upon consummation of the merger each outstanding share of our common stock,
except for those shares with respect to which statutory appraisal rights are
exercised, those shares which are held in our treasury or by any of our
subsidiaries and those shares held by WPP Group U.S. Finance, WPP Acquisition
Corp. or any other subsidiary of WPP Group U.S. Finance, will be converted into
the right to receive a cash payment pursuant to the terms of the merger
agreement. The following discussion is a summary of the material federal income
tax consequences of the merger to stockholders whose shares of our common stock
are surrendered pursuant to the merger, including the federal income tax
consequences of the receipt of any cash amounts by dissenting stockholders
pursuant to the exercise of appraisal rights. The discussion applies only to
stockholders holding our common stock as capital assets and may not apply to
shares of our common stock received pursuant to the exercise of employee stock
options or otherwise as compensation or to stockholders that have special
treatment under the federal income tax laws, including, without limitation,
stockholders that are non-U.S. persons, life insurance companies, tax-exempt
organizations, financial institutions, or stockholders holding shares as part of
a straddle, a conversion transaction, a hedging transaction or other similar
transaction.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR GENERAL
INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON PRESENT LAW. BECAUSE INDIVIDUAL
CIRCUMSTANCES MAY DIFFER, YOU ARE URGED TO CONSULT YOUR TAX ADVISER TO DETERMINE
THE APPLICABILITY OF THE RULES DISCUSSED BELOW TO YOU AND THE PARTICULAR TAX
EFFECTS OF THE MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND
OTHER TAX LAWS.
The receipt of cash payments pursuant to the merger, including any cash
amounts received by dissenting stockholders pursuant to the exercise of their
appraisal rights, will be a taxable transaction for federal income tax purposes
under the Internal Revenue Code of 1986, as amended. In general, for federal
income tax purposes, a stockholder will recognize capital gain or loss equal to
the difference between the cash received by the stockholder pursuant to the
merger agreement and the stockholder's adjusted tax basis in the shares of our
common stock surrendered pursuant to the merger agreement. Gain or loss will be
calculated separately for each block of shares of our common stock surrendered
in the merger. If a non-corporate stockholder's holding period for the shares of
our common stock exceeds one year, either a 20 percent or a 10 percent capital
gains rate generally will apply to the gain, depending on the amount of taxable
income of the stockholder for such year. If the stockholder's holding period for
the shares of our common stock is one year or less, the gain will be taxed at
the same rates as ordinary income. The deductibility of capital losses is
subject to certain limitations.
WPP Group U.S. Finance or its payment agent will be required to withhold 31%
of the gross proceeds payable to a stockholder in the merger unless the
stockholder provides, in a properly completed substitute Form W-9, his, her or
its taxpayer identification number and certifies under
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penalties of perjury that such number is correct and that the stockholder is not
subject to backup withholding, unless an exemption applies under applicable law
and regulations. Therefore, unless such an exemption exists and is demonstrated
in a manner satisfactory to WPP Group U.S. Finance or its payment agent in
accordance with the instructions that will accompany the substitute Form W-9,
each stockholder should complete and sign the substitute Form W-9 that will be
made available to the stockholder with the letter of transmittal, so as to
provide the information and certification necessary to avoid backup withholding.
Backup withholding is not an additional tax but, rather, is a method of tax
collection. Stockholders will be entitled to credit any amounts withheld under
the backup withholding rules against their actual tax liabilities provided the
required information is furnished to the Internal Revenue Service.
CERTAIN EFFECTS OF THE MERGER
Upon consummation of the merger, WPP Acquisition Corp. will be merged with
and into us, the separate corporate existence of WPP Acquisition Corp. will
cease and we will continue as the surviving corporation. After the filing of the
certificate of merger with the Delaware Secretary of State, the present holders
of our common stock will no longer have any equity interest in us, will not
share in the future earnings or growth of us and will no longer have rights to
vote on corporate matters. We are currently subject to the information filing
requirements of the Exchange Act, and in accordance with that act, are required
to file reports and other information with the SEC relating to our business,
financial statements and other matters. As a result of the merger, there will
cease to be any public market for our common stock, and, after the filing of the
certificate of merger, our common stock will be delisted from the Nasdaq
National Market. Upon such event, we will apply to the SEC for the
deregistration of our common stock under the Exchange Act. The termination of
the registration of our common stock under the Exchange Act would make certain
provisions of the Exchange Act, including the proxy solicitation provisions of
Section 14(a) and the short-swing trading provisions of Section 16(b), no longer
applicable to us.
LITIGATION
On November 4, 1999, a purported class action lawsuit was filed by a holder
of our stock against WPP Acquisition and us in the Delaware Court of Chancery
styled William M. Skeen V. IntelliQuest Information Group, Inc. and WPP
Acquisition, Inc., C.A. No. 17526NC. The complaint sets forth allegations of
violations of 8 Del. C. Sections 251 and 262 due to improper notice of the
November 1, 1999 special meeting of our stockholders. The plaintiff seeks an
order from the Court (i) declaring that defendants violated and are violating
8 Del. C. Sections 251 and 262, (ii) declaring the action to be a class action,
(iii) enjoining the consummation of the merger with WPP Acquisition,
(iv) directing defendants to account for damages and injuries sustained by the
stockholder plaintiff and the class, (v) ordering the payment, in a
quasi-appraisal proceeding or otherwise, of the fair value of shares of our
common stock plus damages and interest, (vi) awarding rescissory damages,
(vii) awarding plaintiff costs, expert witness fees and attorneys' fees and
(viii) granting such other and further relief as may be just and proper. We have
determined to notice and hold this special meeting of stockholders in order to
comply with Delaware law. Because we are noticing and holding this meeting, we
believe that the lawsuit should be dismissed since it will be moot. The Delaware
court may determine that attorneys fees are to be paid to the plaintiff's
attorneys. In determining the current estimate of the merger consideration
payable to IntelliQuest stockholders described in this Proxy Statement, we have
included an estimate of the costs of this lawsuit.
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INFORMATION REGARDING INTELLIQUEST
We are a leading provider of information solutions and services which help
technology companies and Internet marketers improve their marketing performance.
Our primary line of business is marketing research. On September 15, 1999, we
closed the sale of our database marketing business, which was conducted
primarily through our subsidiary, IQ2.net. Our research business provides
services supporting clients' needs to understand and improve the strategic
position of their brands, products, media, channels and use of the Internet.
Prior to its sale, IQ2.net provided services which addressed clients' tactical
needs for reliable detailed data reflecting customers' and prospects'
demographics, technology product use, lifestyles, interests, and their Internet,
mail and telephone contact information.
Since our founding in 1985, we have focused on meeting the specialized
marketing information needs of companies whose businesses and clients are driven
by technology. We supported over 300 clients in 1998, primarily serving four
market sectors:
- Technology product manufacturers such as 3Com, Compaq Computer,
Hewlett-Packard, IBM, Intel and Microsoft;
- Media companies that reach technology buyers, such as Dow Jones, Gannett,
IDG, Time Warner and Ziff-Davis.
- Communications services providers such as AT&T, Bell South, British
Telecom, ICG/Netcom, MCI, Sprint and US West.
- Internet marketers, including pure Internet companies such as America
Online, Garden.com, Infoseek and Yahoo!, as well as established companies
who are pursuing strategic business advantages through the Internet,
including companies such as Barnes & Noble, Dell Computer, Mattel and Visa
USA.
We believe that our ability to consistently provide the highest-quality
information and analysis regarding technology-driven markets at both the
strategic and tactical level differentiates us from our competitors and enhances
our ability to capitalize on investments in Internet marketing and the continued
strong growth in the technology manufacturing sector.
We supply timely, objective, accurate and cost-effective information to
clients about technology and Internet markets, customers and products through
subscription services and proprietary custom projects. We use proprietary
techniques, databases and technology to help companies track product performance
and customer satisfaction, measure advertising effectiveness, assess brand
strength and competitive position, develop media plans, determine price
sensitivity, and evaluate new products, markets and other business
opportunities.
In May 1996, we merged with Pipeline Communications, Inc., a leading
provider of electronic customer registration and marketing services for a number
of leading computer hardware, software and peripheral companies. Our merger with
Pipeline Communications, Inc. enabled us to expand our offerings of electronic
customer registration products.
In February 1997, we merged with Zona Research, Inc., a leading provider of
subscription-based advisory services, reports and conferences that monitor the
Internet and intranet markets. Zona Research uses a limited amount of
quantitative research to support forward-looking projections and analysis
designed to help Internet-related vendor companies successfully develop
marketing strategies.
In December 1997, we entered into an exclusive licensing agreement with
First Data Solutions, a premier provider of consumer, lifestyle and public
record information, to market and sell First Data's popular database products to
the high-tech, telecommunications, cable and utility industries. In
February 1998, we formed a dedicated business unit to focus on database
marketing. Initially named IntelliQuest Marketing Information Solutions, the
business unit was created to leverage our assets in
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product registration services and our rights under the First Data licensing
agreement to help clients enhance their sales and marketing effectiveness in
customer acquisition, retention, cross-selling and up-selling. Dr. Charles
Stryker was named as president of IntelliQuest Marketing Information Solutions,
bringing the guidance of an internationally-recognized authority on database
marketing to our efforts. In February 1999, we relaunched the database marketing
business with a new name and a new Web site "IQ2.net."
We moved aggressively into Internet-based marketing services during 1998.
IQ2.net offerings were strengthened through alliances with CoolSavings.com and
with 24/7 Media, enabling clients to leverage state-of-the-art Internet direct
marketing techniques into their total direct marketing programs. We announced an
alliance with CoolSavings.com in September 1998 to provide product registration
clients with real-time, Internet-delivered coupons to customers when they
register.
The Internet has also become an integral part of our research business. We
launched multiple new research products and services to meet the increasing
demand for Internet marketing information, including: Ebranding-TM-, a
syndicated research product measuring brand perceptions of e-commerce sites;
Technology Panel, which provides research clients with fast access to
Internet-enabled survey respondents; and Zona Consulting, providing custom
consulting for clients considering ecommerce strategies, in creating preference
and other positive perceptions among their target audience. Zona Research
continued to play a major role in shaping opinions about the industry and the
medium, and began creating offerings targeted toward mainstream companies
seeking to leverage the Internet as a marketing channel. The Internet was used
to gain efficiency and effectiveness in research operations, with over 40% of
all custom projects fielded over the Internet in 1998, providing clients with
faster response times while improving cost effectiveness. We deployed our
proprietary online survey tool, SurveyNet, in 1998, allowing the rapid creation
and deployment of many of those surveys conducted online.
Our revenue stream is derived from a mix of continuous services, one-time
projects, data-licensing fees and conference fees. In 1998, 86.3% of our total
revenues were generated from the sale of continuous services.
PRODUCTS AND SERVICES. We offer information-based marketing products and
services through our research business, marketed as IntelliQuest Research and as
Zona Research. Prior to its sale, we also offered database marketing products
and services, marketed as IntelliQuest Marketing Information Solutions during
1998 and marketed as "IQ2.net" beginning in February 1999.
RESEARCH PRODUCTS & SERVICES CUSTOM RESEARCH. Our research business
provides custom proprietary market research studies to technology companies and
Internet marketers, offering full service support for "strategic assessment," as
well as "longitudinal tracking" of marketing issues and performance. These
studies are fielded through our data collection centers in Austin, Texas, and
London, England, as well as partner facilities around the world providing
marketing data for technology consumers in the United States, Canada, Mexico,
Latin America, France, the U.K., Germany, Italy, Japan and other countries.
"Strategic assessment" projects meet clients' needs for quantification of
their customers' or prospective customers' needs, beliefs or perceptions to
support crucial marketing issues and decisions. These projects may address
issues such as market opportunity assessment, market segment analysis,
advertising testing, product or service offering concept tests, or pricing and
profitability assessments. Market opportunity assessment projects enable clients
to explore the potential and pitfalls of new products, channels or services.
Market segmentation studies assist clients in identifying segments with varying
needs, quantifying the sizes and potential economic opportunities of the
segments, describing the composition of each segment, analyzing each segment's
sources of product information and evaluating alternative marketing
communications messages. Profitability studies compare customers' perceptions of
price relative to other attributes, allowing us to create models of pricing
strategies for
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the client. We meet those various "strategic assessment" needs by designing
survey questionnaires, developing sampling plans of survey respondents who fit
the profile of the clients' target audience, fielding the surveys, by telephone,
mail, fax or online, compiling and analyzing the results, and delivering
tabulated data and executive summary results to the client.
When clients are making high-impact decisions, the strategic studies may
require random recruitment of survey respondents. Alternatively, when research
data is urgently required for a decision or when client budgets are constrained,
respondents may be drawn from our Technology Panel. The Technology Panel is a
pre-recruited sample of approximately 35,000 persons influential in the purchase
of technology goods and services who have agreed to participate in ongoing
research projects. Technology Panel participants are drawn from a variety of
corporate functional areas, such as senior management, MIS director or
departmental head, and are involved in the purchase of various types of
technology product categories, and also includes consumer high tech purchasers.
"Longitudinal tracking" projects provide clients with proprietary monitoring
of their brand, advertising, products or customers. Proprietary brand tracking
studies help clients monitor customers' perceptions of their brands in unique
product or market segments and may be combined with syndicated tracking data as
described below. Advertising tracking enables clients to measure the return on
advertising investments on an ongoing basis. Customized product and customer
tracking research enables clients to follow products and customers through all
phases of the product life cycle.
SYNDICATED RESEARCH. Our research division provides a variety of syndicated
marketing research services which address issues common to many competing
vendors. Syndicated research studies provide marketing research data to clients
at a fraction of the cost required to study such issues independently. Moreover,
in nearly all cases, the rigor of the methodology and quality of the syndicated
data are superior to stand-alone custom studies due to the larger pool of
financial support and opportunity for technique refinement over the life of the
study. The primary areas of Syndicated research we provide are media tracking,
CIMS, brand tracking, IntelliTrack IQ and Ebranding, and Internet usage
tracking, WWITS. These studies are fielded through our data collection centers
in Austin, Texas, and London, England, as well as partner facilities around the
world providing marketing data for technology consumers in the United States,
Canada, Mexico, Latin America, France, the U.K., Germany, Italy, Japan and other
countries.
"Brand tracking" services provide clients with an assessment of the status
of buyers' and prospects' perceptions of their brands and their competitors'
brands. This helps marketing executives assess the effectiveness of their
advertising and branding efforts, and the studies provide indicators of why
customers are, or are not, considering or purchasing their brand.
IntelliTrack IQ is a family of market and brand tracking studies delivered
monthly or quarterly. The studies are provided on an annual subscription basis
by product category and by geographic market. In 1998 we offered sixteen product
category modules; the geographic markets tracked include the United States,
Canada, Mexico, Brazil, the U.K., France, Germany, Italy and Japan. To deliver
these services, we complete over 80,000 interviews per year with home and
business purchase influencers of computer-related equipment.
IntelliTrack IQ also offers proprietary omnibus and recontact services. The
omnibus service allows customers to add confidential questions to the
IntelliTrack survey, providing additional in-depth data customized to customers'
individual needs. Recontact studies allow customers direct access to original
respondents so that follow-up research can be conducted with specific target
groups. Both services provide a cost-effective alternative to stand-alone custom
research services.
Ebranding is a syndicated research service launched in 1998 to provide
marketing managers building online commerce sites with a means to measure their
competitive marketing effectiveness. The study measures brand awareness,
preference and conversion rates among current and future online
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shopping and buyers of seven categories of consumer products: autos, books,
clothing, computers, music, software and travel. Online financial services will
be added in 1999. Unlike our other marketing research projects, Ebranding is
fielded and delivered completely over the Internet. In each semi-annual wave of
research, at least 10,000 respondents are randomly recruited over the Internet.
After the data is compiled and analyzed, it is delivered to clients through a
secure, password-protected Internet Web site.
The Computer Industry Media Study, CIMS, is an annually-fielded syndicated
study of the media readership and viewership habits of business and household
technology purchase influencers in the United States. The research provides
technology advertisers and the media companies that target technology buyers
with objective, comparable information about how to efficiently target
advertising at key buying groups. The study supports analysis down to
sub-audiences for specific product categories, including desktop PCs, notebook
PCs, workstations, microprocessors, printers, peripherals, applications
software, operating systems, LAN hardware/software, networking, Internet and
intranet products and services, and wide-area networking and communications
products. In addition to the advertising targeting information, the scope of the
study, which included over 8,500 completed business surveys and 5,000 home
surveys, makes CIMS a comprehensive annual benchmark of market trends in both
buying patterns and media behavior.
The Worldwide Internet Tracking Service, WWITS, is a quarterly tracking
study of Internet and online service, or OLS, usage in the United States. The
research was designed to provide the industry's most accurate and comprehensive
measurement of the size and growth of the Internet and OLS user population.
Additionally, the study monitors the online activities of Internet users,
including their brand preferences, e-commerce activity and satisfaction levels.
Specific brand categories tracked include online services, browsers and
navigation guides.
Zona Research provides subscription-based advisory services and reports that
focus on trends in the Internet and intranet markets. Zona Research combines
quantitative research with industry expertise and opinion to construct
forward-looking projections and analysis to help Internet-related vendor
companies and those looking to leverage the Internet as a marketing tool to
successfully develop their marketing strategies.
CONFERENCES. We host conferences which produce revenue from admission fees
and generate client good will and contacts. The IntelliQuest Brand Tech Forum,
which is co-hosted with The Wall Street Journal, is devoted to presentations on
creating, managing and measuring technology brands. The IntelliQuest Marketing
Research Tech Forum focuses on state-of-the-art research methods for technology
markets. The Zonathon conference explores topics such as commerce on the
Internet, security issues, collaborative computing and how organizations
implement Internet/intranet technologies to meet enterprise needs.
CONSULTING SERVICES. We provide custom consulting services in conjunction
with other research offerings. These consulting services help clients to better
analyze, understand and take action based on data generated by the research
services.
CLIENTS. During 1998, we served over 300 client companies, including
technology manufacturers such as: 3Com, 3M, AT&T, Compaq Computer, Dell
Computer, Hewlett-Packard, IBM, Intel, Microsoft, Netscape, Novell, Symantec,
Texas Instruments and Toshiba; publishers that market to technology advertisers,
including Dow Jones, Gannett, Time Warner and Ziff-Davis; communications
services providers, including GTE, MCI, Sprint and US West; and Internet
marketers including Netscape, Yahoo!, Barnes&Noble.com, Garden.com and CNET.
International revenues from the research division and IQ2.net were $5.8 million
and $1.6 million in 1998, respectively, or approximately 22.1% and 8.5% of total
revenues, respectively.
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Our two largest customers, Sprint and Hewlett-Packard, accounted for 13.1%
and 12.1%, respectively, of 1998 revenues. No other customer accounted for 10%
or more of revenues in 1998. Substantially all of our subscriptions and customer
contracts are renewable annually at the option of our customers, although no
obligation to renew exists and a customer generally has no minimum purchase
commitments thereunder. In addition, there is consolidation of companies in the
technology industries served by us, a trend that we believe will continue.
Consolidation among our top customers could adversely affect customer budgets
for our products and services.
SALES AND MARKETING. We have historically generated most of our new
business through customer referrals supplemented by our own sales and marketing
efforts. We have historically maintained a small, focused direct sales force to
market our products and services to potential new customers. An initiative
launched during the second half of 1997 to create a centralized formal sales
force and management structure was found, by the first quarter of 1998 to be
ineffective. In April 1998 as part of a restructuring, we formed discrete
autonomous business units, our research business and IQ2.net. Each business unit
was given responsibility for managing our own sales force, and the centralized
salesforce was disbanded.
We also train and encourage all of our employees to monitor the information
needs of existing customers in order to provide additional products and
services. In addition, our senior management actively participates in developing
and maintaining customer relationships.
Our primary marketing event is the annual IntelliQuest Brand Tech Forum,
attended by nearly 400 of the technology industry's marketing professionals. The
conference features outside speakers on a variety of topics related to branding
and technology marketing, and provides a public showcase for our products and
services. The 1998 Forum was co-hosted by the Wall Street Journal and sponsored
by Ziff-Davis and Conde Nast. In addition, we host user conferences for
subscribers of certain information services. These conferences provide customer
feedback on potential product improvements and service enhancements. We also
conduct conferences on specific topics for technology marketers such as pricing
technology products, aftermarketing and product registration, database
marketing, evaluating emerging technologies and Internet and intranet trends.
Publishers frequently contract us to conduct research that is published or
distributed to technology companies. We also provide data for editorial use.
PRODUCT DEVELOPMENT AND TECHNOLOGY. We are actively developing new
subscription-based information products. We focus our product development
efforts in areas where there is a demonstrated customer demand for consistent
worldwide market research, but where quality research is cost prohibitive unless
shared among several customers.
We are also investing in enabling technologies that increase the quality and
efficiency of the data collection process. This includes continued enhancements
to SurveyNet.Com, our proprietary web site and automated web-based survey
technology. SurveyNet is a rapid research development tool designed for
non-technical users to conduct rapid marketing research on the World Wide Web.
SurveyNet v1.0 was released December 1998 and has been used for a number of
production surveys throughout the end of 1998 and 1999.
We have also entered into a licensing agreement with Quantime Limited for
use of our Quancept web survey technology. We have extended the Quancept web
survey technology to provide support for a variety of sophisticated survey
requirements including respondent authentication and multi-language support for
a number of European and Asian languages.
Additionally, we have extended our use of web-based technology to field
surveys via the technology panel, thereby improving data collection cost and
effectiveness, and further reducing turnaround time on panel studies. Overall
panel creation and membership administration has been streamlined with the
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release of our proprietary Panel Manager v1.0 application. Further, we have also
developed a new, exclusively web-based Consumer Panel.
We are also developing tools to further automate the reporting and
communication of survey results via the Web. This includes additional
interactive features such as real-time reporting, query capabilities, and
electronic cross tabulation and data manipulation for client use.
COMPETITION. The technology-focused market research industry is highly
competitive. The principal bases of competition in our business are quality,
industry knowledge, data delivery, geographic coverage, cost-effectiveness and
customer service. We have traditionally competed directly with relatively small
local providers of survey-based technology-focused market research. In our other
product groups, we compete indirectly with significant providers of:
- analyst-based, technology-focused market research, such as Gartner
Group, Inc., META Group, Inc. and Forrester Research, Inc.;
- survey-based, general market research, such as NFO Research, Inc., Market
Facts, Inc., and The NPD Group, Inc.;
- web-based survey research firms, such as Greenfield On-line and Harris
Interactive; and
- analyst-based, general business consulting.
Most of these competitors have substantially greater financial, information
gathering and marketing resources than we do and could decide to increase their
resource commitments to our market. Moreover, each of these companies currently
competes indirectly, if not directly, for funds available within aggregate
industry-wide market research budgets. There are few barriers to entry into our
market, and we expect increased competition in one or more market segments
addressed by us.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS. Our success is in part
dependent upon our proprietary software technology, research methods, data
analysis techniques, and internal systems and procedures that we have developed
specifically to serve customers in the technology industry. We have no patents;
consequently, we rely on a combination of copyright, trademark and trade secret
laws and employee and third-party non-disclosure agreements to protect our
proprietary systems, software and procedures. We cannot assure you that the
steps taken by us to protect our proprietary rights will be adequate to prevent
misappropriation of these rights or that third parties will not independently
develop functionally equivalent or superior systems, software or procedures. We
believe that our systems, software and procedures and other proprietary rights
do not infringe the proprietary rights of third parties. We cannot assure you,
however, that third parties will not assert infringement claims against us in
the future or that any such claims will not require us to enter into materially
adverse license arrangements or result in protracted and costly litigation,
regardless of the merits of the claims.
EMPLOYEES. As of December 31, 1998, we employed a total of 278 persons on a
full-time basis, consisting of:
<TABLE>
<CAPTION>
RESEARCH DIVISION IQ2.NET CORPORATE TOTAL
----------------- -------- --------- --------
<S> <C> <C> <C> <C>
Research and other technical.......................... 80 42 -- 122
Sales and marketing................................... 16 12 -- 28
Operations staff...................................... 79 18 31 128
--- -- -- ---
Total........................................... 175 72 31 278
</TABLE>
We also employed part-time individuals in our data collection operations,
representing approximately 195 full-time equivalent employees. None of our
employees is represented by a collective bargaining agreement. We consider our
relationship with our employees to be good.
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PRIVACY POLICY. We have adopted a privacy policy that includes the
following: we are committed to responsible management of consumer information
and abides by rules, both ethical and legal, with respect to the use of consumer
information. We adhere to industry guidelines, and continually monitor and
enhance how we manage the use and security of consumer information.
We support the self-regulatory efforts of the direct marketing industry and
believe such actions are the best way to protect the privacy of the consumer. We
support legislation and regulatory efforts that introduce fair, workable
guidelines to protect the privacy of consumers. We will work to ensure that any
such guidelines are consistent with and complement established self-regulatory
measures, and that they allow the consumer to continue receiving the benefits
that sophisticated marketing techniques can provide.
In our general business practice, we do not disclose the identity of our
registration consumers.
We append our technographic information to existing third-party consumer
databases already available in the marketplace.
We pledge to make every effort to determine the source of any data errors
brought to our attention. If the error originates with us, we will correct it.
If the error originates with a third party, we will immediately notify the
provider of that data.
We require a commitment from our clients that any data sent to us has been
legally and ethically obtained and that in the use of any data received from us,
our clients will comply with data protection laws and applicable industry
policies. Our contracts with third-party information providers contain a
commitment that the data provided to us has been legally obtained for the uses
described above.
If we determine that a client or an information provider is not in
compliance with these commitments, we will terminate our relationship with them.
INFORMATION REGARDING WPP GROUP U.S. FINANCE CORP.
WPP Group U.S. Finance acts as the main financing company for all of the
United States operations of WPP Group plc and manages the centralized cash
management system for such operations. WPP Group U.S. Finance also acts as a
holding company for certain companies within the WPP Group of companies.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our "Selected
Consolidated Financial Data" presented elsewhere in this proxy statement.
GENERAL
THE FOLLOWING MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS CONTAINS TREND ANALYSIS AND OTHER FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. SUCH FORWARD-LOOKING STATEMENTS
INCLUDE, BUT ARE NOT LIMITED TO, OUR EXPECTATIONS REGARDING ITS FUTURE FINANCIAL
CONDITION AND OPERATING RESULTS, PRODUCT DEVELOPMENT, BUSINESS AND GROWTH
STRATEGY, CONTEMPLATED DISPOSITIONS, MARKET CONDITIONS AND COMPETITIVE
ENVIRONMENT. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE ANTICIPATED
IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF CERTAIN FACTORS, INCLUDING, BUT
NOT LIMITED TO RISKS ASSOCIATED WITH RELIANCE ON DATABASE MARKETING INFORMATION
SERVICES; KEY CUSTOMERS/TECHNOLOGY INDUSTRY CONSOLIDATION; DEPENDENCE ON
SUBSCRIPTION AND CONTRACT RENEWALS; FLUCTUATIONS IN OPERATING RESULTS/
SEASONALITY; MANAGEMENT OF GROWTH/POSSIBLE ACQUISITIONS; COMPETITION; DEPENDENCE
ON KEY PERSONNEL; DEVELOPMENT OF DIRECT SALES FORCE; RAPID TECHNOLOGICAL CHANGE
AND NEW PRODUCT INTRODUCTION; DATA COLLECTION RISKS; RISKS RELATED TO CIMS;
HISTORY OF NET LOSSES/UNCERTAIN PROFITABILITY; LIMITED PROTECTION OF PROPRIETARY
SYSTEMS, SOFTWARE AND PROCEDURES; OUR PURSUIT OF STRATEGIC ALLIANCES; AND RISKS
ASSOCIATED WITH INTERNATIONAL OPERATIONS.
SALE OF IQ2.NET
On July 22, 1999 we signed an agreement with Naviant to sell the IQ2.net
division, which includes all of the capital stock of IQ2.net and certain other
related assets, and the sale closed on September 15, 1999. The purchase price
was $46.5 million.
RESULTS OF OPERATIONS
The table below sets forth certain income statement components as a
percentage of sales:
<TABLE>
<CAPTION>
1997 1998
OVER OVER
1996 1997 1998 1996 1997
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues:
Continuous services........................... 83.6 % 87.0 % 86.3 % 34.0 % 24.1 %
Other services................................ 16.4 % 13.0 % 13.7 % 2.5 % 31.4 %
----- ----- ----- ------ ------
Total revenues.............................. 100.0 % 100.0 % 100.0 % 28.8 % 25.1 %
----- ----- ----- ------ ------
Operating expenses:
Cost of revenues................................ 49.2 % 53.9 % 53.8 % 41.3 % 24.9 %
Sales, general and administrative............. 27.3 % 33.4 % 44.5 % 57.8 % 66.4 %
Product development........................... 12.8 % 7.7 % 9.3 % (23.3)% 52.8 %
Depreciation and amortization................. 2.5 % 2.8 % 2.9 % 47.2 % 28.5 %
----- ----- ----- ------ ------
Total operating expenses.................... 91.8 % 97.8 % 110.5 % 37.3 % 41.4 %
----- ----- ----- ------ ------
Operating income (loss):........................ 8.2 % 2.2 % (10.5)% (65.8)% (705.0)%
Interest income and other..................... 3.2 % 5.3 % 3.1 % 123.4 % (28.2)%
Interest expense.............................. (0.1)% (0.)% (0.)% (47.1)% (88.9)%
----- ----- ----- ------ ------
Income (loss) before income taxes............... 11.3 % 7.5 % (7.4)% (14.1)% (224.8)%
----- ----- ----- ------ ------
Provision for (benefit from) income taxes....... 3.5 % 1.6 % (4.)% (40.8)% (416.6)%
----- ----- ----- ------ ------
Net income (loss)............................... 7.8 % 5.9 % (3.4)% (2.2)% (173.1)%
===== ===== ===== ====== ======
</TABLE>
44
<PAGE>
The following table sets forth, for the periods indicated, selected
operations data (in thousands):
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998
OVER FISCAL OVER FISCAL
1996 1997 1998 1996 1997
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
RESEARCH DIVISION
Revenues:
Continuous services....................... $16,095 $19,844 $22,344 $3,749 $2,500
Other services............................ 3,482 3,679 4,019 197 340
------- ------- ------- ------ ------
Total revenues.......................... 19,577 23,523 26,363 3,946 2,840
======= ======= ======= ====== ======
Cost of revenues.......................... 8,822 12,317 14,636 3,495 2,319
Product development....................... 2,515 763 662 (1,752) (101)
</TABLE>
The following table sets forth, for the periods indicated, selected
operations data expressed as a percentage of total revenues and the percentage
change in such items versus the prior comparable period:
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998
OVER FISCAL OVER FISCAL
1996 1997 1998 1996 1997
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Continuous services......................... 82.2% 84.4% 84.8% 23.3 % 12.6 %
Other services.............................. 17.8% 15.6% 15.2% 5.7 % 9.2 %
----- ----- ----- ----- -----
Total revenues............................ 100.0% 100.0% 100.0% 20.2 % 12.1 %
===== ===== ===== ===== =====
Cost of revenues............................ 45.1% 52.4% 55.5% 39.6 % 18.8 %
Product development......................... 12.8% 3.2% 2.5% (69.7)% (13.2)%
</TABLE>
The following table sets forth, for the periods indicated, selected
operations data (in thousands):
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998
OVER FISCAL OVER FISCAL
1996 1997 1998 1996 1997
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
IQ2.NET
Revenues:
Continuous services........................ $7,624 $11,934 $17,096 $4,310 $5,162
Other services............................. 1,166 636 2,240 (530) 1,604
Total revenues........................... 8,790 12,570 19,336 3,780 6,766
Cost of revenues........................... 5,099 6,991 9,548 1,892 2,557
Product development........................ 483 1,273 1,195 790 (78)
</TABLE>
45
<PAGE>
The following table sets forth, for the periods indicated, selected
operations data expressed as a percentage of total revenues and the percentage
change in such items versus the prior comparable period:
<TABLE>
<CAPTION>
FISCAL 1997 FISCAL 1998
OVER FISCAL OVER FISCAL
1996 1997 1998 1996 1997
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Revenues:
Continuous services......................... 86.7% 94.9% 88.4% 56.5 % 43.3 %
Other services.............................. 13.3% 5.1% 11.6% (45.5)% 252.2 %
----- ----- ----- ------ -----
Total revenues............................ 100.0% 100.0% 100.0% 43.0 % 53.8 %
===== ===== =====
Cost of revenues............................ 58.0% 55.6% 49.4% 37.1 % 36.6 %
Product development......................... 5.5% 10.1% 6.2% 163.6 % (6.1)%
</TABLE>
NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO NINE MONTHS ENDED
SEPTEMBER 30, 1998
RESULTS OF OPERATIONS
TOTAL REVENUES. Total revenues increased from $9.1 million to $11.2 million
for the quarters ended September 30, 1998 and 1999, respectively, and increased
from $20.0 million to $22.1 million for the nine months ended September 30, 1998
and 1999. This represents a 23.1% increase for the three-month period ended
September 30, 1999 from the comparable 1998 period and an increase of 10.5% for
the nine months ended September 30, 1998 and 1999 respectively.
Revenues from continuous services were flat at $8.1 million verses $8.1
million for the quarters ended September 30, 1998 and 1999, respectively, and
declined 8.4% from $17.2 million to $15.8 million for the nine months ended
September 30, 1998 and 1999. This was due to shifts in the product lines and
divisional sales mix. Other revenue increased 289.9% to $3.1 million for the
three months ended September 30, 1999 from $1.0 million for first quarter of
1998 and 226.9% from $2.8 million to $6.3 million for the nine months ended
September 30, 1998 and 1999 respectively.
Revenues attributable to international market research increased 200.7% from
$519,000 to $1.0 million for the quarters ended September 30, 1998 and 1999,
respectively, and increased 74.8% from $(3.8) million loss to $(960,000) for the
nine months ended September 30, 1998 and 1999 respectively. This was due to
increased projects associated with our current customer base.
COSTS OF REVENUES. Costs of revenues are primarily composed of data
collection, labor charges, and other costs directly attributable to products or
projects. Costs of revenues increased from $5.4 million to $5.8 million for the
quarters ended September 30, 1998 and 1999, respectively. Costs of revenues
decreased as a percentage of total revenues from 59% to 52% for the quarters
ended September 30, 1998 and 1999, respectively, and increased 2.9% from $11.5
million to $11.8 million for the nine months ended September 30, 1998 and 1999
respectively. The dollar increase in third quarter resulted from an increase in
project work, thus requiring more direct costs. The decrease as a percentage of
revenue was due to increased labor efficiencies.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses consist primarily of personnel and other costs
associated with sales, marketing, administration, finance, information systems,
human resources and general management. Sales, general and administrative
expenses increased 54.8% from $2.4 million to $3.7 million for the quarters
ended September 30, 1998 and 1999, respectively, and increased from $8.9 million
to $9.6 million for the nine months ended September 30, 1998 and 1999. As a
percentage of total revenues, sales, general and administrative expenses
increased to 33.4% for the third quarter of 1999 from 26.3% for the third
quarter of 1998 and decreased from 44.5% to 43.4% for the nine months ended
September 30, 1998 and 1999 respectively.
46
<PAGE>
This increase is due primarily to increased salaries and benefits resulting from
under utilization of the direct labor force in which non-productive time is
charged to S,G&A.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses include costs
incurred to develop or design new products, services or processes and
significantly enhance existing products, services, and processes. Product
development expenses were $511,000 and $341,000 for the three months ended
September 30, 1998 and 1999, respectively, and decreased 39.5% from $2.6 million
to $1.0 million for the nine months ended September 30, 1998 and 1999
respectively. This decrease was a result of a one-time charge in 1998 for
internally developed software that was written off. As a percentage of total
revenues, product development expenses represented 5.6% and 3.0% for the third
quarters of 1998 and 1999, respectively, and 13.0% to 4.6% for the nine months
ended September 30, 1998 and 1999 respectively. The decrease in 1999 is
primarily related to the reorganization of the "Research Development Group" and
the concerted effort to control development costs.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization decreased
18.8% from $282,000 to $229,000 for the quarters ended September 30, 1998 and
1999, respectively, and 22.2% from 850,000 to 661,000 for the nine months ended,
September 30, 1998 and 1999 respectively. The decrease is primarily due to full
depreciation of booked assets.
INCOME TAXES. Provision for income taxes was 38.6% of income before income
taxes for the quarter ended September 30, 1999 and the income tax benefit was
48.6% for the nine months ended September 30, 1999. This rate is higher than our
combined federal and state income tax rates due to significant interest income
derived from tax-free investments, as a percentage of loss before taxes. As a
percentage of operating income before investment income the rate is 38.3%, as
calculated during 1998, which approximates our effective tax rate.
YEARS ENDED DECEMBER 31, 1998 AND DECEMBER 31, 1997
RESEARCH DIVISION
TOTAL REVENUES. Total revenues increased 12.1% in 1998 to $26.4 million
from $23.5 million in 1997. Revenues from continuous services increased 12.6% to
$22.3 million in 1998 from $19.8 million in 1997. Other revenues increased 9.2%
to $4.0 million in 1998 from $3.7 million in 1997. Revenue growth was primarily
attributable to an increase in sales of panel services. Revenues attributable to
international market research decreased 11.2% to $5.0 million in 1998 from
$5.7 million in 1997.
COST OF REVENUES. Cost of revenues increased 18.8% to $14.6 million in 1998
from $12.3 million in 1997. Cost of revenues increased as a percentage of
revenues to 55.5% in 1998 from 52.4% in 1997. This was primarily due to an
increase in cost for certain syndicated products.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses are composed of
resources, primarily labor, dedicated to the development of new products and
proprietary processes. Product development expenses decreased to $660,000 during
1998 from $760,000 during 1997, a 13.2% decrease. Product development costs
decreased as a percent of revenue to 2.5% in 1998 from 3.2% in 1997
As a result of the uncertainty of these market demands, future product
development expenses may fluctuate.
IQ2.NET
TOTAL REVENUES. Total revenues increased 53.8% in 1998 to $19.3 million
from $12.6 million in 1997. Revenues from continuous services increased 43.3% to
$17.1 million in 1998 from $11.9 million in 1997. Other revenues increased
252.2% to $2.2 million in 1998 from $640,000 in 1997. Revenue growth was
primarily attributable to the addition of database marketing products. This
increase was partially offset by the anticipated discontinuation of data medium
sales in late 1997 as the market shifted to more electronic solutions for
customer registration. Revenues attributable to international market
47
<PAGE>
research decreased 63.9% to $1.7 million in 1998 from $4.7 million in 1997. This
decrease was directly attributable to the discontinuation of data medium sales
in late 1997.
COST OF REVENUES. Cost of revenues increased 36.6% to $9.5 million in 1998
from $7.0 million in 1997. Cost of revenues decreased as a percentage of
revenues to 49.4% in 1998 from 55.6% in 1997. This was primarily due to the
addition of database marketing services in late December 1997, with varied
product margins for specific database marketing products.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses are composed of
resources, primarily labor, dedicated to the development of new products and
improving the efficiency of current database processes. Product development
expenses decreased to $1.2 million during 1998 from $1.3 million during 1997, a
6.1% decrease. Product development costs decreased as a percent of revenue to
6.2% in 1998 from 10.1% in 1997. Included in products development expenses for
1998 was a write down of capitalized internally developed software of $580,000.
TOTAL OPERATIONS
PRODUCT DEVELOPMENT. In 1998, a write down of capitalized internally
developed software in the amount of $920,000 occurred. These charges were not
allocated to the research division or IQ2.net since the pro rata benefit to each
unit was not determinable.
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses consist primarily of personnel and other costs
associated with sales, marketing, administration, finance, information systems,
human resources and general management. Sales, general and administrative
expenses increased 66.4% to $20.3 million, or 44.5% of total revenues, during
1998 from $12.2 million, or 33.4% of total revenues during 1997. The increase
was related to an investment in a more experienced senior management team. In
addition, our database marketing group required a higher sales, general and
administrative operating cost component. During 1998, we incurred one-time
adjustments related to reorganization efforts of $1.5 million. Sales, general
and administrative expenses directly attributable to segments are recorded as an
expense of that segment. Sales, general and administrative expenses for share
services, such as administration, finance and information systems, are allocated
to the segments based upon labor costs incurred, revenues and percentage
utilization in 1997 and labor costs incurred in 1998.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
28.5% to $1.3 million in 1998 from $1.0 million in 1997. This increase was
primarily due to the acquisition and amortization of the exclusive licensing
agreement to provide database services and to the purchases of computer
equipment and data processing systems required to support business growth.
Depreciation and amortization of office furniture and equipment are allocated to
the segments based upon labor costs incurred.
INCOME TAXES. Our benefit for income taxes represents 53.9% of the loss
before income taxes for 1998. In 1997, the provision for income taxes
represented 21.2% of income before taxes. This rate varied from our combined
federal and state income tax rates as a percentage of income (loss) before taxes
due to significant interest income derived from tax-free investments.
YEARS ENDED DECEMBER 31, 1997 AND DECEMBER 31, 1996
RESEARCH DIVISION
TOTAL REVENUES. Total revenues increased 20.2% in 1997 to $23.5 million
from $19.6 million in 1996. Revenues from continuous services increased 23.3% to
$19.8 million in 1997 from $16.1 million in 1996 due primarily to an increased
demand for proprietary tracking products and the increased number of subscribers
for the four subscription-based product families. Other revenues increased 5.7%
to $3.7 million in 1997 from $3.5 million in 1996, due primarily to growth of
our non-recurring proprietary
48
<PAGE>
projects and technology panel research. Revenues attributable to international
market research decreased 2.0% to $5.7 million in 1997 from $5.8 million in
1996.
COST OF REVENUES. Cost of revenues increased 39.6% to $12.3 million in 1997
from $8.8 million in 1996. Cost of revenues increased as a percentage of
revenues to 52.4% in 1997 from 45.1% in 1996. The increase in cost of revenues
as a percentage of revenues reflected an increase in the unit cost for
proprietary research projects, an increase in overall fixed costs associated
with syndicated products, and a higher ratio of custom panel work with lower
gross margins.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses decreased to
$760,000 during 1997 from $2.5 million during 1996, a 69.7% decrease. Product
development costs decreased as a percent of revenue to 3.2% in 1997 from 12.8%
in 1996 attributable to the fact that expenses in 1996 were unusually high due
to three large product efforts.
IQ2.NET
TOTAL REVENUES. Total revenues increased 43.0% in 1997 to $12.6 million
from $8.8 million in 1996. Revenues from continuous services increased 56.5% to
$11.9 million in 1997 from $7.6 million in 1996 due primarily to growth in
registration services. Other revenues decreased 45.5% to $640,000 in 1997 from
$1.2 million in 1996, due primarily to the shift from third party relationships
to contracts with clients for registration. Revenues attributable to market
research from international services increased 124.8% to $4.7 million in 1997
from $2.1 million in 1996. The increase was attributable to a contract for data
medium sales as a short-term customer solution as the market shifted to more
electronic solutions for customer registration.
COST OF REVENUES. Cost of revenues increased 37.1% to $7.0 million in 1997
from $5.1 million in 1996. Cost of revenues decreased as a percentage of
revenues to 55.6% in 1997 from 58.0% in 1996. The decrease in cost of revenues
as a percentage of revenues reflected a higher ratio of affinity revenues.
PRODUCT DEVELOPMENT EXPENSES. Product development expenses increased to
$1.3 million during 1997 from $480,000 during 1996, a 163.6% increase. Product
development costs increased as a percent of revenue to 10.1% in 1997 from 5.5%
in 1996. We made significant investments in 1997 to improve the registration
database operations.
TOTAL OPERATIONS
SALES, GENERAL AND ADMINISTRATIVE EXPENSES. Sales, general and
administrative expenses increased 57.8% to $12.2 million, or 33.4% of total
revenues, during 1997 from $7.7 million, or 27.3% of total revenues, during
1996. The increase was a result of costs to build infrastructure throughout
1997. During 1997, we strengthened our management team with the addition of
several highly seasoned executives. We also committed significant resources in
the reorganization of our sales and marketing infrastructure. This resulted in
an increase in recruiting fees, relocation fees and severance payments. Sales,
general and administrative expenses directly attributable to segments are
recorded as an expense of that segment. Sales, general and administrative
expenses for share services are allocated to the segments based on labor costs
incurred, revenues and percentage utilization in 1996 and 1997.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization increased
47.2% to $1.0 million in 1997 from $700,000 in 1996. This increase was due to a
high level of property and equipment purchases in 1997 as a result of a
significant increase in number of employees and capital equipment acquisitions
during mid-year 1996 including establishing two new data collection facilities
and installation of corporate-wide standardized computer platforms, networks and
software to accommodate more efficient data communications.
INCOME TAXES. Our provision for income taxes represented 21.2% and 30.8% of
income before income taxes for 1997 and 1996, respectively. The 1997 and 1996
rates were below our combined federal and state income tax rates principally due
to tax-free investment income.
49
<PAGE>
SELECTED QUARTERLY OPERATING RESULTS
The following tables set forth unaudited consolidated statement of
operations data for each of the ten quarters in the period beginning April 1,
1997 and ending September 30, 1999, as well as the percentage of our total
revenues represented by each item. In management's opinion, this unaudited
information has been prepared on the same basis as the annual consolidated
financial statements and includes all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the information for
the quarters presented, when read in conjunction with the consolidated financial
statements and notes thereto included elsewhere in this proxy statement. The
operating results for any quarter are not necessarily indicative of results for
any future period.
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1997 1997 1997 1998 1998 1998
-------- --------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
TOTAL OPERATIONS
Total revenues............. $7,517 $12,527 $9,015 $ 9,959 $9,987 $13,844
Gross margin............... 3,467 5,316 4,530 4,161 4,874 6,156
Net income (loss).......... $ 814 $ 1,382 $ (618) $(2,369) $ (267) $ 701
====== ======= ====== ======= ====== =======
Net income (loss) per
share:
Basic.................... 0.10 0.16 (0.07) (0.28) (0.03) 0.08
Diluted.................. 0.09 0.16 (0.07) (0.28) (0.03) 0.08
Weighted average shares:
Basic.................... 8,348 8,390 8,410 8,484 8,452 8,307
Diluted.................. 8,560 8,587 8,410 8,484 8,452 8,353
AS A PERCENTAGE OF TOTAL REVENUE
Total revenues............. 100.0% 100.0% 100.0 % 100.0 % 100.0 % 100.0%
Gross margin............... 46.1% 42.4% 50.2 % 41.8 % 48.8 % 44.5%
Net income (loss).......... 10.8% 11.0% (6.9)% (23.8)% (2.7)% 5.1%
<CAPTION>
DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1999 1999 1999
-------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
TOTAL OPERATIONS
Total revenues............. $11,909 $10,981 $9,301 $11,207
Gross margin............... 5,904 5,267 4,229 5,354
Net income (loss).......... $ 356 $ (271) $ (993) 20,943
======= ======= ====== =======
Net income (loss) per
share:
Basic.................... 0.04 (0.03) (0.13) 2.65
Diluted.................. 0.04 (0.03) (0.13) 2.52
Weighted average shares:
Basic.................... 8,011 7,858 7,883 7,897
Diluted.................. 8,235 7,858 7,883 8,299
AS A PERCENTAGE OF TOTAL REVENUE
Total revenues............. 100.0% 100.0 % 100.0 % 100.0 %
Gross margin............... 49.6% 47.95 % 45.47 % 47.78 %
Net income (loss).......... 3.0% (2.47)% (10.68)% 186.87 %
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1997 1997 1997 1998 1998 1998
-------- --------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
RESEARCH DIVISION
Total revenues........... $4,437 $ 9,636 $5,454 $ 5,691 $5,230 $ 9,163
Gross margin............. 2,325 4,149 2,529 2,835 2,397 3,726
EBIT..................... $ 541 $ (322) $ 728 $ (798) $ (912) $ 386
====== ======= ====== ======= ====== =======
AS A PERCENTAGE OF TOTAL REVENUE
Total revenues............. 100.0% 100.0 % 100.0% 100.0 % 100.0 % 100.0%
Gross margin............... 52.4% 43.1 % 46.4% 49.8 % 45.8 % 40.7%
Net income (loss).......... 12.2% (3.3)% 13.3% (14.0)% (17.4)% 4.2%
<CAPTION>
DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1999 1999 1999
-------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
RESEARCH DIVISION
Total revenues........... $ 6,279 $ 6,034 $ 4,958 n/a
Gross margin............. 2,768 n/a n/a n/a
EBIT..................... $ (485) $ (571) $(1,432) n/a
======= ======= ======= =======
AS A PERCENTAGE OF TOTAL REVENUE
Total revenues............. 100.0 % 100.0 % 100.0 % n/a
Gross margin............... 44.1 % n/a n/a n/a
Net income (loss).......... (7.7)% (9.46)% (28.91)% n/a
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1997 1997 1997 1998 1998 1998
-------- --------- -------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
IQ2.NET
Total revenues............ $3,080 $2,891 $ 3,111 $ 4,268 $ 4,757 $4,681
Gross margin.............. 1,142 1,167 1,946 1,721 2,476 2,430
EBIT...................... $ 154 $ (103) $ (981) $(1,498) $ 78 $ 120
====== ====== ======= ======= ======== ======
AS A PERCENTAGE OF TOTAL REVENUE
Total revenues.............. 100.0% 100.0 % 100.0 % 100.0 % 100.0% 100.0%
Gross margin................ 37.1% 40.4 % 62.5 % 40.3 % 52.0% 51.9%
Net income (loss)........... 5.0% (3.6)% (31.5)% (35.1)% 1.6% 2.6%
<CAPTION>
DEC. 31, MARCH 31, JUNE 30, SEPT. 30,
1998 1999 1999 1999
-------- --------- -------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
IQ2.NET
Total revenues............ $ 5,630 $ 4,946 $ 4,349 n/a
Gross margin.............. 3,161 n/a n/a n/a
EBIT...................... $ 724 $ (301) $ (755) n/a
======= ======= ======= ======
AS A PERCENTAGE OF TOTAL REVENUE
Total revenues.............. 100.0% 100.0 % 100.0 % n/a
Gross margin................ 56.1% n/a n/a n/a
Net income (loss)........... 12.9% (6.09)% (17.36)% n/a
</TABLE>
50
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1999, we had cash of $4.3 million and short-term
investments of $72.9 million and working capital of $73.2 million.
During the nine months ended September 30, 1999, we provided $44.4 million
for operating activities versus $3.4 million used by operations during the same
period in the prior year. This increase in cash flow provided by operations was
primarily due to sale of IQ2.net division for $46.5 million, of which $2.0
million was released from escrow in October. We record billed amounts as
deferred revenues on our financial statements and recognize these amounts as
income when earned. As of December 31, 1998 and September 30, 1999, we had $2.1
million and $6.4 million, respectively, of deferred revenues. In addition, when
work is performed in advance of billing, we will record this work as unbilled
revenue. As of December 31, 1998 and September 30, 1999, we had $3.5 million and
$7.5 million of unbilled revenues, respectively. Substantially all deferred and
unbilled revenues will be earned and billed, respectively, within 12 months of
the respective period ends.
We had net outflows of $45.9 million and provided cash from investing
activities of $3.3 million for the nine months ended September 30, 1999 and
1998, respectively.
We generated cash from financing activities of $204,000 and $84,000 for the
nine months ended, September 30, 1999 and 1998, respectively.
We believe that the cash flows from operations, together with existing cash
balances, short term investments and the line of credit, will be sufficient to
meet our working capital and capital expenditure requirements for at least the
next 12 months. Beyond that time, if cash flows from operations and available
borrowing from the line of credit are not sufficient to satisfy our financing
needs, we may seek additional funding through the sale of our securities,
including equity securities. There can be no assurance that such funding can be
obtained on favorable terms, if at all.
YEAR 2000 ISSUE
The Year 2000 issue is a result of computer programs that were written using
two digits rather than four to define the applicable year. For example, computer
programs that have time-sensitive software may recognize a date using 00 as the
year 1900 rather than the year 2000. To the extent that our software
applications contain operating instructions that are unable to interpret
appropriately the upcoming calendar year 2000 and beyond, some level of
modification or replacement of such applications will be necessary to avoid
system failures and the temporary inability to process transactions or engage in
other normal business activities.
Our management has implemented a company-wide program to assess the computer
systems and applications for the year 2000. A team was established in 1998,
headed by our chief operating officer, to coordinate our Year 2000 compliance
efforts. The Year 2000 team is staffed with representatives of our management
information group and the business units. Consultants and legal counsel are
being consulted as needed. The chief operating officer reports regularly on the
status of the Year 2000 project to our board of directors.
This project has followed a systematic approach and has undertaken to:
- create awareness among staff and management regarding the issues and
the project;
- ensure that executive management and the board of directors were
actively involved in the project;
- inventory hardware, software and other systems as well as vendors,
suppliers and clients;
- assess the risk and prioritized those systems most critical to business
functioning;
- take corrective action by retiring, upgrading and/or remediating
hardware, software and other equipment; and
- develop and implement action plans and testing strategies.
51
<PAGE>
The project focus has not been limited to our business. We have requested
that critical vendors supply us with their Year 2000 readiness statements so
that we have sufficient time to install upgrades and complete testing where
appropriate. We have been working with our major suppliers and customers to
assess their Year 2000 readiness. The goal of these efforts is to ensure that
the Year 2000 issue will not impact our ability to provide services.
We believe we have taken appropriate measures to make our "mission critical"
systems Year 2000 ready in accordance with our criteria. "Year 2000 Ready" means
that the system will not fail because of problems handling dates associated with
the year change from December 31, 1999 to January 1, 2000, including leap year
calculations, provided that all other systems, such as hardware, software and
firmware, used with the system, properly exchange accurate date data with it. We
are also putting in place certain contingency plans to address problems which
could arise as a result of the Year 2000 date change. Based on our test results
of mission critical systems, we do not anticipate problems that would cause
disruption of normal business functions. In addition, our review of vendor and
supplier readiness has revealed minimal impact to our ongoing operations. In the
event that issues outside of our control occur, we will make all reasonable
efforts to minimize the impact on our services.
We expect to incur costs of approximately $150,000 to $250,000 through 1999
for consulting, administration, hardware, software and other expenses associated
with Year 2000 compliance. These charges are reported as a component of selling,
general and administrative expenses. We plan to expense maintenance costs as
incurred, while costs of updated software and hardware will be amortized over
the respective lives of the assets. The total cost of the project is being
funded through operating cash flows.
We rely on third-party providers for key services such as telecommunications
and database marketing services. Interruption of these services could, in
management's view, have a material impact on our operations. Efforts have begun
to evaluate the readiness of these critical suppliers. Our management believes
that, should we or other third parties, with whom we have a significant business
relationship, have a Year 2000-related systems failure, the most significant
impact would likely be the inability to deliver products in a timely fashion to
our clients, to receive certain products from vendors or to process
electronically certain internal database programs. The impact could be material
to our liquidity or results of operations.
As part of the Year 2000 readiness effort, the Year 2000 team will be
establishing and implementing a contingency plan to provide for viable
alternatives to ensure that our core business operations are able to continue in
the event of a Year 2000-related systems failure.
STOCK REPURCHASE PROGRAM
In January 1998, our board of directors approved the repurchase of up to
850,000 shares of our outstanding common stock. As of August 12, 1999, we had
repurchased 720,000 shares under the plan.
NEW ACCOUNTING PRONOUNCEMENTS
In February 1998, the Financial Accounting Standards Board issued SFAS
No. 128, "Earnings Per Share." This new standard simplifies the earnings per
share calculation and makes the U.S. standard for computing EPS more consistent
with international accounting standards. We adopted SFAS 128 in the fourth
quarter of 1997. Earnings per share for prior years has been restated where
necessary to comply with SFAS 128.
Under SFAS 128, primary earnings per share was replaced with a simpler
calculation called basic earnings per share. Basic earnings per share is
calculated by dividing income available to common shareholders by the weighted
average common shares outstanding. Previously, primary earnings per share was
based on the weighted average of both outstanding and issuable shares assuming
all dilutive
52
<PAGE>
options had been exercised. Under SFAS 128 fully diluted earnings per share has
not changed significantly, but has been renamed diluted earnings per share.
Diluted earnings per share includes the effect of all potentially dilutive
securities, such as options. Our basic and diluted earnings per share are
materially the same.
In June 1998, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive income includes all
changes in equity during a period except those due to owner investments and
distributions. It includes items such as foreign currency translation
adjustments, and unrealized gains and losses on available-for-sale securities.
This standard does not change the display or components of present-day net
income. We began presenting the required disclosures in our financial statements
beginning in the 1999 first quarter. This statement does not have a material
impact on us.
Also in June 1998, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." This new standard requires companies
to disclose segment data based on how management makes decisions about
allocating resources to segments and how it measures segment performance.
SFAS 131 requires companies to disclose a measure of segment profit or loss,
such as operating income, and reconciliations to consolidated totals. It also
requires entity-wide disclosures about a company's products and services, its
major customers and the material countries in which it holds assets and reports
revenues. We adopted SFAS 131 in our 1998 year-end financial statements.
In February 1999, the FASB issued SFAS No 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS 132 standardizes the
disclosure requirements for pensions and postretirement benefits where
practical. It also eliminates certain disclosures and requires additional
information on changes in benefit obligations and the values of plan assets. If
the merger does not occur, we will adopt SFAS 132 in our 1999 year-end financial
statements. This statement is not expected to have a significant effect on our
pension plan disclosures.
FOREIGN CURRENCY
Our exposure to foreign currency rate fluctuations has been relatively low.
First, we generally require payment from our customers in U.S. dollars. Second,
we control vendor related foreign currency risk both through contractual clauses
requiring clients to reimburse us for any material losses on contracts caused by
exchange rate fluctuations and by locking in forward currency contracts. Our
objective in managing the exposure to foreign currency fluctuations is to reduce
earnings and cash flow volatility associated with foreign exchange rate changes.
Accordingly, we may utilize foreign currency option contracts and forward
contracts to hedge a portion of our exposure on anticipated transactions and
firm commitment transactions. The currency hedged is the British pound. We
monitor our foreign exchange exposures to ensure the overall effectiveness of
our foreign currency hedge positions. However, we cannot assure you that our
foreign currency hedging activities will substantially reduce the impact of
fluctuations in currency exchange rates on our results of operations and
financial position. As of September 30, 1999, we had no outstanding forward
contracts in place.
53
<PAGE>
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth stock ownership information as of March 1,
1999, with respect to:
- anyone known to be the beneficial owner of more than five percent of our
common stock;
- each of our current directors and executive officers; and
- all of our current directors and executive officers as a group.
<TABLE>
<CAPTION>
NO. OF SHARES
BENEFICIALLY % OF TOTAL:
FIVE PERCENT OWNERS, DIRECTORS, EXECUTIVE OFFICERS OWNED(1) AUGUST 1999
- -------------------------------------------------- ------------- -----------
<S> <C> <C>
Safeco Corporation ......................................... 1,544,400(2) 19.7%
5333 Brooklyn Ave. NE
Seattle, WA 98185
T. Rowe Price & Associates, Inc. ........................... 1,068,056(3) 13.6%
100 E. Pratt Street
Baltimore, MD 21202
GEO Capital Corp. .......................................... 992,000 12.6%
767 Fifth Ave, 45th Floor
New York, NY 10153
William Blair & Company LLC ................................ 795,000(4) 10.1%
222 West Adams Street, 34th Floor
Chicago, IL 60606
Wagner Asset Management, LP ................................ 761,500(5) 9.7%
Wagner Asset Management Ltd.
227 West Monroe Street, Suite 3000
Chicago, IL 60606
Peter Zandan ............................................... 453,759(6) 5.8%
c/o IntelliQuest Information Group, Inc
1250 Capital of Texas Highway
Building One, Suite 600
Austin, TX 78746
Brian Sharples ............................................. 439,167(7) 5.6%
c/o IntelliQuest Information Group, Inc
1250 Capital of Texas Highway
Building One, Suite 600
Austin, TX 78746
Ed Frazier.................................................. 10,936(8) *
Marianne Grogan............................................. 31,546(9) *
F. S. (Kit) Webster III..................................... 9,375(10) *
Lee Walker.................................................. 58,398(11) *
William Wood................................................ 63,382(12) *
All directors and executive officers as a group (7 1,066,545 13.3%
persons)....................................................
</TABLE>
- ------------------------
* Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to
securities. Shares of common stock subject to options,
54
<PAGE>
warrants and convertible notes currently exercisable or convertible, or
exercisable or convertible within 60 days of March 1, 1999, are deemed
outstanding for computing the percentage of the person holding such option,
warrant or convertible note but are not outstanding for computing the
percentage of any other person. Except as indicated by footnote, and subject
to community property laws where applicable, the persons named in the table
above have sole voting and investment power with respect to all shares of
common stock shown as beneficially owned by them.
(2) Includes 839,900 and 454,900 shares of common stock held by Safeco Common
Stock Trust and Safeco Resource Series Trust, respectively, investment
companies registered under the Investment Company Act of 1940, to which
Safeco Asset Management Co., a subsidiary of Safeco Corporation, provides
investment advice. Also includes 259,600 shares of common stock held by
employee benefit plans for which Safeco Corporation is a plan sponsor.
Safeco Corporation disclaims beneficial ownership of all such shares.
(3) Includes 750,000 shares of common stock over which T. Rowe Price New
Horizons Fund, Inc. has sole voting power and 318,056 shares of common stock
over which T. Rowe Price Associates, Inc. has sole voting power.
(4) Includes 119,094 shares of common stock held by William Blair & Company,
L.L.C. over which William Blair & Company, L.L.C. has sole voting power.
William Blair & Company, L.L.C. disclaims voting power over the remaining
shares of common stock.
(5) Acquired on behalf of discretionary clients of Wagner Asset Management.
(6) Includes 3,352 shares of common stock held by Mr. Zandan as custodian for
Mr. Zandan's children. Mr. Zandan disclaims beneficial ownership of all such
shares. Includes 8,535 shares issuable pursuant to stock options exercisable
within 60 days of March 1, 1999.
(7) Includes 37,382 shares issuable pursuant to stock options exercisable within
60 days of March 1, 1999.
(8) Includes 10,396 shares issuable pursuant to stock options exercisable within
60 days of March 1, 1999.
(9) Includes 30,172 shares issuable pursuant to stock options exercisable within
60 days of March 1, 1999.
(10) Includes 9,375 shares issuable pursuant to stock options exercisable within
60 days of March 1, 1999.
(11) Includes 18,398 shares issuable pursuant to stock options exercisable
within 60 days of March 1, 1999.
(12) Includes 536 shares of common stock held by Mr. Wood as custodian for
Mr. Wood's children. Mr. Wood disclaims beneficial ownership of such shares.
Includes 11,873 shares issuable pursuant to stock options exercisable within
60 days of March 1, 1999.
STOCKHOLDER PROPOSALS
We will hold an annual meeting of stockholders in the year 2000 only if the
merger is not consummated. In the event of such a meeting, in order to have been
considered for inclusion in our proxy materials for that meeting, stockholders'
proposals must have been received at our principal executive offices no later
than December 7, 1999.
55
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
The consolidated financial statements contained in this proxy statement for
the year ended December 31, 1998 have been audited by PricewaterhouseCoopers
LLP, independent public accountants, as stated in their report, which is also
contained in this proxy statement.
We expect representatives of PricewaterhouseCoopers LLP to be present at the
special meeting, where they will be available to respond to appropriate
questions and have the opportunity to make a statement if they so desire.
ADDITIONAL INFORMATION
As required by law, we file reports, proxy statements and other information
with the SEC. These reports, proxy statements and other information contain
additional information about us. You can inspect and copy these materials at the
public reference facilities maintained by the SEC at Room 1024, 450 Fifth
Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the following
Regional Offices of the Commission: 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York, New York
10048. For further information concerning the SEC's public reference rooms, you
may call the SEC at 1-800-SEC-0330. Some of this information may also be
accessed on the World Wide Web through the SEC's Internet address at
"http://www.sec.gov."
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION DIFFERENT FROM THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT. YOU SHOULD NOT ASSUME THAT THE
INFORMATION CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY DATE LATER
THAN THE DATE HEREOF, AND THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS
SHALL NOT CREATE ANY IMPLICATION TO THE CONTRARY.
By order of our board of directors,
[SIG]
F. S. (Kit) Webster III
CHIEF FINANCIAL OFFICER AND SECRETARY
56
<PAGE>
INDEX TO INTELLIQUEST INFORMATION GROUP, INC.'S
CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
--------
<S> <C>
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets as of December 31, 1998 and
1999...................................................... F-3
Consolidated Statements of Operations for the three years
ended December 31, 1998................................... F-4
Consolidated Statements of Comprehensive Income (Loss) for
the two years ended December 31, 1998..................... F-5
Consolidated Statements of Common Stockholders' Equity
(Deficit) for the three years ended December 31, 1998..... F-6
Consolidated Statements of Cash Flows for the three years
ended December 31, 1998................................... F-7
Notes to Consolidated Financial Statements.................. F-9
Condensed Consolidated Balance Sheets as of September 30,
1999 (unaudited) and December 31, 1998.................... F-25
Condensed Consolidated Statements of Operations (unaudited)
for the three months ended September 30, 1999 and 1998.... F-26
Condensed Consolidated Statements of Operations (unaudited)
for the nine months ended September 30, 1999 and 1998..... F-27
Consolidated Statements of Comprehensive Income (Loss)
(unaudited) for the three months ended September 30, 1999
and 1998.................................................. F-28
Consolidated Statements of Comprehensive Income (Loss)
(unaudited) for the nine months ended September 30, 1999
and 1998.................................................. F-29
Condensed Consolidated Statements of Cash Flows (unaudited)
for the nine months ended September 30, 1999 and 1998..... F-30
Notes to Consolidated Financial Statements.................. F-31
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of IntelliQuest Information Group, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, common stockholders' equity (deficit) and
cash flows present fairly, in all material respects, the financial position of
IntelliQuest Information Group, Inc. and its subsidiaries at December 31, 1998
and 1997 and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1998, in conformity with
generally accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Austin, Texas
February 26, 1999
F-2
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1997 1998
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 1,785 $ 5,611
Short term investments.................................... 40,752 28,010
Accounts receivable, net of allowances for doubtful
accounts of $375
and $852, respectively.................................. 7,904 10,978
Unbilled revenues......................................... 2,840 3,532
Projects in process....................................... 127 153
Prepaid expenses and other assets......................... 593 2,336
------- -------
Total current assets.................................. 54,001 50,620
Property and equipment, net............................... 4,436 2,850
License agreement, net.................................... 7,500 7,324
Other assets.............................................. 1,470 1,793
------- -------
Total assets.......................................... $67,407 $62,587
======= =======
LIABILITIES AND COMMON STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 2,474 $ 3,996
Accrued liabilities....................................... 1,918 2,826
Deferred revenues......................................... 2,420 2,145
Other current liabilities................................. 553 --
Total current liabilities............................. 7,365 8,967
Deferred rent and other................................... 172 79
Total liabilities..................................... 7,537 9,046
Commitments and contingencies (Note 7)
Series A junior participating preferred stock (Note 11)... -- --
Common stockholders' equity:
Common stock, $0.0001 par value, 30,000,000 shares
authorized,
8,411,000 and 8,563,000 shares issued and outstanding,
respectively 0 and
720,000 shares in treasury, respectively.............. 1 1
Capital in excess of par value.......................... 58,834 53,976
Other................................................... 13 121
Accumulated earnings (deficit).......................... 1,022 (557)
------- -------
Total common stockholders' equity..................... 59,870 53,541
------- -------
Total liabilities and common stockholders' equity..... $67,407 $62,587
======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Continuous services.................................... $ 23,719 $ 31,778 $ 39,440
Other services......................................... 4,648 4,765 6,259
---------- ---------- ----------
Total revenue...................................... 28,367 36,543 45,699
---------- ---------- ----------
Operating expenses:
Cost of revenues....................................... 13,949 19,703 24,604
Sales, general and administrative...................... 7,738 12,214 20,325
Product development.................................... 3,644 2,796 4,272
Depreciation and amortization.......................... 701 1,032 1,326
Total operating expenses........................... 26,032 35,745 50,527
---------- ---------- ----------
Operating income (loss).................................. 2,335 798 (4,828)
---------- ---------- ----------
Other income (expense):
Interest income and other.............................. 875 1,955 1,404
Interest expense....................................... (17) (9) (1)
Income (loss) before income taxes........................ 3,193 2,744 (3,425)
Provision for (benefit from) income taxes................ 984 583 (1,846)
---------- ---------- ----------
Net income (loss)........................................ $ 2,209 $ 2,161 $ (1,579)
========== ========== ==========
Basic net income (loss) per share........................ $ 0.32 $ 0.26 $ (0.19)
========== ========== ==========
Diluted net income (loss) per share...................... $ 0.30 $ 0.25 $ (0.19)
========== ========== ==========
Basic weighted average number of common and common
equivalent shares outstanding.......................... 6,667,000 8,372,000 8,311,000
========== ========== ==========
Diluted weighted average number of common and common
equivalent shares outstanding.......................... 7,317,000 8,519,000 8,311,000
========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS) (EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE YEAR
ENDED
DECEMBER 31,
-------------------
<S> <C> <C>
1997 1998
------ -------
Net income (loss)........................................... $2,161 $(1,579)
Other comprehensive (loss) income, net of tax: Foreign
currency translation adjustments, net..................... (3) 27
Unrealized gain on securities, net........................ 17 28
------ -------
Other comprehensive income.................................. 14 55
Comprehensive income (loss)................................. $2,175 $(1,524)
====== =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENT OF COMMON STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- CAPITAL IN ACCUMULATED TOTAL
PAR EXCESS OF EARNINGS STOCKHOLDERS'
SHARES VALUE PAR VALUE OTHER (DEFICIT) EQUITY
--------- -------- ---------- -------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996...... 3,495,000 $1 $ 2,371 $(61) $(3,285) $ (974)
Accretion of preferred stock
to redemption value......... -- -- -- -- (63) (63)
Conversion of redeemable
convertible preferred stock
and warrants upon initial
public offering............. 2,118,000 -- 5,020 -- -- 5,020
Common stock issued upon
initial public offering,
net......................... 1,635,000 -- 25,248 -- -- 25,248
Common stock issued upon
secondary offering, net..... 1,000,000 -- 25,572 -- -- 25,572
Issuance of common stock under
employee plans, including
tax effects................. 84,000 -- 151 -- -- 151
Other......................... -- -- -- 39 -- 39
Net income.................... -- -- -- -- 2,209 2,209
--------- -- ------- ---- ------- -------
Balances, December 31, 1996... 8,332,000 1 58,362 (22) (1,139) 57,202
Issuance of common stock under
employee plans, including
tax effects................. 79,000 -- 601 -- -- 601
Other......................... -- -- (129) 35 -- (94)
Net income.................... -- -- -- -- 2,161 2,161
--------- -- ------- ---- ------- -------
Balances, December 31, 1997... 8,411,000 1 58,834 13 1,022 59,870
Issuance of common stock under
employee plans, including
tax effects................. 84,000 -- 330 -- -- 330
Issuance of unregistered stock
(Note 2).................... 68,000 -- 733 -- -- 733
Treasury stock purchases...... (720,000) -- (5,921) -- -- (5,921)
Other......................... -- -- -- 108 -- 108
Net loss...................... -- -- -- -- (1,579) (1,579)
--------- -- ------- ---- ------- -------
Balances, December 31, 1998... 7,843,000 $1 $53,976 $121 $ (557) $53,541
========= == ======= ==== ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
---------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)......................................... $ 2,209 $ 2,161 $ (1,579)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization......................... 812 1,225 1,598
Bad debt expense...................................... 141 374 380
Asset impairment and loss on disposal of assets....... -- -- 2,873
Other................................................. 34 104 13
Net changes in assets and liabilities:
Accounts receivable and unbilled revenues............. (4,768) (1,831) (4,454)
Prepaid expenses and other assets..................... (231) (269) (2,098)
Projects in process................................... (27) (29) (26)
Accounts payable and accrued expenses................. 1,262 667 2,340
Deferred revenues..................................... 883 (380) (275)
Other................................................. 113 688 (418)
--------- --------- ---------
Net cash provided by (used in) operating
activities........................................ 428 2,710 (1,646)
--------- --------- ---------
Cash flows from investing activities:
Purchases of short-term investments....................... (167,438) (220,375) (176,385)
Sales and maturities of short-term investments............ 116,286 229,263 188,919
Purchases of property and equipment, net.................. (1,605) (3,353) (1,497)
Purchase of exclusive licensing rights.................... -- (7,500) --
Purchase of Information Technology Forum Operations....... -- (138)
Purchase of treasury stock................................ -- -- (5,921)
Other..................................................... (149) -- 171
--------- --------- ---------
Net cash (used in) provided by investing
activities........................................ (52,906) (1,965) 5,149
--------- --------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock.................... 51,508 472 330
Borrowings under line of credit........................... 761 2,265 --
Repayments under line of credit........................... (575) (2,451) --
Other..................................................... (158) 20 (7)
--------- --------- ---------
Net cash provided by financing activities........... 51,536 306 323
--------- --------- ---------
Net (decrease) increase in cash............................. (942) 1,051 3,826
Cash at the beginning of the period......................... 1,676 734 1,785
--------- --------- ---------
Cash at the end of the period............................... $ 734 $ 1,785 $ 5,611
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-7
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Supplemental cash flow disclosures:
Interest paid............................................. $ -- $ 31 $ 1
====== ==== =====
Property and equipment acquired under capital leases...... $ 47 $ -- $ --
====== ==== =====
Taxes paid................................................ $ 278 $968 $ 51
====== ==== =====
Schedule of noncash investing and financing activities:
Purchase of Information Technology Forum operations
Working capital other than cash......................... $ -- $ -- $ 43
Equipment and leasehold improvements.................... -- -- 17
Intangibles............................................. -- -- 821
Capital lease assumed................................... -- -- (10)
Issuance of common stock................................ -- -- (733)
====== ==== =====
Conversion of preferred stock to common stock............. $5,020 $ -- $ --
====== ==== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-8
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
IntelliQuest Information Group, Inc. ("IntelliQuest" or the "Company"), a
Delaware corporation, is a leading provider of quantitative marketing
information to technology companies and direct marketing services to the
Internet. IntelliQuest's Research Division supplies customers with information
about technology markets, customers and products on both a subscription basis
and a proprietary project basis. The Company's IQ2.net Division focuses on a
suite of online and database marketing services which can greatly improve the
identification and segmentation of customers and prospects for more effective
customer acquisition and retention.
IntelliQuest merged with Pipeline Communications, Inc. during May 1996 and
Zona Research, Inc. during February 1997. Unless otherwise specified, references
herein to the "Company" or "IntelliQuest" mean IntelliQuest Information
Group, Inc. and all of its wholly-owned subsidiaries.
2. MERGERS AND ACQUISITIONS--PIPELINE COMMUNICATIONS, ZONA RESEARCH AND
INFORMATION TECHNOLOGY FORUM, INC.
In May 1996, IntelliQuest completed a merger with Pipeline
Communications, Inc. ("Pipeline") which became a wholly-owned subsidiary of
IntelliQuest. A total of 562,500 shares of IntelliQuest common stock and common
stock options were exchanged for all outstanding shares of common stock, stock
options, and warrants of Pipeline. The transaction was accounted for as a
pooling of interests and therefore, all prior period financial statements have
been restated as if the merger had taken place at the beginning of such periods.
In February 1997, IntelliQuest completed a merger with Zona Research, Inc.
("Zona Research") in which Zona Research became a wholly-owned subsidiary of
IntelliQuest. A total of 250,000 shares of IntelliQuest common stock were
exchanged for all the outstanding shares of common stock of Zona Research. The
transaction was accounted for as a pooling of interests and, therefore, all
prior period financial statements have been restated as if the merger took place
at the beginning of such periods.
Combined and separate results of operations for the periods prior to the
mergers with Pipeline and Zona Research were as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997
-------- --------
<S> <C> <C>
Revenues:
IntelliQuest (including Pipeline after May 1996 and Zona
Research after February 1997)......................... $24,895 $36,094
Pipeline (through May 1996)............................. 1,557 --
Zona Research (through February 1997)................... 1,915 449
------- -------
Combined.................................................. $28,367 $36,543
======= =======
Net income (loss):
IntelliQuest (including Pipeline after May 1996 and Zona
Research after February 1997)......................... $ 2,662 $ 2,352
Pipeline (through May 1996)............................. (83) --
Zona Research (through February 1997)................... (370) (191)
------- -------
Combined.................................................. $ 2,209 $ 2,161
======= =======
</TABLE>
Effective January 1, 1998, the Company purchased certain assets of
Information Technology Forum, Inc. ("ITF") a company wholly owned by Charles W.
Stryker, who was a Director of the
F-9
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. MERGERS AND ACQUISITIONS--PIPELINE COMMUNICATIONS, ZONA RESEARCH AND
INFORMATION TECHNOLOGY FORUM, INC. (CONTINUED)
Company at the time of the acquisition. The assets were purchased with cash and
stock and the transaction was accounted for under the purchase method. The
assets purchased were recorded at fair value at the time of purchase. The excess
of the purchase price over the fair value of amounts assigned to the net
tangible assets purchased has been assigned to goodwill in the amount of
approximately $831,000. As the operations of ITF are immaterial to the Company
as a whole, pro forma financial statements are not disclosed. There were no
transactions in 1998.
3. SIGNIFICANT ACCOUNTING POLICIES
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. Since much of the Company's Research Division revenues are
based upon percentage of projects completed based on costs incurred compared to
total estimated project costs, the determination of the resultant revenue
requires ongoing estimates by management of costs to complete these projects.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and all domestic and foreign subsidiaries, which are all wholly owned. All
significant intercompany transactions and balances have been eliminated.
REVENUE RECOGNITION
CONTINUOUS SERVICES
The Company offers renewable subscription-based products which provide
similar information to a number of clients at a shared-cost price. The Company
also offers proprietary tracking products that manage ongoing market feedback
and proprietary research. Revenue from certain annual subscription-based
products, such as Computer Industry Media Study (CIMS), and the related costs
are deferred until delivery. Revenues from other renewable subscription-based
and proprietary tracking products containing a subscription period are
recognized on a straight-line basis over the subscription period. Revenue from
processing transactions is recognized as the transactions are processed for
customers. The Company recognizes revenue for marketing services at the time
services are provided. For sales of data under annual agreements, the Company
recognizes revenue upon the delivery of data. Revenue from conferences is
recognized upon completion of each conference. Losses on a given contract are
recognized when determined probable.
During 1997, the Company made a change in its reporting of revenue from
certain recurring conferences (including Brand Tech Forum). In 1997, revenue
from recurring conferences is included in continuous services. Financial
information from prior years was reclassified to conform to the 1997
classification of revenues.
F-10
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
OTHER SERVICES
Revenues from proprietary research service contracts are recognized in
proportion to performance required under the contracts (percentage of
completion) based on cost input; losses on a given contract are recognized when
determined probable.
The Company bills its clients for products and services based on terms of
the contracts, which may not coincide with criteria required for revenue
recognition. Deferred revenue represents amounts invoiced prior to rendering the
related services while unbilled revenue represents the billing value of services
rendered prior to being invoiced. Substantially all the deferred and unbilled
revenue will be earned and billed, respectively, within twelve months of the
respective period ends.
PRODUCT DEVELOPMENT COSTS
Product development costs include costs incurred to develop or design new
products, services or processes and significantly enhance existing products,
services and processes and are expensed as incurred. If material, costs to
develop software, which is an integral part of a product or service, that are
incurred subsequent to attaining technological feasibility are capitalized in
accordance with Statement of Financial Accounting Standards (SFAS) No. 86,
"ACCOUNTING FOR THE COSTS OF COMPUTER SOFTWARE TO BE SOLD, LEASED OR OTHERWISE
MARKETED". These costs are then amortized on a straight line basis over the
estimated economic life or on the ratio of current revenues to total projected
product revenues, whichever is greater.
The Company capitalized internal software development costs of $100,000 and
$1.4 million for the years ended December 31, 1996 and 1997, respectively. There
were no software development costs capitalized in 1998. Amortization of such
costs was $180,000 for the year ended December 31, 1997. Based on changes in
management's plan, the Company recorded an impairment charge of $1.4 million
related to capitalized software development costs during the year ended
December 31, 1998.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization is provided on a straight-line
basis over the estimated useful lives of the respective assets, which range from
three to seven years. Leasehold improvements are depreciated over the life of
the related lease. Amortization of assets acquired under capital leases is
included in depreciation and amortization.
PROJECT COSTS
Costs associated with CIMS are deferred and included in projects in process
until the results of the study are delivered. These costs include personnel and
other direct costs, as well as associated overhead. Upon release of the study,
these costs are included in cost of revenues.
Costs relating to all other projects are expensed as incurred.
INTANGIBLE ASSETS
Intangible assets consists of goodwill, resulting from business acquisitions
and representing the excess of purchase price over the estimated fair value of
net assets acquired, deferred financing costs, deferred acquisition costs and an
exclusive licensing agreement (Note 5).
F-11
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Goodwill at December 31, 1998 was approximately $8.3 million and is
amortized on a straight-line basis over 12 years, the expected period of
benefit. The Company periodically evaluates whether events and circumstances
have occurred that indicate that these intangibles may not be recoverable. When
factors indicate that these intangibles should be evaluated for possible
impairment, the Company uses the projected undiscounted net cash flows of the
related businesses acquired in measuring the recoverability of these
intangibles.
INCOME TAXES
Deferred income taxes are provided using the liability method for the tax
effects of differences between the financial reporting bases and the income tax
bases of the Company's assets and liabilities as measured at the enacted tax
rates.
SHORT-TERM INVESTMENTS
Short-term investments are carried at market value, which approximates cost,
at the balance sheet date. Short-term investments consist of funds primarily
invested in government securities. Investment securities generally have
maturities of less than one year.
The Company accounts for investment securities under SFAS No. 115,
"ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND EQUITY SECURITIES". SFAS
No. 115 requires investment securities to be classified as held-to-maturity,
trading or available-for-sale based on the characteristics of the securities and
the activity in the investment portfolio. At December 31, 1998, all investment
securities are classified as available-for-sale.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of the Company's financial instruments, including cash,
short-term investments, and trade receivables and payables, approximates fair
value. The carrying amount of short-term investments approximates fair value
because of the short maturity and nature of these instruments. The Company
places its cash investments in quality financial instruments and limits the
amount invested in any one institution or in any type of instrument. The Company
has not experienced any significant gains or losses on its investments.
FOREIGN CURRENCIES
The foreign subsidiary operates in a local currency environment. Balance
sheet accounts are translated at exchange rates existing at the balance sheet
date. Revenue and expense accounts are translated at average exchange rates
prevailing during the period. Translation adjustments are accumulated and
reported as a separate component of stockholders' equity. There have not been
material transaction gains or losses through December 31, 1998.
SEGMENT REPORTING
In 1998, the Company adopted Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("SFAS 131"). SFAS 131 supersedes SFAS 14, "Financial Reporting for Segments of
a Business Enterprise," replacing the "industry segment" approach with the
"management" approach. The management approach designates the internal
organization that is used by management for making operating decisions and
assessing
F-12
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
performance as the source of the Company's reportable segments. SFAS 131 also
requires disclosures about products and services, geographic areas, and major
customers. The adoption of SFAS 131 did not affect results of operations or
financial position but did affect the disclosure of segment information (see
Note 14).
EARNINGS PER SHARE
The Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 128, "EARNINGS PER SHARE" ("SFAS 128"). SFAS 128
provides guidance on the computation of earnings per share. The Company adopted
the statement in the fourth quarter of 1997, as required. SFAS 128 requires all
prior earnings per share data be restated to conform with the provisions of the
statement. Basic earnings per share is computed by dividing net income available
to common stockholders by the weighted average number of shares outstanding
during the period, as restated for shares issued in business combinations
accounted for as poolings-of-interest. Diluted earnings per share is computed
using the weighted average number of shares determined for the basic
computations plus the number of shares of common stock that would be issued
assuming all contingently issuable shares having a dilutive effect on earnings
per share were outstanding for the period.
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
---------- ---------- ----------
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
<S> <C> <C> <C>
Net income (loss)........................ $ 2,209 $ 2,161 $ (1,579)
Preferred stock accretion................ 63 -- --
---------- ---------- ----------
Net income (loss) available to common
stockholders........................... $ 2,146 $ 2,161 $ (1,579)
---------- ---------- ----------
Weighted average common shares
outstanding (basic).................... 6,667,000 8,372,000 8,311,000
Convertible preferred stock.............. 399,000 -- --
Warrants................................. 53,000 -- --
Stock options (1)........................ 198,000 147,000 --
---------- ---------- ----------
Weighted average common shares
outstanding (diluted).................. 7,317,000 8,519,000 8,311,000
---------- ---------- ----------
Earnings (loss) per share:
Basic.................................... $ 0.32 $ 0.26 $ (0.19)
Diluted.................................. $ 0.30 $ 0.25 $ (0.19)
</TABLE>
- ------------------------
(1) Due to the net loss in the year ended December 31, 1998, diluted weighted
average shares excludes the effect of the diluted securities.
F-13
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1997 1998
-------- --------
<S> <C> <C>
Equipment................................................. $ 3,802 $ 4,110
Purchased software........................................ 638 690
Internally developed software............................. 1,404 --
Furniture and fixtures.................................... 1,306 1,301
Leasehold improvements.................................... 306 642
------- -------
7,456 6,743
Less--Accumulated depreciation and amortization........... (3,020) (3,893)
------- -------
$ 4,436 $ 2,850
======= =======
</TABLE>
Included in the December 31, 1997 and 1998 balances of equipment are $283,000 of
assets acquired under lease. Accumulated amortization for these assets was
$196,000 and $250,000 at December 31, 1997 and 1998, respectively, and
amortization expense was $40,000, $54,000, and $54,000 for the years ended
December 31, 1996, 1997 and 1998, respectively.
5. LICENSE AGREEMENT
On December 22, 1997, the Company paid $7.5 million for an exclusive
perpetual licensing agreement (cancelable under certain conditions) to market
and sell database products to the high-tech, telecommunications, cable and
utility industries. In conjunction with the agreement the Company will pay the
licensor royalties and fees on revenue generated from the sale of data and
services. The amortizable rights in data and the non-compete portion of the
license agreement are amortized on a straight-line basis over the estimated
useful life of the agreement. Accumulated amortization at December 31, 1997 and
1998 was $0 and $211,000, respectively.
Of the total license fee of $7.5 million, $5 million is refundable under
certain conditions. Should the license be canceled by the Company, or canceled
due to the acquisition by the Company of a competitor of the licensor or to the
acquisition of the Company by a competitor of the licensor, or under certain
other conditions, the $5 million portion may be recoverable by the Company.
The Company prepares an annual assessment to identify any potential
impairment of assets.
The agreement provides for annual target minimum payments. Royalties and
service fees for the database marketing products were less than that required to
satisfy the annual target minimum payments under this agreement; therefore, the
Company recognized a liability during the year ended December 31, 1998 for the
difference between the actual and target minimum payments (Note 6).
F-14
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31
-------------------
1997 1998
-------- --------
<S> <C> <C>
Accrued payroll and benefits................................ $1,412 $1,441
Taxes payable............................................... 101 47
Accrued target minimum payments............................. -- 787
Other accrued liabilities................................... 405 551
------ ------
$1,918 $2,826
====== ======
</TABLE>
7. COMMITMENTS AND CONTINGENCIES
The Company leases office space, equipment and software under certain
noncancellable operating lease agreements. These leases have expiration dates
ranging from 1999 through 2008. Rent expense under operating leases totaled
$542,000, $959,000 and $1.4 million for the years ended December 31, 1996, 1997
and 1998, respectively.
Future minimum lease payments under all leases as of December 31, 1998 are
as follows (in thousands):
<TABLE>
<CAPTION>
OPERATING
LEASES
----------
<S> <C>
1999........................................................ $1,861
2000........................................................ 1,556
2001........................................................ 1,480
2002........................................................ 684
2003........................................................ 424
Thereafter.................................................. 753
------
Total minimum lease payments............................ $6,758
======
</TABLE>
8. INCOME TAXES
The income tax provision (benefit) is as follows (in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Current provision (benefit).......................... $1,091 $(22) $ (269)
Deferred (benefit) provision......................... (107) 605 (1,577)
------ ---- -------
Total provision for (benefit from) income tax.... $ 984 $583 $(1,846)
====== ==== =======
</TABLE>
F-15
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
The difference between the income tax provisions in the consolidated
financial statements and the tax at the statutory federal rate are as follows
(in thousands):
<TABLE>
<CAPTION>
FOR THE YEAR ENDED
DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Income tax provision at statutory rate............. $1,211 $1,056 $(1,258)
Utilization of net operating loss of Pipeline...... (75) -- --
State taxes, net of federal benefit................ 118 61 (158)
Tax free income.................................... (284) (647) (460)
Other, net......................................... 14 113 30
------ ------ -------
Total provision................................ $ 984 $ 583 $(1,846)
====== ====== =======
</TABLE>
The principal components of the Company's deferred taxes are as follow (in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation and other............................... $ 54 $170 $ 109
Cash to accrual adjustments.......................... 81 -- --
Product development costs............................ -- 477 --
---- ---- ------
Gross deferred tax liability....................... 135 647 109
---- ---- ------
Deferred tax assets:
Product development costs............................ 86 -- --
Allowance for doubtful accounts...................... 101 105 593
Acquisition costs.................................... 53 92 105
Accrued compensation, vacation pay, and other........ 35 518 553
Alternative minimum tax credit....................... -- -- 88
Net operating loss carryforward...................... 279 279 762
---- ---- ------
Gross deferred tax assets.......................... 554 994 2,101
---- ---- ------
Less valuation allowance............................. 295 295 295
---- ---- ------
Net deferred tax asset............................. $124 $ 52 $1,697
==== ==== ======
</TABLE>
The Company has determined that the deferred tax assets are recoverable
based upon future projected earnings.
The valuation allowance relates to the deferred tax assets which carryover
from Pipeline, a wholly-owned subsidiary of the Company. These assets include
net operating loss carryforwards, and research and experimentation credit
carryforwards. These carryforwards may only be used to offset tax liabilities
generated by Pipeline. Because of the uncertainties with respect to Pipeline's
ability to generate sufficient future taxable income to realize these assets,
the Company has provided a valuation allowance against all of Pipeline's net
deferred tax assets.
F-16
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
As of December 31, 1998, IntelliQuest Information Group, Inc. had a net
operating loss of $2.5 million, which expires in 2013.
9. STOCK OPTIONS
1993 STOCK PLAN
Under the 1993 Stock Plan (the "1993 Plan"), a total of 344,256 shares of
the Company's Common Stock have been authorized for issuance. Under the 1993
Plan, incentive stock options or nonstatutory stock options may be granted with
exercise prices equaling the fair market value of the stock at the time of
grant, as determined by the Company's Board of Directors, unless the optionee
owns greater than 10% of the voting power of all classes of stock, in which case
the option price will be 110% of the fair market value at the date of grant, as
determined by the Board of Directors. Options granted under the plan generally
have a term of ten years from the date of grant and generally vest over a
five-year period. As of December 31, 1998, the Company does not intend to grant
any further options under the 1993 Plan.
1996 STOCK PLAN
The Company has reserved an aggregate of 700,000 shares of Common Stock for
issuance under its 1996 Stock Plan (the "1996 Plan"). The 1996 Plan provides for
grants of incentive stock options or nonstatutory options to employees and
consultants (including officers and directors) of the Company and its
subsidiaries. With respect to incentive stock options granted under the 1996
Plan, the exercise price must be at least equal to the fair market value per
share of the Common Stock on the date of grant, and the exercise price of any
incentive stock options granted to a participant who owns more than 10% of the
voting power of all classes of the Company's outstanding capital stock must be
equal to at least 110% of the fair market value of the Common Stock on the date
of grant. The maximum term of incentive stock options granted under the 1996
Plan may not exceed ten years from the date of grant (five years in the case of
a participant who owns more than 10% of the voting power of all classes of the
Company's outstanding capital stock). In the event of termination of an
optionee's employment or consulting arrangement, incentive stock options may
only be exercised, to the extent vested as of the date of termination, for a
period not to exceed 90 days (12 months in the case of termination due to death
or disability) following the date of termination. Options under the 1996 Plan
generally vest and become exercisable at a rate of 25% on the first anniversary
of the commencement of vesting and 1/48th per month upon the last day of the
calendar month thereafter. Options outstanding under the 1996 Plan generally
have a term of ten years.
1996 DIRECTOR OPTION PLAN
Non-employee directors are entitled to participate in the Company's 1996
Director Option Plan (the "Director Plan"). A total of 100,000 shares of Common
Stock have been reserved for issuance under the Director Plan. The Director Plan
provides that each non-employee director shall be granted, at the discretion of
the Board of Directors, a nonstatutory option to purchase shares of Common Stock
(the "First Option") upon the date such non-employee director first becomes a
director. In addition, each non-employee director who has been a non-employee
director for longer than six months will annually be granted, at the discretion
of the Board of Directors, a nonstatutory option to purchase shares of Common
Stock (a "Subsequent Option"). Each First Option and Subsequent Option will
F-17
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
have a term expiring on the earlier of the tenth anniversary of the date of
grant or twelve months after the date on which the optionee ends his or her
service as a director. The vesting terms to both the First Option and the
Subsequent Option shall be at the discretion of the Board of Directors. The
exercise price for director options are comparable to options granted under the
1996 Plan described above.
PIPELINE COMMUNICATIONS, INC. 1994 INCENTIVE STOCK OPTION PLAN
The Company has reserved an aggregate of 50,000 shares of Common Stock for
issuance under the Pipeline 1994 Incentive Stock Options Plan (the "Pipeline
Plan"). The Pipeline Plan provides for grants of options to the former employees
of Pipeline Communications, Inc. (Note 2). The provisions of the Pipeline Plan
are comparable to the provisions of the 1996 Plan as described above except that
the vesting schedule is determined by the Board of Directors.
1997 STOCK PLAN
The Company has reserved an aggregate of 375,000 shares of Common Stock for
issuance under its 1997 Supplemental Option Plan (the "1997 Plan"). The 1997
Plan provides for grants of nonstatutory stock options to employees, directors
and consultants of the Company and its subsidiaries. The 1997 Plan provides that
vesting terms shall be at the discretion of the Board of Directors. The terms
and exercise price for options granted under the 1997 Plan are comparable to
those granted under the 1996 Plan described above.
SUBSEQUENT OPTION POLICY
In 1997, the Company's Board of Directors adopted a policy that provides for
immediate monthly vesting for option grants to persons who have a preexisting
option agreement with the Company ("Subsequent Options"). The policy applies to
Subsequent Options under all of the Company's plans for grants dated on or after
April 29, 1997.
RE-PRICING OF STOCK OPTIONS
In 1998, the Company's Board of Directors twice approved the 1998 re-pricing
of stock options. The grant date of the first re-pricing was February 4, 1998,
where the price was reduced to $11.00. The vesting period for these re-priced
stock options was extended by an additional 12 months. The second re-pricing
grant date was October 16, 1998, where the stock option price was reduced to
$5.00. Unvested stock options on October 16, 1998 will vest over the next
48 months. These re-pricing policies apply to options granted under all of the
Company's plans for stock grants.
The Company applies APB No. 25, "ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES",
and related Interpretations in accounting for its stock plans, which are
described above. Accordingly, no compensation cost has been recognized for its
stock plans. Had compensation cost for the Company's stock plans been determined
based on the fair market value at the grant dates for awards under those plans
consistent with the method provided by SFAS No. 123, "ACCOUNTING FOR STOCK BASED
F-18
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
COMPENSATION", the Company's net income and net income per share would have been
reflected by the following pro forma amounts for the years ended December 31,
1996, 1997 and 1998:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
-------------------------------------
1996 1997 1998
---------- ---------- -----------
<S> <C> <C> <C>
Net income (loss)
As reported............................ $2,209,000 $2,161,000 $(1,579,000)
Pro forma.............................. $1,780,000 $ 624,000 $(2,725,000)
Diluted net income (loss) per share
As reported............................ $ .30 $ .25 $ (.19)
Pro forma.............................. $ .24 $ .07 $ (.33)
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions used for grants during the years ended December 31, 1996, 1997 and
1998:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Dividend yield........................... -- -- --
Expected volatility...................... 59.84% 60.60% 67.60%
Risk-free rate of return................. 6.25% 6.35% 4.69%
Expected life............................ 4.67 years 3.54 years 3.97 years
</TABLE>
The following table summarizes activity under all Plans for each of the
three years ended December 31, 1998 (share amounts in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
PRICE SHARES PRICES SHARES PRICE SHARES
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at the beginning of the year........... $ 1.02 215 $14.29 429 $15.62 844
Granted.......................................... 20.14 300 15.42 711 7.44 2,089
Exercised........................................ .71 (71) 1.89 (76) 3.23 (66)
Canceled......................................... .51 (15) 17.16 (220) 13.28 (1,694)
------ --- ------ ---- ------ ------
Outstanding at the end of the year................. $14.29 429 $15.62 844 $ 5.13 1,173
====== === ====== ==== ====== ======
Options exercisable at year end.................... $ 2.06 82 $14.40 180 $ 5.52 260
====== === ====== ==== ====== ======
Weighted average fair value of options granted
during the year.................................. $11.12 $ 7.52 $ 2.38
====== ====== ======
</TABLE>
F-19
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------------------------------
NUMBER WEIGHTED-AVERAGE
OUTSTANDING AT REMAINING CONTRACTUAL WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES DECEMBER 31, 1998 LIFE EXERCISE PRICE
- ------------------------ ----------------- --------------------- ----------------
<S> <C> <C> <C>
$.14....................................... 12 5.5 years $ .14
$.40....................................... 6 4.2 .40
$.68....................................... 4 6.4 .68
$1.38...................................... 7 6.7 1.38
$5.00 - 7.00............................... 1,113 9.0 5.02
$8.75 - 12.00.............................. 5 5.4 9.87
$13.89 - 17.25............................. 26 1.8 14.49
----- --------- ------
$.14 - 17.25............................... 1,173 8.7 years $ 5.13
===== ========= ======
</TABLE>
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
------------------------------------
NUMBER
EXERCISABLE AT WEIGHTED-AVERAGE
RANGE OF EXERCISE PRICES DECEMBER 31, 1998 EXERCISE PRICE
- ------------------------ ----------------- ----------------
<S> <C> <C>
$.14......................................... 12 $ .14
$.40......................................... 6 .40
$.68......................................... 4 .68
$1.38........................................ 7 1.38
$5.00 - 7.00................................. 205 5.00
$8.75 - 12.00................................ 3 9.77
$13.89 - 17.25............................... 25 14.45
--- ------
$.14 - 17.25................................. 260 $ 5.52
=== ======
</TABLE>
Options canceled represent the unexercised options of former employees,
returned to the option pool in accordance with the terms of the stock option
plan, upon their departure from the Company.
OTHER STOCK OPTION GRANTS
Pipeline had previously issued stock options and warrants to non-employees.
Pipeline's options and warrants outstanding as of December 31, 1995 were
converted into options to purchase 20,641 shares of IntelliQuest common stock
upon the merger of Pipeline.
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company has reserved an aggregate of 100,000 shares of common stock for
issuance under its 1996 Employee Stock Purchase Plan (the "ESPP"). The ESPP
permits eligible employees of the Company to purchase Common Stock through
payroll deductions of up to 15% of their compensation provided that no employee
may purchase more than $25,000 worth of stock in any calendar year. The ESPP has
been implemented as a series of successive six-month offering periods, the first
of which commenced on July 1, 1996. The price of common stock purchased under
the ESPP will be 85% of the lower of the fair market of the common stock on the
first and last day of each offering period. Shares of common stock issued under
the ESPP totaled 2,247, 6,875 and 15,865 for the years ended December 31, 1996,
1997 and 1998, respectively.
F-20
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. STOCK OPTIONS (CONTINUED)
The fair value of the employees' purchase rights was estimated using the
Black-Scholes model with the following assumptions for the years ended
December 31, 1996, 1997 and 1998:
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Dividend yield........................................ -- -- --
Expected volatility................................... 59.84% 60.60% 67.60%
Risk-free rate of return.............................. 5.52% 5.24% 5.28%
Expected life......................................... .5 years .5 years .4 years
Weighted average fair value of purchase rights
granted............................................. $ 5.73 $ 3.98 $ 3.67
</TABLE>
10. REDEEMABLE CONVERTIBLE PREFERRED STOCK
In May 1993, the Company authorized 1,853,046 shares of redeemable
convertible preferred stock, of which 1,055,718 shares were designated as
Series A Redeemable Convertible Preferred Stock (the "Series A Preferred Stock")
and 797,328 shares were designated as Series B Redeemable Convertible Preferred
Stock (the "Series B Preferred Stock"). Both Series A Preferred Stock and
Series B Preferred Stock (the "Preferred Stock") had par value of $1.00 and were
recorded net of total issuance costs of $100,000.
The holders of Preferred Stock converted their shares of Preferred Stock
into the Company's Common Stock at a conversion ratio of one share of Preferred
Stock for one share of Common Stock in connection with the Company's initial
public offering in March 1996.
11. SERIES A JUNIOR PARTICIPATING PREFERRED STOCK
The Company adopted a Stockholder Rights Agreement on October 18, 1998 and
declared a dividend of one preferred share purchase right for each outstanding
share of common stock of the Company outstanding at the close of business on
November 2, 1998. Each right will entitle the registered holder, after the
rights become exercisable and until November 2, 2008, to purchase from the
Company one one-hundred (1/100) of a share of Class A Junior Participating
Preferred Stock at a price of $40.00 per one one-hundred (1/100) of a preferred
share, subject to certain anti-dilution adjustments. The rights are not
exercisable until the distribution date. The rights will expire on November 2,
2008. The distribution date is the earlier of:
- ten (10) days following a public announcement that a person or group has
acquired a beneficial ownership of 20% or more of the common shares OR
- ten (10) business days following the announcement or commencement of an
intention to make a tender offer or exchange offer the consummation of
which would result in a beneficial ownership by a person or group of 20%
or more of the common shares.
12. EMPLOYEES' SAVINGS PLAN
The Company's 401(k) Savings and Retirement Plan (the "401(k) Plan") is a
defined contribution retirement plan with a cash or deferred arrangement as
described in Section 401(k) of the Code. The 401(k) Plan is intended to be
qualified under Section 401(a) of the Code. All employees of the Company are
eligible to participate in the 401(k) Plan after approximately one year of
employment.
F-21
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. EMPLOYEES' SAVINGS PLAN (CONTINUED)
The 401(k) Plan provides that each participant make elective contributions from
1% to 15% of his or her compensation, subject to statutory limits. Under the
terms of the 401(k) Plan, allocation of the matching contribution is integrated
with Social Security, in accordance with applicable nondiscrimination rules
under the Code. The Company makes discretionary matching contributions. The
match vests over a 5 year period. The Company made matching contributions in the
amount of $10,000, $0 and $162,000 in 1996, 1997 and 1998, respectively.
13. SIGNIFICANT CLIENTS AND CREDIT RISKS
The Company has relied on a limited number of key customers for the majority
of its revenues. In addition, there has been significant consolidation of
companies in the technology industries served by the Company, a trend which the
Company believes will continue. The loss of one or more of the Company's large
customers or a significant reduction of business from such customers, regardless
of the reason, would have a material adverse effect on the Company.
Revenues from certain significant clients are, as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
Client 1................................................... --% --% 13%
Client 2................................................... 7% 10% 12%
Client 3................................................... 18% 17% 9%
Client 4................................................... 11% 7% 5%
</TABLE>
For the year ended December 31, 1998 all of the revenue derived from Client
1 related to IQ2.net. For the year ended December 31, 1997, all of the revenue
derived from Client 3 related to the Research Division. For the year ended
December 31, 1996, all of the revenue derived from Clients 3 and 4 related to
the Research Division.
Additionally, at December 31, 1997 and 1998, certain clients had accounts
receivable and unbilled revenue balances with the Company which represented the
following amounts of total net accounts receivable and unbilled revenues:
<TABLE>
<CAPTION>
1997 1998
-------- --------
<S> <C> <C>
Client 1.................................................... --% 12%
Client 2.................................................... 15% 6%
Client 3.................................................... 12% 2%
</TABLE>
The Company sells its products to various companies in technology and
publication industries. The Company performs ongoing credit evaluations of its
customers and maintains reserves for potential credit losses.
14. SEGMENT INFORMATION
In 1998 the Company adopted SFAS 131. The prior year's segment information
has been restated to present the Company's two reportable segments: Research
Division and IQ2.net.
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies" (Note 3). Segment data includes
charges allocating all corporate-
F-22
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. SEGMENT INFORMATION (CONTINUED)
headquarters costs to each of its operating segments. The Company evaluates the
performance of its segments and allocates resources to them based on labor,
revenues and percentage utilization in 1996 and 1997 and labor in 1998.
The Company is organized on the basis of products and services provided. The
table below presents information about reported segments for the years ended
December 31, 1996, 1997 and 1998 (in thousands):
<TABLE>
<CAPTION>
RESEARCH DIVISION IQ2.NET
------------------------------ ------------------------------
1996 1997 1998 1996 1997 1998
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues............................... $19,577 $23,523 $26,363 $8,790 $12,570 $19,336
Depreciation and amortization.......... $ 107 $ 144 $ 222 $ 33 $ 193 $ 408
EBIT................................... $ 2,041 $ 1,399 $(1,809) $ 512 $ (770) $ (576)
</TABLE>
A reconciliation of total segment revenues to total consolidated revenues
and of total segment EBIT to total consolidated operating income (loss), for the
years ended December 31, 1996, 1997 and 1998 is as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Total segment revenues...................................... $28,367 $36,093 $45,699
------- ------- -------
Other reconciling items..................................... -- 450 --
Consolidated revenues....................................... $28,367 $36,543 $45,699
======= ======= =======
EBIT
Total EBIT for reportable segments.......................... $ 2,533 $ 629 $(2,385)
Reconciling items:
Write down of capitalized software not attributable to
defined segment......................................... (916)
Unsuccessful launch of new segment........................ (805)
Charges for unsuccessful launch of national sales force... (496)
Other....................................................... (218) 169 (226)
------- ------- -------
Operating income (loss)..................................... 2,335 798 (4,828)
------- ------- -------
Other income, net........................................... 858 1,946 1,403
------- ------- -------
Income (loss) before income taxes........................... $ 3,193 $ 2,744 $(3,425)
======= ======= =======
</TABLE>
EBIT is net income before interest and taxes. EBIT is a financial measure
commonly used as an indicator of operating performance and should not be
construed as an alternative to net income as determined in accordance with
generally accepted accounting principles.
EBIT for Research in 1998 includes a one-time write off of capitalized
internally developed software of $580,000.
15. GEOGRAPHIC DATA
Revenue includes export sales to unaffiliated non-U.S. customers and to
unaffiliated U.S. customers commissioning information-gathering services abroad,
generally on behalf of their foreign
F-23
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. GEOGRAPHIC DATA (CONTINUED)
subsidiaries. The Company defines "Europe Sales" as revenues attributable to
information gathering services provided in Western Europe and "Other
International Sales" as revenues attributable to all other areas located outside
of the United States.
Summarized revenue information by geographic location is as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
-------- -------- --------
<S> <C> <C> <C>
RESEARCH DIVISION
Europe.............................................. $4,635 $4,594 $4,804
Other international................................. 1,286 1,315 1,020
------ ------ ------
$5,921 $5,909 $5,824
====== ====== ======
IQ2.NET
Europe.............................................. $1,895 $4,353 $1,211
Other international................................. 68 178 431
------ ------ ------
$1,963 $4,531 $1,642
====== ====== ======
</TABLE>
16. STOCK REPURCHASE PROGRAM
In January 1998, the Board of Directors approved the repurchase of 850,000
shares of the Company's common stock. As of February 26, 1999, 720,000 shares
have been repurchased for $5.9 million in open market transactions.
F-24
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1999 1998
-------------- -------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash...................................................... $ 4,340 $ 5,611
Short-term investments.................................... 72,868 28,010
Accounts receivable, net.................................. 7,347 10,978
Unbilled revenues......................................... 7,528 3,532
Projects in process....................................... 21 153
Prepaid expenses and other assets......................... 4,829 2,336
------- -------
Total current assets.................................... 96,933 50,620
Furniture and equipment, net.............................. 2,088 2,850
License agreement, net.................................... -- 7,324
Other assets.............................................. 330 1,793
------- -------
Total assets.............................................. $99,351 $62,587
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................... $ 1,943 $ 3,996
Accrued liabilities....................................... 16,549 2,826
Deferred revenues......................................... 6,435 2,145
------- -------
Total current liabilities............................... 24,927 8,967
Obligations under capital leases and deferred rent.......... 170 79
------- -------
Total liabilities....................................... 25,097 9,046
------- -------
Stockholders' equity:
Series A junior participating preferred stock............. -- --
Common stock, $.0001 par value, 30,000,000 shares
authorized, 8,617,000 and 8,563,000 shares issued and
outstanding, respectively 720,000 and 720,000 shares in
treasury, respectively.................................. 1 1
Capital in excess of par value............................ 54,169 53,976
Other..................................................... 966 121
Accumulated income (deficit).............................. 19,118 (557)
------- -------
Total stockholders' equity.............................. 74,254 53,541
------- -------
Total liabilities and stockholders' equity.............. $99,351 $62,587
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
F-25
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues:
Continuous services....................................... $ 8,148 $8,109
Other services............................................ 3,059 1,055
------- ------
Total revenues.......................................... 11,207 9,164
------- ------
Operating expenses:
Costs of revenues......................................... 5,853 5,436
Sales, general and administrative......................... 3,742 2,416
Product development....................................... 341 511
Depreciation and amortization............................. 229 282
------- ------
Total operating expenses................................ 10,165 8,645
------- ------
Operating income............................................ 1,042 519
Income (loss) from discontinued operations (net of tax)... (1,098) 119
Gain on sale of discontinued operations (net of tax)...... 21,196 --
Interest income, net...................................... 205 318
------- ------
Income before income tax benefit.......................... 21,345 956
Income tax provision on operations........................ 402 255
------- ------
Net income.................................................. $20,943 $ 701
======= ======
Basic earnings per share.................................... $ 2.65 $ .08
Diluted earnings per share.................................. $ 2.52 $ .08
Basic weighted average shares outstanding................... 7,897 8,307
Diluted weighted average shares outstanding................. 8,299 8,353
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
F-26
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Revenues:
Continuous services....................................... $15,829 $17,281
Other services............................................ 6,364 2,804
------- -------
Total revenues.......................................... 22,193 20,085
------- -------
Operating expenses:
Costs of revenues......................................... 11,822 11,488
Sales, general and administrative......................... 9,638 8,940
Product development....................................... 1,032 2,610
Depreciation and amortization............................. 661 850
------- -------
Total operating expenses................................ 23,153 23,888
------- -------
Operating loss.............................................. (960) (3,803)
Loss from discontinued operations (net of tax)............ (1,580) (1,270)
Gain on sale of discontinued operations (net of tax)...... 21,196 --
Interest income........................................... 722 1,086
------- -------
Income (loss) before income tax benefit................... 19,378 (3,987)
Income tax benefit........................................ 301 2,052
------- -------
Net income (loss)........................................... $19,679 $(1,935)
======= =======
Basic earnings (loss) per share............................. $ 2.50 $ (.23)
Diluted earnings (loss) per share........................... $ 2.37 $ (.23)
Basic weighted average shares outstanding................... 7,879 8,413
Diluted weighted average shares outstanding................. 8,315 8,413
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
F-27
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
SEPTEMBER 30,
-------------------
1999 1998
-------- --------
<S> <C> <C>
Net income.................................................. $20,943 $ 701
Other comprehensive income, net of tax:
Foreign currency translation adjustments.................. 48 18
Deferred compensation options............................. 915 --
Unrealized loss on securities............................. (18) 37
------- -----
Other comprehensive income.................................. 945 55
------- -----
Comprehensive income........................................ $21,888 $ 756
======= =====
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
F-28
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
<S> <C> <C>
1999 1998
------- -------
Net income (loss)........................................... $19,679 $(1,935)
Other comprehensive income, net of tax:
Foreign currency translation adjustments.................. 34 22
Deferred compensation options............................. 915 --
Unrealized loss on securities............................. (82) 23
------- -------
Other comprehensive income.................................. 867 45
------- -------
Comprehensive income (loss)................................. $20,546 $(1,890)
======= =======
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
F-29
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------
<S> <C> <C>
1999 1998
-------- ---------
Cash flows from operating activities:
Net income (loss)......................................... $ 19,679 $ (1,935)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization........................... 8,284 1,187
Provision for doubtful accounts......................... 368 316
Asset impairment and loss on disposal of assets......... 886 2,873
Deferred compensation................................... 925 10
Net changes in assets and liabilities:
Accounts receivable and unbilled revenues............... (733) (5,697)
Prepaid expenses and other assets....................... (2,493) (2,687)
Projects in process..................................... 132 2
Accounts payable and accrued expenses................... 11,666 2,159
Deferred revenues....................................... 4,290 (98)
Other................................................... 1,463 407
-------- ---------
Net cash provided by (used in) operating activities......... 44,467 (3,463)
-------- ---------
Cash flows from investing activities:
Purchases of short-term investments....................... (83,939) (156,436)
Sales and maturities of short-term investments............ 38,930 163,011
Purchases of equipment and leasehold improvements......... (1,084) (866)
Purchase of Information Technology Forum assets, net of
cash acquired........................................... -- (138)
Purchase of Treasury Stock................................ -- (2,385)
Other..................................................... 151 144
-------- ---------
Net cash provided by (used in) investing activities... (45,942) 3,330
-------- ---------
Cash flows from financing activities:
Proceeds from issuance of stock, net...................... 193 54
Other..................................................... 11 30
-------- ---------
Net cash provided by financing activities............. 204 84
-------- ---------
Net decrease in cash and equivalents...................... (1,271) (49)
Cash and equivalents at the beginning of the period....... 5,611 1,785
-------- ---------
Cash and equivalents at the end of the period............. $ 4,340 $ 1,736
======== =========
Supplemental cash flow disclosures:
Interest paid............................................. $ -- $ 1
Taxes paid................................................ -- 49
Schedule of noncash investing and financing activities:
Purchase of Information Technology Forum assets
Working capital other than cash......................... $ -- $ 43
Equipment and leasehold improvements.................... -- 17
Intangibles............................................. -- 821
Capital lease assumed................................... -- (10)
Issuance of unregistered common stock................... -- (733)
-------- ---------
Cash paid for Information Technology Forum assets, net
of cash acquired...................................... $ -- $ 138
======== =========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS.
F-30
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
1. GENERAL AND BASIS OF FINANCIAL STATEMENTS
The accompanying unaudited interim consolidated financial statements include
the accounts of IntelliQuest Information Group, Inc., a Delaware corporation,
and its consolidated subsidiaries (collectively, the "Company" or
"IntelliQuest"). The Company provides international quantitative marketing
information to technology companies, and formerly operated under two divisions:
marketing research division and IQ2.net. These divisions focused on a suite of
online and database marketing services, which can greatly improve the
identification and segmentation of customers and prospects for more effective
customer acquisition and retention. The Company has sold IQ2.net and reported
the operations for this quarter as a discontinued operation.
The accompanying unaudited interim consolidated financial statements have
been prepared in accordance with the rules and regulations of the Securities and
Exchange Commission regarding interim financial statements and, accordingly, do
not include all information and notes required under generally accepted
accounting principles for complete financial statements. In the opinion of
management, the accompanying unaudited interim consolidated financial statements
contain all adjustments of a normal recurring nature as considered necessary for
a fair presentation of the financial position of the Company as of
September 30, 1999 and the results of the Company's operations and its cash
flows for the three and nine month period ended September 30, 1999 and 1998.
This report on Form 10-Q should be read in conjunction with the Company's
audited consolidated financial statements and related notes included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1998.
2. LICENSE AGREEMENT
On December 22, 1997, the Company paid $7.5 million for an exclusive
licensing agreement to market and sell database products to the high-tech,
telecommunications, cable and utility industries. In conjunction with the
agreement the Company pays the licensor royalties and fees on revenue from the
sale of data and services.
The contract provides for annual target minimum payments. Royalties and
service fees for the database marketing products were sufficient to satisfy the
prorated annual target minimum payments under this agreement.
Of the total license fee of $7.5 million, $5 million is refundable under
certain conditions. Should the license be canceled by the Company, or canceled
due to the acquisition by the Company of a competitor of the licensor or to the
acquisition of the Company by a competitor of the licensor, or under certain
other conditions, the refundable $5 million portion may not be recoverable by
the Company.
The licensing agreement has been sold as part of the IQ2.net sale. All
rights under the licensing agreement have been relinquished and assigned to
Naviant Technology Solutions Inc.
3. ACQUISITION OF ASSETS/RELATED PARTY TRANSACTION
Effective January 1, 1998, the Company purchased certain assets of
Information Technology Forum, Inc. ("ITF") a company wholly owned by Charles W.
Stryker, who was a Director of the Company at the time of the acquisition. The
assets were purchased with cash and stock and the transaction was accounted for
under the purchase method. The assets purchased were recorded at fair value at
the time of purchase. The excess of the purchase price over the fair value of
amounts assigned
F-31
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
3. ACQUISITION OF ASSETS/RELATED PARTY TRANSACTION (CONTINUED)
to the net tangible assets purchased has been assigned to goodwill in the amount
of approximately $831,000, as reported in the Company's Annual Report on Form
10-K for the period. As the operations of ITF are immaterial to the Company as a
whole, pro forma financial statements are not disclosed.
These assets were part of the IQ2.net division and as a result of the sale
have been purchased by Naviant Technology Solutions Inc.
4. STOCK REPURCHASE PROGRAM
In January 1998, the Board of Directors approved the repurchase of up to
850,000 shares of the Company's common stock. As of September 30, 1999, 720,000
shares have been repurchased.
5. BARTER REVENUE RECOGNITION
During the first quarter of 1999, the Company entered into six barter
agreements with Internet search engine companies. These agreements allow
IntelliQuest access to Internet banner impressions for soliciting marketing
information responses; in return, the Internet companies receive product-
marketing data from this information. These transactions had associated
recognized revenue of $463,000 and direct expenses of $463,000, being recognized
evenly in the first and third quarters of 1999, resulting in no effect on
results of operations. These types of transactions are common in this industry.
The Company has participated in these types of transactions in the past, but the
associated revenues and expenses were immaterial.
6. SALE OF IQ2.NET
On July 22, 1999 Naviant Technology Solutions, Inc. and IntelliQuest
Information Group, Inc. signed an agreement to sell the IQ2.net division, which
includes all of the capital stock of IQ2.net and certain other related assets,
for $46.5 million. IntelliQuest and Naviant completed the transaction on
September 15, 1999, resulting in a gain on sale of $21.2 million. $2.0 million
in escrow was received on October 13, 1999.
7. SUBSEQUENT EVENTS
INTELLIQUEST, INC. CASH MERGER
On August 12, 1999 , the Company entered into a definitive agreement with
WPP US Finance Corp., a subsidiary of WPP Group, Inc., pursuant to which, and
subject to certain conditions, WPP US Finance Corp, will acquire the Company in
a cash merger transaction for an aggregate cash price of $42.5 million, plus an
amount equal to the Company's cash on hand at closing. This amount will be
subject to adjustment up or down based on IntelliQuest's meeting certain
financial targets and maintaining a certain level of working capital. Principal
conditions precedent to such acquisition include approval of the acquisition by
the Company's stockholders, regulatory approvals, and the completion of the sale
of the Company's IQ2.net Inc. operations to Naviant Technology Solutions, Inc.
On November 1, we announced that IntelliQuest stockholders had approved the
merger at a special meeting of stockholders. Subsequent to that announcement, we
determined that our stockholders did not receive timely notice of that meeting
and of their appraisal rights under Delaware law. As a result, we intend to hold
another special meeting of stockholders to vote upon the merger. IntelliQuest
F-32
<PAGE>
INTELLIQUEST INFORMATION GROUP, INC.
NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS (CONTINUED)
7. SUBSEQUENT EVENTS (CONTINUED)
stockholders will receive notice of that meeting and proxy materials once we
have set the meeting date. The record date for the meeting is November 15, 1999.
Although the Company expects to close the merger in the fourth quarter of this
year, its completion is subject to several conditions beyond its control.
8. CLASS ACTION SUIT
On November 4, 1999, a purported class action lawsuit was filed by a
stockholder of IntelliQuest against IntelliQuest and WPP Acquisition in the
Delaware Court of Chancery styled William M. Skeen v. IntelliQuest Information
Group, Inc. and WPP Acquisition, Inc., C.A. No. 17526NC. The complaint sets
forth allegations of violations of 8 Del. C. Sections 251 and 262 due to
improper notice of the November 1, 1999 special meeting of IntelliQuest
stockholders. The plaintiff seeks an order from the Court (i) declaring that
defendants violated and are violating 8 Del. C. Sections 251 and 262,
(ii) declaring the action to be a class action, (iii) enjoining the consummation
of the merger with WPP Acquisition, (iv) directing defendants to account for
damages and injuries sustained by the stockholder plaintiff and the class,
(v) ordering the payment, in a quasi-appraisal proceeding or otherwise, of the
fair value of shares of IntelliQuest common stock plus damages and interest,
(vi) awarding rescissory damages, (vii) awarding plaintiff costs, expert witness
fees and attorneys' fees and (viii) granting such other and further relief as
may be just and proper.
9. SHAREHOLDERS MEETING
As previously announced, IntelliQuest has entered into a merger agreement
pursuant to which an affiliate of WPP Group has agreed to acquire all of the
outstanding shares of IntelliQuest common stock and IntelliQuest stockholders
will receive cash consideration. On November 1, we announced that IntelliQuest
stockholders had approved the merger at a special meeting of stockholders.
Subsequent to that announcement, we determined that our stockholders did not
receive timely notice of that meeting and of their appraisal rights under
Delaware law. As a result, we intend to hold another special meeting of
stockholders to vote upon the merger. IntelliQuest stockholders will receive
notice of that meeting and proxy materials once we have set the meeting date.
The record date for the meeting is November 15, 1999.
F-33
<PAGE>
APPENDIX A
-------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
AMONG
INTELLIQUEST INFORMATION GROUP, INC.,
WPP ACQUISITION CORP.
AND
WPP GROUP U.S. FINANCE CORP.
DATED AS OF AUGUST 12, 1999
AS AMENDED AND RESTATED AS OF OCTOBER 14, 1999
AND AS FURTHER AMENDED AND RESTATED AS OF NOVEMBER 18, 1999.
-------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER
<TABLE>
<S> <C>
Section 1.1 The Merger...................................... A-5
Section 1.2 Effective Time.................................. A-5
Section 1.3 Effects of the Merger........................... A-6
Section 1.4 Certificate of Incorporation and Bylaws;
Directors and Officers.................................... A-6
Section 1.5 Conversion of Securities........................ A-6
Section 1.6 Exchange of Certificates........................ A-7
Section 1.7 Dissenting Shares............................... A-8
Section 1.8 No Further Ownership Rights in Shares; Closing
of Company Transfer Books................................. A-8
Section 1.9 Closing......................................... A-8
</TABLE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
<TABLE>
<S> <C>
Section 2.1 Organization, Standing and Power; Capitalization
and Ownership of Sub...................................... A-9
Section 2.2 Authority; Non-Contravention.................... A-9
Section 2.3 Proxy Statement................................. A-10
Section 2.4 Financing....................................... A-10
Section 2.5 Business of Sub................................. A-10
Section 2.6 WARN Act........................................ A-10
Section 2.7 Brokers......................................... A-10
</TABLE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
<TABLE>
<S> <C>
Section 3.1 Organization, Standing and Power................ A-10
Section 3.2 Capital Structure............................... A-11
Section 3.3 Subsidiaries.................................... A-11
Section 3.4 Other Interests................................. A-11
Section 3.5 Authority; Non-Contravention.................... A-11
Section 3.6 SEC Documents and Financial Statements.......... A-12
Section 3.7 Proxy Statement................................. A-13
Section 3.8 Absence of Certain Events....................... A-13
Section 3.9 Litigation...................................... A-13
Section 3.10 Compliance with Applicable Law................. A-14
Section 3.11 Employee Plans................................. A-14
Section 3.12 Employment Relations and Agreement............. A-15
Section 3.13 Contracts...................................... A-16
Section 3.14 Rights Agreement............................... A-16
Section 3.15 State Takeover Statutes; Certain Charter
Provisions................................................ A-16
Section 3.16 Taxes.......................................... A-16
Section 3.17 Intellectual Properties........................ A-17
Section 3.18 Voting Requirements............................ A-18
Section 3.19 Year 2000...................................... A-18
Section 3.20 Brokers........................................ A-18
</TABLE>
A-2
<PAGE>
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
<TABLE>
<S> <C>
Section 4.1 Conduct of Business by the Company Pending the
Merger.................................................... A-18
Section 4.2 No Solicitation................................. A-20
Section 4.3 Third Party Standstill Agreements............... A-22
Section 4.4 Database Agreements............................. A-22
Section 4.5 Payment of Acquisition Expenses................. A-22
</TABLE>
ARTICLE V
ADDITIONAL AGREEMENTS
<TABLE>
<S> <C>
Section 5.1 Company Stockholder Approval; Proxy Statement... A-22
Section 5.2 Access to Information........................... A-23
Section 5.3 Fees and Expenses............................... A-23
Section 5.4 Reasonable Efforts.............................. A-23
Section 5.5 Public Announcements............................ A-23
Section 5.6 State Takeover Laws............................. A-24
Section 5.7 Rights Agreement................................ A-24
Section 5.8 Indemnification, Directors' and Officers'
Insurance................................................. A-24
Section 5.9 Termination of Employment....................... A-24
Section 5.10 Other Agreements Relating to Stock Options..... A-25
Section 5.11 Interim Operations............................. A-25
Section 5.12 Completion of Merger........................... A-25
Section 5.13 Employee Stock Purchase Plan................... A-25
</TABLE>
ARTICLE VI
CONDITIONS PRECEDENT
<TABLE>
<S> <C>
Section 6.1 Conditions to Each Party's Obligation to Effect
the Merger................................................ A-25
</TABLE>
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
<TABLE>
<S> <C>
Section 7.1 Termination..................................... A-27
Section 7.2 Effect of Termination........................... A-27
Section 7.3 Amendment....................................... A-27
Section 7.4 Waiver.......................................... A-28
</TABLE>
ARTICLE VIII
GENERAL PROVISIONS
<TABLE>
<S> <C>
Section 8.1 Non-Survival of Representations and
Warranties................................................ A-28
Section 8.2 Notices......................................... A-28
Section 8.3 Interpretation.................................. A-29
Section 8.4 Counterparts.................................... A-29
Section 8.5 Entire Agreement; No Third-Party
Beneficiaries............................................. A-29
Section 8.6 Governing Law; Jurisdiction; Waiver of Jury
Trial..................................................... A-29
Section 8.7 Assignment...................................... A-30
Section 8.8 Severability.................................... A-30
Section 8.9 Enforcement of this Agreement................... A-30
Section 8.10 Incorporation of Exhibits...................... A-31
Section 8.11 Performance by Sub............................. A-31
Section 8.12 Resolution of Disputes Relating to
Calculations.............................................. A-31
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C>
Schedule 4.4 Database Agreements
Schedule 6.1 List of Individuals Receiving Employment Agreements
Annex A -- Calculation of Merger Consideration
Annex B -- Calculation of Option Consideration
</TABLE>
A-4
<PAGE>
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER, dated as of August 12, 1999, amended and
restated as of October 14, 1999 and as further amended and restated as of
November 18, 1999 (this "Agreement"), among WPP Group U.S. Finance Corp., a
Delaware corporation ("Parent"), WPP Acquisition Corp., a Delaware corporation
and a wholly owned subsidiary of Parent ("Sub"), and Intelliquest Information
Group, Inc., a Delaware corporation (the "Company") (Sub and the Company being
hereinafter collectively referred to as the "Constituent Corporations").
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Parent, Sub and the Company
have approved the acquisition of the Company by Parent of all of the outstanding
shares of Common Stock, par value $.001 per share (the "Common Stock"), together
with associated Rights (as defined below) (the shares of Common Stock and
associated Rights are referred to herein as "Shares"), of the Company at a price
per Share calculated in accordance with the formula set forth in Annex A
attached hereto (the "Merger Consideration"), in cash, pursuant to a merger (the
"Merger") of Sub with and into the Company upon the terms and subject to the
conditions set forth herein;
WHEREAS, the Board of Directors of the Company has adopted resolutions
determining that the Merger is fair to and in the best interests of the holders
of Shares and declaring the advisability of the Merger and recommending that the
Company's stockholders approve and adopt this Agreement and approve the Merger
and the other transactions contemplated hereby;
WHEREAS, the Company will sell substantially all of the assets relating to
the Company's database business (the "Database Business"), pursuant to an Asset
Purchase Agreement, dated as of July 22, 1999, between the Company and Naviant
Technology Solutions, Inc. (the "IQ2 Sale");
WHEREAS, pursuant to the Merger, each issued and outstanding Share not owned
directly or indirectly by Parent or the Company will be converted into the right
to receive per share consideration described herein; and
WHEREAS, pursuant to the Merger, all outstanding Stock Options at the
Effective Time will be canceled in exchange for the consideration to be paid in
accordance with the formula set forth in Annex B attached hereto.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
THE MERGER
Section 1.1 THE MERGER. Upon the terms and subject to the conditions
hereof, and in accordance with the General Corporation Law of the State of
Delaware, as amended (the "DGCL"), Sub shall be merged with and into the Company
at the Effective Time (as hereinafter defined). Following the Merger, the
separate corporate existence of Sub shall cease and the Company shall continue
as the surviving corporation (the "Surviving Corporation") and shall succeed to
and assume all the rights and obligations of Sub in accordance with the DGCL.
Section 1.2 EFFECTIVE TIME. The Merger shall become effective when the
Certificate of Merger (the "Certificate of Merger"), executed in accordance with
the relevant provisions of the DGCL, is accepted for record by the Secretary of
State of the State of Delaware. When used in this Agreement, the term "Effective
Time" shall mean the later of the date and time at which the Certificate of
Merger is accepted for record or the date and time established by the
Certificate of Merger. The filing of the
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Certificate of Merger shall be made by the parties hereto as soon as practicable
after the satisfaction or waiver of all conditions set forth in Section 6.1
hereof.
Section 1.3 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in Section 259 of the DGCL.
Section 1.4 CERTIFICATE OF INCORPORATION AND BYLAWS; DIRECTORS AND
OFFICERS. (a) At the Effective Time and without any further action on the part
of the Company and Sub, the certificate of incorporation of the Company shall be
amended to read in its entirety as the certificate of incorporation of Sub reads
as in effect immediately prior to the Effective Time, until thereafter changed
or amended as provided therein or applicable law, provided that such certificate
of incorporation shall reflect as of the Effective Time "Intelliquest
Information Group, Inc." as the name of the Surviving Corporation. The Bylaws of
Sub, as in effect immediately prior to the Effective Time, shall be the Bylaws
of the Surviving Corporation until thereafter changed or amended as provided
therein or the Certificate of Incorporation and applicable law.
(b) The directors and officers of Sub immediately prior to the Effective
Time shall be the directors and officers, respectively, of the Surviving
Corporation as of the Effective Time.
Section 1.5 CONVERSION OF SECURITIES. As of the Effective Time, by virtue
of the Merger and without any action on the part of any stockholder of the
Company:
(a) All Shares that are held in the treasury of the Company or by any wholly
owned Subsidiary (as hereinafter defined) of the Company and any Shares owned by
Parent, Sub or any other wholly owned Subsidiary of Parent shall be cancelled
and no consideration shall be delivered in exchange therefor.
(b) Each Share issued and outstanding immediately prior to the Effective
Time (other than shares to be cancelled in accordance with Section 1.5(a) and
other than Dissenting Shares (as defined in Section 1.7)) shall be converted as
of the Effective Time into the right to receive in cash, without interest, the
Merger Consideration, after the Effective Time (the "Payment Date"). All such
Shares, when so converted, shall no longer be outstanding and shall
automatically be cancelled and retired, and each holder of a certificate or
certificates (the "Certificates") representing any such Shares shall cease to
have any rights with respect thereto, except the right to receive the Merger
Consideration with respect to such Shares.
(c) Each issued and outstanding share of the capital stock of Sub shall be
converted into and become as of the Effective Time one fully paid and
nonassessable share of common stock, par value $.01 per share, of the Surviving
Corporation.
(d) At the Effective Time all outstanding employee stock options, whether or
not then fully exercisable or vested, to purchase Shares (a "Stock Option")
heretofore granted under the Stock Option Plans (as defined in Section 3.2
below) shall become fully exercisable and vested, and the Stock Options shall be
cancelled by the Company, and the holders thereof shall receive on the Payment
Date a cash payment (the "Cash Payment") from the Company in an amount
calculated and paid in accordance with the formula set forth in Annex B attached
hereto. The Company shall request such holders to acknowledge the cancellation
of all Stock Options held by such holders, including any Stock Options as to
which the exercise price equals or exceeds the Merger Consideration. The Company
shall deliver to Parent within five business days of the date hereof a true and
complete list of Stock Options which are outstanding as of the date hereof
including on such list the name of each option holder and the exercise price of
such options. The Company shall update such list and deliver such update to
Parent on the Closing Date. Any outstanding stock appreciation rights or limited
stock appreciation rights issued by the Company or any Subsidiary of the Company
shall be cancelled immediately prior to the Effective Time without any payment
therefor. The Company shall ensure that neither it nor any of its Subsidiaries
is or will be bound by any Stock Options, other options, warrants rights or
agreement
A-6
<PAGE>
which would entitle any person or entity, other than Parent or its Subsidiaries,
to own any Shares or to receive any payment in respect thereof.
Section 1.6 EXCHANGE OF CERTIFICATES. (a) PAYING AGENT. Parent and the
Company shall authorize a commercial bank or trust company having net capital of
not less than $100 million (or one or more other persons or entities as shall be
reasonably acceptable to Parent and the Company) to act as paying agent
hereunder (the "Paying Agent") for the payment of the Merger Consideration upon
surrender of Certificates. All of the fees and expenses of the Paying Agent
shall be borne by Parent.
(b) PARENT AND SUB TO PROVIDE FUNDS. Parent shall take all steps necessary
to enable and cause the Sub to deposit in trust with the Paying Agent prior to
the Effective Time cash in an amount necessary to pay for all of the Shares
pursuant to Section 1.5(b) and the amount required in connection with the Stock
Options pursuant to Section 1.5(d). Such amount shall hereinafter be referred to
as the "Exchange Fund."
The Exchange Fund shall be invested by the Paying Agent as directed by
Parent in direct obligations of the United States, obligations for which the
full faith and credit of the United States is pledged to provide for the payment
of principal and interest, commercial paper rated of the highest quality by
Moody's Investors Services, Inc. or Standard & Poor's Ratings Group or
certificates of deposit, bank repurchase agreements or bankers' acceptances of a
commercial bank having at least $100,000,000 in assets, in each case with
maturities not exceeding seven days (collectively "Permitted Investments"), or
in money market funds which are invested in Permitted Investments, and any net
earnings with respect thereto shall be for the account of Parent. The Paying
Agent shall, pursuant to irrevocable instructions, make the payments referred to
in Section 1.5(b) and 1.5(d) hereof out of the Exchange Fund. The Exchange Fund
shall not be used for any other purpose except as otherwise agreed to by Parent
and the Company.
If the amount of cash in the Exchange Fund is insufficient to pay all of the
amounts required to be paid pursuant to Sections 1.5(b) and 1.5(d), Parent from
time to time after the Effective Time shall take all steps necessary to enable
and cause the Surviving Corporation to deposit in trust additional cash with the
Paying Agent sufficient to make all such payments.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the Paying
Agent shall mail to each holder of record of a Certificate, other than Parent,
the Company and any Subsidiary of Parent or the Company, (i) a letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon actual delivery of the
Certificates to the Paying Agent and shall be in a form and have such other
provisions as Parent may reasonably specify) and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for the Merger
Consideration. Upon surrender of a Certificate for cancellation to the Paying
Agent or to such other agent or agents as may be appointed by the Surviving
Corporation, together with such letter of transmittal, duly executed, and such
other documents as may reasonably be required by the Paying Agent, the holder of
such Certificate shall be entitled to receive in exchange therefor, the amount
of cash into which the Shares theretofore represented by such Certificate shall
have been converted pursuant to Section 1.5, and the Certificates so surrendered
shall forthwith be cancelled. No interest will be paid or will accrue on the
cash payable upon the surrender of any Certificate. If payment is to be made to
a person or entity other than the person or entity in whose name the Certificate
so surrendered is registered, it shall be a condition of payment that such
Certificate shall be properly endorsed or otherwise in proper form for transfer
and that the person or entity requesting such payment shall pay any transfer or
other taxes required by reason of such Certificate or establish to the
satisfaction of the Surviving Corporation that such tax has been paid or is not
applicable. Until surrendered as contemplated by this Section 1.6, each
Certificate (other than Certificates representing Dissenting Shares and
Certificates representing any Shares to be cancelled pursuant to
Section 1.5(a)) shall be deemed at any time after the Effective Time to
represent only the right to receive upon such
A-7
<PAGE>
surrender the amount of cash, without interest, into which the Shares
theretofore represented by such Certificate shall have been converted pursuant
to Section 1.5. Notwithstanding the foregoing, none of the Paying Agent, the
Surviving Corporation or any party hereto shall be liable to a former
stockholder of the Company for any cash or interest delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws. Any
portion of the Exchange Fund that remains unclaimed by the stockholders of the
Company for twelve months after the Effective Time shall be repaid to the
Surviving Corporation (including, without limitation, all interest and other
income received by the Paying Agent in respect of all such funds). Thereafter,
persons or entities who prior to the Merger held Shares shall look only to the
Surviving Corporation or Parent (subject to the terms of this Agreement and
abandoned property, escheat and other similar laws) with respect to any Merger
Consideration that may be payable upon due surrender of the Certificates held by
them, without interest.
Section 1.7 DISSENTING SHARES. Notwithstanding any provision of this
Agreement to the contrary, if required by the DGCL but only to the extent
required thereby, Shares which are issued and outstanding immediately prior to
the Effective Time and which are held by holders of such Shares who have
properly exercised appraisal rights with respect thereto in accordance with
Delaware law (the "Dissenting Shares") will not be exchangeable for the right to
receive the Merger Consideration, and holders of such Shares will be entitled to
receive payment of the appraised value of such Shares in accordance with the
provisions of Delaware law unless and until such holders fail to perfect or
effectively withdraw or lose their rights to appraisal and payment under the
DGCL. If, after the Effective Time, any such holder fails to perfect or
effectively withdraws or loses such right, such Shares will thereupon be treated
as if they had been converted into and to have become exchangeable for, at the
Effective Time, the right to receive the Merger Consideration, without any
interest thereon. The Company shall give Parent and Sub (A) prompt notice of any
written demands for appraisal, withdrawals of demands for appraisal and any
other related instruments received by the Company, and (B) the opportunity to
direct all negotiations and proceedings with respect to demands for appraisal.
The Company will not, except with the prior written consent of Parent,
voluntarily make any payment with respect to any demands for appraisal or settle
or offer to settle any such demand.
Section 1.8 NO FURTHER OWNERSHIP RIGHTS IN SHARES; CLOSING OF COMPANY
TRANSFER BOOKS. At and after the Effective Time, each holder of a Certificate
shall cease to have any rights as a stockholder of the Company, except for, in
the case of a holder of a Certificate (other than shares to be cancelled
pursuant to Section 1.5(a) hereof and other than Dissenting Shares), the right
to surrender his or her Certificate in exchange for payment of the Merger
Consideration or, in the case of a holder of Dissenting Shares, to perfect his
or her right to receive payment for his or her Shares pursuant to Delaware law
if such holder has validly perfected and not withdrawn his or her right to
receive payment for his or her Shares, and no transfer of Shares shall be made
on the stock transfer books of the Surviving Corporation. At the Effective Time,
the stock transfer books of the Company shall be closed, and no transfer of
Shares shall thereafter be made. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they shall be cancelled and exchanged as
provided in this Article I.
Section 1.9 CLOSING. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at the offices of the Company in
Austin, Texas on the date (such date hereinafter the "Closing Date") when the
last of the conditions set forth in Section 6.1 hereof shall have been fulfilled
or waived or at such other time and place as Parent and the Company shall agree.
A-8
<PAGE>
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF PARENT AND SUB
Parent and Sub jointly and severally represent and warrant to the Company as
follows:
Section 2.1 ORGANIZATION, STANDING AND POWER; CAPITALIZATION AND OWNERSHIP
OF SUB. Each of Parent and Sub is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite corporate power and authority to carry on
its business as now being conducted. Parent and Sub have made available to the
Company complete and correct copies of their certificate of incorporation and
bylaws, in each case as amended to the date of this Agreement. The authorized
capital stock of Sub consists of 1,500 shares of common stock, no par value, 100
shares of which are validly issued and outstanding, fully paid and nonassessable
and are owned by Parent free and clear of all security interests, liens, claims,
pledges, options, rights of first refusal or other encumbrances of any nature
("Liens").
Section 2.2 AUTHORITY; NON-CONTRAVENTION. Each of Parent and Sub has all
requisite corporate power and authority to enter into this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by Parent and Sub and the consummation by Parent and Sub of the
transactions contemplated hereby have been duly authorized by all necessary
action on the part of Parent and Sub and Parent's shareholders. This Agreement
has been duly executed and delivered by Parent and Sub and (assuming the valid
authorization, execution and delivery of this Agreement by the Company)
constitutes a valid and binding obligation of Parent and Sub enforceable against
Parent and Sub in accordance with its terms, except that such enforcement may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws affecting creditor's rights generally and by general
equitable principles. The execution and delivery of this Agreement do not, and
the consummation of the transactions contemplated hereby and compliance with the
provisions hereof will not, conflict with, or result in any violation of, or
default (with or without notice or lapse of time, or both) under, or give rise
to a right of termination, cancellation or acceleration of any obligation or to
the loss of a material benefit under, or result in the creation of any Lien upon
any of the properties or assets of Parent or Sub under, any provision of
(i) the Certificate of Incorporation or Bylaws of Parent or Sub, (ii) any loan
or credit agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Parent or Sub
or (iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or Sub or any of their respective properties or
assets, other than, in the case of clauses (ii) or (iii), any such conflicts,
violations, defaults, rights, or Liens that, individually or in the aggregate,
would not reasonably be expected to have a Material Adverse Effect on Parent or
Sub or prevent the consummation of any of the transactions contemplated hereby.
No filing or registration with, or authorization, consent or approval of, any
domestic (federal, state or local), foreign or supranational court, commission,
governmental body, regulatory or administrative agency, authority or tribunal (a
"Governmental Entity") is required by or with respect to Parent or Sub in
connection with the execution and delivery of this Agreement by Parent and Sub
or is necessary for the consummation of the Merger and the other transactions
contemplated by this Agreement, except for (i) in connection, or in compliance,
with the Securities Exchange Act of 1934, as amended (including the rules and
regulations promulgated thereunder, the "Exchange Act"), (ii) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware and
appropriate documents with the relevant authorities of other states in which the
Company is qualified to do business, (iii) such filings and approvals as may be
required under the Hart-Scott-Rodino Improvements Act of 1976, as amended (the
"HSR Act"), (iv) such other consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under the
corporation, takeover or blue sky laws of various states or the Nasdaq National
Market, and (v) such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the ability of Parent or Sub to
A-9
<PAGE>
consummate the transactions contemplated hereby. For purposes of this Agreement
(a) "Material Adverse Change" or "Material Adverse Effect" means, (i) when used
with respect to the Company, any materially adverse change or effect, either
individually or in the aggregate, to or on the business, assets, liabilities,
properties, condition (financial or otherwise), or results of operations of the
Company and its Subsidiaries taken as a whole or (ii) when used with respect to
Parent or Sub, as the case may be, any materially adverse change or effect,
either individually or in the aggregate, to or on the ability of Parent or Sub,
as the case may be, to perform their respective obligations hereunder, and
(b) "Subsidiary" means any corporation, partnership, joint venture or other
legal entity of which (i) Parent or the Company or any of their respective
Subsidiaries, as the case may be, is a general partner or (ii) Parent or the
Company, as the case may be (either alone or through or together with any other
Subsidiary), owns, directly or indirectly, 50% or more of the stock or other
equity interests the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
Section 2.3 PROXY STATEMENT. The written information supplied or to be
supplied by Parent and Sub expressly for inclusion in the Proxy Statement
together with any amendments or supplements thereto will not contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements made, in light of
the circumstances under which they are made, not misleading.
Section 2.4 FINANCING. Parent has all of the funds necessary to consummate
the Merger and the transactions contemplated hereby on a timely basis and to pay
any and all of its related fees and expenses.
Section 2.5 BUSINESS OF SUB. Sub was organized solely for the purpose of
acquiring the Company and engaging in the transactions contemplated by this
Agreement and has not engaged in any business since it was incorporated which is
not in connection with the acquisition of the Company and this Agreement. During
the period from the date of this Agreement through the Effective Time, Sub shall
not engage in any activities of any nature except as provided in or contemplated
by this Agreement.
Section 2.6 WARN ACT. Parent has no present plans or intention to carry
out, after the Closing, any plant closing or mass layoff which would violate the
federal Worker Adjustment and Retraining Notification Act at any facility of the
Company.
Section 2.7 BROKERS. No broker, investment banker or other person or
entity is entitled to any broker's, finder's or other similar fee or commission
in connection with the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of Parent or Sub.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the disclosure schedule (the "Company Disclosure
Schedule") delivered by the Company to Parent at or prior to the execution of
this Agreement or the Company SEC Documents (as defined below), the Company
represents and warrants to Parent and Sub as follows; it being understood,
however, that representations and warranties with respect to the Company shall
not include the Database Business, and notwithstanding anything to the contrary
herein, the Company makes no representations or warranties with respect to the
Database Business.
Section 3.1 ORGANIZATION, STANDING AND POWER. The Company and each of its
Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is incorporated and has
the requisite corporate power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. The Company and
each of its Subsidiaries is duly qualified to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
held under lease or the nature of its activities makes such
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qualification necessary, except where the failure to be so qualified would not
reasonably be expected to, individually or in the aggregate, have a Material
Adverse Effect on the Company. The Company has made available to Parent and Sub
complete and correct copies of the Certificate of Incorporation and By-Laws of
the Company and the comparable governing documents of each of its Subsidiaries,
in each case as amended to the date of this Agreement.
Section 3.2 CAPITAL STRUCTURE. As of the date hereof, the authorized
capital stock of the Company consists of 30 million (30,000,000) shares of
Common Stock and one million (1,000,000) shares of Preferred Stock. At the close
of business on June 30, 1999, (i) 7,882,961 shares of Common Stock were issued
and outstanding, all of which were validly issued, fully paid and nonassessable,
(ii) 720,000 shares of Common Stock were held in the treasury of the Company or
by Subsidiaries of the Company and (iii) 1,201,780 shares of Common Stock were
reserved for future issuance pursuant to the Company's Amended 1993 IQI Corp.
Stock Plan, the Pipeline Communications, Inc. 1994 Incentive Stock Option Plan,
the Intelliquest Information Group, Inc. 1996 Stock Plan, the Intelliquest
Information Group, Inc. 1997 Supplemental Stock Plan, and the Intelliquest
Information Group, Inc. 1996 Employee Stock Purchase Plan (collectively, the
"Stock Option Plans"). No shares of Preferred Stock are outstanding. A total of
300,000 shares of Preferred Stock have been designated as Class A Junior
Participating Preferred Stock ("Class A Preferred Stock"), in connection with
the Stockholders Rights Agreement dated as of October 18, 1998 between the
Company and American Securities Transfer & Trust, Inc. (as amended to date, the
"Rights Agreement"). As of the date of this Agreement, except (i) as set forth
above, and (ii) for the rights to purchase Class A Preferred Stock ("Rights")
pursuant to the Rights Agreement, no shares of capital stock or other voting
securities of the Company were issued, reserved for issuance or outstanding. The
Company does not have any outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of the Company on any matter ("Voting Debt"). As of the date of
this Agreement, except for stock options issued under the Stock Option Plans,
there are no outstanding or authorized options, warrants, calls, rights or
subscriptions, convertible or exchangeable securities or other commitments,
contingent or otherwise, to which the Company is a party or by which it is bound
obligating the Company or any of its Subsidiaries to issue, deliver or sell, or
cause to be issued, delivered or sold, additional shares of capital stock of the
Company or any of its Subsidiaries or obligating the Company or any of its
Subsidiaries to grant, extend or enter into any such option, warrant, call,
right or agreement (each an "Issuance Obligation").
Section 3.3 SUBSIDIARIES. Exhibit 21.1 to the Company's Annual Report on
Form 10-K for the year ended December 31, 1998, as filed with the Securities and
Exchange Commission (the "SEC"), is a true, accurate and correct list of all of
the Subsidiaries of the Company, except that IntelliQuest Communications changed
its name to IQ2.Net, Inc. All of the outstanding capital stock of, or ownership
interests in, each Subsidiary of the Company is owned by the Company, directly
or indirectly. All of the shares of capital stock of each Subsidiary are validly
existing, fully paid and non-assessable. All of such capital stock or ownership
interests are owned by the Company, free and clear of all Liens. No Subsidiary
of the Company has outstanding Voting Debt and no Subsidiary of the Company is
party to an Issuance Obligation with respect to any security of the Company or
any Subsidiary of the Company.
Section 3.4 OTHER INTERESTS. Except for the Company's interest in its
Subsidiaries, neither the Company nor its Subsidiaries owns, directly or
indirectly, any interest or investment (whether equity or debt) in, nor is the
Company or any of its Subsidiaries subject to any obligation or requirement to
provide for or to make any investment (in the form of a loan, capital
contribution or otherwise) to or in, any corporation, partnership, joint
venture, business, trust or entity.
Section 3.5 AUTHORITY; NON-CONTRAVENTION. The Board of Directors of the
Company has approved this Agreement and the transactions contemplated hereby and
has declared the Merger advisable and
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fair to and in the best interests of the holders of Shares. The Company has all
requisite corporate power and authority to enter into this Agreement and,
subject to approval of the Merger by the stockholders of the Company, to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company, subject to the approval of the
Merger by the stockholders of the Company. This Agreement has been duly executed
and delivered by the Company and (assuming the valid authorization, execution
and delivery of this Agreement by Parent and Sub) constitutes a valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms, except that such enforcement may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and by general equitable principles. The
execution and delivery of this Agreement do not, and the consummation of the
transactions contemplated hereby and compliance with the provisions hereof will
not, conflict with, or result in any violation of, or default (with or without
notice or lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation under, or result in the creation
of any Lien upon any of the properties or assets of the Company or any of its
Subsidiaries under, any provision of (i) the Certificate of Incorporation or
Bylaws of the Company or any provision of the comparable charter or organization
documents of any of its Subsidiaries, (ii) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement, instrument, permit,
concession, franchise or license applicable to the Company or any of its
Subsidiaries or (iii) any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to the Company or any of its Subsidiaries or any of
their respective properties or assets, other than, in the case of clause (ii) or
(iii), any such conflicts, violations, defaults, rights, or Liens that,
individually or in the aggregate, would not reasonably be expected to have a
material adverse effect on the ability of the Company to consummate the
transactions contemplated hereby. No filing or registration with, or
authorization, consent or approval of, any Governmental Entity is required by or
with respect to the Company or any of its Subsidiaries in connection with the
execution and delivery of this Agreement by the Company or the consummation by
the Company of the transactions contemplated hereby, except for (i) in
connection or in compliance with the provisions of the Exchange Act, (ii) the
filing of the Certificate of Merger with the Secretary of State of the State of
Delaware and appropriate documents with the relevant authorities of other states
in which the Company is qualified to do business, (iii) such filings and
approvals as may be required under the HSR Act, (iv) such other consents,
approvals, orders, authorizations, registrations, declarations and filings as
may be required under the corporation, takeover or blue sky laws of various
states or the Nasdaq National Market, and (v) such other consents, orders,
authorizations, registrations, declarations and filings the failure of which to
be obtained or made would not reasonably be expected to have, individually or in
the aggregate, a material adverse effect on the ability of the Company to
consummate the transactions contemplated hereby.
Section 3.6 SEC DOCUMENTS AND FINANCIAL STATEMENTS. Since October 1996,
the Company has filed with the SEC all documents required to be filed under the
Securities Act of 1933, as amended (including the rules and regulations
promulgated thereunder) (the "Securities Act"), and the Exchange Act (such
documents, together with any exhibits, schedules, amendments or supplements
thereto, and any information incorporated by reference therein, the "Company SEC
Documents"). As of their respective dates, the Company SEC Documents complied in
all material respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and none of the Company SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The financial statements of the Company included in the Company SEC
Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC with
respect thereto, were prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited
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statements, as permitted by the rules applicable to Form 10-Q of the SEC)
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto) and fairly presented the consolidated
financial position of the Company and its consolidated Subsidiaries as at the
dates thereof and the consolidated results of their operations and changes in
financial position for the periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments and to any other adjustments
described therein).
Section 3.7 PROXY STATEMENT. None of the information supplied or to be
supplied by the Company for inclusion or incorporation by reference in the Proxy
Statement, or any amendment or supplement thereto, will at the time of the
mailing of the Proxy Statement and at the time of the Company's special meeting
of stockholders at which the Merger is approved (the "Special Meeting"), contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. If at any time prior to the Effective Time any event with respect to
the Company, its officers and directors or any of its Subsidiaries should occur
which is required to be described in an amendment of, or a supplement to, the
Proxy Statement, such event shall be so described, and such amendment or
supplement shall be promptly filed with the SEC and, as required by law,
disseminated to the stockholders of the Company. Prior to the filing of such
amendment or supplement with the SEC, a copy thereof shall be delivered to
Parent and its counsel, who shall have the opportunity to comment on such
amendment or supplement. The Proxy Statement will comply as to form in all
material respects with the requirements of the Exchange Act.
Section 3.8 ABSENCE OF CERTAIN EVENTS. Since December 31, 1998, the
Company and its Subsidiaries have operated their respective businesses only in
the ordinary course consistent with historical practices, and except with
respect to the IQ2 Sale, there has not occurred (i) any event, occurrence or
conditions which, individually or in the aggregate, would be reasonably likely
to have, a Material Adverse Effect on the Company; (ii) any entry into or any
commitment or transaction that, individually or in the aggregate, would be
reasonably likely to have a Material Adverse Effect on the Company; (iii) any
material change by the Company or any of its Subsidiaries in its accounting
methods or principles, except as required by the United States generally
accepted accounting principles or as a result of a change in law; (iv) any
amendments or changes in the Certificate of Incorporation or Bylaws of the
Company; (v) any revaluation by the Company or any of its Subsidiaries of any of
their respective assets, including, without limitation, write-offs of accounts
receivable, other than in the ordinary course of the Company's and its
Subsidiaries' businesses consistent with past practices; (vi) any increase in
the compensation of any officer of the Company or any of its Subsidiaries or any
general salary or benefits increase to the employees of the Company or any of
its Subsidiaries other than in the ordinary course of business; or (vii) any
declaration, setting aside or payment of any dividend or other distribution with
respect to any shares of capital stock of the Company.
Section 3.9 LITIGATION. Except as set forth on Schedule 3.9 hereto, there
are no investigations, actions, suits or proceedings pending against the Company
or its Subsidiaries or, to the knowledge of the Company, threatened against the
Company or its Subsidiaries (or any of their respective properties, rights or
franchises), at law or in equity, or before or by any federal or state
commission, board, bureau, agency, regulatory or administrative instrumentality
or other Governmental Entity or any arbitrator or arbitration tribunal, that
would be reasonably likely to have a Material Adverse Effect on the Company,
and, to the knowledge of the Company, no development has occurred with respect
to any pending or threatened action, suit or proceeding that would be reasonably
likely to result in a Material Adverse Effect on the Company or would prevent or
delay the consummation of the transactions contemplated hereby. Neither the
Company nor any of its Subsidiaries is subject to any judgment, order or decree
entered in any lawsuit or proceeding which would reasonably be expected to have
a Material Adverse Effect on the Company.
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Section 3.10 COMPLIANCE WITH APPLICABLE LAW. The Company and its
Subsidiaries hold all permits, licenses, variances, exceptions, orders and
approvals of all Governmental Entities necessary for the lawful conduct of their
respective businesses (the "Company Permits"), except for failures to hold such
permits, licenses, variances, exemptions, orders and approvals which would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. The Company and its Subsidiaries are in
compliance with the terms of the Company Permits, except where the failure so to
comply would not have a Material Adverse Effect on the Company. The businesses
of the Company and its Subsidiaries are not being conducted in violation of any
law, ordinance or regulation of any Governmental Entity except for violations or
possible violations which individually or in the aggregate would not reasonably
be expected to have a Material Adverse Effect on the Company.
Section 3.11 EMPLOYEE PLANS. (a) Each Company Benefit Plan (as defined
below) (and each related trust agreement or insurance contract) is in compliance
with its terms and with all contractual obligations and all obligations under
applicable federal, state and local laws, rules and regulations (domestic and
foreign), other than where the failure to so comply or perform would not be
reasonably likely to have a Material Adverse Effect on the Company. All
contributions and other payments required to be made by the Company, its
Subsidiaries, and another entity that is or has been a member of a controlled
group of organizations (within the meaning of Sections 414(b), (c), (m) or
(o) of the Code) of which the Company is a member (an "ERISA Affiliate") to any
Company Benefit Plan (as defined below), prior to the date hereof have been
made, other than where the failure to so contribute or make payments would not
be reasonably likely to have a Material Adverse Effect on the Company, and all
accruals or contributions required to be made under any Company Benefit Plan
have been made. There is no claim, dispute, grievance, charge, complaint,
restraining or injunctive order, litigation or proceeding pending, threatened or
anticipated (other than routine claims for benefits) against or relating to any
Company Benefit Plan or against the assets of any Company Benefit Plan, which
would be reasonably likely to have, a Material Adverse Effect on the Company. To
the knowledge of the Company, neither the Company, any of its Subsidiaries nor
any ERISA Affiliate has communicated generally to employees or specifically to
any employee regarding any future increase of benefit levels (or future
creations of new benefits) with respect to any Company Benefit Plan beyond those
reflected in the Company Benefit Plans, which benefit increases or creations,
either individually or in the aggregate, would be reasonably likely to have a
Material Adverse Effect on the Company. Neither the Company, any of its
Subsidiaries nor any ERISA Affiliate presently sponsors, maintains, contributes
to, nor is the Company, its Subsidiaries or any ERISA Affiliate required to
contribute to, nor has the Company or any of its Subsidiaries ever sponsored,
maintained, contributed to, or been required to contribute to, any employee
pension benefit plan within the meaning of section 3(2) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), or any
multiemployer plan within the meaning of section 3(37) or 4001(a)(3) of ERISA (a
"Multiemployer Plan"), other than the Company's 401(k) plan (the "401(k) Plan")
which is intended to be qualified under Section 401 of the Internal Revenue Code
of 1986, as amended (the "Code"). No governmental agency, including without
limitation, the Internal Revenue Service of the Department of Labor, has
initiated, to the knowledge of the Company, any examination, audit or
investigation of the 401(k) Plan which has not been completed and no such
examination, audit or investigation has resulted in the failure of the Plan to
be qualified under Section 401 of the Code. No Company Benefit Plan provides for
post-employment or retiree health, medical, life or other welfare benefits,
except to the extent required by Part 6 of Subtitle B of Title I of ERISA or
Section 4980B of the Code. Neither the Company, any of its Subsidiaries, any
ERISA Affiliate, nor, to the Company's knowledge, any other "disqualified
person" or "party in interest" (as defined in Section 4975(e)(2) of the Code and
Section 3(14) of ERISA, respectively) has engaged in any transactions in
connection with any Company Benefit Plan that would reasonably be expected to
result in the imposition of a penalty pursuant to Section 502 of ERISA, damages
pursuant to Section 409 of ERISA, or a tax pursuant to Section 4975 of the Code,
except where the imposition of such penalties, damages or taxes would not
reasonably be expected to result in a Material Adverse
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Effect on the Company. No employer securities, employer real property or other
employer property is included in the assets of any Company Benefit Plan. With
respect to any insurance policy providing funding for benefits or an investment
alternative under any Company Benefit Plan in the nature of a retroactive rate
adjustment, loss sharing arrangement or other liability or loss, (i) no
insurance company issuing any such policy is in receivership, conservatorship,
liquidation or similar proceeding, and (ii) to the knowledge of the Company, any
of its Subsidiaries or any ERISA Affiliate, no such proceedings with respect to
any insurer are imminent.
(b) No Company Benefit Plan provides for the payment by the Company or any
subsidiary of any amount that is an "excess parachute payment" within the
meaning of section 280G(b)(1) of the Code.
(c) (i) "Plan" means any bonus, incentive compensation, deferred
compensation, pension, profit sharing, retirement, stock purchase, stock option,
stock ownership, stock appreciation rights, phantom stock, leave of absence,
layoff, vacation, day or dependent care, legal services, cafeteria, life,
health, accident, disability, workers' compensation or other insurance,
severance, separation or other employee benefit plan, practice, policy or
arrangement of any kind, including, but not limited to, any "employee benefit
plan" within the meaning of section 3(3) of ERISA and (ii) "Company Benefit
Plan" means any employee pension benefit plan and any Plan, other than a
Multiemployer Plan, established by the Company, any of its Subsidiaries or any
ERISA Affiliate or to which the Company or any of its Subsidiaries contributes
or has contributed (including without limitation any such Plans not now
maintained by the Company, any of its Subsidiaries or any ERISA Affiliate or to
which the Company, any of its Subsidiaries or any ERISA Affiliate does not now
contribute, but with respect to which the Company, any of its Subsidiaries or
any ERISA Affiliate has or may have any liability).
(d) Complete and correct copies of the following documents have been
furnished or made available to Parent or Sub:
(i) all Company Benefit Plans and any predecessor plans referred to therein,
any related trust agreements, service provider agreements, insurance
contracts or agreements with investment managers, including without
limitation, all amendments thereto;
(ii) current summary plan descriptions of each Company Benefit Plan subject
to ERISA;
(iii) the most recent Form 5500 and Schedules thereto for each Company
Benefit Plan subject to ERISA reporting requirements; and
(iv) the most recent determination of the IRS with respect to the qualified
status of each Company Benefit Plan which is qualified under
Section 401 of the Code.
Section 3.12 EMPLOYMENT RELATIONS AND AGREEMENT. (a) (i) Each of the
Company and its Subsidiaries is, and at all times has been, in compliance in all
material respects with all federal, state or other applicable laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, and has not and is not engaged in any unfair labor practice;
(ii) no unfair labor practice complaint against the Company or any of its
Subsidiaries is pending before the National Labor Relations Board; (iii) there
is no labor strike, dispute, slowdown or stoppage actually pending or, to the
Company's knowledge, threatened against or involving the Company or any of its
Subsidiaries, (iv) no arbitration proceeding arising out of or under any
collective bargaining agreement is pending and no claim therefor has been
asserted; and (v) no collective bargaining agreement is currently being
negotiated by the Company or any of its Subsidiaries.
(b) Except for employment agreements and similar agreements, executed copies
of which, as amended, have been delivered or made available to Parent, neither
the Company nor any of its Subsidiaries has any written, or, to the knowledge of
the Company, any oral, employment or severance agreement with any other person.
The executed copies of the employment agreements and similar
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agreements previously delivered or made available to Parent are true and
correct, and such agreements have not since been amended, modified or rescinded
except to the extent disclosed to Parent.
Section 3.13 CONTRACTS. Except as filed as Exhibits to Company SEC
Documents and as contemplated by the Database Agreements, neither the Company
nor its Subsidiaries is a party to, or has any obligation under, any contract or
agreement which contains any covenant currently or prospectively limiting the
freedom of the Company, any of its Subsidiaries or any of their respective
affiliates to engage in any line of business or to compete with any entity.
Subject to applicable bankruptcy, insolvency, moratorium or other similar laws
relating to creditors' rights and general principles of equity, all material
contracts and agreements to which the Company or any of its Subsidiaries is a
party or by which any of their respective assets is bound are valid and binding,
in full force and effect and enforceable against the Company or its
Subsidiaries, as applicable, and, to the Company's knowledge, the other parties
thereto in accordance with their respective terms, other than such failures to
be so valid and binding, in full force and effect or enforceable which, would
not reasonably be expected to have, either individually or in the aggregate, a
Material Adverse Effect on the Company. There is not under any such material
contract or agreement any existing default, or event which, after notice or
lapse of time, or both, would constitute a default, by the Company or any of its
Subsidiaries, or to the Company's knowledge, any other party, except to the
extent such default would not reasonably be expected to have a Material Adverse
Effect on the Company.
Section 3.14 RIGHTS AGREEMENT. The Company and the Board of Directors of
the Company have taken all necessary action to amend the Rights Agreement
(subject only to the execution of such amendment by the Rights Agent, which
execution the Company shall cause to take place prior to the Effective Time) to
(a) render the Rights Agreement inapplicable with respect to the Merger and the
other transactions contemplated by this Agreement and (b) ensure that
(x) neither Parent nor Sub nor any of their Affiliates (as defined in the Rights
Agreement) or Associates (as defined in the Rights Agreement) is considered to
be an Acquiring Person (as defined in the Rights Agreement) and (y) the
provisions of the Rights Agreement, including the occurrence of a Distribution
Date (as defined in the Rights Agreement), are not and shall not be triggered by
reason of the announcement or consummation of the Merger or the consummation of
any of the other transactions contemplated by this Agreement. The Company has
delivered to Parent a complete and correct copy of the Rights Agreement as
amended and supplemented to the date of this Agreement.
Section 3.15 STATE TAKEOVER STATUTES; CERTAIN CHARTER PROVISIONS. The
Board of Directors of the Company has, to the extent such statute is applicable,
taken all action (including appropriate approvals of the Board of Directors of
the Company) necessary to exempt Parent and its Subsidiaries, the Merger, this
Agreement and the transactions contemplated hereby and thereby from Section 203
of the DGCL.
Section 3.16 TAXES. (a) (i) The Company and each Subsidiary has timely
filed (taking into account extensions) all material Tax Returns required to be
filed on or before the Effective Time, which returns were true and complete in
all material respects; (ii) the Company and each Subsidiary has timely paid all
material Taxes shown as due and payable on such Tax Returns; (iii) the most
recent consolidated financial statements of the Company reflect an adequate
reserve for all material Taxes payable by the Company and each Subsidiary for
all taxable periods and portions thereof through the date of such financial
statements; and (iv) the Company and each Subsidiary has withheld or collected
all material Taxes they were required to withhold and collect, and have timely
paid to the relevant taxing authorities such Taxes withheld or collected to the
extent due and payable.
(b) (i) Neither the Company nor any Subsidiary has waived any statute of
limitations in respect of Taxes of the Company or any Subsidiary; (ii) there is
no material dispute or claim concerning any of the Tax Returns referred to in
clause (i) of Section 3.16(a) that has been raised in writing by the relevant
taxing authority, and neither the Company nor any of its Subsidiaries is subject
to an audit,
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examination, action, suit, proceeding, investigation or claim regarding Taxes
("Tax Controversy") by the relevant taxing authorities of any nation, state,
province or locality that is currently pending (or scheduled as of the Effective
Time to be conducted) regarding Taxes; (iii) all deficiencies asserted or
assessments made as a result of any such Tax Controversy concerning the Tax
Returns referred to in clause (i) of Section 3.16(a) by a taxing authority have
been paid in full or adequately provided for in the appropriate financial
statements of the Company and its Subsidiaries; and (iv) no material liens or
security interests arising in connection with a failure (or alleged failure) to
pay any Taxes have attached to any of the Company's or any of its Subsidiaries'
assets. The Company has delivered or made available to Parent correct and
complete copies of all United States federal, state and all foreign income Tax
Returns (to the extent filed as of the date hereof or, if not filed, correct and
complete copies of extensions thereof), examination reports, statements of
deficiencies assessed against or agreed to by the Company and any of its
Subsidiaries, or any other similar correspondence from a taxing authority,
relating to taxable years 1996, 1997 and 1998.
(c) For purposes of this Agreement (i) "Tax" (and, with correlative meaning,
"Taxes" and "Taxable") means any federal, state, local, foreign or other income,
gross receipts, profits, property, sales, use, license, excise, franchise,
employment, payroll, premium, withholding, alternative or added minimum, ad
valorem, transfer, stamp, severance, capital gains, capital stock or excise tax,
or any other tax, levy custom, duty, governmental fee or other like assessment
or charge of any kind whatsoever, together with any interest or penalty, imposed
by any governmental authority and shall include any liability for such amounts
as a result either of being a member of a combined, consolidated, unitary or
affiliated group or of a contractual obligation to indemnify any person or other
entity with respect to Taxes, and (ii) "Tax Return" means any return, form,
report or similar statement required to be filed with respect to any Tax
(including any schedules, related or supporting information), including, without
limitation, any information return, claim for refund, amended return or
declaration of estimated Tax.
(d) None of the Company or any of its Subsidiaries has agreed to any
extension of time with respect to any Tax assessment or deficiency.
(e) There are no tax sharing, allocation, indemnification or similar
agreements in effect as between the Company or its Subsidiaries or any
predecessor or affiliate thereof and any other party under which Parent or Sub,
the Company or its Subsidiaries could be liable for Taxes or other claims of any
party.
(f) No election under Section 341(f) of the Code has been made or shall be
made prior to the Effective Time to treat the Company or its Subsidiaries as a
consenting corporation, as defined in Section 341 of the Code.
(g) Neither the Company nor any of its Subsidiaries is a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Code.
(h) Neither the Company nor any of its Subsidiaries has been required to
include in income any adjustments pursuant to section 481 of the Code by reason
of a voluntary change in accounting method initiated by the Company or any of
its Subsidiaries, and the Internal Revenue Service has not initiated or proposed
any such adjustment or change in accounting period.
Section 3.17 INTELLECTUAL PROPERTIES. (a) The Company owns or otherwise
possesses legally enforceable rights or licenses to use all material patents,
trademarks, trade names, service marks, copyrights together with any
registrations and applications therefor, Internet domain names, trade secrets,
proprietary information, know-how, computer software programs or applications
including, without limitation, all object and source codes and tangible or
intangible proprietary information or material that in any material respect are
used in the business of the Company and any of its Subsidiaries as currently
conducted (the "Company Intellectual Property"). Section 3.17 of the Company
Disclosure Schedule sets forth: (i) all material patents, trademarks, trade
names, service
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marks, registered copyrights, and any applications therefor in any nation
included in the Company Intellectual Property; and (ii) all material licenses
and other agreements to which the Company or any of its Subsidiaries is a party
and pursuant to which the Company or any of its Subsidiaries is authorized to
use any Company Intellectual Property and includes the identities of the parties
thereto, a description of the nature and subject matter thereof, the applicable
royalty and the term thereof. Neither the Company nor any of its Subsidiaries
is, or as a result of the execution, delivery or performance of the Company's
obligations hereunder will be, in violation of, or lose any rights pursuant to,
any license or agreement set forth in Section 3.17 of the Company Disclosure
Schedule, except as would not reasonably be expected to have a Material Adverse
Effect on the Company.
(b) Except as would not reasonably be expected to have a Material Adverse
Effect on the Company, to the knowledge of the Company (i) no claims are pending
or threatened that the Company or any Subsidiary is infringing on or otherwise
violating the rights of any person with regard to any Company Intellectual
Property, and (ii) no person is infringing on or otherwise violating any right
of the Company or any Subsidiary with respect to any Company Intellectual
Property.
Section 3.18 VOTING REQUIREMENTS. The affirmative vote of the holders of
at least a majority of the outstanding shares of Common Stock (voting as one
class, with each share of Common Stock having one (1) vote) entitled to be cast
approving this Agreement is the only vote of the holders of any class or series
of the Company's capital stock necessary to approve this Agreement and the
transactions contemplated by this Agreement under the DGCL and the Company's
Certificate of Incorporation and By-Laws.
Section 3.19 YEAR 2000. The Company has a Year 2000 readiness plan (the
"Y2K Readiness Plan") as described in the Company SEC Documents. Upon completion
of the Y2K Readiness Plan, the Company believes all software material to the
business, finances or operations of the Company ("Software"):
(i) shall accurately and completely process (including but not limited to
calculation, comparison and sequencing, and including without limitation leap
year calculations) date-related data for dates prior to the year 2000,
date-related data for dates after the year 1999, and date-related data for dates
both before the year 2000 and after the year 1999, except where the failure to
do so would not reasonably be expected to have a Material Adverse Effect; and
(ii) shall not, as a consequence of the change of centuries or of the fact
that date from more than one century is being processed, cause an abnormal
termination of execution, an endless loop, incorrect values or invalid results,
or otherwise fail to perform accurately and completely those functions set forth
in the associated user documentation, which action would not reasonably be
expected to have a Material Adverse Effect.
Section 3.20 BROKERS. No broker, investment banker or other person or
entity, other than U.S. Bancorp Piper Jaffray Inc., the fees and expenses of
which will be paid by the Company, is entitled to any broker's, finder's or
other similar fee or commission in connection with the transactions contemplated
by this Agreement based upon arrangements made by or on behalf of the Company. A
true and correct copy of the engagement letter of U.S. Bancorp Piper
Jaffray Inc. as in effect on the date hereof has been delivered to Parent.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Except
as otherwise expressly contemplated by this Agreement, as described in the
Company Disclosure Schedule or with respect to the Database Business, during the
period from the date of this Agreement through the date
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of the stockholders approval of the Merger, the Company shall, and shall cause
its Subsidiaries to, in all material respects carry on their respective
businesses in, and not enter into any transaction other than in accordance with,
the regular and ordinary course and, to the extent consistent therewith, use its
reasonable efforts to preserve intact their current business organizations, keep
available the services of their current officers and key employees and preserve
their relationships with customers, suppliers and others having business
dealings with them. Without limiting the generality of the foregoing, and,
except as otherwise expressly contemplated by this Agreement or as described in
the Company Disclosure Schedule, the Company shall not, and shall not permit any
of its Subsidiaries to, without the prior written consent, which consent shall
not be unreasonably withheld, of Parent:
(a) (x) declare, set aside or pay any dividends on, or make any actual,
constructive or deemed distributions in respect of, any of its capital stock, or
otherwise make any payments to stockholders of the Company in their capacity as
such, other than dividends payable to the Company declared by any of the
Company's Subsidiaries, (y) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock or (z) purchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its Subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities, except pursuant to the
terms of the Stock Option Plans;
(b) except for the disposition of shares of IQ2.Net in connection with the
IQ2 Sale, issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock, any other voting securities or equity equivalent or
any securities convertible into or exchangeable or exercisable for, or any
rights, warrants or options to acquire, any such shares, voting securities or
convertible securities or equity equivalent, other than, in the case of the
Company, the issuance of Shares during the period from the date of this
Agreement through the Effective Time upon the exercise of Stock Options
outstanding or the issuance of Stock Options in the ordinary course of business
consistent with past practice in accordance with their current terms or enter
into any agreement or contract with respect to the sale or issuance of any of
its securities;
(c) amend its charter or bylaws;
(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing assets of or equity in, or by any other manner, any business or any
corporation, partnership, association or other business organization or division
thereof or otherwise acquire or agree to acquire any material assets (other than
in the ordinary course of business consistent with past practice);
(e) sell, lease or otherwise dispose of or agree to sell, lease or otherwise
dispose of, any of its material assets (other than (i) the Database Business or
(ii) in the ordinary course of business consistent with past practice);
(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others, except for borrowings or guarantees incurred in the
ordinary course of business consistent with past practice for working capital
purposes, or make any loans, advances or capital contributions to, or
investments in, any other person or entity, other than to the Company or any
wholly owned Subsidiary of the Company or other than in the ordinary course of
business;
(g) alter through merger, liquidation, reorganization, restructuring or in
any other fashion the corporate structure or ownership of any Subsidiary of the
Company or adopt any plan with respect to any of the foregoing (other than with
respect to the Database Business);
(h) other than as provided in the Database Agreements (as defined in
Section 4.4 below), grant any severance or termination pay not currently
required to be paid under existing severance plans or enter into or adopt, or
amend any existing, severance plan, agreement or arrangement or, other than in
the ordinary course of business, enter into or amend any employee benefit plan
(including without
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limitation, the Stock Option Plans), or enter into or amend any employment or
consulting agreement, except as required by law or as set forth on the Company
Disclosure Schedule;
(i) enter into any contract or commitment with respect to capital
expenditures with a value in excess of, or requiring expenditures by the Company
and its Subsidiaries in excess of, $150,000, individually, or enter into
contracts or commitments with respect to capital expenditures with a value in
excess of, or requiring expenditures by the Company and its Subsidiaries in
excess of, $200,000, in the aggregate;
(j) except to the extent required under existing employee and director
benefit plans, agreements or arrangements as in effect on the date of this
Agreement, increase the compensation or fringe benefits of any of its directors,
officers or employees provided that, with respect to employees that are not
executive officers or directors, the Company may increase compensation
associated with promotions and regular reviews in the ordinary course of
business consistent with past practice;
(k) agree to the settlement of any material claim or litigation;
(l) make or rescind any material tax election or settle or compromise any
material tax liability;
(m) except as required by applicable law or GAAP, make any material change
in its method of accounting;
(n) except as required under the Stock Option Plans or any existing
agreements made available by the Company to Parent and Sub or by law, and as
otherwise provided in this Agreement, the Database Agreements or any
employment-related agreements in connection with the sale of the Database
Business, accelerate the payment, right to payment or vesting of any bonus,
severance, profit sharing, retirement, deferred compensation, stock option,
insurance or other compensation or benefits;
(o) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction (A) of any such claims, liabilities or
obligations in the ordinary course of business and consistent with past practice
or as provided in the Database Agreements or (B) of claims, liabilities or
obligations reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) contained in the
Company SEC Documents;
(p) except as provided in the Database Agreements, enter into any agreement,
understanding or commitment that restrains, limits or impedes the Company's or
any of its Subsidiaries' ability to compete with or conduct any business or line
of business, including, but not limited to, geographic limitations on the
Company's or any of its Subsidiaries' activities;
(q) except as provided in the Database Agreements, modify, amend or
terminate any material contract to which it is a party or waive any of its
material rights or claims except in the ordinary course of business consistent
with past practice;
(r) notwithstanding anything to the contrary contained herein, incur, assume
or suffer to exist any material liability or obligation in connection with the
IQ2 Sale which is not reflected in the Database Agreements; or
(q) agree, in writing or otherwise, to take any of the foregoing actions,
provided, however, that nothing in this Section 4.1 shall be deemed as
prohibiting the Company from making such expenditure as it deems reasonably
necessary to complete its Y2K Readiness Plan.
Section 4.2 NO SOLICITATION. (a) The Company and its affiliates (as such
term is defined under Rule 12b-2 under the Exchange Act) and each of their
respective officers, directors, employees, financial advisors, attorneys and
other advisors, representatives and agents shall immediately cease any
discussions or negotiations which may be ongoing with third parties with respect
to any Takeover Proposal (as defined below), except in connection with the sale
of the Database Business. The
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Company shall not, nor shall it authorize or permit any officer, director or
employee of or any financial advisor, attorney or other advisor, representative
or agent of, the Company to, (i) solicit, initiate or encourage the submission
of, any Takeover Proposal (as hereafter defined) (including, without limitation,
the taking of any action which would make the Rights Agreement or Section 203 of
the Delaware General Corporation inapplicable to a Takeover Proposal except as
otherwise provided in this Agreement), or (ii) enter into any agreement with
respect to any Takeover Proposal or enter into any arrangement, understanding or
agreement requiring it to abandon, terminate or fail to consummate the Merger or
any other transaction contemplated by this Agreement; provided, however, that in
response to an unsolicited Takeover Proposal and in compliance with its
obligations under Section 4.2(c) hereof, the Company may participate in
discussions or negotiations with or furnish information (pursuant to a
confidentiality agreement with terms in the aggregate not materially more
favorable to such third party than the terms of the Confidentiality Agreement)
to any third party which makes a Superior Proposal (as defined below) if the
Board of Directors believes it would be in the best interests of the Company and
its stockholders to do so. For purposes of this Agreement, "Takeover Proposal"
means (i) any inquiry, proposal or offer from any person or entity relating to
any direct or indirect acquisition or purchase of a substantial amount of assets
of the Company or any of its Subsidiaries (other than the stock and assets
described in the Database Agreements) or of over 20% of any class of equity
securities of the Company or any of its Subsidiaries (other than the stock and
assets described in the Database Agreements), (ii) any tender offer or exchange
offer that, if consummated, would result in any person or entity beneficially
owning 20% or more of any class of equity securities of the Company or any of
its Subsidiaries (other than IQ2.Net) or (iii) any merger, consolidation,
business combination, sale of all, or substantially all, of the assets or
similar transaction involving the Company or any of its Subsidiaries (other than
any such transaction relating to the stock and assets described in the Database
Agreements); and "Superior Proposal" means a bona fide Takeover Proposal on
terms which the Board of Directors of the Company determines in its good faith
reasonable judgment to be more favorable to the Company and its stockholders
than the transactions contemplated hereby, (x) for which financing is then
available and (y) which is not subject to any financing or due diligence
condition.
(b) Except as set forth in Section 4.2(c), neither the Board of Directors of
the Company nor any committee thereof shall (i) withdraw or modify, or propose
to withdraw or modify, in a manner adverse to Parent or Sub, the approval or
recommendation by such Board of Directors or such committee of the Merger or
this Agreement, or (ii) approve or recommend, or propose to approve or
recommend, any Takeover Proposal or (iii) cause the Company to enter into any
letter of intent, agreement in principle, acquisition agreement or other similar
agreement (each, an "Acquisition Agreement") related to any Takeover Proposal.
(c) In the event the Company receives a Superior Proposal, nothing contained
in this Agreement (but subject to the terms of this paragraph (c)) will prevent
the Board of Directors of the Company from executing or entering into an
agreement relating to such Superior Proposal and recommending such Superior
Proposal to its stockholders; in such case, the Board of Directors of the
Company may withdraw, modify or refrain from making its recommendation of the
transactions contemplated hereby, and, to the extent it does so, the Company may
refrain from calling, providing notice of and holding the stockholders meeting
to adopt and approve this Agreement and the Merger and from soliciting proxies
or consents to secure the vote or written consent of its stockholders to adopt
and approve this Agreement and the Merger and may terminate this Agreement;
PROVIDED HOWEVER that the Company shall (i) provide Parent at least 24 hours
prior written notice of the Company's intention to execute or enter into an
agreement relating to such Superior Proposal, (ii) terminate this Agreement by
written notice to Parent provided no sooner than 48 hours after Parent's receipt
of a copy of such Superior Proposal (or a description of the significant terms
and conditions thereof) and (iii) pay to Parent the fee described in
Section 5.3(b).
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(d) Nothing contained in this Section 4.2 shall prohibit the Company from
taking and disclosing to its stockholders a position contemplated by the
Exchange Act or from making any disclosure to the Company's stockholders if, in
the good faith judgment of the Board of Directors of the Company, such
disclosure is required by applicable state or federal securities laws or is
necessary in order to comply with its fiduciary duties to the Company's
stockholders under applicable law.
Section 4.3 THIRD PARTY STANDSTILL AGREEMENTS. During the period from the
date of this Agreement through the Effective Time, the Company shall not
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which the Company or any of its Subsidiaries is a party
(other than any involving Parent).
Section 4.4 DATABASE AGREEMENTS. On or before the date hereof, the Company
shall have delivered to Parent copies of any and all material contracts or
agreements, except for employment-related agreements, relating to the sale of
the Database Business as set forth on Schedule 4.4 hereto and the Company shall
not enter into any modifications, changes or amendments to such contracts and
agreements without the prior written consent of Parent (the agreements listed on
Schedule 4.4, as the same may be amended from time to time, the "Database
Agreements"), which consent shall not be unreasonably withheld.
Section 4.5 PAYMENT OF ACQUISITION EXPENSES. Prior to the Effective Time,
the Company shall pay all legal, accounting, printer's and investment banking
fees incurred in connection with the transactions contemplated by this Agreement
pursuant to duly submitted invoices for such services.
ARTICLE V
ADDITIONAL AGREEMENTS
Section 5.1 COMPANY STOCKHOLDER APPROVAL; PROXY STATEMENT. (a) As soon as
practicable following the date hereof, the Company shall call a meeting of its
stockholders (the "Stockholder Meeting") for the purpose of voting upon the
Merger and shall take all action necessary or advisable to obtain stockholder
approval of the Merger. The Company will, through its Board of Directors,
subject to the terms of this Agreement, recommend to its stockholders the
approval of the Merger.
(b) The Company will prepare and file a preliminary Proxy Statement with the
SEC promptly after the date hereof and will use its commercially reasonable
efforts to respond to any comments of the SEC or its staff and to cause the
Proxy Statement to be cleared by the SEC. The Company will notify Parent of the
receipt of any comments from the SEC or its staff and of any request by the SEC
or its staff for amendments or supplements to the Proxy Statement or for
additional information and will supply Parent with copies of all correspondence
between the Company or any of its representatives, on the one hand, and the SEC
or its staff, on the other hand, with respect to the Proxy Statement or the
Merger. The Company shall give Parent and its counsel the opportunity to review
the Proxy Statement prior to its being filed with the SEC and shall give Parent
and its counsel the opportunity to review all amendments and supplements to the
Proxy Statement and all responses to requests for additional information and
replies to comments prior to their being filed with, or sent to, the SEC. Each
of the Company and Parent agrees to use its reasonable efforts, after
consultation with the other parties hereto, to respond promptly to all such
comments of and requests by the SEC. As promptly as practicable after the Proxy
Statement has been cleared by the SEC, the Company shall mail the Proxy
Statement to the stockholders of the Company. If at any time prior to the
approval of this Agreement by the Company's stockholders there shall occur any
event that should be set forth in an amendment or supplement to the Proxy
Statement, the Company will prepare and mail to its stockholders such an
amendment or supplement.
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(c) The Company shall take all such action as may be reasonably necessary or
advisable to obtain the necessary approvals by its stockholders of the Merger,
this Agreement and the transactions contemplated hereby.
(d) Parent agrees to cause Shares owned by Parent, Sub or any other
Subsidiary of Parent to be voted in favor of the approval of the Merger.
Section 5.2 ACCESS TO INFORMATION. (a) The Company shall, and shall cause
each of its Subsidiaries to, afford to Parent, and to Parent's accountants,
counsel, financial advisers and other representatives, reasonable access and
permit them to make such inspections as they may reasonably request during
normal business hours during the period from the date of this Agreement through
the earlier of the termination of this Agreement and the Effective Time to all
their respective properties, information systems, books, contracts, commitments
and records and, during such period, the Company shall, and shall cause each of
its Subsidiaries to, furnish promptly to Parent (i) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of federal or state laws and (ii) all other
information concerning its business, properties and personnel as Parent may
reasonably request. In no event shall the Company, be requested to supply to
Parent, or to Parent's accountants, counsel, financial advisors or other
representatives, any information relating to indications of interest from, or
discussions with, any other potential acquirers of the Company which were
received or conducted prior to the date hereof, except to the extent necessary
for use in the Proxy Statement; provided, however, that access to documents
relating to the sale of the Database Business shall be governed by Section 4.4.
Section 5.3 FEES AND EXPENSES. (a) Whether or not the Merger is
consummated, all costs and expenses incurred in connection with this Agreement
and the transactions contemplated hereby shall be paid by the party incurring
such costs and expenses, except as expressly set forth in this Agreement.
(b) If this Agreement is terminated (i) by Parent (x) in accordance with
Section 7.1(b)(ii) hereof or (y) in the event of any willful or intentional
action or inaction by the Company which causes the Company to breach in any
material respect any representation, warranty, covenant or other agreement
contained in this Agreement, and within six months of that termination, the
Company enters into any agreement with respect to any Takeover Proposal, or
(ii) by the Company in accordance with Section 7.1(c)(ii) hereof; then the
Company shall on the fifth business day next succeeding the date of termination
pay to Parent in immediately available funds an amount equal to $1.5 million.
Section 5.4 REASONABLE EFFORTS. Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties agrees to use its
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger, and the other transactions
contemplated by this Agreement, including (a) obtaining all necessary actions or
non-actions, waivers, consents and approvals from Governmental Entities and the
making of all necessary registrations and filings (including filings with
Governmental Entities, including without limitation, all filings under the HSR
Act) and the taking of all reasonable steps as may be necessary to obtain an
approval or waiver from or to avoid an action or proceeding by any Governmental
Entity, (b) obtaining all necessary consents, approvals or waivers from third
parties, (c) defending any lawsuits or other legal proceedings, whether judicial
or administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby, including seeking to have any stay or
temporary restraining order entered by any court or other Governmental Entity
vacated or reversed, and (d) executing and delivering any additional instruments
necessary to consummate the transactions contemplated by this Agreement.
Section 5.5 PUBLIC ANNOUNCEMENTS. Parent and Sub, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, and shall not issue any
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such press release or make any such public statement prior to such consultation,
except as may be required by applicable law or regulation or by obligations
pursuant to any listing agreement with any national securities exchange or the
Nasdaq National Market.
Section 5.6 STATE TAKEOVER LAWS. If any "fair price," "business
combination" or "control share acquisition" statute or other similar statute or
regulation shall become applicable to the transactions contemplated hereby,
Parent and the Company and their respective Boards of Directors shall take all
such action as may be necessary or advisable to obtain such approvals and take
such actions as are necessary or advisable so that the transactions contemplated
hereby may be consummated as promptly as practicable on the terms contemplated
hereby and thereby and otherwise act to minimize the effects of any such statute
or regulation on the transactions contemplated hereby and thereby.
Section 5.7 RIGHTS AGREEMENT. The Company shall not, unless required to do
so by a court of competent jurisdiction, (i) redeem the Rights, (ii) amend
(other than to delay the Distribution Date (as defined therein) or to render the
Rights inapplicable to the Merger) or terminate the Rights Agreement prior to
the Effective Time without the consent of Parent, or (iii) take any action which
would allow any Person (as such term is defined in the Rights Agreement) other
than Parent or Sub to be the Beneficial Owner (as such term is defined in the
Rights Agreement) of 20% or more of the Common Stock without causing a
Distribution Date (as such term is defined in the Rights Agreement) or a
Triggering Event (as such term is defined in the Rights Agreement) to occur.
Section 5.8 INDEMNIFICATION, DIRECTORS' AND OFFICERS' INSURANCE. Parent
and the Surviving Corporation shall cause to be maintained in effect (i) for a
period of six years after the Effective Time, the current provisions regarding
indemnification of current or former officers and directors (each an
"Indemnified Party") contained in the charter and bylaws of the Company or its
Subsidiaries and in any agreements between an Indemnified Party and the Company
or its Subsidiaries, provided that in the event any claim or claims are asserted
or made within such six year period, all rights to indemnification in respect of
any claim or claims shall continue until final disposition of any and all such
claims, and (ii) for a period of six years after the Effective Time, for the
benefit of the Company's current directors and officers, an insurance and
indemnification policy that provides coverage for events occurring at or prior
to the Effective Time that is no less favorable than the existing policies or,
if substantially equivalent insurance coverage is unavailable, the best
available coverage; provided, however, that Parent and the Surviving Corporation
shall not be required to pay an annual premium for such insurance in excess of
1.50 times the last annual premium paid prior to the date hereof, but in such
case shall purchase as much such coverage as possible for such amount. This
covenant is intended to be for the benefit of, and shall be enforceable by, each
of the Indemnified Parties and their respective heirs and legal representatives.
For a period of six years after the Effective Time (provided that in the event
any claim or claims are asserted or made within such six year period, all rights
to indemnification in respect of any claim or claims shall continue until final
disposition of any and all such claims), Parent shall indemnify the Indemnified
Parties to the same extent as such Indemnified are entitled to indemnification
and pursuant to clause (i) of the first sentence of this Section 5.8. Without
limitation of the foregoing, in the event any such Indemnified Party is or
becomes involved in any action, proceeding or investigation in connection with
any matter occurring prior to or on the Effective Time, including the
transactions contemplated hereby, Parent will pay as incurred such Indemnified
Party's reasonable fees and expenses of counsel selected by the Indemnified
Party and reasonably acceptable to Parent (including the cost of any
investigation and preparation and the cost of any appeal) incurred in connection
therewith. This covenant shall survive the closing of the transactions
contemplated hereby and is intended to be for the benefit of, and shall be
enforceable by, each of the Indemnified Parties and their respective heirs and
legal representatives.
Section 5.9 TERMINATION OF EMPLOYMENT. Immediately following the Effective
Time, the Surviving Corporation shall terminate Kit Webster, Ed Frazier and
Brian Sharples without cause (as such term is defined in such individuals'
respective severance agreements). The severance cost of such terminations,
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and the severance costs relating to the termination of any accounting personnel
and any other personnel who have severance arrangements with the Company
(including, without limitation, all payments to be made to Peter Zandan under
his Severance Agreement with the Company for both severance and non-competition
consideration), shall be charged to the Company as an expense as of the Closing
Date for purposes of the Annex A calculation of Working Capital.
Section 5.10 OTHER AGREEMENTS RELATING TO STOCK OPTIONS. With respect to
Stock Options under the Pipeline Communications, Inc. 1994 Incentive Stock
Option Plan (the "1994 Plan"), the Intelliquest Information Group, Inc. 1996
Stock Plan and the Intelliquest Information Group, Inc. 1997 Supplemental Stock
Plan (collectively, the "Affected Stock Plans"), the Company agrees to obtain
the consent of holders of at least 90%, in the aggregate, of the Shares of
Common Stock outstanding under the Stock Options, as of the Effective Time,
granted under the Affected Stock Plans to the cancellation of such Stock Options
held by such holders in exchange for a cash payment as described and calculated
in Section 1.5(d) and Annex B of this Agreement, and to take all actions
required with respect to obtaining such consents. To the extent that an option
granted under the 1994 Plan has been terminated under Section 10(b)(iii) of that
plan prior to the Effective Time, the provisions of this Section 5.10 shall not
be applicable to the Shares of Common Stock underlying such option.
Section 5.11 INTERIM OPERATIONS. During the period commencing on the date
the stockholders of the Company approve the Merger and ending on the Closing
Date or the termination of this Agreement, Parent shall assume responsibility
for the operation of the business of the Company subject to consultation and
review with Brian Sharples and the Board of Directors of the Company. Such
consultation, review and approval of Brian Sharples and the Board of Directors
of the Company shall be required for all matters, other than matters in the
ordinary course of business. Matters which are considered outside of the
ordinary course of business for purposes of this Section 5.11 shall be the same
matters that prior to the Closing would have required the consent of Parent
pursuant to Section 4.1 hereof. During this period, Parent shall use its
reasonable efforts to keep available the services of the Company's current
officers and key employees and preserve the Company's relationship with
customers, suppliers and others having material business dealings with the
Company.
Section 5.12 COMPLETION OF MERGER. In the event that the Price Per Share
as defined in Annex A is equal to or greater than the minimum authorized price
per share set forth in the Proxy Statement, the parties shall complete the
Merger in accordance with Article I.
Section 5.13 EMPLOYEE STOCK PURCHASE PLAN. The Company shall take all
actions necessary to terminate the Intelliquest Information Group, Inc. 1996
Employee Stock Purchase Plan (the "ESP") and to terminate the
7/1/99 - 12/31/99 Offering Period (as defined in the ESP), in each case, at or
prior to September 30, 1999. As of the Effective Time no participant under the
ESP shall possess any rights to acquire any shares of the Common Stock
thereunder.
ARTICLE VI
CONDITIONS PRECEDENT
Section 6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) STOCKHOLDER APPROVAL. The Merger shall have been approved by the
requisite vote of holders of the Common Stock of the Company.
(b) NO ORDER. No Governmental Entity or court of competent jurisdiction
shall have enacted, issued, promulgated, enforced or entered any law, rule,
regulation, executive order, decree or injunction which prohibits or has the
effect of prohibiting the consummation of the Merger; provided, however,
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that the Company, Parent and Sub shall use their reasonable efforts to have any
such order, decree or injunction vacated.
(c) HSR ACT WAITING PERIOD. Each party shall have filed an application
under the HSR Act and Parent shall pay the filing fee required thereunder. The
applicable waiting period (and any extension thereof) under the HSR Act shall
have expired or been terminated.
(d) EMPLOYMENT AGREEMENTS AND CONSULTING AGREEMENT. Each of the
individuals listed on Schedule 6.1 attached hereto shall have entered into an
Employment Agreement in the form and to the effect of Exhibit A-1 (solely in the
case of Marianne Grogan and Mark Rylander) or Exhibit A-2, as applicable. Brian
Sharples shall have entered into a Consulting Agreement in a form mutually
acceptable to Parent and Brian Sharples.
(e) NON-COMPETITION AGREEMENTS. Brian Sharples shall have entered into an
extension of his Non-Competition Agreement with the Company, dated as of
September 30, 1995, for a period of two years following the Effective Time.
Peter Zandan ("Zandan") shall have entered into a Non-Competition Agreement with
the Company and a Severance Agreement with the Company, in each case, in form
and substance, mutually acceptable to Parent and Peter Zandan.
(f) COVENANTS. Each of the parties to this Agreement shall have performed
and complied with, in all material respects, all covenants and agreements
required by this Agreement to be performed or complied with by such party at or
prior to the Closing.
(g) IQ2 SALE. The IQ2 Sale shall have been completed on substantially the
same terms and conditions set forth in the Asset Purchase Agreement, dated as of
July 22, 1999, between the Company and Naviant Technology Solutions, Inc., as
such agreement may be amended, changed or modified from time to time with the
prior written consent of Parent, which consent shall not be unreasonably
withheld.
(h) MINIMUM PRICE PER SHARE. The purchase price per share payable to
stockholders of the Company shall be no less than the minimum amount set forth
in the Proxy Statement submitted to stockholders.
(i) CONSENTS. The Company shall have (A) obtained the consent of holders
of at least 90%, in the aggregate, of the Shares of Common Stock outstanding
under the Stock Options, as of the Effective Time, granted under the Affected
Stock Plans to the cancellation of such Stock Options held by such holders in
exchange for a cash payment as described and calculated under Section 1.5(d) and
Annex B of this Agreement and (B) taken the actions described in Section 5.13
above.
(j) COOPERATION AGREEMENT. The Company shall have either (i) amended
section 2.2 of the Cooperation Agreement between the Company and Naviant
Technology Solutions, Inc. (the "Cooperation Agreement") in order to extend the
exclusive offer period another 90 days beyond the 120 day period set forth
therein or (ii) requested Affinity Marketing Services to be provided to the
Company pursuant to the terms of the Cooperation Agreement in a manner
sufficient to satisfy the requirements for extending the period of exclusivity
thereunder.
(k) REPRESENTATION AND WARRANTIES. The representations and warranties made
by the Company or the Parent and Sub, as the case may be, in this Agreement
shall be true and correct in all material respects on and as of the Closing Date
with the same force and effect as though made on and as of the Closing Date or,
in the case of representations and warranties made as of a specified date
earlier than the Closing Date, on and as of such earlier date, and the Company
shall have delivered to the Parent and Sub, and the Parent and Sub shall have
delivered to the Company, a certificate, each dated the Closing Date, to such
effect.
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<PAGE>
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
Section 7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Effective Time, whether before or after any approval by the
stockholders of the Company:
(a) by mutual written consent of Parent and the Company; or
(b) by the Parent or Sub:
(i) if the Company has breached in any material respect any
representation, warranty, covenant or other agreement contained in this
Agreement which (x) cannot or has not been cured prior to twenty
(20) business days after the giving of written notice of such breach to the
Company and (y) has not been waived by Parent pursuant to the provisions
hereof; or
(ii) (x) if the Board of Directors of the Company withdraws or modifies
its recommendation of the Merger or shall have resolved or publicly
announced its intention to do any of the foregoing, or (y) the Company shall
have recommended to the stockholders of the Company any Superior Proposal or
resolved to do the same or (z) the Company has entered into an agreement to
engage in a Superior Proposal with any person other than Parent, Sub or an
affiliate thereof.
(c) by the Company
(i) if Parent or Sub has breached in any material respect any
representation, warranty, covenant or other agreement contained in this
Agreement which (x) cannot be or has not been cured within twenty
(20) business days after the giving of written notice to Parent or Sub and
(y) has not been waived by the Company pursuant to the provisions hereof; or
(ii) if the Board of Directors of the Company determines to accept a
Superior Proposal;
(d) by either Parent or the Company:
(i) if the Effective Time has not occurred on or prior to the close of
business on December 31, 1999; provided, further, that the right to
terminate this Agreement pursuant to this clause shall not be available to
any party whose failure to fulfill any material obligation of this Agreement
or other material breach of this Agreement has been the cause of, or
resulted in, the failure of the Effective Time to have occurred on or prior
to the aforesaid date;
(ii) if any court of competent jurisdiction or any governmental,
administrative or regulatory authority, agency or body shall have issued an
order, decree or ruling or taken any other action permanently restricting,
enjoining, restraining or otherwise prohibiting the transactions
contemplated by this Agreement and such order, decree, ruling or other
action shall have become final and non-appealable;
(iii) if at a duly held meeting of the stockholders of the Company
(including any adjournment thereof) held for the purpose of voting on this
Agreement and the transactions contemplated hereby, the holders of a
majority of the outstanding shares of the Company's common stock shall not
have approved this Agreement and the Merger; or
(iv) if at the time of the determination of Working Capital, the
condition set forth in Section 6.1(h) shall not have been satisfied and
Parent shall not otherwise agree to pay the amount of Merger Consideration
necessary to satisfy such condition.
Section 7.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company, as provided in Section 7.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company, Parent or Sub or their respective officers or
directors (except as set forth in Section 5.3, which shall survive the
termination); provided, however,
A-27
<PAGE>
that nothing contained in this Section 7.2 shall relieve any party hereto from
any liability for any willful breach of any covenant or agreement contained in
this Agreement.
Section 7.3 AMENDMENT. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
at any time before or after any approval of the Merger by the stockholders of
the Company but, after the Special Meeting, no amendment shall be made which
decreases the Merger Consideration or which in any way materially adversely
affects the rights of such stockholders, without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
Section 7.4 WAIVER. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party. No delay
on the part of any party hereto in exercising any right, power or privilege
hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
any party hereto of any right, power or privilege hereunder operate as a waiver
of any other right, power or privilege hereunder, nor shall any single or
partial exercise of any right, power or privilege hereunder preclude any other
or further exercise thereof or the exercise of any other right, power or
privilege hereunder. Unless otherwise provided, the rights and remedies herein
provided are cumulative and are not exclusive of any rights or remedies which
the parties hereto may otherwise have at law or in equity. The failure of any
party to this Agreement to assert any of its rights under this Agreement or
otherwise shall not constitute a waiver of those rights.
ARTICLE VIII
GENERAL PROVISIONS
Section 8.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time; provided, however,
this Section 8.1 shall not limit any covenant or agreement of the parties which
by its terms contemplates performance after the Effective Time.
Section 8.2 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, sent by
overnight courier or telecopied (with a confirmatory copy sent by overnight
courier (other than United Parcel Service)) to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent, to
WPP Group U.S. Finance Corp.
309 West 49th Street
New York, NY 10019
Attention: Andrew Hall
Facsimile No.: (212) 632-2320
with copies to:
Davis & Gilbert LLP
1740 Broadway
New York, NY 10019
Attention: Philip S. Reiss, Esq.
Facsimile No.: (212) 468-4888
A-28
<PAGE>
(b) if to the Company, to
Intelliquest Information Group, Inc.
1250 Capital of Texas Highway
Building One
Suite 600
Austin, TX 78746
Attention: Brian Sharples
Facsimile No.: (512) 314-2195
with a copy to:
Latham & Watkins
505 Montgomery Street, Suite 1900
San Francisco, CA 94111
Attention: Tracy K. Edmonson
Facsimile No.: (415) 395-8095
Section 8.3 INTERPRETATION. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." When the phrase "knowledge of the
Company" is used herein, it shall refer to the actual knowledge of the
individuals set forth in Section 8.3 of the Company Disclosure Schedule. As used
in this Agreement, "business day" shall have the meaning ascribed thereto in
Rule 14d-1(e)(6) under the Exchange Act. The parties have participated jointly
in the negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any of
the provisions of this Agreement. Any reference to any federal, state, local or
foreign statute or law shall be deemed also to refer to all rules and
regulations promulgated thereunder, unless the content requires otherwise.
Section 8.4 COUNTERPARTS. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 8.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, including the documents and instruments referred to herein, together
with the Confidentiality Agreement dated January 7, 1999, (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (b) except for the provisions of Sections 1.5, 1.6, 1.7, 5.8 and 5.9 of this
Agreement (which is intended to be for the benefit of the persons and entities
covered thereby and may be enforced by such persons and entities), is not
intended to confer upon any person or entity other than the parties hereto any
rights or remedies hereunder.
Section 8.6 GOVERNING LAW; JURISDICTION; WAIVER OF JURY TRIAL.
(a) This Agreement shall be governed by, and construed in accordance with,
the laws of the State of Delaware, regardless of the laws that might otherwise
govern under applicable principles of conflicts of laws thereof.
(b) Each of the parties hereto hereby irrevocably and unconditionally
submits, for itself and its property, to the exclusive jurisdiction of any
Delaware State court, or federal court of the United States of America, sitting
in Delaware, and any appellate court from any thereof, in any action or
proceeding
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<PAGE>
arising out of or relating to this Agreement or the agreements delivered in
connection herewith or the transactions contemplated hereby or thereby or for
recognition or enforcement of any judgment relating thereto, and each of the
parties hereby irrevocably and unconditionally (i) agrees not to commence any
such action or proceeding except in such courts, (ii) agrees that any claim in
respect of any such action or proceeding may be heard and determined in such
Delaware State court. or, to the extent permitted by law, in such federal court,
(iii) waives, to the fullest extent it may legally and effectively do so, any
objection which it may now or hereafter have to the laying of venue of any such
action or proceeding in any such Delaware State or federal court, and
(iv) waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
Delaware State or federal court. Each of the parties hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law. Each party to this Agreement irrevocably consents to service of
process in the manner provided for notices in Section 8.2. Nothing in this
Agreement will affect the right of any party to this Agreement to serve process
in any other manner permitted by law.
(c) EACH PARTY ACKNOWLEDGES AND AGREES THAT ANY CONTROVERSY WHICH MAY ARISE
UNDER THIS AGREEMENT IS LIKELY TO INVOLVE COMPLICATED AND DIFFICULT ISSUES, AND
THEREFORE IT HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE
TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING
OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN
CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH
PARTY CERTIFIES AND ACKNOWLEDGES THAT (i) NO REPRESENTATIVE, AGENT OR ATTORNEY
OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER
PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE EITHER OF SUCH
WAIVERS, (ii) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH
WAIVERS, (iii) IT MAKES SUCH WAIVERS VOLUNTARILY, AND (iv) IT HAS BEEN INDUCED
TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND
CERTIFICATIONS IN THIS SECTION 8.6(c).
Section 8.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Sub may
assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect wholly
owned subsidiary of Parent, but no such assignment shall relieve Parent or Sub
of any of its obligations hereunder. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
Section 8.8 SEVERABILITY. If any term or other provision of this Agreement
is invalid, illegal or incapable of being enforced by any rule of law, or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby are not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties shall negotiate
in good faith to modify this Agreement so as to effect the original intent of
the parties as closely as possible in a mutually acceptable manner in order that
the transactions be consummated as originally contemplated to the fullest extent
possible.
Section 8.9 ENFORCEMENT OF THIS AGREEMENT. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce
A-30
<PAGE>
specifically the terms and provisions hereof in any court of the United States
or any state having jurisdiction, this being in addition to any other remedy to
which they are entitled at law or in equity.
Section 8.10 INCORPORATION OF EXHIBITS. The Company Disclosure Schedule
and all Exhibits attached hereto are hereby incorporated herein and made a part
hereof for all purposes as if fully set forth herein.
Section 8.11 PERFORMANCE BY SUB. Parent hereby agrees to cause Sub to
comply with its obligations hereunder and to cause Sub to consummate the Merger
as contemplated herein and whenever this Agreement requires Sub to take any
action, such requirement shall be deemed to include an undertaking of Parent to
cause Sub to take such action.
Section 8.12 RESOLUTION OF DISPUTES RELATING TO CALCULATIONS. Kit Webster
("Webster") and Michael Gettle ("Gettle") shall make all calculations of amounts
set forth in this Agreement. In the event of any dispute which is not resolved
within 7 business days after notice thereof, an accounting firm mutually
designated by the parties prior to the Closing shall determine the correct
calculation and its determination shall be binding upon all parties hereto.
A-31
<PAGE>
IN WITNESS WHEREOF, Parent, Sub and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
<TABLE>
<S> <C> <C>
WPP GROUP U.S. FINANCE CORP.
By: /s/ MARY ELLEN HOWE
-----------------------------------------
Name: Mary Ellen Howe
Title: Secretary
WPP ACQUISITION CORP.
By: /s/ MARY ELLEN HOWE
-----------------------------------------
Name: Mary Ellen Howe
Title: President
INTELLIQUEST INFORMATION GROUP, INC.
By: /s/ BRIAN SHARPLES
-----------------------------------------
Name: Brian Sharples
Title: Chief Executive Officer, President
and Director
</TABLE>
A-32
<PAGE>
ANNEX A
CALCULATION OF MERGER CONSIDERATION
THE PURCHASE PRICE FOR EACH SHARE ACQUIRED BY PARENT IN CONNECTION WITH THE
MERGER SHALL BE CALCULATED AS FOLLOWS:
<TABLE>
<C> <S>
Price Per Share = AP/AS (AS DEFINED IN ANNEX B)
Aggregate Purchase Price = (A) $42.5 million PLUS Balance Sheet Cash (as
defined below) PLUS Database Proceeds (as defined
below) plus Holdback Amount (as defined below),
if any, less (B) the amount of Balance Sheet Cash
necessary, if any, to provide a minimum of
$4,000,000 of Working Capital (as defined below)
on the following date (the "Determination
Date"): (i) October 31, 1999 solely in the event
the stockholders approve the Merger on or before
December 20, 1999 or (ii) in the event the
stockholders approve the Merger at any time after
December 20, 1999, the last day of the calendar
month immediately preceding the calendar month in
which the Merger is approved by the stockholders.
</TABLE>
For purposes of this Agreement, the following terms shall be defined as set
forth below:
"BALANCE SHEET CASH" shall mean all cash and cash equivalents, calculated in
accordance with U.S. generally accepted accounting principles ("GAAP") excluding
Database Proceeds, and excluding any taxes with respect thereto which have not
yet been paid, set forth on the balance sheet of the Company as of the
Determination Date.
"DATABASE PROCEEDS" shall mean cash proceeds actually received by the
Company with respect to the sale of the Database Business multiplied by one
minus the effective tax rate for the Database Business transaction as determined
by PriceWaterhouseCoopers LLP.
"DEDUCTION AMOUNT" shall mean the product of 4-times the difference between
the Margin Target and the Gross Margin.
"DIRECT COSTS" shall mean all costs and expenses incurred by the Company
during the Measuring Period which are related to the projects and services
performed by the Company during the Measuring Period, all determined in
accordance with GAAP as consistently applied by the Company.
"GROSS MARGIN" for the Measuring Period shall be equal to Revenues less
Direct Costs.
"HOLDBACK AMOUNT" shall mean (i) in the event the Gross Margin equals or
exceeds $10,525,000 (the "MARGIN TARGET") an amount equal to $2,500,000 or
(ii) in the event the Gross Margin is less than the Margin Target, an amount
equal to $2,500,000 less the Deduction Amount, except that in no event shall the
Deduction Amount exceed $2,500,000.
"MEASURING PERIOD" shall mean the period commencing on January 1, 1999 and
ending on September 30, 1999.
"REVENUES" shall mean all revenues of the Company for the Measuring Period
as determined in accordance with GAAP as consistently applied by the Company.
"WORKING CAPITAL" shall mean current assets of the Company which are
realizable in one year or less, minus the current liabilities of the Company,
calculated in accordance with GAAP. For purposes hereof current liabilities
shall include, without limitation, the following accruals whether paid before or
after the determination of Working Capital:
1. All amounts payable by the Company relating to severance agreements
or arrangements as described in Section 5.9.
<PAGE>
2. All amounts payable by the Company relating to restrictive covenants
and non-competition arrangements with employees or former employees entered
into on or before the Closing Date.
3. All costs, including without limitation, legal, accounting, printing
and filing fee costs incurred by the Company in connection with the
litigation referred to in Schedule 3.9 or resulting from the need to hold a
second meeting of stockholders.
<PAGE>
ANNEX B
Let s = the number of common shares outstanding
Let a = the Aggregate Purchase Price
Let p = the sum of the number of each in the money option times its exercise
price, for example, if there are only 2 options outstanding, one for 10,000
shares at $5 and one for 20,000 shares at $3, then p =
10,000 X 5 + 20,000 X 3 = 110,000
Let AP = Adjusted Aggregate Purchase Price = a + p
Let o = the number of in-the-money options
Let AS = adjusted number of shares = s + o
c = Compensation per share = AP/AS
Compensation per option holder = (c - exercise price) X number of in the money
options held by that option holder at that exercise price
<PAGE>
APPENDIX B
August 11, 1999
PERSONAL AND CONFIDENTIAL
Board of Directors
IntelliQuest Information Group, Inc.
1250 Capital of Texas Highway, Suite 600
Austin, Texas 78746
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of common stock (the "Common Stock") of IntelliQuest
Information Group, Inc. (the "Company") of the consideration to be received by
holders of Common Stock, pursuant to an Agreement and Plan of Merger to be dated
as of August 12, 1999 (the "Agreement") among the Company, Kantar Media
Research, Inc. (the "Parent") and WPP Acquisition Corp. (the "Purchaser"), a
wholly owned subsidiary of the Parent. The Agreement provides for the merger
(the "Merger") of the Company with the Purchaser pursuant to which the
outstanding shares of Common Stock would be converted and exchanged into the
right to receive cash in the amount determined in accordance with Annex A to the
Agreement (the "Consideration"). The terms and conditions of the Merger are more
fully set forth in the Agreement.
U.S. Bancorp Piper Jaffray Inc. ("U.S. Bancorp Piper Jaffray"), as a
customary part of its investment banking business, is engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
underwriting and secondary distributions of securities, private placements and
valuations for estate, corporate and other purposes. We have acted as financial
advisor to the Company in connection with the Agreement and will receive a fee
for services which is contingent upon consummation of the Merger. We will also
receive a fee for providing this opinion. This opinion fee is not contingent
upon the consummation of the Merger. The Company has also agreed to indemnify us
against certain liabilities in connection with our services. In the ordinary
course of our business, we and our affiliates may actively trade securities of
the Company and the Parent for our own account or the account of our customers
and, accordingly, may at any time hold a long or short position in such
securities. We have performed for a fee various investment banking services for
the Company in the past.
We have given our separate opinion in connection with the proposed sale (the
"IQ2 Sale") of the Company's database business (the "Database Business")
pursuant to an Asset Purchase Agreement, dated July 22, 1999, between the
Company and Naviant Technology Solutions, Inc. Following the IQ2 Sale, the
Company's principal business would be the research business (the "Research
Business"). We received a fee previously for separately rendering an opinion on
the fairness of the consideration to be received by the Company in the IQ2 Sale,
and will receive a fee for services which is contingent upon the consummation of
the IQ2 Sale.
In arriving at our opinion, we have undertaken such review, analyses and
inquiries as we deemed necessary and appropriate under the circumstances. Among
other things, we have reviewed (i) the draft dated August 10, 1999 of the
Agreement, (ii) certain publicly available financial, operating and business
information related to the Company, (iii) certain internal financial information
of the Company furnished by the management of the Company giving effect to the
IQ2 Sale, (iv) certain publicly available market and securities data of the
Company, (v) to the extent publicly available, financial terms of certain
acquisition transactions involving companies operating in industries deemed
similar to that in which the Research Business operates and selected public
companies deemed comparable to Research Business, and (vi) certain publicly
available financial, operating and business information
B-1
<PAGE>
relative to the Parent. We had discussions with members of the management of the
Company concerning the financial condition, current operating results and
business outlook for the Company on a stand-alone basis after giving effect to
the IQ2 Sale.
We have relied upon and assumed the accuracy, completeness and fairness of
the financial statements and other information provided to us or otherwise made
available to us, and have not assumed responsibility for the independent
verification of such information. The Company does not publicly disclose
internal financial information of the type provided to U.S. Bancorp Piper
Jaffray in connection with U.S. Bancorp Piper Jaffray's review of the Merger.
Such information was prepared for financial planning purposes and was not
prepared with the expectation of public disclosure. We have relied upon the
assurances of the management of the Company that the information provided to us
as set forth above has been prepared on a reasonable basis and, with respect to
financial planning data and other business outlook information, reflects the
best currently available estimates, and that they are not aware of any
information or facts that would make the information provided to us incomplete
or misleading.
In arriving at our opinion, we have not performed any appraisals or
valuations of any specific assets or liabilities of the Company, and have not
been furnished with any such appraisals or valuations. We express no opinion
regarding the liquidation value of any entity. Without limiting the generality
of the foregoing, we have undertaken no independent analysis of any pending or
threatened litigation, possible unasserted claims or other contingent
liabilities, to which the Company or any of its affiliates is a party or may be
subject and, at the Company's direction and with its consent, our opinion makes
no assumption concerning, and therefore does not consider, the possible
assertion of claims, outcomes or damages arising out of any such matters. In
arriving at our opinion, we have assumed that all the necessary regulatory
approvals and consents required for the Merger will be obtained in a manner that
will not change the purchase price.
The Merger is contingent upon the IQ2 Sale. For purposes of this opinion, we
have assumed the completion of the IQ2 Sale, and we have made no analysis of the
Database Business. The assets of the Company at the closing of the Merger will
include an amount equal to the net after-tax proceeds to the Company from the
IQ2 Sale. This amount is contingent upon a number of things, including the
amount of taxes to be paid by the Company as a result of the IQ2 Sale and the
net asset value of the Database Business at the closing of the IQ2 Sale. In
arriving at our opinion, we have assumed the accuracy of estimates by management
of the net after-tax proceeds to the Company from the IQ2 Sale. We have
separately rendered an opinion on fairness of the consideration to be received
by the Company in the IQ2 Sale, and we have not rendered, and are not rendering
hereby, any opinion which takes into account the consideration to be received in
the IQ2 Sale and the Merger as if they were a single integrated transaction.
The Consideration is also contingent upon the amount of the Company's
balance sheet cash at the closing of the Merger. In arriving at our opinion, we
have used management estimates of cash at June 30, 1999, and assumed the
accuracy of those estimates.
The Agreement provides that $2.5 million of the Consideration is contingent
upon the Company meeting certain gross profit targets through September 30,
1999. For purposes of our opinion, we have assumed that none of the
$2.5 million will be paid.
The Agreement provides for a reduction in the amount of the Consideration
for payments to be made to cash-out the holders of options to purchase the
Company's common stock. In arriving at our opinion, we have assumed the accuracy
of estimates by management of such amounts.
The Agreement also provides for a reduction in the amount of the
Consideration in the event the Company's working capital at the closing date
does not exceed a specified amount. For purposes of our
B-2
<PAGE>
opinion, we have assumed that the Company's working capital at the closing date
will exceed such amount, and, as a result, the Consideration will not be
reduced.
This opinion is necessarily based upon the information available to us and
facts and circumstances as they exist and are subject to evaluation on the date
hereof; events occurring after the date hereof could materially affect the
assumptions used in preparing this opinion. We are not expressing any opinion
herein as to the price at which shares of Common Stock have traded or may trade
at any future time. We have not undertaken to reaffirm or revise this opinion or
otherwise comment upon any events occurring after the date hereof and do not
have any obligation to update, revise or reaffirm this opinion.
This opinion is directed to the Board of Directors of the Company and is not
intended to be and does not constitute a recommendation to any stockholder of
the Company. We were not requested to opine as to, and this opinion does not
address, the basic business decision to proceed with or effect the Merger, the
IQ2 Sale or any other alternative transaction. Except with respect to the use of
this opinion in connection with the proxy statement relating to the Merger, this
opinion shall not be published or otherwise used, nor shall any public
references to us be made, without our prior written approval.
Based upon and subject to the foregoing and based upon such other factors as
we consider relevant, it is our opinion that the Consideration to be received in
the Merger pursuant to the Agreement for the Common Stock of the Company is
fair, from a financial point of view, to the holders of Common Stock of the
Company (other than Parent and its affiliates) as of the date hereof.
Sincerely,
/s/ U.S. Bancorp Piper Jaffray Inc.
B-3
<PAGE>
APPENDIX C
------------------------
DELAWARE CODE ANNOTATED
SECTION 262. APPRAISAL RIGHTS
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
8 DEL.
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of
this section with respect to such shares, who continuously holds such shares
through the effective date of the merger or consolidation, who has otherwise
complied with subsection (d) of this section and who has neither voted in
favor of the merger or consolidation nor consented thereto in writing
pursuant to section 228 of this title shall be entitled to an appraisal by
the Court of Chancery of the fair value of the stockholder's shares of stock
under the circumstances described in subsections (b) and (c) of this
section. As used in this section, the word "stockholder" means a holder of
record of stock in a stock corporation and also a member of record of a
nonstock corporation; the words "stock" and "share" mean and include what is
ordinarily meant by those words and also membership or membership interest
of a member of a nonstock corporation; and the words "depository receipt"
mean a receipt or other instrument issued by a depository representing an
interest in one or more shares, or fractions thereof, solely of stock of a
corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to
be effected pursuant to section 251 (other than a merger effected pursuant
to section 251(g) of this title), section 252, section 254, section 257,
section 258, section 263 or section 264 of this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date
fixed to determine the stockholders entitled to receive notice of and to
vote at the meeting of stockholders to act upon the agreement of merger
or consolidation, were either (i) listed on a national securities
exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities
Dealers, Inc. or (ii) held of record by more than 2,000 holders; and
further provided that no appraisal rights shall be available for any
shares of stock of the constituent corporation surviving a merger if the
merger did not require for its approval the vote of the stockholders of
the surviving corporation as provided in subsection (f) of section 251 of
this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal
rights under this section shall be available for the shares of any class
or series of stock of a constituent corporation if the holders thereof
are required by the terms of an agreement of merger or consolidation
pursuant to sections 251, 252, 254, 257, 258, 263 and 264 of this title
to accept for such stock anything except:
a. Shares of stock of the corporation surviving or resulting
from such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
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national securities exchange or designated as a national market
system security on an interdealer quotation system by the National
Association of Securities Dealers, Inc. or held of record by more
than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under section 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the
assets of the corporation. If the certificate of incorporation contains such
a provision, the procedures of this section, including those set forth in
subsections (d) and (e) of this section, shall apply as nearly as is
practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for such meeting with respect to shares for which appraisal
rights are available pursuant to subsection (b) or (c) hereof that
appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking
of the vote on the merger or consolidation, a written demand for
appraisal of such stockholder's shares. Such demand will be sufficient if
it reasonably informs the corporation of the identity of the stockholder
and that the stockholder intends thereby to demand the appraisal of his
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days
after the effective date of such merger or consolidation, the surviving
or resulting corporation shall notify each stockholder of each
constituent corporation who has complied with this subsection and has not
voted in favor of or consented to the merger or consolidation of the date
that the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
section 228 or section 253 of this title, each constituent corporation,
either before the effective date of the merger or consolidation or within
ten days thereafter, shall notify each of the holders of any class or
series of stock of such constituent corporation who are entitled to
appraisal rights of the approval of the merger or consolidation and that
appraisal rights are available for any or all shares of such class or
series of stock of such constituent corporation, and shall include in
such notice a copy of this section; provided that, if the notice is given
on or after the effective date of the merger or consolidation, such
notice shall be given by the surviving or resulting corporation to all
such holders of any class or series of stock of a constituent corporation
that are entitled to appraisal rights. Such notice may, and, if given on
or after the effective date of
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the merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled
to appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the appraisal of such
holder's shares. If such notice did not notify stockholders of the
effective date of the merger or consolidation, either (i) each such
constituent corporation shall send a second notice before the effective
date of the merger or consolidation notifying each of the holders of any
class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent
more than 20 days following the sending of the first notice, such second
notice need only be sent to each stockholder who is entitled to appraisal
rights and who has demanded appraisal of such holder's shares in
accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is
required to give either notice that such notice has been given shall, in
the absence of fraud, be prima facie evidence of the facts stated
therein. For purposes of determining the stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record
date that shall be not more than 10 days prior to the date the notice is
given, provided, that if the notice is given on or after the effective
date of the merger or consolidation, the record date shall be such
effective date. If no record date is fixed and the notice is given prior
to the effective date, the record date shall be the close of business on
the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who
has complied with subsections (a) and (d) hereof and who is otherwise
entitled to appraisal rights, may file a petition in the Court of Chancery
demanding a determination of the value of the stock of all such
stockholders. Notwithstanding the foregoing, at any time within 60 days
after the effective date of the merger or consolidation, any stockholder
shall have the right to withdraw such stockholder's demand for appraisal and
to accept the terms offered upon the merger or consolidation. Within
120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and
(d) hereof, upon written request, shall be entitled to receive from the
corporation surviving the merger or resulting from the consolidation a
statement setting forth the aggregate number of shares not voted in favor of
the merger or consolidation and with respect to which demands for appraisal
have been received and the aggregate number of holders of such shares. Such
written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation,
which shall within 20 days after such service file in the office of the
Register in Chancery in which the petition was filed a duly verified list
containing the names and addresses of all stockholders who have demanded
payment for their shares and with whom agreements as to the value of their
shares have not been reached by the surviving or resulting corporation. If
the petition shall be filed by the surviving or resulting corporation, the
petition shall be accompanied by such a duly verified list. The Register in
Chancery, if so ordered by the Court, shall give notice of the time and
place fixed for the hearing of such petition by registered or certified mail
to the surviving or resulting corporation and to the stockholders shown on
the list at the addresses therein stated. Such notice shall also be given by
1
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or more publications at least 1 week before the day of the hearing, in a
newspaper of general circulation published in the City of Wilmington,
Delaware or such publication as the Court deems advisable. The forms of the
notices by mail and by publication shall be approved by the Court, and the
costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become
entitled to appraisal rights. The Court may require the stockholders who
have demanded an appraisal for their shares and who hold stock represented
by certificates to submit their certificates of stock to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Court may
dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of
any element of value arising from the accomplishment or expectation of the
merger or consolidation, together with a fair rate of interest, if any, to
be paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. In
determining the fair rate of interest, the Court may consider all relevant
factors, including the rate of interest which the surviving or resulting
corporation would have had to pay to borrow money during the pendency of the
proceeding. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the
Court may, in its discretion, permit discovery or other pretrial proceedings
and may proceed to trial upon the appraisal prior to the final determination
of the stockholder entitled to an appraisal. Any stockholder whose name
appears on the list filed by the surviving or resulting corporation pursuant
to subsection (f) of this section and who has submitted such stockholder's
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he
is not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to
the stockholders entitled thereto. Interest may be simple or compound, as
the Court may direct. Payment shall be so made to each such stockholder, in
the case of holders of uncertificated stock forthwith, and the case of
holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree
may be enforced as other decrees in the Court of Chancery may be enforced,
whether such surviving or resulting corporation be a corporation of this
State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and
the fees and expenses of experts, to be charged pro rata against the value
of all the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded such stockholder's appraisal rights as provided
in subsection (d) of this section shall be entitled to vote such stock for
any purpose or to receive payment of dividends or other distributions on the
stock (except dividends or other distributions payable to stockholders of
record at a date which is prior to the effective date of the merger or
consolidation); provided, however, that if no petition for an appraisal
shall be filed within the time provided in subsection (e) of this section,
or if such stockholder shall deliver to the surviving or resulting
corporation a written withdrawal of such stockholder's demand for an
appraisal and an acceptance of the merger or consolidation, either within
60 days after the effective date of the merger or consolidation as
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provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an
appraisal shall cease. Notwithstanding the foregoing, no appraisal
proceeding in the Court of Chancery shall be dismissed as to any stockholder
without the approval of the Court, and such approval may be conditioned upon
such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized
and unissued shares of the surviving or resulting corporation.
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INTELLIQUEST INFORMATION GROUP, INC.
PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby appoints Brian
Sharples and F.S. Webster III (the "Proxy") as the proxy of the undersigned,
with full power of substitution, to vote, as indicated below and in their
discretion upon such other matters as may properly come before the meeting, all
shares which the undersigned would be entitled to vote at the special meeting of
IntelliQuest Information Group, Inc. ("IntelliQuest") to be held at 1250 Capital
of Texas Highway South, Building One, Suite 600, Austin, Texas 78746 on December
20, 1999 at 10:00 a.m., local time and at any adjournment or postponement
thereof.
Please date and sign your Proxy on the reverse side and return it promptly.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
FOLD AND DETACH HERE
Please mark your vote as
/X/
indicated in this
example
1. To approve and adopt an Agreement and Plan of Merger, dated as of
August 12, 1999 (as amended and restated, the "Merger Agreement"), among WPP
Group U.S. Finance Corp., WPP Acquisition Corp., a wholly-owned subsidiary
of WPP Group U.S. Finance, and Intelliquest Information Group, Inc., and the
merger of WPP Acquisition Corp. with and into IntelliQuest Information
Group, Inc. as provided for therein (the "Merger").
<TABLE>
<S> <C> <C>
FOR AGAINST ABSTAIN
/ / / / / /
</TABLE>
2. In accordance with their best judgment, the Proxies are authorized to
transact and vote upon such other business as may properly come before the
Special Meeting and any postponement or adjournment thereof.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. UNLESS OTHERWISE
SPECIFIED, THE SHARES WILL BE VOTED "FOR" THE APPROVAL OF THE MERGER AND THE
MERGER AGREEMENT. THIS PROXY ALSO DELEGATES DISCRETIONARY AUTHORITY WITH RESPECT
TO ANY OTHER BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF SPECIAL MEETING AND
PROXY STATEMENT.
Signature of Stockholder: ________________________________________ Signature of
Stockholder: ______________________________________________ Date: _____________
NOTE: Please sign this proxy exactly as name(s) appear on your stock
certificate. When signing as attorney-in-fact, executor, administrator, trustee
or guardian, please add your title as such, and if signer is a corporation,
please sign with full corporate name by a duly authorized officer or officers.
Where stock is issued in the name of two (2) or more persons, all such persons
should sign.
FOLD AND DETACH HERE
