<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 23, 1997
REGISTRATION NO. 333-35583
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
MARKET FACTS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
----------------
DELAWARE 36-2061602
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NUMBER)
3040 WEST SALT CREEK LANE
ARLINGTON HEIGHTS, ILLINOIS 60005
(847) 590-7000
(ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
----------------
TIMOTHY J. SULLIVAN
MARKET FACTS, INC.
3040 WEST SALT CREEK LANE
ARLINGTON HEIGHTS, ILLINOIS 60005
(847) 590-7000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
WITH A COPY TO:
DAVID R. SHEVITZ, ESQ.
JANET O. LOVE, ESQ.
MARGUERITE M. ELIAS, ESQ.
LORD, BISSELL & BROOK
KATTEN MUCHIN & ZAVIS
115 SOUTH LASALLE STREET
525 WEST MONROE STREET, SUITE 1600
CHICAGO, ILLINOIS 60603
CHICAGO, ILLINOIS 60661-3691
(312) 443-0700 (312) 902-5200
----------------
Amending the Prospectus and Filing an Exhibit
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED SEPTEMBER 23, 1997
PROSPECTUS
2,000,000 SHARES
[LOGO OF MARKET FACTS]
COMMON STOCK
Of the 2,000,000 shares of Common Stock, $1.00 par value per share (the
"Common Stock"), offered hereby, 1,500,000 shares are being sold by Market
Facts, Inc. (the "Company") and 500,000 shares are being sold by a stockholder
of the Company (the "Selling Stockholder"). All of such shares reflect the 2-
for-1 stock split effected by the Company on December 13, 1996 and an
additional 2-for-1 stock split effected on May 27, 1997. The Company will not
receive any of the proceeds from the sale of shares by the Selling Stockholder.
The Common Stock is traded on the Nasdaq National Market under the symbol
MFAC. On September 22, 1997, the closing sale price of the Common Stock as
reported by the Nasdaq National Market was $24.50 per share.
-----------
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT(1) COMPANY(2) STOCKHOLDER
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share........................ $ $ $ $
- --------------------------------------------------------------------------------
Total(3)......................... $ $ $ $
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) The Company and the Selling Stockholder have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. See "Underwriting."
(2) Before deducting expenses payable by the Company, including expenses of the
Selling Stockholder (other than the Underwriting Discount), estimated at
$600,000.
(3) The Company and the Selling Stockholder have granted to the Underwriters a
45-day option to purchase up to an aggregate of 300,000 additional shares
of Common Stock, 150,000 shares from the Company and 150,000 shares from
the Selling Stockholder, solely to cover over-allotments, if any. If all
such shares are purchased, the total Price to Public, Underwriting
Discount, Proceeds to Company and Proceeds to Selling Stockholder will be
$ , $ , $ and $ , respectively. See "Underwriting."
-----------
The shares are offered, subject to prior sale, when, as and if accepted by
the Underwriters named herein and subject to approval of certain legal matters
by Katten Muchin & Zavis, counsel for the Underwriters. It is expected that
delivery of the shares will be made on or about , 1997 at the office of
EVEREN Securities, Inc. in New York, New York, against payment therefor in
immediately available funds.
-----------
EVEREN SECURITIES, INC. THE ROBINSON-HUMPHREY
COMPANY, INC.
-----------
THE DATE OF THIS PROSPECTUS IS , 1997
<PAGE>
[INSIDE FRONT COVER PAGE]
[Map of the United States and southernmost Canada showing the locations of
the Company's client service offices and National Telephone Centers. Contains
the Company logo (the same as on the prospectus front cover), and the words
"The Right Combination."]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVERALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR AND PURCHASE SHARES OF COMMON STOCK IN THE OPEN MARKET. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
IN CONNECTION WITH THIS OFFERING, CERTAIN UNDERWRITERS AND SELLING GROUP
MEMBERS MAY ENGAGE IN PASSIVE MARKET MAKING TRANSACTIONS IN THE COMMON STOCK
ON THE NASDAQ NATIONAL MARKET IN ACCORDANCE WITH RULE 103 OF REGULATION M
UNDER THE SECURITIES EXCHANGE ACT OF 1934. SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements and notes thereto appearing elsewhere in
this Prospectus. Unless otherwise indicated, all information contained in this
Prospectus: (i) assumes that the Underwriters' over-allotment option is not
exercised, and (ii) gives effect to the 2-for-1 stock split effected by the
Company on December 13, 1996 and an additional 2-for-1 stock split effected on
May 27, 1997. Unless the context otherwise requires, references to the
"Company" shall mean Market Facts, Inc. and its subsidiaries. For periods after
July 31, 1997, such subsidiaries include BAIGlobal, Inc. ("BAIGlobal"). See
"BAIGlobal Acquisition."
THE COMPANY
The Company is a leading provider of custom market research services. Custom
market research involves the measurement of consumer beliefs, attitudes and
behavior toward particular products, services, concepts or advertising. Founded
in 1946, the Company believes that it is the sixth largest custom market
research firm in the United States. It provides quantitative and qualitative
marketing research both domestically and internationally. Through its network
of fourteen offices and its global affiliations, the Company engages in the
design, execution and interpretation of market research conducted on behalf of
its clients. In 1996 the Company had revenue of $83.8 million, and
approximately 87% of its revenue was from clients for whom the Company had
performed work in the previous year.
The Company provides clients with custom market research information to
assist in their marketing decisions relating primarily to consumer products and
services. The Company's expertise in the collection and analysis of consumer
data has a variety of marketing research applications, such as tracking product
performance and customer satisfaction, measuring the effectiveness of
advertising campaigns, assessing brand strength and competitive position,
determining price sensitivity, and evaluating new products, markets or other
business opportunities. The Company believes that no other custom market
research firm can offer the full range of research products and services that
the Company offers its clients, including domestic and international consumer
mail panels, the ability to conduct random telephone research and in-person
interviewing, as well as a wide array of complementary analytic products.
The Company's primary clients consist of consumer product and service
companies as well as financial services, food service, retail,
telecommunications, healthcare and automotive companies. The Company's largest
clients in 1996 in terms of revenue include (in alphabetical order): AT&T
Corp., Clorox Co., the Coca-Cola Company, Fidelity Investment Co., Fleet
Financial Group Inc., General Mills, Inc., Kraft Foods, Inc., Levi Strauss &
Co., MCI Communications Corp., Mobil Oil Corp., Nestle USA, Inc., Nissan Motor
Co. Ltd., Pizza Hut, Inc., Playtex Products Inc., Procter & Gamble Co., Ralston
Purina Co., S.C. Johnson & Son, Inc., Sears, Roebuck and Co., Toyota Motor
Corp., and the U. S. Postal Service.
The Company has developed the Consumer Mail PanelSM ("CMP"), which is its own
broad-based panel of consumer households that have been "pre-screened" through
the collection of extensive demographic profiles to participate in a wide
variety of market research projects. The CMP, which was originally established
in 1949, currently consists of approximately 515,000 pre-recruited households
in the United States and Canada that represent approximately 1.2 million
individuals who have agreed to participate in market research studies.
Approximately 50% of the Company's business comes from projects which utilize
the CMP. The Company believes that its CMP provides a substantial competitive
advantage over firms using only traditional random research methods, since the
CMP delivers higher response rates and lower costs than traditional methods.
The Company also maintains a Pan European consumer mail panel of approximately
135,000 households through a joint venture with two European market research
companies.
For the three-year period ended December 31, 1996, the Company's revenue and
net income increased at a compound annual rate of 22% and 59%, respectively.
Management attributes the Company's recent success to the size and quality of
its CMP, its new product development efforts in recent years, the accuracy of
the data it provides, its ability to statistically analyze complex marketing
problems, its recognized name and its long standing reputation.
3
<PAGE>
Key elements of the Company's business strategy are to:
. PROVIDE A FULL RANGE OF BRANDED, SOLUTION-ORIENTED RESEARCH PRODUCTS AND
SERVICES. The Company believes that it has distinguished itself from its
competition by offering a full range of proprietary branded market
research products and services that offer superior solutions to clients'
market research needs.
. INCREASE MARKET SHARE WITH EXISTING CLIENTS. Many of the Company's
current clients have substantial market research budgets and purchase
market research services from more than one supplier. The Company
believes it has a significant opportunity to increase its share of the
market research expenditures made by these clients.
. EXPAND DISTRIBUTION CHANNELS AND GROW THROUGH ACQUISITIONS AND JOINT
VENTURES. Acquisitions and joint ventures enable the Company to add new
channels of distribution through which it can offer its full range of
market research products and services to new clients. They also enable
the Company to expand its operational capacity and further its technical
expertise.
. TARGET HIGH GROWTH, NON-TRADITIONAL AND UNDER PENETRATED INDUSTRIES. The
Company is committed to entering or expanding its penetration in
industries where it sees growth potential for its business.
. UTILIZE SOPHISTICATED TECHNOLOGY. The Company is committed to using
technology to gain competitive advantage.
. CONTINUE TO EXPAND INTERNATIONALLY. It is the goal of the Company to be
able to provide market research services to its clients wherever in the
world they do business. The Company intends to offer its clients
international research services with uniform quality standards using
methodologies and products similar to those used in North America.
The predecessor to the Company was incorporated in 1946 in Illinois and the
Company was incorporated in 1966 in Delaware. The Company's principal executive
offices are located at 3040 West Salt Creek Lane, Arlington Heights, Illinois
60005 and its telephone number is (847) 590-7000.
4
<PAGE>
RECENT ACQUISITION
On July 31, 1997, the Company completed the acquisition of all of the
outstanding capital stock of BAIGlobal, an international market research and
information company based in New York that has been marketing the Company's
Mail Monitor(R) product since 1990 pursuant to a joint venture with the
Company. BAIGlobal had revenues for the year ended December 31, 1996 of $11.7
million. The purchase price for the acquisition was an amount equal to (i)
$3,590,000 in cash, to be adjusted based on BAIGlobal's closing net worth to be
determined within 120 days of the closing date, plus (ii) the assumption of
$2,250,000 in debt and (iii) up to $5,000,000 of possible contingent payments
in the form of cash and stock if BAIGlobal's aggregate earnings before interest
and income taxes ("EBIT") exceed $2,724,000 for the 29-month period ending
December 31, 1999. The transaction was accounted for under the purchase method
of accounting. See the Market Facts, Inc. and Subsidiaries Unaudited Pro Forma
Condensed Consolidated Financial Statements.
BAIGlobal has an established U.S.-based international group with the ability
to provide the Company's clients with high-quality international market
research services as well as a strong client base in the financial services
industry which the Company has targeted for future growth. BAIGlobal also
conducts qualitative research through the use of focus groups, which the
Company believes will complement its own research capabilities. BAIGlobal's
clients include AT&T Corp., American Express Company, Bank of America National
Trust & Savings Assn., The Bank of New York, The Chase Manhattan Corporation,
Church & Dwight Co., Inc., Citibank N.A., Citicorp, Lucent Technologies Inc.,
MasterCard International Inc., and VISA International. See "BAIGlobal
Acquisition," the Market Facts, Inc. and Subsidiaries Unaudited Pro Forma
Condensed Consolidated Financial Statements, and the BAIGlobal Financial
Statements included elsewhere herein.
THE OFFERING
<TABLE>
<C> <S>
Common Stock Offered by the Company................ 1,500,000 shares
Common Stock Offered by the Selling Stockholder.... 500,000 shares
Common Stock to be Outstanding after the Offering.. 8,423,708 shares(1)
Use of Proceeds to the Company..................... Approximately $3,000,000
will be used to repay
short-term debt incurred
in connection with the
acquisition of BAIGlobal,
and the remaining net
proceeds will be used for
working capital and
general corporate
purposes, including
potential acquisitions.
See "Use of Proceeds."
Nasdaq National Market Symbol...................... MFAC
</TABLE>
- --------
(1) Does not include 780,000 shares of Common Stock reserved for issuance upon
exercise of options outstanding as of September 1, 1997, at a weighted
average exercise price of $5.79 per share, or 220,000 shares of Common
Stock available for future grants or awards under the Company's 1996 Stock
Plan.
5
<PAGE>
SUMMARY CONSOLIDATED HISTORICAL AND PRO FORMA
FINANCIAL AND OTHER DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, SIX MONTHS ENDED JUNE 30,
------------------------------------------------------ --------------------------------
1992 1993 1994(1) 1995 1996 1996 1997
------- ------- ------- ------- ----------------- -------- ----------------------
PRO PRO
HISTORICAL FORMA(2) HISTORICAL FORMA(2)
-------------------------------------------- -------- ------------------ ------------
(UNAUDITED)
------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS
DATA:
Revenue................ $40,718 $45,609 $55,483 $64,609 $83,796 $94,216 $ 38,786 $ 46,835 $ 52,406
Gross margin........... 18,041 21,285 25,235 28,295 35,613 40,031 16,235 20,898 23,266
Income from
operations............ 306 2,662 3,295 5,195 8,398 8,108 2,704 3,810 3,368
Net income (loss)...... (437) 1,074 1,434 2,226 4,278 3,933 1,232 1,915 1,593
Earnings (loss) per
share................. $ (0.06) $ 0.15 $ 0.19 $ 0.29 $ 0.57 $ 0.52 $ 0.16 $ 0.27 $ 0.22
Common and common
equivalent shares..... 6,775 7,009 7,571 7,769 7,511 7,511 7,882 7,138 7,138
Pro forma net income
after adjustments to
compensation
expense(3)............ $ 4,683 $ 2,253
Pro forma earnings per
share after
adjustments to
compensation
expense(3)............ $ 0.62 $ 0.32
OTHER DATA:
Gross margin as a
percentage of
revenue............... 44.3% 46.7% 45.5% 43.8% 42.5% 42.5% 41.9% 44.6% 44.4%
Income from operations
as a percentage of
revenue............... 0.8% 5.8% 5.9% 8.0% 10.0% 8.6% 7.0% 8.1% 6.4%
Pro forma income from
operations, after
adjustments to
compensation expense,
as a percentage of
revenue(3)............ 10.0% 8.6%
Net income as a
percentage of
revenue............... (1.1)% 2.4% 2.6% 3.4% 5.1% 4.2% 3.2% 4.1% 3.0%
Pro forma net income,
after adjustments to
compensation expense,
as a percentage of
revenue(3)............ 5.0% 4.3%
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1997
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA(2) AS ADJUSTED(4)
------- ------------ --------------
(UNAUDITED)
-----------------------------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 485 $ -- $30,853
Working capital............................ 5,405 (281) 33,572
Total assets............................... 39,576 47,418 78,271
Total debt(5).............................. 11,760 14,870 11,870
Stockholders' equity....................... 12,535 12,704 46,557
</TABLE>
- --------
(1) In April 1994, the Company acquired the remaining 50% of the outstanding
shares of common stock of Market Facts of Canada, Ltd. ("MFCL"), making
MFCL a wholly owned subsidiary. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations," and Note 11 of the
Consolidated Financial Statements of Market Facts, Inc. and Subsidiaries.
(2) The Pro Forma Statements of Earnings Data and Other Data for the year ended
December 31, 1996 and the six months ended June 30, 1997 assume the
acquisition of BAIGlobal occurred on January 1, 1996. The Pro Forma Balance
Sheet Data assumes the acquisition of BAIGlobal occurred on June 30, 1997.
See "BAIGlobal Acquisition" and the Market Facts, Inc. and Subsidiaries
Unaudited Pro Forma Condensed Consolidated Financial Statements.
(3) Adjustments to compensation expense represent reductions in officers'
salaries, bonuses and noncash compensation that are expected to be realized
by the Company as a result of new employment agreements with the three
BAIGlobal former shareholders (the "BAIGlobal Principals") entered into on
the date of the BAIGlobal acquisition. See Note 2 (items (l), (m), and (n))
of the Market Facts, Inc., and Subsidiaries Unaudited Pro Forma Condensed
Consolidated Financial Statements.
(4) Gives pro forma effect to the acquisition of BAIGlobal and the sale of
1,500,000 shares of Common Stock offered by the Company in this offering at
an assumed public offering price of $24.50 per share, after deducting
underwriting discounts and estimated offering expenses payable by the
Company, and the application of the estimated net proceeds therefrom. See
"BAIGlobal Acquisition," "Use of Proceeds" and "Capitalization."
(5) Includes a mortgage on the Company's headquarters in the amount of $10.4
million which matures in May 2000. Prepayment of the principal balance of
the mortgage may not be made without payment of a substantial prepayment
penalty, which at September 1, 1997 was $0.9 million.
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating an investment in the
shares of Common Stock offered hereby.
RELIANCE ON KEY CLIENTS
The Company's five largest clients accounted for approximately 23%, 26% and
26% of the Company's total revenues in 1994, 1995 and 1996, respectively, with
one client, Procter & Gamble, accounting for 10%, 12% and 10%, respectively,
of such revenues. The Company generally does not enter into long-term
contracts with its clients, but operates on a project-by-project basis.
Currently, the Company's only significant long-term contract is a contract to
perform customer satisfaction surveys for the U.S. Postal Service, which
accounted for approximately $4 million, or 4.8% of revenue in 1996 and will
expire at the end of 1997. The Company is currently involved in a bidding
process for the new U.S. Postal Service contract, which is expected to be
awarded in the fourth quarter of 1997. For this client, as well as for most of
its clients, the Company is not the exclusive provider of market research
services and, therefore, such clients could decrease the amount of research
projects awarded to the Company at any time. Although approximately 87% of the
Company's revenue in 1996 was from clients for whom the Company had performed
work in the previous year, the loss of one or more of the Company's largest
clients, including the U.S. Postal Service, or a significant reduction in
business from such clients could have a material adverse effect on the
Company. See "Business--Clients."
FLUCTUATIONS IN DEMAND FOR MARKET RESEARCH
Demand for the Company's research services can be affected by a number of
factors outside the Company's control, including fluctuations in clients'
marketing budgets, changes in economic conditions, consolidation and other
industry trends and changes in the management or ownership of a client. In
addition, a client's market research activities are often dependent on the
timing of its new product introductions and reformulations. As a result of
such factors, the amount of market research conducted by the Company for each
of its clients has varied in the past and is likely to continue to vary from
quarter to quarter in the future. These variations can contribute to
fluctuations in the Company's operating results from period to period. See
"Business" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Selected Quarterly Results of Operations;
Seasonality."
VARIABILITY OF QUARTERLY OPERATING RESULTS
The Company's revenues and earnings may fluctuate from quarter to quarter
based on such factors as the number, size and scope of projects in which the
Company is engaged, the terms and degree of completion of such projects,
expenditures required by the Company in connection with such projects, any
delays incurred in connection with such projects, employee utilization rates,
the adequacy of provisions for losses, the accuracy of estimates of resources
required to complete ongoing projects, and general economic conditions. See
"Risk Factors--Reliance on Key Clients."
RISKS ASSOCIATED WITH ACQUISITIONS AND FAILURE TO INTEGRATE ACQUIRED
BUSINESSES; LIMITED PRIOR ACQUISITION EXPERIENCE
An important part of the Company's business strategy is to expand through
acquisitions. The Company has recently acquired BAIGlobal, a New York-based
international market research company, and has from time to time engaged in
discussions regarding other potential acquisitions; however, there are
currently no agreements with respect to any such transactions. There is
significant competition for attractive acquisition candidates, and there can
be no assurance that the Company will be able to identify and acquire
attractive acquisition candidates. Additionally, the Company has had limited
prior experience regarding acquisitions, and there can be no assurance that
the Company will be able to profitably manage acquired companies or
successfully integrate such acquired companies without substantial costs,
delays or other problems. Future acquisitions may entail the payment of
consideration in excess of book value, may result in the issuance of
additional shares of Common Stock or the incurrence of additional indebtedness
by the Company, and could have a dilutive effect on the earnings or book value
per share of Common Stock. See "Risk Factors--Ability to Integrate Recent
Acquisition," "Business--Business Strategy" and "BAIGlobal Acquisition."
7
<PAGE>
ABILITY TO INTEGRATE RECENT ACQUISITION
There can be no assurance that the Company will be able to realize the
intended benefits of the acquisition of BAIGlobal or that the integration of
BAIGlobal with the Company will be successfully accomplished. The realization
of such benefits and successful integration will require the experience and
expertise of the BAIGlobal Principals, who comprise the senior management team
of BAIGlobal, and are expected to remain with the Company. Although a portion
of the consideration paid to the BAIGlobal Principals is contingent upon their
continued employment with the Company, there can be no assurance that the
BAIGlobal Principals will remain with the Company for the time period
necessary to successfully integrate BAIGlobal into the Company. See "BAIGlobal
Acquisition."
COMPETITION
The custom market research industry is highly competitive and is
characterized by a large number of relatively small organizations and a few
large companies, some of which have resources greater than those of the
Company. The Company faces direct competition from these entities as well as
competition from marketing and research departments of clients and potential
clients, advertising agencies, survey research departments affiliated with
universities, and government agencies. The Company believes that the principal
methods of competition are quality and speed of research results, the ability
to provide customized data collection, analysis and interpretation, geographic
coverage, the ability to guide clients through the entire marketing research
process, the ability to provide creative recommendations to clients and the
ability to attractively price services. The Company also believes that the
ability to service the international research needs of clients will become an
increasingly important competitive factor in the future. See "Business--
Competition."
ABILITY TO CONTINUE COMPANY GROWTH; MANAGEMENT OF GROWTH
For the three-year period ended December 31, 1996, the Company's revenue and
net income increased at a compound annual rate of 22% and 59%, respectively.
There can be no assurance that the Company will be able to sustain its recent
increases in operating results. Furthermore, if the Company continues to grow,
there can be no assurance that management will be effective in attracting and
retaining additional qualified personnel, expanding the Company's physical
facilities, updating the Company's systems, procedures and controls,
integrating any acquired businesses or otherwise managing growth. Any
inability to manage growth effectively could have a material adverse effect on
the Company's business, financial condition and results of operations.
RISKS OF INTERNATIONAL EXPANSION
An important part of the Company's business strategy is to be able to
provide market research services to its clients globally. The Company has
acquired an international market research unit through its acquisition of
BAIGlobal, and has recently established joint ventures in Europe and China. It
has also submitted a proposal for a joint venture in India that is awaiting
government approval. In addition, the Company will continue to seek to
establish additional international joint ventures or strategic alliances to
enhance its existing capabilities to address the international needs of its
clients. The international operations of the Company and of its international
joint ventures are subject to numerous challenges and risks inherent in
conducting business internationally, including maintenance of an international
data collection network that adheres to the Company's quality standards,
currency control laws, fluctuations in exchange rates, political turmoil, war,
foreign economic conditions, tariffs and other trade barriers, longer accounts
receivable collection cycles and potentially adverse tax consequences.
Further, the Company may not be able to effectively control their operations,
and there is no assurance that the Company will be able to successfully meet
the needs of its clients through these joint ventures.
VOLATILITY OF STOCK PRICE
The Company's Common Stock is thinly traded and has historically been
subject to wide price fluctuations in response to a variety of factors,
including quarterly variations in operating results, the introduction of new
services or products by the Company, its clients or its competitors,
announcements of acquisitions, strategic
8
<PAGE>
alliances and joint ventures, general conditions in the marketing research
industry, and general economic and market conditions. Additionally, the stock
market in general has experienced extreme price volatility in recent years.
The market price of the Company's Common Stock has increased significantly in
recent months. There can be no assurance that the price of the Common Stock
will increase in the future or be maintained at its recent levels.
VOTING CONTROL BY OFFICERS AND DIRECTORS; VOTING ARRANGEMENTS WITH AND
APPROVAL RIGHTS OF INVESTMENT PARTNERSHIP
After completion of this offering, the Company's executive officers and
directors will, in the aggregate, beneficially own approximately 34% of the
outstanding Common Stock (31% if the Underwriters' over-allotment option is
exercised in full). If such stockholders were to act in concert in the future,
they would be able to significantly influence all matters requiring approval
by the stockholders of the Company, including the election of the Company's
directors. In addition, after completion of this offering, the Selling
Stockholder will beneficially own 24% of the Company's outstanding Common
Stock (22% if the Underwriters' over-allotment option is exercised in full).
The Selling Stockholder has the right to elect three directors of the Company,
subject to decrease if its ownership interest in the Company decreases below
20%. With respect to certain matters, the Selling Stockholder must vote
certain of its shares proportionally in accordance with the vote of the
Company's public stockholders (defined as stockholders other than the Selling
Stockholder and certain executive officers of the Company). The Investment
Agreement between the Selling Stockholder and the Company (the "Investment
Agreement") contains provisions that, among other things, restrict the Selling
Stockholder's ability to acquire more than 37.5% of the Company's outstanding
Common Stock, and grant its board representatives the right to approve certain
Company transactions, such as acquisitions of $1,000,000 or more, dispositions
of Company assets outside the ordinary course of business, and amendments to
the Company's Restated Certificate of Incorporation or By-Laws. See
"Description of Capital Stock--Preferred Stock--Series B Preferred Stock,"
"Agreements with Selling Stockholder and its Affiliates--Investment
Agreement," "Principal and Selling Stockholders" and Note 6 of the
Consolidated Financial Statements of Market Facts, Inc. and Subsidiaries.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company considers most of its software, database management methods,
modeling techniques and other database information strategies to be
proprietary trade secrets and relies on a combination of trade secret,
trademark, copyright and other intellectual property laws, as well as
contractual agreements, to protect its rights to such intellectual property.
However, due to the difficulty of monitoring the unauthorized use of and
access to the Company's intellectual property, such measures may not provide
adequate protection. In addition, there can be no assurance that the courts
will enforce the contractual arrangements which the Company has entered into
to protect its proprietary technology. Any misappropriation of the Company's
intellectual property could have a material adverse effect on the Company's
business. See "Business--Trademarks and Service Marks; Proprietary
Information."
RISK OF DECLINING RESPONSE RATES
The Company's ability to provide timely and accurate custom market research
to its clients depends on its ability to collect high quality data through its
CMP, random telephone interviewing, and other sources. Response rates in the
industry, exclusive of consumer mail panels, have generally declined in recent
years, which could result in lower quality data and increased project costs.
If the Company is unable to recruit and maintain appropriate CMP members, or
if receptivity to the Company's questionnaires and other data collection
methods by respondents declines, or if the Company is for any other reason
unable to rely on the integrity of the data it receives, the Company's ability
to market and sell its research products would be materially and adversely
affected.
RISK OF LEGISLATIVE OVERSIGHT
The federal Telephone Consumer Protection Act of 1991 and similar laws in
many states regulate and limit telemarketing and telephone solicitation
activities. Though the market research industry has been able to avoid
9
<PAGE>
regulations applicable to telemarketers and telephone solicitors, there is no
assurance that the market research industry will continue to be exempt from
this or other regulation. Further, although the Company presently voluntarily
conducts its activities in compliance with existing laws applicable to
telemarketers and solicitors, there is no assurance that compliance will
continue to be feasible should such laws change or should new laws become
applicable to market research companies.
RELIANCE ON KEY PERSONNEL
The Company's future performance will depend to a significant extent upon
the efforts and abilities of key personnel who have expertise in custom market
research and have established relationships with the Company's key clients.
Although customer relationships are managed at many levels in the Company, the
loss of one or more of the Company's key employees could have an adverse
effect on the Company's relationship with one or more clients served by such
persons. The Company's success also depends on its ability to hire, train and
retain skilled personnel in all areas of its business. Competition for
qualified personnel in the Company's industry is substantial. There can be no
assurance that the Company will be able to recruit, retain and motivate a
sufficient number of qualified personnel to compete successfully.
DISCRETIONARY USE OF PROCEEDS
The Company has no current specific plan for the $30.9 million in estimated
net offering proceeds remaining after the repayment of $3.0 million in
indebtedness incurred to acquire BAIGlobal. The Company is raising such funds
to increase its working capital and for general corporate purposes, including
acquisitions, investments in technology, new product development, and joint
ventures; however, there are no commitments or agreements with respect to any
acquisitions at the present time. Consequently, the Company's management will
have discretion over the use of most of the proceeds for the foreseeable
future. See "Use of Proceeds."
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BY-LAW PROVISIONS AND DELAWARE
LAW; RIGHTS PLAN
Certain provisions of the Company's Restated Certificate of Incorporation
and By-Laws and the Delaware General Corporation Law may have the effect of
delaying or preventing changes in control or management of the Company, which
could adversely affect the market price of the Common Stock. These provisions
include: (i) a board divided into three classes, each of which serves for a
staggered three-year term, (ii) provisions restricting the removal of
directors, (iii) advance notice provisions with respect to stockholder
proposals and director nominations, and (iv) the authority of the Company's
Board of Directors to issue up to 474,900 shares of Preferred Stock and to
determine the price, rights, preferences and privileges of those shares
without any further vote or action by the stockholders. The rights of the
holders of Common Stock will be subject to, and may be adversely affected by,
the rights of the holders of any shares of Preferred Stock that may be issued
in the future. The Company is also subject to Section 203 of the Delaware
General Corporation Law which, subject to certain exceptions, prohibits a
Delaware corporation from engaging in a broad range of business combinations
with any interested stockholder for a period of three years following the date
that such stockholder became an interested stockholder. In addition, the
Company has a stockholder rights plan which expires in August 1999, which may
have the effect of deterring hostile or coercive attempts to acquire the
Company. See "Description of Capital Stock," "Agreements with Selling
Stockholder and its Affiliates," and "Risk Factors--Voting Control by Officers
and Directors."
10
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
There will be 8,423,708 shares of Common Stock outstanding immediately after
completion of this offering, of which 608,000 shares will be "restricted
shares" for purposes of the Securities Act of 1933, as amended ("Securities
Act"). Of these outstanding shares of Common Stock, 7,815,708 shares,
including the shares to be sold in this offering, will be freely tradeable,
except for shares purchased or otherwise owned by "affiliates" of the Company.
Of the restricted shares, 368,000 shares are currently eligible for sale into
the market, subject to the limitations set forth in Rule 144 promulgated under
the Securities Act. Sales of a substantial number of shares of Common Stock in
the public market, whether by purchasers in this offering or other
stockholders of the Company, could adversely affect the prevailing market
price of the Common Stock and could impair the Company's future ability to
raise capital through an offering of its equity securities. However, the
Company and its executive officers and directors and the Selling Stockholder,
who beneficially will own in the aggregate 2,837,558 outstanding shares of
Common Stock, have agreed not to offer, sell, contract to sell or otherwise
dispose of any Common Stock or any securities convertible into or exchangeable
for Common Stock for 120 days after the date of this prospectus without the
prior written consent of EVEREN Securities, Inc. See "Management--Directors
and Executive Officers," "Description of Capital Stock--Shares Eligible for
Future Sale" and "Underwriting."
SAFE HARBOR
This Prospectus contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act. Such
statements appear in a number of places in this Prospectus and include
statements regarding the intent, belief or current expectations of the
Company, its directors or its executive officers with respect to, among other
things: (i) trends affecting the Company's financial condition or results of
operations; (ii) the Company's business and growth strategies; and (iii) the
use of the proceeds to the Company of this offering. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of
future performance and involve risks and uncertainties, and that actual
results may differ materially from those projected in the forward-looking
statements as a result of various factors. Important factors that could cause
such differences are identified under "Risk Factors" above.
RECAPITALIZATION AND SELF-TENDER OFFER
On June 6, 1996, MFI Investors L.P., the Selling Stockholder (also called
the "Partnership"), a limited partnership formed by ZS Fund, L.P., a New York
investment fund, invested $8,250,000 in the Company. In connection with the
investment, the Company entered into the Investment Agreement with the
Partnership and its sole general partner. Pursuant to the Investment
Agreement, the Partnership, among other things: (i) purchased a note in the
principal amount of $8,250,000 (the "Convertible Note"), which was converted
on July 18, 1996 into 2,275,860 shares of Common Stock at a conversion rate of
$3.625 per share, (ii) acquired the right to elect three members of the Board
of Directors and approval rights with respect to acquisitions and other
corporate matters, (iii) agreed to certain voting arrangements, (iv) agreed to
certain standstill provisions, and (v) acquired certain registration rights
relating to its Common Stock. In addition, the Company effected a self-tender
offer in June 1996, primarily for the purpose of providing a liquidity event
for its stockholders, whereby it repurchased 1,677,614 shares (not adjusted
for the December 1996 stock split) for an aggregate purchase price of
$12,162,701. The shares acquired in the self-tender offer became treasury
shares, which were not subject to the December 1996 2-for-1 stock split. The
Partnership's purchase of the Convertible Note funded most of the repurchase.
See "Agreements with Selling Stockholder and its Affiliates," "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Liquidity and Capital Resources," and Note 6 of the Consolidated Financial
Statements of Market Facts, Inc. and Subsidiaries.
11
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,500,000 shares of
Common Stock being offered by the Company hereby are estimated to be
approximately $33.9 million ($37.3 million if the Underwriters' over-allotment
option is exercised in full) based on an assumed public offering price of
$24.50 per share after deducting the underwriting discount and estimated
offering expenses. The Company will not receive any proceeds from the sale of
Common Stock by the Selling Stockholder. The Company anticipates that the net
proceeds of this offering will be used in part to repay short-term
indebtedness of $3.0 million incurred in connection with the recent
acquisition of BAIGlobal. This indebtedness is outstanding under one of the
Company's lines of credit which expires in April 1998 and bears interest at
the London Interbank Offered Rate plus 1.68% (7.40% as of September 1, 1997).
The Company has no current specific plan for the remaining $30.9 million of
the estimated net offering proceeds. The Company is raising such funds to
increase the Company's working capital and for general corporate purposes,
including acquisitions, investments in technology, new product development,
and joint ventures; however, there are no commitments or agreements with
respect to any such acquisitions at the present time. Pending use of the net
proceeds for the above purposes, the Company intends to invest such funds in
short- term, interest bearing, investment-grade obligations. See "Business--
Business Strategy."
12
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1997 (i) on an actual basis; (ii) on a pro forma basis to reflect the
acquisition of BAIGlobal; and (iii) on a pro forma as adjusted basis to
reflect the acquisition of BAIGlobal and the sale of the Common Stock offered
by the Company hereby and the application of the estimated net proceeds to the
Company therefrom, as described in "Use of Proceeds."
<TABLE>
<CAPTION>
JUNE 30, 1997
------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash overdraft.................................. $ -- $ 2,260 $ --
Short-term borrowings........................... 830 3,830 830
Current portion of long-term debt, including
capital lease obligations...................... 314 402 402
------- ------- -------
$ 1,144 $ 6,492 $ 1,232
======= ======= =======
Long-term obligations(1)........................ $10,616 $10,638 $10,638
Stockholders' equity:
Preferred stock, no par value, 500,000 shares
authorized
Series A--25,000 shares designated and none
issued...................................... -- -- --
Series B--100 shares designated and 100
shares issued............................... -- -- --
Common stock, $1.00 par value; 15,000,000
shares authorized; 8,966,258 issued on an
actual and pro forma basis; 10,466,258 shares
issued pro forma as adjusted(2).............. 8,966 8,966 10,466
Capital in excess of par value................ 9,498 9,498 41,851
Cumulative foreign currency translation....... (86) (86) (86)
Retained earnings............................. 8,765 8,934 8,934
Less 2,042,550 shares of treasury common
stock, at cost............................... (13,892) (13,892) (13,892)
Less other transactions involving common
stock........................................ (716) (716) (716)
------- ------- -------
Total stockholders' equity.................. 12,535 12,704 46,557
------- ------- -------
Total capitalization........................ $23,151 $23,342 $57,195
======= ======= =======
</TABLE>
- --------
(1) Includes long-term portions of long-term debt, notes payable and
obligations under capital leases, $10,235,167 of which is the Company's
mortgage on its headquarters which matures in May 2000 and which prohibits
prepayment without a substantial penalty, which at September 1, 1997 was
$930,000. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Liquidity and Capital Resources."
(2) Does not include 770,000 shares of common stock reserved for issuance upon
exercise of options outstanding as of June 30, 1997, at a weighted average
exercise price of $5.59 per share, or 230,000 shares of common stock
available for future grants or awards under the Company's 1996 Stock Plan.
13
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The following unaudited pro forma condensed consolidated balance sheet
presents the unaudited pro forma financial position of the Company as of June
30, 1997, assuming the acquisition of BAIGlobal had been consummated as of
June 30, 1997.
The following unaudited pro forma condensed consolidated statements of
earnings for the year ended December 31, 1996 and the six months ended June
30, 1997 present the unaudited pro forma results of operations of the Company
assuming the acquisition of BAIGlobal had been consummated as of January 1,
1996.
These unaudited pro forma condensed consolidated financial statements should
be read in conjunction with the Company's consolidated financial statements
and notes thereto and BAIGlobal's financial statements and notes thereto
included elsewhere in this Prospectus. The unaudited pro forma condensed
consolidated balance sheet and unaudited pro forma condensed consolidated
statements of earnings do not necessarily reflect actual results which may
have occurred if the acquisition had taken place as of June 30, 1997 and
January 1, 1996, respectively, nor are they indicative of the results of
future combined operations.
14
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF JUNE 30, 1997
(IN THOUSANDS)
<TABLE>
<CAPTION>
MARKET FACTS, BAIGLOBAL,
INC. INC.
HISTORICAL HISTORICAL
STATEMENTS STATEMENTS ADJUSTMENTS PRO FORMA
------------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents... $ 485 $ 145 $ (630)(a) $ --
Certificates of deposit..... 50 -- -- 50
Accounts receivable:
Trade, less allowance for
doubtful accounts.......... 15,069 2,231 (485)(b) 16,815
Other....................... 157 6 -- 163
Notes receivable............ 185 -- -- 185
Revenue earned on contracts
in progress in excess of
billings................... 4,449 684 (124)(b) 5,009
Deferred income taxes....... 979 -- -- 979
Prepaid expenses and other
assets..................... 392 138 -- 530
-------- ------ ------- --------
Total Current Assets....... $ 21,766 $3,204 $(1,239) $ 23,731
-------- ------ ------- --------
PROPERTY, AT COST............ 29,376 786 -- 30,162
Less accumulated
depreciation and
amortization............... (12,271) (435) -- (12,706)
-------- ------ ------- --------
Net Property............... $ 17,105 $ 351 $ -- $ 17,456
-------- ------ ------- --------
OTHER ASSETS:
Goodwill.................... 495 -- 4,053 (c) 4,548
Deferred income taxes....... -- 598 762 (c) 1,360
Other noncurrent assets..... 210 63 50 (d) 323
-------- ------ ------- --------
Total Other Assets......... $ 705 $ 661 $ 4,865 $ 6,231
-------- ------ ------- --------
Total Assets............... $ 39,576 $4,216 $ 3,626 $ 47,418
======== ====== ======= ========
CURRENT LIABILITIES:
Cash overdraft.............. $ -- $ -- $ 2,260 (a) $ 2,260
Accrued expenses............ 6,944 1,046 (291)(b) 7,849
150 (e)
Billings in excess of
revenues earned on
contracts in progress...... 5,669 789 (2)(b) 6,456
Accounts payable............ 2,464 1,096 (485)(b) 3,075
Short-term borrowings....... 830 -- 3,000 (a) 3,830
Current portion of
obligations under capital
leases..................... 190 88 -- 278
Income taxes................ 140 -- -- 140
Current portion of long-term
debt....................... 124 -- -- 124
-------- ------ ------- --------
Total Current Liabilities.. $ 16,361 $3,019 $ 4,632 $ 24,012
-------- ------ ------- --------
LONG-TERM LIABILITIES:
Long-term debt.............. 10,235 -- -- 10,235
Obligations under capital
leases, noncurrent
portion.................... 381 22 -- 403
Deferred income taxes....... 64 -- -- 64
-------- ------ ------- --------
Total Long-Term
Liabilities............... $ 10,680 $ 22 $ -- $ 10,702
-------- ------ ------- --------
Total Liabilities.......... $ 27,041 $3,041 $ 4,632 $ 34,714
-------- ------ ------- --------
STOCKHOLDERS' EQUITY:
Preferred stock............. -- -- -- --
Common stock................ 8,966 1 (1)(f) 8,966
Capital in excess of par
value...................... 9,498 1,353 (1,353)(f) 9,498
Cumulative foreign currency
translation................ (86) -- -- (86)
Retained earnings........... 8,765 38 131 (f) 8,934
-------- ------ ------- --------
$ 27,143 $1,392 $(1,223) $ 27,312
-------- ------ ------- --------
Less treasury common stock.. (13,892) (217) 217 (f) (13,892)
Less other transactions
involving common stock..... (716) -- -- (716)
-------- ------ ------- --------
Total Stockholders'
Equity.................... $ 12,535 $1,175 $(1,006) $ 12,704
-------- ------ ------- --------
Total Liabilities and
Stockholders' Equity...... $ 39,576 $4,216 $ 3,626 $ 47,418
======== ====== ======= ========
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
15
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARKET BAIGLOBAL,
FACTS, INC. INC.
HISTORICAL HISTORICAL PRO FORMA
STATEMENTS STATEMENTS ADJUSTMENTS RESULTS
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE..................... $83,796 $11,665 $(1,245)(g) $94,216
------- ------- ------- -------
DIRECT COSTS:
Payroll................... 16,167 1,949 -- 18,116
Other expenses............ 32,016 5,042 (989)(g) 36,069
------- ------- ------- -------
Total................... $48,183 $ 6,991 $ (989) $54,185
------- ------- ------- -------
Gross Margin............ $35,613 $ 4,674 $ (256) $40,031
------- ------- ------- -------
OPERATING EXPENSES:
Selling................... 2,601 578 (336)(g) 2,843
General and 23,563 4,337 27,931
administrative........... (141)(h)
162 (i)
10 (j)
Contributions to profit-
sharing and employee
stock ownership plans.... 1,051 98 -- 1,149
------- ------- ------- -------
Total................... $27,215 $ 5,013 $ (305) $31,923
------- ------- ------- -------
Income from operations.. $ 8,398 $ (339) $ 49 $ 8,108
------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense.......... (1,214) (24) (222)(k) (1,460)
Interest income........... 126 8 -- 134
Other income, net......... 75 28 -- 103
------- ------- ------- -------
Total................... $(1,013) $ 12 $ (222) $(1,223)
------- ------- ------- -------
INCOME BEFORE PROVISION FOR
INCOME TAXES............... $ 7,385 $ (327) $ (173) $ 6,885
PROVISION FOR INCOME TAXES.. 3,107 (150) (5)(l) 2,952
------- ------- ------- -------
NET INCOME.................. $ 4,278 $ (177) $ (168) $ 3,933
======= ======= =======
PRO FORMA ADJUSTMENTS TO
COMPENSATION EXPENSE:
Contractual reductions to
be made in officers'
salaries and bonuses..... 852 (m)
Noncash stock-related
compensation............. 419 (n)
Related income taxes...... (521)(l)
-------
$ 750
-------
PRO FORMA NET INCOME AFTER
ADJUSTMENTS TO COMPENSATION
EXPENSE.................... $ 4,683
=======
EARNINGS PER SHARE.......... $ 0.57 $ 0.52
======= =======
PRO FORMA EARNINGS PER SHARE
AFTER ADJUSTMENTS TO
COMPENSATION EXPENSE....... $ 0.62
=======
COMMON AND COMMON EQUIVALENT
SHARES..................... 7,511 7,511
======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
16
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARKET BAIGLOBAL,
FACTS, INC. INC.
HISTORICAL HISTORICAL PRO FORMA
STATEMENTS STATEMENTS ADJUSTMENTS RESULTS
----------- ---------- ----------- ---------
<S> <C> <C> <C> <C>
REVENUE...................... $46,835 $6,196 $(625)(g) $52,406
------- ------ ----- -------
DIRECT COSTS:
Payroll.................... 8,620 977 -- 9,597
Other expenses............. 17,317 2,699 (473)(g) 19,543
------- ------ ----- -------
Total.................... $25,937 $3,676 $(473) $29,140
------- ------ ----- -------
Gross Margin............. $20,898 $2,520 $(152) $23,266
------- ------ ----- -------
OPERATING EXPENSES:
Selling.................... 1,585 347 (180)(g) 1,752
General and administra-
tive...................... 14,738 3,034 (263)(h) 17,372
(223)(o)
81 (i)
5 (j)
Contributions to profit-
sharing and employee stock
ownership plans........... 765 9 -- 774
------- ------ ----- -------
Total.................... $17,088 $3,390 $(580) $19,898
------- ------ ----- -------
Income from operations... $ 3,810 $ (870) $ 428 $ 3,368
------- ------ ----- -------
OTHER INCOME (EXPENSE):
Interest expense........... (543) (10) (111)(k) (664)
Interest income............ 33 7 -- 40
Other income, net.......... 47 4 -- 51
------- ------ ----- -------
Total.................... $ (463) $ 1 $(111) $ (573)
------- ------ ----- -------
INCOME BEFORE PROVISION FOR
INCOME TAXES................ $ 3,347 $ (869) $ 317 $ 2,795
PROVISION FOR INCOME TAXES... 1,432 (393) 163 (l) 1,202
------- ------ ----- -------
NET INCOME................... $ 1,915 $ (476) $ 154 $ 1,593
======= ====== =====
PRO FORMA ADJUSTMENTS TO COM-
PENSATION EXPENSE:
Contractual reductions to
be made in officers'
salaries and bonuses...... 237 (m)
Noncash stock-related com-
pensation................. 882 (n)
Related income taxes....... (459)(l)
-------
$ 660
-------
PRO FORMA NET INCOME AFTER
ADJUSTMENTS TO COMPENSATION
EXPENSE..................... $ 2,253
=======
EARNINGS PER SHARE........... $ 0.27 $ 0.22
======= =======
PRO FORMA EARNINGS PER SHARE
AFTER ADJUSTMENTS TO
COMPENSATION EXPENSE........ $ 0.32
=======
COMMON AND COMMON EQUIVALENT
SHARES...................... 7,138 7,138
======= =======
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
17
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
In July 1997, BAIGlobal entered into a recapitalization agreement with its
shareholders pursuant to which two shareholders exchanged shares and options
to purchase shares of Class A common stock for shares and options to purchase
shares of Class B common stock. Under the agreement, all outstanding options
became fully vested. The shareholders sold a portion of their options to
BAIGlobal for notes payable totaling $2,250,000 and the remaining options were
exercised. As a result of these transactions, BAIGlobal recorded noncash
compensation expense of $1,792,039 that is not reflected in the pro forma
condensed consolidated statements of earnings. In addition, deferred income
taxes of $762,000 were recorded in July 1997 based on these transactions. The
additional deferred income taxes have been reflected as an adjustment to the
pro forma condensed consolidated balance sheet as of June 30, 1997 as part of
the allocation of the purchase price to the fair values of assets acquired and
liabilities assumed.
NOTE 2
On July 31, 1997, the Company completed the acquisition of all the
outstanding stock of BAIGlobal. The purchase price was an amount equal to (i)
$3,590,000 in cash, to be adjusted based on BAIGlobal's closing net worth to
be determined within 120 days of the closing date, plus (ii) the assumption of
$2,250,000 in debt payable to two of the BAIGlobal Principals, and (iii) up to
$5,000,000 of possible contingent payments in the form of cash and stock based
on BAIGlobal exceeding a certain earnings target for the period July 31, 1997
through December 31, 1999 (the "Additional Purchase Price"). The Additional
Purchase Price is to be equal to 3.3 multiplied by the amount by which
BAIGlobal's aggregate EBIT during the 29-month period exceeds $2,724,000, and
20% of the total is subject to the continued employment of the BAIGlobal
Principals, with certain specified exceptions. The first $4,000,000 of
Additional Purchase Price is payable in cash with the remaining $1,000,000
payable in shares of the Company's Common Stock. An additional $50,000 was
paid at closing relating to noncompete agreements. Immediately after the
closing of the transaction, the Company advanced $2,250,000 to BAIGlobal for
the purpose of repaying the notes payable to two of the BAIGlobal Principals.
The acquisition was accounted for under the purchase method of accounting. See
Note 3 below.
The preliminary allocation of the purchase price represents an estimate of
the fair values of the assets acquired and liabilities assumed, including
estimated professional fees and other acquisition expenses expected to be
incurred. The excess of the purchase price over the estimated fair values of
the assets acquired and liabilities assumed has been recorded as goodwill.
This preliminary allocation of purchase price is subject to further
adjustments; however, the Company does not expect the estimated values to
change materially upon finalization of the allocation of the purchase price.
The pro forma adjustments reflect the following:
(a) Represents the amount financed through the Company's existing line of
credit and cash. It should be noted that due to significant accounts
receivable collections during July, the Company's cash balance was
sufficient at July 31, 1997 to avoid a cash overdraft position.
(b) Represents the elimination of all intercompany billed and unbilled
receivable and payable balances outstanding as of June 30, 1997. The
Company has provided market research services to BAIGlobal for the
past seven years.
(c) Represents the excess of the purchase price over the estimated fair
value of the net assets acquired.
(d) Represents the amounts paid for noncompete agreements.
(e) Represents an accrual for estimated professional fees and other
acquisition expenses expected to be incurred.
(f) Represents the elimination of the stockholders' equity balances of
BAIGlobal.
18
<PAGE>
(g) Represents the elimination of intercompany purchases, sales and
commissions. See adjustment (b) above.
(h) Represents the elimination of BAIGlobal expenses related to consulting
and noncompete agreements with a former shareholder that were
terminated at the date of the acquisition.
(i) Represents the amortization of goodwill on a straight-line basis over
25 years.
(j) Represents the amortization of the noncompete agreements on a
straight-line basis over their 5 year term.
(k) Represents interest expense at 7.4% on the $3,000,000 borrowed to fund
the acquisition.
(l) Represents the tax effect of the pro forma adjustments using a
statutory rate of 41%.
(m) The Company entered into employment agreements with three of
BAIGlobal's officers effective on the date of the acquisition. The
agreements reduce the salaries and bonuses previously paid to these
officers. This adjustment represents those contractual salary and
bonus reductions.
(n) The Company has made it a practice of not issuing stock or granting
stock options at amounts below fair market value. This adjustment
represents the elimination of noncash compensation expense recorded by
BAIGlobal associated with the sale of stock and grant of options to
key employees at amounts below fair market value.
(o) Represents the elimination of professional fees incurred by BAIGlobal
directly related to the acquisition.
NOTE 3
The purchase price includes up to $5,000,000 of contingent payments in the
form of cash and stock based on BAIGlobal exceeding a certain earnings target
for the period July 31, 1997 through December 31, 1999 as described in Note 2.
Twenty percent of the contingent payment is subject to the continuous
employment of the BAIGlobal Principals through December 31, 1999, with certain
specified exceptions, and is considered a compensatory arrangement. If the
Company determines that the payment of the compensation is probable, up to
$1,000,000 of compensation expense will be recorded through December 31, 1999
in a systematic and rational fashion. The remaining $4,000,000 is considered
additional purchase price and will be recorded as goodwill at the time the
Company has determined beyond a reasonable doubt that such contingent
consideration will be paid. The effect of the additional $4,000,000 of
goodwill amortized over a 25 year period is a decrease in net income of
$160,000 annually. See Note 2 above.
19
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Set forth below are selected financial data as of and for each of the five
years ended December 31, 1996, which have been derived from the audited
financial statements of the Company, and selected financial data as of and for
the six months ended June 30, 1996 and 1997, which have been derived from the
unaudited interim financial statements of the Company. In the opinion of
management, the unaudited interim financial statements have been prepared
using the same significant accounting policies as the audited financial
statements and include all adjustments, consisting of normal, recurring
adjustments, which are necessary for a fair presentation of the interim
financial statements. The results of operations for the six months ended June
30, 1996 and 1997 are not necessarily indicative of the results of operations
for a full fiscal year. The selected financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the financial statements, related notes and
other financial information included herein.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------- -----------------
1992 1993 1994(1) 1995 1996(2) 1996 1997
------- ------- ------- ------- ------- ------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENTS OF EARNINGS
DATA:
Revenue................ $40,718 $45,609 $55,483 $64,609 $83,796 $38,786 $46,835
Direct costs........... 22,677 24,324 30,248 36,314 48,183 22,551 25,937
------- ------- ------- ------- ------- ------- -------
Gross margin........... 18,041 21,285 25,235 28,295 35,613 16,235 20,898
Selling expenses....... 1,385 1,667 2,077 2,292 2,601 1,277 1,585
General and
administrative
expenses.............. 16,350 16,481 19,285 20,005 23,563 11,678 14,738
Contributions to profit
sharing and employee
stock ownership
plans................. -- 475 578 803 1,051 576 765
------- ------- ------- ------- ------- ------- -------
Income from
operations............ 306 2,662 3,295 5,195 8,398 2,704 3,810
Interest and other
expense, net.......... (1,120) (944) (1,139) (975) (1,013) (447) (463)
------- ------- ------- ------- ------- ------- -------
Income (loss) before
income taxes and
cumulative effect of
change in accounting
principle............. (814) 1,718 2,156 4,220 7,385 2,257 3,347
Provision (benefit) for
income taxes.......... (334) 644 722 1,994 3,107 1,025 1,432
Cumulative effect on
prior years of change
in accounting
principle............. 43 -- -- -- -- -- --
------- ------- ------- ------- ------- ------- -------
Net income (loss)...... $ (437) $ 1,074 $ 1,434 $ 2,226 $ 4,278 $ 1,232 $ 1,915
======= ======= ======= ======= ======= ======= =======
Earnings (loss) per
share................. $ (0.06) $ 0.15 $ 0.19 $ 0.29 $ 0.57 $ 0.16 $ 0.27
======= ======= ======= ======= ======= ======= =======
Common and common
equivalent shares..... 6,775 7,009 7,571 7,769 7,511 7,882 7,138
======= ======= ======= ======= ======= ======= =======
<CAPTION>
DECEMBER 31,
------------------------------------------- JUNE 30,
1992 1993 1994 1995 1996(2) 1997
------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash
equivalents........... $ 429 $ 773 $ 911 $ 3,530 $ 129 $ 485
Working capital........ 1,441 2,046 3,624 5,993 3,104 5,405
Total assets........... 27,450 27,974 31,682 34,377 38,385 39,576
Total debt............. 12,864 12,074 12,079 11,634 13,056 11,760
Stockholders' equity... 7,830 8,823 9,746 12,050 10,525 12,536
</TABLE>
- --------
(1) In April 1994, the Company acquired the remaining 50% of the outstanding
shares of common stock of MFCL, making MFCL a wholly-owned subsidiary.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and Note 11 of the Consolidated Financial
Statements of Markets Facts, Inc. and Subsidiaries.
(2) In July 1996, the Company repurchased 1,677,614 shares of Common Stock
pursuant to a self-tender offer (not adjusted for the December 1996 stock
split) for an aggregate purchase price of $12,162,701. The shares
acquired in the self-tender offer became treasury shares, which were not
subject to the December 1996 2-for-1 stock split. Immediately prior to
the repurchase, the Convertible Note was converted into 2,275,860 shares
of Common Stock at a conversion rate of $3.625 per share.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
The Company recognizes revenue under the percentage-of-completion method of
accounting. Revenue on client projects is recognized or earned as services are
performed. Typically, client projects are invoiced in installments, with
approximately 60% of the total price billed at the beginning of the project and
the balance billed upon completion. Revenue earned on contracts in progress in
excess of billings is classified on the balance sheet as a current asset.
Amounts billed to clients in excess of revenue earned are classified as a
current liability.
The Company's CMP consists of approximately 515,000 households. The Company
updates the household information for its entire panel annually as well as
continually adds new households and deletes nonparticipating households. All
amounts spent for panel maintenance and recruitment are expensed as incurred.
In 1996, the Company expended approximately $1.2 million for these activities.
The Company is continually investigating potential new research products and
services. The cost of this new product development is expensed as incurred.
The Company is continually upgrading and expanding its proprietary computer
software systems. All amounts spent for software systems development are
expensed as incurred.
On July 31, 1997, the Company completed the acquisition of all of the
outstanding stock of BAIGlobal. The purchase price was an amount equal to (i)
$3.6 million in cash, to be adjusted based on BAIGlobal's closing net worth
determined within 120 days of the closing date, plus (ii) the assumption of
$2.3 million in debt payable to two of the BAIGlobal Principals and (iii) up to
$5.0 million of possible contingent payments in the form of cash and stock
equal to 3.3 multiplied by the amount by which BAIGlobal's aggregate EBIT
during the 29-month period from July 31, 1997 through December 31, 1999 exceeds
$2.7 million. Twenty percent of the contingent payment is subject to the
continued employment of the BAIGlobal Principals, with certain specified
exceptions.
In connection with its acquisition of BAIGlobal, the Company recorded
goodwill of $4.1 million based on a preliminary allocation of the purchase
price representing an estimate of the fair values of the assets acquired and
liabilities assumed, including estimated professional fees and other
acquisition expenses expected to be incurred. This preliminary allocation of
purchase price is subject to further adjustments; however, the Company does not
expect the estimated values to change materially upon finalization of the
allocation of purchase price. The goodwill will be amortized on a straight-
line-basis over 25 years beginning in August 1997. Also as a result of the
acquisition, the Company incurred $3.0 million in indebtedness. The Company
intends to repay the $3.0 million in indebtedness with a portion of the net
proceeds from this offering. See "Use of Proceeds."
21
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
revenue.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
----------------------------------- -------------
1992 1993 1994 1995 1996 1996 1997
------ ------ ------ ------ ------ ------ ------
(AMOUNTS EXPRESSED AS A PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue...................... 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Direct costs................. 55.7 53.3 54.5 56.2 57.5 58.1 55.4
------ ------ ------ ------ ------ ------ ------
Gross margin................. 44.3 46.7 45.5 43.8 42.5 41.9 44.6
Selling expenses............. 3.4 3.7 3.8 3.6 3.1 3.3 3.4
General and administrative
expenses.................... 40.1 36.2 34.8 31.0 28.1 30.1 31.5
Contributions to profit
sharing and employee stock
ownership plans............. -- 1.0 1.0 1.2 1.3 1.5 1.6
------ ------ ------ ------ ------ ------ ------
Income from operations....... 0.8 5.8 5.9 8.0 10.0 7.0 8.1
Interest and other income
(expense)................... (2.8) (2.0) (2.0) (1.5) (1.2) (1.2) (1.0)
------ ------ ------ ------ ------ ------ ------
Income (loss) before income
taxes and cumulative effect
of change in accounting
principle................... (2.0) 3.8 3.9 6.5 8.8 5.8 7.1
Provision (benefit) for
income taxes................ (0.8) 1.4 1.3 3.1 3.7 2.6 3.0
Cumulative effect on prior
years of change in
accounting principle........ 0.1 -- -- -- -- -- --
------ ------ ------ ------ ------ ------ ------
Net income (loss)............ (1.1)% 2.4% 2.6% 3.4% 5.1% 3.2% 4.1%
====== ====== ====== ====== ====== ====== ======
</TABLE>
Comparison of First Six Months of 1997 to First Six Months of 1996
During the first six months of 1997, the Company had revenue of $46.8
million, an increase of $8.0 million or 20.8% over the same period in 1996. The
increase in revenue was due primarily to $4.8 million of revenue from clients
for whom the Company did not perform any research services during the first six
months of 1996, and $2.5 million from clients which initiated major research
programs with the Company.
Gross margin for the first six months of 1997 was $20.9 million, an increase
of 28.7% over the same period in 1996. The increase in gross margin was due to
the growth in revenue. Gross margin as a percentage of revenue was 44.6% in the
first six months of 1997 compared to 41.9% in the same period in 1996. The
improvement in the gross margin percentage was primarily attributable to higher
gross margins on mail panel business.
Operating expenses for the first six months of 1997 rose by $3.6 million, an
increase of 26.3% compared to the same period in 1996. Operating expenses as a
percentage of revenue increased from 34.9% in 1996 to 36.5% in 1997. These
increases were primarily due to higher marketing staff expenses of $1.5 million
to support the growth in business, continued investments in new products and
technologies of $0.6 million and increased legal and accounting fees of $0.4
million associated with corporate growth initiatives.
The 1997 provision for income taxes reflected an effective tax rate of 42.8%
versus 45.4% in 1996. The decrease in the effective tax rate was primarily due
to a reduction in state and local income taxes.
Net income for the first six months rose 55.5% to $1.9 million or 4.1% of
revenue compared with $1.2 million and 3.2% during the same period in 1996.
Earnings per share increased 68.8% to $0.27 for the first six months of 1997
compared to $0.16 for the same period in 1996.
Comparison of 1996 to 1995
The Company had revenue of $83.8 million during 1996, an increase of 29.7%
over 1995. The increase in revenue was due to the addition of major research
programs for new clients as well as expansion of services for existing clients.
22
<PAGE>
Gross margin for 1996 was $35.6 million, an increase of 25.9% over 1995. The
increase in gross margin was due to the growth in revenue. Gross margin as a
percentage of revenue was 42.5% in 1996 compared to 43.8% in 1995. The decrease
in gross margin percentage was primarily attributable to the fact that the
Company experienced growth in large projects which yielded lower gross margin
percentages but which required only a minimal increase in operating expenses,
causing operating expenses as a percentage of revenue to decline.
Operating expenses for 1996 rose by $4.1 million, an increase of 17.8%
compared to 1995, due primarily to higher marketing staff expenses to support
the growth in business and continued investments in new products and
technologies. Operating expenses as a percentage of revenue decreased from
35.8% in 1995 to 32.5% in 1996. This reduction was primarily attributable to
the fact that the Company experienced growth in larger projects where certain
data gathering functions were outsourced. The Company was able to expand its
data gathering capacity with only minimal expansion of facilities owned by the
Company by entering into partnering relationships with third party providers.
The 1996 provision for income taxes reflected an effective tax rate of 42.1%
versus 47.2% in 1995. The decrease in the effective tax rate was primarily due
to a reduction in state and local income taxes.
Net income for 1996 rose 92.2% to $4.3 million or 5.1% of revenue compared
with $2.2 million and 3.4% of revenue in 1995. Earnings per share increased
96.6% to $0.57 in 1996 from $0.29 in 1995.
Comparison of 1995 to 1994
The Company had revenue of $64.6 million during 1995, an increase of 16.4%
over 1994. The growth in revenue was due primarily to growth of research
products and services that are proprietary to the Company and the acquisition
of MFCL.
Gross margin for 1995 was $28.3 million, an increase of 12.1% over 1994. The
increase in gross margin was due to the growth in revenue. Gross margin as a
percentage of revenue was 43.8% in 1995 compared to 45.5% in 1994. The decline
in the gross margin percentage was primarily attributable to two factors.
First, in 1995 the Company allocated a greater share of internal operating
costs directly to client research projects, and second, the Company experienced
growth in larger projects where certain data gathering functions were
outsourced. The Company was able to expand its data gathering capacity with
only minimal expansion of facilities owned by the Company by entering into
partnering relationships with third party providers and the Company experienced
growth in certain types of business which yield lower gross margin percentages
but which required only a minimal increase in operating expenses.
Operating expenses for 1995 rose by $1.2 million, an increase of 5.3%
compared to 1994. These results were due primarily to the increased level of
business activity, higher marketing staff expenses and the acquisition of MFCL,
partially offset by greater internal operating costs being allocated to client
research projects. Operating expenses as a percentage of revenue decreased from
39.5% in 1994 to 35.8% in 1995 primarily as a result of greater internal
operating costs being allocated to client research projects and the fact that
the Company experienced growth in larger projects where certain functions were
outsourced. The Company was able to expand its data gathering capacity with
only minimal expansion of facilities owned by the Company by entering into
partnering relationships with third party providers which require only a
minimal increase in operating expenses.
The 1995 provision for income taxes reflected an effective tax rate of 47.2%
versus 33.5% in 1994. The increase in the effective tax rate was primarily due
to the elimination in 1994 of the valuation allowance for state deferred tax
assets of $0.3 million and higher foreign, state and local income taxes in
1995.
Net income for 1995 was $2.2 million or 3.4% of revenue compared with $1.4
million and 2.6% of revenue in 1994. Earnings per share increased 52.6% to
$0.29 in 1995 from $0.19 in 1994.
23
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity depends primarily upon its net income, accounts
receivable, accounts payable and accrued expenses. Historically, the Company
has financed its operations through cash generated from operating activities
and bank lines of credit.
During the first six months of 1997, cash and cash equivalents increased by
$0.4 million. Net cash flow from operating activities was $2.9 million due
primarily to net income and depreciation and amortization expense, partially
offset by a reduction in income taxes payable. Cash used in investing
activities was $1.2 million due primarily to purchases of property. Cash used
in financing activities was $1.3 million, due primarily to repayments of short-
term borrowings.
During 1996, cash and cash equivalents decreased by $3.4 million. Net cash
flow provided by operating activities was $4.3 million, due primarily to net
income, higher accounts payable and accrued expenses, and depreciation and
amortization expense, partially offset by higher accounts receivable. Cash used
in investing activities was $3.7 million due primarily to purchases of
property. Cash used in financing activities was $4.0 million, due primarily to
the purchase of the Company's Common Stock for treasury pursuant to a self-
tender offer, partially offset with the proceeds from the issuance of the $8.3
million Convertible Note.
For the first six months of 1997, stockholders' equity increased by $2.0
million due primarily to net income earned during the period. Stockholders'
equity decreased during 1996 by $1.5 million due to the purchase of 1,677,614
shares (not adjusted for the December 1996 stock split) of Common Stock in the
self-tender offer, payment of stock issuance costs, and dividends on Common
Stock paid during the year. The shares acquired in the self-tender offer became
treasury shares which were not subject to the December 1996 2-for-1 stock
split. The decrease in stockholders' equity was partially offset by the
conversion of the Convertible Note into 2,275,860 shares of Common Stock, net
income earned and the exercise of stock options.
The Company's available borrowings under established bank credit facilities
at June 30, 1997 were $10.7 million and increased by $3.0 million due to an
amendment of a credit facility in September 1997. Borrowings outstanding under
these arrangements at June 30, 1997 were $0.8 million. Borrowings outstanding
under these arrangements were $1.8 million at December 31, 1996. There were no
borrowings outstanding at December 31, 1995.
In February 1990, the Company purchased an office building in Arlington
Heights, Illinois for use as its corporate and operations headquarters.
Mortgage financing for the $11 million purchase price was provided in April
1990 with a ten year loan at a fixed rate of 9.7% per annum. The loan is
payable in monthly installments of $94,105 with the remaining balance due May
1, 2000. Prepayment of the entire principal balance may be made upon sixty days
notice and requires the payment of a substantial prepayment penalty, which was
$0.9 million as of September 1, 1997.
At its October 1996 meeting, the Board of Directors established a policy to
omit future cash dividends in order to fund the continued development and
growth of the Company's business.
In April 1994, the Company acquired the remaining 50% of the outstanding
shares of common stock of MFCL. Prior to the acquisition, the Company owned 50%
of the common stock of MFCL and the remaining 50% was owned jointly by the
President of MFCL and his wife. The Company accounted for its investment using
the equity method of accounting. The purchase price for the common stock and
covenants not to compete was $1.0 million and was paid in three equal
installments during 1994, 1995 and 1996. The excess of purchase price over the
fair market value of assets acquired was recorded as goodwill and is being
amortized using the straight-line method over 15 years.
On July 31, 1997, the Company completed the acquisition of all of the
outstanding capital stock of BAIGlobal, an international market research and
information company based in New York. The purchase price for the transaction
was an amount equal to (i) $3.6 million in cash, to be adjusted based on
BAIGlobal's closing
24
<PAGE>
net worth to be determined within 120 days of the closing date, plus (ii) the
assumption of $2.3 million in debt owed to two of the BAIGlobal Principals and
(iii) up to $5.0 million of possible contingent payments in the form of cash
and stock based on BAIGlobal exceeding a certain earnings target for the period
July 31, 1997 through December 31, 1999 (the "Additional Purchase Price"). The
Additional Purchase Price is to be equal to 3.3 multiplied by the amount by
which BAIGlobal's aggregate EBIT during the 29-month period exceeds $2.7
million, with 20% of the total subject to the continued employment of the
BAIGlobal Principals, with certain specified exceptions. The transaction was
accounted for under the purchase method of accounting and was financed from
borrowings on the Company's line of credit and cash flow provided by
operations.
The Company believes that the net proceeds from the sale of the Common Stock
by the Company in this offering, together with cash flow from operations,
existing cash balances and its lines of credit, will be sufficient to meet its
working capital expenditure requirements for the foreseeable future. However,
if the Company acquires another company or companies of a significant size, it
may require an additional amount of capital that exceeds that available from
the proceeds of this offering, cash from operations and existing bank
arrangements. There can be no assurance that the Company will be able to obtain
such financing on favorable terms.
SELECTED QUARTERLY RESULTS OF OPERATIONS; SEASONALITY
The Company's business activity has historically reflected a modest
seasonality factor with generally higher revenues and operating margins in the
fourth quarter (see table below). The Company believes that this seasonality
reflects increased research activity in the fourth quarter by clients seeking
to complete research projects prior to the holiday season and the close of
their fiscal year.
The following tables present unaudited selected financial information and
such information as a percentage of revenue for each quarter in the two most
recent fiscal years and the subsequent quarterly periods ended March 31 and
June 30, 1997. In the opinion of management, the unaudited interim information
has been prepared using the same significant accounting policies as the audited
financial statements and includes all adjustments, consisting of normal,
recurring adjustments, which are necessary for a fair presentation of such
interim information. The results of operations for any quarterly period are not
necessarily indicative of the results of operations for a full fiscal year or
for any future period.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------------
1995 1996 1997
------------------------------------ ------------------------------------ -----------------
MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31 JUNE 30
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. $15,333 $16,332 $15,880 $17,064 $18,659 $20,127 $20,478 $24,532 $21,581 $25,253
Gross margin............ 6,583 7,332 6,979 7,401 7,956 8,278 8,878 10,501 9,731 11,168
Income from operations.. 1,059 1,195 1,277 1,664 1,155 1,549 2,171 3,523 1,697 2,113
Net income.............. 417 514 549 746 528 704 1,034 2,012 835 1,081
Earnings per share...... $ 0.06 $ 0.07 $ 0.07 $ 0.09 $ 0.07 $ 0.09 $ 0.15 $ 0.29 $ 0.11 $ 0.15
<CAPTION>
(AMOUNTS EXPRESSED AS A PERCENTAGE OF REVENUE)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Gross margin............ 42.9 44.9 43.9 43.4 42.6 41.1 43.4 42.8 45.1 44.2
Income from operations.. 6.9 7.3 8.0 9.8 6.2 7.7 10.6 14.4 7.9 8.4
Net income.............. 2.7 3.1 3.5 4.4 2.8 3.5 5.0 8.2 3.9 4.3
</TABLE>
INFLATION
Inflation has historically had only a minor effect on the Company's results
of operations and its internal and external sources of liquidity and working
capital because the Company has generally been able to increase prices to
reflect cost increases due to inflation.
25
<PAGE>
RECENTLY ISSUED FINANCIAL ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128, "Earnings per Share"
("Statement 128"). Implementation of Statement 128 is required for periods
ending after December 15, 1997. Statement 128 establishes new methods for
computing and presenting earnings per share ("EPS") and replaces the
presentation of primary and fully diluted EPS with basic and diluted EPS.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 130, "Reporting Comprehensive Income" ("Statement 130"). Implementation of
Statement 130 is required for periods beginning after December 15, 1997.
Statement 130 establishes standards to report and display comprehensive income
and its components in a full set of general purpose financial statements. The
standard requires all items that are required to be recognized under
accounting standards as components of comprehensive income be reported in a
financial statement that is displayed in equal prominence with the other
financial statements. The Company is currently evaluating its options for
disclosure under Statement 130 and will adopt the Statement during the year
ending December 31, 1998.
In June 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures about Segments of an Enterprise and Related Information"
("Statement 131"). Implementation of Statement 131 is required for periods
beginning after December 15, 1997. Statement 131 establishes standards for the
way companies are to report information about operating segments in annual
financial statements and requires those companies to report selected
information about operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures about
products and services, geographic areas and major customers. The Company is
currently evaluating its options for disclosure under Statement 131 and will
adopt the Statement during the year ending December 31, 1998.
26
<PAGE>
BUSINESS
GENERAL
The Company is a leading provider of custom market research services. Custom
market research involves the measurement of consumer beliefs, attitudes and
behavior toward particular products, services, concepts or advertising. The
Company has been successfully supplying clients with accurate and objective
marketing information about consumers, products and competitors since its
inception in 1946. It provides quantitative and qualitative marketing research
both domestically and internationally. According to Marketing News, the
Company is the eleventh largest market research organization in the United
States based on 1996 revenue, and the Company believes that it is among the
six largest companies that provide primarily custom market research services.
In 1996 the Company had revenue of $83.8 million, and approximately 87% of its
revenue was from clients for whom the Company had performed work in the
previous year.
The Company's primary clients consist of consumer product and service
companies as well as financial services, food service, retailing,
telecommunications, healthcare and automotive companies. The Company's largest
clients in 1996 in terms of revenue include (in alphabetical order): AT&T
Corp., Clorox Co., The Coca-Cola Company, Fidelity Investment Co., Fleet
Financial Group Inc., General Mills, Inc., Kraft Foods, Inc., Levi Strauss &
Co., MCI Communications Corp., Mobil Oil Corp., Nestle USA, Inc., Nissan Motor
Co. Ltd., Pizza Hut, Inc., Playtex Products Inc., Procter & Gamble Co.,
Ralston Purina Co., S.C. Johnson & Son, Inc., Sears, Roebuck and Co., Toyota
Motor Corp., and the U.S. Postal Service.
The Company believes it is uniquely able to offer clients a full range of
custom market research products and services that offer superior solutions for
their market research needs. Its professional research staff works with
clients to define the marketing project, select project-appropriate products
and services, develop effective questionnaires or other means of data
collection, collect the responses, process the data, analyze and interpret the
results, and present them in a meaningful and succinct package. The Company
believes that clients will continue to increasingly demand this fully
integrated approach to custom market research services.
The Company has developed the Consumer Mail PanelSM ("CMP"), which is its
own broad-based panel of consumer households that have been "pre-screened"
through the collection of extensive demographic profiles to participate in a
wide variety of market research projects. The Company believes its CMP
provides a substantial competitive advantage over firms using only traditional
random research methods since the CMP delivers higher response rates and lower
costs than traditional methods. The Company's expertise in the collection and
analysis of consumer data from its CMP has a variety of marketing research
applications, such as tracking product performance and customer satisfaction,
measuring the effectiveness of advertising campaigns, assessing brand strength
and competitive position, determining price sensitivity, and evaluating new
products, markets or other business opportunities. The CMP, which was
originally established in 1949, presently consists of approximately 515,000
households throughout the United States and Canada. The Company is aware of
only two other custom market research companies in the United States that
maintain a broad-based consumer mail panel. The Company also maintains a Pan
European consumer mail panel of approximately 135,000 households through a
joint venture with Taylor Nelson AGB of England and Infratest Burke of
Germany.
The Company's in-house staff conducts telephone interviews through its
National Telephone CenterSM, consisting of over 300 computer-assisted
interviewing terminals. The Company has also entered into relationships with
selected telephone interviewing firms who the Company believes perform
telephone marketing research that meets the Company's standards. The Company
uses IVR (Interactive Voice Response) technology for brief telephone surveys
where interaction between respondent and a live interviewer is not required.
In-person interviews are conducted primarily through more than 100 independent
field agencies, at the Company's Central Location Interviewing Panel facility
and at automobile clinics held at various locations throughout the United
States.
For the three-year period ended December 31, 1996, the Company's revenue and
net income increased at a compound annual rate of 22% and 59%, respectively.
Management attributes the Company's recent success to the size and quality of
its CMP, its new product development efforts in recent years, the accuracy of
the data it provides, its
27
<PAGE>
ability to statistically analyze complex marketing problems, its recognized
name and its long standing reputation as a source of high quality research
services. Operating margins have expanded primarily due to the Company's
ability to successfully leverage its fixed overhead structure.
An important component of the Company's business strategy is to grow through
acquisitions. It will continue to seek acquisition candidates that are
profitable, have stable management, are culturally compatible with the
Company, are able to sell branded market research products and services, are
able to utilize advanced technology, are positioned in targeted industries,
and are compatible with the Company's international expansion plans.
Another important element of the Company's business strategy is the ability
to provide market research products and services to its clients globally. The
Company believes that its ability to serve clients on a global basis is key to
its ability to further strengthen client relationships. In December 1996, the
Company acquired a ten percent interest in Strategy Research Corporation, a
Miami-based market research firm that specializes in research among Latin
consumers of North, Central and South America. The Company has established
joint venture relationships in Europe and China that it believes will enable
it to serve the custom market research needs of its U.S.-based clients in the
United Kingdom, Germany, France and China, is currently awaiting government
approval of a joint venture relationship in India, and intends to continue
seeking other joint ventures and strategic alliances globally. The Company
also is the exclusive licensee in North America of the Conversion Model, which
the Company believes to be the leading brand equity measurement method in use
worldwide. The Company has working relationships with ten international
marketing research companies outside the U.S. that are also Conversion Model
licensees which provide the Company with research capabilities in over fifty
countries. These relationships provide the Company with resources it believes
are essential to compete effectively for multi-country strategic and tracking
research programs that are increasingly being conducted internationally by
North American-based global marketers.
The Company's ongoing investment in technology is a key component of its
growth strategy and product development efforts. It performs research on and
offers research results to clients through the Internet, as well as offers web
site evaluation. In 1996 the Company formed its Interactive Solutions Group to
explore the opportunities provided by the Internet. Additionally, it has
developed a proprietary product called Compete(R), that allows clients instant
access to a wide array of concept and product testing data which can be
configured in a variety of forms based upon client desires. The Company
continually seeks to develop its technological capabilities to provide data
collection and delivery methods that meet the changing needs of its clients.
The Company believes that this ongoing investment will continue to provide it
a significant competitive advantage over less technologically sophisticated
competitors.
THE MARKET RESEARCH INDUSTRY
The domestic market research industry is comprised of numerous marketing,
advertising and public opinion research organizations that measure consumer
attitudes and behavior. The industry is made up of two segments: (i)
syndicated research, which generally provides historical information regarding
past consumer purchasing decisions (such as aggregate sales or market share
within product categories) and is generally made available to the marketplace
on a non-exclusive basis, and (ii) custom research, which is performed to the
specifications of a particular client. The Company focuses primarily on custom
research.
Custom research involves the measurement of consumer beliefs, attitudes and
behavior toward particular products, services, concepts or advertising
programs. Custom research is generally conducted by obtaining information from
consumers through questionnaires or interviews. Because information is
generally solicited directly from consumers, custom research provides insights
into consumers' perceptions of products or services and the patterns of
purchase and usage of such products and services by consumers with particular
demographic or other profiles. Many clients use custom research to interpret
the market share or sales information provided by syndicated research. In
addition, by testing a proposed product or advertising campaign on a sample of
consumers to whom the product or campaign will be directed, a client can
obtain information about the targeted consumers' likely response to the
product or campaign before incurring the costs associated with the
introduction of the product or campaign to the marketplace.
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<PAGE>
Custom research may be conducted by panel surveys, unsolicited telephone
interviewing, door-to-door personal interviewing and central location
interviewing. Panel surveys involve interviewing members of consumer
households who have previously agreed to participate in the research firm's
surveys and who have provided demographic and other data about themselves.
Other methods of custom research involve the surveying of groups identified by
clients, such as their employees or customers, and random, unsolicited
contacting of consumers, either by telephone or by personal approaches in
public locations such as shopping malls.
Estimates of the size of the market research industry come from Marketing
News, an industry trade publication. In its June 9, 1997 issue, Marketing News
identified 169 U.S. market research firms doing business in the U.S. for which
estimates of revenue were available and reported that revenue in 1996 from
these firms was approximately $5.5 billion, an increase of 11.7% over 1995.
These companies generated approximately $3.4 billion of their revenue from
work performed within the U.S., an increase of 7.1% from 1995, and about $2.1
billion in revenue from work done outside the U.S., an increase of 20.2% over
1995. The Company is the 11th largest market research organization in the
United States based on 1996 revenue, and because five of the ten largest
organizations are engaged primarily in syndicated research, the Company
believes that it is the sixth largest custom market research firm
domestically.
Marketing News also disclosed several characteristics about the structure of
the market research industry. It reported that the larger firms grew faster
than the smaller firms in 1996, as revenue for the fifty largest firms
increased 12.0% while the remaining 119 firms increased only 7.4%. It also
reported that the proportion of revenue from work done outside the U.S. by the
largest firms is continuing to grow faster than work from domestic projects,
as the fifty biggest companies reported that 41.1% of their revenue in 1996
came from international work, as compared to 35.0% only three years earlier in
1993. The Company estimates that approximately 40% of the market research
industry's revenue reported by Marketing News, or $2.2 billion, is derived
from custom market research. In addition, the Company believes that the market
research industry is larger than estimated by Marketing News due to custom
research that is not included in the Marketing News numbers for research firms
that do not report their financial results, research performed in-house by
client companies or their advertising agencies, research done by survey
research departments affiliated with universities, and research performed by
agencies of the U.S. government. The custom market research industry is also
highly fragmented. The Company estimates that in 1996 the ten largest U.S.
custom market research firms represented approximately 40% of total industry
custom research revenue and no firm had more than a 7% market share.
The Company believes that growth in the custom market research sector is
driven primarily by heightened competitive pressures faced by most
organizations, resulting in: (i) an increasing need to maximize the
effectiveness of new product development and marketing activities while
minimizing the risk of new product failures and other marketing errors, (ii)
an increasing recognition of the importance of customer satisfaction, customer
commitment to client brands, brand differentiation, the advantages of market
segmentation and target marketing, and new product development, and (iii) an
increasing demand for data interpretation and analysis methodologies.
In recent years, the custom market research industry has been significantly
impacted by the confluence of a number of trends. As clients in industries
served by custom market research companies have downsized their internal
market research staffs and increasingly outsourced the market research
function, they have demanded a higher level of professional assistance
throughout the entire marketing research process. Their needs include a
broader range of market research product offerings, and more sophisticated
data collection, analysis and interpretation capabilities. There has also been
an increased demand for research that regularly tracks changing consumer
reactions and more qualitative, in-depth research that provides insights into
consumer behavior. In response to the changing needs of clients, the Company
has seen a trend among custom market research companies toward developing new
products, formalizing various research methodologies into specified types of
product offerings, and increased reliance on information technology.
Furthermore, there is a trend among industries that have not traditionally
relied on market research to use custom market research to retain and expand
their customer base and market share. For example, as competition in the
telecommunications, financial services
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and healthcare industries has increased, companies in these industries have
used custom market research to seek ways to retain their customers, attract
new customers, provide services and products that better meet their customers'
needs, and to otherwise improve their competitive positions.
As many companies expand their products, services and businesses to serve
global markets, the need for international custom market research capabilities
has increased, and the Company believes that this trend is likely to continue.
As North American-based global companies contemplate the launch of new
products or services in foreign countries, they are increasingly in need of
custom market research to understand the consumers and customers in those
countries.
The Company believes that trends in the custom market research industry are
driving this industry toward consolidation. Many of the smaller market
research companies that serve niche markets within the industry but lack the
capability to provide a full range of products and services are becoming
increasingly attractive acquisition candidates.
BUSINESS STRATEGY
Provide a Full Range of Branded, Solution-Oriented Research Products and
Services. The Company believes that it has distinguished itself from its
competition by offering a full range of proprietary branded market research
products and services that offer superior solutions to clients' market
research needs. The accelerated introduction of new products and services in
response to evolving client needs has broadened the Company's portfolio of
product and service offerings. The Company believes that this full range of
products and services will increase its market share with existing clients,
attract new clients, and increase its penetration in targeted industries. The
Company will continue to focus on the development of proprietary branded
products and services to meet the specific research needs of its clients. See
"Business--Market Research Services--Market Research Products."
Increase Market Share with Existing Clients. Many of the Company's current
clients have significant market research budgets and purchase market research
services from more than one supplier. The Company believes that it has a
significant opportunity to increase its share of the market research
expenditures made by clients by providing a high level of customer service
that is superior to its competition. To further this strategy, the Company is
providing key account management training to its client service personnel in
order to increase their understanding of the research needs of the Company's
clients, to apply solution-oriented products and services that meet these
needs, and to develop more effective partnering relationships in the complex,
multi-layered organizational structures under which many of its clients
operate. In 1996, approximately 42% of the Company's revenue increase was
attributable to new business from existing clients.
Expand Distribution Channels and Grow Through Acquisitions and Joint
Ventures. Acquisitions and joint ventures enable the Company to add new
channels of distribution through which it can offer its full range of market
research products and services to new clients. They also provide a means for
the Company to expand its operational capacity and further its technological
expertise. In evaluating prospective acquisition candidates, the Company will
seek candidates that are profitable, have management stability and continuity,
are culturally compatible with the Company, are able to sell branded market
research products and services, are able to utilize advanced technology, are
positioned in a targeted industry, expand the Company's operational capacity,
further the Company's technological expertise, and are compatible with the
Company's international expansion plans. The Company also seeks to establish
joint ventures that are advantageous to the Company's business from the
perspective of geographic expansion, technological sophistication and presence
in targeted industries. For example, the Company has recently established
joint ventures in both Europe and China which have significantly enhanced its
geographic coverage. Furthermore, the Company is engaged in discussions to
form a joint venture with a provider of on-line services to create an Internet
consumer panel which would enhance the Company's technological expertise.
There can be no assurance that these or any similar joint ventures will be
formed or, if formed, that they will be successful.
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<PAGE>
Target High Growth, Non-Traditional and Under Penetrated Industries. The
Company is committed to entering or expanding its penetration in industries
where it sees growth potential for its business. Targeted industries include
those that have not traditionally relied on market research, as well as
industries which the Company believes offer growth opportunities for its
business. Industries which offer strong potential include telecommunications,
healthcare, financial services and utilities. The Company believes that its
products and services can be tailored to these and many other industries.
Furthermore, the Company believes that its full range of products and services
will provide the Company a significant competitive advantage as it enters a
targeted industry.
Utilize Sophisticated Technology. The Company is committed to using
technology to gain competitive advantage. The Company's utilization of
technology occurs in three interrelated areas: (i) development of
technologically sophisticated market research products, (ii) development of
new methods of collecting market research data, and (iii) development of
sophisticated ways of delivering data to clients and presenting research
results. In all three of these areas, the Company's information technology
staff works with its client service personnel to develop integrated
applications of technology tailored to its client's evolving needs. For
example, in 1996, the Company formed its Interactive Solutions Group to pursue
opportunities represented by the Internet and other alternate forms of data
collection.
Continue to Expand Internationally. The Company believes that many of its
clients derive a significant portion of their revenue from outside the United
States or are planning to expand globally and that such clients will be
increasing their spending on international market research services. It is the
goal of the Company to be able to provide market research services to its
clients wherever in the world they do business. The Company intends to offer
its clients international research services with uniform quality standards
using methodologies and products similar to those used in North America. The
Company believes that these global capabilities will ensure that it remains a
preferred supplier to its North American-based clients with international
marketing information requirements. See "Risk Factors--Risks of International
Expansion."
MARKET RESEARCH PROCESS
The Company's professional research staff and, where appropriate, its
information technology personnel, works with the client to establish
information objectives, develop questionnaires or instruments to be used to
elicit the desired information and determine the types of consumers to be
interviewed. The Company then submits a proposal that describes the sample to
be surveyed, the manner of data collection, analysis requirements, delivery
schedules and pricing. The Company has developed its own computer program to
estimate the cost of each project and closely monitors actual costs versus the
estimates in order to continually update its computer model. Prices typically
are quoted to clients based upon a fixed price fee.
The Company develops an appropriate consumer sample, either from its CMP or
another source (such as random telephone samples or samples of the client's
own customers), that matches the client's targeted consumers. If the sample is
from the CMP, it is either selected from the CMP based on households with
precisely matched demographic characteristics that are already on file, or the
Company will conduct a custom screening survey among its CMP members to locate
households with the specific product usage or other characteristics targeted
by the client. The sample selection process is performed to ensure that the
CMP members meet the desired characteristics and that the survey adheres to
the Company's policies limiting the number of contacts with CMP members and
varying the subject matter of the surveys to avoid inconveniencing or
burdening household members. Research projects involve studies with samples
ranging from a few hundred to over a million respondents.
The Company designs its questionnaires to be as easy and interesting as
possible with questions, concepts and wording that will be readily understood
by the general population, to enable respondents to complete questionnaires
accurately without undue burden. Particularly complicated questionnaires may
be pre-tested among a small group of households to determine whether these
requirements are met. Experienced designers develop efficient, visually
appealing and concisely formatted questionnaires.
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<PAGE>
The Company also conducts telephone interviews with its CMP members and
other targeted groups. The Company's telephone interviewers operate through
terminals that are connected to the Company's computer assisted telephone
interviewing system (the "CATI system"), onto which the questions and possible
responses have been programmed. This allows the interviewers to record
responses directly into the computer, avoiding the need for subsequent data
entry. Further, the CATI system allows for complex survey question skip
patterns and sampling plans to be handled in a cost efficient manner.
Depending upon the type of survey, the Company frequently uses other methods
of data collection, such as mall interviewing, central location interviewing,
automotive clinics and in-home interviewing, both among CMP members and
consumers selected by other methods, including groups such as client employees
or client customers that are provided by the client. The emphasis, however, is
always on providing clients with actionable findings that address marketing
issues.
Returned questionnaire information is entered directly into the Company's
computer system, either manually or through optical scanner and imaging
systems. The Company customizes survey reports and presents survey data in
accordance with client specifications.
CLIENTS
In 1996 the Company's five largest clients accounted for 26% of its revenues
with one client, Procter & Gamble, accounting for 10% of such revenues. The
Company's largest clients in 1996 in terms of revenue include (in alphabetical
order): AT&T Corp., Clorox Co., The Coca-Cola Company, Fidelity Investment
Co., Fleet Financial Group Inc., General Mills, Inc., Kraft Foods, Inc., Levi
Strauss & Co., MCI Communications Corp., Mobil Oil Corp., Nestle USA, Inc.,
Nissan Motor Co. Ltd., Pizza Hut, Inc., Playtex Products Inc., Procter &
Gamble Co., Ralston Purina Co., S.C. Johnson & Son, Inc., Sears, Roebuck and
Co., Toyota Motor Corp., and the U.S. Postal Service.
Many of the Company's clients have downsized their internal market research
staffs, and as these clients have increasingly outsourced this function, they
have required an increased level of professional service throughout the market
research process, as well as a broader range of product offerings, and more
sophisticated data collection, analysis and interpretation capabilities. The
Company has also seen an increase in clients in industries that have not
traditionally relied on market research. These industries include
telecommunications, financial services, healthcare and utilities.
The Company does not generally enter into long-term contracts with its
clients, but operates on a project- by-project basis. However, the Company
focuses on building systems and programs for clients wherein particular
research methodologies are systematized, refined and used repeatedly on a
project-by-project basis. As the Company completes additional projects for a
client, the Company's knowledge base of its client is expanded, the Company's
relationship is further solidified, and the client therefore has higher
switching costs associated with not utilizing the Company going forward. The
net result to the Company is a more predictable recurring revenue stream.
Although the Company is not the exclusive provider of market research services
for most of its clients, its percentage of business for repeat clients has
historically been high. In 1996 approximately 87% of the Company's revenue was
from clients for whom the Company had performed work during the previous year.
See "Risk Factors--Reliance on Key Clients" and "--Fluctuations in Demand for
Market Research."
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MARKET RESEARCH SERVICES
The Company provides a full range of market research services as summarized
in the table below.
<TABLE>
<CAPTION>
INTRODUCTION
MARKET RESEARCH SERVICE DATE FUNCTION/CAPABILITY
----------------------- ------------ -------------------
<C> <C> <S>
Consumer Mail Panel SM............ 1949 A panel of approximately
515,000 households throughout
the U.S. and Canada that have
agreed to participate in the
Company's mail and telephone
surveys.
National Telephone Center SM...... 1973 Telephone interviews conducted
through the use of sophisti-
cated computer-assisted ques-
tionnaires and sample manage-
ment.
Automotive Clinics................ 1974 Specialized product evaluation
clinics for automobile and
truck manufacturers providing
clients with actionable in-
formation regarding product
design and pricing.
TeleNation(R)..................... 1986 Weekly national telephone sur-
vey tracks changes in atti-
tudes and behaviors. Provides
three day turnaround of 1,000
nationally representative in-
terviews conducted in an in-
expensive multi-client omni-
bus research environment.
National ShowCase(R).............. 1993 In-person interviews with con-
sumers in virtually any field
location in the U.S. National
ShowCase(R) Omnibus also per-
forms weekly face-to-face
mall interviews with consum-
ers in the 20 largest mar-
kets, providing clients with
rapid turnaround of results
and sharing of costs.
Central Location Interviewing 1994 Testing facility with comput-
Panel (CLIP's)................... erized interviewing and
state-of-the-art kitchen
which allows complicated
product formulation surveys
to be conducted in one or two
days.
IVR (Interactive Voice Response).. 1996 Automated short, simple phone
surveys suited to measure
customer satisfaction or
identify low incidence house-
holds without the cost of
outbound telephone calls and
live interviews.
TechFacts SM Panel................ 1996 A consumer panel of approxi-
mately 120,000 households who
utilize high technology prod-
ucts and services.
TechFacts SM Online............... 1997 A specially screened subset of
the TechFacts SM Panel that
provides an interactive link
to approximately 45,000
households and approximately
75,000 individuals utilizing
the Internet.
Target Europa..................... 1997 A Pan European consumer mail
panel of approximately
135,000 households.
</TABLE>
Consumer Mail PanelSM. Approximately 50% of the market data obtained by the
Company is collected from its proprietary Consumer Mail PanelSM (CMP) through
the mailing of questionnaires and telephone interviews. The CMP was first
introduced in 1949 and consists of approximately 515,000 households throughout
the United States and Canada. The CMP represents a broad cross-section of U.S.
and Canadian households that have agreed to participate in a wide variety of
marketing research projects and that have provided demographic and other
information about themselves. The Company conducts its panel market research by
surveying targeted segments of the CMP, primarily through mail questionnaires
and telephone interviews.
The Company develops and maintains an extensive data base of demographic
profiles of its CMP households, including information with respect to size and
composition of household, household income, age of
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<PAGE>
household members and education and occupation of adult household members. In
addition, the Company maintains a variety of information on its panel
households relating to the ownership and usage of different products and
services.
The Company believes that it can generally perform custom market research
more efficiently and reliably than firms using only random research methods.
Through its pre-recruited CMP, the Company can identify on a timely and cost-
effective basis a significant sample of consumer households who have the
specific characteristics targeted, based on study design, and who are likely
to respond to the Company's surveys. In many cases, the Company can easily
select households with the desired targeted characteristics from data
maintained about panel members. In other cases involving the need to locate
households with targeted characteristics not previously identified, the
Company can efficiently locate such households by screening a segment of its
panel members based on their profiles through a short interview or as part of
the Company's Data GageSM program or its IVR (Interactive Voice Response)
service. These capabilities are particularly efficient when seeking households
or consumers with low incidence characteristics (characteristics exhibited by
a relatively small segment of the general population). After locating a
sufficient sample of targeted households, the Company can quickly perform the
market research project by surveying those sample households. The Company may,
on occasion, provide a small token "thank-you" of nominal value for
particularly large or difficult questionnaires or studies, but generally does
not pay compensation for panel participation. The Company believes that this
policy helps to maintain the integrity of the research performed.
The Company conducts ongoing recruitment to add new households to its CMP as
needed. Prospective panel members are located through the purchase of targeted
lists, through telephone contacts made as part of the Company's TeleNation(R)
telephone calls, and through referrals by current CMP members. In recruiting
panel households, the Company appeals to their interests as consumers in
providing information to companies who want feedback from consumers, and in
testing new or reformulated products or services before they are introduced to
the general public. The Company believes that its panel members enjoy
contributing to the product development process and communicating their needs,
problems and preferences as they relate to specific products and ideas.
The Company also conducts continuous updating of its CMP. On average,
approximately 40% of panel households experience a significant change in some
key household demographic status during each year, such as a change in marital
status, address, occupation, employment status, household size, or household
income category. The Company regularly contacts all panel members and updates
its demographic database for those households that have experienced a
significant change. This continuous updating enables the Company to provide
clients with the most up-to-date consumer demographic information, which is an
advantage compared to mail panels that update less frequently than annually.
The Company also regularly updates its panel database to identify households
that have not participated in surveys and removes these non-responders from
its panel. This purging helps ensure higher survey return rates from
respondents, which means a lower cost per completed response for clients. The
ongoing maintenance also means that panel members are called on less
frequently so that they are more willing to fully participate in research
surveys, another factor which helps increase respondent rates.
The Company recently entered into a joint venture agreement with Taylor
Nelson AGB of London, England and Infratest Burke of Munich, Germany, which
established a Pan European consumer mail panel of approximately 135,000
households to perform panel research in Europe.
Most importantly, the Company believes its CMP provides a substantial
competitive advantage that differentiates the Company from other major custom
market research companies that use only traditional research methods. The
Company is aware of only two other market research companies in the United
States that maintain a broad based consumer mail panel.
National Telephone CenterSM. The Company's National Telephone CenterSM (NTC)
conducts nationwide telephone interviewing activities through approximately
300 interviewing stations networked with personal
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<PAGE>
computer terminals. All of the Company's interviewing stations are
ergonomically designed and connected to its CATI system. Approximately 650
part-time interviewers are employed by the Company. The Company also maintains
relationships with selected telephone interviewing firms who the Company
believes perform telephone market research that meets the Company's standards.
In 1996, the Company conducted approximately 800,000 total hours of
interviewing.
The Company believes that the quality and skill of its telephone
interviewers is essential to its ability to provide its clients with quality
research results, and therefore emphasizes its recruitment and training
procedures to select interviewers with clear diction, vocal confidence,
intelligence and the ability to establish rapport with respondents. In the
training process, special emphasis is placed on techniques for probing, asking
open-ended questions to elicit in-depth responses, and overcoming refusals.
The Company's CATI system guides the interviewer through the interview based
on which answers are keyed in for each question. The questionnaires are
programmed into the CATI system, so that when an answer is keyed into the
system, it will automatically go to the appropriate next question, allowing
the interviewer to focus on the interaction with the respondent. The CATI
system keeps track of unanswered telephone calls, shifting the time of day
when the next call is attempted in order to maximize the chances of reaching
the respondent. The system also tells the interviewer when a desired quota of
calls has been completed, so that the interviewer knows when to start another
set of calls. This sample management system enhances the efficiency of
telephone interviewing activities.
The Company has partially installed and has begun to use predictive dialers
in a limited number of projects. A predictive dialer senses busy signals or
other tones that indicate that a call has not been connected, and will not
route the call to the interviewer until it is answered by the respondent. This
saves the interviewer the time otherwise spent listening to the ringing of the
telephone and dialing numbers that do not get connected. The Company expects
to install a limited number of predictive dialers in each of its NTC locations
by the end of the year. Full installation in all of the Company's terminals
may be considered depending upon the Company's evaluation of the need and
desirability of a full installation. Terminals equipped with predictive
dialers are also equipped with audio playback and recording capabilities that
allow responses to be recorded digitally and recordings to be played for
respondents to obtain their reactions to radio commercials and other types of
audio stimuli.
Automotive Clinics. The Company conducts specialized product evaluation
clinics for automobile and truck manufacturers to guide their new vehicle
design and development programs, and to refine marketing programs for new
vehicle introductions. The Company exposes consumers to new products and
obtains their reaction to a variety of product characteristics. Clinics are
either dynamic, where respondents actually drive a new vehicle, or static,
where respondents only view a product or product model. By utilizing MarkeTest
Auto, an adaptation of the Company's MarkeTestSM 2000 product specifically
modified for automotive research, the Company provides clients with product
pricing, sales forecasting and competitive market share analysis information.
TeleNation(R). TeleNation(R) is a weekly omnibus or multi-client national
telephone survey. Two surveys of 1,000 American adults are conducted each week
on a multi-client basis that allows non-competing clients to share the cost of
the surveys. This service is ideal for tracking changes in attitudes and
behaviors over time. The two weekly surveys allow clients to choose weekend or
weekday interviewing or interviewing across a six-day period. Three-day
turnaround and low cost multi-client participation are major benefits of this
omnibus product. TeleNation(R) also offers a 24-hour service for special
sampling needs or extremely quick results.
National ShowCase(R). National ShowCase(R) is the Company's marketing group
that coordinates in-person field interviewing with consumers virtually
anywhere in the United States. National ShowCase(R) Omnibus is a weekly mall
interviewing service conducted in the top 20 U.S. markets where approximately
500 interviews are
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<PAGE>
conducted each week using 25 to 30 marketing research companies that lease
space in shopping malls. This method of data collection allows consumers to
see, touch, taste or use a product during the interview process. Rapid
turnaround and low cost multi-client participation are the benefits of
National ShowCase(R) Omnibus.
Central Location Interviewing Panel. The Company's nationwide in-person
interviewing services are provided by more than 100 independent field
agencies. Research is conducted through mall interviews, central location
interviewing panels, focus groups and in-home interviewing. The Company has
active relationships with approximately 40 malls in the top 20 markets in the
U.S., and in more than 20 additional smaller markets. The Company also
maintains its own Central Location Interviewing Panel ("CLIP") facility in
suburban Chicago. This facility can accommodate approximately 150 interviews
per day utilizing computer-equipped interviewing booths and is suited for
large volume taste, concept or package tests. The CLIP facility is
particularly useful in conducting consumer research to identify the best
product formulation that will optimize consumer interest. Due to the large
size of the CLIP facility and the availability of pre-identified consumers,
studies can be completed in only one or two days, providing a strong
competitive advantage.
IVR (Interactive Voice Response). IVR is designed for short, simple surveys
and is especially well-suited for customer satisfaction surveys or identifying
low incidence households without the cost of outbound telephone calls or live
interviews. Respondents are given a toll-free number to call any time of day,
seven days a week. The survey is recorded by a professional interviewer to
ensure that all respondents hear the same consistent interview. Participants
can respond to questions by pressing the number button on their telephones or
by speaking their answers into the receiver. Survey data can be tabulated by
traditional means, or via audio tapes of open- ended responses or transcribed
open-ended responses. Recordings allow clients to hear the audio tapes of the
spoken answers. IVR has multi-lingual capabilities.
TechFactsSM Panel. A consumer panel that provides access to over 120,000
households who utilize high technology products and services in the areas of
finance, telecommunications, entertainment, computer hardware and software and
the Internet.
TechFactsSM Online. This is the Company's first consumer panel entree into
the Internet. TechFactsSM Online is a specially screened subset of the
TechFactsSM panel that provides an interactive link to approximately 45,000
households and approximately 75,000 individuals utilizing the world wide web.
Target Europa. A joint venture with Taylor Nelson AGB of England and
Infratest Burke of Germany establishing a Pan European consumer panel of
approximately 135,000 households. The Company can provide clients with a means
to execute market research projects across the major markets of Europe using
common quality standards and products similar to those used in North America.
36
<PAGE>
MARKET RESEARCH PRODUCTS
The Company offers a broad assortment of proprietary market research products
which provide branded solutions to client research needs. The following table
summarizes the Company's market research products:
<TABLE>
<CAPTION>
MARKET RESEARCH PRODUCT INTRODUCTION DATE FUNCTION/CAPABILITY
----------------------- ----------------- -------------------
<C> <C> <S>
Data Gage SM................... 1957 Monthly omnibus survey of
select households in the
CMP. Sample sizes range
from 1,000 to 150,000
households. Multi-client
participation greatly re-
duces survey costs.
Decision Systems............... 1972 An in-house team of profes-
sional statisticians and
analytic experts that pro-
vide special expertise in
interpreting data and
translating it into under-
standable and actionable
information.
MiniScreen SM.................. 1987 Monthly survey which in-
cludes fewer questions and
offers smaller sample sizes
than Data Gage, but with an
even greater reduction in
survey costs.
Mail Monitor(R)................ 1988 A multi-client product pur-
chased by major credit card
issuers that analyzes the
competitive framework and
performance of credit card
direct mail customer acqui-
sition programs.
MarkeTestSM 2000............... 1989 Sales forecasting model that
predicts the sales volume
for a new product or con-
cept prior to expensive
product development activi-
ties.
Conversion Model............... 1990 Uses proprietary survey
techniques to measure con-
sumer commitment to a par-
ticular brand, product or
concept, as well as brand
equity. The Company be-
lieves this to be the most
widely used brand equity
measurement system world-
wide.
BrandVision(R)................. 1993 Custom, continuous tracking
and guidance system that
monitors the ongoing health
of a brand or service and
how consumers respond to
marketing and advertising
programs. Identifies the
most efficient or impactful
advertising strategies.
Inside Track(R)................ 1994 A multi-client product pur-
chased by major credit card
issuers that provides com-
petitive direct mail reten-
tion and activation infor-
mation.
OnTargetSM..................... 1996 Specialized product used to
improve customer response
rates for direct mail mar-
keters.
Compete(R)..................... 1996 A state-of-the art software
system that stores key
study results from concept
and product tests and pro-
vides clients with sophis-
ticated archival capabili-
ties either at their of-
fices or via the Internet.
BehaviorScope SM............... 1996 Tracks usage (as opposed to
purchase) behavior on an
ongoing continuous basis to
identify product usage
trends.
Commitments.................... 1997 An integrated customer and
employee loyalty and value
management system.
Product Quest SM............... 1997 Methodologies and analytical
approaches for product
testing at all stages of
the product life cycle.
PriceDynamics.................. 1997 A toolbox of proven and re-
liable research techniques
to guide marketers in mak-
ing better pricing deci-
sions.
Canadian Multi-Client Studies.. Various Eight different multi-client
market surveys of Canadian
consumer behavior.
</TABLE>
37
<PAGE>
Data GageSM. Data GageSM is a proprietary monthly multi-client mail survey
sent to various household samples from the CMP. Multiple questionnaire cards
are sent with each mailing, with each questionnaire card collecting
information for a different client, allowing clients of the Company to share
the postage and processing costs of the surveys with other non-competitive
clients. Each survey is a brief questionnaire for clients who want to ask only
a limited number of questions to collect a variety of market and consumer
information. Data GageSM offers sample sizes from 1,000 households or any
multiple of 1,000 up to 150,000, and each sample is selected from CMP's
complete universe of households rather than pre-selected blocks of households.
Mailings are scheduled for the first business days of each month, and mid-
month mailings are also available.
Decision Systems. An in-house team of professional statisticians and
analytic experts that provide special expertise in the translation and
interpretation of data into language that is understandable and actionable.
All Decision System members have advanced degrees and the most senior members
have more than 15 years experience with the team. The Decision Systems team
offers statistical analysis in a broad range of difficult marketing problems.
Market segmentation analysis techniques and sophisticated modeling
applications are particularly useful value-added services offered by Decision
Systems.
MiniScreen SM. The operation of MiniScreenSM is similar to that of Data
GageSM, but clients may choose to ask as few as one or two questions, again
with the ability to share the cost of the surveys with other non- competitive
clients of the Company. In this case, clients share a questionnaire card
rather than having an entire questionnaire card. This is the least expensive
methodology for surveys involving only a few questions. MiniScreenSM mails to
20,000 households each month, with larger samples of 40,000, 60,000 or 80,000
available in the first month of each quarter.
Mail Monitor(R). Mail Monitor(R) is a multi-client product that analyzes the
competitive offerings and performance of direct mail customer acquisition
programs of credit card issuers. Introduced in 1988, this product has been
marketed since 1990 by BAIGlobal pursuant to a joint venture agreement between
BAIGlobal and the Company that was effective through the date of the Company's
acquisition of BAIGlobal on July 31, 1997. The data is collected using the CMP
and is marketed to clients by BAIGlobal.
MarkeTestSM 2000. MarkeTestSM 2000 is a forecasting model that predicts the
market viability of new products, ideas or concepts. Typically, this model is
accurate within 20% of actual sales. This model helps to minimize the
guesswork from critical decisions in the process of launching a new product or
concept. Because data can be collected from respondents using a written
description and illustration before expensive product development is
undertaken, MarkeTestSM 2000 saves clients time and money in their product
design activities.
Conversion Model. The proprietary survey techniques utilized in the
Conversion Model are designed to measure customer commitment to a particular
brand, product or concept and the susceptibility of customers to switch
brands. Customers are classified according to their level of commitment to the
client's brand or product, from staunchly loyal customers, "entrenched," to
those on the verge of defection, the "convertibles." Non- customers are
classified by their potential to switch to the client's brand or product, from
those readily "available" to those "strongly unavailable." Conversion Model
segments are analyzed to reveal critical needs, attitudes, behaviors and
demographics, i.e., it identifies customers who are committed, customers who
are vulnerable to loss, customers who might be won, and why. The Conversion
Model enables clients to more effectively target their marketing expenditures
to retain vulnerable customers, increase customer commitment, win non-
customers and overcome barriers to acceptance. In addition, quantitative
measures of brand equity can be calculated from Conversion Model analysis.
BrandVision(R). This is a continuous tracking and guidance system that
provides a comprehensive, ongoing monitor of the health of a particular brand
or service, and how consumers respond to the marketing and advertising
programs that support them. BrandVision(R) collects data every day throughout
the year through telephone interviewing. It identifies marketing and
advertising campaign strategies that are most effective and impactful.
38
<PAGE>
Inside Track(R). This is a multi-client product sold to major credit card
issuers that provides competitive direct mail retention and activation
information. This product has been marketed since 1994 by BAIGlobal pursuant
to a joint venture agreement between BAIGlobal and the Company. The data is
collected using the CMP and marketed to clients by BAIGlobal.
OnTarget SM. This product was introduced in 1996 by BAIGlobal. It is a means
to increase direct mail response rates for clients by using telephone
interviewing to identify weak links in the direct mail response chain. It also
provides clients with a comprehensive evaluation of the various elements of a
direct mail solicitation and creates a model for testing different scenarios
to maximize the profitability of direct mail efforts.
Compete(R). A state-of-the-art software system that stores key study results
from clients' concept tests, product tests or any other test with standardized
measures. Key benefits of Compete(R) to clients are its sophisticated archival
and retrieval capabilities of test results including product images,
storyboards, full motion video, and its ability to perform analysis of tests
results. Clients can use Compete (R) at their offices or can access the system
via the Internet. Compete (R) also enhances the usefulness of data that the
Company collects for clients.
BehaviorScope SM. This model tracks usage, as opposed to purchase behavior,
and reveals items and methods used by consumers to address specific situations
that cannot be identified through traditional methods. The client can obtain
information on not only other competing products, but on other household
solutions that are being substituted by consumers in lieu of their products.
This product helps interpret standard sales data and provides insight in
developing market strategies to expand product usage.
Commitments. An integrated loyalty and value management system to optimize
financial return on customer acquisition and retention strategies. Commitments
aids clients in understanding the marketing factors which drive the commitment
of customers and employees, sets targets for optimum service levels and
product performance, and creates financial models to analyze the financial
impact of alternative satisfaction improvement initiatives.
Product Quest SM. Product Quest SM is a focused approach to product testing
that uses an assortment of proprietary analytic tools each targeted at a
specific component of the product lifecycle, from introduction to tracking to
redevelopment. The benefit to the client of using Product Quest SM is
increased efficiency and actionability in their product testing programs.
PriceDynamics. A toolbox of proven and reliable research techniques to guide
marketers in making better pricing decisions. PriceDynamics is a consultative
service customized to a client's specific situation that selects the
appropriate technique to address the client's need, utilizing both general
research approaches and innovative proprietary research techniques.
Canadian Multi-Client Studies. Since the 1960's, Market Facts of Canada,
Ltd. has pioneered a number of in-depth Canadian syndicated consumer behavior
studies. These are subscription-based market research products whose costs are
shared among a number of client subscribers. These products include Beverage
Consumption Survey, Canadian Eating Habits Survey, Household Equipment Survey,
Household Flow of Funds Survey, Personal Accessories and Cosmetics Survey,
Consumer Financial Service Index, Footwear Market Index and the Sporting Goods
Survey. Most products are published annually.
MARKETING AND SALES
The Company maintains offices throughout North America and has a staff of
approximately 100 client service executives divided into eight client service
teams. These client service executives are experienced market researchers,
most of whom have prior experience with the Company, and they handle most day-
to-day contact with clients including ongoing account management and new
business development. Clients and new prospects are assigned to client service
executives based upon several factors, including existing client
relationships, industry experience and, to a lesser extent, geographic
territory. Client service executives work primarily with
39
<PAGE>
the market research, product and brand management departments of the Company's
clients to develop the appropriate research methodology that addresses the
client's marketing issue. Once a research project design has been agreed upon
with the client, the client service executive coordinates efforts with the
Company's professional research staff to plan the execution of the project,
including preparation of questionnaires, collection of data, analysis of
findings, and creation of written reports to the client.
The Company also utilizes experienced market research executives who
function as brand managers for most of the Company's products, assisting
client service executives in understanding the Company's products and
selecting the product that can best address the marketing issues of the
client. The product managers also participate in sales and business
development activities.
The Company's client service executives work closely with clients to
understand client needs and identify how the Company's products and services
can be used to address marketing information problems. Approximately 42% of
the Company's revenue increase in 1996 was attributable to increased revenue
from existing clients. The Company intends to continue to focus on its
partnering approach with clients. To further this strategy, the Company is
providing key account management training to its client service executives in
order to improve their skills at understanding the research needs of the
Company's clients and to identify ways that the Company can respond to those
needs.
COMPETITION
The custom market research industry is highly fragmented. The Company faces
direct competition from a large number of relatively small organizations that
serve niche markets but lack the capability to provide a full range of
products and services. Although the Company estimates that it is among the six
largest custom market research firms in the United States, as measured by 1996
revenue, it faces direct competition from a small number of larger concerns
with resources greater than those of the Company. The Company believes that as
the industry continues to consolidate, it will face increasing competition
from these concerns not only for clients but also for acquisition candidates.
Furthermore, the Company is subject to competition from the marketing research
departments of clients and potential clients, advertising agencies, survey
research departments affiliated with universities and government agencies.
The Company believes that the principal methods of competition are quality
and speed of research results, the ability to provide customized data
collection, analysis and interpretation, geographic coverage, the ability to
guide clients through the entire marketing research process, the ability to
provide creative recommendations to clients and the ability to attractively
price services. The Company believes that its ability to properly design
research projects and deliver quality research results quickly, and to
customize its projects and guide its clients through the entire marketing
research process are competitive strengths. The Company also believes that the
ability to service the international research needs of clients will become an
increasingly important competitive factor going forward.
The Company believes that its CMP provides a competitive advantage over
firms that rely solely on random research methods, since its CMP delivers
higher response rates and higher quality data at lower costs than traditional
methods. The Company is aware of only two other custom market research
companies in the United States that maintain a broad-based consumer mail
panel.
TRADEMARKS AND SERVICE MARKS; PROPRIETARY INFORMATION
The Company relies on a combination of copyright, trademark and trade secret
laws and employee and third-party non-disclosure agreements to protect its
proprietary systems, software and procedures. The Company's federally
registered service marks include Accutab(R), Autoquest(R), BrandVision(R),
Compete(R)
40
<PAGE>
InsideTrack(R), Mail Monitor(R), National ShowCase(R), PatientFacts(R) and
TeleNation(R). The marks BehaviorScope, Consumer Mail Panel, Data Gage,
MarkeTest 2000, Market Facts, MiniScreen, National Telephone Center, OmniMax,
OnTarget, ProductQuest and TechFacts are proprietary marks of the Company. In
addition, the Company's Canadian subsidiary is the registered owner of the
following trademarks in Canada: ADPAC(R), ADPAC II(R), NATIONAL FLEXIBUS(R),
and TeleNation(R).
The Company's success is partially dependent upon the proprietary software
technology, research methods and data analysis techniques that it has developed
to service its clients. However, there can be no assurance that the steps taken
by the Company to protect its proprietary rights will be adequate to prevent
the misappropriation of such rights.
The Company vigorously defends against the unauthorized use of its service
and proprietary marks.
EMPLOYEES
As of September 1, 1997, the Company employed approximately 680 full-time
employees and approximately 840 part-time employees. Of the full-time
employees, approximately 330 are professional research staff, of which
approximately 100 are client service executives; approximately 220 are engaged
in data collection and processing activities; and the remainder perform
administrative and support functions. Part-time employees are hired as required
and are usually engaged as telephone interviewers.
Many of the professional research staff have post-graduate degrees in fields
such as psychology, statistics, mathematics, marketing, economics, computer
science, management science, engineering, finance and business. The Company
conducts in-house training for both its professional research and data
gathering staff.
The Company offers employment contracts to the majority of its vice
presidents on the first anniversary of their election to office. These
employment agreements continue until terminated in accordance with their
provisions and contain confidentiality and noncompete restrictions during the
term of employment and for a period of one year thereafter. Approximately 85%
of the Company's key personnel have been with the Company more than five years.
The Company maintains an employee stock ownership plan ("ESOP") and a profit
sharing plan for its U.S. employees that offers Company Stock as an investment
choice. The ESOP and the profit sharing plan held 5.6% and 6.9%, respectively,
of the Company's outstanding Common Stock as of September 1, 1997.
The Company's employees are not represented by a union and the Company has
never experienced a work stoppage. The Company believes that its relationship
with its employees is excellent.
DESCRIPTION OF PROPERTY
The Company's headquarters are located at 3040 West Salt Creek Lane,
Arlington Heights, Illinois in an office building of approximately 120,000
square feet owned by the Company. This location also houses the Company's
largest client service office, mail panel and information technology
operations, corporate and administrative functions and a telephone interviewing
facility. The property is financed through a mortgage loan. See Note 5 of the
Consolidated Financial Statements of Market Facts, Inc. and Subsidiaries. The
Company also leases client service offices in the United States in Atlanta,
Georgia; Cincinnati, Ohio; Encino, California; McLean, Virginia; Morristown,
New Jersey; Natick, Massachusetts; New York, New York; Phoenix, Arizona; San
Francisco, California; Seattle, Washington; and Tarrytown, New York. The
Company has three leased telephone interviewing facilities located in Evanston,
Aurora, and Oak Park, Illinois and additional leased administrative facilities
in Arlington Heights and Palatine, Illinois.
The Company's Canadian operations are headquartered in Toronto, Ontario. This
location primarily houses mail panel, telephone interviewing, client service
offices, operations and administrative functions. In addition, four smaller
leased offices, located in Montreal, Quebec; New Westminster, B.C.;
Mississauga, Ontario; and Peterborough, Ontario, are used as client service,
telephone or mall interviewing facilities.
41
<PAGE>
The Company expects that additional facilities may be necessary to support
the Company's recent and anticipated future growth in business and is
continually evaluating alternatives for satisfying these requirements.
LEGAL PROCEEDINGS
The Company is not currently involved in any material litigation or
proceeding and is not aware of any such proceedings threatened against it.
BAIGLOBAL ACQUISITION
Acquisition Agreement. On July 31, 1997 (the "Closing"), the Company
completed the acquisition of all of the outstanding capital stock of BAIGlobal
pursuant to a Stock Purchase Agreement dated as of the same date. In
connection with the transaction, BAIGlobal entered into employment agreements
with each of the BAIGlobal Principals expiring in the year 2000.
The purchase price for the BAIGlobal shares was an amount equal to (i)
$3,590,000 in cash, to be adjusted based on BAIGlobal's closing net worth to
be determined within 120 days of the Closing, plus (ii) the assumption of
$2,250,000 in debt payable to two of the BAIGlobal Principals, and (iii) up to
$5,000,000 of possible contingent payments in the form of cash and stock based
on BAIGlobal exceeding a certain earnings target for the period July 31, 1997
through December 31, 1999 (the "Additional Purchase Price"). The Additional
Purchase Price is to be equal to 3.3 multiplied by the amount by which
BAIGlobal's aggregate EBIT during the 29-month period exceeds $2,724,000, with
20% of the total subject to the continued employment of the BAIGlobal
Principals, with certain specified exceptions. The first $4,000,000 of
Additional Purchase Price is payable in cash with the remaining $1,000,000
payable in shares of the Company's Common Stock. Effective immediately after
the Closing, the Company caused BAIGlobal to repay the $2,250,000 due to the
two BAIGlobal Principals, less certain withholdings for federal, state and
local taxes. The BAIGlobal acquisition was financed from borrowings under one
of the Company's lines of credit and cash on hand.
In consideration of the payment of $50,000 in the aggregate, the BAIGlobal
Principals agreed that for a period of five years following the Closing, they
would not directly or indirectly, (i) engage in any business which competes
with BAIGlobal's business anywhere in the world, (ii) solicit business from
any customers of BAIGlobal on or prior to the Closing, or (iii) solicit any
BAIGlobal employees for employment.
Business of BAIGlobal. BAIGlobal is a New York market research company
founded in 1969 which conducts domestic and international quantitative and
qualitative market research primarily in the financial services industry.
Revenue for BAIGlobal in 1996 was $11.7 million, an increase of 51.9% over the
prior year. BAIGlobal serviced approximately 80 clients in 1996, including
approximately 30 clients from the financial services industry. Since 1990
BAIGlobal has marketed the Company's Mail Monitor(R) product primarily to
major credit card issuers. BAIGlobal has a strong reputation in the market
research industry and has an established global research capability.
BAIGlobal's clients include (in alphabetical order): AT&T Corp., American
Express Company, Bank of America National Trust & Savings Assn., The Bank of
New York, The Chase Manhattan Corporation, Church & Dwight Co., Inc., Citibank
N.A., Citicorp, Lucent Technologies Inc., MasterCard International Inc., and
VISA International. BAIGlobal offers a number of services including new
product and service development, market evaluation and planning studies,
customer satisfaction and service measures and business to business research.
BAIGlobal performs custom market research services. BAIGlobal's clients are
served on a project-by-project basis, with prices negotiated based on cost
estimates prepared by BAIGlobal. Approximately 85% of BAIGlobal's business
during the year ended December 31, 1996 was with clients for whom BAIGlobal
had performed work during the prior year. BAIGlobal markets three multi-client
subscription-based market research products: Mail Monitor(R); Inside Track(R);
and OnTargetsm. Mail Monitor(R) was historically offered pursuant to a joint
venture commenced in 1990 with the Company and tracks acquisition rates for
credit card users. Clients for this product include major credit card issuers.
Inside Track(R) is a multi-client tracking mechanism for credit card retention
direct mail campaigns. OnTarget(TM) was only recently launched in 1996 and
interprets the effectiveness of a specific direct mail offering. BAIGlobal
also offers qualitative research which the Company believes enhances and
complements the Company's quantitative research capabilities.
42
<PAGE>
BAIGlobal also has an international research unit that operates worldwide to
provide both quantitative and qualitative research and has capabilities on all
seven continents. The unit is headed by one of the BAIGlobal Principals who has
twenty years of experience in the industry. This unit provides BAIGlobal with a
competitive advantage based on its ability to offer a level of quality
internationally that matches its domestic research product. It is also able to
augment its own capabilities with a database of international research agencies
and service providers.
The acquisition of BAIGlobal is the first step in the Company's acquisition
strategy. The BAIGlobal acquisition provides the Company with an established
U.S.-based international group possessing the ability to provide clients with
high quality international market research services. In addition, BAIGlobal
brings to the Company a competency in the area of focus groups that the Company
will be able to leverage enterprise-wide. Finally, the acquisition of BAIGlobal
will provide the Company with a distribution channel to market its products and
services to BAIGlobal's base of established customers.
See "Market Facts, Inc. and Subsidiaries Unaudited Pro Forma Condensed
Consolidated Financial Statements" and the BAIGlobal, Inc. Financial Statements
included elsewhere herein.
43
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information with respect to the
directors and executive officers of the Company as of September 1, 1997:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
---- --- -------------------------
<C> <S> <C>
Verne B. Churchill...... 64 Chairman of the Board
Thomas H. Payne......... 52 President, Chief Executive Officer and Director
Sanford M. Schwartz..... 46 Executive Vice President, President of Market Facts-New York, Inc. and
Director
Lawrence W. Labash...... 49 Senior Vice President and Director
Timothy J. Sullivan..... 43 Chief Financial Officer, Senior Vice President, Treasurer, Assistant
Secretary and Director
William W. Boyd......... 70 Director; Chairman of the Audit Committee
Jeffery A. Oyster....... 32 Director
Karen E. Predow......... 48 Director
Ned L. Sherwood......... 47 Director
Jack R. Wentworth....... 69 Director; Chairman of the Compensation Committee
</TABLE>
Mr. Churchill has been Chairman of the Board since 1987 and a Director since
1967. He was Chief Executive Officer of the Company from 1983 to 1996 and has
been with the Company since 1959. Mr. Churchill was Vice President of the
American Marketing Association and President of its Chicago Chapter, and was
also on the Board of Advisors of the University of Georgia's Masters of
Marketing Research Program. Mr. Churchill has a B.A. from Ripon College and an
M.B.A. from Indiana University.
Mr. Payne has been President and Chief Executive Officer of the Company
since 1996 and a Director since 1982. From 1987 to 1996, he was President and
Chief Operating Officer of the Company and has been with the Company since
1971. Mr. Payne is a Founding Member of the University of Virginia's McIntire
School of Commerce Advisory Board and has a B.S. from the University of
Virginia and an M.B.A. from Michigan State University.
Dr. Schwartz has been Executive Vice President and a Director of the Company
and President of Market Facts-New York, Inc. since 1992. Prior to 1992, he was
President of Elrick & Lavidge, a market research firm in New York, New York.
Dr. Schwartz is a Member of the Board of Directors of the Council of American
Survey Research Organizations and the Board of Directors of the Council of
Marketing and Opinion Research. Dr. Schwartz has a B.A. from George Washington
University and a Ph.D. from Catholic University.
Mr. Labash has been Senior Vice President of the Company since 1986, a
Director since 1994 and has been with the Company since 1973. Mr. Labash has a
B.S. from the University of Illinois.
Mr. Sullivan has been a Director and the Chief Financial Officer since
August 21, 1997 and a Senior Vice President of the Company since 1996. Prior
to becoming Senior Vice President, he held the position of Vice President. Mr.
Sullivan is also Treasurer and Assistant Secretary of the Company, positions
he has held since 1991, and has been with the Company since 1990. Mr. Sullivan
is Treasurer and a Member of the Board of Directors of the Council of American
Survey Research Organizations. Mr. Sullivan has a B.S. from Adrian College, an
M.B.A. from the University of Chicago and is a certified public accountant.
Mr. Boyd has been a Director of the Company since 1994. He is Chairman of
the Board of Sterling Plumbing Group, Inc. ("Sterling") in Rolling Meadows,
Illinois, and has held that position since 1992. Prior to
44
<PAGE>
1992, Mr. Boyd was President and Chief Executive Officer of Sterling. In
addition, Mr. Boyd is a trustee of the Stein, Roe and Farnham Mutual Funds and
a trustee of Elmhurst College, as well as a director of Cummins-Allison Corp.
and Kohler Company.
Mr. Oyster has been a director of the Company since July 1997. Since 1995,
he has been a partner of the ZS Fund L.P., a New York-based investment
partnership which provides financial advisory services to the Company. In
addition, since June 1996, Mr. Oyster has been an officer of MFI Associates,
Inc., a financial advisory services firm and the Selling Stockholder in this
offering. From 1990 through 1994, Mr. Oyster was Vice President of Davenport
Management, Inc., a Connecticut-based private equity partnership.
Ms. Predow has been a Director since 1993. She is Division Manager of
Consumer Communications Services for AT&T in Basking Ridge, New Jersey, a
position she has held since October 1994. Prior to October 1994, Ms. Predow
was Vice President of The Chase Manhattan Bank, N.A. in New York, New York.
Mr. Sherwood has been a Director of the Company since 1996 and is the
managing partner of the ZS Fund L.P., a New York based investment partnership
of which Zaleski, Sherwood & Co., Inc. (a private investment firm of which Mr.
Sherwood has been president since 1985) is the general partner. The ZS Fund
L.P. provides financial advisory services to the Company. Mr. Sherwood has
also been an officer and director of MFI Associates, Inc., a financial
advisory services firm and the Selling Stockholder in this offering, since
June 1996. In addition, Mr. Sherwood is a director of Sun Television
Appliances, Inc., Kaye Group, Inc,. and Mazel Stores, Inc.
Dr. Wentworth has been a Director since 1988. He is Professor and former
Dean of the Graduate School of Business of Indiana University in Bloomington,
Indiana.
CERTAIN TRANSACTIONS
SELF-TENDER OFFER
Pursuant to the terms and conditions of the Company's self-tender offer
commenced in June 1996, Mr. Verne B. Churchill, the Company's Chairman of the
Board, elected to tender, at $3.625 per share, 876 shares of Common Stock from
his direct holdings, 11,432 shares of Common Stock from his ESOP account and
187,448 shares from his Profit Sharing Plan account. In addition, Mr.
Churchill contributed 360,000 shares to a charitable trust, all of which
shares were tendered to the Company in the tender offer. The shares tendered
were purchased by the Company in July 1996.
EMPLOYEE LOANS
The Company provides loans to certain of its executive officers in the form
of promissory notes and demand notes for the principal purpose of exercising
stock options and purchasing stock of the Company. These notes bear interest
at various rates ranging from 7.75% to 11.25%. The largest aggregate amount of
such indebtedness outstanding for any executive officer which exceeded $60,000
from January 1, 1996 to September 1, 1997 were as follows: Mr. Payne,
$123,381; Mr. Churchill, $76,785 and Mr. Sullivan, $131,463. The outstanding
principal balances of these loans as of September 1, 1997 were as follows: Mr.
Payne, $104,651; Mr. Churchill, $64,969 and Mr. Sullivan, $127,413. Mr.
Sullivan's loans include a promissory note issued April 1, 1994 in the amount
of $40,500 that provides for repayment of principal equally over ten years
beginning in 1995, provided, however, that principal payments are forgiven
every two years if he remains employed by the Company on the payment due date
commencing with the payment due in 1996.
INVESTMENT AGREEMENT AND FINANCIAL ADVISORY AGREEMENT
The Company is a party to an Investment Agreement with MFI Investors L.P.,
and a Financial Advisory Agreement with the ZS Fund L.P., both of which are
entities affiliated with Messrs. Ned L. Sherwood and Jeffery A. Oyster, two of
the Company's directors. See "Agreements with Selling Stockholder and its
Affiliates."
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<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of September 1, 1997,
and as adjusted to reflect the sale of shares of Common Stock being offered
hereby, by (i) each stockholder who is known by the Company to beneficially
own more than 5% of the currently outstanding shares of Common Stock, (ii)
each of the Company's current directors and executive officers, (iii) all
directors and executive officers of the Company as a group, and (iv) the
Selling Stockholder.
<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
BEFORE OFFERING(1) AFTER OFFERING(1)(2)
------------------------ -----------------------
SHARES OF PERCENTAGE SHARES SHARES OF PERCENTAGE OF
COMMON OF OUTSTANDING BEING COMMON OUTSTANDING
NAME STOCK COMMON STOCK OFFERED(2) STOCK COMMON STOCK
- ---- --------- -------------- ---------- --------- -------------
<S> <C> <C> <C> <C> <C>
DIRECTORS AND EXECUTIVE
OFFICERS
William W. Boyd (3)..... 9,600 * -- 9,600 *
Verne B. Churchill (4).. 56,516 * -- 56,516 *
Lawrence W. Labash (5).. 110,212 1.59% -- 110,212 1.31%
Jeffery A. Oyster(6).... 600 * -- 600 *
Thomas H. Payne (7)..... 141,376 2.04% -- 141,376 1.68%
Karen E. Predow (8)..... 2,400 * -- 2,400 *
Sanford M. Schwartz
(9).................... 333,657 4.82% -- 333,657 3.96%
Ned L. Sherwood (10).... 2,539,732 36.67% 500,000 2,039,732 24.21%
Timothy J. Sullivan
(11)................... 140,265 2.02% -- 140,265 1.66%
Jack R. Wentworth (12).. 3,200 * -- 3,200 *
All directors and
executive officers as a
group (10 people)
(13)................... 3,337,558 47.98% 500,000 2,837,558 33.56%
PRINCIPAL STOCKHOLDERS
(NOT INCLUDING
DIRECTORS OR EXECUTIVE
OFFICERS)
MFI Investors L.P.
(6)(10)................ 2,537,332 36.65% 500,000 2,037,332 24.19%
55 Morris Lane
Scarsdale, New York
10583
CG Trust Company, as
trustee of the Profit
Sharing Plan and ESOP
(14)................... 865,289 12.50% -- 865,289 10.27%
525 West Monroe St.
Chicago, Illinois 60661
</TABLE>
- --------
* Less than 1%.
(1) The nature of beneficial ownership of securities is direct, and arises
from sole voting and investment power, unless otherwise indicated by
footnote.
(2) Assumes that the Underwriters' over-allotment option is not exercised.
(3) Includes 2,400 shares subject to options exercisable within 60 days; the
remaining shares are held in the William W. Boyd Insurance Trust and the
Janet S. Boyd Insurance Trust.
(4) Includes 119 shares allocated to Mr. Churchill under the Market Facts,
Inc. Employee Stock Ownership Plan ("ESOP"); 85 shares held for the
benefit of Mr. Churchill in the Market Facts Stock Fund of the Market
Facts, Inc. Profit Sharing and Retirement Plan (the "Profit Sharing
Plan"); and 2,400 shares subject to options exercisable within 60 days.
(5) Includes 13,200 shares with respect to which voting and investment powers
are shared; 5,707 shares allocated to Mr. Labash under the ESOP; 40,929
shares held for his benefit in the Market Facts Stock Fund of the Profit
Sharing Plan; and 4,000 shares subject to options exercisable within 60
days.
(6) 2,537,332 shares of Common Stock (the "MFI Shares") are held of record by
MFI Investors L.P., a Delaware limited partnership (the "Partnership"), of
which MFI Associates, Inc., a Delaware corporation, is the general partner
(the "General Partner"). The General Partner has the sole voting and
dispositive power over the MFI Shares. Mr. Oyster holds 9.9% of the Class
A Common Stock of the General Partner. However, Mr. Oyster has granted to
Mr. Ned Sherwood an irrevocable proxy to vote one-half of his shares,
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<PAGE>
which together with proxies delivered by the remaining stockholders, gives
Mr. Sherwood voting control over 65% of the Class A Common Stock of the
General Partner. Therefore, Mr. Sherwood exercises voting control over all
of the MFI Shares owned by the Partnership. Mr. Oyster's wife holds 600
shares as to which Mr. Oyster disclaims beneficial ownership.
(7) Includes 10,230 shares allocated to Mr. Payne under the ESOP; 24,918
shares held for his benefit in the Market Facts Stock Fund of the Profit
Sharing Plan; and 8,000 shares subject to options exercisable within 60
days.
(8) Represents 2,400 shares subject to options exercisable within 60 days.
(9) Includes 314,000 shares which are subject to the terms of a Restricted
Stock Award. There were 400,000 shares awarded, which vest 10% each year
over a ten-year period that commenced January 5, 1993. As of September 1,
1997, 200,000 of such shares had vested. Upon the termination of Dr.
Schwartz's employment with the Company, any unvested shares will be
forfeited and returned to the Company. Includes 2,092 shares allocated to
Dr. Schwartz under the ESOP; 7,565 shares held for the benefit of Dr.
Schwartz in the Market Facts Stock Fund of the Profit Sharing Plan; 4,000
shares subject to options exercisable within 60 days; and 6,000 shares
held in trust for the benefit of his children.
(10) The shares beneficially owned by Mr. Sherwood include 2,537,332 shares
held of record by the Partnership and 2,400 shares subject to options
exercisable by Mr. Sherwood within 60 days. The Partnership also holds
100 shares of Series B Preferred Stock. The General Partner has the sole
voting and dispositive power over the Common Stock and the Series B
Preferred Stock held by the Partnership, and Mr. Sherwood has voting
control over 65.14% of the outstanding voting securities of the General
Partner. He may therefore be deemed to beneficially own all of such
shares. See "Agreements with Selling Stockholder and its Affiliates--
Investment Agreement" and "Description of Capital Stock--Preferred
Stock."
(11) Includes 3,058 shares allocated to Mr. Sullivan under the ESOP; 15,207
shares held for his benefit in the Market Facts Stock Fund of the Profit
Sharing Plan; and 4,000 shares subject to options exercisable within 60
days.
(12) Includes 2,400 shares subject to options exercisable within 60 days.
(13) Includes 13,200 shares with respect to which voting and investment powers
are shared; 21,206 shares allocated to executive officers under the ESOP;
88,704 shares held for the benefit of executive officers in the Market
Facts Stock Fund of the Company's Profit Sharing Plan; and 32,000 shares
subject to options exercisable within 60 days. Also includes 2,537,332
shares of Common Stock held of record by the Partnership.
(14) CG Trust Company is a unit of Connecticut General Life Insurance Company,
Hartford, CT, which was engaged by the Company in January 1997 as Trustee
of the Company's Profit Sharing Plan and the ESOP. As of September 1,
1997, the Market Facts Stock Fund of the Company's Profit Sharing Plan
held 477,543 shares of Common Stock for the benefit of Company employees,
and the ESOP held 387,746 shares.
47
<PAGE>
AGREEMENTS WITH SELLING STOCKHOLDER AND ITS AFFILIATES
INVESTMENT AGREEMENT
On June 6, 1996, the Company entered into an Investment Agreement (the
"Investment Agreement") among MFI Investors L.P., the Selling Stockholder (also
called the "Partnership"), MFI Associates, Inc., the sole general partner of
the Partnership (the "General Partner") and the Company, whereby the
Partnership purchased from the Company a 10-year, 7% subordinated note in the
principal amount of $8,250,000, convertible into 2,275,860 shares of Common
Stock. Immediately prior to the purchase of the shares of Common Stock in the
Company's self-tender offer in July 1996, the note was automatically converted
into 2,275,860 shares of Common Stock at the rate of $3.625 per share.
The Company has been advised that the Partnership was formed for the purpose
of making this investment in the Company pursuant to the Agreement of Limited
Partnership of the ZS Fund L.P., a New York investment group. Mr. Ned L.
Sherwood, a director of the Company, has served as President of Zaleski,
Sherwood & Co., Inc., a private investment firm which is the general partner of
the ZS Fund L.P., since September 1985. Mr. Sherwood is an officer and director
of the General Partner and has an interest as a limited partner of the
Partnership. Mr. Jeffery Oyster, also a director of the Company, has been
employed by the ZS Fund L.P. since 1995. Mr. Oyster is also an officer and
director of the General Partner. Mr. Sherwood and Mr. Oyster are two of the
five voting stockholders of the General Partner.
In connection with the Investment Agreement, the Company issued to the
Partnership 100 shares of a new class of Series B Preferred Stock, no par value
("Series B Shares"), entitling the Partnership to elect three directors (the
"Investor Directors"), subject to decrease if the Partnership's beneficial
ownership of Company voting securities decreases. See "Description of Capital
Stock--Preferred Stock--Series B Preferred Stock."
The Investment Agreement provides that as long as the Partnership has
continuously owned a minimum of 1,140,000 shares of the Company's Common Stock
and meets certain other conditions, certain board actions will be subject to
the approval of at least one director elected by the Partnership.
With respect to the election or removal of directors (other than those
elected by the Partnership as holder of the Series B Shares), the Investment
Agreement provides that the shares held by the Partnership are to be voted
proportionally in accordance with the vote of the Company's public stockholders
(defined as stockholders other than the Partnership and certain executive
officers of the Company).
With respect to matters other than the election or removal of directors
submitted to a vote of Company stockholders, the Partnership may vote 19.9% of
the total combined voting power of all voting securities of the Company then
outstanding according to its own discretion, and shall vote proportionally in
accordance with the votes cast by the Company's public stockholders any of its
shares in excess of 19.9%.
The total beneficial ownership of Company voting securities by the
Partnership and certain persons associated therewith ("Standstill Persons") is
not permitted at any time to exceed 37.5% of the total combined voting power of
all voting securities then outstanding (the "Standstill Percentage"); provided
that this provision will not be violated solely by reason of a reduction in the
number of voting securities outstanding due to the repurchase of shares by the
Company, unless and until the Standstill Persons shall become the beneficial
owners of additional shares.
The Investment Agreement contains certain other restrictions which are
intended to have the effect of preventing the Partnership from taking control
of the Company without the prior approval of a majority of the Board of
Directors, including restrictions against participating in any tender offer or
proposal to effect a business combination or similar transaction involving the
Company, soliciting proxies and participating in any election contest involving
the Company. The restrictions against proxy solicitations and proxy contests do
not apply for any period that the Company does not meet predetermined operating
income targets.
48
<PAGE>
The Investment Agreement also provides certain preemptive rights to the
Partnership under certain circumstances if the Company should issue any equity
securities and provides the Company with a right of first refusal under
certain circumstances if the Partnership wishes to sell or transfer its
shares.
If the beneficial ownership of voting securities of the Standstill Persons
should be less than 15% of the total combined voting power of all outstanding
voting securities, the Partnership may terminate the provisions of the
Investment Agreement that restrict their ability to take control of the
Company and their voting of voting securities held by them, limit their
beneficial ownership to the Standstill Percentage, and restrict their ability
to transfer voting securities. Such a termination would also terminate the
right of the Partnership to elect directors to the Board pursuant to the
provisions of the Series B Shares, to have approval rights to certain board
actions and to maintain their percentage ownership interest in the Company.
Commencing December 6, 1997, the Partnership will have the right
(exercisable no more frequently than once every 12 months and no more than
three times in total) to cause the Company to file a registration statement
for the registration of its shares and to cooperate with underwriters
reasonably selected by the Partnership for the sale and distribution of such
shares. In addition, if the Company shall at any time propose to file a
registration statement relating to a firm commitment underwriting of shares
for cash, the Partnership has the right to include its shares in such
registration, except to the extent that the underwriters in such offering
shall determine that such inclusion would have a material adverse effect on
the successful distribution of shares by the Company.
FINANCIAL ADVISORY AGREEMENT
In connection with the Investment Agreement, the Company entered into a
Financial Advisory Agreement whereby ZS Fund L.P. makes available to the
Company financial advisory services as requested from time to time, such
services to include, without limitation, financial analysis and structuring
strategies in connection with acquisition opportunities and other financing
sources and opportunities. The Company will pay to ZS Fund L.P. a fee of
$125,000 per annum until such time as the Partnership owns less than 15% of
the outstanding shares of the Company, and $62,500 per annum if at any time
the Partnership owns less than 15% of the outstanding shares, but more than
5%. Any fees payable pursuant to the Financial Advisory Agreement are to be
reduced by the amount of directors fees paid to Investor Directors who are not
independent directors. This agreement will terminate upon the earliest to
occur of June 6, 2001, the first date that the Partnership owns less than 5%
of the outstanding Shares, and a change of control of the Partnership without
the Company's prior written consent. Under the terms of the Financial Advisory
Agreement, the Company is also obligated to indemnify ZS Fund L.P. against any
liabilities it may incur in connection with its services under the Financial
Advisory Agreement.
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 15,000,000 shares of
Common Stock, $1.00 par value per share, and 500,000 shares of Preferred
Stock, no par value, of which 25,000 were designated as Series A Preferred
Stock and 100 were designated as Series B Preferred Stock. As of September 1,
1997, there were 6,923,708 shares of Common Stock and 100 shares of Series B
Preferred Stock issued and outstanding. As of the same date, no shares of
Series A Preferred Stock were outstanding.
The following summary of certain terms of the Company's capital stock
describes material provisions of, but is necessarily a summary and is subject
to and qualified in its entirety by, the Company's Restated Certificate of
Incorporation, By-Laws and applicable provisions of Delaware corporate law
including, but not limited to, the Delaware General Corporation Law.
COMMON STOCK
Holders of Common Stock are entitled to receive such dividends as may from
time to time be declared by the Board of Directors out of funds legally
available therefor. Holders of Common Stock are entitled to one vote
49
<PAGE>
per share on all matters on which the holders of Common Stock are entitled to
vote and they do not have cumulative voting rights for the election of
directors. Holders of Common Stock have no preemptive, conversion, redemption
or sinking fund rights. In the event of a liquidation, dissolution or winding
up of the Company, holders of Common Stock are entitled to share ratably in
the assets of the Company, if any, remaining after the payment of all debts
and liabilities of the Company and the liquidation preference of any
outstanding class or series of Preferred Stock. The rights, preferences and
privileges of holders of Common Stock are subject to the rights of any holders
of Series A and Series B Preferred Stock and of any series of Preferred Stock
which the Company may issue in the future. All outstanding shares of Common
Stock are, and all shares of Common Stock offered by the Company hereby when
issued will be, fully paid and nonassessable.
The transfer agent and registrar of the Common Stock is First Chicago Trust
Company of New York, P.O. Box 2500, Jersey City, New Jersey 07303-2500.
PREFERRED STOCK
The Board of Directors is authorized to provide for the issuance of
Preferred Stock in one or more series and to fix the number of shares
constituting any such series, the voting powers, designations, preferences and
relative, participating, optional or other special rights and qualifications,
limitations or restrictions thereof, including, but not limited to, the
dividend rights, dividend rate, terms of redemption, redemption price or
prices, conversion rights and liquidation preferences of the shares
constituting any series, without any further vote or action by the
shareholders of the Company. The issuance of Preferred Stock could adversely
affect the rights of holders of Common Stock. For example, the issuance of
Preferred Stock could result in a series of securities outstanding that would
have preferences over the Common Stock with respect to dividends and in
liquidation and that could (upon conversion or otherwise) enjoy all of the
rights appurtenant to the Common Stock.
The issuance of Preferred Stock could discourage attempts by others to
obtain control of the Company through merger, tender offer, proxy, consent or
otherwise by making such attempts more difficult to achieve or more costly.
The Company may issue Preferred Stock without stockholder approval and with
voting and conversion rights fixed by the Board of Directors which could
adversely affect the voting power of holders of Common Stock.
Series A Preferred Stock. There are presently 25,000 shares of Class A
Preferred Stock reserved for issuance in connection with the Rights Agreement,
as described below.
Series B Preferred Stock. The 100 shares of Series B Preferred Stock (the
"Series B Shares") were issued pursuant to the terms of the Investment
Agreement dated June 6, 1996 between the Company, MFI Investors L.P. (the
"Partnership") and its sole general partner, MFI Associates, Inc. See "Certain
Transactions."
The holders of the Series B Shares are not entitled to receive dividends.
Upon liquidation of the Company, the holders of the outstanding Series B
Shares are entitled to receive $1.00 per Series B Share before payment to
holders of Common Stock. Other than the voting rights with respect to the
election of directors described below, the Series B Shares are not entitled to
vote on any matter except as required by law.
The terms of the Series B Shares provide that as long as the Partnership
continues to beneficially own at least 20% of the total combined voting power
of all Common Stock and any other class of securities of the Company entitled
to vote generally in the election of directors then outstanding ("Voting
Securities"), the Partnership shall be entitled to elect three directors to
the Company's Board of Directors. The number of directors which the
Partnership is entitled to elect decreases to two if the Partnership's
beneficial ownership of Voting Securities is below 20% but at least 10%, and
to one if such beneficial ownership of Voting Securities is below 10% but at
least 5%. If the amount of Voting Securities beneficially owned by the
Partnership should fall below 5%, the Partnership's right to elect directors
pursuant to the provisions of the Series B Shares terminates. As long as the
Partnership beneficially owns at least 15% of the total combined voting power
of all outstanding Voting Securities, it shall also be entitled to have one of
its directors appointed to each of the audit and
50
<PAGE>
compensation committees of the Board. In addition, as long as any Series B
Shares are outstanding, the Company shall not, without the vote of the
Partnership as the holder of the outstanding Series B Shares, expand the Board
of Directors to more than 11 directors.
The terms of the Series B Shares further provide that no director elected by
the Partnership may be a competitor of the Company, and so long as at least 3
members of the Board (other than those elected by the Partnership) are
independent directors and the Partnership is entitled to elect 3 directors,
one of the directors elected by the Partnership shall be an independent
director. In addition, the terms of the Series B Shares provide that without
the affirmative vote of the Partnership as the holder of the outstanding
Series B Shares, the Company shall not take any action at a meeting of the
Board of Directors unless at least one director elected by the Partnership is
present, or written notice of such meeting has been provided at least five
days in advance of such meeting.
The Certificate of Incorporation of the Company cannot be amended in any
manner that would materially alter or change the powers, preferences or
special rights of the Partnership, as the holder of the outstanding Series B
Shares, so as to affect such rights adversely, without its affirmative vote.
In general, the affirmative vote of the Partnership, as holder of the Series B
Shares, is also necessary for any consolidation, merger, or other transaction
which would affect the Partnership's ownership of the Series B Shares.
The Series B Shares may not be transferred without the prior written consent
of the Company, and all of the Company's obligations thereunder shall
terminate upon the occurrence of a change of control of the Partnership or the
termination of the Investment Agreement. The Series B Shares shall be
redeemed, at a redemption price of $1.00 per share, at any time that the
holders thereof shall not be entitled to elect any directors as described
above. Notice of redemption shall be given at least 5 business days prior to
redemption (the "Redemption Date"). From and after the Redemption Date, unless
the Company shall fail to make available sufficient funds to effect the
redemption, such shares shall no longer be deemed to be outstanding shares for
any purpose, and the holders of such shares shall not have any rights with
respect thereto, except the right to receive the Redemption Price upon
surrender to the Company of the certificates therefor.
CERTAIN ANTI-TAKEOVER EFFECTS
Certain provisions of the Company's Restated Certificate of Incorporation
and By-laws and of the Delaware General Corporation Law, all as summarized
below, may have anti-takeover effects and may delay, defer or prevent a tender
offer or takeover attempt that a stockholder might consider to be in the
stockholder's best interest, including those attempts that might result in
stockholders receiving a premium over the market price for the Common Stock.
Classified Board of Directors. The Certificate of Incorporation provides
that the Board of Directors is to be divided into three classes of directors
serving staggered three-year terms. As a result, approximately one- third of
the Board of Directors will be elected each year. Moreover, the Certificate of
Incorporation provides that a director may be removed from office only for
cause and only upon the affirmative vote of the holders of at least 66 2/3% of
the voting power of the then outstanding shares of the capital stock of the
Company. This provision, when coupled with the provision authorizing the Board
of Directors to fill vacant directorships, will preclude a stockholder from
removing incumbent directors without cause and simultaneously gaining control
of the Board of Directors by filling the vacancies created by the removal with
its own nominees. The affirmative votes of the holders of at least 66 2/3% of
the voting power of the then outstanding shares of the capital stock of the
Company are required to repeal, amend, or modify the above provisions of the
Certificate of Incorporation relating to the Board of Directors.
Advance Notice Requirements for Stockholder Proposals. The Company's By-Laws
establish an advance notice procedure for stockholders seeking to bring
business before an annual meeting of stockholders. In addition to any other
applicable requirements, for business to be properly brought before an annual
meeting by a stockholder, the stockholder must have given timely notice
thereof in writing to the secretary of the Company.
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<PAGE>
To be timely, a stockholder's notice must be delivered to or mailed and
received at the principal executive offices of the Company not less than 50
nor more than 75 days prior to the annual meeting; provided, however, that in
the event that less than 65 days' notice or prior disclosure of the date of
the meeting is given or made to the stockholders, notice by the stockholder to
be timely must be so received not later than the close of business on the 15th
day following the day on which notice of the date of the annual meeting was
mailed or public disclosure was made, whichever occurs first.
The notice to the Company must include a description of and the reasons for
the proposed business to be brought before the meeting and certain information
about the stockholder making the proposal. The purpose of requiring advance
notice is to afford the Board of Directors an opportunity to consider the
merits of the stockholder proposal and, to the extent deemed necessary or
desirable by the Board of Directors, to inform stockholders about those
matters.
Advance Notice Requirements for Director Nominations by Stockholders. The
Company's By-Laws provide specific procedures for stockholder nominations for
election to the Board of Directors at a meeting of stockholders. Nominations
by stockholders, other than those made by or at the direction of the Board of
Directors, must be made pursuant to timely notice in writing to the secretary
of the Company. To be timely, a stockholder's notice shall be delivered to, or
mailed and received at the principal executive offices of the Company, not
later than (1) with respect to an election to be held at an annual meeting of
stockholders, 90 days in advance of the meeting or no later than 270 days
after the date of the last annual meeting, and (2) with respect to an election
to be held at a special meeting of stockholders for the election of directors,
the close of business on the seventh day following the earlier of (i) the date
on which notice of the meeting is first given to stockholders and (ii) the
date on which a public announcement of the meeting is first made.
The notice to the Company must include information about the nominee,
including any information relating to the nominee that is required to be
disclosed in solicitation for proxies for election of directors pursuant to
Rule 14a under the Securities Exchange Act of 1934, as well as information
about the stockholder making the nomination.
Section 203 of the Delaware General Corporation Law. Pursuant to Section 203
of the Delaware Corporation Law ("Section 203"), with certain exceptions, a
Delaware corporation may not engage in any of a broad range of business
combinations, such as mergers, consolidations, and sales of assets, with an
"interested stockholder" for a period of three years from the date that such
person became an interested stockholder unless (i) the transaction that
results in the person's becoming an interested stockholder, or the business
combination, is approved by the board of directors of the corporation before
the person becomes an interested stockholder, (ii) upon consummation of the
transaction which results in the stockholder becoming an interested
stockholder, the interested stockholder own 85% or more of the voting stock of
the corporation outstanding at the time the transaction commenced (other than
certain excluded shares), or (iii) on or after the date the person becomes an
interested stockholder, the business combination is approved by the
corporation's board of directors and by holders of at least two-thirds of the
corporation's outstanding voting stock, excluding shares owned by the
interested stockholder, at a meeting of stockholders. Under Section 203, an
"interested stockholder" is defined as any person, other than the corporation
and any direct or indirect majority-owned subsidiaries of the corporation,
that is (i) the owner of 15% or more of the outstanding voting stock of the
corporation or (ii) an affiliate or associate of the corporation and the owner
of 15% or more of the outstanding voting stock of the corporation at any time
within the three-year period immediately prior to the date on which it is
sought to be determined whether such person is an interested stockholder.
Under certain circumstances, Section 203 makes it more difficult for a
person who would be an "interested stockholder" to effect various business
combinations with a corporation for a three-year period. The provisions of
Section 203 may encourage persons interested in acquiring the Company to
negotiate in advance with the Company's Board of Directors because the
stockholder approval requirement would be avoided if a majority of the
Company's directors then in office approve either the business combination or
the transaction which results in the person becoming an interested
stockholder. Such provisions also may have the effect of preventing changes
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<PAGE>
in the management of the Company. Such provisions could make it more difficult
to accomplish transactions that stockholders may otherwise deem to be in their
best interests.
RIGHTS AGREEMENT
On July 26, 1989, the Board of Directors declared a dividend of one
preferred share purchase right (a "Right") for each share of Common Stock
outstanding on August 7, 1989 (the "Record Date"). The holders of any
additional shares of Common Stock issued subsequent to the Record Date and
before the earliest of the Distribution Date, the redemption of the Rights,
the exchange of the Rights or the expiration of the Rights will also be
entitled to one Right for each additional share. Each Right currently entitles
the registered holder to purchase from the Company one four-hundredth of a
share of Series A Preferred Stock, without par value (the "Series A Shares")
of the Company at a price of $5.00 per one four-hundredth of a Series A Share
(the "Purchase Price"), subject to any future adjustments. The description and
terms of the Rights are set forth in a Rights Agreement (the "Rights
Agreement") between the Company and First Chicago Trust Company of New York,
as Rights Agent (the "Rights Agent").
The Rights are not exercisable until the earlier to occur of (i) 10 days
following a public announcement that a person or group of affiliated or
associated persons have acquired beneficial ownership of 20% or more of the
outstanding Common Stock (thereby becoming an "Acquiring Person") or (ii) 10
business days (or such later date as may be determined by action of the Board
of Directors prior to such time as any person becomes an Acquiring Person)
following the commencement of, or announcement of an intention to make, a
tender offer or exchange offer the consummation of which would result in the
beneficial ownership by a person or group of 20% or more of such outstanding
Common Stock (the earlier of such dates being called the "Distribution Date").
The Rights will expire on August 7, 1999 (the "Final Expiration Date"), unless
the Final Expiration Date is extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case, as described below.
The number of outstanding Rights and the number of one four-hundredths of a
Series A Share issuable upon exercise of each Right are also subject to
adjustment in the event of a stock split of the Common Stock or a stock
dividend on the Common Stock payable in Common Stock or subdivisions,
consolidations or combinations of the Common Stock occurring, in any such
case, prior to the Distribution Date. The Purchase Price payable, and the
number of Series A Shares or other securities or property issuable, upon
exercise of the Rights are subject to adjustment from time to time to prevent
dilution (i) in the event of a stock dividend on, or a subdivision,
combination or reclassification of, the Series A Shares, (ii) upon the grant
to holders of the Series A Shares of certain rights or warrants to subscribe
for or purchase Series A Shares at a price, or securities convertible into
Series A Shares with a conversion price, less than the then current market
price of the Series A Shares, or (iii) upon the distribution to holders of the
Series A Shares of evidence of indebtedness or assets (excluding regular
periodic cash dividends paid out of earnings or retained earnings or dividends
payable in Series A Shares) or of subscription rights or warrants (other than
those referred to above).
Series A Shares purchasable upon exercise of the Rights will not be
redeemable for a period of twenty years. Currently, each Series A Share will
be entitled to a minimum preferential quarterly dividend payment of $1 per
share, but will be entitled to an aggregate dividend of 400 times the dividend
declared per share of Common Stock. In the event of liquidation, the holders
of the Series A Shares will be entitled to a minimum preferential liquidation
payment of $100 per share, but will be entitled to an aggregate payment of 400
times the payment made per share of Common Stock. Each Series A Share will
have 400 votes, voting together with the Common Stock. In the event of any
merger, consolidation or other transaction in which Common Stock is exchanged,
each Series A Share will be entitled to receive 400 times the amount received
per share of Common Stock.
Because of the nature of the Series A Shares' dividend, liquidation and
voting rights, the value of the fractional interest in a Series A Share
purchasable upon exercise of each Right should approximate the value of one
share of Common Stock.
53
<PAGE>
In the event that the Company is acquired in a merger or other business
combination transaction or 50% or more of its consolidated assets or earning
power are sold, proper provision will be made so that each holder of a Right
will thereafter have the right to receive, upon the exercise thereof at the
then current exercise price of the Right, that number of shares of common
stock of the acquiring company which at the time of such transaction will have
a market value of two times the exercise price of the Right. In the event that
(i) any person becomes an Acquiring Person (unless such person first acquires
20% or more of the outstanding Common Stock by a purchase pursuant to a tender
offer for all of the Common Stock for cash, which purchase increases such
person's beneficial ownership to 85% or more of the outstanding Common Shares)
or (ii) during such time as there is an Acquiring Person, there shall be a
reclassification of securities or a recapitalization or reorganization of the
Company or other transaction or series of transactions involving the Company
which has the effect of increasing by more than the proportionate share of the
outstanding shares of any class of equity securities of the Company or any of
its subsidiaries beneficially owned by the Acquiring Person, proper provision
shall be made so that each holder of a Right, other than Rights beneficially
owned by the Acquiring Person (which will thereafter be void), will thereafter
have the right to receive upon exercise that number of shares of Common Stock
having a market value of two times the exercise price of the Right.
At any time after any person becomes an Acquiring Person and prior to the
acquisition by such person or group of 50% or more of the outstanding Common
Stock, the Board of Directors may exchange the Rights (other than Rights owned
by such person or group which have become void), in whole or in part, at an
exchange ratio of one share of Common Stock, or one four-hundredth of a Series
A Share (or of a share of a class or series of the Company's preferred stock
having equivalent rights, preferences and privileges), per Right (subject to
any future adjustments).
At any time prior to any person becoming an Acquiring Person, the Board of
Directors may redeem the Rights in whole, but not in part, at a price of $.01
per Right (the "Redemption Price"). The redemption of the Rights may be made
effective at such time, on such basis and with such conditions as the Board of
Directors in its sole discretion may establish. In addition, if a bidder who
does not beneficially own more than 1% of the Common Stock who has not within
the past year owned in excess of 1% of the Common Stock and, at a time he held
such greater than 1% stake, disclosed, or caused the disclosure of, an
intention which relates to or would result in the acquisition or influence of
control of the Company) proposes to acquire all of the Common Stock (and all
other shares of capital stock of the Company entitled to vote with the Common
Stock in the election of directors or on mergers, consolidations, sales of all
or substantially all of the Company's assets, liquidations, dissolutions or
windings up) for cash at a price which a nationally recognized investment
banker selected by such bidder states in writing is fair, and such bidder has
obtained written financing commitments (or otherwise has financing) and
complies with certain procedural requirements, then the Company, upon the
request of the bidder, will hold a special stockholders meeting to vote on a
resolution requesting the Board of Directors to accept the bidder's proposal.
If a majority of the outstanding shares entitled to vote on the proposal vote
in favor of such resolution, then for a period of 60 days after such meeting
the Rights will be automatically redeemed at the Redemption Price immediately
prior to the consummation of any tender offer for all of such shares at a
price per share in cash equal to or greater than the price offered by such
bidder; provided, however, that no redemption will be permitted or required
after any person becomes an Acquiring Person. Immediately upon any redemption
of the Rights, the right to exercise the Rights will terminate and the only
right of the holders of Rights will be to receive the Redemption Price.
Bidders owning in excess of 1% of the Common Stock on the date of the adoption
of the Rights Plan are "grandfathered" with respect to such percentage of
Common Stock.
The terms of the Rights may be amended by the Board of Directors without the
consent of the holders of the Rights, except that from and after such time as
any person becomes an Acquiring Person no such amendment may adversely affect
the interests of the holders of the Rights. Until a Right is exercised, the
holder thereof, as such, will have no rights as a stockholder of the Company,
including, without limitation, the right to vote or to receive dividends.
On June 5, 1996, the Rights Agreement was amended to (i) permit the
Partnership and certain affiliated persons to purchase up to a certain
percentage of the Common Stock without becoming an Acquiring Person,
54
<PAGE>
and (ii) modify the definition of "beneficial ownership" to provide that no
person (other than the Partnership and certain affiliated persons) will be
deemed to beneficially own any securities beneficially owned by the Partnership
or any of the certain affiliated persons unless and until the Partnership or
any of the certain affiliated persons becomes an Acquiring Person.
The Rights have certain anti-takeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire the Company
on terms not approved by the Board of Directors, except pursuant to an offer
conditioned on a substantial number of Rights being acquired. The Rights should
not interfere with any merger or other business combination approved by the
Board of Directors at a time when the Rights are redeemable.
The foregoing description of the Rights does not purport to be complete and
is qualified in its entirety by reference to the Rights Agreement (a copy of
which is incorporated by reference as an exhibit to the Registration
Statement), including the definition therein of certain terms.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of the offering, the Company will have 8,423,708 shares of
Common Stock outstanding (8,573,708 if the Underwriters' over-allotment option
is exercised in full). All of the shares sold in this offering will be freely
tradeable without registration or other restriction under the Securities Act of
1933, as amended (the "Securities Act"), except for any shares held by an
"affiliate" of the Company, as that term is defined in Rule 144 adopted under
the Securities Act ("Affiliate").
Of the currently outstanding shares, 608,000 shares are deemed restricted
securities within the meaning of Rule 144 ("Restricted Shares"). Restricted
Shares and shares held by Affiliates may not be sold unless the sale is
registered under the Securities Act or is made pursuant to an applicable
exemption from registration, including an exemption under Rule 144 and 144A.
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including persons deemed to be Affiliates, whose
restricted securities have been fully paid for and held for at least one year
from the later of the date of issuance by the Company or acquisition from an
Affiliate, may sell such securities in broker's transactions or directly to
market makers, provided that the number of shares sold in any three-month
period may not exceed the greater of 1% of the then outstanding shares of
Common Stock or the average weekly trading volume of the shares of common Stock
in the over-the-counter market during the four calendar weeks preceding the
sale. Sales under Rule 144 are also subject to certain notice requirements and
the availability of current public information about the Company. After two
years have elapsed from the later of the issuance of restricted securities by
the Company or their acquisition from an Affiliate, such securities may be sold
without limitation by persons who are not Affiliates under the Rule.
The Company intends to register an additional 1,000,000 shares of Common
Stock reserved for issuance under the Company's 1996 Stock Plan. As of
September 1, 1997, options to purchase 780,000 shares were outstanding. Shares
issued upon exercise of options will be generally eligible for immediate resale
in the public market, subject to vesting under the applicable option
agreements.
The Company, its directors and executive officers have agreed that for a
period of 120 days from the date of this Prospectus that they will not, without
the prior written consent of EVEREN Securities, Inc., directly or indirectly
offer for sale, sell, contract to sell or otherwise dispose of any shares of
Common Stock or any securities convertible into or exercisable or exchangeable
for shares of Common Stock, subject to certain exceptions.
The Company cannot predict the effect, if any, that sales of the Common Stock
or the availability of such Common Stock for sale, will have on the market
price prevailing from time to time. Nevertheless, sales by existing
stockholders of substantial amounts of Common Stock could adversely affect
prevailing market prices for the Common Stock.
55
<PAGE>
UNDERWRITING
The Company and the Selling Stockholder have entered into an Underwriting
Agreement (the "Underwriting Agreement") with EVEREN Securities, Inc. and The
Robinson-Humphrey Company, Inc. (the "Underwriters"). Subject to the terms and
conditions of the Underwriting Agreement, the Company and the Selling
Stockholder have agreed to sell to the Underwriters, and the Underwriters have
agreed to purchase from the Company and the Selling Stockholder, the number of
shares of Common Stock set forth opposite each Underwriter's name below at the
public offering price less the underwriting discount set forth on the cover
page of this Prospectus. The Underwriting Agreement provides that the
obligations of the Underwriters are subject to certain conditions precedent,
and that the Underwriters are committed to purchase all of the shares of
Common Stock if any are purchased.
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
EVEREN Securities, Inc....................................
The Robinson-Humphrey Company, Inc........................
---------
Total................................................... 2,000,000
=========
</TABLE>
The Underwriters have advised the Company that the Underwriters propose
initially to offer the Common Stock to the public on the terms set forth on
the cover page of this Prospectus. The Underwriters may allow to selected
dealers a concession of not more than $ per share; and the Underwriters may
allow, and such dealers may reallow, a concession of not more than $ per
share to certain other dealers. The concession to selected dealers and
reallowances to other dealers may be changed by the Underwriters; and after
this Offering, the offering price and other selling terms may be changed by
the Underwriters. The Common Stock is offered subject to receipt and
acceptance by the Underwriters, and to certain other conditions, including the
right to reject orders in whole or in part.
The Company and the Selling Stockholder have granted an option to the
Underwriters, exercisable during the 45-day period after the date of this
Prospectus, to purchase up to a maximum of 300,000 additional shares of Common
Stock, 150,000 shares from the Company and 150,000 shares from the Selling
Stockholder, to cover over-allotments, if any, at the same price per share as
the initial shares to be purchased by the Underwriters. To the extent the
Underwriters exercise this option, each of the Underwriters will be committed,
subject to certain conditions, to purchase such additional shares in
approximately the same proportion as set forth in the above table. The
Underwriters may purchase such shares only to cover over-allotments made in
connection with this offering.
In connection with this offering, the Underwriters may engage in
transactions that stabilize, maintain or otherwise affect the price of the
Common Stock. Specifically, the Underwriters may overallot this offering,
creating a syndicate short position. Underwriters may bid for and purchase
shares of Common Stock in the open market to cover syndicate short positions.
In addition, the Underwriters may bid for and purchase shares of Common Stock
in the open market to stabilize the price of the Common Stock. These
activities may stabilize or maintain the market price of the Common Stock
above independent market levels. The Underwriters are not required to engage
in these activities and may end these activities at any time.
The Underwriters may engage in "passive market making" in the Common Stock
on the Nasdaq National Market in accordance with Rule 103 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Rule 103 permits, upon
the satisfaction of certain conditions, underwriters that are also Nasdaq
National Market market makers in the security being distributed to engage in
limited market making transactions during the period when Rule 101 under the
Exchange Act would otherwise prohibit such activity. In general, under Rule
103, any underwriter engaged in passive market making in the Common Stock: (i)
may not purchase or display bids for the Common Stock at a price that exceeds
the highest bid for the Common Stock displayed on the Nasdaq National Market
by a market maker that is not participating in the distribution of the Common
Stock;
56
<PAGE>
(ii) may not have net daily purchases of the Common Stock that exceed the
greater of 200 shares or 30% of its average daily trading volume in the Common
Stock for the two full consecutive calendar months immediately preceding the
filing date of the Registration Statement of which this Prospectus is a part
(or any 60 consecutive days ending within 10 calendar days preceding such
filing date); and (iii) must identify its bids as bids made by a passive
market maker.
The Underwriting Agreement provides that the Company will indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act, or will contribute to payments the Underwriters may be
required to make in respect thereof.
The Company, its directors and certain executive officers have agreed that
for a period of 120 days from the date of this Prospectus that they will not,
without the prior written consent of EVEREN Securities, Inc., directly or
indirectly offer for sale, sell, contract to sell or otherwise dispose of any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for shares of Common Stock, other than, with respect to the
Company, pursuant to its 1996 Stock Plan (including the filing of a Form S-8
registration statement) and its ESOP.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Lord, Bissell & Brook, Chicago, Illinois. Certain
legal matters will be passed upon for the Underwriters by Katten Muchin &
Zavis (a partnership which includes professional corporations), Chicago,
Illinois. Wesley S. Walton, Secretary of the Company, is a member of Lord,
Bissell & Brook. As of September 1, 1997, Mr. Walton beneficially owned 56,000
shares of Common Stock.
EXPERTS
The consolidated financial statements of the Company as of December 31, 1995
and 1996, and for each of the years in the three-year period ended December
31, 1996, have been included herein and in the registration statement in
reliance upon the reports of KPMG Peat Marwick LLP, independent certified
public accountants, appearing elsewhere herein, and upon the authority of said
firm as experts in accounting and auditing.
AVAILABLE INFORMATION
The Company is subject to the information requirements of the Exchange Act,
and in accordance therewith files reports, proxy statements and other
information with the Securities and Exchange Commission (the "Commission").
Such reports, proxy statements and other information can be inspected and
copied at the public reference facilities maintained by the Commission at
Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and at its regional offices at 7 World Trade Center, Suite 1300, New York, New
York 10048 and at Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661. Copies of these materials can be obtained from the
Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Washington, D.C. 20549, upon payment of prescribed charges. In addition, the
Commission maintains a web site that contains reports, proxy and information
statements and other information regarding registrants that file
electronically with the Commission. The Company is such a filer. The
Commission web site address is (http://www.sec.gov). The Company's Common
Stock is quoted on Nasdaq, and such reports, proxy statements and other
information concerning the Company can also be inspected at the offices of the
Nasdaq Stock Market, 1735 K Street, N.W., Washington, D.C. 20006.
The Company has filed with the Commission a Registration Statement on Form
S-3 (the "Registration Statement") under the Securities Act of 1933, as
amended, with respect to the shares of Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement, certain parts of which have been omitted in accordance with the
rules and regulations of the Commission, and the exhibits relating thereto,
which have been filed with the Commission. Statements contained herein
concerning the
57
<PAGE>
provisions of any documents are not necessarily complete, and in each instance
reference is made to the copy of such document filed as an exhibit to the
Registration Statement. Each such statement is qualified in its entirety by
such reference. Copies of the Registration Statement and the exhibits are
available on the Commission's web site set forth above and are on file at the
offices of the Commission where they may be obtained upon payment of the fees
prescribed by the Commission, or examined without charge at the public
reference facilities of the Commission described above. For further
information pertaining to the Company and the Common Stock offered hereby,
reference is made to the Registration Statement, including the exhibits
thereto and the financial statements, notes and schedules filed as a part
thereof.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission are
incorporated by reference in this Prospectus: (i) the Company's Annual Report
on Form 10-K for the fiscal year ended December 31, 1996; (ii) the Company's
Quarterly Reports on Form 10-Q for the quarters ended March 31, 1997 and June
30, 1997; (iii) the Company's Current Report on Form 8-K dated July 31, 1997
and (iv) the description of the shares of the Registrant's Common Stock
contained in the Registrant's Registration Statement No. 2-32079 registering
such shares pursuant to Section 12 of the Exchange Act, including any
amendment or report updating such description.
All documents filed by the Company with the Commission pursuant to Sections
13(a), 13(c), 14 and 15(d) of the Exchange Act after the date of this
Prospectus and prior to termination of this offering shall be deemed to be
incorporated by reference in this Prospectus and to be a part hereof from the
date such documents are filed. Any statement contained in any document
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Prospectus to the extent that a statement contained
herein or in any other subsequently filed document which also is incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as modified or
superseded, to constitute a part of this Prospectus.
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request of such person, a copy of any or all documents that have been or may
be incorporated by reference herein (other than exhibits to such documents
which are not specifically incorporated by reference into such documents).
Such requests should be directed to the Chief Financial Officer at the
Company's principal executive offices at 3040 West Salt Creek Lane, Arlington
Heights, Illinois 60005, (847) 590-7000.
58
<PAGE>
INDEX TO FINANCIAL STATEMENTS
MARKET FACTS, INC.
<TABLE>
<CAPTION>
PAGE
NUMBER
------
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS
Independent Auditors' Report.......................................... F-2
Consolidated Balance Sheets at December 31, 1995 and 1996 and June 30,
1997 (unaudited)..................................................... F-3
Consolidated Statements of Earnings for the years ended December 31,
1994, 1995 and 1996 and for the six months ended June 30, 1996 and
1997 (unaudited)..................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1994, 1995 and 1996 and for the six months ended June
30, 1997 (unaudited)................................................. F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1994, 1995 and 1996 and for the six months ended June 30, 1996 and
1997 (unaudited)..................................................... F-6
Notes to Consolidated Financial Statements............................ F-7
BAIGLOBAL, INC.
FINANCIAL STATEMENTS
Independent Auditors' Report.......................................... F-16
Balance Sheets at December 31, 1996 and June 30, 1997 (unaudited)..... F-17
Statements of Income and Retained Earnings for the year ended December
31, 1996 and for the six months ended June 30, 1996 and 1997
(unaudited).......................................................... F-18
Statements of Cash Flows for the year ended December 31, 1996 and for
the six months ended June 30, 1996 and 1997 (unaudited).............. F-19
Notes to Financial Statements......................................... F-20
</TABLE>
The above financial statements of BAIGlobal are included in this prospectus
pursuant to Rule 3-05 of Regulation S-X.
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and Board of Directors of Market Facts, Inc.:
We have audited the accompanying consolidated balance sheets of Market
Facts, Inc. and subsidiaries as of December 31, 1995 and 1996, and the related
consolidated statements of earnings, stockholders' equity, and cash flows for
each of the years in the three-year period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Market
Facts, Inc. and subsidiaries as of December 31, 1995 and 1996, and the results
of their operations and their cash flows for each of the years in the three-
year period ended December 31, 1996 in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Chicago, Illinois
February 25, 1997, except for paragraphs 2
and 3 of Note 6, which are as of May 27, 1997
F-2
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- JUNE 30,
1995 1996 1997
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents....................... $ 3,530 $ 129 $ 485
Bank certificate of deposit..................... 50 50 50
Accounts receivable:
Trade, less allowance for doubtful accounts of
$838, $1,007 and $1,105 in 1995, 1996 and
1997, respectively............................. 9,547 14,630 15,069
Other........................................... 6 95 157
Notes receivable................................ 79 48 185
Revenue earned on contracts in progress in
excess of billings............................. 2,889 3,886 4,449
Deferred income taxes........................... 748 979 979
Prepaid expenses and other assets............... 310 340 392
------- ------- -------
Total Current Assets.......................... $17,159 $20,157 $21,766
------- ------- -------
PROPERTY, AT COST:
Land............................................ $ 1,221 $ 1,221 $ 1,221
Building and building improvements.............. 12,545 12,974 13,161
Computer and office equipment................... 7,778 8,633 9,523
Furniture and fixtures.......................... 2,907 3,608 3,660
Leasehold improvements.......................... 1,318 1,596 1,593
Vehicles........................................ 314 227 218
------- ------- -------
$26,083 $28,259 29,376
Less accumulated depreciation and amortization.. (9,524) (10,777) (12,271)
------- ------- -------
Net Property.................................... $16,559 $17,482 $17,105
------- ------- -------
OTHER ASSETS:
Goodwill, net of accumulated amortization....... $ 557 $ 516 $ 495
Other noncurrent assets......................... 102 230 210
------- ------- -------
Total Other Assets............................ $ 659 $ 746 $ 705
------- ------- -------
Total Assets.................................. $34,377 $38,385 $39,576
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accrued expenses................................ $ 5,517 $ 6,148 $ 6,944
Billings in excess of revenues earned on
contracts in progress.......................... 3,329 4,569 5,669
Accounts payable................................ 1,254 3,138 2,464
Short-term borrowings........................... -- 1,750 830
Income taxes.................................... 388 885 140
Current portion of long-term debt............... 113 364 124
Current portion of obligations under capital
leases......................................... 226 199 190
Current portion of note payable for acquisition
of MFCL........................................ 339 -- --
------- ------- -------
Total Current Liabilities..................... $11,166 $17,053 $16,361
------- ------- -------
LONG-TERM LIABILITIES:
Long-term debt.................................. $10,420 $10,296 $10,235
Obligations under capital leases, noncurrent
portion........................................ 536 447 381
Deferred income taxes........................... 205 64 64
------- ------- -------
Total Long-Term Liabilities................... $11,161 $10,807 $10,680
------- ------- -------
Total Liabilities............................. $22,327 $27,860 $27,041
------- ------- -------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 500,000 shares
authorized; Series A-none issued; Series B-100
shares issued in 1996 and 1997................. $ -- $ -- $ --
Common stock, $1 par value; 15,000,000 shares
authorized; 8,090,012, 8,966,258 and 8,966,258
shares issued in 1995, 1996 and 1997,
respectively................................... 8,090 8,966 8,966
Capital in excess of par value.................. 2,328 9,498 9,498
Cumulative foreign currency translation......... (69) (75) (86)
Retained earnings............................... 3,542 6,850 8,765
------- ------- -------
$13,891 $25,239 $27,143
Less 334,936, 2,042,550 and 2,042,550 shares of
treasury common stock, at cost, in 1995, 1996
and 1997, respectively......................... (1,189) (13,892) (13,892)
Less other transactions involving common stock.. (652) (822) (716)
------- ------- -------
Total Stockholders' Equity.................... $12,050 $10,525 $12,535
------- ------- -------
Total Liabilities and Stockholders' Equity.... $34,377 $38,385 $39,576
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------- ---------------------
1994 1995 1996 1996 1997
------- ------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
REVENUE..................... $55,483 $64,609 $83,796 $38,786 $46,835
------- ------- ------- ------- -------
DIRECT COSTS:
Payroll.................... $12,166 $13,854 $16,167 $ 7,938 $ 8,620
Other expenses............. 18,082 22,460 32,016 14,613 17,317
------- ------- ------- ------- -------
Total..................... $30,248 $36,314 $48,183 $22,551 $25,937
------- ------- ------- ------- -------
Gross Margin.............. $25,235 $28,295 $35,613 $16,235 $20,898
------- ------- ------- ------- -------
OPERATING EXPENSES:
Selling.................... $ 2,077 $ 2,292 $ 2,601 $ 1,277 $ 1,585
General and
administrative............ 19,285 20,005 23,563 11,678 14,738
Contributions to profit
sharing and employee stock
ownership plans........... 578 803 1,051 576 765
------- ------- ------- ------- -------
Total..................... $21,940 $23,100 $27,215 $13,531 $17,088
------- ------- ------- ------- -------
Income From Operations.... $ 3,295 $ 5,195 $ 8,398 $ 2,704 $ 3,810
------- ------- ------- ------- -------
OTHER INCOME (EXPENSE):
Interest expense........... $(1,260) $(1,138) $(1,214) $ (588) $ (543)
Interest income............ 48 78 126 85 33
Equity in income of MFCL... 33 -- -- -- --
Other income, net.......... 40 85 75 56 47
------- ------- ------- ------- -------
Total..................... $(1,139) $ (975) $(1,013) $ (447) $ (463)
------- ------- ------- ------- -------
INCOME BEFORE PROVISION FOR
INCOME TAXES............... $ 2,156 $ 4,220 $ 7,385 $ 2,257 $ 3,347
PROVISION FOR INCOME TAXES.. 722 1,994 3,107 1,025 1,432
------- ------- ------- ------- -------
NET INCOME.................. $ 1,434 $ 2,226 $ 4,278 $ 1,232 $ 1,915
======= ======= ======= ======= =======
EARNINGS PER SHARE.......... $ 0.19 $ 0.29 $ 0.57 $ 0.16 $ 0.27
======= ======= ======= ======= =======
COMMON AND COMMON EQUIVALENT
SHARES..................... 7,571 7,769 7,511 7,882 7,138
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------- SIX MONTHS ENDED
1994 1995 1996 JUNE 30, 1997
------- ------- -------- ----------------
(UNAUDITED)
<S> <C> <C> <C> <C>
PREFERRED STOCK:
Balance at beginning and end of
year.......................... $ -- $ -- $ -- $ --
======= ======= ======== ========
COMMON STOCK:
Balance at beginning of year... $ 1,966 $ 7,524 $ 8,090 $ 8,966
Impact of a 2-for-1 stock
split, December 1996.......... 1,781 17 (854) --
Impact of a 2-for-1 stock
split, May 1997............... 3,747 17 (854) --
Common stock issued during the
year.......................... 30 532 2,584 --
------- ------- -------- --------
Balance at end of year......... $ 7,524 $ 8,090 $ 8,966 $ 8,966
======= ======= ======== ========
CAPITAL IN EXCESS OF PAR VALUE:
Balance at beginning of year... $ 1,735 $ 1,766 $ 2,328 $ 9,498
Common stock issued during the
year, net..................... 31 562 7,170 --
------- ------- -------- --------
Balance at end of year......... $ 1,766 $ 2,328 $ 9,498 $ 9,498
======= ======= ======== ========
ADJUSTMENT FROM FOREIGN CURRENCY
TRANSLATION:
Balance at beginning of year... $ (56) $ (100) $ (69) $ (75)
Current year adjustment........ (44) 31 (6) (11)
------- ------- -------- --------
Balance at end of year......... $ (100) $ (69) $ (75) $ (86)
======= ======= ======== ========
RETAINED EARNINGS:
Balance at beginning of year... $ 7,105 $ 2,470 $ 3,542 $ 6,850
Net income..................... 1,434 2,226 4,278 1,915
Cash dividends declared on
common stock:
$.0725 per share in 1994,
$.095 in 1995 and $.10 in
1996........................ (518) (721) (739) --
Impact of a 2-for-1 stock
split, December 1996.......... (1,789) (150) 207 --
Impact of a 2-for-1 stock
split, May 1997............... (3,762) (283) (438) --
------- ------- -------- --------
Balance at end of year......... $ 2,470 $ 3,542 $ 6,850 $ 8,765
======= ======= ======== ========
TREASURY COMMON STOCK:
Balance at beginning of year... $(1,310) $(1,310) $ (1,189) $(13,892)
Treasury stock purchased....... -- -- (12,703) --
Treasury stock issued.......... -- 121 -- --
------- ------- -------- --------
Balance at end of year......... $(1,310) $(1,189) $(13,892) $(13,892)
======= ======= ======== ========
OTHER TRANSACTIONS INVOLVING
COMMON STOCK:
Balance at beginning of year... $ (616) $ (603) $ (652) $ (822)
Issuance of demand notes
receivable.................... (116) (160) (245) --
Payments received on demand
notes receivable.............. 76 56 20 78
Vesting of restricted stock and
demand notes receivable....... 53 55 55 28
------- ------- -------- --------
Balance at end of year......... $ (603) $ (652) $ (822) $ (716)
======= ======= ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------- ------------------
1994 1995 1996 1996 1997
------- ------- -------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income..................... $ 1,434 $ 2,226 $ 4,278 $ 1,232 $ 1,915
Adjustments to reconcile net
income to net cash provided by
(used in) operating
activities:
Depreciation and
amortization.................. 2,056 2,164 2,495 1,224 1,577
Vesting of restricted stock
and demand notes receivable... 53 55 55 28 28
Deferred income taxes.......... (185) 44 (374) -- --
Net gain on disposal of
property...................... (47) (39) (28) (33) (10)
Undistributed earnings of
MFCL.......................... (16) -- -- -- --
Change in assets and
liabilities:
Accounts receivable........... (960) 32 (5,176) (3,937) (509)
Prepaid expenses and other
assets....................... (270) 127 (30) (16) (53)
Other noncurrent assets....... -- -- (210) -- --
Billings in excess of (less
than) revenues earned on
contracts in progress........ (169) (875) 242 493 534
Accounts payable and accrued
expenses..................... 666 1,365 2,552 607 133
Income taxes.................. 613 (298) 497 (122) (745)
------- ------- -------- -------- --------
Net cash provided by (used
in) operating activities.... $ 3,175 $ 4,801 $ 4,301 $ (524) $ 2,870
------- ------- -------- -------- --------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchases of property.......... $(1,332) $(1,570) $ (3,234) $ (1,670) $ (1,173)
Payment for acquisition of
MFCL, net of acquired cash.... (135) (339) (339) -- --
Investment in notes
receivable.................... (183) (239) (246) (246) (150)
Proceeds from notes
receivable.................... 166 115 52 34 92
Proceeds from the sale of
property...................... 133 65 38 37 10
------- ------- -------- -------- --------
Net cash used in investing
activities.................... $(1,351) $(1,968) $ (3,729) $ (1,845) $ (1,221)
------- ------- -------- -------- --------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from short-term
borrowings.................... $ 6,600 $ 2,000 $ 13,850 $ 1,100 $ 4,480
Repayment of short-term
borrowings.................... (7,500) (2,000) (12,100) (1,100) (5,399)
Purchase of treasury stock..... -- -- (12,703) (185) --
Proceeds from issuance of
convertible note.............. -- -- 8,250 8,250 --
Payment of stock issuance
costs......................... -- -- (821) (461) --
Dividends paid................. (518) (721) (739) (393) --
Proceeds from exercise of stock
options....................... 38 676 386 386 --
Reduction of obligations under
capital leases and long-term
debt.......................... (319) (324) (96) (166) (373)
Proceeds from the sale of
treasury stock................ -- 140 -- -- --
------- ------- -------- -------- --------
Net cash provided by (used
in) financing activities.... $(1,699) $ (229) $ (3,973) $ 7,431 $ (1,292)
------- ------- -------- -------- --------
Effect of exchange rate changes
on cash........................ $ 13 $ 15 $ -- $ -- $ (1)
------- ------- -------- -------- --------
Net increase (decrease) in cash
and cash equivalents........... $ 138 $ 2,619 $ (3,401) $ 5,062 $ 356
Cash and cash equivalents at
beginning of year.............. 773 911 3,530 3,530 129
------- ------- -------- -------- --------
Cash and cash equivalents at end
of year........................ $ 911 $ 3,530 $ 129 $ 8,592 $ 485
======= ======= ======== ======== ========
CASH PAID DURING THE YEAR FOR:
Interest....................... $ 1,228 $ 1,140 $ 1,238 $ 538 $ 551
Income taxes................... $ 321 $ 2,215 $ 2,982 $ 1,146 $ 2,176
======= ======= ======== ======== ========
SUPPLEMENTAL SCHEDULE OF NON
CASH ACTIVITIES:
Conversion of convertible note
into common stock............. $ -- $ -- $ 8,250 $ -- $ --
Capital lease obligations
incurred on lease of
equipment..................... $ 190 $ 208 $ 109 $ -- $ --
Issuance of note payable....... $ 1,017 $ -- $ -- $ -- $ --
======= ======= ======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1994, 1995 AND 1996
(AMOUNTS AND DISCLOSURES APPLICABLE TO JUNE 30, 1996 AND JUNE 30, 1997 ARE
UNAUDITED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Principles of Consolidation and Line of Business
The accompanying consolidated financial statements include the accounts of
Market Facts, Inc. and its subsidiaries (Company). All significant
intercompany transactions have been eliminated.
The Company's primary line of business is the design, execution and
interpretation of market research conducted on behalf of its clients, which
include a majority of the largest 100 multinational consumer products and
service companies, as well as many government agencies. One client, Procter &
Gamble, accounted for 10%, 12% and 10% of total 1994, 1995 and 1996 revenue,
respectively. Proctor & Gamble accounted for 9% and 11% of total revenue for
the six months ended June 30, 1996 and 1997, respectively.
(b) Revenue Recognition
The Company recognizes revenue under the percentage of completion method of
accounting. Revenue on client projects is recognized as services are
performed. Losses expected to be incurred on jobs in progress are charged to
income as soon as such losses are known. Revenue earned on contracts in
progress in excess of billings is classified as a current asset. Amounts
billed in excess of revenue earned are classified as a current liability.
Client projects are expected to be completed within a twelve month period.
(c) Cash and Cash Equivalents
For purposes of the consolidated statements of cash flows, the Company
considers all highly liquid debt instruments purchased with an original
maturity of three months or less to be cash equivalents.
(d) Property
Maintenance and repairs are expensed and renewals and betterments are
capitalized. Upon retirement or disposition of property, the applicable cost
and accumulated depreciation and amortization are removed from the accounts
and the resulting gains or losses are included in income.
Depreciation is provided on the straight-line method at rates considered
adequate to depreciate the costs of property over their estimated useful
lives. The useful life of the building is 31 1/2years, while all other owned
assets have estimated useful lives of three to ten years.
Property under capital leases is recorded at the lower of the fair market
value of the leased property or the present value of the minimum lease
payments. Amortization of the leased property is computed using the straight-
line method over the lease term.
Property and equipment are reviewed for impairment whenever events or
circumstances indicate that the asset's undiscounted expected cash flows are
not sufficient to recover its carrying value. The Company measures an
impairment loss by comparing the fair value of the asset to its carrying
amount.
(e) Income Taxes
The Company applies an asset and liability approach to account for income
taxes. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases.
F-7
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(f) Earnings Per Share
Earnings per share are based on the weighted average number of common shares
and common share equivalents (resulting from options granted under the
Company's 1982 Incentive Stock Option Plan and 1996 Stock Plan) outstanding
during the year.
(g) Foreign Currency Translation
Non-U.S. subsidiaries' assets and liabilities have been translated using the
exchange rate in effect at the balance sheet date. Results of operations are
translated using the average exchange rate prevailing throughout the period.
Resulting translation gains and losses are reported as a component of
stockholders' equity.
(h) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
(i) Financial Instruments
The carrying amounts of the Company's financial instruments approximate
their fair values.
(j) Interim Financial Statements
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1996 and 1997 are unaudited. The unaudited financial statements
include all adjustments, consisting of normal recurring adjustments, which
are, in the opinion of management, necessary for a fair presentation of the
financial position and results of operations for such periods. Results of
operations for interim periods are not necessarily indicative of results to be
expected for the entire year.
2. NOTES RECEIVABLE
Notes receivable consist of amounts due from officers and employees. The
notes bear interest at the prime lending rate (8.25% and 8.50% at December 31,
1996 and June 30, 1997, respectively).
3. BANK BORROWINGS
During 1996, the Company established a revolving and term credit facility
("Credit Facility") with a bank in the amount of $7,000,000. The Credit
Facility bears interest at either the lender's prime lending rate or a reserve
adjusted LIBOR rate, plus between .75% and 1.5% per annum, and expires on June
30, 1998. At any time prior to June 30, 1998, the Company has a one-time right
to convert up to $4,800,000 of revolving debt into a five-year term loan. The
Credit Facility replaced a $4,000,000 existing line of credit. The Company
maintains other established bank lines of credit totaling $3,650,000 which are
renewed annually and bear interest at the prime lending rate. No borrowings
were outstanding at December 31, 1995. Borrowings outstanding under the above
arrangements were $1,750,000 and $830,338 at December 31, 1996 and June 30,
1997, respectively, and bore interest at 8.25% and 7.91%, respectively. The
weighted average interest rate outstanding during 1995 and 1996 was 9.0% and
8.2%, respectively.
F-8
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------- JUNE 30,
1995 1996 1997
------ ------ -----------
(UNAUDITED)
(IN THOUSANDS)
<S> <C> <C> <C>
Compensation..................................... $2,043 $2,822 $2,740
Real estate taxes................................ 858 913 970
Contributions to employee benefit plans.......... 637 -- 345
Other............................................ 1,979 2,413 2,889
------ ------ ------
Total.......................................... $5,517 $6,148 $6,944
====== ====== ======
</TABLE>
5. LONG-TERM DEBT
Long-term debt relates to the mortgage loan on the office building used by
the Company as its corporate and operations headquarters. The loan bears
interest at a fixed rate of 9.7% per annum. Principal payments due under the
terms of the mortgage with the final principal amount due May 1, 2000 are as
follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
In 1997..................... $ 124
In 1998..................... $ 137
In 1999..................... $ 150
In 2000..................... $ 10,009
</TABLE>
6. STOCKHOLDERS' EQUITY
In 1986, the stockholders approved an amendment to the Certificate of
Incorporation creating a new class of 500,000 shares of preferred stock,
without par value. In 1989, 25,000 shares were designated as Series A
preferred stock; no Series A shares have been issued to date. In 1996, 100
shares were designated as Series B preferred stock and issued to MFI Investors
L.P.
On April 28, 1997, the Company's Board of Directors approved a 2-for-1 stock
split in the form of a common stock dividend which was paid on May 27, 1997.
All common share and per share amounts have been adjusted to give effect to
the stock split.
On April 29, 1997, the Company filed an amendment to its Restated
Certificate of Incorporation effecting an increase in the number of authorized
shares of common stock to 15,000,000.
On October 28, 1996, the Company's Board of Directors approved a 2-for-1
stock split in the form of a common stock dividend which was paid on December
13, 1996. The stock dividend was not paid on treasury common stock. All common
share and per share amounts, unless indicated otherwise, have been adjusted to
give effect to the stock split.
Pursuant to a self-tender offer commenced in June 1996, the Company
purchased 1,677,614 shares of its common stock from its stockholders at an
aggregate purchase price of $12,162,701. The Company incurred $354,610 in
related transaction costs.
The self-tender offer was made pursuant to an Investment Agreement dated
June 6, 1996 among MFI Investors L.P., MFI Associates, Inc. and the Company
("Investment Agreement"), whereby MFI Investors L.P. purchased from the
Company a ten-year, 7% convertible subordinated note in the principal amount
of $8,250,000
F-9
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
("Convertible Note"). Immediately prior to the purchase of the shares in the
self-tender offer, the Convertible Note automatically converted at a rate of
$3.625 per share into 2,275,860 shares of the Company's common stock. The
Company incurred $820,851 in stock issuance costs associated with the
Investment Agreement. A new class of Series B preferred shares was issued to
MFI Investors L.P., granting it the right to elect 3 of the 11 Company
directors, subject to decrease as its ownership interest decreases.
In 1995, the Company sold 67,736 shares of its common stock, previously held
in treasury, to its employee benefit plans and received proceeds of $139,857.
In 1996, independent of the self-tender offer, the Company purchased 60,000
shares of its common stock at a cost of $185,626.
Other transactions involving common stock consist of demand notes receivable
due from officers and employees and unearned restricted stock. Monies received
by officers and employees under the demand notes receivable were used to
purchase Company common stock. These demand notes receivable, classified as a
reduction of stockholders' equity, amounted to $270,873, $366,795, $583,996
and $502,175 as of December 31, 1994, 1995 and 1996 and June 30, 1997,
respectively. Some of the notes, which are due in ten equal annual
installments through 2004, provide for the forgiveness of every other
principal payment, contingent upon the borrower's employment with the Company
on the date such payment is due. The Company recognized $5,288, $7,932 and
$7,932 of compensation expense relating to the forgiveness of debt in 1994,
1995 and 1996, respectively. The Company recognized $3,966 and $3,967 of such
compensation expense for the six months ended June 30, 1996 and 1997,
respectively. All other notes are due in varying installments through 2001.
Unearned restricted stock amounted to $332,500, $285,000, $237,500 and
$213,750 as of December 31, 1994, 1995 and 1996, and June 30, 1997,
respectively, and relates to a 1992 restricted stock grant of 400,000 shares
of common stock to a Company executive which vests at a rate of 10% per year,
subject to his continued employment with the Company. The aggregate fair
market value of the shares at date of grant is unearned compensation and the
amount is amortized to compensation expense over the periods the restrictions
lapse. Amortization of this compensation expense amounted to $47,500 in 1994,
1995 and 1996. Amortization for the six months ended June 30, 1996 and 1997
was $23,750.
In 1989, the Board of Directors of the Company approved a stockholder rights
agreement which provides for a dividend distribution of one preferred share
purchase right for each outstanding share of common stock. Each right
initially entitled stockholders, upon occurrence of certain events, to
purchase one one-hundredth of a share of Series A preferred stock, at an
exercise price of $20 per one one-hundredth of a preferred share, subject to
adjustment. Giving effect to the December 1996 and May 1997 stock splits, each
share of common stock is entitled to purchase one four-hundredth of a Series A
preferred share at $5 per one four-hundredth of a preferred share.
The rights become exercisable ten days after a person, group or company
acquires 20% or more of Company common stock or announces a tender offer which
would result in ownership of 20% or more of the common stock. The Company is
entitled to redeem the rights at one-fourth cent per right at any time before
a 20% or greater position has been acquired.
If the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are
sold, each right will entitle its holder to purchase, at the right's then
current exercise price, a number of the acquiring company's common shares
having a market value at that time of twice the right's exercise price. In
addition, in the event a person or group acquires 20% or more of the Company's
common stock, each right (other than those held by the acquiring person or
group) will entitle its holder to purchase a number of shares of the acquiring
company's common stock having a market value of two times the exercise price
of the right.
F-10
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At any time after a person or group acquires 20% or more (but less than 50%)
of the Company's outstanding common stock, the Board of Directors may exchange
the rights at an exchange ratio of one share of common stock for one four-
hundredth of a share of Series A preferred stock per right. The rights will
expire on August 7, 1999.
Pursuant to the Investment Agreement, MFI Investors L.P. agreed not to allow
its holdings of Company voting securities to exceed 37.5% (the "Standstill
Percentage") of the Company's total voting securities outstanding at any time.
The Standstill Percentage will be reduced to 20% if at any time MFI Investors
L.P. holds less than 15% of the Company's total outstanding voting securities.
The stockholders rights agreement was amended in June 1996 to provide that the
rights would not become exercisable by reason of MFI Investors L.P. acquiring
more than 20% of the Company's voting securities, unless and until its
holdings exceed the Standstill Percentage then in effect.
7. EMPLOYEE STOCK OPTION PLANS
Under terms of the 1982 Incentive Stock Option Plan (1982 Plan) which
expired as of May 1, 1992, options to purchase shares of the Company's common
stock had been granted at a price equal to the market price at the date of
grant.
Options from the 1982 Plan were exercisable on or after the first
anniversary of the date of the grant and expired four years after the date of
the grant. 1,685,764 shares of the Company's common stock had been reserved
for stock option grants under the 1982 Plan.
Shares under option relating to the 1982 Plan are summarized as follows:
<TABLE>
<CAPTION>
1982 PLAN
------------------------------
1994 1995 1996
--------- --------- --------
<S> <C> <C> <C>
Options outstanding at beginning of year... 1,391,600 1,174,000 328,000
Options exercised.......................... (30,000) (531,984) (308,000)
Options cancelled.......................... (187,600) (314,016) (20,000)
--------- --------- --------
Options outstanding and exercisable at end
of year................................... 1,174,000 328,000 --
========= ========= ========
Average price of options:
Exercised during year.................... $1.27 $1.27 $1.26
Outstanding at end of year............... $1.28 $1.27 $ --
========= ========= ========
</TABLE>
On September 27, 1996, the Company's Board of Directors adopted, subject to
stockholder approval, the 1996 Stock Plan (1996 Plan) whereby the Company may
issue to select officers, directors and key employees any or all of the
following: incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, non-qualified stock options, stock appreciation
rights and restricted stock. 1,000,000 shares of the Company's common stock
have been reserved for issuance under the 1996 Plan. Except as otherwise
provided, awards are granted at a price equal to the market price at the date
of the grant, expire ten years after the date of the grant and vest 20% per
year over a five year period.
Under the 1996 Plan, 664,000 non-qualified stock options were granted during
1996, subject to stockholder approval of the Plan, at a weighted average price
of $4.40. All were outstanding at December 31, 1996.
During the six months ended June 30, 1997, 110,000 non-qualified stock
options were granted at a weighted average price of $12.72. As of June 30,
1997, 770,000 non-qualified stock options were outstanding with a weighted
average price of $5.59.
F-11
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Company applies APB Opinion No. 25 and related Interpretations in
accounting for the 1996 Plan. Accordingly, no compensation expense has been
recognized. Had compensation cost for the Company's stock-based compensation
plan been determined consistent with FASB Statement No. 123, the Company's net
income and earnings per share for the year ended December 31, 1996 would have
been reduced to the pro forma amounts indicated below:
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<S> <C> <C>
Net Income............................................ As Reported $4,278
Pro Forma $4,245
Earnings Per Share.................................... As Reported $ 0.57
Pro Forma $ 0.56
</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 in 1996: expected volatility of 40%, risk-free
interest rates of 6.3% and expected lives of four years for the options. The
Company does not expect to pay dividends in the future.
8. EMPLOYEE BENEFIT PLANS
The Company maintains separate defined-contribution profit sharing plans for
its U.S. and Canadian operations which cover substantially all employees.
Contributions to the plans, subject to certain limitations, are at the
discretion of the Company and were $577,740, $753,002 and $951,192 in 1994,
1995 and 1996, respectively. Contributions to the plans for the six months
ended June 30, 1996 and 1997 were $575,935 and $765,469, respectively.
The Company also maintains an Employee Stock Ownership Plan (ESOP), which
covers substantially all U.S. employees. Under the ESOP, the Company may make
contributions at its discretion, within defined limits, in the form of cash or
common stock of the Company. Cash contributions must be used to purchase
shares of common stock of the Company. The Company made cash contributions of
$50,000 and $100,000 in 1995 and 1996, respectively.
9. COMMITMENTS AND CONTINGENT LIABILITIES
The Company leases office facilities, along with some of its computer and
office equipment and vehicles, under operating lease agreements. Total rental
expense was approximately $1,193,000, $1,331,000 and $1,496,000 in 1994, 1995
and 1996, respectively. Rental expense for the six months ended June 30, 1996
and 1997 was approximately $689,000 and $828,000, respectively. Some of the
Company's leases provide for escalations based on increases in the lessors'
taxes, maintenance and other operating expenses.
Computer and office equipment include $1,444,868 and $1,300,071 in 1995 and
1996, respectively, of computer and other equipment acquired under capital
leases. Accumulated depreciation and amortization include $667,956 and
$650,965 in 1995 and 1996, respectively, of accumulated amortization on
capital leases. The leases provide for the payment of certain insurance and
maintenance expenses and contain renewal options. The leases also provide for
upgrading the equipment under lease and the purchase of equipment. The
amortization expense for these capital leases was $188,457, $274,704 and
$236,019 in 1994, 1995 and 1996, respectively. Amortization expense for the
six months ended June 30, 1996 and 1997 was $118,087 and $107,615,
respectively.
F-12
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The minimum future rentals under capital and operating leases with an initial
term of one year or more as of December 31, 1996 are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
----------------------------
EQUIPMENT
YEAR CAPITAL LEASES OFFICE FACILITIES & VEHICLES
---- -------------- ----------------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
1997........................... $240 $1,367 $ 53
1998........................... 212 1,397 26
1999........................... 81 1,103 5
2000........................... 66 919 3
2001........................... 66 703 --
2002 and thereafter............ 110 956 --
---- ------ ----
Total minimum lease payments... $775 $6,445 $ 87
====== ====
Less amounts representing
interest...................... 129
----
Present value of minimum lease
payments...................... 646
Current portion................ 199
----
Long-term portion.............. $447
====
</TABLE>
10. PROVISION FOR INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1994 1995 1996
----- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C>
Currently payable:
Federal............................................. $ 637 $1,423 $2,676
State and local..................................... 137 349 649
Foreign............................................. 134 179 157
Deferred:
Federal............................................. (8) (44) (181)
State and local..................................... (178) 110 (173)
Foreign............................................. -- (23) (21)
----- ------ ------
Total............................................. $ 722 $1,994 $3,107
===== ====== ======
</TABLE>
The following is a reconciliation between the statutory Federal income tax
rate and the Company's effective income tax rate:
<TABLE>
<CAPTION>
1994 1995 1996
----- ---- ----
<S> <C> <C> <C>
Statutory Federal income tax rate....................... 34.0% 34.0% 34.0%
State and local income taxes, net of Federal income tax
benefits............................................... 7.7 8.0 4.3
Foreign income taxes.................................... 1.8 1.3 .6
Foreign tax credit...................................... (1.2) -- --
Distribution of earnings of MFCL........................ 0.7 -- --
Change in the valuation allowance for deferred tax
assets................................................. (11.8) -- --
Other................................................... 2.3 3.9 3.2
----- ---- ----
Effective income tax rate............................... 33.5% 47.2% 42.1%
===== ==== ====
</TABLE>
F-13
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1996 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1996
------- -------
(IN THOUSANDS)
<S> <C> <C>
SIGNIFICANT DEFERRED TAX ASSETS (LIABILITIES):
Doubtful accounts...................................... $ 330 $ 409
Vacation............................................... 144 163
Rent abatement......................................... 100 92
Net operating loss carryforwards....................... 54 155
Other.................................................. 120 290
Depreciation........................................... (205) (194)
------- -------
Net deferred tax asset............................... $ 543 $ 915
======= =======
</TABLE>
As a result of a reassessment, which included the consideration of expected
future taxable income and available tax planning strategies, the valuation
allowance related to state deferred tax assets at January 1, 1994 of $254,000
was eliminated. Of that amount, approximately $79,000 was realized in 1994.
The Company has net operating loss carryforwards at December 31, 1996 of
approximately $1,733,000 which are available to offset certain future state
income through 2007. At December 31, 1996, all deferred tax assets are
considered realizable in view of past, current and the expectation of future
taxable income.
Federal income taxes and foreign withholding taxes have not been provided on
the Company's share of the undistributed earnings of MFCL ($1,384,869 at
December 31, 1996) since these earnings are considered to be permanently
reinvested. The net Federal income taxes and foreign withholding taxes which
would be payable if these earnings were distributed would be insignificant to
the financial position and results of operations of the Company.
11. MARKET FACTS OF CANADA, LTD. (MFCL)
In April 1994, the Company acquired the remaining 50% of the issued and
outstanding common stock of MFCL in consideration of a note payable for
$1,017,380. The acquisition has been accounted for under the purchase method
of accounting.
The excess of the purchase price over the fair market value of the net
assets acquired has been recorded as goodwill and is being amortized using the
straight-line method over 15 years.
The Company's consolidated financial statements report MFCL's results of
operations and cash flow activity for the periods subsequent to April 1994
under the consolidated method of accounting.
MFCL maintains offices in Toronto, Montreal and New Westminster and provides
Canadian and American firms with marketing research information on Canadian
consumers. MFCL utilizes the same general methods of marketing research as the
Company and maintains its own survey staff and mail panel. This is the
Company's only foreign subsidiary.
F-14
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
12. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations
for 1995 and 1996 and the first six months of 1997 (in thousands, except for
earnings per share):
<TABLE>
<CAPTION>
1995 FIRST SECOND THIRD FOURTH
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue......................................... $15,333 $16,332 $15,880 $17,064
Gross margin.................................... $ 6,583 $ 7,332 $ 6,979 $ 7,401
Net income...................................... $ 417 $ 514 $ 549 $ 746
Earnings per share.............................. $ 0.06 $ 0.07 $ 0.07 $ 0.09
======= ======= ======= =======
<CAPTION>
1996 FIRST SECOND THIRD FOURTH
- ---- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Revenue......................................... $18,659 $20,127 $20,478 $24,532
Gross margin.................................... $ 7,956 $ 8,278 $ 8,878 $10,501
Net income...................................... $ 528 $ 704 $ 1,034 $ 2,012
Earnings per share.............................. $ 0.07 $ 0.09 $ 0.15 $ 0.29
======= ======= ======= =======
<CAPTION>
1997 FIRST SECOND
- ---- ------- -------
<S> <C> <C>
Revenue......................................... $21,581 $25,253
Gross margin.................................... $ 9,731 $11,168
Net income...................................... $ 835 $ 1,081
Earnings per share.............................. $ 0.11 $ 0.15
======= =======
</TABLE>
13. SUBSEQUENT EVENT (UNAUDITED)
On July 31, 1997, the Company acquired all of the outstanding capital stock
of BAIGlobal, Inc., an international market research and information company,
for $3,590,000 payable at closing and up to $5,000,000 of contingent payments
in the form of cash and stock based on BAIGlobal achieving future earnings
targets. Immediately after the closing of the transaction, the Company
advanced $2,250,000 to BAIGlobal for the purpose of repaying notes payable to
selling shareholders. The acquisition will be accounted for under the purchase
method of accounting and was financed from borrowings on the Company's line of
credit and cash flow provided by operations. The Company issued a report on
Form 8-K reporting this transaction.
F-15
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
BAIGlobal, Inc.:
We have audited the accompanying balance sheet of BAIGlobal, Inc. as of
December 31, 1996, and the related statements of income and retained earnings
and cash flows for the year then ended. These financial statements are the
responsibility of BAIGlobal's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of BAIGlobal, Inc. as of
December 31, 1996, and the results of its operations and its cash flows for
the year then ended in conformity with generally accepted accounting
principles.
KPMG Peat Marwick LLP
June 23, 1997
New York, New York
F-16
<PAGE>
BAIGLOBAL, INC.
BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1996 1997
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash................................................ $ 407 $ 145
Accounts receivable................................. 2,044 2,231
Unbilled work-in-progress........................... 882 684
Prepaid expenses.................................... 117 138
Employee loans receivable........................... 51 6
------ ------
Total Current Assets.............................. $3,501 $3,204
------ ------
FIXED ASSETS:
Furniture and fixtures.............................. $ 142 $ 140
Equipment........................................... 518 557
Leasehold improvements.............................. 89 89
------ ------
Less: accumulated depreciation........................ $ (379) $ (435)
------ ------
Total Fixed Assets................................ $ 370 $ 351
------ ------
OTHER ASSETS:
Security deposits................................... $ 26 $ 26
Miscellaneous receivables........................... 27 14
Deferred income taxes............................... 193 598
Other............................................... -- 23
------ ------
Total Other Assets................................ $ 246 $ 661
------ ------
Total Assets...................................... $4,117 $4,216
====== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable....................................... $ 200 $ --
Current portion of capital leases payable........... 90 88
Accounts payable.................................... 837 1,096
Accrued expenses.................................... 1,231 1,046
Deferred income..................................... 926 789
------ ------
Total Current Liabilities......................... $3,284 $3,019
------ ------
LONG-TERM LIABILITIES:
Long-term portion of capital leases payable......... 63 22
------ ------
Total Liabilities................................. $3,347 $3,041
------ ------
STOCKHOLDERS' EQUITY:
Common stock, $.001 par value, 552,112 shares
authorized and issued.............................. $ 1 $ 1
Capital in excess of par............................ 471 1,353
Less: Treasury stock................................ (216) (217)
Retained earnings................................... 514 38
------ ------
Total Stockholders' Equity........................ $ 770 $1,175
------ ------
Total Liabilities and Stockholders' Equity........ $4,117 $4,216
====== ======
</TABLE>
See accompanying notes to financial statements.
F-17
<PAGE>
BAIGLOBAL, INC.
STATEMENTS OF INCOME AND RETAINED EARNINGS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED JUNE 30,
DECEMBER 31, ------------------
1996 1996 1997
------------ -------- --------
(UNAUDITED)
<S> <C> <C> <C>
REVENUE....................................... $11,665 $ 5,682 $ 6,196
COST OF OPERATIONS............................ 6,991 3,468 3,676
------- -------- --------
Gross profit................................ $ 4,674 $ 2,214 $ 2,520
------- -------- --------
OPERATING EXPENSES:
Selling expenses............................ 578 271 347
General and administrative expenses......... 3,091 1,432 2,486
Incentive compensation...................... 1,141 689 447
Occupancy expenses.......................... 227 114 120
------- -------- --------
Total....................................... 5,037 2,506 3,400
------- -------- --------
Operating Loss.............................. $ (363) $ (292) $ (880)
OTHER INCOME.................................. 36 29 11
------- -------- --------
LOSS BEFORE INCOME TAXES.................... $ (327) $ (263) $ (869)
INCOME TAX BENEFIT............................ 150 -- 393
------- -------- --------
NET LOSS.................................... $ (177) $ (263) $ (476)
Retained earnings at beginning of period...... 701 701 514
Dividends declared............................ (10) -- --
------- -------- --------
Retained earnings at end of period............ $ 514 $ 438 $ 38
======= ======== ========
</TABLE>
See accompanying notes to financial statements.
F-18
<PAGE>
BAIGLOBAL, INC.
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED ENDED JUNE 30,
DECEMBER 31, ----------------
1996 1996 1997
------------ ------- -------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................... $(177) $ (263) $ (476)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation expense.......................... 117 54 61
Non-cash compensation......................... 419 -- 882
Change in operating assets and liabilities:
Increase in prepaid expenses................. (15) (65) (21)
Increase in accounts receivable.............. (717) (234) (187)
Increase (decrease) in accrued expenses...... 556 601 (175)
Increase in accounts payable................. 210 314 258
Decrease in taxes payable.................... (7) (7) --
(Increase) decrease in other assets.......... (167) 12 (415)
(Increase) decrease in earned income
adjustment.................................. (113) (579) 61
----- ------- -------
Net cash provided by (used in) operating
activities................................. $ 106 $ (167) $ (12)
----- ------- -------
CASH FLOWS USED IN INVESTING ACTIVITIES--
Capital expenditures........................... $(170) $ (110) $ (41)
----- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on employee loan receivable........... $ 17 $ 4 $ 46
Employee loan receivable additions............. (13) (2) (1)
Proceeds from exercise of stock options........ 1 -- --
Capital lease payments......................... (42) (34) (44)
Proceeds from short-term borrowings............ 200 150 --
Repayment of short-term borrowings............. -- -- (200)
Dividends paid................................. -- -- (10)
----- ------- -------
Net cash provided by (used in) financing
activities................................. $ 163 $ 118 $ (209)
----- ------- -------
Net increase (decrease) in cash............. $ 99 $ (159) $ (262)
CASH AT BEGINNING OF YEAR....................... 308 308 407
----- ------- -------
CASH AT END OF YEAR............................. $ 407 $ 149 $ 145
===== ======= =======
</TABLE>
See accompanying notes to financial statements.
F-19
<PAGE>
BAIGLOBAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
(AMOUNTS AND DISCLOSURES APPLICABLE TO JUNE 30, 1996 AND JUNE 30, 1997 ARE
UNAUDITED)
1. ORGANIZATION
BAIGlobal, Inc. (the "Company"), formed in 1969, is organized under the laws
of the State of New York. The Company provides a variety of market research
services including market/sizing/segmentation; diagnostic tracking, strategic
problem solving and sophisticated qualitative research. The Company also
specializes in new product development and provides study reports to the
financial services industry. The Company has created an international division
which has full service market research capabilities. The multilingual staff
has research experience in Europe, Asia, Latin America, and the Middle
East/Africa.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Revenue Recognition
The Company recognizes contract revenue using the percentage of completion
method. Each project or study is placed into a project tracking system on a
budget basis. Each project is tracked to completion. This project costing
system matches earned income with related costs on a consistent basis. Income
and/or expenses are either accrued or deferred depending upon the percentage
of completion of each study. The completed jobs are reviewed by management to
account for differences between budget and actual results. The accrued income
is shown as Unbilled Work-in-Progress and unearned income for projects billed
but not earned is shown as Deferred Income.
(b) Fixed Assets
Fixed assets are being depreciated in accordance with the Internal Revenue
Service modified accelerated cost recovery system over the estimated useful
lives of the related assets. While the modified accelerated cost recovery
system is not in accordance with generally accepted accounting principles, the
difference is not material.
Expenditures for major renewals and betterments that extend the useful lives
of property and equipment are capitalized. Expenditures for maintenance and
repairs are charged to expense as incurred.
(c) Income Taxes
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases, and for operating loss and tax credit carryforwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply
to taxable income in the years in which those temporary differences are
expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period
that includes the enactment date. Deferred tax assets are reduced by a
valuation allowance when, in the opinion of management, it is more likely than
not that some portion or all of the deferred tax assets will not be realized.
(d) Disclosure of Certain Significant Risks and Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates
and assumptions that affect the reported amounts of assets and liabilities at
the date of financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
F-20
<PAGE>
BAIGLOBAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(e) Fair Value of Financial Instruments
The carrying amounts of cash, accounts receivable, employee loans
receivable, accounts payable, accrued expenses and notes payable approximate
fair value because of the relatively short maturity of these instruments.
(f) Interim Financial Statements
The financial statements as of June 30, 1997 and for the six months ended
June 30, 1996 and 1997 are unaudited. The unaudited financial statements
include all adjustments, consisting of normal recurring adjustments, which
are, in the opinion of management, necessary for a fair presentation of the
financial position and results of operations for such periods. Results of
operations for interim periods are not necessarily indicative of results to be
expected for the entire year.
3. NOTES PAYABLE
The Company has a $500,000 line of credit of which $200,000 was outstanding
as of December 31, 1996. No borrowings were outstanding as of June 30, 1997.
Bank advances on the credit line are payable on demand and carry an interest
rate of prime plus 1.0%. The credit line is secured by substantially all
corporate assets.
4. CAPITAL LEASES PAYABLE
Capital leases payable at December 31, 1996 consists of the following:
Note payable to AT&T Credit Corp., payable in monthly installments of
$989, including interest of 14.4%, collateralized by a telephone system.
Final payment is due March 27, 1999.
Note payable to Citibank, payable in monthly installments of $6,430,
including interest of 9.75%, collateralized by computer equipment. Final
payment is due May 23, 1998.
Note payable to Advanta, payable in monthly installments of $1,108,
including interest of 11.75%, collateralized by equipment. Final payment is
due July 20, 1999.
Maturities of capital leases payable at December 31, 1996 are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ --------------
(IN THOUSANDS)
<S> <C>
1997.................................................. $102
1998.................................................. 58
1999.................................................. 10
----
Minimum lease payments................................ 170
Less amounts representing interest.................... 17
----
Present value of minimum lease payments under capital
leases............................................... $153
====
</TABLE>
5. STOCKHOLDERS' EQUITY
On November 1, 1996, the number of shares of outstanding common stock was
increased from 490,000 to 552,112 shares. Additionally, $418,744 and $882,199
of capital in excess of par was recorded in connection with the stock purchase
and stock option agreement during the year ended December 31, 1996 and the six
months ended June 30, 1997, respectively (see note 6).
F-21
<PAGE>
BAIGLOBAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
6. STOCK PURCHASE AGREEMENT AND STOCK OPTION AGREEMENT
On November 1, 1996, the Company entered into a stock purchase agreement
with two key employees. The agreement authorized the purchase of 41,408 shares
and 20,704 shares by such employees, respectively, on November 1, 1996 with a
purchase price of $.10 per share. As a result, $289,442 of non-cash
compensation has been recorded for the year ended December 31, 1996 for the
differences between the purchase price and the fair market value of the
Company's common stock.
The stock purchase agreement also authorized grants of options to these two
key employees to purchase up to 225,865 and 112,932 additional shares,
respectively, at $.10 per share. These options are granted evenly over a
three-year period and are conditioned on continuous employment and the
attainment of certain net income objectives. As a result, $129,302 and
$882,199 of non-cash compensation was recorded during the year ended December
31, 1996 and the six months ended June 30, 1997, respectively, relative to the
performance based options that have partially achieved their performance
objective.
As of December 31, 1996, the Board of Directors declared a $10,000 dividend
to the stockholders of record.
7. DEFINED CONTRIBUTION PLAN
The Company sponsors a defined contribution profit sharing plan and a 401(k)
plan covering substantially all of its employees. Company contributions are
determined as a percentage of each covered employee's salary and totaled
$98,388 in 1996. Company contributions for the six months ended June 30, 1996
and 1997 totaled $27,963 and $9,074, respectively.
8. BUY-SELL AGREEMENT
The Company has entered into an agreement with its three principal
stockholders that obligates the Company, upon the death of any of the
stockholders, to purchase the deceased stockholder's stock in the Company. The
purchase price is established by formula and is partially insured.
9. INCENTIVE COMPENSATION
The Company has developed a system of calculating and awarding bonuses based
upon actual results of certain profit centers. The incentive compensation is
based upon various formulas and is variable in nature and is dependent on the
net income generated by a given profit center less the related direct costs
and allocated overhead.
10. LONG-TERM COMMITMENTS
The Company has an operating lease agreement for office space located in
Tarrytown, NY which expires March 1, 2004. The future minimum annual rental
commitments are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ --------------
(IN THOUSANDS)
<S> <C>
1997.................................................... $ 200
1998.................................................... 210
1999.................................................... 238
2000.................................................... 244
Thereafter.............................................. 811
------
$1,703
======
</TABLE>
Rent expense for the year ended December 31, 1996 was $200,124. Rent expense
for the six months ended June 30, 1996 and 1997 was $100,095 and $105,564,
respectively.
F-22
<PAGE>
BAIGLOBAL, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
11. INCOME TAXES
The Company realized a current tax expense of $42,568 and a deferred tax
benefit of $192,622 for the year ended December 31, 1996.
The income tax benefit attributable to the loss before income taxes differs
from the amount that would be computed by applying the Federal statutory rate
primarily due to state and local income taxes. The deferred income taxes
relate to the non-cash compensation recorded under the stock purchase
agreement and the stock option agreement.
12. CONCENTRATION OF CREDIT RISK
The Company maintains its cash balances in one financial institution located
in Westchester County, New York. The balances are insured by the Federal
Deposit Insurance Corporation up to $100,000. As of December 31, 1996, the
Company's cash balances uninsured by the FDIC totaled $299,750.
Concentration of credit with respect to trade receivables exists because the
following clients account for greater than 10% of outstanding trade
receivables at December 31, 1996:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C> <C>
Client 1: ............... $ 660 32%
Client 2: ............... 227 11
Client 3: ............... 215 11
------ ---
$1,102 54%
====== ===
</TABLE>
In addition, concentrations in the area of large sales volume to a limited
number of clients exist. The five largest clients, in terms of volume, account
for approximately 50% of gross billings. The clients referred to above are
Fortune 500 Companies.
13. SUPPLEMENTAL CASH FLOW INFORMATION
Cash expended for interest and income taxes for the year ended December 31,
1996 was $23,753 and $74,704, respectively. Cash expended for interest for the
six months ended June 30, 1996 and 1997 was $12,809 and $11,181, respectively.
Cash expended for income taxes for the six months ended June 30, 1996 and 1997
was $31,704 and $11,738, respectively.
14. SUBSEQUENT EVENTS (UNAUDITED)
In July 1997, the Company entered into a recapitalization agreement with its
shareholders pursuant to which two shareholders exchanged shares and options
to purchase shares of Class A common stock for shares and options to purchase
shares of Class B common stock. Under the agreement, all outstanding options
became fully vested. The shareholders sold a portion of their options to the
Company for notes payable totaling $2,250,000 and the remaining options were
exercised. As a result of these transactions, the Company recorded noncash
compensation expense of $1,792,039.
On July 31, 1997, Market Facts, Inc. acquired all of the outstanding capital
stock of the Company for $3,590,000 payable at closing and up to $5,000,000 of
contingent payments in the form of cash and stock based on the Company
achieving a certain earnings target for the period July 31, 1997 through
December 31, 1999. Immediately after the closing of the transaction, Market
Facts, Inc. advanced the Company $2,250,000 for the purpose of repaying the
notes payable to shareholders.
F-23
<PAGE>
[The inside back cover page contains the Company logo (the same as on the
front cover) and the words "The Right Combination of Products and Services."
Below the logo are lists of the Company's products and services, with the text
reading as follows:]
MARKET
RESEARCH
SERVICES PRODUCTS
<TABLE>
<S> <C>
Consumer Mail PanelSM Data GageSM / MiniScreenSM
Measures opinions from 515,000 households. Low cost monthly shared mail surveys.
National Telephone CenterSM Decision Systems
Nationwide telephone interviewing. Research design and statistical analysis.
Automotive Clinics Mail Monitor(R)
Vehicle product evaluation. Tracks credit card acquisition programs.
TeleNation(R) MarkeTestSM 2000
2,000 national telephone interviews weekly. New product sales volume predictor.
National ShowCase(R) Conversion Model
Mall intercept interviewing. Measures and explains consumer commitment.
Central Location Interviewing Panel (CLIP's) BrandVision(R)
Central location product testing. Shaping a new vision for brand tracking.
IVR (Interactive Voice Response) Inside Track(R)
Totally automated telephone interviewing. Tracks credit card retention programs.
TechFactsSM Panel OnTarget
120,000 high tech households. Direct mail effectiveness tool.
TechFactsSM Online Compete(R)
45,000 Internet households. Concept testing software.
Target Europa BehaviorScopeSM
European consumer panel of 135,000 households. Tracks consumer product usage.
Commitments
Managing customer and employee loyalty.
Product QuestSM
Problem solving for product testing.
PriceDynamics
For making better pricing decisions.
Canadian Multi-Client Studies
8 syndicated market surveys.
</TABLE>
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS
MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, THE SELLING
STOCKHOLDER OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY THE SHARES BY ANYONE IN ANY
JURISDICTION IN WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED, OR IN WHICH
THE PERSON MAKING THE OFFER OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. UNDER NO
CIRCUMSTANCES SHALL THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE PURSUANT
TO THIS PROSPECTUS CREATE ANY IMPLICATION THAT INFORMATION CONTAINED IN THIS
PROSPECTUS IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE OF THIS PROSPECTUS.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Safe Harbor.............................................................. 11
Recapitalization and Self-Tender Offer................................... 11
Use of Proceeds.......................................................... 12
Capitalization........................................................... 13
Market Facts, Inc. and Subsidiaries Unaudited Pro Forma Condensed
Consolidated Financial Statements....................................... 14
Selected Historical Financial Data....................................... 20
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 21
Business................................................................. 27
BAIGlobal Acquisition.................................................... 42
Management............................................................... 44
Certain Transactions..................................................... 45
Principal and Selling Stockholders....................................... 46
Agreements with Selling Stockholder and its Affiliates................... 48
Description of Capital Stock............................................. 49
Underwriting............................................................. 56
Legal Matters............................................................ 57
Experts.................................................................. 57
Available Information.................................................... 57
Incorporation of Certain Documents by Reference.......................... 58
Index to Financial Statements............................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2,000,000 SHARES
LOGO
COMMON STOCK
------------------
PROSPECTUS
------------------
EVEREN SECURITIES, INC.
THE ROBINSON-HUMPHREY
COMPANY, INC.
, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of securities being registered, other than the
underwriting discount.
<TABLE>
<S> <C>
SEC registration fee.......................................... $ 21,955.00
NASD filing fee............................................... 7,745.00
Nasdaq National Market listing fee............................ 17,500.00
Blue sky fees and expenses.................................... 5,000.00
Printing and engraving expenses............................... 150,000.00
Legal fees and expenses....................................... 160,000.00
Accounting fees and expenses.................................. 50,000.00
Transfer agent and registrar fees............................. 2,000.00
Miscellaneous................................................. 185,800.00
-----------
Total....................................................... $600,000.00
===========
</TABLE>
The Company will bear all of the foregoing expenses.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Restated Certificate of Incorporation and By-Laws provide that
the Company shall indemnify any director or officer of the Company who is made
or threatened to be made a party to any threatened, pending or completed
action, suit or proceeding to the fullest extent permitted by Delaware General
Corporation Law against expenses (including judgments, fines and certain
settlements) actually and reasonably incurred.
Section 145 of the Delaware General Corporation Law grants companies broad
powers to indemnify its directors and officers against liabilities that they
may incur in such capacities, including liabilities under the Securities Act
of 1933, as amended.
The Company has entered into Indemnification Agreements with its directors
(collectively, the "Indemnification Agreements"). Pursuant to the
Indemnification Agreements, the Company agreed to indemnify each director
against any and all expenses (including attorneys' fees and disbursements),
judgments, fines, amounts paid in settlement and any other liabilities
incurred by reason of the fact that such person was or is a director, officer,
employee or agent of the Company, to the fullest extent permitted by Delaware
General Corporation Law. In addition, the Company agreed to advance to each
director any and all expenses incurred by him (i) in defending any suit or
other proceeding to which the director is, or is threatened to be made a party
due to the fact that he is or was a director, officer, employee or agent of
the Company or (ii) in prosecuting any suit or other proceeding to enforce his
rights under the Indemnification Agreement. The advancement of expenses will
be made within twenty (20) days after the Company receives a statement
reasonably detailing all expenses and an undertaking by the director or on the
director's behalf to repay such advancement of expenses if it is ultimately
determined by a final judicial decision from which there is no further right
to appeal that the director is not entitled to be indemnified for the expenses
under the Indemnification Agreement or otherwise.
This indemnification and advancement of expenses inures to the benefit of
each director's heirs and legal representatives. In addition, the rights
granted pursuant to the Indemnification Agreements will continue to be valid,
binding and enforceable after the individual has ceased to be a director,
officer, employee or agent of the Company. The Indemnification Agreements do
not limit any rights to which the directors are entitled under Delaware law,
the Company's Restated Certificate of Incorporation Bylaws, or otherwise. The
burden of proof
II-1
<PAGE>
of establishing that any director is not entitled to indemnification because of
a failure to fulfill any legal requirement shall be on the Company.
ITEM 16. EXHIBITS.
See the Index to Exhibits immediately following the signature page.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
A. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the Registrant pursuant to the foregoing provisions, or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer, or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer, or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
B. The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon 430A and contained in a form
of prospectus filed by the Registrant pursuant to Rules 424(b)(1) or (4) or
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining liability under the Securities Act of
1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new Registration Statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Stockholders and
Board of Directors of Market Facts, Inc.:
Under date of February 25, 1997, except for paragraphs 2 and 3 of Note 6,
which are as of May 27, 1997, we reported on the consolidated balance sheets
of Market Facts, Inc. and subsidiaries as of December 31, 1995 and 1996, and
the related consolidated statements of earnings, stockholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1996, included in this registration statement. In connection with our audits
of the aforementioned consolidated financial statements, we also have audited
the related financial statement schedule in the registration statement. This
financial statement schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion on this financial
statement schedule based on our audits.
In our opinion, the financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
KPMG Peat Marwick LLP
Chicago, Illinois
February 25, 1997
II-3
<PAGE>
SCHEDULE II
MARKET FACTS, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
1994 1995 1996
---- ---- ------
(IN THOUSANDS)
<S> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS:
Balance at beginning of year................................ $564 $669 $ 838
MFCL's balance at 4/30/94................................... 42 -- --
Provision................................................... 102 197 198
Write-offs of uncollectible accounts........................ (38) (30) (28)
Cumulative foreign currency translation..................... (1) 2 (1)
---- ---- ------
Balance at end of year...................................... $669 $838 $1,007
==== ==== ======
</TABLE>
II-4
<PAGE>
SIGNATURES
The Registrant. Pursuant to the requirements of the Securities Act of 1933,
the Registrant certifies that it has reasonable grounds to believe that it
meets all of the requirements for filing on Form S-3 and has duly caused this
Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the Village of Arlington Heights, State of
Illinois, on September 22, 1997.
Market Facts, Inc.
/s/ Timothy J. Sullivan
By: _________________________________
TIMOTHY J. SULLIVAN
CHIEF FINANCIAL OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED.
NAME CAPACITY DATE
Chief Executive
/s/ Thomas H. Payne* Officer and September 22,
- ------------------------------------- Director (Principal 1997
THOMAS H. PAYNE Executive Officer)
Chief Financial
/s/ Timothy J. Sullivan* Officer, Senior September 22,
- ------------------------------------- Vice President, 1997
TIMOTHY J. SULLIVAN Treasurer,
Assistant Secretary
and Director
(Principal
Financial Officer)
/s/ Anthony J. Solarz Controller
- ------------------------------------- (Principal September 22,
ANTHONY J. SOLARZ Accounting Officer) 1997
/s/ William W. Boyd* Director September 22,
- ------------------------------------- 1997
WILLIAM W. BOYD
Chairman of the
/s/ Verne B. Churchill* Board September 22,
- ------------------------------------- 1997
VERNE B. CHURCHILL
Senior Vice
/s/ Lawrence W. Labash* President and September 22,
- ------------------------------------- Director 1997
LAWRENCE W. LABASH
II-5
<PAGE>
NAME CAPACITY DATE
/s/ Jeffery A. Oyster* Director September 22,
- ------------------------------------- 1997
JEFFERY A. OYSTER
/s/ Karen E. Predow* Director September 22,
- ------------------------------------- 1997
KAREN E. PREDOW
Executive Vice
/s/ Sanford M. Schwartz* President, September 22,
- ------------------------------------- President of Market 1997
SANFORD M. SCHWARTZ Facts--New York,
Inc. and Director
/s/ Ned L. Sherwood* Director September 22,
- ------------------------------------- 1997
NED L. SHERWOOD
/s/ Jack R. Wentworth* Director September 22,
- ------------------------------------- 1997
JACK R. WENTWORTH
*By Timothy J. Sullivan
as Attorney-In-Fact
and Agent
II-6
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S>
(1.1) Form of Underwriting Agreement*
(2.1) Stock Purchase Agreement by and among Market Facts, Inc., Kathleen
Knight, Robert Skolnick, Gunilla Broadbent and BAIGlobal, Inc. dated
as of July 31, 1997(1)
(4)(a) Article Fourth of Restated Certificate of Incorporation(2)
(4)(b) Rights Agreement as Amended and Currently in Effect(3)
(4)(c) Certificate of Designation, Preferences and Rights of Series B
Preferred Stock(4)
(5.1) Opinion of Lord, Bissell & Brook**
(10.1) Investment Agreement dated June 6, 1996 among the Company, MFI
Investors L.P. and MFI Associates, Inc.(5)
(10.2) Financial Advisory Agreement dated June 6, 1996 between the Company
and MFI Investors L.P.(6)
(10.3) Convertible Note dated June 6, 1996 in the principal amount of
$8,250,000 issued by the Company to MFI Investors L.P.(7)
(23.1) Consent of KPMG Peat Marwick LLP*
(23.2) Consent of Lord, Bissell & Brook (included in Exhibit 5.1)
(24.1) Powers of Attorneys of certain officers and directors of the
Company***
</TABLE>
- --------
* Filed herewith.
** To be filed by Amendment.
*** Previously filed.
(1) Incorporated by reference to Registrant's Form 8-K dated July 31, 1997.
(2) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1996.
(3) Incorporated by reference to Registrant's Form 8-A dated July 3, 1996,
Commission file number 0-04781.
(4) Incorporated by reference to Exhibit No. 99(c)(4) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(5) Incorporated by reference to Exhibit No. (c)(1) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(6) Incorporated by reference to Exhibit No. (c)(2) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(7) Incorporated by reference to Exhibit No. (c)(3) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
II-7
<PAGE>
EXHIBIT 1.1
DRAFT AS OF 9/22/97
-------------------
2,000,000 Shares
MARKET FACTS, INC.
COMMON STOCK, $1.00 PAR VALUE
UNDERWRITING AGREEMENT
____________, 1997
<PAGE>
________ ___, 1997
EVEREN Securities, Inc.
The Robinson-Humphrey Company, Inc.
As Representatives of the
several Underwriters named in
Schedule I hereto,
c/o EVEREN Securities, Inc.
77 W. Wacker Drive
Chicago, Illinois 60601-1694
Dear Sirs:
Market Facts, Inc., a Delaware corporation ("the Company"), and MFI
Investors L.P. (the "Selling Stockholder"), severally propose to sell an
aggregate of 2,000,000 shares of Common Stock, par value $1.00 per share, of the
Company (the "Firm Shares"), to the several underwriters named in Schedule I
hereto (the "Underwriters"). The Firm Shares consist of 1,500,000 shares to be
issued and sold by the Company and 500,000 outstanding shares to be sold by the
Selling Stockholder. The Company also proposes to issue and sell, and the
Selling Stockholder also proposes to sell, to the several Underwriters not more
than 150,000 and 150,000 additional shares of Common Stock, par value $1.00 per
share, of the Company (the "Additional Shares"), respectively, if requested by
the Underwriters as provided in Section 3 hereof. The Firm Shares and the
Additional Shares are herein collectively called the "Shares". The shares of
common stock of the Company to be outstanding after giving effect to the sales
contemplated hereby are hereinafter referred to as the Common Stock. The Company
and the Selling Stockholder are hereinafter collectively called the
"Sellers".
The Company has prepared and filed with the Securities and Exchange
Commission (the "Commission") in accordance with the provisions of the
Securities Act of 1933, as amended, and the rules and regulations of the
Commission thereunder (collectively, the "Securities Act"), a registration
statement on Form S-3 under the Securities Act (the "registration statement"),
including a prospectus subject to completion relating to the Shares. The term
"Registration Statement" as used in this Agreement means the registration
statement (including all financial schedules and exhibits), as amended at the
time it becomes effective, or, if the registration statement became effective
prior to the execution of this Agreement, as supplemented or amended prior to
the execution of this Agreement. If it is contemplated, at the time this
Agreement is executed, that a post-effective amendment to the registration
statement will be filed and must be declared effective before the offering of
the Shares may commence, the term "Registration Statement" as used in this
Agreement means the registration statement as amended by said post-effective
amendment. The term "Prospectus" as used in this Agreement means the prospectus
in the form included in the Registration Statement, or, if the prospectus
included in the Registration Statement omits information in reliance on Rule
430A under the Securities Act and such information is included in a prospectus
filed with the Commission pursuant to Rule 424(b) under the Securities Act, the
term "Prospectus" as used in this Agreement means the prospectus in the form
included in the Registration Statement as supplemented by the addition of the
Rule 430A information contained in the prospectus, if any, filed with the
Commission pursuant to Rule 424(b). If the Company has filed an abbreviated
registration statement to register additional shares of Common Stock pursuant to
Rule 462(b) under the Securities Act (the "Rule 462 Registration Statement"),
then any reference herein to the term "Registration Statement" shall be deemed
to include such Rule 462 Registration Statement. Any reference in
<PAGE>
this Agreement to the registration statement, the Registration Statement, or the
Prospectus shall be deemed to refer to and include the documents incorporated by
reference therein pursuant to Item 12 of Form S-3 under the Securities Act, as
of the date of the registration statement, the Registration Statement, or the
Prospectus, as the case may be, and any reference to any amendment or supplement
to the registration statement, the Registration Statement or the Prospectus
shall be deemed to refer to and include any documents filed after such date
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")
which, upon filing, are incorporated by reference therein, as required by
paragraph (b) of Item 12 of Form S-3.
1. Representations and Warranties of the Company. The Company represents
and warrants to and agrees with each of the Underwriters that:
(a) The Registration Statement has become effective; no stop order
suspending the effectiveness of the Registration Statement is in effect and
no proceedings for such purpose are pending before or threatened by the
Commission.
(b) (i) Each part of the Registration Statement, when such part became
effective, did not contain and each such part, as amended or supplemented,
if applicable, will not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein or necessary to
make the statements therein not misleading, (ii) the Registration Statement
and the Prospectus comply and, as amended or supplemented, if applicable,
will comply in all material respects with the Securities Act and the
applicable rules and regulations of the Commission thereunder and (iii) the
Prospectus does not contain and, as amended or supplemented, if applicable,
will not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this Section 1(b) do not apply
to statements or omissions in the Registration Statement or the Prospectus
based upon information relating to any Underwriter furnished to the Company
in writing by you or any such Underwriter through you expressly for use
therein.
(c) The Company has been duly incorporated, is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation, has the corporate power and authority to own its property
and to conduct its business as described in the Prospectus and is duly
qualified to transact business and is in good standing in each jurisdiction
in which the conduct of its business or its ownership or leasing of
property requires such qualification, except to the extent that the failure
to be so qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries, taken as a whole.
(d) Each subsidiary of the Company has been duly incorporated, is
validly existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and authority to
own its property and to conduct its business as described in the Prospectus
and is duly qualified to transact business and is in good standing in each
jurisdiction in which the conduct of its business or its ownership or
leasing of property requires such qualification, except to the extent that
the failure to be so qualified or be in good standing would not have a
material adverse effect on the Company and its subsidiaries, taken as a
whole.
2
<PAGE>
(e) The authorized capital stock of the Company conforms as to legal
matters to the description thereof contained in the Prospectus.
(f) The shares of Common Stock (including the Shares to be sold by the
Selling Stockholder) outstanding prior to the issuance of the Shares to be
sold by the Company have been duly authorized and are validly issued, fully
paid and non-assessable.
(g) The Shares to be sold by the Company have been duly authorized
and, when issued and delivered in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and the
issuance of such Shares will not be subject to any preemptive or similar
rights.
(h) This Agreement has been duly authorized, executed and delivered by
the Company.
(i) The execution and delivery by the Company of, and the performance
by the Company of its obligations under, this Agreement will not contravene
any provision of applicable law or the certificate of incorporation or by-
laws of the Company or any of its subsidiaries or any agreement or other
instrument binding upon the Company or any of its subsidiaries that is
material to the Company and its subsidiaries, taken as a whole, or any
judgment, order or decree of any governmental body, agency or court having
jurisdiction over the Company or any subsidiary, and no consent, approval,
authorization or order of or qualification with any governmental body or
agency is required for the performance by the Company of its obligations
under this Agreement, except such as may be required by the securities or
Blue Sky laws of the various states in connection with the offer and sale
of the Shares.
(j) There has not occurred any material adverse change, or any
development involving a prospective material adverse change, in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, from that
set forth in the Prospectus (exclusive of any amendments or supplements
thereto subsequent to the date of this Agreement).
(k) There are no legal or governmental proceedings pending or, to the
knowledge of the Company, threatened to which the Company or any of its
subsidiaries is a party or to which any of the properties of the Company or
any of its subsidiaries is subject that are required to be described in the
Registration Statement or the Prospectus and are not so described or any
statutes, regulations, contracts or other documents that are required to be
described in the Registration Statement or the Prospectus or to be filed as
exhibits to the Registration Statement that are not described or filed as
required.
(l) Each preliminary prospectus filed as part of the registration
statement as originally filed or as part of any amendment thereto, or filed
pursuant to Rule 424 under the Securities Act, complied when so filed in
all material respects with the Securities Act and the applicable rules and
regulations of the Commission thereunder, and did not contain an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein in the light
of the circumstances under which they were made, not misleading.
3
<PAGE>
(m) The Company is not, and after giving effect to the offering and
sale of the Shares and the application of the proceeds thereof as described
in the Prospectus, will not be an "investment company" or an entity
"controlled" by an "investment company" as such terms are defined in the
Investment Company Act of 1940, as amended.
(n) The Company and its subsidiaries are (i) in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety, the environment or
hazardous or toxic substances or wastes, pollutants or contaminants
("Environmental Laws"), (ii) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval, except where such
noncompliance with Environmental Laws, failure to receive required permits,
licenses or other approvals or failure to comply with the terms and
conditions of such permits, licenses or approvals would not, singly or in
the aggregate, have a material adverse effect on the Company and its
subsidiaries, taken as a whole.
(o) The Company has complied with all provisions of Section 517.075
Florida Statutes relating to doing business with the Government of Cuba or
with any person or affiliate located in Cuba.
(p) There are no contracts, agreements or understandings between the
Company and any person granting such person the right to require the
Company to file a registration statement under the Securities Act with
respect to any securities of the Company or to require the Company to
include such securities with the Shares registered pursuant to the
Registration Statement, except in each case as described in the Prospectus.
(q) Subsequent to the respective dates as of which information is
given in the Registration Statement and the Prospectus, (i) the Company and
its subsidiaries have not incurred any material liability or obligation,
direct or contingent, nor entered into any material transaction not in the
ordinary course of business; (ii) the Company has not purchased any of its
outstanding capital stock, nor declared, paid or otherwise made any
dividend or distribution of any kind on its capital stock other than
ordinary and customary dividends; and (iii) there has not been any material
change in the capital stock, short-term debt or long-term debt of the
Company and its subsidiaries, except in each case as described in the
Prospectus.
(r) The Company and its subsidiaries have good and marketable title in
fee simple to all real property and good and marketable title to all
personal property owned by them which is material to the business of the
Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in the Prospectus or
such as do not materially affect the value of such property and do not
interfere with the use made and proposed to be made of such property by the
Company and its subsidiaries; and any real property and facilities held
under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of
such property and buildings by the Company and its subsidiaries, in each
case except as described in or contemplated by the Prospectus.
(s) The Company and it subsidiaries own or possess, or can acquire on
4
<PAGE>
reasonable terms, all material patents, patent rights, licenses,
inventions, copyrights, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information,
systems or procedures), trademarks, service marks and trade names currently
employed by them in connection with the business now operated by them, and
neither the Company nor any of its subsidiaries has received any notice of
infringement of or conflict with asserted rights of others with respect to
any of the foregoing which, singly or in the aggregate, if the subject of
an unfavorable decision, ruling or finding, would result in any material
adverse change in the condition, financial or otherwise, or in the
earnings, business or operations of the Company and its subsidiaries, taken
as a whole.
(t) No material labor dispute with the employees of the Company or any
of its subsidiaries exists, except as described in or contemplated by the
Prospectus, or, to the knowledge of the Company, is imminent; and the
Company is not aware of any existing, threatened or imminent labor
disturbance by the employees of any of its principal service providers or
suppliers that could result in any material adverse change in the
condition, financial or otherwise, or in the earnings, business or
operations of the Company and its subsidiaries, taken as a whole.
(u) The Company and each of its subsidiaries are insured by insurers
of recognized financial responsibility against such losses and risks and in
such amounts as management of the Company believes to be prudent and
customary in the businesses in which the Company and its subsidiaries are
engaged; neither the Company nor any such subsidiary has been refused any
insurance coverage sought or applied for; and neither the Company nor any
such subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to
obtain similar coverage from similar insurers as may be necessary to
continue its business at a cost that would not materially and adversely
affect the condition, financial or otherwise, or the earnings, business or
operations of the Company and its subsidiaries, taken as a whole, except as
described in or contemplated by the Prospectus.
(v) The Company and its subsidiaries has all necessary consents,
authorizations, approvals, orders, certificates and permits of and from
(collectively, "permits"), and has made all declarations and filings with,
all federal, state, local, foreign and other governmental and regulatory
authorities, all self-regulatory organizations and all courts and other
tribunals, to own, lease, license and use its properties and assets and to
conduct its business in the manner described in the Prospectus, except to
the extent that the failure to obtain any such permit or to make any such
declaration or filing would not have a material adverse effect on the
Company and its subsidiaries taken as a whole. Neither the Company nor any
such subsidiary has received any notice of proceedings relating to the
revocation or modification of any such permits which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or finding,
would result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company and
its subsidiaries, taken as a whole, except as described in or contemplated
by the Prospectus; and, except as described in the Prospectus, such permits
contain no restrictions that are materially burdensome to the Company or
any subsidiary.
(w) The Company and each of its subsidiaries maintain a system of
internal accounting controls sufficient to provide reasonable assurance
that (i) transactions are
5
<PAGE>
executed in accordance with management's general or specific
authorizations; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain asset accountability; (iii) access to
assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(x) All of the outstanding shares of capital stock of, or other
ownership interests in, each of the Company's subsidiaries have been duly
authorized and validly issued and are fully paid and non-assessable, and
are owned by the Company, free and clear of any security interest, claim,
lien, encumbrance or adverse interest of any nature.
(y) Neither the Company nor any of its subsidiaries is (i) in
violation of its respective charter or by-laws or (ii) in default in the
performance of any obligation, agreement or condition contained in any
bond, debenture, note or any other evidence of indebtedness or in any other
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party or by which the Company or any of its subsidiaries
or their respective property is bound, other than defaults that would not,
individually or in the aggregate, have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
(z) Neither the Company nor any of its subsidiaries has violated any
federal or state law relating to discrimination in the hiring, promotion or
pay of employees nor any applicable federal or state wages and hours laws,
nor any provisions of the Employee Retirement Income Security Act or the
rules and regulation promulgated thereunder, which in each case are
reasonably likely to result in any material adverse change in the
condition, financial or otherwise, or in the earnings or business
operations of the Company and its subsidiaries, taken as a whole.
(aa) The Company has filed an application to list the Shares on the
Nasdaq National Market and has received notification that the listing has
been approved, subject to notice of issuance of the Shares.
(ab) There are no outstanding subscriptions, rights, warrants,
options, calls, convertible securities, commitments of sale or liens
related to or entitling any person to purchase or otherwise to acquire any
shares of the capital stock of, or other ownership interest in, the Company
or any subsidiary thereof, except as otherwise disclosed in the
Registration Statement.
(ac) All material tax returns required to be filed by the Company and
each of its subsidiaries in any jurisdiction have been filed, other than
those filings being contested in good faith, and all material taxes,
including withholding taxes, penalties and interest, assessments, fees and
other charges due pursuant to such returns or pursuant to any assessment
received by the Company or any of its subsidiaries have been paid, other
than those being contested in good faith and for which adequate reserves
have been provided.
6
<PAGE>
(ad) KPMG Peat Marwick LLP is the independent public accountant with
respect to the Company as required by the Securities Act.
(ae) The financial statements, together with related schedules and
notes forming part of the Registration Statement and the Prospectus (and
any amendment or supplement thereto), present fairly the consolidated
financial position, results of operations and changes in financial position
of the Company and its subsidiaries on the basis stated in the Registration
Statement at the respective dates or for the respective periods to which
they apply; such statements and related schedules and notes have been
prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, except as disclosed
therein; and the other financial and statistical information and data set
forth in the Registration Statement and the Prospectus (and any amendment
or supplement thereto) is, in all material respects, accurately presented
and prepared on a basis consistent with such financial statements and the
books and records of the Company.
2. Representations and Warranties of the Selling Stockholder. The
Selling Stockholder represents and warrants to and agrees with each of the
Underwriters that:
(a) This Agreement has been duly authorized, executed and delivered by
or on behalf of the Selling Stockholder.
(b) The execution and delivery by the Selling Stockholder of, and the
performance of the Selling Stockholder of its obligations under, this
Agreement, the Custody Agreement signed by the Selling Stockholder and
First Chicago Trust Company of New York, as Custodian, relating to the
deposit of the Shares to be sold by the Selling Stockholder (the "Custody
Agreement") and the Power of Attorney appointing certain individuals as the
Selling Stockholder's attorneys-in-fact to the extent set forth therein,
relating to the transactions contemplated hereby and by the Registration
Statement (the "Power of Attorney") will not contravene any provision of
applicable law, or the partnership agreement of the Selling Stockholder, or
any agreement or other instrument binding upon the Selling Stockholder or
any judgment, order or decree of any governmental body, agency or court
having jurisdiction over the Selling Stockholder, and no consent, approval,
authorization or order of, or qualification with, any governmental body or
agency is required for the performance by the Selling Stockholder of its
obligations under this Agreement or the Custody Agreement or Power of
Attorney of the Selling Stockholder, except such as may be required by the
securities or Blue Sky laws of the various states in connection with the
offer and sale of the Shares.
(c) The Selling Stockholder has, and on the Closing Date and any later
date on which the Additional Shares are to be purchased will have, good and
marketable title to the Shares to be sold by the Selling Stockholder and
the legal right and power, and all authorization and approval required by
law, to enter into this Agreement, the Custody Agreement and the Power of
Attorney and to sell, transfer and deliver the Shares to be sold by the
Selling Stockholder.
(d) The Custody Agreement and the Power of Attorney have been duly
authorized, executed and delivered by the Selling Stockholder and are valid
and binding
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agreements of the Selling Stockholder.
(e) Certificates in negotiable form for Shares to be sold by such
Selling Stockholder have been placed in custody under the Custody Agreement
for delivery under this Agreement with the Custodian; the Selling
Stockholder agrees that the shares of Common Stock represented by the
certificates so held in custody for the Selling Stockholder are subject to
the interests of the several Underwriters and the Company, that the
arrangements made by such Selling Stockholder for such custody, including
the Power of Attorney, are to that extent irrevocable, and that the
obligations of the Selling Stockholder shall not be terminated by any act
of the Selling Stockholder or by operation of law, whether by the
termination, dissolution or liquidation of the Selling Stockholder or the
occurrence of any other event; if any such termination, dissolution,
liquidation or other such event should occur before the delivery of the
Shares to be sold by the Selling Stockholder hereunder, certificates for
such shares of the Common Stock shall be delivered by the Custodian in
accordance with the terms and conditions of this Agreement as if such
termination, dissolution, liquidation or other event had not occurred,
regardless of whether the Custodian shall have received notice of such
termination, dissolution, liquidation or other event.
(f) Delivery of the Shares to be sold by the Selling Stockholder
pursuant to this Agreement will pass title to the Shares free and clear of
any security interests, claims, liens, equities and other encumbrances.
(g) (i) The Registration Statement, when it became effective, did not
contain and, as amended or supplemented, if applicable, will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein
not misleading, (ii) the Registration Statement and the Prospectus comply
and, as amended or supplemented, if applicable, will comply in all material
respects with the Securities Act and the applicable rules and regulations
of the commission thereunder and (iii) the Prospectus does not contain and,
as amended or supplemented, if applicable, will not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements therein, in the light of the circumstances under which
they were made, not misleading, except that the representations and
warranties set forth in this Section 2(g) do not apply to statements or
omissions in the Registration Statement or the Prospectus based upon
information relating to any Underwriter furnished to the Company in writing
by such Underwriter through you expressly for use therein.
(h) The Selling Stockholder does not know of any respect in which the
representations and warranties of the Company contained in Section 2(a)
hereof are not true and correct in all material respects, is familiar with
the Registration Statement and has no knowledge of any material fact,
condition or information not disclosed in the Registration Statement which
has adversely affected or may adversely affect the business of the Company
or any of its Subsidiaries; and the sale of the Stock by the Selling
Stockholder pursuant to this Agreement is not prompted by any information
concerning the Company which is not set forth in the Registration
Statement.
(i) The Selling Stockholder has not taken and will not take, directly
or
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<PAGE>
indirectly, any action which has constituted, or which is designed to or
might reasonably be expected to cause or result in, stabilization or
manipulation of the price of sale or resale of the Common Stock.
3. Agreements to Sell and Purchase. Each Seller, severally and not
jointly, hereby agrees to sell to the several Underwriters, and each
Underwriter, upon the basis of the representations and warranties herein
contained, but subject to the conditions hereinafter stated, agrees, severally
and not jointly, to purchase from such Seller at U.S. $_______ a share (the
"Purchase Price") the number of Firm Shares (subject to such adjustments to
eliminate fractional shares as you may determine) that bears the same proportion
to the total number of Firm Shares to be sold by such Seller as the number of
Firm Shares set forth in Schedule I hereto opposite the name of such Underwriter
bears to the total number of Firm Shares.
On the basis of the representations and warranties contained in this
Agreement, and subject to its terms and conditions, each Seller, severally and
not jointly, agrees to sell to the Underwriters the Additional Shares, and the
Underwriters shall have a one-time right to purchase, severally and not jointly,
up to 300,000 Additional Shares, 50% from the Company and 50% from the Selling
Stockholder, at the Purchase Price. Such date may be the same as the Closing
date (as defined below) but not earlier than the Closing Date nor later than ten
business days after the date written notice of an election to purchase
Additional Shares is given. If the Representatives, on behalf of the
Underwriters, elect to exercise such option, the Representatives shall so notify
the Company in writing not later than 45 days after the date of the Prospectus
which notice shall specify the number of Additional Shares to be purchased by
the Underwriters and the date on which such Additional Shares are to be
purchased. Additional Shares may be purchased as provided in Section 5 hereof
solely for the purpose of covering over allotments made in connection with the
offering of the Firm Shares. If any Additional Shares are to be purchased, each
Underwriter agrees, severally and not jointly, to purchase the number of
Additional Shares, 50% from the Company and 50% from the Selling Stockholder,
(subject to such adjustments to eliminate fractional shares as the
Representatives may determine) that bears the same proportion to the total
number of Additional Shares to be purchased as the number of Firm Shares set
forth in Schedule I hereto opposite the name of such Underwriter bears to the
total number of Firm Shares. The Additional Shares to be purchased by the
Underwriters hereunder and the Firm Shares are hereinafter collectively referred
to as the "Shares."
Each Seller hereby agrees that, without the prior written consent of EVEREN
Securities, Inc., it will not, directly or indirectly, during the period ending
120 days after the date of the Prospectus, (i) offer, sell (including, without
limitation, any short sale), pledge, contract to sell, grant any option to
purchase or otherwise dispose of any Common Stock (including, without
limitation, shares of Common Stock which may be deemed to be beneficially owned
by the Seller in accordance with the rules and regulations of the Commission and
shares of Common Stock which may be issued upon exercise of a stock option or
warrant) or any options, warrants, or other securities convertible into or
exercisable or exchangeable for such Common Stock, in any case whether now owned
or hereafter acquired, or in any manner to transfer all or a portion of the
economic consequences associated with ownership of the Common Stock. The
foregoing sentence shall not apply to (A) the Shares to be sold hereunder, (B)
the issuance by the Company of shares of Common Stock upon the exercise of an
option or warrant or the conversion of a security outstanding on the date hereof
of which the Underwriters have been advised in writing, (C) the grant by the
Company of options or other awards or the issuance by the Company of Common
Stock pursuant to the employee stock option and stock purchase plans or (D) the
transfer of the Common Stock by the Selling Stockholder by one or more bona fide
gifts or
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<PAGE>
pledges, provided that the donee(s) or pledgee(s) thereof agree in writing to be
bound by this paragraph. In addition, the Selling Stockholder, agrees that,
without the prior written consent of the Representatives, it will not, during
the period ending 120 days after the date of the Prospectus, make any demand
for, or exercise any right with respect to, the registration of any shares of
Common Stock or any security convertible into or exercisable or exchangeable for
Common Stock.
4. Terms of Public Offering. The Sellers are advised by you that the
Underwriters propose to make a public offering of their respective portions of
the Shares as soon after the Registration Statement and this Agreement have
become effective as in your judgment is advisable. The Sellers are further
advised by you that the Shares are to be offered to the public initially at U.S.
$________ a share (the "Public Offering Price") and to certain dealers selected
by you at a price that represents a concession not in excess of U.S. $_______ a
share under the Public Offering Price, and that any Underwriter may allow, and
such dealers may reallow, a concession, not in excess of U.S. $______ a share,
to any Underwriter or to certain other dealers.
5. Payment and Delivery. Payment for the Firm Shares to be sold by each
Seller shall be made to such Seller in Federal or other funds immediately
available in Chicago against delivery of such Firm Shares for the respective
accounts of the several Underwriters at 9:00 A.M., Chicago time, on
__________, 1997, or at such other time on the same or such other date, not
later than _____________, 1997, as shall be designated in writing by you. The
time and date of such payment are hereinafter referred to as the "Closing Date."
Payment for any Additional Shares to be sold by each Seller shall be made
to such Seller in Federal or other funds immediately available in Chicago
against delivery of such Additional Shares for the respective accounts of the
several Underwriters at 9:00 A.M., Chicago time, on the date specified in the
notice described in Section 3 or on such other date, in any event not later
than, ______________, 1997, as shall be designated in writing by the
Representatives. The time and date of such payment are hereinafter referred to
as the "Option Closing Date."
Certificates for the Firm Shares and Additional Shares shall be in
definitive form and registered in such names and in such denominations as you
shall request in writing not later than two full business days prior to the
Closing Date or the Option Closing Date, as the case may be. The certificates
evidencing the Firm Shares and Additional Shares shall be delivered to you on
the Closing Date or the Option Closing Date, as the case may be, for the
respective accounts of the several Underwriters, with any transfer taxes payable
in connection with the transfer of the Shares to the Underwriters duly paid,
against payment of the Purchase Price therefor.
6. Conditions to the Underwriters' Obligations. The obligations of the
Sellers to sell the Shares to the Underwriters and the several obligations of
the Underwriters to purchase and pay for the Shares on the Closing Date
hereunder are subject to the condition that the Registration Statement shall
have become effective not later than 3:00 P.M. (Chicago time) on the date
hereof.
The several obligations of the Underwriters hereunder are subject to the
following further conditions:
(a) Subsequent to the execution and delivery of this Agreement and
prior to
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the Closing Date, there shall not have occurred any change, or any
development involving a prospective change, in the condition, financial or
otherwise, or in the earn ings, business or operations, of the Company and
its subsidiaries, taken as a whole, from that set forth in the Prospectus
(exclusive of any amendments or supplements thereto subsequent to the date
of this Agreement), that, in your judgment, is material and adverse and
that makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
(b) The Underwriters shall have received on the Closing Date a (x)
certificate, dated the Closing Date and signed by an executive officer of
the Company, to the effect set forth in clause (ii) of Section 6(a) above
and to the effect that the representations and warranties of the Company
contained in this Agreement are true and correct as of the Closing Date and
that the Company has complied with all of the agreements and satisfied all
of the conditions on its part to be performed or satisfied hereunder on or
before the Closing Date, and (y) a certificate of the Selling Stockholder
to the effect that the representations and warranties of the Selling
Stockholder contained in this Agreement are true and correct as of the
Closing Date and that such Selling Stockholder has complied with all the
agreements and satisfied all of the conditions on its part to be performed
or satisfied hereunder on or before the Closing Date.
(c) The Underwriters shall have received on the Closing Date an
opinion of Lord Bissell & Brook, counsel for the Company, dated the
Closing Date, to the effect that:
(i) the Company has been duly incorporated, is validly
existing as a corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to trans act business and is
in good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries taken as a whole;
(ii) each subsidiary of the Company has been duly incorporated,
is validly existing as a corporation in good standing under the laws
of the jurisdiction of its incorporation, has the corporate power and
authority to own its property and to conduct its business as described
in the Prospectus and is duly qualified to trans act business and is
in good standing in each jurisdiction in which the conduct of its
business or its ownership or leasing of property requires such
qualification, except to the extent that the failure to be so
qualified or be in good standing would not have a material adverse
effect on the Company and its subsidiaries taken as a whole;
(iii) the authorized capital stock of the Company conforms as to
legal matters to the description thereof contained in the Prospectus;
(iv) the shares of Common Stock (including the Shares to be
sold by the Selling Stockholder) outstanding prior to the issuance of
the Shares to be sold
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<PAGE>
by the Company have been duly authorized and are validly issued, fully
paid and non-assessable;
(v) the Shares to be sold by the Company have been duly
authorized and, when issued and delivered in accordance with the terms
of this Agreement, will be validly issued, fully paid and non-
assessable, and the issuance of such Shares will not be subject to any
preemptive or similar rights;
(vi) this Agreement has been duly authorized, executed and
delivered by the Company;
(vii) the Registration Statement has become effective under the
Securities Act, no stop order suspending its effectiveness has been
issued and no proceedings for that purpose are, to the knowledge of
such counsel, pending or threatened by the Commission; and to the best
of our knowledge, after due inquiry, at the time the Registration
Statement became effective the Company met the conditions for use of
Form S-3 under the Securities Act;
(viii) the execution and delivery by the Company of, and the
performance by the Company of its obligations under, this Agreement
will not contravene (A) any provision of applicable law or the
certificate of incorporation or by-laws of the Company or any of its
subsidiaries, (B) any agreement or other instrument binding upon the
Company or any of its Subsidiaries that is material to the Company and
its subsidiaries, taken as a whole, and that is known to such counsel
after due inquiry or (C) to the best of such counsel's knowledge after
due inquiry, any judgment or decree of any governmental body, agency
or court having jurisdiction over the Company or any subsidiary; and
no consent, approval, authorization or order of or qualification with
any governmental body or agency is required for the performance by the
Company of its obligations under this Agreement, except such as may be
required by the securities or Blue Sky laws of the various states in
connection with the offer and sale of the Shares by the Underwriters;
(ix) to the best of such counsel's knowledge after due inquiry,
no holder of any security of the Company has any right to require
registration of shares of Common Stock or any other security of the
Company, except as described in the Prospectus;
(x) all of the outstanding shares of capital stock of, or
other ownership interests in, each of the Company's subsidiaries have
been duly and validly authorized and issued, are fully paid and non-
assessable and are owned by the Company, free and clear of any
security interest, claim, lien, encumbrance or adverse interest of any
nature;
(xi) the Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and marketable title
to all personal property owned by them which is material to the
business of the Company and its subsidiaries, in each case free and
clear of all liens, encumbrances and defects except such as are
described in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made and
proposed to
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<PAGE>
be made of such property by the Company and its subsidiaries; and any
real property and facilities held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere
with the use made and proposed to be made of such property and
buildings by the Company and its subsidiaries, in each case except as
described in or contemplated by the Prospectus;
(xii) the Company and its subsidiaries has all necessary
consents, authorizations, approvals, orders, certificates and permits
of and from (collectively, "permits"), and has made all declarations
and filings with, all federal, state, local, foreign and other
governmental and regulatory authorities, all self-regulatory
organizations and all courts and other tribunals, to own, lease,
license and use its properties and assets and to conduct its business
in the manner described in the Prospectus, except to the extent that
the failure to obtain any such permit or to make any such declaration
or filing would not have a material adverse effect on the Company and
its subsidiaries taken as a whole; and to the knowledge of such
counsel after due inquiry, neither the Company nor any such subsidiary
has received any notice of proceedings relating to the revocation or
modification of any such permits which, singly or in the aggregate, if
the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the condition, financial or
otherwise, or in the earnings, business or operations of the Company
and its subsidiaries, taken as a whole, except as described in or
contemplated by the Prospectus;
(xiii) the statements (A) in the Prospectus under the captions
"Description of Capital Stock," "Shares Eligible for Future Sale" and
"Underwriting" and (B) in the Registration Statement in Item 15, in
each case insofar as such statements constitute summaries of the legal
matters, documents or proceedings referred to therein and in the case
of the statements under the caption "Underwriting" only insofar as
such statements relate to this Agreement, fairly present the
information called for with respect to such legal matters, documents
and proceedings and fairly summarize the matters referred to therein;
(xiv) after due inquiry, such counsel does not know of any legal
or governmental proceeding pending or threatened to which the Company
or any of its subsidiaries is a party or to which any of the
properties of the Company or any of its subsidiaries is subject that
are required to be described in the Registration Statement or the
Prospectus and are not so described or of any statutes, regulations,
contracts or other documents that are required to be described in the
Registration Statement or the Prospectus or to be filed as exhibits to
the Registration Statement that are not described or filed as
required;
(xv) the Company is not, and after giving effect to the
offering and sale of the Shares and the application of the proceeds
thereof as described in the Prospectus, will not be an "investment
company" or an entity "controlled" by an "investment company," as such
terms are defined in the Investment Company Act of 1940, as amended;
(xvi) to the knowledge of such counsel after due inquiry, the
Company and its Subsidiaries (A) are in compliance with any and all
applicable
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Environmental Laws, (B) have received all permits, licenses or other
approvals required of them under applicable Environmental Laws to
conduct their respective businesses and (C) are in compliance with all
terms and conditions of any such permit, license or approval, except
where such noncompliance with Environmental Laws, failure to receive
required permits, licenses or other approvals or failure to comply
with the terms and conditions of such permits, licenses or approvals
would not, singly or in the aggregate, have a material adverse effect
on the Company and its subsidiaries, taken as a whole; and
(xvii) (A) the Registration Statement and Prospectus (except for
financial statements and schedules and other financial and statistical
data included therein as to which such counsel need not express any
opinion) comply as to form in all material respects with the
Securities Act and the rules and regulations of the Commission
thereunder, (B) the documents incorporated by reference in the
Registration Statement and the Prospectus, as such incorporated
documents may have been amended, (except for financial statements and
schedules and other financial and statistical data included in such
incorporated documents as to which counsel need not express any
opinion) comply as to form in all material respects with the Exchange
Act and the rules and regulations of the Commission thereunder, (C)
such counsel has no reason to believe that (except for financial
statements and schedules and other financial and statistical data as
to which such counsel need not express any belief) the Registration
Statement and the Prospectus included therein at the time the
Registration Statement became effective contained any untrue statement
of a material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading and (D) such counsel has no reason to believe that (except
for financial statements and schedules and other financial and
statistical data as to which such counsel need not express any belief)
the Prospectus contains any untrue statement of a material fact or
omits to state a material fact necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
(d) The Underwriters shall have received on the Closing Date an
opinion of Kirkland & Ellis, counsel for the Selling Stockholder, dated the
Closing Date, to the effect that:
(i) this Agreement has been duly authorized, executed and
delivered by or on behalf of the Selling Stockholder;
(ii) the execution and delivery by the Selling Stockholder of,
and the performance by the Selling Stockholder of its obligations
under, this Agreement and the Custody Agreement and Power of Attorney
of the Selling Stockholder will not contravene any provision of
applicable law known to such counsel, or the certificate of
partnership or the partnership agreement of the Selling Stockholder,
or, to the best of such counsel's knowledge, any agreement or other
instrument binding upon the Selling Stockholder or, to the best of
such counsel's knowledge, any judgment, order or decree of any
governmental body, agency or court having jurisdiction over the
Selling Stockholder, and no consent, approval, authorization or order
of, or qualification with, any governmental body or agency is required
for the performance by the Selling Stockholder of its obligations
under this Agreement or the Custody Agreement or Power of Attorney of
the Selling
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<PAGE>
Stockholder, except such as may be required by the securities or Blue
Sky laws of the various states in connection with the offer and sale
of the Shares;
(iii) the Selling Stockholder has valid title to the Shares to be
sold by the Selling Stockholder and the legal right and power, and all
authorization and approval required by law, to enter into this
Agreement and the Custody Agreement and Power of Attorney of the
Selling Stockholder and to sell, transfer and deliver the Shares to be
sold by the Selling Stockholder;
(iv) the Custody Agreement and the Power of Attorney of the
Selling Stockholder have been duly authorized, executed and delivered
by the Selling Stockholder and are valid and binding agreements of the
Selling Stockholder;
(v) delivery of the Shares to be sold by the Selling Stockholder
pursuant to this Agreement will pass title to such Shares free and
clear of any security interests, claims, liens, equities and other
encumbrances; and
(vi) such counsel (A) has no reason to believe that (except for
financial statements and schedules and other financial and statistical
data as to which such counsel need not express any belief) such parts
of the Registration Statement and the Prospectus included therein at
the time the Registration Statement became effective contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading and (B) has no reason to believe that (except
for financial statements and schedules and other financial and
statistical data as to which such counsel need not express any belief)
the Prospectus contains any untrue statement of a material fact or
omit to state a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they
were made, not misleading.
(e) The Underwriters shall have received on the Closing Date an
opinion of Katten Muchin & Zavis, special counsel for the Underwriters,
dated the Closing Date, covering the matters referred to in clauses (v),
(vi) (with regards to authorization, execution and delivery by the
Underwriters), (xiii) (but only as to the statements in the Prospectus
under "Underwriting") and (xvii)(A), (C) and (D) of Section 6(c) above.
With respect to clause (xvii) of Section 6(c) above, Lord Bissell & Brook
and Katten Muchin & Zavis, and with respect to clause (vi) of Section 6(d)
above, Kirkland & Ellis, may state that their opinion and belief are based upon
their participation in the preparation of the Registration Statement and
Prospectus and any amendments or supplements thereto and review and discussion
of the contents thereof, but are without independent check or verification
except as specified. With respect to Section 6(c) above, Lord Bissell & Brook
may rely, with respect to matters including the application of laws of any
jurisdictions other than the laws of the State of Illinois or the United States
or the Delaware General Corporation Law and to the extent such counsel deems
appropriate, upon an opinion or opinions of local counsel, provided that (a)
each such local counsel is satisfactory to your counsel, (b) a copy of each
opinion so relied upon is delivered to you and is in form and substance
satisfactory to your counsel, and (c) Lord Bissell & Brook shall state in their
opinion that they believe they are justified in relying on each others opinion.
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<PAGE>
The opinion of Lord Bissell & Brook described in Section 6(c) above and the
opinion of Kirkland & Ellis described in Section 6(d) above shall be rendered to
the Underwriters at the request of the Company or of the Selling Stockholder, as
the case may be, and shall so state therein.
(f) The Underwriters shall have received, on each of the date hereof
and the Closing Date, a letter dated the date hereof or the Closing Date,
as the case may be, in form and substance satisfactory to you, from KPMG
Peat Marwick LLP, independent public accountants, containing statements and
information of the type ordinarily included in accountants' "comfort
letters" to underwriters with respect to the financial statements and
certain financial information contained in the Registration Statement and
the Prospectus; provided that the letter delivered on the Closing Date
shall use a "cut-off date" not earlier than the date hereof. The letters
shall not disclose any change, or any development involving a prospective
change, in or affecting the business or properties of the Company or any of
its subsidiaries which, in your sole judgment, makes it impractical or
inadvisable to proceed with the public offering of the Shares as
contemplated by the Prospectus.
(g) The "lock-up" agreements, between you and certain stockholders,
officers and directors of the Company relating to sales and certain other
dispositions of shares of Common Stock or certain other securities,
delivered to you on or before the date hereof, shall be in full force and
effect on the Closing Date.
The several obligations of the Underwriters to purchase Additional Shares
hereunder are subject to the delivery to the Representatives on the Option
Closing Date of such documents as they may reasonably request with respect to
the good standing of the Company, the due authorization and issuance of the
Additional Shares and other matters related to the issuance of the Additional
Shares.
7. Covenants of the Company. In further consideration of the agreements
of the Underwriters herein contained, the Company covenants with each
Underwriter as follows:
(a) To furnish to you, without charge, seven signed copies of the
Registration Statement (including exhibits thereto) and for delivery to
each other Underwriter a conformed copy of the Registration Statement
(without exhibits thereto) and to furnish to you in New York, without
charge, prior to 10:00 a.m. local time on the business day next succeeding
the date of this Agreement and during the period mentioned in paragraph (c)
below, as many copies of the Prospectus and any supplements and amendments
thereto or to the Registration Statement as you may reasonably request.
(b) Before amending or supplementing the Registration Statement or the
Prospectus, to furnish to you a copy of each such proposed amendment or
supplement and not to file any such proposed amendment or supplement to
which you reasonably object, and to file with the Commission within the
applicable period specified in Rule 424(b) under the Securities Act any
prospectus required to be filed pursuant to such rule.
(c) If, during such period after the first date of the public offering
of the Shares as in the opinion of counsel for the Underwriters the
Prospectus is required by law
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<PAGE>
to be delivered in connection with sales by an Underwriter or dealer, any
event shall occur or condition exist as a result of which it is necessary
to amend or supplement the Prospectus in order to make the statements
therein, in the light of the circumstances when the Prospectus is delivered
to a purchaser, not misleading, or if, in the opinion of your counsel, it
is necessary to amend or supplement the Prospectus to comply with law,
forthwith to prepare, file with the Commission and furnish, at its own
expense, to the Underwriters and to the dealers (whose names and addresses
you will furnish to the Company) to which Shares may have been sold by you
on behalf of the Underwriters and to any other dealers upon request, either
amendments or supplements to the Prospectus so that the statements in the
Prospectus as so amended or supplemented will not, in the light of the
circumstances when the Prospectus is delivered to a purchaser, be
misleading or so that the Prospectus, as amended or supplemented, will
comply with law.
(d) To endeavor to qualify the Shares for offer and sale under the
securities or Blue Sky laws of such jurisdictions as you shall reasonably
request; provided, however, that the Company shall not be obligated to file
any general consent to service of process or to qualify as a foreign
corporation in any jurisdiction in which it is not currently so qualified.
(e) To make generally available to the Company's security holders and
to you as soon as practicable an earnings statement covering the twelve-
month period ending December 31, 1998 that satisfies the provisions of
Section 11(a) of the Securities Act and the rules and regulations of the
Commission thereunder.
(f) During the period referred to in paragraph (e), the Company will
furnish to you as soon as available a copy of each report or other publicly
available information of the Company mailed to the holders of Common Stock
or filed with the Commission and such other publicly available information
concerning the Company and its subsidiaries as you may reasonably request.
8. Expenses of the Company. Whether or not the transactions contemplated
in this Agreement are consummated or this Agreement is terminated, to pay or
cause to be paid all expenses incident to the performance of its obligations
under this Agreement, including: (i) the fees, disbursements and expenses of the
Company's counsel and the Company's accountant in connection with the
registration and delivery of the Shares under the Securities Act and all other
fees or expenses in connection with the preparation and filing of the
Registration Statement, any preliminary prospectus, the Prospectus and
amendments and supplements to any of the foregoing, including all printing costs
associated therewith, and the mailing and delivering of copies thereof to the
Underwriters and dealers, in the quantities hereinabove specified, (ii) all
costs and expenses related to the transfer and delivery of the Shares to the
Underwriters, including any transfer or other taxes payable thereon, (iii) the
cost of printing or producing any Blue Sky or Legal Investment memorandum in
connection with the offer and sale of the Shares under state securities laws and
all expenses in connection with the qualification of the Shares for offer and
sale under state securities laws as provided in Section 7(d) hereof, including
filing fees and the reasonable fees and disbursements of counsel for the
Underwriters in connection with such qualification and in connection with the
Blue Sky or Legal Investment memorandum, (iv) all filing fees and disbursements
of counsel to the Underwriters incurred in connection with the review and
qualification of the offering of the Shares by the National Association of
Securities Dealers, Inc., (v) all costs and expenses incident to listing the
Shares on the Nasdaq National
17
<PAGE>
Market and other national securities exchanges and foreign stock exchanges, (vi)
the cost of printing certificates representing the Shares, (vii) the costs and
charges of any transfer agent, registrar or depositary, (viii) the costs and
expenses of the Company relating to investor presentations on any "road show"
undertaken in connection with the marketing of the offering of the Shares,
including, without limitation, expenses associated with the production of road
show slides and graphics, fees and expenses of any consultants engaged in
connection with the road show presentations with the prior approval of the
Company, travel and lodging expenses of the representatives and officers of the
Company and any such consultants, and the cost of any aircraft chartered in
connection with the road show, and (ix) all other costs and expenses incident to
the performance of the obligations of the Company and the Selling Stockholder
hereunder for which provision is not otherwise made in this Section. It is
understood, however, that except as provided in this Section 8, Section 9
entitled "Indemnity and Contribution", and the last paragraph of Section 11
below, the Underwriters will pay all of their costs and expenses, including fees
and disbursements of their counsel, stock transfer taxes payable on resale of
any of the Shares by them and any advertising expenses connected with any offers
they may make.
9. Indemnity and Contribution.
(a) The Company and the Selling Stockholder, jointly and severally,
agree to indemnify and hold harmless each Underwriter, the directors,
officers, partners, employees and agents of, and each person, if any, who
controls any Underwriter within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, from and against any and
all losses, claims, damages and liabilities (including, without limitation,
any legal or other expenses reasonably incurred in connection with
defending or investigating any such action or claim) caused by any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement or any amendment thereof, any preliminary prospectus
or the Prospectus (as amended or supplemented if the Company shall have
furnished any amendments or supplements thereto), or caused by any omission
or alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, except
insofar as such losses, claims, damages or liabilities are caused by any
such untrue statement or omission or alleged untrue statement or omission
based upon information relating to any Underwriter furnished to the Company
in writing by such Underwriter through you expressly for use therein;
provided, however, that, with respect to any untrue statement or alleged
untrue statement or omission or alleged omission made in any preliminary
prospectus, the foregoing indemnity agreement shall not inure to the
benefit of any Underwriter from whom the person asserting any such losses,
claim, damages or liabilities purchased the Shares concerned, or any person
controlling such Underwriter, to the extent that any such loss, claim,
damage or liability of such Underwriter results from the fact that a copy
of the Prospectus (or Prospectus as amended or supplemented) was not sent
or given to such person, if required by the Securities Act so to have be
delivered, at or prior to the written confirmation of the sale of such
Shares to such person and the untrue statement or alleged untrue statement
or omission or alleged omission was corrected in such Prospectus (or
Prospectus as amended or supplemented), if the Company had previously
furnished copies of such Prospectus (or Prospectus as amended or
supplemented) to such Underwriter.
(b) Each Underwriter agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors, its officers who sign the
Registration Statement,
18
<PAGE>
each person, if any, who controls the Company within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, and the
Selling Stockholder from and against any and all losses, claims, damages
and liabilities (including, without limitation, any legal or other expenses
reasonably incurred in connection with defending or investigating any such
action or claim) caused by any untrue statement or alleged untrue statement
of a material fact contained in the Registration Statement or any amendment
thereof, any preliminary prospectus or the Prospectus (as amended or
supplemented if the Company shall have furnished any amendments or
supplements thereto), or caused by any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, but only with reference to
information relating to such Underwriter furnished to the Company in
writing by such Underwriter through you expressly for use in the
Registration Statement, any preliminary prospectus, the Prospectus or any
amendments or supplements thereto.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may
be sought pursuant to Section 9(a) or (b), such person (the "Indemnified
Party") shall promptly notify the person against whom such indemnity may be
sought (the "Indemnifying Party") in writing and the Indemnifying Party,
upon request of the Indemnified Party, shall retain counsel reasonably
satisfactory to the Indemnified Party to represent the Indemnified Party
and any others the Indemnifying Party may designate in such proceeding and
shall pay the fees and disbursements of such counsel related to such
proceeding. In any such proceeding, any Indemnified Party shall have the
right to retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such Indemnified Party unless (i) the
Indemnifying Party and the Indemnified Party shall have mutually agreed to
the retention of such counsel or (ii) the named parties to any such
proceeding (including any impleaded parties) include both the Indemnifying
Party and the Indemnified Party and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them. It is understood that the Indemnifying Party shall
not, in respect of the legal expenses of any Indemnified Party in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the fees and expenses of more than one separate
firm (in addition to any local counsel) for (i) all Underwriters and all
persons, if any, who control any Underwriter within the meaning of either
Section 15 of the Securities Act or Section 20 of the Exchange Act, (ii)
the Company, its directors, its officers who sign the Registration
Statement and each person, if any, who controls the Company within the
meaning of either such Section and (iii) the Selling Stockholder and all
persons, if any, who control the Selling Stockholder within the meaning of
either such Sections of the Exchange Act, and that all such fees and
expenses shall be reimbursed as they are incurred. In the case of any such
separate firm for the Underwriters and such control persons of
Underwriters, such firm shall be designated in writing by EVEREN
Securities, Inc. In the case of any such separate firm for the Company, and
such directors, officers and control persons of the Company, such firm
shall be designated in writing by the Company. In the case of any such
separate firm for the Selling Stockholder and such controlling persons of
the Selling Stockholder, such firm shall be designated in writing by the
persons named as attorneys-in-fact for the Selling Stockholder under the
Powers of Attorney. The Indemnifying Party shall not be liable for any
settlement of any proceeding effected without its written consent, but if
settled with such consent or if there be a final judgment for the
plaintiff, the Indemnifying
19
<PAGE>
Party agrees to indemnify the Indemnified Party from and against any loss
or liability by reason of such settlement or judgment. Notwithstanding the
foregoing sentence, if at any time an Indemnified Party shall have
requested an Indemnifying Party to reimburse the Indemnified Party for fees
and expenses of counsel as contemplated by the second and third sentences
of this paragraph, the Indemnifying Party agrees that it shall be liable
for any settlement of any proceeding effected without its written consent
if (i) such settlement is entered into more than 30 days after receipt by
such Indemnifying Party of the aforesaid request and (ii) such Indemnifying
Party shall not have reimbursed the Indemnified Party in accordance with
such request prior to the date of such settlement. No Indemnifying Party
shall, without the prior written consent of the Indemnified Party, effect
any settlement of any pending or threatened proceeding in respect of which
any Indemnified Party is or could have been a party and indemnity could
have been sought hereunder by such Indemnified Party, unless such
settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such proceeding.
(d) If the indemnification provided for in Section 9(a) or (b) is
unavailable to an Indemnified Party or insufficient in respect of any
losses, claims, damages or liabilities referred to therein, then each
Indemnifying Party under such paragraph, in lieu of indemnifying such
Indemnified Party thereunder, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims,
damages or liabilities (i) in such proportion as is appropriate to reflect
the relative benefits received by the Indemnifying Party or Parties on the
one hand and the Indemnified Party or Parties on the other hand from the
offering of the Shares or (ii) if the allocation provided by clause (i)
above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause
(i) above but also the relative fault of the Indemnifying Party or Parties
on the one hand and of the Indemnified Party or Parties on the other hand
in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant
equitable considerations. The relative benefits received by the Sellers on
the one hand and the Underwriters on the other hand in connection with the
offering of the Shares shall be deemed to be in the same respective
proportions as the net proceeds from the offering of the Shares (before
deducting expenses) received by each Seller and the total underwriting
discounts and commissions received by the Underwriters, in each case as set
forth in the table on the cover of the Prospectus, bear to the aggregate
Public Offering Price of the Shares. The relative fault of the Sellers on
the one hand and the Underwriters on the other hand shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by the Sellers or by the
Underwriters and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Underwriters' respective obligations to contribute pursuant
to this Section 9 are several in proportion to the respective number of
Shares they have purchased hereunder, and not joint.
(e) The Sellers and the Underwriters agree that it would not be just
or equitable if contribution pursuant to this Section 9 were determined by
pro rata allocation (even if the Underwriters were treated as one entity
for such purpose) or by any other method of allocation that does not take
account of the equitable considerations referred to in Section 9(d). The
amount paid or payable by an Indemnified Party as a result of the
20
<PAGE>
losses, claims, damages and liabilities referred to in the immediately
preceding paragraph shall be deemed to include, subject to the limitations
set forth above, any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 9, no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages that such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The remedies provided for in this Section 9 are not
exclusive and shall not limit any rights or remedies which may otherwise be
available to any Indemnified Party at law or in equity.
(f) The indemnity and contribution provisions contained in this
Section 9 and the representations and warranties of the Company and the
Selling Stockholder contained in this Agreement shall remain operative and
in full force and effect regardless of (i) any termination of this
Agreement, (ii) any investigation made by or on behalf of any Underwriter
or any person controlling the Underwriter, the Selling Stockholder or any
person controlling the Selling Stockholder, or the Company, its officers or
directors or any person controlling the Company and (iii) acceptance of and
payment for any of the Shares.
(g) Notwithstanding anything to the contrary contained herein, the
aggregate liability of the Selling Stockholder pursuant to the provisions
of this Section 9 and with respect to breaches of the representations,
warranties and agreements contained in Section 2, except for liability
resulting from the willful misconduct or intentional action of the Selling
Stockholder, shall not exceed an amount equal to the total price at which
the Shares of which the Selling Stockholder is a beneficial owner (as
defined in rule 13d-3 under the Exchange Act) were sold to the public
hereunder.
10. Termination. This Agreement shall be subject to termination by notice
given by you to the Company, if (a) after the execution and delivery of this
Agreement and prior to the Closing Date (i) trading generally shall have been
suspended or materially limited on or by, as the case may be, any of the New
York Stock Exchange, the American Stock Exchange, the Nasdaq National Market,
the Chicago Board of Options Exchange, the Chicago Mercantile Exchange or the
Chicago Board of Trade, (ii) trading of any securities of the Company shall have
been suspended on any exchange or in any over-the-counter market, (iii) a
general moratorium on commercial banking activities in New York shall have been
declared by either Federal or New York State authorities or (iv) there shall
have occurred any outbreak or escalation of hostilities or any change in
financial markets or any calamity or crisis that, in your judgment, is material
and adverse and (b) in the case of any of the events specified in clauses (a)(i)
through (iv) of this Section 10, such event singly or together with any other
such event makes it, in your judgment, impracticable to market the Shares on the
terms and in the manner contemplated in the Prospectus.
11. Effectiveness; Defaulting Underwriters. This Agreement shall become
effective upon the execution and delivery hereof by the parties hereto.
21
<PAGE>
If, on the Closing Date or the Option Closing Date, as the case may be, any
one or more of the Underwriters shall fail or refuse to purchase Shares that it
or they have agreed to purchase hereunder on such date, and the aggregate number
of Shares which such defaulting Underwriter or Underwriters agreed but failed or
refused to purchase is not more than one-tenth of the aggregate number of the
Shares to be purchased on such date, the other Underwriters shall be obligated
severally in the proportions that the number of Firm Shares set forth opposite
their respective names in Schedule I bears to the aggregate number of Firm
Shares set forth opposite the names of all such nondefaulting Underwriters, or
in such other proportions as you may specify, to purchase the Shares which such
defaulting Underwriter or Underwriters agreed but failed or refused to purchase
on such date; provided that in no event shall the number of Shares that any
Underwriter has agreed to purchase pursuant to this Agreement be increased
pursuant to this Section 11 by an amount in excess of one-ninth of such number
of Shares without the written consent of such Underwriter. If, on the Closing
Date or the Option Closing Date, as the case may be, any Underwriter or
Underwriters shall fail or refuse to purchase Firm Shares and the aggregate
number of Firm Shares with respect to which such default occurs is more than
one-tenth of the aggregate number of Firm Shares to be purchased on such date,
and arrangements satisfactory to you, the Company and the Selling Stockholder
for the purchase of such Firm Shares are not made within 36 hours after such
default, this Agreement shall terminate without liability on the part of any
non-defaulting Underwriter, the Company or the Selling Stockholder. In any such
case either you or the relevant Sellers shall have the right to postpone the
Closing Date or the Option Closing Date, as the case may be, but in no event for
longer than seven days, in order that the required changes, if any, in the
Registration Statement and in the Prospectus or in any other documents or
arrangements may be effected. If, on the Option Closing Date, any Underwriter
shall fail or refuse to purchase Additional Shares and the aggregate number of
Additional Shares with respect to which such default occurs is more than one-
tenth of the aggregate number of Additional Shares to be purchased, the non-
defaulting Underwriters shall have the option to (i) terminate their obligation
hereunder to purchase Additional Shares or (ii) purchase not less than the
number of Additional Shares that such non-defaulting Underwriters would have
been obligated to purchase in the absence of such default. Any action taken
under this Section 11 shall not relieve any defaulting Underwriter from
liability in respect of any default of such Underwriter under this Agreement.
If this Agreement shall be terminated by the Underwriters, or any of them,
because of any failure or refusal on the part of any Seller to comply with the
terms or to fulfill any of the conditions of this Agreement, or if for any
reason any Seller shall be unable to perform its obligations under this
Agreement, the Sellers will reimburse the Underwriters or such Underwriters as
have so terminated this Agreement with respect to themselves, severally, for all
out-of-pocket expenses (including the fees and disbursements of their counsel)
reasonably incurred by such Underwriters in connection with this Agreement or
the offering contemplated hereunder.
13. Counterparts. This Agreement may be signed in two or more
counterparts, each of which shall be an original, with the same effect as if the
signatures thereto and hereto were upon the same instrument.
14. Applicable Law. This Agreement shall be governed by and construed in
accordance with the internal laws of the State of Illinois.
15. Headings. The Headings of the Sections of this Agreement have been
inserted
22
<PAGE>
for convenience of reference only and shall not be deemed a part of this
Agreement.
23
<PAGE>
Very truly yours,
MARKET FACTS, INC.
By:
--------------------------------------
Name:
Title:
MFI INVESTORS L.P.,
a Delaware limited partnership
By: MFI ASSOCIATES, INC.,
its sole general partner
By:
--------------------------------------
Name:
Title:
Accepted, as of the date hereof
EVEREN SECURITIES, INC.
THE ROBINSON-HUMPHREY COMPANY, INC.
Acting severally on behalf of
themselves and the several
Underwriters named in Schedule I
hereto.
By: EVEREN SECURITIES, INC.
By:
--------------------------------------
Name:
Title:
24
<PAGE>
Schedule I
Underwriters
-------------
<TABLE>
<CAPTION>
Underwriter Number of
----------- Firm Shares
To Be Purchased
---------------
<S> <C>
EVEREN Securities, Inc...............
The Robinson-Humphrey Company, Inc...
Total Firm Shares............... ---------------
===============
</TABLE>
<PAGE>
EXHIBIT 23.1
Consent of KPMG Peat Marwick LLP
The Board of Directors
Market Facts, Inc.
We consent to the use of our reports dated February 25, 1997, except for
paragraphs 2 and 3 of Note 6, which are as of May 27, 1997, on the consolidated
financial statements and schedule of Market Facts, Inc. as of December 31, 1995
and 1996, and for each of the years in the three-year period ended December 31,
1996, and our report dated June 23, 1997 on the financial statements of
BAIGlobal, Inc. as of December 31, 1996, and for the year then ended, included
or incorporated by reference in this registration statement on Form S-3 of
Market Facts, Inc. and to the reference to our firm under the heading "Experts"
in the prospectus.
KPMG Peat Marwick LLP
Chicago, Illinois
September 22, 1997
