<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
----------------------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------- -----------------
Commission file number 0-04781
-------------------
MARKET FACTS, INC.
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(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 No.)
3040 West Salt Creek Lane, Arlington Heights, Illinois 60005
- ------------------------------------------------------ ----------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (847) 590-7000
-------------------------
INDICATE BY CHECK MARK WHETHER THE REGISTRANT (1) HAS FILED ALL REPORTS
REQUIRED TO BE FILED BY SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 DURING THE PRECEDING 12 MONTHS (OR FOR SUCH SHORTER PERIOD THAT THE
REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO
SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES /X/ NO / /
INDICATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE REGISTRANT'S CLASSES
OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.
8,858,308 common shares as of August 3, 1998
- ----------------------------------------------------------------
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
MARKET FACTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $19,428,425 $36,444,256
Certificate of deposit 50,000 50,000
Accounts receivable:
Trade, less allowance for doubtful accounts of
$1,203,835 in 1998 and $1,101,551 in 1997 24,001,007 20,085,658
Other 96,793 60,189
Notes receivable 12,480 188,844
Revenues earned on contracts in progress
in excess of billings 5,165,322 4,618,736
Deferred income taxes 1,135,364 1,136,254
Prepaid expenses and other assets 632,958 514,323
----------- ------------
Total Current Assets 50,522,349 63,098,260
----------- ------------
PROPERTY, AT COST 33,379,090 30,356,209
Less accumulated depreciation and amortization (14,608,608) (13,274,711)
----------- ------------
Net Property 18,770,482 17,081,498
----------- ------------
OTHER ASSETS:
Goodwill and other intangibles, net of accumulated amortization
of $526,453 in 1998 and $229,772 in 1997 21,651,250 4,959,752
Deferred income taxes, noncurrent 1,143,432 1,063,833
Investment in affiliated companies 478,404 688,404
----------- ------------
Total Other Assets 23,273,086 6,711,989
----------- ------------
Total Assets $92,565,917 $86,891,747
----------- ------------
----------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 1
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 1998 AND DECEMBER 31, 1997
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
------------ ------------
<S> <C> <C>
CURRENT LIABILITIES:
Accrued expenses $ 9,260,101 $ 10,052,639
Billings in excess of revenues earned
on contracts in progress 10,296,446 9,267,185
Accounts payable 3,525,507 2,380,596
Income taxes 1,241,330 945,449
Current portion of obligations under capital leases 160,321 154,991
Current portion of long-term debt 136,546 136,546
------------ ------------
Total Current Liabilities 24,620,251 22,937,406
------------ ------------
LONG-TERM LIABILITIES:
Long-term debt 10,092,486 10,159,110
Obligations under capital leases, noncurrent portion 830,530 249,978
------------ ------------
Total Long-Term Liabilities 10,923,016 10,409,088
------------ ------------
Total Liabilities 35,543,267 33,346,494
------------ ------------
STOCKHOLDERS' EQUITY:
Preferred stock, no par value; 500,000 shares authorized;
Series A - none issued; Series B - 100 shares issued -- --
Common stock, $1 par value; 15,000,000 shares authorized; 10,890,458 shares
issued as of June 30, 1998 and 10,875,258 as of December 31, 1997 10,890,458 10,875,258
Capital in excess of par value 44,758,642 44,707,038
Cumulative foreign currency translation (171,249) (133,632)
Retained earnings 16,084,600 12,672,160
------------ ------------
71,562,451 68,120,824
Less 2,042,550 shares of treasury common stock at cost (13,891,966) (13,891,966)
Less other transactions involving common stock (647,835) (683,605)
------------ ------------
Total Stockholders' Equity 57,022,650 53,545,253
------------ ------------
Total Liabilities and Stockholders' Equity $ 92,565,917 $ 86,891,747
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 2
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE THREE MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Three Months Ended June 30,
-----------------------------
1998 1997
------------- ------------
<S> <C> <C>
REVENUE $ 34,165,477 $ 25,253,225
------------- ------------
DIRECT COSTS:
Payroll 6,360,715 4,581,962
Other expenses 12,709,160 9,503,515
------------- ------------
Total 19,069,875 14,085,477
------------- ------------
Gross Margin 15,095,602 11,167,748
------------- ------------
OPERATING EXPENSES:
Selling 1,129,597 848,144
General and administrative 10,499,879 8,206,736
------------- ------------
Total 11,629,476 9,054,880
------------- ------------
Income from Operations 3,466,126 2,112,868
------------- ------------
OTHER INCOME (EXPENSE):
Interest expense (285,708) (264,461)
Interest income 187,057 9,796
Other income, net 122,748 33,393
------------- ------------
Total 24,097 (221,272)
------------- ------------
Income Before Provision For Income Taxes 3,490,223 1,891,596
Provision For Income Taxes 1,469,190 811,025
------------- ------------
NET INCOME $ 2,021,033 $ 1,080,571
------------- ------------
------------- ------------
BASIC EARNINGS PER SHARE $ .23 $ .16
------------- ------------
------------- ------------
DILUTED EARNINGS PER SHARE $ .22 $ .15
------------- ------------
------------- ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 3
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
------------- -------------
<S> <C> <C>
REVENUE $ 63,410,758 $ 46,834,647
DIRECT COSTS:
Payroll 11,703,254 8,620,032
Other expenses 23,963,198 17,316,313
------------- -------------
Total 35,666,452 25,936,345
------------- -------------
Gross Margin 27,744,306 20,898,302
------------- -------------
OPERATING EXPENSES:
Selling 2,261,275 1,584,631
General and administrative 19,649,818 15,503,307
------------- -------------
Total 21,911,093 17,087,938
------------- -------------
Income from Operations 5,833,213 3,810,364
------------- -------------
OTHER INCOME (EXPENSE):
Interest expense (566,970) (542,861)
Interest income 518,594 32,245
Other income, net 133,571 46,911
------------- -------------
Total 85,195 (463,705)
------------- -------------
Income Before Provision For Income Taxes 5,918,408 3,346,659
Provision For Income Taxes 2,505,968 1,431,466
------------- -------------
NET INCOME $ 3,412,440 $ 1,915,193
------------- -------------
------------- -------------
BASIC EARNINGS PER SHARE $ .39 $ .28
------------- -------------
------------- -------------
DILUTED EARNINGS PER SHARE $ .37 $ .27
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 4
<PAGE>
MARKET FACTS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND 1997
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
------------ ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,412,440 $ 1,915,193
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 1,903,093 1,577,068
Deferred income taxes (80,311) --
Vesting of restricted stock and demand notes receivable 23,757 27,717
Net gain on disposal of property (89,746) (9,805)
Change in assets and liabilities:
Accounts receivable (3,331,971) (509,002)
Prepaid expenses and other assets (195,186) (53,142)
Billings in excess of (less than) revenues earned
on contracts in progress (108,556) 533,441
Accounts payable and accrued expenses (745,204) 133,037
Income taxes 297,321 (745,032)
------------ ------------
Net cash provided by operating activities 1,085,637 2,869,475
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of businesses, net of acquired cash (15,592,471) --
Purchases of property (2,451,680) (1,172,815)
Proceeds from the sale of property -- 9,805
Investment in notes receivable -- (150,000)
Proceeds from notes receivable 188,377 91,316
------------ ------------
Net cash used in investing activities (17,855,774) (1,221,694)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of short-term borrowings (6,655,712) (5,398,936)
Proceeds from short-term borrowings 6,505,712 4,479,832
Reduction of obligations under capital leases and
long-term debt (155,480) (372,703)
Proceeds from exercise of stock options 66,804 --
------------ ------------
Net cash used in financing activities (238,676) (1,291,807)
------------ ------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (7,018) (894)
------------ ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (17,015,831) 355,080
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 36,444,256 129,428
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 19,428,425 $ 484,508
------------ ------------
------------ ------------
CASH PAID DURING THE PERIOD FOR:
Interest $ 560,692 $ 550,656
Income taxes, net of refunds 2,286,386 2,176,348
------------ ------------
------------ ------------
SUPPLEMENTAL SCHEDULE OF NON CASH ACTIVITIES:
Capital lease obligation incurred on lease of equipment $ 643,132 $ --
------------ ------------
------------ ------------
</TABLE>
See accompanying notes to condensed consolidated financial statements.
Page 5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements of
Market Facts, Inc. and Subsidiaries ("Company") have been prepared in
accordance with the instructions to Form 10-Q. The results of operations for
interim periods are not necessarily indicative of the results to be expected
for the entire year. For further information regarding the Company's most
recently completed fiscal year, refer to the consolidated financial
statements included in the Company's Annual Report on Form 10-K for the year
ended December 31, 1997.
NOTE 2 - ADJUSTMENTS AND RECLASSIFICATIONS
The information furnished herein includes all adjustments, consisting of
normal recurring adjustments, which are, in the opinion of management,
necessary for a fair presentation of the interim financial statements.
NOTE 3 - 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.
NOTE 4 - EARNINGS PER SHARE
Reconciliations of the numerators and denominators of the basic and diluted
earnings per share computations for the three and six months ended June 30,
1998 and 1997, respectively are as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30, 1998
----------------------------------------
Per Share
Income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income $2,021,033 8,843,908 $ .23
---------
---------
Effect of Dilutive Securities
Stock options -- 342,905
---------- ---------
Diluted Earnings Per Share
Income available to common stockholders
plus assumed conversions $2,021,033 9,186,813 $ .22
---------- --------- ---------
---------- --------- ---------
</TABLE>
Page 6
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1998
----------------------------------------
Per Share
Income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income $3,412,440 8,839,448 $ .39
---------
---------
Effect of Dilutive Securities
Stock options -- 328,651
---------- ---------
Diluted Earnings Per Share
Income available to common stockholders
plus assumed conversions $3,412,440 9,168,099 $ .37
---------- --------- ---------
---------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended June 30, 1997
----------------------------------------
Per Share
Income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income $1,080,571 6,923,708 $ .16
---------
---------
Effect of Dilutive Securities
Stock options -- 238,523
---------- ---------
Diluted Earnings Per Share
Income available to common stockholders
plus assumed conversions $1,080,571 7,162,231 $ .15
---------- --------- ---------
---------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30, 1997
----------------------------------------
Per Share
Income Shares Amount
---------- --------- ---------
<S> <C> <C> <C>
Basic Earnings Per Share
Net income $1,915,193 6,923,708 $ .28
---------
---------
Effect of Dilutive Securities
Stock options -- 214,480
---------- ---------
Diluted Earnings Per Share
Income available to common stockholders
plus assumed conversions $1,915,193 7,138,188 $ .27
---------- --------- ---------
---------- --------- ---------
</TABLE>
Page 7
<PAGE>
NOTE 5 - COMPREHENSIVE INCOME
Effective January 1, 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income" which
establishes standards to report and display comprehensive income and its
components in a full set of general purpose financial statements. The
Company's comprehensive income was as follows:
<TABLE>
<CAPTION>
Three Months Ended June 30,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net income $2,021,033 $1,080,571
Other comprehensive income:
Foreign currency translation adjustments $ (48,367) $ 3,328
---------- ----------
Comprehensive income $1,972,666 $1,083,899
---------- ----------
---------- ----------
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended June 30,
---------------------------
1998 1997
---------- ----------
<S> <C> <C>
Net income $3,412,440 $1,915,193
Other comprehensive income:
Foreign currency translation adjustments $ (37,617) $ (10,421)
---------- ----------
Comprehensive income $3,374,823 $1,904,772
---------- ----------
---------- ----------
</TABLE>
Note 6 - Acquisition of Strategy Research Corporation
On January 1, 1998, the Company acquired the remaining 90% of the outstanding
stock of Strategy Research Corporation ("Strategy Research"). Prior to 1998,
the Company held a 10% interest in Strategy Research. Strategy Research is a
full service market research company specializing in the Latin American and
U.S. Hispanic markets. The purchase price was an amount equal to (i)
$1,192,000 in cash paid at closing, (ii) the assumption of $150,000 of bank
debt, and (iii) up to $1,950,000 of possible contingent payments based on
Strategy Research exceeding certain earnings targets for 1998 and 1999. The
acquisition was accounted for under the purchase method of accounting. The
excess of the purchase price over the fair values of the assets acquired and
liabilities assumed of $1,416,012 has been recorded as goodwill and is being
amortized on a straight-line basis over 25 years. 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 operating results of Strategy
Research have been included in the consolidated statements of earnings and
cash flows since the date of acquisition.
Page 8
<PAGE>
NOTE 7 - ACQUISITION OF TANDEM RESEARCH ASSOCIATES, INC.
On March 31, 1998, TRA Acquisition Corp. ("TRA"), a wholly-owned subsidiary
of the Company, acquired certain assets and assumed certain liabilities of
Tandem Research Associates, Inc. ("Tandem Research"), a 16 year-old firm
providing specialized custom and multi-client research products and services
to leading pharmaceutical companies and emerging biotech firms. The purchase
price was an amount equal to (i) $14,424,000 in cash paid at closing, (ii)
the assumption of approximately $590,000 of customer deposit liabilities, and
(iii) additional contingent payments based on TRA exceeding certain earnings
targets for the period April 1, 1998 through March 31, 2001 (the "Additional
Purchase Price"). The Additional Purchase Price equals (i) 3.25 multiplied by
the amount by which TRA's aggregate earnings before interest and income taxes
("EBIT") during each year in the three-year period after the closing exceeds
certain specified amounts, up to a maximum aggregate payment of $9,000,000,
plus (ii) fifty percent of TRA's aggregate EBIT during the three-year period
after the closing in excess of $9,931,000. At the election of Tandem
Research, up to twenty-five percent of the Additional Purchase Price may be
payable in shares of the Company's common stock.
The acquisition was accounted for under the purchase method of accounting.
The excess of the purchase price over the fair values of the assets acquired
and liabilities assumed of $15,397,167 has been recorded as goodwill and is
being amortized on a straight-line basis over 25 years. 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 operating results
of TRA have been included in the consolidated statements of earnings and cash
flows since the date of acquisition.
The following unaudited pro forma financial information is provided for the
six months ended June 30, 1998 and 1997 as though the acquisition had taken
place at the beginning of the periods being reported on:
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
------------ ------------
<S> <C> <C>
Revenue $ 64,750,704 $ 49,976,402
Net Income $ 3,764,210 $ 2,752,418
Basic Earnings Per Share $ .43 $ .40
Diluted Earnings Per Share $ .41 $ .39
</TABLE>
The pro forma financial results do not necessarily reflect actual results
which may have occurred if the acquisition had taken place at the beginning
of the periods being reported on, nor are they necessarily indicative of the
results of future combined operations.
Page 9
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
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. In October 1997, the Company generated $36.9
million in net proceeds from a public offering of its common stock. The
Company intends to continue using the remaining net proceeds as working
capital and for general corporate purposes, including acquisitions,
investments in technology, new product development and joint ventures.
During the first six months of 1998, cash and cash equivalents decreased by
$17.0 million. The decrease was due primarily to the acquisitions of Tandem
Research and Strategy Research. Net cash provided by operating activities
was $1.1 million in the first six months of 1998 compared to $2.9 million in
the same period in 1997. The decrease was due primarily to the timing of
billings partially offset by increased net income. Cash used in investing
activities was $17.9 million in the first six months of 1998 compared to $1.2
million in the same period in 1997. The increase in cash used was due
primarily to the acquisitions of Tandem Research and Strategy Research and
increased purchases of property primarily relating to investments in
technology. Cash used in financing activities was $0.2 million in the first
six months of 1998 compared to $1.3 million in the same period in 1997. The
decrease in cash used was due primarily to higher net repayments of
short-term borrowings in 1997.
The Company has available borrowings under established bank credit facilities
totaling $13.7 million. There were no borrowings outstanding under these
arrangements at June 30, 1998 and December 31, 1997.
The Company believes that the net proceeds from the 1997 public offering of
its common stock, cash flow from operations and borrowings available from its
bank credit facilities will be sufficient to meet its working capital
expenditure requirements for the foreseeable future. It is the Company's
intention to continue to pursue acquisition opportunities as a means to grow,
and these acquisitions may require an amount of capital that exceeds that
available from the proceeds of the 1997 public offering, cash from operations
and existing bank arrangements.
RESULTS OF OPERATIONS
COMPARISON OF SECOND QUARTER 1998 TO SECOND QUARTER 1997
The Company had second quarter revenue of $34.2 million in 1998, an increase
of 35.3% over the same period in 1997. The increase in revenue was due
primarily to the impact of acquisitions made during the past twelve months,
continued expansion of marketing research services within the Company's
existing client base and the addition of clients for whom the Company did not
perform any research services during the previous fiscal year.
Gross margin for the second quarter of 1998 was $15.1 million, an increase of
35.2% over the same period in 1997. The increase in gross margin was
primarily due to the growth in revenue. Gross margin as a percentage of
revenue remained constant at 44.2%.
Operating expenses for the second quarter of 1998 rose by $2.6 million, an
increase of 28.4% compared to the same period in 1997. The increase in
operating expenses was due primarily to the inclusion of operating expenses
for the acquisitions made during the past twelve months and higher marketing
staff expenses to support the growth in business. Operating expenses as a
percentage of revenue decreased during the second quarter of 1998 to 34.0%
from 35.9% for the same period in 1997.
Other income increased $0.2 million during the second quarter of 1998 due to
interest earned on the remaining proceeds from the 1997 public offering.
Page 10
<PAGE>
Net income rose 87.0% to $2.0 million or 5.9% of revenue compared to $1.1
million or 4.3% of revenue during the same period in 1997. Basic earnings per
share increased 43.8% to $.23 for the second quarter of 1998 compared to $.16
for the same period in 1997. Diluted earnings per share increased 46.7% to
$.22 for the second quarter of 1998 compared to $.15 for the same period in
1997.
COMPARISON OF FIRST SIX MONTHS OF 1998 TO FIRST SIX MONTHS OF 1997
During the first six months of 1998, the Company had revenue of $63.4
million, an increase of 35.4% over the same period in 1997. The increase in
revenue was due primarily to the impact of acquisitions made during the past
twelve months, continued expansion of marketing research services within the
Company's existing client base and the addition of clients for whom the
Company did not perform any research services during the previous fiscal year.
Gross margin for the first six months of 1998 was $27.7 million, an increase
of 32.8% over the same period in 1997. The increase in gross margin was
primarily due to the growth in revenue. Gross margin as a percentage of
revenue was 43.8% compared to 44.6% in 1997.
Operating expenses for the first six months of 1998 rose by $4.8 million, an
increase of 28.2% compared to the same period in 1997. The increase in
operating expenses was due primarily to the inclusion of operating expenses
for the acquisitions made during the past twelve months, higher marketing
staff expenses to support the growth in business and increased spending to
grow the Consumer Mail Panel. Operating expenses as a percentage of revenue
decreased during the first six months of 1998 to 34.6% from 36.5% for the
same period in 1997.
Other income increased $0.5 million during the first six months of 1998 due
to interest earned on the remaining proceeds from the 1997 public offering.
Net income for the first six months of 1998 rose 78.2% to $3.4 million or
5.4% of revenue compared to $1.9 million or 4.1% of revenue during the same
period in 1997. Basic earnings per share increased 39.3% to $.39 for the
first six months of 1998 compared to $.28 for the same period in 1997.
Diluted earnings per share increased 37.0% to $.37 for the first six months
of 1998 compared to $.27 for the same period in 1997.
YEAR 2000
The Company is aware of issues associated with the programming code in
existing computer systems as the year 2000 approaches. The Company is
utilizing both internal and external resources to identify, correct or
reprogram, and test its systems for Year 2000 compliance. Management is in
the process of assessing the Year 2000 compliance expense and the related
potential effect on the Company's earnings.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
Page 11
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
(a) The Annual Stockholders' Meeting of the Company was held on April 30,
1998.
(c) At the Annual Stockholders' Meeting, the Stockholders voted to elect three
directors of the Company in an uncontested election, and to approve an
amendment to the Market Facts, Inc. 1996 Stock Plan to increase the
aggregate number of shares of Common Stock that may be issued pursuant to
the Plan from 1,000,000 to 1,800,000. The results of the voting are
stated below.
(1) the proposal to elect three directors of the Company:
<TABLE>
Against
For Or Withheld
--------- -----------
<S> <C> <C>
William W. Boyd* 8,056,192 36,220
Timothy J. Sullivan* 8,047,526 44,886
Jeffery A. Oyster** 100 0
</TABLE>
(2) the proposal to amend the Market Facts, Inc. 1996 Stock Plan:
<TABLE>
<CAPTION>
Broker
For Against Abstain Non-Vote
--------- ------- ------- --------
<S> <C> <C> <C>
6,228,872 990,214 37,690 845,848
</TABLE>
* elected by the holders of Common Stock
** elected by the holder of Series B Preferred Stock
ITEM 5. OTHER INFORMATION.
FORWARD-LOOKING STATEMENTS
Certain statements made from time to time by the Company, including
statements in the Management's Discussion and Analysis section above,
constitute "forward-looking statements" made in reliance upon the safe harbor
contained in Section 21E of the Securities Exchange Act of 1934, as amended.
Such forward-looking statements include those relating to growth through
acquisition opportunities and statements relating to the Company or its
operations that are preceded by terms such as "expects," "believes,"
"anticipates," "intends" and similar expressions. Such forward-looking
statements are not guarantees of future performance and involve risks and
uncertainties. The Company's actual results, performance or achievements
could differ materially from the results, performance or achievements
expressed in, or implied by, these forward-looking statements as a result of
various factors, including without limitation, the following:
RELIANCE ON KEY CLIENTS. The Company's five largest clients accounted for
approximately 26%, 26% and 25% of the Company's total revenues in 1995, 1996
and 1997, respectively, with one client, Procter & Gamble, accounting for
12%, 10% and 11%, 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. 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 90% of the Company's revenue in 1997 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, or a significant
reduction in business from such clients could have a material adverse effect
on the Company.
Page 12
<PAGE>
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.
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.
RISKS ASSOCIATED WITH ACQUISITIONS AND FAILURE TO INTEGRATE ACQUIRED
BUSINESSES; LIMITED PRIOR ACQUISITION EXPERIENCE. The Company has recently
completed several acquisitions and intends to continue expanding through
acquisitions as part of its business strategy. However, 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. Successful
integration of the recent acquisitions will require the experience and
expertise of the senior management teams of the acquired companies, which are
expected to remain with the Company. There can be no assurance that the
members of senior management will remain with the Company for the time period
necessary to successfully integrate the recent acquisitions. 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.
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 1997 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 and 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 its 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 has become
an increasingly important competitive factor.
Page 13
<PAGE>
ABILITY TO CONTINUE COMPANY GROWTH; MANAGEMENT OF GROWTH. For the three-year
period ended December 31, 1997, the Company's revenue and net income
increased at a compound annual growth rate of 22% and 60%, 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 products and
services to its clients globally and it intends to continue seeking
acquisitions, joint ventures and strategic alliances globally to enhance its
existing capabilities. 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 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 alliances and joint ventures,
general conditions in the market research industry, and general economic and
market conditions. Additionally, the stock market in general has experienced
extreme price volatility in recent years. There can be no assurance that the
price of the common stock will increase in the future or be maintained at its
recent levels.
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.
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 Consumer Mail Panel-SM- ("CMP"), its own
broad-based panel of consumer households, 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.
Page 14
<PAGE>
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.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
See Index to Exhibits immediately following the signature page.
(b) Reports on Form 8-K.
A report on Form 8-K dated March 31, 1998 was filed on April 8, 1998,
reporting under Item 2 thereof the acquisition of Tandem Research Associates,
Inc.
A report on Form 8-K/A dated March 31, 1998 was filed on June 11, 1998,
amending Item 7 of the Form 8-K filed on April 8, 1998.
Page 15
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Market Facts, Inc.
------------------
(Registrant)
Date: August 3, 1998 Timothy J. Sullivan
-------------------
Timothy J. Sullivan
Chief Financial Officer, Senior Vice President,
Treasurer, Assistant Secretary and Director
(Principal Financial Officer)
Date: August 3, 1998 Anthony J. Solarz
-----------------
Anthony J. Solarz
Vice President and Controller
(Principal Accounting Officer)
Page 16
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit Number Description
- -------------- -----------
<C> <S>
(3)(a) Restated Certificate of Incorporation (5), as amended. (14)
(3)(b) By-laws as Amended and Currently in Effect. (11)
(4)(a) Article Fourth of the Company's Restated Certificate of Incorporation (5), as
amended. (14)
(4)(b) Rights Agreement as Amended and Currently in Effect. (3)
(4)(c) Certificate of Designation, Preferences and Rights of Series B Preferred
Stock. (10)
(10.1) Term Note dated February 23, 1995 between Market Facts, Inc. and Verne
Churchill. (4)
(10.2) Term Note dated February 23, 1995 between Market Facts, Inc. and Lawrence
Labash. (4)
(10.3) Term Note dated February 23, 1995 between Market Facts, Inc. and Thomas Payne. (4)
(10.4) Term Note dated February 23, 1995 between Market Facts, Inc. and Glenn
Schmidt. (4)
(10.5) Term Note dated February 23, 1995 between Market Facts, Inc. and Timothy
Sullivan. (16)
(10.6) Demand Note and London Interbank Offered Rate Borrowing Agreement dated April
30, 1997, between the Company and American National Bank and Trust Company of
Chicago. (16)
(10.7) Mortgage and Security Agreement dated April 11, 1990 between American National
Bank and Trust Company as Trustee under Trust No. 110201-04 and The
Manufacturers Life Insurance Company together with Mortgage Note. (2)
(10.8) Credit Agreement dated June 7, 1996, between the Company and Harris Trust and
Savings Bank (6), as amended, and Revolving Credit Note dated September 4,
1997 relating thereto. (16)
(10.9) Employment Agreement with Thomas H. Payne. (13)
(10.10) Employment Agreement with Lawrence W. Labash. (13)
(10.11) Employment Agreement with Timothy J. Sullivan. (13)
(10.12) Employment Agreement with Sanford M. Schwartz. (17)
(10.13) Indemnity Agreement with Jack R. Wentworth dated July 15, 1994. (1)
Substantially identical agreements were also entered into with the following
individuals:
William W. Boyd Karen E. Predow
Verne B. Churchill Thomas H. Payne
Lawrence W. Labash Sanford M. Schwartz
(10.14) Term Note dated March 29, 1996 between Market Facts, Inc. and Verne Churchill. (5)
(10.15) Term Note dated March 29, 1996 between Market Facts, Inc. and Thomas Payne. (5)
(10.16) Term Note dated March 29, 1996 between Market Facts, Inc. and Glenn Schmidt. (5)
(10.17) Term Note dated March 29, 1996 between Market Facts, Inc. and Lawrence Labash. (5)
(10.18) Term Note dated March 29, 1996 between Market Facts, Inc. and Timothy
Sullivan. (16)
(10.19) Indemnity Agreement with Timothy Sullivan dated September 3, 1997. (16)
Substantially identical agreements were also entered into with Ned Sherwood
and Jeffery Oyster.
(10.20) Investment Agreement dated June 6, 1996 among the Company, MFI Investors L.P.
and MFI Associates, Inc. (7)
(10.21) Financial Advisory Agreement dated June 6, 1996 between the Company and MFI
Investors L.P. (8)
Page 17
<PAGE>
Exhibit Number Description
- -------------- -----------
(10.22) Convertible Note dated June 6, 1996 in the principal amount of $8,250,000
issued by the Company to MFI Investors L.P. (9)
(10.23) Market Facts, Inc. 1996 Stock Plan, as amended. (12)
(10.24) Stock Purchase Agreement by and among Market Facts, Inc., Kathleen Knight,
Robert Skolnick, Gunilla Broadbent and BAIGlobal, Inc. dated as of July 31
1997. (15)
(10.25) Employment Agreement with Kathleen Knight. (15)
(10.26) Employment Agreement with Robert Skolnick. (15)
(10.27) Employment Agreement with Gunilla Broadbent. (15)
(10.28) Underwriting Agreement dated October 21, 1997 by and among Market Facts, Inc.,
MFI Investors L.P. and the several underwriters named therein. (16)
(10.29) Promissory Note dated April 1, 1994 between Market Facts, Inc. and Timothy
Sullivan. (16)
(10.30) Term Note dated December 12, 1997 between Market Facts, Inc. and Sanford M.
Schwartz. (17)
(10.31) Asset Purchase Agreement by and among Market Facts, Inc. TRA Acquisition
Corp., Donald E. Rupnow, Daniel Fish and Tandem Research Associates, Inc.
dated as of March 31, 1998. (18)
(10.32) Termination Agreement dated June 4, 1998 between ZS Fund L.P. and the Company.
(10.33) Financial Advisory Agreement dated as of January 1, 1998 between ZS Fund L.P.
and the Company.
(27) Financial Data Schedule.
</TABLE>
__________________
(1) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1994.
(2) Incorporated by reference to Registrant's Annual Report on Form 10-K for
its fiscal year ended December 31, 1992.
(3) Incorporated by reference to Registrant's Form 8-A dated July 3, 1996,
commission file number 0-04781.
(4) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1995.
(5) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended March 31, 1996.
(6) Incorporated by reference to Exhibit No. (b) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(7) Incorporated by reference to Exhibit No. (c)(1) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(8) Incorporated by reference to Exhibit No. (c)(2) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(9) Incorporated by reference to Exhibit No. (c)(3) of Registrant's Schedule
13E-4 dated June 11, 1996, commission file number 5-20859.
(10) Incorporated by reference to Exhibit No. 99(c)(4) of Registrant's
Schedule 13E-4 dated June 11, 1996, commission file number 5-20859.
(11) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1996.
(12) Incorporated by reference to Registrant's Form S-8 dated August _, 1998.
(13) Incorporated by reference to Registrant's Annual Report on Form 10-K
for its fiscal year ended December 31, 1996.
(14) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended June 30, 1997.
(15) Incorporated by reference to Registrant's Form 8-K dated July 31, 1997.
(16) Incorporated by reference to Registrant's Quarterly Report on Form 10-Q
for the quarterly period ended September 30, 1997.
(17) Incorporated by reference to Registrant's Annual Report on Form 10-K for
its fiscal year ended December 31, 1997.
(18) Incorporated by reference to Registrant's Form 8-K dated March 31, 1998.
Page 18
<PAGE>
EXHIBIT 10.8
MARKET FACTS, INC.
SECOND AMENDMENT TO CREDIT AGREEMENT
Harris Trust and Savings Bank
Chicago, Illinois
Ladies and Gentlemen:
Reference is hereby made to that certain Credit Agreement dated as of
June 7, 1996, as heretofore amended (the "Credit Agreement") between the
undersigned, Market Facts, Inc., a Delaware corporation (the "Company") and
you (the "Bank"). All capitalized terms used herein without definition shall
have the same meanings herein as such terms have in the Credit Agreement.
The Company has requested that the Bank extend by one year the
availability of the Revolving Credit and make certain other amendments to the
Credit Agreement, and the Bank is willing to do so under the terms and
conditions set forth in this Amendment.
1. AMENDMENTS.
1.01. Section 5.1 of the Credit Agreement is hereby amended by
amending the definition of "TERMINATION DATE" in its entirety and as so
amended is restated to read as follows:
" "Termination Date" means June 30, 1999, or such
earlier date on which the Revolving Credit Commitment
is terminated in whole pursuant to Section 3.3, 9.2 or
9.3 hereof, or such later date to which the Revolving
Credit Commitment is extended pursuant to Section 3.4
hereof."
1.02. Section 8.13(d) of the Credit Agreement is hereby amended
and as so amended shall be restated in its entirety to read as follows:
"(d) after giving effect to such Acquisition, the
aggregate consideration paid by the Company and its
Subsidiaries for such Acquisition and all other
Acquisitions closed on and at any time after November
1, 1997 on a cumulative basis (including as such
consideration, the assumption by the Company or any
Subsidiary of any Indebtedness for Borrowed Money of
each Person acquired, but in any event excluding as
such consideration, any capital stock or evidence of
unsecured indebtedness in each case issued by the
Company to the seller as consideration for an
Acquisition) will not exceed $40,000,000;"
<PAGE>
2. CONDITIONS PRECEDENT.
The effectiveness of this Amendment is subject to the satisfaction of
all of the following conditions precedent:
(a) The Company and the Bank shall have executed and delivered this
Amendment.
(b) The Company shall have delivered to the Bank copies (executed or
certified, as may be appropriate) or resolutions adopted by the Board
of Directors of the Company authorizing and ratifying the execution
and delivery of this Amendment.
3. REPRESENTATIONS.
In order to induce the Bank to execute and deliver this Amendment, the
Company hereby represents to the Bank that as of the date hereof, the
representations and warranties set forth in Section 6 of the Credit Agreement
are and shall be and remain true and correct (except that the representations
contained in Section 6.5 shall be deemed to refer to the most recent
financial statements of the Company delivered to the Bank) and, unless
specifically waived in writing by the Bank, the Company is in full compliance
with all of the terms and conditions of the Credit Agreement and no Default
or Event of Default has occurred and is continuing under the Credit Agreement
or shall result after giving effect to this Amendment.
4. MISCELLANEOUS.
(a) The Company has heretofore executed and delivered to the Bank the
Collateral Documents and the Company hereby acknowledges and agrees that,
notwithstanding the execution and delivery of this Agreement, the Collateral
Documents remain in full force and effect and the rights and remedies of the
Bank thereunder, the obligations of the Company thereunder and the liens and
security interests created and provided for thereunder remain in full force
and effect and shall not be affected, impaired or discharged hereby. Nothing
herein contained shall in any manner affect or impair the priority of the
liens and security interests created and provided for by the Collateral
Documents as to the indebtedness which would be secured thereby prior to
giving effect to this Amendment.
(b) Except as specifically amended herein, the Credit Agreement shall
continue in full force and effect in accordance with its original terms.
Reference to this specific Amendment need not be made in the Credit
Agreement, the Notes, or any other instrument or document executed in
connection therewith, or in any certificate, letter or communication issued
or made pursuant to or with respect to the Credit Agreement, any reference in
any of such items to the Credit Agreement being sufficient to refer to the
Credit Agreement as amended hereby.
2
<PAGE>
(c) The Company agrees to pay on demand all costs and expenses of or
incurred by the Bank in connection with the negotiation, preparation,
execution and delivery of this Amendment, including the fees and expenses of
counsel for the Bank.
(d) This Amendment may be executed in any number of counterparts, and
by the different parties on different counterpart signature pages, all of
which taken together shall constitute one and the same agreement. Any of the
parties hereto may execute this Amendment by signing any such counterpart and
each of such counterparts shall for all purposes be deemed to be an original.
This Amendment shall be governed by the internal laws of the State of
Illinois.
Dated as of June 30, 1998.
MARKET FACTS, INC.
By /s/ Timothy J. Sullivan
----------------------------------
Its Senior Vice President
---------------------------------
Accepted and agreed to in Chicago, Illinois as of the date and year last
above written.
HARRIS TRUST AND SAVINGS BANK
By /s/ Daniel K. Sabol
----------------------------------
Its Vice President
3
<PAGE>
EXHIBIT 10.32
TERMINATION AGREEMENT
This TERMINATION AGREEMENT, dated as of June 5, 1998, is made by
and between ZS Fund L.P., as assignee of MFI Associates, Inc.("Advisor"), and
Market Facts, Inc., a Delaware corporation ("MFI").
R E C I T A L S:
WHEREAS, Advisor and MFI are parties to that certain Financial
Advisory Agreement dated as of June 6, 1996 (the "Financial Advisory
Agreement").
WHEREAS, Advisor and MFI desire to terminate their respective
obligations under the Financial Advisory Agreement, on the terms and
conditions stated herein.
NOW THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements set forth herein, the parties agree as follows:
1. Advisor and MFI agree to terminate their respective
obligations under the Financial Advisory Agreement effective as of December
31, 1997 (the "Termination Date"), except for MFI's indemnification and
contribution obligations under Section 3 of the Financial Advisory Agreement
for actions taken by Advisor on or prior to the Termination Date, which shall
remain in full force and effect.
2. This Agreement sets forth the entire understanding of the
parties with respect to the subject matter hereof. Any previous agreements
or understandings between the parties regarding the subject matter hereof are
merged into and superseded by this Agreement.
3. This Agreement shall be governed, construed and enforced in
accordance with the internal laws of the State of Illinois, without giving
effect to any choice of law rules which may direct the application of the
laws of another jurisdiction.
IN WITNESS WHEREOF, this Termination Agreement has been duly
executed as of the date first written above.
ZS FUND L.P. MARKET FACTS, INC.
By: Zaleski, Sherwood & Co., Inc.,
its general partner
By: /s/ Ned L. Sherwood By: /s/ Timothy J. Sullivan
---------------------- -------------------------
Name: Ned L. Sherwood Name: Timothy J. Sullivan
Title: Partner Title: Chief Financial Officer
<PAGE>
EXHIBIT 10.33
FINANCIAL ADVISORY AGREEMENT
FINANCIAL ADVISORY AGREEMENT (the "Agreement") dated as of January
1, 1998 by and between ZS FUND L.P., a Delaware partnership with offices at
120 West 45th Street, Suite 2600, New York, New York 10036 (the "Advisor"),
and MARKET FACTS, INC., a Delaware corporation with offices at 3040 West Salt
Creek Lane, Arlington Heights, Illinois ("MFI").
WHEREAS, MFI proposes to enter into negotiations for the
acquisition of ninety percent (90%) of the outstanding capital stock of
Strategy Research Corporation ("SRC"), representing all of the shares of
SRC's outstanding capital stock owned by shareholders other than MFI (the
"SRC Acquisition"); and
WHEREAS, MFI proposes to enter into negotiations for the
acquisition of certain of the assets and assumption of certain of the
liabilities of Tandem Research Associates, Inc. ("TRA") (the "TRA
Acquisition").
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties agree as follows:
1. RESPONSIBILITY OF THE ADVISOR
The Advisor shall provide to MFI and its affiliates on a
non-exclusive basis certain financial advisory services related to MFI's
acquisition program including, without limitation, evaluation and
interpretation of financial data and reports concerning structuring
strategies and alternatives related to such acquisition opportunities.
2. COMPENSATION
In consideration of the benefits and services MFI shall receive
hereunder, MFI shall pay to the Advisor a financial advisory success fee (the
"Fee") of (1) $50,000 upon the consummation of the SRC Transaction and (2)
$300,000 upon the consummation of the TRA Transaction.
3. INDEMNIFICATION AND CONTRIBUTION
3.1 INDEMNIFICATION. MFI agrees to indemnify and hold
harmless each of the Advisor, and its officers, directors, employees,
shareholders and agents (each such person being referred to herein as an
"Indemnified Person") from and against any and all losses, claims, damages or
liabilities related in any way to, arising out of or in connection with the
services provided by the Advisor hereunder ("Indemnified Claims"), and will
reimburse each indemnified Person for all reasonable expenses (including
reasonable fees and expenses of
<PAGE>
counsel) as they are incurred in connection with investigating, preparing,
pursuing or defending any action, claim, suit, investigation or proceeding
related in any way to, arising out of or in connection with the Indemnified
Claims, whether or not pending or threatened and whether or not any
Indemnified Party is a party. MFI will not, however, be responsible for any
losses, claims, damages or liabilities (or expenses relating thereto) that
are finally judicially determined to have resulted from the bad faith,
willful misconduct or gross negligence of any Indemnified Person or to have
been beyond the scope of such person's authority under this Agreement. MFI
also agrees that no Indemnified Person shall have any liability (whether
direct or indirect, in contract or tort or otherwise) to MFI for or in
connection with the Indemnified Claims except for any such liability for
losses, claims, damages or liabilities incurred by MFI that are finally
judicially determined to have resulted from the bad faith, willful misconduct
or gross negligence of such Indemnified Person.
MFI will not, without each Indemnified Person's prior written
consent, settle, compromise, consent to the entry of any judgment in or
otherwise seek to terminate any action, claim, suit or proceeding (whether or
not such Indemnified Person is a party thereto) in respect of which
indemnification may be sought hereunder unless such settlement, compromise,
consent or termination includes a full and unconditional release of such
Indemnified Person from any and all liabilities arising out of such action,
claim, suit or proceeding, except that a settlement, compromise, consent or
termination need not include a full and unconditional release of such
Indemnified Person if MFI has (i) given the Advisor reasonable prior notice
of such settlement, compromise, consent or termination, (ii) consulted in
good faith with the Advisor regarding the failure to include therein a full
and unconditional release of such Indemnified Person and (iii) confirmed in
writing that the indemnification provided for in this Section 3.1 shall
continue to its full extent with respect to the action, claim, suit or
proceeding which has been settled, compromised, consented to or terminated
and any other actions, claims, suits or proceeding arising out of the facts
and circumstances which gave rise to the action, claim, suit or proceeding
which has been settled, compromised, consented to or terminated to which such
Indemnified Person would have otherwise been entitled to indemnification
under this Section 3.1. No Indemnified Person seeking indemnification,
reimbursement or contribution under this Agreement will, without MFI's prior
written consent, settle, compromise, consent to the entry of any judgment in
or otherwise seek to terminate any action, claim, suit, investigation or
proceeding referred to in the preceding paragraph.
3.2 CONTRIBUTION. If the indemnification provided for in
Section 3.1 is judicially determined to be unavailable (other than in
accordance with the second sentence of the first paragraph of Section 3.1) to
an Indemnified Person in respect of any losses, claims, damages or
liabilities referred to herein, then, in lieu of indemnifying such
Indemnified Person hereunder, MFI shall contribute to the amount paid or
payable by such Indemnified Person as a result of such losses, claims,
damages or liabilities (and expenses relating thereto) in such proportion as
is appropriate to reflect not only the relative benefits to the Advisor and
its affiliates, on the one hand, and MFI, on the other hand, in connection
with the services
-2-
<PAGE>
heretofore provided to MFI by the Advisor but also the relative fault of each
of the Advisor and its affiliates and MFI, as well as any other relevant
equitable considerations.
3.3 SURVIVAL. All the provisions of this Section 3 shall
remain in full force and effect with respect to actions taken by the Advisor
prior to any termination or completion of the Advisor's services under this
Agreement or the termination of this Agreement, regardless of such
termination or completion.
4. MODIFICATION
This Agreement contains the entire agreement of the parties with
respect to the subject matter hereof. Any change, modification, amendment or
alteration to this Agreement shall be effected only in writing and signed by
the party or parties against whom enforcement of any such change,
modification, amendment or alteration is sought.
5. NONWAIVER
The failure of any party hereto, at any time to require performance
by any party hereto of any provision hereof, shall in no way affect the right
of such failing party hereafter to enforce such provision nor shall any
waiver by any part of any breach of any provisions hereof be taken or held to
be a waiver of any succeeding breach of such provision or as a waiver of the
provision itself.
6. SEVERABILITY
If any provision or provisions of this Agreement is held to be
invalid or unenforceable, such provision shall be automatically reformed and
construed so as to be valid, operative and enforceable to the maximum extent
permitted by law or equity while most nearly preserving its original intent.
The invalidity of any party of this Agreement shall not render invalid the
remaining provisions of this Agreement and, to that extent, the provisions of
this Agreement shall be deemed to be severable.
7. HEADINGS
The headings of this Agreement are inserted for convenience only
and shall not be considered in construction of the provisions hereof.
8. ASSIGNMENT AND SUCCESSORS; BINDING EFFECT, ETC.
The rights and obligations of the Advisor and of MFI under this
Agreement shall inure to the benefit of and shall be binding upon the
successors of the Advisor and of MFI and may not be assigned without the
written consent of the other party hereto, and any such
-3-
<PAGE>
purported assignment shall be null and void.
9. GOVERNING LAW
The terms of this Agreement shall be governed by and construed in
accordance with the laws of the State of Illinois without regard to
principles of conflicts of law.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
on the date first above written.
ZS FUND L.P.
By: /s/ Ned L. Sherwood
--------------------------
Name: Ned L. Sherwood
Title: Partner
MARKET FACTS, INC.
By: /s/ Timothy J. Sullivan
--------------------------
Name: Timothy J. Sullivan
Title: Senior V.P.
-4-
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<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1998 AND THE STATEMENT OF EARNINGS FOR THE SIX MONTHS ENDED
JUNE 30, 1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 19,428,425
<SECURITIES> 50,000
<RECEIVABLES> 25,204,842
<ALLOWANCES> 1,203,835
<INVENTORY> 0
<CURRENT-ASSETS> 50,522,349
<PP&E> 33,379,090
<DEPRECIATION> 14,608,608
<TOTAL-ASSETS> 92,565,917
<CURRENT-LIABILITIES> 24,620,251
<BONDS> 0
0
0
<COMMON> 10,890,458
<OTHER-SE> 46,132,192
<TOTAL-LIABILITY-AND-EQUITY> 92,565,917
<SALES> 0
<TOTAL-REVENUES> 63,410,758
<CGS> 0
<TOTAL-COSTS> 35,666,452
<OTHER-EXPENSES> 21,911,093
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 566,970
<INCOME-PRETAX> 5,918,408
<INCOME-TAX> 2,505,968
<INCOME-CONTINUING> 3,412,440
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,412,440
<EPS-PRIMARY> .39
<EPS-DILUTED> .37
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 484,508
<SECURITIES> 50,000
<RECEIVABLES> 16,331,341
<ALLOWANCES> 1,105,261
<INVENTORY> 0
<CURRENT-ASSETS> 21,765,805
<PP&E> 29,376,588
<DEPRECIATION> 12,270,879
<TOTAL-ASSETS> 39,576,355
<CURRENT-LIABILITIES> 16,360,783
<BONDS> 0
0
0
<COMMON> 8,966,258
<OTHER-SE> 3,569,295
<TOTAL-LIABILITY-AND-EQUITY> 39,576,355
<SALES> 0
<TOTAL-REVENUES> 46,834,647
<CGS> 0
<TOTAL-COSTS> 25,936,345
<OTHER-EXPENSES> 17,087,938
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 542,861
<INCOME-PRETAX> 3,346,659
<INCOME-TAX> 1,431,466
<INCOME-CONTINUING> 1,915,193
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,915,193
<EPS-PRIMARY> .28
<EPS-DILUTED> .27
</TABLE>
