UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[ X ]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
[ ]
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 - 21460
NFO RESEARCH, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 06-1327424
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2 PICKWICK PLAZA, GREENWICH, CT. 06830
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(Address of principle executive offices) (Zip Code)
(203) 629 - 8888
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(Registrant's telephone number, including area code)
COMMON STOCK, PAR VALUE $.01 PER SHARE
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(Title of Class)
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
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Indicate by checkmark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of the
Form 10-K or any amendment to this Form 10-K. X
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The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 20, 1997 was approximately $158,443,968.
As of March 20, 1997 there were 10,281,170 shares of the registrant's
Common Stock outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Selected portions of NFO Research, Inc.'s 1997 Proxy Statement are
incorporated by reference into Part III of this report on Form 10-K.
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PART I
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Special Note Regarding Forward-Looking Statements
As certain of the statements made in this Form 10-K are "forward-looking
statements" (within the meaning of the Private Securities Litigation Reform Act
of 1995), they involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, clients' timing of new product introductions and reformulations,
clients' marketing budgets, industry and economic conditions, changes in
management or ownership of a client, the effect of the Company's competition on
client purchasing decisions, the strategic decisions of the Company's management
team, the extent to which the Company is successful in developing and marketing
its interactive market research techniques and other factors referenced in this
Form 10-K. In addition, the success of the Company's European expansion efforts
is dependent in part upon a productive joint venture relationship and upon the
successful application of NFO's methodologies to different business and consumer
environments.
Item 1. Business
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NFO Research, Inc. and its subsidiaries (collectively, the "Company") are
leading providers of custom and syndicated marketing information services to
America's largest corporations as well as the international business community.
The Company uses a pre-recruited consumer panel consisting of over 525,000
households and over 1.3 million consumers (the "NFO Panel"), as well as other
specialized databases to provide information to its clients to help them test,
launch, market and advertise their products for competitive advantage. The
Company is comprised of NFO Research, Inc. ("NFO") and NFO's subsidiaries:
Payment Systems, Inc. and Payment Systems International Limited (U.K.)
(collectively, "PSI"), Advanced Marketing Solutions Corp. ("AMS"),
Migliara/Kaplan Associates, Inc. ("M/K"), Chesapeake Surveys, Inc. ("CSI"), Plog
Research, Inc. ("Plog") and The SPECTREM Group ("Spectrem"), as well as several
subsidiaries relating to the Company's joint venture activities in Europe.
The Company provides its marketing information services, databases and market
research services to over 1,100 clients, including 44 of the largest 100
companies of the Fortune 500 list, 23 of the top 25 U.S. bank holding companies,
and 18 of the nation's 20 largest pharmaceutical firms. The Company also
conducts the consumer confidence survey for the Conference Board that is
recognized as a leading economic indicator by the U.S. Department of Commerce.
The Company, which pioneered panel research over 50 years ago, offers its
clients a wide variety of market research services that identify and measure
consumer beliefs, attitudes and behavior regarding specific products and
services by surveying selected members of its proprietary panel. The Company
believes that the size and quality of the NFO Panel, its expertise in the custom
design and execution of market research, its experience in panel and information
management and its systems and processing capabilities give it competitive
advantages over other marketing and consumer information services firms. The
Company also believes that these advantages enable it to identify various
targeted consumer groups and to measure their responses to or use of particular
products and services generally on a more timely and cost-effective basis than
firms using non-panel research methods.
PSI is a leading supplier of syndicated market research information for the
financial services industry. PSI's clients include 23 of the 25 largest bank
holding companies in the United States. PSI has offices in Tampa, New York and
London.
AMS is a leading provider of custom "expert" computer software systems, which
are used by its clients to quickly access and analyze complex business and
consumer information. AMS is located in Shelton, Connecticut.
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In January 1996 the Company acquired Migliara/Kaplan Associates, Inc., of
Baltimore, and Princeton, New Jersey, and Chesapeake Surveys, Inc. M/K is a
leading supplier of strategic market research for many of the country's leading
healthcare companies, including 18 of the top 20 pharmaceutical firms. CSI, a
sister company of M/K, provides data collection and survey services such as
focus groups and random telephone interviews.
Also in January 1996, the Company acquired Plog Research, Inc., of Los
Angeles. Plog provides a full line of syndicated research products as well as
marketing and forecasting services to the travel and tourism industries. Plog's
clients include virtually every major U.S. airline and many of the nation's
leading hotel chains, rental car companies, cruise lines and resorts.
In August 1996 PSI acquired The SPECTREM Group which is headquartered in San
Francisco and has offices in New York, Los Angeles, Chicago, Philadelphia and
St. Paul. Spectrem provides niche consulting and acquisition and divestiture
advisory services in the trust and investment product sectors.
On March 20, 1997, the Company signed an agreement and plan of merger to
acquire 100% of the stock of Prognostics, a leading provider of
survey-based quantitative customer satisfaction research to information
technology companies worldwide. Founded in 1981, Prognostics is headquartered in
Palo Alto, California and has additional offices in Boston and London, as well
as an affiliate relationship in Japan. The purchase will be consummated on
April 1, 1997.
NFO's acquisitions are enabling the Company to evolve into a broader, more
far-reaching marketing information business, providing its clients with
increasingly innovative, results-oriented solutions to their information needs.
The NFO Panel
The Company conducts its panel market research by surveying targeted segments
of the NFO Panel, primarily through mail questionnaires and telephone
interviews. The NFO Panel is comprised of over 525,000 households in the
continental United States, including more than 1.3 million people. The NFO Panel
is designed to match the general U.S. population according to U.S. Bureau of
Census statistics on several important geographic and demographic
characteristics. NFO develops and maintains extensive demographic profiles of
these households, including information with respect to size and composition of
household, household income, age of household members and education and
occupation of adult household members. NFO Panel members are located in
substantially all of the more than 3,600 counties, 300 metropolitan statistical
areas and 200 defined market areas in the continental United States. In
addition, NFO 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 random research methods. Through
the pre-recruited NFO Panel, 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 NFO's surveys. In many cases, NFO can easily select households with
the desired targeted characteristics from data maintained by NFO concerning the
NFO Panel. In other cases involving the need to locate households with targeted
characteristics not previously identified, NFO 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 NFO's "MultiCard Survey" program (See
The Company's Services). This capability is 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, NFO can quickly perform the
market research project by surveying those sample households.
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The Company believes that in recent years there has been a trend among its
clients to focus on smaller market segments for product or service introductions
and marketing programs rather than on broad, mass markets and to focus on
segmenting existing product lines to provide products developed for targeted
consumers. The size of the NFO Panel and NFO's extensive demographic and
geographical profiles of the NFO Panel households facilitate the ability of NFO
to assist its clients with such "target" or "micro-marketing." Typical
micro-marketing research services performed by NFO might involve researching the
attitudes or behavior of consumers within specific geographic areas, with
specific geographic profiles or user characteristics, or with unusual profiles,
such as individuals with certain ailments. NFO has capitalized on its expertise
in locating and researching such households by developing additional panels of
consumer households having demographic or other characteristics of particular
interest to clients. One such panel is the Chronic Ailment Panel, in which NFO
has pre-screened over 300,000 NFO Panel households for individuals suffering
from one of sixty different chronic and acute ailments and conditions. NFO
developed this panel to enhance its ability to market its services to
pharmaceutical companies.
In 1996 the Company developed a new interactive consumer panel consisting of
on-line households that numbers over 70,000 households and over 175,000
individuals (the "NFO//net.source"). The Company maintains the standard
demographic information on these households, as well as information specific to
what computer hardware, software and on-line services they utilize, all
available for client use. (See Technological Advancements).
Clients
The Company, inclusive of its subsidiaries, conducted over 4,300 research
projects for more than 1,100 clients in 1996. The Company's clients include a
variety of nationally recognized packaged goods manufacturers, manufacturers of
pharmaceutical products, as well as providers of financial services and
telecommunications. The Company's clients include 44 of the largest 100
companies on the Fortune 500 list. PSI's clients include 23 of the 25 largest
bank holding companies in the United States. M/K's clients include 18 of the
nation's 20 largest pharmaceutical firms.
The following are the Company's five largest clients based on 1996 revenues:
The Procter & Gamble Company, Pfizer, Inc., Citibank Corp., Zeneca
Pharmaceuticals Group, and The Eastman Kodak Company. The Company's top ten
clients represented approximately 31% of its consolidated revenues in 1996, and
have been served by the Company for an average of 21 consecutive years. Four of
those ten clients have used the Company's services for over thirty-five
consecutive years.
NFO also has provided a consumer confidence survey among nationally
representative households each month for 30 years to the Conference Board, a
worldwide non-profit business information organization with many of America's
largest corporations as members. The Conference Board provides research
information to aid business in management practices and policy. The United
States Department of Commerce has recognized the Conference Board's Consumer
Confidence Survey performed by NFO as a leading economic indicator since August
1990. Consumer confidence surveys are used by government and private enterprises
as predictors of business cycles.
Operations
The Company maintains production facilities throughout the United States. The
Company's main operations center is in Toledo, Ohio. The Company also has
operations facilities located in Tampa, Baltimore, Los Angeles, New York,
Greensboro, Princeton, and Shelton, CT. In total, the Company has offices
covering nineteen cities in four countries (See Marketing and Sales).
During 1996, the Company conducted over 4,300 different research projects,
performed over seventeen million mail and telephone interviews and mailed over
fifteen million pieces related to client surveys. NFO maintains large mailing
and telecommunications facilities in its operations center in Toledo, for the
purpose of distributing and administering questionnaires or other materials and
packaging and distributing product samples or other materials to survey
participants.
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The Company's research projects are initiated in one of its marketing
offices, where the marketing staff works closely with the client to establish
information objectives, to prepare preliminary study designs and to determine
the types of consumers to interview. This work results in a proposal describing
the NFO Panel sample, or other sample, to be surveyed, the manner of data
collection (mail, telephone, interactive or another method), the analysis
requirements, the delivery schedules and the pricing.
For each NFO Panel research project undertaken for a client, NFO is
responsible for questionnaire design, selection of a sample of households from
the NFO Panel, information gathering and, at a client's request, computer
analysis of the survey data, and the analysis and presentation of the research
results. Once a project is approved by a client, the entire project is scheduled
using an advanced computer-based management and production system that has been
developed by NFO so that each phase of the project is completed to
specifications and according to schedule. This system concurrently schedules all
phases of the project with regard to required staff and production time, start
and completion dates of each phase, and acquisition of test product and other
materials that may be required for interviewing or data processing. This
schedule is then distributed by means of NFO's on-line computer system for the
proper coordination of all NFO departments. The computer system provides daily
status reports on each project to all supervisory personnel. The critical
element in each study is the development of an appropriate NFO Panel sample that
correctly matches the study's targeted consumers. NFO will either select a
sample from the NFO Panel based on pre-identified households with precisely
matched demographic characteristics that are already on file or will conduct a
custom screening survey among its NFO Panel members to locate households with
the desired demographic and other characteristics. The sample selection process
is performed to ensure that the NFO Panel members meet the desired
characteristics and that the survey adheres to NFO policies limiting the number
of contacts with Panel members and varying the subject matters of the surveys to
avoid inconveniencing or burdening household members. See "Panel Maintenance."
Research projects involve studies with samples ranging from just a few hundred
to as many as 250,000 households.
Each survey is designed to collect specific and accurate information. NFO
uses a number of information gathering techniques, depending upon
appropriateness for the project, timing and cost requirements. The two methods
most frequently employed are mail questionnaires and telephone interviews,
although the Company has begun to conduct high speed on-line research via the
Internet (see below). Mail surveys take several forms, from a single
questionnaire, generally from two to ten pages in length, to a diary
questionnaire on which respondents record purchase and usage information for
products or services over an extended period of time.
NFO designs its questionnaires to be easy and interesting, with questions,
concepts, and wording that will be readily understood by the NFO Panel member,
to enable respondents to complete questionnaires accurately and without undue
burden. Particularly complicated questionnaires may be pretested among a small
group of households to determine whether these requirements are met. NFO's
experienced designers develop efficient, visually appealing and concisely
formatted questionnaires using NFO's state-of-the-art desktop publishing system.
NFO and its subsidiaries also conduct telephone interviews with its panel
members and other survey respondents. Telephone interviewers work at stations
equipped with a CRT terminal that is on-line to the Computer Assisted Telephone
Interviewing (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. The Company maintains
four telephone centers with a total of 183 interviewing stations. At the request
of a client, NFO may employ other methods of data collection, such as central
location interviewing and focus groups, among both panel members and consumers
selected by other methods.
Questionnaire responses are entered directly into the computer system, either
through the use of imaging technology, or manually. NFO customizes survey
reports and presents survey data in accordance with client specifications.
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CSI has a telephone interviewing facility and its own focus group facilities.
CSI also provides respondents and venues for nearly 400 such focus groups
annually.
Plog interviews travelers world-wide utilizing focus groups, central location
(e.g. airports), mail and telephone interviews.
In 1996 the Company established the NFO Interactive division for the purpose
of developing an interactive methodology for performing market research. The
Company has developed NFO//net.source that is an interactive consumer panel of
on-line households numbering over 70,000 households and over 175,000
individuals. The Company has introduced a number of new interactive products to
the marketplace and is currently conducting research interactively for clients
(see Technological Advancements). The Company believes that there is significant
commercial potential in providing comprehensive interactive survey systems that
feature greater speed and household targeting than current methods. In addition,
interactive information collection has the advantage of low distribution and
collection costs.
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.
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. The Company estimates that more than 300 firms perform custom
research services in the United States, with no firm holding a dominant share of
that market.
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 random, unsolicited contacting of consumers, either
by telephone or by personal approaches in public locations such as stores or
shopping malls.
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The Company believes that certain trends are emerging in the United States
that may further increase the perceived effectiveness and desirability of panel
research methods as compared with other research methods. One trend is the
tendency of consumer product and service companies to focus on smaller market
segments for product or service introductions and marketing programs rather than
on mass markets and to segment existing product lines to provide selected
products for targeted consumers. Another perceived trend is that with the
increase of two-wage-earner households, the heightened interest in leisure-time
activities, and the ability to screen telephone calls using answering machines,
consumers appear generally less willing to participate in unsolicited surveys.
The Company also anticipates that demand for panel research may be favorably
affected by the impact of legislation proposed in many jurisdictions, and
already enacted in some states, that seeks to limit or prohibit unsolicited
telemarketing, sales or other calls, to redress the perceived invasion of
privacy represented by these calls. Such legislation could have an adverse
effect on research firms using random research methods. The Company believes
that its operations have not been, and will not be, adversely affected by this
legislation. In addition, the Company believes its business will be favorably
impacted by the perceived movement towards conducting market research using
interactive methods. (See Business Strategy Technological Advancements).
Business Strategy
The Company's goal is to develop into a broader more far reaching marketing
information services business centered around the NFO Panel. In order to
accomplish this mission, NFO is aggressively pursuing a four-pronged business
development strategy.
BROADEN AND EXPAND CORE BUSINESS. The Company intends to develop new services
or research concepts that will distinguish it from other market research
companies while furthering its development as a marketing information services
company. The Company intends to use its NFO Panel and expertise in custom panel
research to expand existing client relationships and to target new clients,
particularly in the pharmaceutical, telecommunications and financial services
industries in which the Company perceives a growing need for custom panel
research. To serve the Yellow Pages industry, the third largest advertising
medium in the United States, the Company launched the National Yellow Pages
Monitor ("NYPM") in 1987 to measure the effectiveness of local and national
Yellow Pages advertising. Today NYPM is the leading provider of syndicated
audience measurement information to the Yellow Pages industry. NFO's HealthMed
marketing group focuses on designing, and marketing to pharmaceutical companies,
panel research programs using the Company's Chronic Ailment Panel. NFO also
currently has a joint marketing agreement with ASI, a leading advertising copy
testing company, to market to clients copy testing services using panel-based
market research methods.
The Company and BASES Worldwide ("BASES") jointly offer Volumetric Concept
Screening by Mail ("VCSM") to clients. BASES is a well respected market research
company and a leader in simulated volume forecasting for new products and
services. This service allows clients to evaluate early state product ideas and
choose the most promising concepts. VCSM utilizes the NFO Panel and cost saving
mail methodology together with BASES' Key Measures Database of over 5,000 cases
for comparative analysis. This is the second joint service offering by the
Company and BASES. The two companies also offer a cost saving approach to
simulated test marketing, utilizing the NFO Panel and BASES' expertise in
volumetric forecasting.
TECHNOLOGICAL ADVANCEMENTS. The Company's focus on technological advancement
is twofold: internal and external. On the internal side, the Company is
constantly searching for ways to speed delivery of its services to its clients,
and improve the quality of and/or reduce the cost of its services. The Company
installed its first predictive dialer that eliminates the time telephone
interviewers formerly spent dialing numbers and receiving busy signals, thus
increasing productivity of the telephone center. Additionally, NFO data networks
were upgraded to provide enhanced network connectivity between the Company's
offices and, in 1995, the Company installed a document imaging system that now
processes more than one half of the documents requiring data entry. This system
saves a significant amount of the time required to process questionnaire
responses compared to conventional data entry.
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NFO believes that the advent and growing penetration of on-line and internet
services will change the mix of media used to conduct market research and will
grow the overall size of the market research industry. Industry growth and media
shift will be driven by several factors:
1) high speed access to the needs, opinions and behaviors of consumers provided
by interactive research will make market research in general a more applicable
and necessary business function, especially in those industries where the demand
for shorter product development cycles are most acute; 2) the increasing
penetration of interactive communication technologies into U.S. and eventually
international homes will make interactive based research the preferred method
for researching the general population; 3) the eventual lower cost and,
therefore, greater customer value provided by interactive-based research will
increase interactive research at the expense of existing methodologies, and also
cause the overall industry to grow.
To address these issues, in 1996 the Company established the NFO Interactive
division for the purpose of developing an interactive methodology for performing
market research. During 1996 the Company developed the NFO//net.source, which
currently numbers over 70,000 households and over 175,000 individuals. By
utilizing e-mail and the world wide web to communicate with these panelists, the
elapsed time of collecting research information is shortened. This Interactive
Panel enables NFO to provide clients with access to a rich source of information
about the interactive market and provides the ability to conduct interactive
research with accuracy and speed.
The Company has created proprietary software systems to facilitate the
information collection process and shorten the cycle times required for market
research. These systems include survey development tools, database management
and integration systems, analytic software and internet software reporting
tools. Development has also included extensive process development and
calibration studies to ensure NFO's interactive methods provide accurate results
and are responsive to customer needs.
The Company's interactive products include NFO//net.survey, custom
quantitative research via the internet; NFO//net.gauge, web-site evaluation
services, and NFO//net.focus, the conduct of focus groups using the internet,
and are marketed by the various NFO companies.
The Company believes it is one of the leaders in the development of
interactive and on-line interviewing in the market research industry.
STRATEGIC ALLIANCES AND ACQUISITIONS. To enhance its development as a
marketing information company, the Company will seek to develop alliances or to
acquire companies in niche markets the Company believes are high growth areas.
Examples of this strategy were the acquisitions of PSI and AMS in 1994, and M/K,
CSI, Plog and Spectrem in 1996. The Company is keenly interested in increasing
its presence in the high tech, telecommunications, healthcare and financial
services sectors. In addition, the Company is interested in increasing its
horizontal product and service capabilities in the areas of ad testing, market
modeling, interactive research and international expansion.
In early 1997, the Company signed strategic partnerships with providers of
complementary interactive technologies. These relationships allow NFO to provide
innovative research methodologies including the conduct of virtual focus groups
and the presentation of unique imaging capabilities. The Company expects to
incorporate additional technologies to advance the effectiveness and
applications of market research.
On March 20, 1997, the Company signed an agreement and plan of merger to
acquire 100% of the stock of Prognostics, a leading provider of survey-based
quantitative customer satisfaction research to information technology companies
worldwide. Founded in 1981, Prognostics is headquartered in Palo Alto,
California and has additional offices in Boston and London, as well as an
affiliate relationship in Japan. The purchase will be consummated on April 1,
1997 when the Company will issue 1,726,480 shares of NFO Common Stock. The
purchase will be accounted for as a pooling of interests.
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INTERNATIONAL MARKETS. The Company believes that international markets offer
the Company potential opportunities to expand the services performed for its
existing clients, many of which have substantial international operations, and
to attract new clients. Total world-wide market research spending was estimated
to be $10.1 billion in 1995 by the European Society for Opinion and Marketing
Research (ESOMAR) supplemented with NFO estimates. Spending in Europe is
estimated to be $4.5 billion and to be $1.5 billion in Japan and Southeast Asia.
In the aggregate, market research spending outside the United States represented
$6.6 billion, or 65% of world-wide spending. To date, custom panel based
research has not been widely used outside of the United States.
In 1995 the Company signed a joint venture agreement with IPSOS, S.A., a
major European marketing research firm, and LT Participations, an IPSOS
affiliate, to launch access panel activities in Europe. Under the terms of the
agreement NFO, IPSOS and LT have agreed to launch joint venture companies,
initially in five western European countries. As part of the agreement, NFO
purchased a comparable portion of IPSOS' existing access panel businesses in
Germany and France during 1996. Operations have also begun in the United
Kingdom. Operations in Italy and Spain are expected to commence in 1997/1998.
Through the Company's joint venture operations with IPSOS a combined panel of
nearly 100,000 households is available in Germany, France and the U.K.
The Company believes that international markets offer a source of future
growth for its financial services, pharmaceutical, high tech,
telecommunications, travel and leisure products, as well as its packaged goods
business. To capitalize on these and other perceived opportunities, the Company
may seek to acquire or enter into additional joint ventures or similar
arrangements with companies that have a presence in certain international
markets in which the Company perceives an increasing demand for custom and
syndicated market research.
The Company's Services
CUSTOM PANEL RESEARCH SERVICES. The majority of the Company's revenues are
derived from custom panel research. NFO offers its clients a full range of
custom panel market research services and specializes in the performance of
comprehensive, difficult or complicated research projects. NFO believes that its
expertise with these programs distinguishes it from its competitors. NFO's
consistently high response rates from its NFO Panel members allow NFO to perform
research that involves consumers that are typically difficult to reach, or
involves a personal or sensitive subject matter or a particularly complex study
design. The stability of the NFO Panel also allows reliable long-term programs
to be performed, such as continuous screenings, customer satisfaction programs
and annual tracking studies for many of the Company's larger clients. These
clients may subsequently commission discrete research studies in response to the
results of such programs.
NFO also offers its proprietary MultiCard Survey program, a semi-monthly
omnibus survey sent to various segments of the NFO Panel. The MultiCard Survey
program distributes several questionnaires at one time, incorporating
information to be collected for multiple clients. Each MultiCard Survey is a
brief questionnaire for clients who want to ask only a few questions or to
collect a variety of market and consumer information. This permits a rapid
measure of market share, purchase or usage frequency and advertising awareness,
and can be used to screen for consumer segments with characteristics not already
available through the NFO Panel database for use in more detailed follow-up
surveys. Each MultiCard Survey semimonthly mailing is sent to segments of the
NFO Panel which range in size from 20,000 to 250,000 households. The MultiCard
Survey provides substantial benefits to clients who need to conduct extremely
large projects at a very low cost per interview.
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The services provided by the Company are used to perform the following basic
types of research: ATTITUDE, USAGE AND AWARENESS TESTS, which measure the
pre-disposition, awareness and usage of products or services among consumers;
PRODUCT TESTS, which measure consumers' attitudes and purchasing and usage
decisions regarding a new, existing or reformulated product, a sample of which
is provided to the consumer by the client through the Company; PURCHASER/OWNER
PROFILES, which determine demographic or other characteristics of consumers
owning or purchasing a particular product or service so that a client may
improve the effectiveness of marketing or advertising programs by properly
positioning them to appropriate consumers; PURCHASE OR CONSUMPTION DIARIES, in
which panelists record in diaries their actual purchase or usage of particular
products over an extended period to allow for evaluation of brand share and
consumer shifts and trends; SCREENINGS, which are used to identify demographic
characteristics or the use or purchase of or intention to purchase a product or
service, particularly in connection with low-incidence characteristics and
products; and CONCEPT TESTS, in which consumers are asked to give their reaction
to a concept for a new product, service or advertising campaign before it is
developed or introduced into the marketplace.
NFO has an arrangement with ASI, one of the country's leading advertising
copy testing companies, that provides advertising concept tests for in-home
viewing by NFO Panel members. NFO and BASES jointly market a new product,
Volumetric Concept Screening by Mail ("VCSM"). Combining the NFO Panel and
BASES' proprietary volume forecasting model, this product offers clients a very
cost effective method of analyzing market forecast information before bringing
new products to market. The Company perceives these arrangements as a marketing
strategy intended to introduce potential clients to the Company and its services
and to broaden its client base.
SYNDICATED SERVICES. The Company actively seeks opportunities to use the NFO
Panel to provide syndicated research not already available to potential clients
from other market research firms. For example, the Company already has
meaningful market presence with its syndicated yellow pages, financial services
and travel industry products through NYPM, PSI and Plog, respectively.
In 1987 the Company launched National Yellow Pages Monitor ("NYPM") to
measure the effectiveness of local and national Yellow Pages advertising. NYPM
is the leading provider of syndicated audience measurement information to the
$11 billion Yellow Pages industry. NYPM ratings usage information is gathered
from over 80,000 respondents each year with results reported on a national
level, across 53 major metropolitan markets, over 500 individual yellow pages
directory areas and approximately 300 categories. NYPM also offers other
syndicated and custom research services to the Yellow Pages industry, including
Active Intermedia measurement (AIM), Business Usage research and Internet
Directory studies.
PSI offers a variety of eighteen syndicated programs that provide insight to
the financial services industry. The eighteen products cover a broad range of
information utilized by banks and financial institutions on consumer/retail
banking services, private banking and investment services, credit card services,
distribution technology and corporate banking services. PSI has provided
research on credit card usage in Europe since 1990. In 1995 PSI opened an office
in London to support and expand that business, as well as to serve Africa, the
Middle East and the Asia-Pacific region. Additionally, PSI has begun to provide
research information to clients in six Latin America countries.
Plog offers a number of syndicated products to the travel and leisure
industries. Plog's products provide information regarding the attitudes and
purchasing behavior of airline, cruise and car rental users, frequent flyer
program members and hotel guests, including comprehensive information about the
business and leisure travel habits of Americans. Another Plog syndicated product
offers in-depth research on the psychology of the users of interactive media,
and provides insight to advertisers on when and how to use interactive media.
NFO's new InfoCom division, established in 1996, offers the Wireless Market
Monitor to the telecommunications industry. Twice a year the Monitor provides
in-depth information on current wireless customers, the potential market and
emerging products. The service provides detailed customer profiles, measures
acceptance of technological advancements, such as PC's, and segments the market
to enable clients to target their services and products effectively.
-10-
<PAGE>
CUSTOM PHARMACEUTICAL RESEARCH SERVICES. M/K is the nation's largest custom
full-service healthcare marketing research company. M/K distinguishes itself
from its competitors because of its unique ability to fuse leading-edge
methodologies with decision-oriented business analyses and recommendations.
M/K has completed over 3,000 custom studies for more than 140 pharmaceutical,
biotechnology, diagnostics, medical devices and managed care companies since its
founding in 1980. As a specialist in the area of new product development, M/K
guides products from concept to commercialization to post-launch tracking. M/K's
extensive expertise leads to shortened timetables for regulatory approval,
product launch and return on investment.
M/K's marketing research projects range from qualitative studies, such as
one-on-one interviews and in-depth focus groups, to highly specialized and
customized fully-integrated studies using advanced multivariate methods. Many of
its research techniques are exclusive and proprietary, giving M/K a true
competitive advantage. M/K's strategic thinking directly impacts upon a
product's marketing potential. Study objectives frequently include determining
positioning strategies, identifying optimal price points, guiding clinical
development, identifying target audiences, developing promotional messages, and
tracking products post-launch.
OTHER SERVICES AND INNOVATIONS. The Company's research professionals work to
develop new methods by which client products, services or concepts are presented
to survey participants. The Company introduced the NFO SmartSystem, developed by
AMS. The SmartSystem is a PC based "expert" software system which is a powerful
analytical tool which the client can use to access, reorganize, reformat and
graph information from an NFO market research project. Also, the Company's
Screen Test product provides a patented system by which a client's concept,
product or advertising message may be presented in an "in-home" setting for test
material that needs to be seen and heard by panelists rather than being
described to them in writing or over the telephone.
In 1996 NFO established the InfoCom Division that is devoted to identifying,
understanding and tracking business issues in the communications and information
technology industries. InfoCom provides access for the communications and
technologies industries to the NFO Panel members that have been identified as
wireless or mobile phone users, computer owners by brand and operating system,
interactive on-line subscribers and technologically advanced households. Clients
can access these consumers and others efficiently for information to make better
informed business decisions about the marketplace.
AMS designs and markets "expert" computer software systems that are used by
AMS's clients to summarize and analyze large amounts of data instantly. AMS's
proprietary Expert System Technology integrates with today's most popular off
the shelf PC software to help the market researcher quickly access, organize,
graph and analyze in fully narrative form large amounts of statistical data.
Marketing and Sales
The Company currently maintains a sales and marketing staff comprised of over
180 marketing executives. The executives work primarily with the market research
departments and product brand management departments of the Company's clients.
For many of its larger clients, the Company emphasizes continuing research
programs, including continuous screenings, customer satisfaction programs and
annual tracking studies, in which the consistency of study design and execution
over time is important. Additional research studies are often commissioned by
clients in response to the results of such programs.
-11-
<PAGE>
The Company's marketing organization is one of the largest in the custom
market research industry. In total, the Company has offices covering nineteen
cities in four countries. NFO has ten regional marketing offices, including two
offices dedicated exclusively to NYPM, and one located in its Toledo facility.
In addition, AMS, CSI, M/K, Plog, PSI and Spectrem each have separate locations
(See Properties). The Company has established its regional offices in close
proximity to its major clients to provide a high level of personal service to
its client base throughout the United States. The Company frequently performs
research studies for several operating divisions of its larger clients, and
NFO's marketing executives sell services directly to and maintain close working
relationships with the market research personnel in each of those operating
divisions. The Company intends to selectively add regional offices and marketing
executives in order to increase its market share and to implement fully its
planned new marketing programs. The Company formed its HealthMed marketing group
to focus on designing and marketing panel research programs to pharmaceutical
companies, including programs using NFO's Chronic Ailment Panel.
The Company's marketing organization has a reputation of being very
professional, highly skilled and well trained. Many of its marketing executives
hold advanced degrees, and all executives participate in both nationally
recognized, independent professional training programs, as well as in- house
training and marketing and sales education programs.
The Company's marketing vice presidents and account executives are
compensated on an incentive basis recognizing the achievement of specified sales
goals, incremental sales growth and operating margin improvement. The average
tenure with the Company of its marketing vice presidents is 10 years and that of
its account executives is five years. This tenure enhances the ability of the
Company to establish and maintain close, long-term relationships with its
clients.
Panel Maintenance
NFO maintains the NFO Panel using proprietary software and information
systems. The NFO Panel is designed and maintained to ensure that NFO can
consistently select large samples of households that precisely match U.S. Bureau
of Census data with respect to geographic division and market size, in addition
to age, income and size of each household. NFO's Panel maintenance system
includes a continuous updating of household information and a regular program
that adds and deletes households to ensure the Panel's representative quality
and responsiveness. NFO's staff of research specialists and statisticians
operates NFO's Panel maintenance system.
NFO devotes substantial efforts to maintaining its relationships with NFO
Panel Households. Households are recruited and their participation is maintained
by appealing to their interests as consumers in providing information to
marketers and manufacturers who want feedback from consumers, and in testing
new, reformulated or proposed products or services before they are introduced to
the public. NFO believes that Panel members enjoy what they perceive as the
opportunity to affect product development and to communicate consumer needs,
problems and preferences. The panel process also provides respondents with the
comfort and convenience of an in-home interviewing environment. No compensation
is paid as an inducement to join or participate in the NFO Panel, although NFO
may, on occasion, provide a cash incentive or a token "thank-you", both of
nominal value, for particularly large or difficult questionnaires or studies.
NFO believes this policy helps to maintain the integrity of the research
performed. More importantly, NFO emphasizes a "family" attitude toward its Panel
members, which includes sending newsletters and birthday cards, and periodically
soliciting comments regarding their participation in the Panel.
-12-
<PAGE>
NFO uses the name "Carol Adams," the pen name of the founder's wife who
originally supervised contacts with NFO's Panel households, in written and oral
communications with Panel members and recruits, to create a personal
relationship between NFO and its Panel members. In addition, NFO limits the
number of contacts and maintains strict policies on varying the subject matter
of surveys to avoid inconveniencing or burdening any member household. These
efforts, and assurances that Panel members' identities and responses will be
used only for research purposes, serve to create in members a high level of
trust and confidence in NFO. NFO believes that the use of the "Carol Adams"
persona ensures that the Panel members are familiar with the NFO Panel, that
they appreciate the convenience and confidentiality of NFO's telephone and mail
surveys and NFO's friendly and professional approach to member households. The
"Carol Adams" persona distinguishes NFO's surveys from random solicitations,
which may be telemarketing or other direct sales activities. NFO believes that,
as a result of its relationship with members of the NFO Panel, NFO generally
obtains accurate responses from respondents even on personal or sensitive issues
such as health care and finances.
Competition
The custom market research industry is highly competitive and is
characterized by a large number of competitors, ranging from relatively small
organizations to companies with substantially greater resources than
NFO. The Company is also subject to competition from marketing and research
departments of various companies, advertising agencies, and business consulting
firms. The Company believes that its principal competitive advantages are in the
quality of its design of a market research product; the ability to design,
perform and report on a research project in a short period of time; its price;
consistency of service; and the NFO Panel. The Company believes that it competes
successfully on projects involving low-incidence or hard-to-find consumers. The
Company is less competitive in connection with projects involving simple study
design or high-incidence characteristics, particularly those projects that can
be performed by telephone interviews.
Trademarks, Patents, Service Marks and Proprietary Software
The Company owns several federally registered trademarks and service marks,
the most important of which are NFO, NFO Research, National Family Opinion,
Payment Systems, PSI, Migliara/ Kaplan, Screen Test, and MultiCard Survey. The
Company considers these trademarks and service marks and the Carol Adams service
mark to be material to the business of the Company. The Company vigorously
defends its trademarks and service marks against infringement and other
unauthorized use.
The Company protects its proprietary software and information systems by
limiting access to key personnel through the use of password systems.
Employees
As of January 2, 1997, the Company employed 721 full-time staff employees and
430 part-time hourly employees. The part-time employees are primarily engaged in
data gathering and processing.
The Company emphasizes the comprehensive training of its operations
personnel. In addition to training in an employee's primary area of
responsibility, the Company trains its staff to perform tasks among the
different departments to ensure that backup trained staff is available in areas
that have periodic short-term increased demand. The Company believes that it has
historically experienced low turnover of staff in both the professional and the
clerical areas relative to the market research industry generally. Long tenure
helps to reduce the costs of re-hiring and re-training and establishes and
builds upon experience that can be applied to all future work.
None of the Company's employees is subject to a collective bargaining
agreement, nor has the Company experienced any work stoppages. The Company
believes that its relations with employees are excellent.
-13-
<PAGE>
Item 2. Properties
- ------- ----------
The Company's general operations facilities, including data entry, computer,
mailing and product storage and handling facilities, are located in an
approximately 98,000 square foot complex located on approximately 77 acres owned
by the Company in Toledo, Ohio, 52 acres of which were purchased in 1996. The
facility was built in 1975 and expanded in 1982 pursuant to the specifications
of the Company. Construction was financed with the proceeds of two industrial
development revenue bonds, which are secured by mortgages on the facility. The
facility also contains a regional sales office and the largest of the Company's
three telephone interviewing facilities.
The Company's principal Executive offices, Interactive Marketing office and
two of its regional sales offices are located in Greenwich, Connecticut. The
Company also leases offices located in: Atlanta, Baltimore, Chicago, Cincinnati,
Greensboro, Los Angeles, Minneapolis, New York, Philadelphia, Princeton, St.
Louis, St. Paul, San Francisco, Shelton, CT, Tampa and London. The IPSOS/NFO
joint venture has offices in London, Paris and Hamburg, Germany.
Item 3. Legal Proceedings
- ------- -----------------
The Company is not a party to any litigation that is expected to have a
material effect on the operations or business of the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- ------- ---------------------------------------------------
Not Applicable
PART II
-------
Item 5. Market for the Registrant's Common Equity and Related Stockholder
- ------- -----------------------------------------------------------------
Matters
-------
The Company's common stock has traded on the Nasdaq National Market since its
initial public offering was completed in April, 1993. The Company's stock symbol
is "NFOR." As of March 20, 1997 there were 170 stockholders of record. The
Company believes the total number of beneficial shareholders to be in excess of
2,000 based on the information gathered in distributing the Company's
shareholder communications, such as Quarterly Shareholder Statements and the
Proxy Statement. The following table sets forth, for the periods indicated, the
high and low sales prices per share for the Company's Common Stock as reported
on the Nasdaq National Market. The stock prices have been adjusted to give
retroactive effect to the 3 for 2 stock split effected on February 5, 1996.
Sales Price
-----------
Calendar Year 1996 High Low
------------------ ---- ---
First Quarter $22.50 $ 17.50
Second Quarter 25.25 19.75
Third Quarter 24.25 21.25
Fourth Quarter 24.25 21.50
Calendar Year 1995
------------------
First Quarter 13.00 9.50
Second Quarter 13.83 11.67
Third Quarter 15.67 13.00
Fourth Quarter 17.67 14.33
-14-
<PAGE>
Since the Company's initial public offering the Company has never declared or
paid any cash dividends on its capital stock. The Company currently intends to
retain any earnings or other cash resources to finance growth and therefore does
not anticipate paying any cash dividends in the foreseeable future. The
Company's existing credit facility prohibits the payment of dividends on its
Common Stock in excess of a specified amount calculated using a pre-determined
formula. Any future determination to pay dividends will be at the discretion of
the Company's Board of Directors and will be dependant upon the results of
operations, financial condition, contractual restrictions and other factors
deemed relevant by the Board of Directors.
Item 6. Selected Financial Data
- ------- -----------------------
Information required by this item is shown in Exhibit 99.1 and is hereby
incorporated by reference.
Item 7. Management's Discussion and Analysis of Financial Condition and
- ------- ---------------------------------------------------------------
Results of Operations
---------------------
Information required by this item is shown in Exhibit 99.2 and is hereby
incorporated by reference.
Item 8. Financial Statements and Supplemental Data
- ------- ------------------------------------------
Information required by this item is shown in Exhibit 99.3 and 99.4 and is
hereby incorporated by reference.
Item 9. Changes in and Disagreements With Accountants on Accounting and
- ------- ---------------------------------------------------------------
Financial Disclosure
--------------------
The Company has had no disagreements on accounting and financial disclosures
with its independent public accountants.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- -------- --------------------------------------------------
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report. With the exception of the
information specifically incorporated by reference, the Company's Proxy
Statement is not to be deemed filed as part of this report.
Item 11. Executive Compensation
- -------- ----------------------
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
-15-
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
- -------- --------------------------------------------------------------
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
Item 13. Certain Relationships and Related Transactions
- -------- ----------------------------------------------
The information required in response to this item is incorporated by
reference to the Company's Proxy Statement to be filed with the Securities and
Exchange Commission pursuant to Regulation 14A not later than 120 days after the
end of the fiscal year covered by this report.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------- ---------------------------------------------------------------
(a) (1)-(2) Financial Statements and Financial Statement Schedules:
The list of financial statements set forth in the Index to Financial
Statements at Page F-1 of Exhibit 99.3 is hereby incorporated by this reference,
and the list of financial statement schedules set forth in the Index to
Financial Schedules at page S-1 of Exhibit 99.4 hereto is hereby incorporated by
this reference.
Financial Statement Schedules, other than that included in Exhibit 99.4, are
omitted because of the absence of the condition under which they are required or
because the required information is included in the Financial Statements and
related notes thereto.
-16-
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
--------------
NFO Research, Inc.
Exhibit Registration Statement
Number No. or Report Exhibit
- ------ ------------- -------
<S> <C> <C> <C>
3.1 Restated Certificate of Incorporation Report on Form 10-Q 3
for quarter ended
September 30, 1996
3.2 Amended and Restated By-laws 33-73516 4.2
(Form S-8)
4 Specimen Common Stock certificate 33-58748 4.1
(Form S-1)
10.1 Loan Agreement, dated as of September 17, 1981, 33-58748 10.3
between County of Wood, Ohio and Twenty-Seven
Hundred Associates (Commercial and Research
Facility) relating to the $3,200,000 Industrial
Development Revenue Bond
10.2 Amendment to Loan Agreement, dated as of September 33-58748 10.4
27, 1991, between County of Wood, Ohio and the (Form S-1)
Predecessor relating to the $3,200,000 Industrial
Development Revenue Bond
10.3 Loan Agreement, dated as of December 1, 1983, between 33-58748 10.5
County of Wood, Ohio and the Predecessor relating to (Form S-1)
the $2,500,000 Industrial Development Revenue Bond
10.4 Amendment to Loan Agreement, dated as of September 33-58748 10.6
27, 1991, between the County of Wood, Ohio and the (Form S-1)
Predecessor relating to the $2,500,000 Industrial
Development Revenue Bond
10.5 Assignment and Assumption Agreement, dated as of 33-58748 10.3
September 27, 1991, between the Predecessor and the (Form S-1)
Company
10.6 Registration Agreement, dated September 27, 1991, 33-58748 10.10
among the Company and its stockholders parties (Form S-1)
thereto
10.7 Stockholders Agreement, dated as of September 27, 33-58748 10.11
1991, among the Company and its stockholders (Form S-1)
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arrangement
-17-
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
--------------
NFO Research, Inc.
Exhibit Registration Statement
Number No. or Report Exhibit
- ------ ------------- -------
<S> <C> <C> <C>
10.8 Amendment to Stockholders Agreement, dated as of 33-58748 10.12
April 6, 1993, among the Company and its stockholders (Form S-1)
10.9+ Employment Agreement, dated March 15, 1995 between Report on Form 10-K 10.14
the Company and William E. Lipner for year ended
December 31, 1994
10.10+ Employment Agreement, dated as of September 12, Report on Form 10-Q 10.1
1995, between the Company and Lawrence D. White for quarter ended
September 30, 1995
10.11+ Employment Agreement, dated as of September 12, Report on Form 10-Q 10.2
1995 between the Company and Patrick G. Healy for quarter ended
September 30, 1995
10.12+ Employment Agreement, dated as of September 12, Report on Form 10-Q 10.3
1995 between the Company and Richard A. Spitzer for quarter ended
September 30, 1995
10.13*+ Employment Agreement, dated as of December 12,
1996, between the Company and Charles B. Hamlin
10.14+ Agreement dated October 25, 1994 between the Report on Form 10-Q 10.1
Company and John Sculley for quarter ended
September 30, 1995
10.15 Credit Agreement dated as of December 29, 1994 Report on Form 10-K 10.24
among the Company, the Banks signatory thereto and for year ended
Fleet Bank, National Association, as Agent December 31, 1994
10.16+ NFO Research, Inc. Stock Option Plan and Form of Report on Form 10-K 10.25
Option Agreement for year ended
December 31, 1994
10.17+ NFO Research, Inc. Directors' Stock Option Plan Report on Form 10-K 10.26
and Form of Directors' Stock Option Agreement for year ended
December 31, 1994
10.18+ NFO Research, Inc. Profit Sharing Plan, and 33-83002 4.4
amendments thereto (Form S-8)
10.19+ NFO Research, Inc. Pension Plan, and amendments 33-58748 10.26
thereto (Form S-1)
10.20+ NFO Research, Inc. Executive Deferred Benefit Plan 33-58748 10.27
</TABLE>
(Form S-1)
*Filed herewith.
+Management contract or compensatory plan or arrangement
-18-
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
--------------
NFO Research, Inc.
Exhibit Registration Statement
Number No. or Report Exhibit
- ------ ------------- -------
<S> <C> <C> <C>
10.21+ Deferred Compensation and Life Insurance Benefit Report on Form 10-K 10.29
Agreement, dated as of May 3, 1980, between the for year ended
Company and William E. Lipner December 31, 1993
10.22 Office Lease for the Company's headquarters at Two Report on Form 10-K 10.31
Pickwick Plaza, Greenwich, Connecticut dated as of for year ended
April 3, 1987 between JMB Property Management December 31, 1994
Company and the Company, and amendments thereto,
as extended
10.23 Office Lease at 5 Centerview Drive, Suite 110, 33-58748 10.29
Greensboro, North Carolina dated December 18, 1991 (Form S-1)
and amended on June 21, 1989 and June 24, 1992
10.24 Office Lease for PSI headquarters at 3030 North Rocky Report on Form 10-K 10.33
Point Drive West, Tampa, Florida dated September for year ended
10, 1993 between PSI and The Manufacturers Life December 31, 1994
Insurance Company
10.25 Office sub-lease for PSI headquarters at 3030 North Report on Form 10-K 10.34
Rocky Point Drive West, Tampa, Florida dated for year ended
September 10, 1994 between PSI and Knepper & December 31, 1994
Willard, Inc.
10.26 Agreement and Plan of Merger, dated as of January Report on Form 8-K 1
1, 1994, by and among PSI Partners Acquisition dated January 10, 1994
Corporation, Payment Systems, Inc., the Company
and the stockholders of PSI Partners Acquisition
Corporation
10.27 Asset Purchase Agreement dated as of November 7, Report on Form 10-Q 10.2
1994 among Advanced Marketing Solutions, Inc., as for quarter ended
Seller, Advanced Marketing Solutions Corp., as Buyer, September 30, 1994
and the Company
10.28 Master Joint Venture Agreement, dated as of July 6, Report on Form 10-K 10.27
1995, among the Company, IPSOS S.A. and Societe for year ended
Civile A.P.L.T. December 31, 1995
10.29 Agreement and Plan of Merger, dated as of November Report on Form 8-K 1
7, 1995, by and among the Company, Migliara-Kaplan dated January 3, 1996
& Associates, Inc., Migliara/Kaplan Associates Inc.
and the stockholders of Migliara-Kaplan &
Associates, Inc.
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arrangement
-19-
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
--------------
NFO Research, Inc.
Exhibit Registration Statement
Number No. or Report Exhibit
- ------ ------------- -------
<S> <C> <C> <C>
10.30 Asset Purchase Agreement, dated as of November Report on Form 8-K 2
7, 1995, by and among the Company, Chesapeake dated January
3, 1996 Surveys, Inc., a Maryland corporation, and
Chesapeake Surveys, Inc., a Delaware corporation
10.31 Agreement and Plan of Merger, dated as of December Report on Form 10-K 10.30
8, 1995, by and among Plog Research, Inc., a California for year ended
corporation ("PRI-California"), Plog Research, Inc., a December 31, 1995
Delaware corporation, the Company, Stanley C. Plog
and the stockholders of PRI-California
10.32* Agreement and Plan of Merger, dated as of March 20,
1997, by and among Prognostics Corp., a Delaware
Corporation, Prognostics, a California corporation
("Prognostics"), the Company and the shareholders
of Prognostics
11* Statement of Computation of Net Income per Common Share
21* Subsidiaries of the Company
23.1* Consent of Arthur Andersen LLP
23.2* Consent of Deloitte & Touche LLP
27* Financial Data Schedule
99.1* Selected Financial Data
99.2* Management's Discussion and Analysis of Financial Condition
and Results of Operations
99.3* Financial Statements
99.4* Financial Statement Schedules
</TABLE>
(b) No reports on Form 8-K were filed during the three months ending December
31, 1996.
*Filed herewith.
+Management contract or compensatory plan or arrangement
-20-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 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 on the 28th day of March 1997.
NFO RESEARCH, INC.
By: /s/ William E. Lipner
---------------------------------
William E. Lipner
Chairman of the Board, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated on March 24, 1994.
/s/ William E. Lipner Chairman of the Board, President, Chief
- ------------------------ Executive Officer and Director
William E. Lipner
/s/ Steven J. Gilbert Vice Chairman of the Board, Secretary
- ------------------------ and Director
Steven J. Gilbert
/s/ Patrick G. Healy Executive Vice President-Finance and
- ------------------------ Chief Financial Officer (Principal
Patrick G. Healy Financial Officer and Principal
Accounting Officer)
/s/ Walter A. Forbes Director
- ------------------------
Walter A. Forbes
/s/ Edmund A. Hajim Director
- ------------------------
Edmund A. Hajim
/s/ John Sculley Director
- ------------------------
John Sculley
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
-------------------------------------------------
NFO Research, Inc.
Registration Sequential
Exhibit Statement Page
Number No. or Report Exhibit Number
- ------ ------------- ------- ------
<S> <C> <C> <C> <C>
3.1 Restated Certificate of Incorporation Report on Form 10-Q 3
3.2 Amended and Restated By-laws 33-73516 4.2
(Form S-8)
4 Specimen Common Stock certificate 33-58748 4.1
(Form S-1)
10.1 Loan Agreement, dated as of September 17, 1981, 33-58748 10.3
between County of Wood, Ohio and Twenty-Seven
Hundred Associates (Commercial and Research
Facility) relating to the $3,200,000 Industrial
Development Revenue Bond
10.2 Amendment to Loan Agreement, dated as of September 33-58748 10.4
27, 1991, between County of Wood, Ohio and the (Form S-1)
Predecessor relating to the $3,200,000 Industrial
Development Revenue Bond
10.3 Loan Agreement, dated as of December 1, 1983, between 33-58748 10.5
County of Wood, Ohio and the Predecessor relating to (Form S-1)
the $2,500,000 Industrial Development Revenue Bond
10.4 Amendment to Loan Agreement, dated as of September 33-58748 10.6
27, 1991, between the County of Wood, Ohio and the (Form S-1)
Predecessor relating to the $2,500,000 Industrial
Development Revenue Bond
10.5 Assignment and Assumption Agreement, dated as of 33-58748 10.3
September 27, 1991, between the Predecessor and the (Form S-1)
Company
10.6 Registration Agreement, dated September 27, 1991, 33-58748 10.10
among the Company and its stockholders parties (Form S-1)
thereto
10.7 Stockholders Agreement, dated as of September 27, 33-58748 10.11
1991, among the Company and its stockholders (Form S-1)
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arrangement
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
-------------------------------------------------
NFO Research, Inc.
Registration Sequential
Exhibit Statement Page
Number No. or Report Exhibit Number
- ------ ------------- ------- ------
<S> <C> <C> <C> <C>
10.8 Amendment to Stockholders Agreement, dated as of 33-58748 10.12
April 6, 1993, among the Company and its stockholders (Form S-1)
10.9+ Employment Agreement, dated March 15, 1995 between Report on Form 10-K 10.14
the Company and William E. Lipner for year ended
December 31, 1994
10.10+ Employment Agreement, dated as of September 12, Report on Form 10-Q 10.1
1995, between the Company and Lawrence D. White for quarter ended
September 30, 1995
10.11+ Employment Agreement, dated as of September 12, Report on Form 10-Q 10.2
1995 between the Company and Patrick G. Healy for quarter ended
September 30, 1995
10.12+ Employment Agreement, dated as of September 12, Report on Form 10-Q 10.3
1995 between the Company and Richard A. Spitzer for quarter ended
September 30, 1995
10.13*+ Employment Agreement, dated as of December 12,
1996, between the Company and Charles B. Hamlin
10.14+ Agreement dated October 25, 1994 between the Report on Form 10-Q 10.1
Company and John Sculley for quarter ended
September 30, 1995
10.15 Credit Agreement dated as of December 29, 1994 Report on Form 10-K 10.24
among the Company, the Banks signatory thereto and for year ended
Fleet Bank, National Association, as Agent December 31, 1994
10.16+ NFO Research, Inc. Stock Option Plan and Form of Report on Form 10-K 10.25
Option Agreement for year ended
December 31, 1994
10.17+ NFO Research, Inc. Directors' Stock Option Plan Report on Form 10-K 10.26
and Form of Directors' Stock Option Agreement for year ended
December 31, 1994
10.18+ NFO Research, Inc. Profit Sharing Plan, and 33-83002 4.4
amendments thereto (Form S-8)
10.19+ NFO Research, Inc. Pension Plan, and amendments 33-58748 10.26
thereto (Form S-1)
10.20+ NFO Research, Inc. Executive Deferred Benefit Plan 33-58748 10.27
(Form S-1)
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arrangement
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
-------------------------------------------------
NFO Research, Inc.
Registration Sequential
Exhibit Statement Page
Number No. or Report Exhibit Number
- ------ ------------- ------- ------
<S> <C> <C> <C> <C>
10.21+ Deferred Compensation and Life Insurance Benefit Report on Form 10-K 10.29
Agreement, dated as of May 3, 1980, between the for year ended
Company and William E. Lipner December 31, 1993
10.22 Office Lease for the Company's headquarters at Two Report on Form 10-K 10.31
Pickwick Plaza, Greenwich, Connecticut dated as of for year ended
April 3, 1987 between JMB Property Management December 31, 1994
Company and the Company, and amendments thereto,
as extended
10.23 Office Lease at 5 Centerview Drive, Suite 110, 33-58748 10.29
Greensboro, North Carolina dated December 18, 1991 (Form S-1)
and amended on June 21, 1989 and June 24, 1992
10.24 Office Lease for PSI headquarters at 3030 North Rocky Report on Form 10-K 10.33
Point Drive West, Tampa, Florida dated September for year ended
10, 1993 between PSI and The Manufacturers Life December 31, 1994
Insurance Company
10.25 Office sub-lease for PSI headquarters at 3030 North Report on Form 10-K 10.34
Rocky Point Drive West, Tampa, Florida dated for year ended
September 10, 1994 between PSI and Knepper & December 31, 1994
Willard, Inc.
10.26 Agreement and Plan of Merger, dated as of January Report on Form 8-K 1
1, 1994, by and among PSI Partners Acquisition dated January 10, 1994
Corporation, Payment Systems, Inc., the Company
and the stockholders of PSI Partners Acquisition
Corporation
10.27 Asset Purchase Agreement dated as of November 7, Report on Form 10-Q 10.2
1994 among Advanced Marketing Solutions, Inc., as for quarter ended
Seller, Advanced Marketing Solutions Corp., as Buyer, September 30, 1994
and the Company
10.28 Master Joint Venture Agreement, dated as of July 6, Report on Form 10-K 10.27
1995, among the Company, IPSOS S.A. and Societe for year ended
Civile A.P.L.T. December 31, 1995
10.29 Agreement and Plan of Merger, dated as of November Report on Form 8-K 1
7, 1995, by and among the Company, Migliara-Kaplan dated January 3, 1996
& Associates, Inc., Migliara/Kaplan Associates Inc.
and the stockholders of Migliara-Kaplan &
Associates, Inc.
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arrangement
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
-------------------------------------------------
NFO Research, Inc.
Registration Sequential
Exhibit Statement Page
Number No. or Report Exhibit Number
- ------ ------------- ------- ------
<S> <C> <C> <C> <C>
10.30 Asset Purchase Agreement, dated as of November Report on Form 8-K 2
7, 1995, by and among the Company, Chesapeake dated January 3, 1996
Surveys, Inc., a Maryland corporation, and
Chesapeake Surveys, Inc., a Delaware corporation
10.31 Agreement and Plan of Merger, dated as of December Report on Form 10-K 10.30
8, 1995, by and among Plog Research, Inc., a California for year ended
corporation ("PRI-California"), Plog Research, Inc., a December 31, 1995
Delaware corporation, the Company, Stanley C. Plog
and the stockholders of PRI-California
10.32* Agreement and Plan of Merger, dated as of March 20,
1997, by and among Prognostics Corp., a Delaware
Corporation, Prognostics, a California corporation
("Prognostics"), the Company and the shareholders
of Prognostics
11* Statement of Computation of Net Income per Common Share
21* Subsidiaries of the Company
23.1* Consent of Arthur Andersen LLP
23.2* Consent of Deloitte & Touche LLP
27* Financial Data Schedule
99.1* Selected Financial Data
99.2* Management's Discussion and Analysis of Financial Condition
and Results of Operations
99.3* Financial Statements
99.4* Financial Statement Schedules
(b) No reports on Form 8-K were filed during the three months ending December
31, 1996.
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arrangement
NFO RESEARCH, INC.
EMPLOYMENT AGREEMENT
--------------------
THIS AGREEMENT is made as of December 12, 1996, by and between NFO
Research, Inc., a Delaware corporation (the "Company"), and Charles B. Hamlin
(the "Executive").
The Board of Directors of the Company (the "Board") recognizes that
the Executive's contribution to the growth and success of the Company has been
substantial and desires to assure the Executive's continued employment with the
Company as its Executive Vice President -- Interactive Business Development and
to compensate him therefor, and the Executive is willing to be employed by the
Company on the terms herein provided.
In consideration of the foregoing and the respective covenants and
agreements of the parties herein contained, the parties hereto agree as follows:
1. EMPLOYMENT AND ACCEPTANCE.
The Company hereby employs the Executive and the Executive hereby
accepts employment from the Company, upon the terms and conditions set forth in
this Agreement, for the period beginning on the date hereof and ending as
provided in paragraph 5 hereof (the "Employment Period").
2. DUTIES AND AUTHORITY.
2.1 DUTIES. The Executive agrees to use his best efforts,
skill and abilities to promote the Company's interest in his capacity as
Executive Vice President -- Interactive Business Development of the Company, and
to perform such duties (consistent with his status as set forth in this Section
2) as may be assigned to him by the Board.
2.2 TITLE. The Executive shall be the Executive Vice
President -- Interactive Business Development of the Company.
3. PLACE OF EMPLOYMENT.
The duties to be performed by the Executive hereunder shall be
performed primarily at the executive headquarters of the Company, subject to
reasonable travel requirements on behalf of the Company.
<PAGE>
2
4. COMPENSATION AND BENEFITS.
4.1 COMPENSATION. As compensation for services to be rendered
pursuant to this Agreement, the Company shall pay the Executive's salary at the
annual rate of no less than $240,000 (the "Base Salary"), payable in accordance
with the payroll policy of the Company, less such deductions or amounts to be
withheld as shall be required by applicable law and regulations. The Executive's
salary shall be reviewed annually and, at the discretion of the Board, may be
increased on each January 1 of the Employment Period.
4.2 BONUS. The Executive's incentive compensation package
("Annual Bonus") shall be determined by the Compensation Committee of the Board.
4.3 EMPLOYEE BENEFIT PLANS: FRINGE BENEFITS. Except as
provided in the following sentence, the Company agrees to continue in all
material respects on terms at least as favorable to the Executive (as determined
in the good faith judgment of the Board) as those in effect on the date hereof,
all group life, hospitalization or disability insurance plans, health programs,
pension plans, profit sharing plans, similar benefit plans, automobile, club
membership and relocation allowances and other so-called "fringe benefits" of
the Company (collectively, "Fringe Benefits"). The Company agrees that each of
the Fringe Benefits in effect on the date hereof or at any time during the
Employment Period shall not be terminated, modified or replaced in any manner
that materially reduces the benefits to the Executive without the written
consent of the Executive, unless such termination or modification relates to a
Fringe Benefit that is available generally to employees of the Company or to
executive employees of the Company and such termination or modification affects
all employees covered by such Fringe Benefit.
4.4 VACATIONS. The Executive shall be entitled to reasonable
non-accumulating annual periods of vacation (not less than an aggregate of four
weeks in any calendar year) with full pay.
5. TERM.
(a) The Employment Period shall end on December 12, 1999,
provided that (i) the Employment Period shall terminate prior to such date upon
the Executive's resignation, death or permanent disability or incapacity (as
determined in good faith by the Board in its good faith judgment) and (ii) the
Employment Period may be terminated by the Company at any time prior to such
date for Cause (as defined below) or without Cause.
(b) If at any time the Employment Period is terminated by the
Company without Cause, the Executive shall be entitled to receive his Base
Salary through December 12, 1999, so long as the Executive has not materially
breached the provisions of paragraphs 6, 7 and 8 hereof.
<PAGE>
3
(c) If the Employment Period is terminated by the Company for
Cause or is terminated pursuant to clause (a)(i) above, the Executive shall be
entitled to receive his Base Salary through the date of termination; PROVIDED,
HOWEVER, that, notwithstanding the foregoing, if the Employment Period shall be
terminated pursuant to clause (a)(i) above by the resignation of the Executive
for "Good Reason" at any time following a "Change of Control" of the Company,
the Executive shall be entitled to receive, and the Company shall be required to
provide to the Executive, the Executive's then-current Base Salary through the
later of (i) December 12, 1999, or (ii) the first anniversary of such
resignation, and, in such event, the Executive shall also be entitled to
receive, and the Company shall be required to provide to the Executive, a
pro-rated portion of the Executive's bonus for the year in which such
resignation occurs, such bonus to be payable within thirty days of such
termination.
For purposes of this Agreement, the phrase "Change of Control" shall
mean the following and shall be deemed to have occurred if any of the following
events shall have occurred: (i) any "person" or "group" (as such terms are used
in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act as in effect on the date hereof, except that a
person shall be deemed to be the "beneficial owner" of all shares that any such
person has the right to acquire pursuant to any agreement or arrangement or upon
exercise of conversion rights, warrants, options or otherwise, without regard to
the sixty-day period referred to in such Rule), directly or indirectly, of
securities representing 30% or more of the combined voting power of the
Company's then outstanding voting securities; or (ii) at any time during any
period of two consecutive years (not including any period prior to the execution
of this Agreement), individuals who at the beginning of such period constituted
the Board and any new directors, whose election by the Board or nomination for
election by the Company's stockholders was approved by a vote of at least
two-thirds (2/3) of the Company directors then still in office who either were
the Company directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof. Notwithstanding the foregoing, a Change in
Control shall not be deemed to occur merely by reason of an acquisition of
Company securities by, or any consolidation, merger or exchange of securities
with, any entity that, immediately prior to such acquisition, consolidation,
merger or exchange of securities, was a "subsidiary," as such term is defined
below. For these purposes, the term "subsidiary" means (i) any corporation of
which 95% of the capital stock of such corporation is owned, directly or
indirectly, by the Company and (ii) any unincorporated entity in respect of
which the Company has, directly or indirectly, an equivalent degree of
ownership.
For purposes of this Agreement "Good Reason" shall mean the
following and shall be deemed to have occurred if any of the following events
shall have occurred: (i) the Executive is removed from the position of Executive
Vice
<PAGE>
4
President, or is assigned duties and responsibilities that are inconsistent, in
a material adverse respect, with the scope of duties and responsibilities
associated with the Executive's position as Executive Vice President; (ii) the
Company fails to pay the Executive any amounts otherwise due hereunder; or (iii)
the Executive's Base Salary is reduced or his Fringe Benefits are reduced;
PROVIDED, in any such case, that the Executive has notified the Company in
writing of the basis for claiming his entitlement to resign from his employment
for Good Reason and the Company has failed to cure such condition within 10 days
following the receipt of such notice from the Executive.
(d) The Executive shall receive Fringe Benefits during any
period in which the Executive is entitled to receive his Base Salary hereunder,
and thereafter such rights to Fringe Benefits shall cease.
(e) In the event of a "Change in Control" of the Company, or
in the event that the Employment Period is terminated by the Company without
Cause, each of the Executive's stock options granted under the NFO Research,
Inc. Stock Option Plan (the "Plan") shall immediately become fully exercisable.
In the case of termination of the Employment Period by the Company without
Cause, or if the Employment Period is terminated pursuant to clause (a)(i) above
by the resignation of the Executive for "Good Reason" at any time following a
"Change in Control" of the Company, each of the Executive's stock options
granted under the Plan shall remain exercisable for a period of 12 months after
such termination, except to the extent the Committee (as defined in the Plan)
permits exercise after such date in accordance with the Plan.
(f) For purposes of this Agreement, "Cause" shall mean (i) the
commission of a felony or a crime involving moral turpitude or the commission of
any other act involving dishonesty, disloyalty or fraud with respect to the
Company or any of its subsidiaries, (ii) conduct tending to bring the Company or
any of its subsidiaries into substantial public disgrace or disrepute, (iii)
substantial and repeated failure to perform duties as reasonably and lawfully
directed by the Board, (iv) gross negligence or willful misconduct with respect
to the Company or any of its subsidiaries or (v) any other material breach of
this Agreement which is not cured within 15 days after written notice thereof to
the Executive.
6. CONFIDENTIAL INFORMATION. The Executive acknowledges that the
information, observations and data obtained by him while employed by the Company
(including those obtained while employed by the Company prior to the date of
this Agreement) concerning the business or affairs of the Company or any
subsidiary of the Company ("Confidential Information") are the property of the
Company or such subsidiary. Therefore, Executive agrees that he shall not
disclose to any unauthorized person or use for his own account any Confidential
information without the prior written consent of the Board, unless and to the
extent that the aforementioned matters are or become generally known to and
available for use by the members of the
<PAGE>
5
industry in which the Company operates other than as a result of Executive's
acts or omissions to act. Executive shall deliver to the Company at the
termination of the Employment Period, or at any other time the Company may
request, all memoranda, notes, plans, records, reports, computer tapes and
software and other documents and data (and copies thereof) relating to the
Confidential Information, Work Product (as defined in Section 7) or the business
of the Company or any subsidiary which he may then possess or have under his
control.
7. INVENTIONS AND WORK PRODUCT. The Executive agrees that all
inventions, innovations, improvements, developments, methods, designs, analyses,
drawings, reports and all similar or related information which relates to the
Company or any of its subsidiaries' actual or anticipated business, research and
development or existing or future products or services and which are conceived,
developed or made by Executive while employed by the Company, such subsidiary or
the Company's predecessors ("Work Product") belong to the Company or such
subsidiary. The Executive will promptly disclose such Work Product to the Board
and perform all actions reasonably requested by the Board (whether during or
after the Employment Period) to establish an confirm such ownership (including,
without limitation, assignments, consents, powers of attorney and other
instruments).
8. NON-COMPETE, NON-SOLICITATION.
(a) The Executive acknowledges that in the course of his
employment with the Company and its subsidiaries he will become familiar, and
during his employment with the Company and its predecessors he has become
familiar, with the Company's and its subsidiaries' trade secrets and with other
confidential information concerning the Company, its subsidiaries and the
Company's predecessors and that his services have been and will be of special,
unique and extraordinary value to the Company and its subsidiaries. Therefore,
the Executive agrees that, during the Employment Period and in the case of
termination for Cause or resignation (other than resignation for "Good Reason"
following a "Change in Control"), for two years thereafter (the "Noncompete
Period"), he shall not directly ro indirectly own, manage, control, participate
in, consult with, render services for, or in any manner engage in any business
competing with the businesses of the Company or its subsidiaries as such
businesses exist or are in process on the date of the termination of the
Executive's employment, within any geographical area in which the Company or its
subsidiaries engage or plan to engage in such businesses. Nothing herein shall
prohibit the Executive from being a passive owner of not more than 5% of the
outstanding stock of any class of a corporation which is publicly traded, so
long as the Executive has no active participation in the business of such
corporation.
(b) During the Noncompete Period, the Executive shall not
directly or indirectly through another entity (i) induce or attempt to induce
any employee of the Company or any subsidiary to leave the employ of the Company
or such subsidiary, or in any way interfere with the relationship between the
Company
<PAGE>
6
or any subsidiary and any employee thereof, (ii) hire any person who was an
employee of the Company or any subsidiary at any time during the Employment
Period, or (iii) induce or attempt to induce any customer, supplier, licensee or
other business relation of the Company or any subsidiary to cease doing business
with the Company or such subsidiary, or in any way interfere with the
relationship between any such customer, supplier, licensee or business relation
and the Company or any subsidiary.
(c) If, at the time of enforcement of this paragraph 8, a
court shall hold that the duration, scope or area restrictions stated herein are
unreasonable under circumstances then existing, the parties agree that the
maximum duration, scope or area reasonable under such circumstances shall be
substituted for the stated duration, scope or area and that the court shall be
allowed to revise the restrictions contained herein to cover the maximum period,
scope and area permitted by law.
(d) In the event of the breach or a threatened breach by the
Executive of any of the provisions of this paragraph 8, the Company, in addition
and supplementary to other rights and remedies existing in its favor, may apply
to any court of law or equity of competent jurisdiction for specific performance
and/or injunctive or other relief in order to enforce or prevent any violations
of the provisions hereof (without posting a bond or other security).
9. OTHER PROVISIONS.
9.1 INDEMNIFICATION. The company shall indemnify the Executive
against, and shall advance expenses incurred by the Executive in the
investigation and defense of, any claim arising out of his employment under this
Agreement to the fullest extent permitted by the Delaware General Corporation
Law.
9.2 NOTICES. Any notice or communication required or permitted
hereunder shall be in writing and shall be delivered by certified, registered or
express mail, postage prepaid. Any such notice shall be deemed given when so
delivered as follows:
(i) If to the Company, to:
NFO Research, Inc.
2 Pickwick Plaza
Greenwich, Connecticut 06830
<PAGE>
7
with a copy to:
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Attention: James M. Dubin, Esq.
(ii) If the Executive, to the Executive in care of the
Company at the above address, with a copy to the Executive at his then-current
residence.
Any party may change its address for notices hereunder by notice to
the other parties in accordance with this Section 9.2.
9.3 GOVERNING LAW. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Connecticut applicable
to agreements made and to be performed entirely within such state.
9.4 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS. This instrument
is the entire agreement of the parties with respect to the subject matter hereof
and may not be amended, supplemented, canceled or discharged except by written
instrument executed by both parties hereto. The parties do not intend to confer
any benefit hereunder on any third person, and, without limiting the generality
of the foregoing, the parties may, in writing, without notice to or consent of
any third person, at any time waive any rights hereunder or amend this Agreement
in any respect or terminate this Agreement. If either party should waive any
breach of any provision of this Agreement, such party will not thereby be deemed
to have waived any preceding or succeeding breach of the same provision or any
breach of any other provision of this Agreement.
9.5 VALIDITY. The invalidity or unenforceability of any
provision or provisions of this Agreement shall not affect the validity or
enforceability of any other provision of this Agreement, which shall remain in
full force and effect.
9.6 ASSIGNMENT. This Agreement, and any rights and obligations
hereunder, may not be assigned by any party hereto without the prior written
consent of the other party.
9.7 HEADINGS. Section headings are inserted herein for
convenience only and do not constitute a party, and shall not affect the
interpretation, of this Agreement.
9.8 COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute one and the same instrument.
<PAGE>
8
9.9 SURVIVAL. Paragraphs 6, 7 and 8 and those provisions of
Paragraph 5 regarding compensation of the Executive following termination of
employment, shall survive and continue in full force in accordance with their
terms notwithstanding any termination of the Employment Period.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the day and year fist above written.
NFO RESEARCH, INC.
By:
----------------------------
Name: William E. Lipner
Title: Chairman and Chief
Executive Officer
-------------------------------
Charles B. Hamlin
================================================================================
AGREEMENT AND PLAN OF MERGER
by and among
PROGNOSTICS CORP.,
PROGNOSTICS,
NFO RESEARCH, INC.
and
THE SHAREHOLDERS OF PROGNOSTICS
------------------
March 20, 1997
------------------
================================================================================
<PAGE>
TABLE OF CONTENTS
PAGE
ARTICLE 1
THE MERGER
................................................................2
1.1 The Merger.................................................2
1.2 Effective Time.............................................3
1.3 Name; Certificate of Incorporation.........................3
1.4 By-laws....................................................3
1.5 Directors and Officers.....................................3
1.6 Additional Actions.........................................4
ARTICLE 2
CONVERSION OF SECURITIES
................................................................5
2.1 Common Stock and Preferred Stock...........................5
2.2 Merger Sub Capital Stock...................................6
2.3 Surrender of Common Stock and Preferred Stock..............6
2.4 Escrow Fund................................................7
2.5 Fractional Shares..........................................7
2.6 Adjustments................................................7
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF NFO AND MERGER SUB
................................................................8
3.1 Organization and Good Standing.............................8
3.2 Authorization; Binding Agreement...........................8
3.3 Absence of Breach..........................................9
3.4 Governmental Approvals.....................................9
3.5 Litigation................................................10
3.6 Full Disclosure...........................................10
3.7 No Material Adverse Change................................10
3.8 Accounting Matters........................................10
3.9 Pooling Letter............................................11
3.10 Status of NFO Shares......................................11
3.11 Taxes.....................................................11
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THECOMPANY AND THE
SHAREHOLD.......................................................13
i
<PAGE>
4.1 Organization..............................................13
4.2 Capitalization............................................14
4.3 Subsidiaries..............................................14
4.4 Authority Relative to this Agreement......................15
4.5 Consents and Approvals; No Violations.....................15
4.6 Financial Statements......................................16
4.7 Litigation................................................17
4.8 No Material Adverse Change................................17
4.9 Governmental Authorization and Compliance with Laws.......17
4.10 Finders and Investment Bankers............................18
4.11 Prohibited Actions........................................18
4.12 Taxes.....................................................18
4.13 ERISA; Employee Benefits..................................22
4.14 Environmental Matters.....................................26
4.15 Contracts.................................................27
4.16 Intangible Property.......................................29
4.17 Accounts Receivable; Accounts Payable.....................32
4.18 Real Estate...............................................33
4.19 Officers, Directors and Employees.........................34
4.20 Litigation Involving Shareholders.........................34
4.21 Tangible Property.........................................34
4.22 Purchase for Investment...................................35
4.23 Full Disclosure...........................................36
4.24 Liabilities...............................................36
4.25 Budget....................................................36
4.26 Liens.....................................................37
4.27 Insurance.................................................37
4.28 Potential Conflicts of Interest...........................38
4.29 Accounting Matters........................................39
4.30 Pooling Letter............................................39
4.31 Total Revenues or Net Assets..............................39
ARTICLE 5
COVENANTS
...............................................................39
5.1 Conduct of Business of the Company........................39
5.2 Notification of Certain Matters...........................41
5.3 Access and Information....................................42
5.4 Best Efforts..............................................43
5.5 Public Announcements......................................44
5.6 No Inconsistent Activities................................44
5.7 Employment Agreements.....................................45
5.8 Indemnification of Brokerage..............................45
5.9 NFO Common Stock..........................................46
ii
<PAGE>
5.10 Tax Matters...............................................46
5.11 Insurance.................................................46
5.12 Non-Competition/Non-Solicitation Covenant of James B. Wood
.........................................................47
(a) Non-Compete/Non-Solicitation........................47
(b) Rights and Remedies Upon Breach.....................48
(c) Severability of Covenants...........................49
(d) Blue-Pencilling.....................................49
(e) Enforceability in Jurisdictions.....................49
5.13 Non-Competition/Non-Solicitation Covenant of Walter P. Smith
.........................................................50
(a) Non-Compete/Non-Solicitation........................50
(b) Rights and Remedies Upon Breach.....................51
(c) Severability of Covenants...........................52
(d) Blue-Pencilling.....................................52
(e) Enforceability in Jurisdictions.....................52
5.14 Non-Competition/Non-Solicitation Covenant of Jay H. Friedman
.........................................................53
(a) Non-Compete/Non-Solicitation........................53
(b) Rights and Remedies Upon Breach.....................54
(c) Severability of Covenants...........................55
(d) Blue-Pencilling.....................................55
(e) Enforceability in Jurisdictions.....................55
5.15 Non-Competition/Non-Solicitation Covenant of Thomas Rich..56
(a) Non-Compete/Non-Solicitation........................56
(b) Rights and Remedies Upon Breach.....................57
(c) Severability of Covenants...........................58
(d) Blue-Pencilling.....................................58
(e) Enforceability in Jurisdictions.....................58
5.16 Accounting Treatment......................................59
5.17 Stock Options.............................................59
5.18 Notification of certain matters...........................60
5.19 Withholding...............................................60
ARTICLE 6
CONDITIONS
...............................................................62
6.1 Conditions to Obligation of NFO and Merger Sub............62
6.2 Conditions to Obligation of the Company and the Shareholders
.........................................................65
ARTICLE 7
CLOSING.........................................................67
7.1 Time and Place of Closing.................................67
iii
<PAGE>
7.2 Filing of Certificate of Merger...........................68
ARTICLE 8
TERMINATION AND ABANDONMENT.....................................68
8.1 Termination...............................................68
8.2 Procedure and Effect of Termination.......................68
ARTICLE 9
SURVIVAL OF REPRESENTATIONS & WARRANTIES;
INDEMNIFICATION.................................................69
9.1 Survival..................................................69
9.2 Indemnification...........................................70
ARTICLE 10
MISCELLANEOUS...................................................70
10.1 Amendment and Modification................................70
10.2 Waiver of Compliance; Consents............................70
10.3 Notices...................................................71
10.4 Assignment................................................73
10.5 Expenses..................................................74
10.6 Governing Law.............................................75
10.7 Counterparts..............................................75
10.8 Interpretation............................................75
10.9 Entire Agreement..........................................76
10.10 No Third Party Beneficiaries..............................76
Exhibits
A Form of Indemnification and Escrow Agreement
B Form of James B. Wood Employment Agreement
C Form of Jay H. Friedman Employment Agreement
D Form of Steven K. Schloss Employment Agreement
E Form of Greg Doudna Employment Agreement
F Form of Walter Smith Consulting Agreement
G List of California Counties
H Form of Legal Opinion of Tomlinson, Zisko, Morosoli & Maser LLP
I Form of Release of Claims
J Form of Legal Opinion of Paul, Weiss, Rifkind, Wharton & Garrison
K Form of Registration Rights Agreement
Schedules
2.1(a)Allocation of Merger Consideration
iv
<PAGE>
4.1 Company - Qualifications
4.2 Capitalization
4.5 Consents and Approvals
4.10 Finders and Investment Bankers
4.11 Prohibited Actions
4.12 Taxes
4.13 ERISA
4.15 Contracts
4.16 Intangible Property
4.17 Accounts Receivable
4.18 Real Property
4.19 Officers, Directors and Employees
4.23 Full Disclosure
4.24 Liabilities
4.25 Budget
4.26 Liens
4.27 Insurance
4.28 Potential Conflicts of Interest
5.17 Stock Options
v
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of March 20, 1997 (the
"Agreement"), by and among PROGNOSTICS, a California corporation (the
"Company"), NFO RESEARCH, INC., a Delaware corporation ("NFO"), Prognostics
Corp., a Delaware corporation and wholly-owned subsidiary of NFO ("Merger Sub"),
and the shareholders of the Company (the "Shareholders"), who are James B. Wood,
The Walter P. Smith Trust (2/20/86), Jay H. Friedman and Thomas Rich. The
Company and Merger Sub are sometimes collectively referred to herein as the
"Constituent Corporations."
WHEREAS, NFO is entering into this Agreement to facilitate the
acquisition of the Company by Merger Sub, a wholly-owned subsidiary of NFO.
WHEREAS, the respective Boards of Directors of the Company and
Merger Sub each have adopted resolutions approving this Agreement pursuant to
which, among other things, the Company will be merged with and into Merger Sub
(the "Merger") on the terms and conditions contained herein and in accordance
with the Delaware General Corporation Law (the "DGCL") and the Corporation Code
of the State of California (the "California Code").
WHEREAS, it is intended that the Merger shall be accounted for as a
"pooling of interests" for accounting purposes.
NOW THEREFORE, in consideration of the premises and the
representations, warranties and covenants contained herein, and intending to be
legally bound hereby, the parties hereto agree as follows:
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2
ARTICLE 1
THE MERGER
1.1 THE MERGER. Upon the terms and subject to the conditions of this
Agreement, at the Effective Time (as defined below) and in accordance with the
DGCL and the California Code, the Company shall be merged with and into Merger
Sub, which shall be the surviving corporation in the Merger (hereinafter
sometimes referred to as the "Surviving Corporation") and shall continue its
corporate existence under the laws of the State of Delaware. At the Effective
Time, the separate existence of the Company shall cease.
For Federal income tax purposes, the parties intend that the
transactions herein consummated shall be treated as a tax-free reorganization
within the meaning of Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code of 1986, as amended (the "Code"). The parties hereto further agree
that in connection with the Common Stock, the Preferred Stock and the Merger
Consideration, as those terms are defined in Section 2.1 of the Agreement, that
the Merger Consideration represents full and complete consideration for the
Common Stock, the Preferred Stock and the Company's Tangible and Intangible
Assets (as hereinafter defined) and that no portion of the Merger Consideration
has been paid for any other intangibles such as employment agreements or
non-compete agreements. It is further agreed that the rights under any
non-compete agreement among the parties hereto (whether in this Agreement or
under separate agreement) have no economic significance separate from the
Company's goodwill. Each party
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3
shall not take a position on any return or report filed with any Tax (as defined
in Section 4.12(m)) authority which is inconsistent with this Section 1.1, and
shall use their reasonable efforts to sustain such reporting. Each party shall
give the other prompt notice of any challenges or investigations undertaken by
any Tax authority in connection with such reporting, and shall keep such other
party fully informed of all aspects of such ongoing challenge or investigation.
1.2 EFFECTIVE TIME. The Merger shall become effective as of the date
and time (the "Effective Time") of filing with the Secretary of State of the
State of Delaware and with the Secretary of State of the State of California a
certificate of merger (the "Certificate of Merger") in such form as required by,
and executed in accordance with, the DGCL and the California Code, respectively.
1.3 NAME; CERTIFICATE OF INCORPORATION. The name of the Surviving
Corporation shall be Prognostics Corp. The Certificate of Incorporation of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation until thereafter
amended in accordance with applicable law.
1.4 BY-LAWS. The By-laws of Merger Sub, as in effect immediately
prior to the Effective Time, shall be the By-laws of the Surviving Corporation
until thereafter amended as provided therein and in accordance with applicable
law.
1.5 DIRECTORS AND OFFICERS. The directors of Merger Sub immediately
prior to the Effective Time shall be the directors of the Surviving Corporation.
The officers of Merger Sub immediately prior to the Effective Time shall be the
officers of the Surviving Corporation. Each director and officer of the
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4
Surviving Corporation shall hold office in accordance with the Certificate of
Incorporation and By-laws of the Surviving Corporation.
1.6 ADDITIONAL ACTIONS. If, at any time after the Effective Time,
the Surviving Corporation shall determine or be advised that any deeds, bills of
sale, assignments (including, without limitation, assignments of trademarks,
service marks and other intellectual property), assurances or any other actions
or things are neces sary or desirable to vest, perfect or confirm of record or
otherwise in the Surviving Corporation its right, title or interest in, to or
under any of the rights, properties or assets of either of the Constituent
Corporations acquired or to be acquired by the Surviving Corporation as a result
of, or in connection with, the Merger or otherwise to carry out this Agreement,
the officers and directors of the Surviving Corporation shall be authorized to
execute and deliver, in the name and on behalf of each of the Constituent
Corporations or otherwise, all such deeds, bills of sale, assignments and
assurances and to take and do, in the name and on behalf of each of the
Constituent Corporations or otherwise, all such other actions and things as may
be necessary or desirable to vest, perfect or confirm any and all right, title
and interest in, to and under such rights, properties or assets in the Surviving
Corporation or otherwise to carry out this Agreement.
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5
ARTICLE 2
CONVERSION OF SECURITIES
2.1 COMMON STOCK AND PREFERRED STOCK.
(a) Each share of Non-Voting Common Stock, par value $.001 per
share ("Common Stock"), of the Company issued and outstanding immediately prior
to the Effective Time shall, by virtue of the Merger and without any action on
the part of the holder thereof, be converted into the right to receive 59.99477
shares of common stock, par value $.01 per share ("NFO Common Stock"), of NFO,
and each share of Preferred Stock, par value $.001 per share ("Preferred
Stock"), of the Company issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into the right to receive 4.72813 shares of
NFO Common Stock. (The shares of NFO Common Stock into which the Common Stock
and Preferred Stock are converted into a right to receive, together with any
cash in lieu of fractional shares of NFO Common Stock, is referred to herein as
the "Merger Consideration"). The Merger Consideration shall be payable to the
holders of the Common Stock and Preferred Stock, without interest thereon, upon
surrender of the certificate representing such share of Common Stock or
Preferred Stock, as the case may be. Subject to Section 2.4, the Merger
Consideration shall be paid by Merger Sub to the Shareholders on the Effective
Time and shall be allocated in accordance with Schedule 2.1(a) hereto and,
notwithstanding anything to the contrary herein, the Merger Consideration
received by each Stockholder shall be
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6
treated as received in exchange for the shares of Common Stock or Preferred
Stock, as the case may be, specifically designated in Schedule 2.1(a).
(b) Each share of Common Stock and Preferred Stock held in the
Company's treasury immediately prior to the Effective Time, if any, shall, by
virtue of the Merger, be canceled and retired and cease to exist, without any
conversion thereof or payment of any consideration therefor.
(c) From and after the Effective Time, the holders of
certificates representing shares of Common Stock or Preferred Stock shall cease
to have any rights with respect to such certificates, except the right to
receive the Merger Consideration.
2.2 MERGER SUB CAPITAL STOCK. Each share of common stock, par value
$.01 per share, of Merger Sub issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any action on the part
of the holder thereof, be converted into one share of common stock, par value
$.01 per share, of the Surviving Corporation.
2.3 SURRENDER OF COMMON STOCK AND PREFERRED STOCK. At the Closing
(as defined below), upon receipt of the Merger Consideration (less any amounts
placed in escrow pursuant to Section 2.4 hereof), each Shareholder shall deliver
or cause to be delivered to Merger Sub stock certificates evidencing the shares
of Common Stock or Preferred Stock, as the case may be, owned beneficially and
of record by him or her (such shares being referred to herein as the
"Surrendered Shares").
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7
2.4 ESCROW FUND. At the Effective Time, NFO shall deposit with a
bank or trust company reasonably acceptable to the Company (the "Escrow Agent"),
under the Indemnification and Escrow Agreement to be entered into on the Closing
Date among NFO, the Shareholders and the Escrow Agent (the "Indemnification and
Escrow Agreement"), the form of which is attached hereto as Exhibit A, shares
representing five percent of the aggregate Merger Consideration issuable to the
Shareholders in the Merger as determined pursuant to this Article 2. Such shares
shall be held and disbursed in accordance with the terms and conditions of the
Indemnification and Escrow Agreement.
2.5 FRACTIONAL SHARES. No fractional shares of NFO Common Stock
shall be issued in the Merger, but in lieu thereof each holder of Common Stock
or Preferred Stock otherwise entitled to a fractional share of NFO Common Stock
will be entitled to receive a cash payment in lieu of such fractional shares of
NFO Common Stock.
2.6 ADJUSTMENTS. In the event of any dividend, split, combination or
reclassification of the outstanding NFO Common Stock or any issuance of any
other securities in exchange or in substitution for outstanding shares of NFO
Common Stock at any time during the period from the date of this Agreement to
the Effective Time, NFO shall make such adjustment to the Merger Consideration
as NFO and the Shareholders shall mutually agree so as to preserve the economic
benefits that NFO and the Shareholders each reasonably expected on the date of
this Agreement to receive as a result of the consummation of the Merger and the
other transactions contemplated by this Agreement.
<PAGE>
8
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF NFO AND MERGER SUB
Each of NFO and Merger Sub, jointly and severally, represent and
warrant to the Company and the Shareholders as follows:
3.1 ORGANIZATION AND GOOD STANDING. Each of NFO and Merger Sub is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
Merger Sub is newly formed and, except for activities incident to the
acquisition of the Company, Merger Sub has not engaged in any business
activities of any type or kind whatsoever. NFO owns beneficially and of record
all the outstanding shares of capital stock of Merger Sub.
3.2 AUTHORIZATION; BINDING AGREEMENT. Each of NFO and Merger Sub has
full corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby have
been duly and validly authorized by the Board of Directors of NFO and each of
the Board of Directors and Shareholders of Merger Sub and no other corporate
proceedings on the part of either NFO or Merger Sub are necessary to authorize
the execution and delivery of this Agreement or to consummate the transactions
so contemplated. This Agreement has been duly and validly
<PAGE>
9
authorized, executed and delivered by each of NFO and Merger Sub and constitutes
a legal, valid and binding agreement of each of NFO and Merger Sub, enforceable
against it in accordance with its terms.
3.3 ABSENCE OF BREACH. The execution and delivery by each of NFO and
Merger Sub of this Agreement, and the performance thereby of its obligations
hereunder, will not (i) conflict with or result in a breach of any of the
provisions of the certificate of incorporation or by-laws thereof, (ii) require
any consent, approval or notice under or conflict with or result in a violation
or breach of, or constitute (with or without notice or lapse of time or both) a
default (or give rise to any right of termination, cancellation or acceleration)
under any of the terms, conditions or provisions of any material note, bond,
mortgage, indenture, license, agreement or other instrument or obligation to
which NFO or Merger Sub is a party or by which any of them or any of their
properties or assets may be bound, or (iii) subject to the obtaining of the
governmental and other consents referred to in Section 3.4, contravene any law,
rule or regulation of any state or of the United States or any political
subdivision thereof or therein, or any order, writ, judgment, injunction,
decree, determination or award currently in effect, which, singly or in the
aggregate, would have a material adverse effect thereon.
3.4 GOVERNMENTAL APPROVALS. No consent, approval or authoriza tion
of or declaration or filing with any governmental agency or regulatory authority
on the part of either NFO or Merger Sub which has not been made is required in
connection with the execution or delivery thereby of this Agreement or the
consummation thereby of the transactions contemplated hereby, other than the
filing
<PAGE>
10
of the Certificates of Merger with the Secretary of State of Delaware and the
Secretary of State of California.
3.5 LITIGATION. There is no action or proceeding or investigation
pending or, to the best knowledge of NFO or Merger Sub, threatened against or
involving either NFO or Merger Sub, which, if determined adversely, would
materially and adversely affect the financial condition, business, assets or
results of operations thereof or the ability thereof to perform its obligations
hereunder.
3.6 FULL DISCLOSURE. The Quarterly Report on Form 10-Q (the "Form
10-Q") of NFO for the fiscal quarter ended September 30, 1996 (which has been
delivered or made available by NFO to each Shareholder), as of the date thereof,
neither contained any untrue statement of a material fact nor omitted 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.
3.7 NO MATERIAL ADVERSE CHANGE. Since the date of the filing of the
Form 10-Q, (i) there has been no material adverse change in the business,
assets, prospects, condition (financial or otherwise) or results of operations
(the "Condition") of NFO, (ii) to the knowledge of NFO there is no condition or
state of facts or any change that is threatened that if it were to occur could
reasonably be expected to have a material adverse effect on the Condition of
NFO, and (iii) there has not been any damage, destruction or loss materially
adversely affecting the Condition of NFO, whether or not covered by insurance.
3.8 ACCOUNTING MATTERS. Neither NFO nor, to its best knowledge,
any of its subsidiaries has taken or agreed to take any action that would
prevent
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11
NFO from accounting for the business combination to be effected by the Merger as
a "pooling of interests."
3.9 POOLING LETTER. NFO has caused NFO's independent auditors, to
deliver to NFO on or prior to the date hereof a draft letter setting forth the
preliminary conclusion of Arthur Andersen LLP that, assuming the Company is a
corporation eligible to be party to a transaction seeking pooling of interests
accounting treatment and that the participation of the Company in the Merger
will not, in and of itself, disqualify the Merger from qualifying for pooling of
interests accounting treatment if consummated in accordance with this Agreement,
and NFO has delivered a true and complete copy of such letter to the
Shareholders.
3.10 STATUS OF NFO SHARES. The shares of NFO Common Stock to be
issued to the Shareholders will, when so issued, be duly and validly issued,
fully paid and non-assessable.
3.11 TAXES.
(a) At all times prior to the Effective Time, NFO will be in
control of Merger Sub. As used in this Agreement, "Control" shall have the
meaning found in Section 368(c) of the Code ("Control").
(b) NFO has no present plan or intention to cause Merger Sub
to issue additional shares of its stock, or to take any other action that would
result in NFO losing Control of Merger Sub.
(c) NFO has no present plan or intention to reacquire any of
the NFO Common Stock issued pursuant to the transactions contemplated by this
Agreement.
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12
(d) NFO has no present plan or intention to liquidate Merger
Sub, to merge Merger Sub with or into another corporation (other than the
Company); to sell or otherwise dispose of the stock of Merger Sub; or to cause
Merger Sub to sell or otherwise dispose of any of its assets or of any of the
assets acquired from Company in the reorganization, except for dispositions made
in the ordinary course of business or transfers of assets to a corporation
controlled by Merger Sub, as described in Section 368(a)(2)(C) of the Code.
(e) Neither NFO nor Merger Sub is, or will be on the Effective
Time, an investment company within the meaning of Code Section 368(a)(2)(F)(iii)
and (iv).
(f) Neither NFO nor Merger Sub is, or will be on the Effective
Time, under the jurisdiction of a court in a Title 11 or similar case within the
meaning of Section 368(a)(3)(A) of the Code.
(g) On the Effective Time, and at all times thereafter, the
NFO Common Shares held by the Escrow Agent will appear as issued and outstanding
on NFO's balance sheet and will be duly and validly issued and outstanding under
Delaware law.
(h) Following the Effective Time, NFO will cause the Merger
Sub to continue the historic business of Company or the use of a significant
portion of Company's historic business assets in a business.
(i) NFO and Merger Sub will pay their own respective expenses,
if any, incurred in connection with the transactions contemplated by this
Agreement.
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13
ARTICLE 4
REPRESENTATIONS AND WARRANTIES OF THE
COMPANY AND THE SHAREHOLDERS
The Company and James B. Wood, The Walter P. Smith Trust
(2/20/86), Jay H. Friedman and Thomas Rich, severally and not jointly, each as
to himself and as to the Company represent and warrant to each of NFO and Merger
Sub as follows:
4.1 ORGANIZATION. The Company is a corporation duly organized,
validly existing and in good standing under the laws of the State of California
and has all requisite corporate power and authority to own, lease and operate
its properties and to carry on its business as now being conducted. The Company
is duly qualified or licensed and in good standing to do business in each
jurisdiction in which the property owned, leased or operated by it or the nature
of the business conducted by it makes such qualification or licensing necessary,
except where the failure to be so duly qualified or licensed and in good
standing would not individually or in the aggregate affect materially and
adversely the business, assets, properties, condition (financial or otherwise)
or the results of operations thereof. The jurisdictions in which qualification
of the Company has been considered and accomplished are listed on Schedule 4.1.
The Company has heretofore delivered to NFO or Merger Sub accurate and complete
copies of the articles of incorporation
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14
and by-laws, or equivalent governing instruments, as currently in effect, of the
Company.
4.2 CAPITALIZATION. The authorized capital stock of the Company
consists of 100,000 shares of Common Stock and 50,000 shares of Preferred Stock.
As of the date hereof, 27,595 shares of Common Stock are issued and outstanding
and 15,000 shares of Preferred Stock are issued and outstanding. Each
Shareholder owns beneficially and of record that number of shares of Common
Stock and Preferred Stock set forth opposite his or her name on Schedule 4.2
free and clear, other than as set forth on Schedule 4.2, of any Lien (as defined
in Section 4.26) and will surrender such shares pursuant to Section 2.3 free and
clear of any lien or other encumbrance. No other capital stock of the Company is
authorized or issued. Except as set forth on Schedule 4.2, all issued and out
standing shares of capital stock of the Company have been duly authorized and
are validly issued, fully paid, non-assessable and free of preemptive rights.
There are not, and at the Effective Time there will not be, any existing Liens
with respect to, or any existing options, warrants, calls, subscriptions, stock
appreciation rights, or other rights or other agreements, arrangements or
commitments obligating the Company to issue, transfer or sell, or securities or
rights convertible or exchangeable for, any shares of capital stock of the
Company.
4.3 SUBSIDIARIES. Schedule 4.3 sets forth a complete and accurate
list of all of the subsidiaries of the Company, together with their respective
jurisdictions of incorporation or organization. Each such subsidiary is directly
wholly-owned by the Company. Except as set forth on Schedule 4.3, as of the date
hereof,
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15
the Company does not own, and as of the Closing Date, the Company will not own,
any direct or indirect equity interest in any corporation, partnership, joint
venture or other entity.
4.4 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of the Company and
the Shareholders has full power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly and validly authorized by the Board of
Directors and Shareholders of the Company and no other corporate proceedings on
the part of the Company are necessary to authorize the execution and delivery of
this Agreement or to consummate the transactions so contemplated. This Agreement
has been duly and validly executed and delivered by each of the Company and the
Shareholders, and constitutes a legal, valid and binding agreement of the
Company and the Shareholders, enforceable against each of them in accordance
with its terms.
4.5 CONSENTS AND APPROVALS; NO VIOLATIONS. Except for the filing and
recordation of appropriate merger documents (including, without imitation, a Tax
Clearance Certificate from the California Franchise Tax Board) as required by
the DGCL and the California Code, no filing with, and no permit, authorization,
consent or approval of, any public body, domestic or foreign, is necessary for
the execution, delivery or performance of this Agreement by the Company or the
Shareholders or the consummation by the Company or the Shareholders of the
transactions contemplated by this Agreement. Neither the execution and delivery
of this Agreement nor the consummation of the transactions contemplated hereby
nor compliance by the Company or the Shareholders with any of the provisions
hereof
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16
will (i) conflict with or result in any breach of any provision of the articles
of incorporation or by-laws or other governing instruments of the Company, (ii)
except as set forth on Schedule 4.5, require any consent, approval or notice
under or conflict with or result in a violation or breach of, or constitute
(with or without notice or lapse of time or both) a default (or give rise to any
right of termination, cancella tion or acceleration) under any of the terms,
conditions or provisions of any material note, bond, mortgage, indenture,
license, agreement or other instrument or obligation to which the Company or any
Shareholder is a party or by which any of them or any of their properties or
assets may be bound or (iii) violate any order, writ, injunction, determination,
award, decree, law, statute, rule or regulation applicable to the Company or any
Shareholder or any of their properties or assets.
4.6 FINANCIAL STATEMENTS. The Company has previously furnished to
NFO or Merger Sub a copy of the audited consolidated financial statements of the
Company for the years ended August 31, 1996, 1995 and 1994. The Company has also
previously furnished to NFO or Merger Sub copies of the unaudited consolidated
balance sheet of the Company as at January 31, 1997 and the related income
statement for the five months then ended. These financial statements have been
prepared in accordance with U.S. generally accepted accounting principles,
consistently applied ("GAAP"), and disclose all liabilities, direct or
contingent, of the Company and its subsidiaries as of their respective dates,
required to be disclosed, and fairly present the consolidated financial
condition and results of operations of the Company and its subsidiaries on and
as of the dates thereof (subject, where applicable, to normal year-end audit
adjustments and do not include footnotes). The
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17
unaudited consolidated balance sheet as at January 31, 1997 is referred to
herein as the "Balance Sheet" and the date January 31, 1997 is referred to
herein as the "Balance Sheet Date."
4.7 LITIGATION. As of the date hereof there are no claims, actions,
proceedings or, to the best knowledge of any Shareholder or the Company,
investigations pending or threatened against the Company or its subsidiaries, or
any properties or rights of the Company or its subsidiaries, before any court,
administrative, governmental or regulatory authority or body. As of the date
hereof, neither the Company, its subsidiaries nor any of their properties is
subject to any such order, judgment, injunction or decree.
4.8 NO MATERIAL ADVERSE CHANGE. Since the Balance Sheet Date, (i)
there has been no material adverse change in the Condition of the Company and
its subsidiaries taken as a whole, (ii) to the knowledge of any Shareholder or
the Company there is no condition or state of facts or any change that is
threatened that if it were to occur could reasonably be expected to have a
material adverse effect on the Condition of the Company or its subsidiaries
taken as a whole, and (iii) there has not been any damage, destruction or loss
materially adversely affecting the Condition of the Company or its subsidiaries
taken as a whole, whether or not covered by insurance.
4.9 GOVERNMENTAL AUTHORIZATION AND COMPLIANCE WITH LAWS. The
business of the Company and its subsidiaries has been operated in compliance
with all laws, ordinances, regulations and orders of all governmental entities,
domestic or foreign, except for violations which do not affect and will not
affect materially and
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18
adversely the Condition of the Company or its subsidiaries taken as a whole. (i)
The Company and its subsidiaries have all permits, certificates, licenses,
approvals and other authorizations (collectively, "Permits") required in
connection with the operation of their business, (ii) neither the Company nor
its subsidiaries is in violation of any Permit applicable to the operation of
its business, and (iii) no proceeding is pending or, to the knowledge of any
Shareholder or the Company, threatened to revoke any Permit, except those the
absence or possible violation of which does not affect and will not affect
materially and adversely the Condition of the Company or its subsidiaries taken
as a whole.
4.10 FINDERS AND INVESTMENT BANKERS. Except as set forth on Schedule
4.10, none of the Company, any of its officers or directors or any Shareholder
has employed any broker, finder, agent or similar intermediary or incurred any
liability for any brokerage fees, commissions or finders' or similar fees in
connection with this Agreement or the transactions contemplated hereby.
4.11 PROHIBITED ACTIONS. Except as set forth on Schedule 4.11,
since the Balance Sheet Date neither the Company nor its subsidiaries have taken
any of the actions prohibited by Section 5.1.
4.12 TAXES.
(a) The Company and its subsidiaries have timely filed all Tax
returns required to be filed through the date hereof or extensions therefor, and
shall prepare and timely file, in a manner consistent with prior years and
applicable law and regulations, all Tax returns required to be filed on or
before the Closing Date, and all such Tax returns are or will be true and
complete in all material
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19
respects. The Company and its subsidiaries have timely paid all Taxes that are
due, or claimed or asserted by any taxing authority to be due, from or with
respect to any of them through the date hereof and shall timely pay any Taxes
required to be paid by any of them on or before the Closing Date, except for
those that are being contested in good faith by appropriate proceedings and with
respect to which appropriate reserves have been reflected in the Balance Sheet.
With respect to any period for which Tax returns have not yet been filed, or for
which Taxes are not yet due or owing, neither the Company nor its subsidiaries
have any liability for Taxes other than Taxes incurred in the ordinary course of
business or for which accruals were reflected in the Balance Sheet. The Company
and its subsidiaries have made all required current estimated Tax payments
sufficient to avoid any underpayment penalties.
(b) Neither the Company nor its subsidiaries have any
liability for Taxes of any person or entity other than the Company or its
subsidiaries.
(c) The unused "net operating losses" (as defined in Section
172 of the Code) of the Company are not, and will not be immediately prior to
the Merger, subject to any limitations under Sections 382 and 384 of the Code.
(d) There are no liens with respect to Taxes upon any of the
assets of the Company or its subsidiaries, other than liens with respect to
Taxes not yet due or being contested in good faith through appropriate
proceedings.
(e) None of the federal, state, local and foreign income Tax
returns of the Company or its subsidiaries have been audited by the Internal
Revenue Service ("IRS") or other taxing authority. There are no outstanding
<PAGE>
20
agreements, waivers or arrangements extending the statutory period of limitation
applicable to any claim for, or the period for the collection or assessment of,
Taxes due from or with respect to the Company or its subsidiaries for any
taxable period. No closing agreement that could affect the Taxes of the Company
or its subsidiaries for periods ending after the Effective Time pursuant to
Section 7121 of the Code (or any predecessor provision) or any similar provision
of any state, local or foreign law has been entered into by or with respect to
the Company or its subsidiaries. The Company has delivered to NFO or Merger Sub
true and complete copies of the federal, state, local and foreign income Tax
returns for the taxable year of the Company ended August 31, 1996 and for the
most recently completed taxable years of its subsidiaries.
(f) To the best knowledge of any Shareholder or the Company,
no audit or other proceeding by any court, taxing authority, or similar person
is pending or, to the knowledge any Shareholder or the Company or its
subsidiaries, threatened with respect to any Taxes due from or with respect to
the Company or any Tax return filed by or with respect to the Company or its
subsidiaries. To the best knowledge of any Shareholder or the Company, no
assessment of Taxes is proposed against the Company, its subsidiaries or their
assets.
(g) No elections have been made or filed by or with respect to
the Company or its subsidiaries. No consent to the application of Section
341(f)(2) of the Code (or any predecessor provision) has been made or filed by
or with respect to any of the properties of the Company. None of the properties
of the
<PAGE>
21
Company is an asset or property that is or will be required to be treated as
being (i) owned by any person other than the Company pursuant to the provisions
of Section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in
effect immediately before the enactment of the Tax Reform Act of 1986, or (ii)
tax-exempt use property within the meaning of Section 168(h)(1) of the Code.
(h) Except as set forth on Schedule 4.12(h), the Company has
not agreed to and is not required to make any adjustment pursuant to Section
481(a) of the Code (or any predecessor provision) by reason of any change in any
accounting method, and there is no application by the Company or its
subsidiaries pending with any taxing authority requesting permission for any
changes in any accounting method of the Company or its subsidiaries. The IRS (or
any foreign equivalent thereto) has not proposed any adjustment or change in
accounting method.
(i) Neither the Company nor its subsidiaries have been and are
not in violation (and, with notice or lapse of time or both, would not be in
violation) of any applicable law relating to the payment or withholding of Taxes
relating to employment and has duly and timely withheld from employee salaries,
wages and other compensation and paid over to the appropriate taxing authorities
all material amounts required to be so withheld and paid over for all periods
under all applicable laws.
(j) Neither the Company nor its subsidiaries is a party to, is
bound by, and has any obligation under, any Tax sharing agreement or similar
contract.
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(k) None of the Shareholders is a "foreign person," within
the meaning of Section 1445(b)(2) of the Code.
(l) There is no contract, agreement, plan or arrangement
covering any person that, individually or collectively, could give rise to the
payment of any amount that would not be deductible by the Company by reason of
Section 280G of the Code, except for such amounts the nondeductibility of which
would not have a material adverse effect on the Condition of the Company.
(m) For purposes of this Agreement, "Tax" or "Taxes" means all
federal, state, county, local, foreign and other taxes (including, without
limitation, income, profits, premium, estimated, excise, sales, use, occupancy,
gross receipts, franchise, ad valorem, VAT, severance, capital levy, production,
transfer, withholding, employment, unemployment compensation, payroll-related
and property taxes, import duties and other governmental charges and
assessments), whether or not measured in whole or in part by net income, and
including deficiencies, interest, additions to tax or interest, and penalties
with respect thereto, and including expenses associated with any proposed
adjustment related to any of the foregoing (including advice in connection with
contesting such adjustment).
4.13 ERISA; EMPLOYEE BENEFITS.
(a) Schedule 4.13 identifies each employment, severance or
similar contract or arrangement (whether or not written) and each plan, policy,
fund, program or contract or arrangement (whether or not written) providing for
compensation, bonus, profit-sharing, stock option, or other stock related rights
or other forms of incentive or deferred compensation, vacation benefits,
insurance
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23
coverage (including any self-insured arrangements) health or medical benefits,
disability benefits, worker's compensation, supplemental unemployment benefits,
severance benefits and post-employment or retirement benefits (including
compensation, pension, health, medical or life insurance or other benefits)
under which the Company or its subsidiaries have or in the future could have any
liability ("Benefit Plans"). Schedule 4.13(a) further identifies each Benefit
Plan which (i) is a multiemployer plan (within the meaning of Section 3(37) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), (ii)
is a plan, other than a multiemployer plan, subject to Title IV of ERISA (a
"Title IV Plan") or (iii) is maintained in connection with any trust described
in Section 501(c)(9) of the Code.
(b) The Company has furnished to NFO or Merger Sub copies of
the Benefit Plans (and, if applicable, related trust agreements) and all
amendments thereto and written interpretations thereof together with the most
recent annual report (Form 5500 including, if applicable, Schedule B thereto),
the most recent actuarial valuation report prepared in connection with any
Benefit Plan, and the most recent IRS determination letter received with respect
to any Benefit Plan.
(c) As of the Effective Time, the fair market value of the
assets of each Title IV Plan (excluding for these purposes any accrued but
unpaid contributions) including, without limitation, the Prognostics Defined
Benefit Pension Plan (the "PDBPP"), exceeded the present value of all benefits
accrued under such Title IV Plan determined on a termination basis using the
assumptions established by the Pension Benefits Guaranty Corporation ("PBGC") as
in effect on such date.
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24
As of the Effective Time, the aggregate unfunded liability of the Company or its
subsidiaries in respect of all Benefit Plans described under Sections 4(b)(5) or
401(a)(1) of ERISA, computed using reasonable actuarial assumptions and
determined as if all benefits under such plans were vested and payable as of
such date, did not exceed $0.00.
(d) No transaction prohibited by Section 406 of ERISA or
Section 4975 of the Code, has occurred with respect to any employee benefit plan
or arrangement which is covered by Title I of ERISA which transaction has or
will cause the Company to incur any liability under ERISA, the Code or
otherwise, excluding transactions effected pursuant to and in compliance with a
statutory or administrative exemption. Neither the Company nor any affiliate of
the Company has (i) engaged in, or is a successor or parent corporation to an
entity that has engaged in, a transaction described in Sections 4069 or 4212(c)
of ERISA or (ii) incurred, or reasonably expects to (A) any liability under
Title IV of ERISA arising in connection with the termination of, or a complete
or partial withdrawal from, any plan covered or previously covered by Title IV
of ERISA or (B) any liability under Section 4971 of the Code that in either case
could become a liability of the Company or NFO, Merger Sub or any of their ERISA
affiliates. No condition exists that (i) could constitute grounds for
termination by the PBGC of any employee benefit plan that is subject to Title IV
of ERISA that is maintained by the Company or any of its ERISA affiliates or
(ii) presents a material risk of complete or partial withdrawal from any
multiemployer plan, as defined in Section 3(37) of ERISA, which could result in
the Company, NFO or Merger Sub or any ERISA affiliate of any of them
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25
incurring a withdrawal liability within the meaning of Section 4201 of ERISA.
The assets of the Company are not now, nor will they after the passage of time
be, subject to any lien imposed under code Section 412(m) by reason of a failure
of any of the Company or its affiliates, the Company to make timely installments
or other payments required under Code Section 412. If a "complete withdrawal" by
the Company and all of its ERISA affiliates were to occur as of the Closing Date
with respect to all Multiemployer Plans, neither the Company nor any of its
ERISA affiliates would incur any material withdrawal liability under Title IV of
ERISA.
(e) Each Benefit Plan that is intended to be qualified under
Section 401(a) of the Code is so qualified and has been so qualified during the
period since its adoption; each trust created under any such Plan is exempt from
tax under Section 501(a) of the Code and has been so exempt since its creation.
Each Benefit Plan has been maintained in substantial compliance with its terms
and with the requirements prescribed by any and all applicable statutes, orders,
rules and regulations, including but not limited to ERISA and the Code.
(f) The Company does not have any current or projected
liability in respect of post-employment or post-retirement health or medical or
life insurance benefits for retired, former or current employees of the Company,
except as required to avoid excise tax under Section 4980B of the Code.
(g) There is no contract, plan or arrangement (written or
otherwise) covering any employee or former employee of the Company that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to the terms of Section 280G of the Code.
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26
(h) There has been no failure of a group health plan (as
defined in Section 5000(b)(1) of the Code) to meet the requirements of Code
Section 4980B(f) with respect to a qualified beneficiary (as defined in Section
4980(g)). The Company has not contributed to a nonconforming group health plan
(as defined in Section 5000(c)) and no affiliate of the Company has incurred a
tax under Section 5000(a) which is or could become a liability of the Company.
(i) No employee or former employee of the Company will become
entitled to any bonus, retirement, severance, job security or similar benefit or
enhanced such benefit (including acceleration of vesting or exercise of an
incentive award) as a result of the transactions contemplated hereby.
4.14 ENVIRONMENTAL MATTERS.
(a) The Company and its subsidiaries have obtained all Permits
which are required under federal, state, local and foreign laws, ordinances,
codes, regulations, rules, orders, decrees and principles of common law in
existence as of the date hereof relating to pollution, protection of the
environment or health and safety (collectively, "Environmental Laws"), and no
action to revoke or modify any of such Permits is pending.
(b) The Company and its subsidiaries have been in the past and
are now in full compliance in all material respects with all terms and
conditions of the required Permits and were or are, as the case may be, also in
full compliance in all material respects with all other limitations,
restrictions, conditions, standards, prohibitions, requirements, obligations,
schedules and timetables contained in
<PAGE>
27
Environmental Laws or contained in any plan, judgment, injunction, notice or
demand letter issued, entered, promulgated or approved thereunder.
(c) There is no civil, criminal or administrative action,
suit, demand, claim, hearing, notice or demand letter, notice of violation,
investigation, or proceeding pending or, to the knowledge of any Shareholder or
the Company, threatened against the Company or its subsidiaries relating in any
way to Envi ronmental Laws.
4.15 CONTRACTS. Schedule 4.15 sets forth a list of all of the
following contracts and other agreements to which the Company or its
subsidiaries are a party or by or to which the Company, its subsidiaries or any
of their assets or properties are bound or subject: (i) contracts, severance
agreements and other agreements with any current or former holder of at least 5%
of the Common Stock, officer, director, employee, consultant, agent or other
representative; (ii) contracts and other agreements with any labor union or
association representing any employee of the Company or its subsidiaries are;
(iii) contracts, agreements or other arrangements relating to the Company or its
subsidiaries between the Company or its subsidiaries, on the one hand, and any
Shareholder or any of his or her affiliates (other than the Company or its
subsidiaries) on the other hand; (iv) joint venture agreements; (v) contracts
and other agreements under which the Company or its subsidiaries agree to
indemnify any party; (vi) contracts and other agreements relating to the
borrowing of money; (vii) contracts and other agreements relating to the
licensing of any trademark, service mark, trade name or copyright; or (viii) any
other material contract or other agreement whether or not made in the ordinary
course of business
<PAGE>
28
other than any contract or agreement that has a term of less than six (6) months
and does not contemplate payments by or to the Company or its subsidiaries which
will exceed, over the remaining term of the contract, $20,000 in the aggregate
(collectively, the "Material Contracts"). There have been delivered or made
available to NFO or Merger Sub true and complete copies of the Material
Contracts. All of such Material Contracts are in full force and effect and
neither the Company nor its subsidiaries is in default under any of them, nor,
to the knowledge of any Shareholder or the Company, is any other party to any
such Material Contract in default thereunder, nor does any condition exist that
with notice or lapse of time or both would constitute a default thereunder by
the Company or its subsidiaries nor, to the knowledge of any Shareholder or the
Company, by any other party to any such Material Contract. Except as set forth
on Schedule 4.15, no approval or consent of any person is or was needed in order
that any Material Contracts to which the Company or its subsidiaries is a party
or by or to which the Company or its subsidiaries or any of their assets or
properties are bound or subject, continue in full force and effect following the
consummation of the transactions contemplated by this Agreement. None of the
Company or its subsidiaries are, or to the knowledge of any Shareholder or the
Company, any affiliate of the Company or its subsidiaries, is a party to or
bound by any contract or agreement which, singly or in the aggregate, has or may
have a material adverse effect on the Condition of the Company or its
subsidiaries taken as a whole. Except as set forth on Schedule 4.15, to the best
knowledge of any Shareholder or the Company, neither the Merger nor the
transactions contemplated hereby will have a material adverse effect on the
<PAGE>
29
relationship between the Company or its subsidiaries and any of their suppliers
or customers or will otherwise materially and adversely affect the right or
interests of the Company under any Material Contract. Set forth on Schedule 4.15
are the Company's twenty largest customers based upon orders for the 12 month
period ended December 31, 1996. Neither the Company nor the Shareholders has
reason to believe that any client or customer of the Company or its
subsidiaries, or other person having a business relationship with the Company or
its subsidiaries intends to terminate its business relationship with the Company
or its subsidiaries.
4.16 INTANGIBLE PROPERTY.
(a) Schedule 4.16 sets forth a complete and accurate list of
all intellectual property, including, without limitation (i) computer software,
computer programs, source code data and documentation (other than with respect
to software and programs that are commercially available to the public), (ii)
user manuals, administrator or director guides, flow charts and programmers'
notes relating to computer software and programs developed by or on behalf of
the Company or its subsidiaries, (iii) patents and patent applications
(including divisions, continuations, continuations in part, substitutions or
reissues thereof, whether or not patents are issued on such applications and
whether or not such applications are modified, withdrawn or resubmitted),
inventions (whether or not patentable and whether or not reduced to practice),
invention disclosures and improvements thereto, designs and plans, (iv)
trademarks, service marks, trade dress, trade names, brand names, logos,
corporate names and registrations and applications for registration thereof, (v)
copyright registrations and applications for registration thereof, (vi) mask
works
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30
and registrations and applications for registration thereof, (vii) any other
similar intellectual property rights, and (viii) any other information
concerning the Company or its subsidiaries that is not generally available to
the public and which is treated as confidential or proprietary by the Company or
its subsidiaries (collectively, the "INTELLECTUAL PROPERTY") owned, used, or
licensed to or by the Company or its subsidiaries.
(b) Except for those items set forth on Schedule 4.16, no
Intellectual Property is necessary to the conduct of the business of the Company
or its subsidiaries as it is currently conducted or are otherwise related to the
business of the Company or its subsidiaries.
(c) None of the materials used by the Company or its
subsidiaries is the subject of any claim for infringement of any trademark,
trade name, trade secret, copyright, or other proprietary right of anyone and,
to the best knowledge of the Company and the Shareholders after due inquiry, no
basis for any such claim which has a reasonable likelihood of being determined
adversely to the Company or its subsidiaries exists. Neither the Company nor its
subsidiaries has agreed to indemnify any person against any charge of
interference, infringement, misappropriation or other conflict with respect to
any Intellectual Property.
(d) Neither the Company nor its subsidiaries is making use of
any confidential information or trade secret of any person that is material to
the conduct of the business of the Company or its subsidiaries as currently
conducted, except with permission or as a result of the acquisition by the
Company or its subsidiaries of the business of such person.
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31
(e) Except as noted on Schedule 4.16, the Intellectual
Property is (i) owned by the Company or its subsidiaries free and clear of all
liens, encumbrances, or other impediments to title being vested absolutely in
the Company or its subsidiaries; or (ii) licensed to the Company or its
subsidiaries under an agreement which (A) permits NFO and its sublicensees to
use the Intellectual Property without further payment to any party, (B) does not
prohibit NFO from sublicensing the Intellectual Property to third parties, and
(C) does not prohibit the Company from entering into and performing this
Agreement.
(f) Each item of Intellectual Property owned or used by the
Company or its subsidiaries immediately prior to the Closing hereunder will be
owned or available for use by the Surviving Corporation or its subsidiaries on
identical terms and conditions immediately subsequent to the Closing hereunder.
(g) To the knowledge of the Company and the Shareholders after
due inquiry, none of the Intellectual Property, the value of which is contingent
upon maintenance of confidentiality thereof, has been disclosed to any person
other than employees, representatives and agents of the Company or its
subsidiaries, except as required pursuant to the filing of a patent application
by the Company or its subsidiaries.
(h) All trade secrets are protected against the use of such
trade secrets by other persons to an extent and in a manner customary in the
industry in which the Company and its subsidiaries operate.
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32
4.17 ACCOUNTS RECEIVABLE; ACCOUNTS PAYABLE.
(a) All accounts receivable reflected on the Balance Sheet,
and all accounts receivable arising subsequent to the Balance Sheet Date, have
arisen in the ordinary course of business, and, to the best knowledge of any
Shareholder or the Company, represent valid obligations and are enforceable,
subject to applicable laws affecting creditors' rights generally. All items
which are required by GAAP to be reflected as accounts receivable on the Balance
Sheet and on the books of the Company or its subsidiaries are so reflected and
any reserve accounts relating thereto have been established in accordance with
GAAP applied in a manner consistent with past practices of the Company. The
amounts set forth on the Balance Sheet as reserves for bad debts, as increased
by an amount equal to no more than $50,000, are sufficient. Except for an amount
equal to no more than $50,000, the accounts receivable reflected on the Balance
Sheet and all accounts receivable arising subsequent to the Balance Sheet Date
are fully collectible in the ordinary course of business, except to the extent
of the reserve for bad debts set forth on the Balance Sheet and, with respect to
accounts receivable arising after the Balance Sheet Date, to the extent of any
reserve account relating thereto that has been established in accordance with
GAAP applied in a manner consistent with past practices of the Company.
(b) All accounts payable (including, without limitation, Taxes
payable) reflected on the Balance Sheet, and all accounts payable (including,
without limitation, Taxes payable) of the Company or its subsidiaries arising
subsequent to the Balance Sheet Date, have been and are being paid in the
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33
ordinary course of the Company's or its subsidiaries business and consistent
with past practices.
4.18 REAL ESTATE. Neither the Company nor its subsidiaries own any
real property or any buildings or other structures located on real property.
Schedule 4.18 sets forth: (i) all leases, subleases or other agreements under
which the Company or its subsidiaries is a lessee of any real property; (ii) all
options held by the Company or its subsidiaries or contractual obligations on
their part to purchase or acquire any interest in real property; and (iii) all
options granted by the Company or its subsidiaries or contractual obligations on
their part to sell or dispose of any interest in real property. The Company or
its subsidiaries are the lessee under the leases or holder of the options, as
the case may be, of each of the items set forth on such Schedule (except as set
forth in the response to item (iii)). Such leases, subleases and other
agreements are in full force and effect and neither the Company nor its
subsidiaries has received any notice of default thereunder. To the best
knowledge of the Company and the Shareholders, the leasehold interests of the
Company and its subsidiaries are subject to no lien or other encumbrance, except
for such liens and encumbrances, if any, which are not substantial in character,
amount or extent, and which do not materially detract from the value, or
interfere with the present use of the property subject thereto or affected
thereby. Each of the options, if any, as set forth on Schedule 4.18 is in full
force and effect subject to no lien or other encumbrance, except for such liens
and encumbrances, if any, which are not substantial in character, amount or
extent, and which do not materially detract from the value of such option.
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34
4.19 OFFICERS, DIRECTORS AND EMPLOYEES. The Company has provided to
NFO a list that sets forth the name and total compensation of each officer and
director of the Company and its subsidiaries and each employee of the Company or
its subsidiaries with a current annual rate of compensation (including bonuses
and commissions) exceeding $75,000. No officer, director or employee of the
Company or its subsidiaries has made a written threat to the Company or its
subsidiaries or to any of the officers or directors of the Company or its
subsidiaries to cancel or otherwise terminate such person's employment. Except
as set forth on Schedule 4.19, there are no outstanding loans by the Company or
its subsidiaries to any current or former officers, directors or employees. The
amount of all bonuses and distributions paid by the Company and its subsidiaries
to all officers, directors and employees since the Balance Sheet Date is not
more than $0.
4.20 LITIGATION INVOLVING SHAREHOLDERS. No Shareholder is a party
to, or to its knowledge, has been threatened with, any litigation or judicial,
administrative or arbitration proceeding which is likely to delay materially or
prevent the consummation of the transactions contemplated hereby or have a
material adverse effect upon the ability of such Shareholder to perform its
obligations hereunder.
4.21 TANGIBLE PROPERTY. The facilities, machinery, equipment,
furniture, leasehold improvements, fixtures, vehicles, structures, any related
capitalized items and other tangible property material to the business of the
Company and its subsidiaries (the "Tangible Property") are in good operating
condition and repair, subject to ordinary course wear and tear. During the past
three
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35
years there has not been any significant interruption of the operations of the
Company or its subsidiaries due to inadequate maintenance of the Tangible
Property.
4.22 PURCHASE FOR INVESTMENT. Each Shareholder: (i) has been given
full access to all material information concerning the Condition of NFO to which
he has requested access; (ii) has had an opportunity to ask questions of, and to
receive information from, NFO and persons acting on its behalf concerning the
Condition of NFO; (iii) has been provided with a copy of the Form 10-K and has
conducted an independent investigation of the business affairs and financial or
other conditions of NFO; (iv) is an "accredited investor" (as that term is
defined in Rule 501 under the Securities Act of 1933, as amended (the "Act")) or
if not an accredited investor is being advised by a "purchaser representative"
(as that term is defined in Rule 501 under the Act) and has such knowledge and
experience in financial and business matters that he is capable of using the
information that is available to him concerning NFO to evaluate the risks of
investment in NFO and acknowledges that he is in no way relying upon any
representation, warranty or other assurance (whether written or oral) of NFO or
Merger Sub or any affiliate thereof with respect to the value of the shares of
NFO Common Stock being acquired by him; (v) acknowledges that he has been
advised that the shares of NFO Common Stock being acquired by him have not been
registered under the Act and that NFO has no current intention, except pursuant
to the Registration Rights Agreement (as defined in Section 6.2(g)), to register
such shares under the Act; and
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(vi) is acquiring the shares of NFO Common Stock being acquired by him for his
own account for investment and not for resale or distribution.
4.23 FULL DISCLOSURE. None of the documents set forth on Schedule
4.23 contains or will contain any untrue statement of a material fact or omits
or will omit to state a material fact necessary in order to make the statements
herein or therein, in light of the circumstances under which they were made, not
misleading.
4.24 LIABILITIES. Except as disclosed in the Balance Sheet or as set
forth on Schedule 4.24, neither the Company nor its subsidiaries has any
material direct or indirect indebtedness, liability, claim, loss, damage,
deficiency, obligation or responsibility, fixed or unfixed, choate or inchoate,
liquidated or unliquidated, secured or unsecured, accrued, absolute, contingent
or otherwise, whether or not of a kind required by GAAP to be set forth in a
financial statement, other than (i) liabilities fully and adequately reflected
or reserved against in the Balance Sheet, (ii) liabilities incurred in the
ordinary course of business and not required under GAAP to be reflected on the
Balance Sheet, or (iii) incurred since the date of the Balance Sheet in the
ordinary course of business and as consistent with past practice, and
liabilities incurred in connection with this Agreement not in excess of
$750,000.
4.25 BUDGET. The three-year budget of the Company and its
subsidiaries attached hereto as Schedule 4.25 (the "Budget") is an estimate
prepared by the Company in good faith on a reasonable basis. The assumptions on
which the Budget is based are consistent with normal budgeting practices
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37
(including, without limitation, accounting practices) of the Company and with
historical conditions applicable to the business of the Company and its
subsidiaries. Nothing has come to the attention of any Shareholder or the
Company to indicate that the Budget or the assumptions upon which it is based
are not reasonable.
4.26 LIENS. The Company and its subsidiaries own outright and have
good and marketable title to all of their assets and properties, including,
without limitation, all of the assets and properties reflected on the Balance
Sheet, in each case, except as set forth on Schedule 4.26, free and clear of any
lien, pledge, mortgage, security interest, claim, lease, charge, option, right
of first refusal, easement or any other encumbrance whatsoever (collectively,
"Liens"), except for (i) immaterial assets and properties; (ii) assets and
properties disposed of in the ordinary course of business since the Balance
Sheet Date; (iii) Liens securing taxes, assessments, governmental charges or
levies, or the claims of the materialmen, carriers, landlords and like persons,
which are not yet due and payable; or (iv) minor Liens of a character which do
not substantially impair the assets or properties of the Company or its
subsidiaries or materially detract from their business.
4.27 INSURANCE. Schedule 4.27 sets forth all policies or binders of
fire, liability, workmen's compensation, vehicular or other insurance held by or
on behalf of the Company or its subsidiaries (specifying the insurer, the policy
number or covering note number with respect to binders, and describing each
pending claim thereunder of more than $5,000). Such policies and binders are in
full force and effect. Neither the Company nor its subsidiaries is in default
with respect to any provision contained in any such policy or binder and has
failed to give any notice or
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38
present any claim under any such policy or binder in due and timely fashion.
Except for claims set forth on Schedule 4.27, there are no outstanding unpaid
claims under any such policy or binder. Neither the Company nor its subsidiaries
has received a notice of cancellation or non-renewal of any such policy or
binder. Neither the Company nor any Shareholders has any knowledge of any
inaccuracy in any application for such policies or binders, any failure to pay
premiums when due or any similar state of facts which might form the basis for
termination of any such insurance.
4.28 POTENTIAL CONFLICTS OF INTEREST. Except as set forth on
Schedule 4.28, no officer or director of the Company or its subsidiaries (i)
owns, directly or indirectly, any interest in (excepting not more than 1% stock
holdings for investment purposes in securities of publicly held and traded
companies) or is an officer, director, employee or consultant of any person
which is a competitor, lessor, lessee, customer or supplier of the Company or
its subsidiaries; (ii) owns, directly or indirectly, in whole or in part, any
copyright, trademark, trade name, service mark, franchise, patent, invention,
permit, license or secret or confidential information which the Company or its
subsidiaries is using or the use of which is necessary for the business of the
Company or its subsidiaries; or (iii) has any cause of action or other claim
whatsoever against, or owes any amount to, the Company or its subsidiaries,
except for claims in the ordinary course of business, such as for accrued
vacation pay, accrued benefits under Benefit Plans and similar matters and
agreements existing on the date hereof.
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39
4.29 ACCOUNTING MATTERS. None of the Company, its subsidiaries or
the Shareholders has taken or agreed to take any action that would interfere
with Merger Sub and NFO accounting for the business combination to be effected
by the Merger as a "pooling of interests."
4.30 POOLING LETTER. The Company has caused the Company's
independent auditors, to deliver to the Company on or prior to the date hereof a
draft letter setting forth the preliminary conclusion of Price Waterhouse LP.
that, assuming NFO is a corporation eligible to be a party to a transaction
seeking pooling of interests accounting treatment and that the participation of
NFO in the Merger will not, in and of itself, disqualify the Merger from
qualifying for pooling of interests accounting treatment, the Merger will
qualify for pooling of interests accounting treatment if consummated in
accordance with this Agreement, and the Company has delivered a true and
complete copy of such letter to NFO.
4.31 TOTAL REVENUES OR NET ASSETS. The Company, together with its
ultimate parent entity (as defined in the Hart-Scott Rodino Antitrust
Improvements Act of 1976, as amended, and the rules promulgated thereunder (the
"HSR Act")), does not have net assets, as determined in accordance with the HSR
Act, equal to or in excess of $10 million.
ARTICLE 5
COVENANTS
5.1 CONDUCT OF BUSINESS OF THE COMPANY AND ITS SUBSIDIARIES.
Except as contemplated by this Agreement, during the period from the date of
this
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40
Agreement to the Effective Time, the Company and its subsidiaries shall, and the
Shareholders shall cause the Company and its subsidiaries to, conduct their
operations according to their ordinary course of business and consistent with
past practice, and the Company and its subsidiaries shall, and the Shareholders
shall cause the Company and its subsidiaries to, use their best efforts to
preserve intact their business organization, to keep available the services of
their officers and employees and to maintain satisfactory relationships with
licensors, licensees, suppliers, customers and others having business
relationships with them. Without limiting the generality of the foregoing, prior
to the Effective Time, neither the Company nor its subsidiaries will, without
the prior written consent of Merger Sub:
(a) amend or propose to amend its articles of incorporation
or by-laws (or comparable governing instruments);
(b) authorize for issuance, issue, sell, pledge, deliver or
agree or commit to issue, sell, pledge or deliver (whether through the issuance
or granting of any options, warrants, commitments, subscriptions, rights to
purchase, awards or otherwise) any stock of any class or any securities
convertible into or exchangeable for shares of stock of any class of the Company
or its subsidiaries;
(c) split, combine or reclassify any shares of its capital
stock or declare, pay or set aside any dividend or other distribution (whether
in cash, stock or property or any combination thereof) in respect of its capital
stock, or redeem, purchase or otherwise acquire or offer to acquire any shares
of its own capital stock;
(d) (i) increase in any manner the compensation of any of
its directors or officers; (ii) increase in any manner the compensation of any
of its
<PAGE>
41
employees that are not directors or officers other than in the ordinary course
of business consistent with the past practices of the Company and its
subsidiaries, as the case may be; (iii) make, or agree to make, any loans or
advances to any of its officers, directors or employees (other than normal
travel advances paid to such persons in a manner consistent with the past
practices of the Company and its subsidiaries); (iv) pay or agree to pay any
pension, retirement allowance or other employee benefit not required by any
existing plan, agreement or arrangement to any such director, officer or
employee, whether past or present; (v) commit itself to any additional pension,
profit-sharing, bonus, incentive, deferred compensation, stock purchase, stock
option, stock appreciation right, group insurance, severance pay, retirement or
other employee benefit plan, agreement or arrangement, or to any employment or
consulting agreement with or for the benefit of any person, or to amend any of
such plans or any of such agreements in existence on the date hereof; or (vi)
make any payment or award under any executive compensation plan of the Company
or its subsidiaries; or
(e) agree, commit or arrange to do any of the foregoing.
5.2 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Merger Sub of: (i) any notice of, or other communication
relating to, a default or event which, with notice or lapse of time or both,
would become a default, received by the Company or its subsidiaries subsequent
to the date of this Agreement and prior to the Effective Time, under any
agreement, indenture or instrument material to the business, assets, property,
condition (financial or otherwise) or the results of operations of the Company
or its subsidiaries to which
<PAGE>
42
the Company is a party or is subject; (ii) any notice or other communication
from any third party alleging that the consent of such third party is or may be
required in connection with the transactions contemplated by this Agreement
(including the Merger); (iii) any notice or other communication from any
regulatory authority in con nection with the transactions contemplated by this
Agreement; (iv) any material adverse change that becomes known to the Company or
any Shareholder in the Condition of the Company or its subsidiaries taken as a
whole, or the occurrence of an event that becomes known to the Company or any
Shareholder which, so far as reasonably can be foreseen at the time of its
occurrence, would result in any such change; and (v) any claims, actions,
proceedings or investigations commenced or, to the best knowledge of any
Shareholder or the Company, threatened, involving or affecting the Company or
its subsidiaries or any of their property or assets, or, to the best knowledge
of any Shareholder or the Company, any employee, consultant, director or
officer, in his capacity as such, of the Company or its subsidiaries which, if
pending on the date hereof, would have been required to have been disclosed in
writing pursuant to Section 4.7 or which relates to the consummation of the
Merger.
5.3 ACCESS AND INFORMATION. Between the date of this Agreement and
the Effective Time, the Company and its subsidiaries will give Merger Sub and
NFO and their authorized representatives (including their accountants and legal
counsel) at all reasonable times access to all their offices and other
facilities and to all contracts, agreements, commitments, books and records
(including Tax returns), will permit Merger Sub and NFO to make such
investigations and examinations as it may reasonably require and will cause
their officers promptly to furnish Merger
<PAGE>
43
Sub and NFO with such financial and operating data and other information with
respect to the business and properties of the Company and its subsidiaries as
Merger Sub or NFO may from time to time reasonably request. Any such
investigation and examination shall be conducted upon reasonable notice and the
Company and its subsidiaries shall cooperate fully therein. No investigation by
Merger Sub or NFO shall, however, diminish or obviate in any way any of the
representations, warranties, covenants or agreements of the Company or any
Shareholder under this Agreement.
5.4 BEST EFFORTS. Upon the terms and subject to the conditions
hereof, each of the parties hereto agrees to use its best efforts to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable to consummate and make effective as promptly as
practicable the transactions contemplated by this Agreement, including using its
best efforts (i) to obtain all necessary consents, amendments to or waivers
under the terms of any of the Company's or its subsidiaries', borrowing or other
contractual arrangements required by the transactions contemplated by this
Agreement, (ii) to promptly effect all necessary or appropriate registrations
and filings, including, without limitation, filings and submissions pursuant to
the DGCL and the California Code, (iii) subject to Article 9 and the
Indemnification and Escrow Agreement, to defend and to cooperate with each other
in defending any lawsuits or other legal proceedings, whether judicial or
administrative, challenging this Agreement or the consummation of the
transactions contemplated hereby and (iv) to fulfill or cause the fulfillment of
the conditions to Closing.
<PAGE>
44
5.5 PUBLIC ANNOUNCEMENTS. So long as this Agreement is in effect,
NFO and Merger Sub, on the one hand, and the Company and the Shareholders, on
the other hand, shall not, and shall cause their affiliates not to, issue or
cause the publication of any press release or any other announcement with
respect to the Merger or this Agreement without the consent of the other party;
PROVIDED, HOWEVER, that NFO may make any announcement required by applicable law
or regulation with prior written notice (including a copy of the proposed
announcement) to the Company.
5.6 NO INCONSISTENT ACTIVITIES. The Company and the Shareholders
will not, and the Company will direct its subsidiaries and the Company's and its
subsidiaries' officers, directors and other representatives not to, directly or
indirectly, solicit, encourage, or participate in any way in discussions or
negotiations with, or provide any information or assistance to, any third party
(other than Merger Sub, NFO and their attorneys and accountants) concerning any
acquisition of shares of capital stock of the Company or its subsidiaries or any
significant portion of the total assets of the Company or its subsidiaries
(whether by merger, purchase of assets or otherwise). The Company will promptly
notify Merger Sub of the terms of any proposal or contact it or its subsidiaries
may receive in respect of any such transaction, (i) setting forth the identity
of such third party and the nature and terms, if any, of such proposal or
expression of interest and (ii) confirming that neither the Company nor its
subsidiaries or the Shareholders nor any of their respective affiliates have had
any discussions or negotiations with, or provided any information or assistance
to, such third party. The Company agrees that neither it nor any of its
<PAGE>
45
subsidiaries shall release any third party from any confidentiality or
standstill agreements to which the Company or its subsidiaries are a party.
5.7 EMPLOYMENT AGREEMENTS. The Company and each Shareholder shall
each use all reasonable commercial efforts to cause (i) each of James B. Wood,
Jay H. Friedman, Steven K. Schloss and Greg Doudna to enter into employment
agreements with the Surviving Corporation and (ii) Walter P. Smith to enter into
a consulting agreement with the Surviving Corporation, in the forms attached
hereto as Exhibits B to F, respectively (collectively, the "Employment and
Consulting Agreements"), in all cases on the Closing Date.
5.8 INDEMNIFICATION OF BROKERAGE.
(a) NFO and Merger Sub jointly and severally, agree to
indemnify and save the Shareholders harmless from any claim or demand for
commission or other compensation by any broker, finder, agent or similar
intermediary claiming to have been employed by or on behalf of NFO or Merger Sub
or its affiliates, and to bear the cost of legal expenses incurred in defending
any such claim.
(b) The Shareholders, jointly and severally, agree to
indemnify and save the Company, Merger Sub and NFO harmless from any claim or
demand for commission or other compensation by any broker, finder, agent or
similar intermediary claiming to have been employed by or on behalf of the
Company or any Shareholder or any of their respective affiliates, and to bear
the cost of legal expenses incurred in defending any such claim.
<PAGE>
46
5.9 NFO COMMON STOCK. Each Shareholder agrees that, without the
Surviving Corporation's prior written consent, it will not offer, sell, contract
to sell or otherwise dispose of any shares of NFO Common Stock acquired
hereunder except in compliance with the Act, the rules and regulations
promulgated thereunder and any applicable state securities laws. Each
Shareholder further agrees that the certificate or certificates issued to him to
evidence the shares of NFO Common Stock acquired thereby shall bear a legend
stating as follows:
The shares evidenced by this certificate have not been registered under
the Securities Act of 1933 as amended (the "1933 Act") or any state
securities laws and may not be sold or transferred except in transactions
exempt from registration under the 1933 Act or any applicable state
securities laws or pursuant to an effective Registration Statement under
the 1933 Act. The shares represented by this certificate are subject to
certain transfer restrictions pursuant to that certain Agreement and Plan
of Merger, dated as of March 20, 1997, among Prognostics, Prognostics
Corp., the issuer of these shares and certain other parties thereto.
5.10 TAX MATTERS.
The Surviving Corporation shall prepare and file any federal,
state, local and foreign tax returns required to be filed after the Closing Date
with respect to the Surviving Corporation and its predecessors, and the
Surviving Corporation shall pay all Taxes shown as due on any such return.
5.11 INSURANCE. From the date hereof through the Closing Date, the
Company and its subsidiaries shall maintain in force (including necessary
renewals thereof) the insurance policies listed on any Schedule hereto, except
to the extent that they may be replaced with equivalent policies appropriate to
insure the assets, properties and business of the Company and its subsidiaries
to the same extent as currently insured at the same or lower rates or at rates
approved by NFO.
<PAGE>
47
5.12 NON-COMPETITION/NON-SOLICITATION COVENANT OF JAMES B. WOOD.
(a) NON-COMPETE/NON-SOLICITATION. During the Employment
Period (as defined in the employment agreement entered into between the
Surviving Corporation and James B. Wood on the Closing Date) and continuing for
a period of sixty months following the later of the date (the "Wood Noncompete
Trigger Date") on which James B. Wood (i) ceases to be entitled to receive his
Base Salary (as defined in the employment agreement entered into between the
Surviving Corporation and James B. Wood on the Closing Date) and (ii) ceases for
any reason, to be an employee of the Surviving Corporation, he shall not,
directly or indirectly, in any geographical area (including within California in
the counties specified on Exhibit G hereto) or in any foreign country in which
NFO, the Surviving Corporation or their respective subsidiaries engage or plan
to engage in business on the Wood Noncompete Trigger Date, in any form or
manner:
(i) own, manage, control, participate in, consult
with, render services for, or in any manner engage in any business competing
with the businesses of NFO, the Surviving Corporation or their respective
subsidiaries as such businesses exist or are in process on the Wood Noncompete
Trigger Date; PROVIDED, HOWEVER, that James B. Wood may be a passive owner of
not more than 5% of the outstanding stock of any class of a corporation which is
publicly traded, so long as James B. Wood has no active participation in the
business of such corporation; or
(ii)(a) induce or attempt to induce any employee of NFO,
the Surviving Corporation or any of their respective subsidiaries to leave the
employ
<PAGE>
48
thereof, (b) hire any person who was an employee of NFO, the Surviving
Corporation or any of their respective subsidiaries while James B. Wood was an
employee of the Surviving Corporation or (c) induce or attempt to induce any
customer, supplier, licensee or other business relation of NFO, the Surviving
Corporation or any of their respective subsidiaries to cease doing business with
NFO, the Surviving Corporation or any such subsidiary, or in any way interfere
with the relationship between any such customer, supplier, licensee or business
relation and NFO, the Surviving Corporation or any of their respective
subsidiaries.
(b) RIGHTS AND REMEDIES UPON BREACH. If James B. Wood
breaches, or threatens to commit a breach of, any of the provisions of Section
5.12(a) (the "Wood Restrictive Covenants"), the Surviving Corporation shall have
the following rights and remedies, each of which rights and remedies shall be
independent of the other and severally enforceable, and all of which rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Surviving Corporation under law or in equity:
(i) SPECIFIC PERFORMANCE. The right and remedy to
have the Wood Restrictive Covenants specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to NFO and the Surviving
Corporation and that money damages will not provide adequate remedy to NFO and
the Surviving Corporation; and
(ii) ACCOUNTING. The right and remedy to require
James B. Wood to account for and pay over to the Surviving Corporation all
<PAGE>
49
compensation, profits, monies, accruals, increments or other benefits derived or
received by James B. Wood as the result of any transactions constituting a
breach of any of the Wood Restrictive Covenants, and James B. Wood shall account
for and pay over such benefits to the Surviving Corporation.
(c) SEVERABILITY OF COVENANTS. If any court determines that
any of the Wood Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Wood Restrictive Covenants shall not thereby
be affected and shall be given full effect, without regard to the invalid
portions.
(d) BLUE-PENCILLING. If any court determines that any of the
Wood Restrictive Covenants, or any part thereof, is unenforceable because of the
duration of such provision or the area covered thereby, such court shall have
the power to reduce the duration or area of such provision and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
(e) ENFORCEABILITY IN JURISDICTIONS. The parties intend to and
hereby confer jurisdiction to enforce the Wood Restrictive Covenants upon the
courts of any jurisdiction within the geographical scope of such covenants. If
the courts of any one or more of such jurisdictions hold the Wood Restrictive
Covenants wholly unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties that such determination not bar or
in any way affect the Surviving Corporation's right to the relief provided above
in the courts of any other jurisdiction within the geographical scope of such
covenants, as to breaches of such covenants in such other respective
jurisdictions, such covenants as they relate to
<PAGE>
50
each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
5.13 NON-COMPETITION/NON-SOLICITATION COVENANT OF WALTER P. SMITH.
(a) NON-COMPETE/NON-SOLICITATION. During the Initial Term
and any Renewal Term (each as defined in the consulting agreement entered into
between the Surviving Corporation and Walter P. Smith on the Closing Date) and
continuing for a period of sixty months following the later of the date (the
"Smith Noncompete Trigger Date") on which Walter P. Smith (i) ceases to provide
consulting services to the Surviving Corporation and (ii) ceases to receive
payment for consulting services rendered to the Surviving Corporation, he shall
not, directly or indirectly, in any geographical area (including within
California in the counties specified on Exhibit G hereto) or in any foreign
country in which NFO, the Surviving Corporation or their respective subsidiaries
engage or plan to engage in business on the Smith Noncompete Trigger Date, in
any form or manner:
(i) own, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with the
businesses of NFO, the Surviving Corporation or their respective subsidiaries as
such businesses exist or are in process on the Smith Noncompete Trigger Date;
PROVIDED, HOWEVER, that Walter P. Smith may be a passive owner of not more than
5% of the outstanding stock of any class of a corporation which is publicly
traded, so long as Walter P. Smith has no active participation in the business
of such corporation; or
<PAGE>
51
(ii)(a) induce or attempt to induce any employee of NFO,
the Surviving Corporation or any of their respective subsidiaries to leave the
employ thereof, (b) hire any person who was an employee of NFO, the Surviving
Corporation or any of their respective subsidiaries while Walter P. Smith was a
consultant to the Surviving Corporation or (c) induce or attempt to induce any
customer, supplier, licensee or other business relation of NFO, the Surviving
Corporation or any of their respective subsidiaries to cease doing business with
NFO, the Surviving Corporation or any such subsidiary, or in any way interfere
with the relationship between any such customer, supplier, licensee or business
relation and NFO, the Surviving Corporation or any of their respective
subsidiaries.
(b) RIGHTS AND REMEDIES UPON BREACH. If Walter P. Smith
breaches, or threatens to commit a breach of, any of the provisions of Section
5.13(a) (the "Smith Restrictive Covenants"), the Surviving Corporation shall
have the following rights and remedies, each of which rights and remedies shall
be independent of the other and severally enforceable, and all of which rights
and remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Surviving Corporation under law or in equity:
(i) SPECIFIC PERFORMANCE. The right and remedy to
have the Smith Restrictive Covenants specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to NFO and the Surviving
Corporation and that money damages will not provide adequate remedy to NFO and
the Surviving Corporation; and
<PAGE>
52
(ii) ACCOUNTING. The right and remedy to require
Walter P. Smith to account for and pay over to the Surviving Corporation all
compensation, profits, monies, accruals, increments or other benefits derived or
received by Walter P. Smith as the result of any transactions constituting a
breach of any of the Smith Restrictive Covenants, and Walter Smith shall account
for and pay over such benefits to the Surviving Corporation.
(c) SEVERABILITY OF COVENANTS. If any court determines that
any of the Smith Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Smith Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions.
(d) BLUE-PENCILLING. If any court determines that any of the
Smith Restrictive Covenants, or any part thereof, is unenforceable because of
the duration of such provision or the area covered thereby, such court shall
have the power to reduce the duration or area of such provision and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
(e) ENFORCEABILITY IN JURISDICTIONS. The parties intend to and
hereby confer jurisdiction to enforce the Smith Restrictive Covenants upon the
courts of any jurisdiction within the geographical scope of such covenants. If
the courts of any one or more of such jurisdictions hold the Smith Restrictive
Covenants wholly unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties that such determination not bar or
in any way affect the Surviving Corporation's right to the relief provided above
in the courts of any other jurisdiction within the geographical scope of such
covenants, as to breaches of such
<PAGE>
53
covenants in such other respective jurisdictions, such covenants as they relate
to each jurisdiction being, for this purpose, severable into diverse and
independent covenants.
5.14 NON-COMPETITION/NON-SOLICITATION COVENANT OF JAY H. FRIEDMAN.
(a) NON-COMPETE/NON-SOLICITATION. During the Employment
Period (as defined in the employment agreement entered into between the
Surviving Corporation and Jay H. Friedman on the Closing Date) and continuing
for a period of twenty-four months following the later of the date (the
"Friedman Noncompete Trigger Date") on which Jay H. Friedman (i) ceases to be
entitled to receive his Base Salary (as defined in the employment agreement
entered into between the Surviving Corporation and Jay H. Friedman on the
Closing Date) and (ii) ceases for any reason, to be an employee of the Surviving
Corporation, he shall not, directly or indirectly, in any geographical area
(including within California in the counties specified on Exhibit G hereto) or
in any foreign country in which NFO, the Surviving Corporation or their
respective subsidiaries engage or plan to engage in business on the Friedman
Noncompete Trigger Date, in any form or manner:
(i) own, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with the
businesses of NFO, the Surviving Corporation or their respective subsidiaries as
such businesses exist or are in process on the Friedman Noncompete Trigger Date;
PROVIDED, HOWEVER, that Jay H. Friedman may be a passive owner of not more than
5% of the outstanding stock of any class of a corporation which is publicly
traded,
<PAGE>
54
so long as Jay H. Friedman has no active participation in the business of such
corporation; or
(ii) (a) induce or attempt to induce any employee of
NFO, the Surviving Corporation or any of their respective subsidiaries to leave
the employ thereof, (b) hire any person who was an employee of NFO, the
Surviving Corporation or any of their respective subsidiaries while Jay H.
Friedman was an employee of the Surviving Corporation or (c) induce or attempt
to induce any customer, supplier, licensee or other business relation of NFO,
the Surviving Corporation or any of their respective subsidiaries to cease doing
business with NFO, the Surviving Corporation or any such subsidiary, or in any
way interfere with the relationship between any such customer, supplier,
licensee or business relation and NFO, the Surviving Corporation or any of their
respective subsidiaries.
(b) RIGHTS AND REMEDIES UPON BREACH. If Jay H. Friedman
breaches, or threatens to commit a breach of, any of the provisions of Section
5.14(a) (the "Friedman Restrictive Covenants"), the Surviving Corporation shall
have the following rights and remedies, each of which rights and remedies shall
be independent of the other and severally enforceable, and all of which rights
and remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Surviving Corporation under law or in equity:
(i) SPECIFIC PERFORMANCE. The right and remedy to
have the Friedman Restrictive Covenants specifically enforced by any court
having equity jurisdiction, it being acknowledged and agreed that any such
breach or threatened breach will cause irreparable injury to NFO and the
Surviving
<PAGE>
55
Corporation and that money damages will not provide adequate remedy to NFO and
the Surviving Corporation; and
(ii) ACCOUNTING. The right and remedy to require
Jay H. Friedman to account for and pay over to the Surviving Corporation all
compensation, profits, monies, accruals, increments or other benefits derived or
received by Jay H. Friedman as the result of any transactions constituting a
breach of any of the Friedman Restrictive Covenants, and Jay H. Friedman shall
account for and pay over such benefits to the Surviving Corporation.
(c) SEVERABILITY OF COVENANTS. If any court determines that
any of the Friedman Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Friedman Restrictive Covenants shall not
thereby be affected and shall be given full effect, without regard to the
invalid portions.
(d) BLUE-PENCILLING. If any court determines that any of the
Friedman Restrictive Covenants, or any part thereof, is unenforceable because of
the duration of such provision or the area covered thereby, such court shall
have the power to reduce the duration or area of such provision and, in its
reduced form, such provision shall then be enforceable and shall be enforced.
(e) ENFORCEABILITY IN JURISDICTIONS. The parties intend to and
hereby confer jurisdiction to enforce the Friedman Restrictive Covenants upon
the courts of any jurisdiction within the geographical scope of such covenants.
If the courts of any one or more of such jurisdictions hold the Friedman
Restrictive Covenants wholly unenforceable by reason of the breadth of such
scope or
<PAGE>
56
otherwise, it is the intention of the parties that such determination not bar or
in any way affect the Surviving Corporation's right to the relief provided above
in the courts of any other jurisdiction within the geographical scope of such
covenants, as to breaches of such covenants in such other respective
jurisdictions, such covenants as they relate to each jurisdiction being, for
this purpose, severable into diverse and independent covenants.
5.15 NON-COMPETITION/NON-SOLICITATION COVENANT OF THOMAS RICH.
(a) NON-COMPETE/NON-SOLICITATION. During the period in
which Thomas Rich is employed by the Surviving Corporation and continuing for a
period of twenty-four months following the date (the "Rich Noncompete Trigger
Date") on which Thomas Rich ceases for any reason, to be an employee of the
Surviving Corporation, he shall not, directly or indirectly, in any geographical
area (including within California in the counties specified on Exhibit G hereto)
or in any foreign country in which NFO, the Surviving Corporation or their
respective subsidiaries engage or plan to engage in business on the Rich
Noncompete Trigger Date, in any form or manner:
(i) own, manage, control, participate in, consult with,
render services for, or in any manner engage in any business competing with the
businesses of NFO, the Surviving Corporation or their respective subsidiaries as
such businesses exist or are in process on the Rich Noncompete Trigger Date;
PROVIDED, HOWEVER, that Thomas Rich may be a passive owner of not more than 5%
of the outstanding stock of any class of a corporation which is publicly traded,
so
<PAGE>
57
long as Thomas Rich has no active participation in the business of such
corporation; or
(ii) (a) induce or attempt to induce any employee of
NFO, the Surviving Corporation or any of their respective subsidiaries to leave
the employ thereof, (b) hire any person who was an employee of NFO, the
Surviving Corporation or any of their respective subsidiaries while Thomas Rich
was an employee of the Surviving Corporation or (c) induce or attempt to induce
any customer, supplier, licensee or other business relation of NFO, the
Surviving Corporation or any of their respective subsidiaries to cease doing
business with NFO, the Surviving Corporation or any such subsidiary, or in any
way interfere with the relationship between any such customer, supplier,
licensee or business relation and NFO, the Surviving Corporation or any of their
respective subsidiaries.
(b) RIGHTS AND REMEDIES UPON BREACH. If Thomas Rich breaches,
or threatens to commit a breach of, any of the provisions of Section 5.15(a)
(the "Rich Restrictive Covenants"), the Surviving Corporation shall have the
following rights and remedies, each of which rights and remedies shall be
independent of the other and severally enforceable, and all of which rights and
remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Surviving Corporation under law or in equity:
(i) SPECIFIC PERFORMANCE. The right and remedy to
have the Rich Restrictive Covenants specifically enforced by any court having
equity jurisdiction, it being acknowledged and agreed that any such breach or
threatened breach will cause irreparable injury to NFO and the Surviving
Corporation and that
<PAGE>
58
money damages will not provide adequate remedy to NFO and the Surviving
Corporation; and
(ii) ACCOUNTING. The right and remedy to require
Thomas Rich to account for and pay over to the Surviving Corporation all
compensation, profits, monies, accruals, increments or other benefits derived or
received by Thomas Rich as the result of any transactions constituting a breach
of any of the Rich Restrictive Covenants, and Thomas Rich shall account for and
pay over such benefits to the Surviving Corporation.
(c) SEVERABILITY OF COVENANTS. If any court determines that
any of the Rich Restrictive Covenants, or any part thereof, is invalid or
unenforceable, the remainder of the Rich Restrictive Covenants shall not thereby
be affected and shall be given full effect, without regard to the invalid
portions.
(d) BLUE-PENCILLING. If any court determines that any of the
Rich Restrictive Covenants, or any part thereof, is unenforceable because of the
duration of such provision or the area covered thereby, such court shall have
the power to reduce the duration or area of such provision and, in its reduced
form, such provision shall then be enforceable and shall be enforced.
(e) ENFORCEABILITY IN JURISDICTIONS. The parties intend to and
hereby confer jurisdiction to enforce the Rich Restrictive Covenants upon the
courts of any jurisdiction within the geographical scope of such covenants. If
the courts of any one or more of such jurisdictions hold the Rich Restrictive
Covenants wholly unenforceable by reason of the breadth of such scope or
otherwise, it is the intention of the parties that such determination not bar or
in any way affect the
<PAGE>
59
Surviving Corporation's right to the relief provided above in the courts of any
other jurisdiction within the geographical scope of such covenants, as to
breaches of such covenants in such other respective jurisdictions, such
covenants as they relate to each jurisdiction being, for this purpose, severable
into diverse and independent covenants.
5.16 ACCOUNTING TREATMENT. Each of the Company, NFO, Merger Sub and
the Shareholders shall not take any action and shall not fail to take any
action, which action or failure to act would prevent, or would be reasonably
likely to prevent, the Merger from qualifying for pooling of interests
accounting treatment.
5.17 STOCK OPTIONS. On or prior to December 31, 1997, NFO shall
grant options for a total of 25,000 shares of NFO Common Stock, exercisable at a
price per share equal to the fair market value of NFO Common Stock on the date
of such grant, in the amounts and to the employees of the Surviving Corporation
specified on Schedule 5.17 hereto; PROVIDED, that any of such options not
designated for receipt on Schedule 5.17 shall be designated on or prior to
December 21, 1997 by the Chief Executive Officer of the Surviving Corporation.
The grant of such options shall be registered under the Securities Act of 1993,
as amended. It is understood that if and to the extent any such options are
granted pursuant to the NFO Research, Inc. Stock Option Plan, the Compensation
Committee of the Board of Directors of NFO has the sole authority to determine
and designate to whom options are to be granted, the timing and pricing of
grants, and the number of shares to be granted to each recipient.
<PAGE>
60
5.18 NOTIFICATION OF CERTAIN MATTERS. The Company and the
Shareholders shall give prompt notice to NFO and the Merger Sub, and NFO and the
Merger Sub shall give prompt notice to the Company and the Shareholders, of (i)
the occurrence, or non-occurrence, of any event the occurrence, or
non-occurrence, of which would be likely to cause any representation or warranty
of any party contained in this Agreement to be untrue or inaccurate and (ii) any
failure of the Company, the Shareholders, NFO or Merger Sub, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder.
5.19 WITHHOLDING.
(a) James B. Wood hereby covenants and agrees that upon the
earlier of the (i) repayment of all or a portion or (ii) maturity (if James B.
Wood has not surrendered shares of NFO Common Stock collateralizing such
promissory note) of the Promissory Note, dated December 19, 1994, in the
original principal amount of $40,000, made by James B. Wood in favor of the
Company, he shall promptly remit to the Surviving Corporation the funds
necessary for withholding of any taxes required by any governmental authority in
connection with each such repayment or the maturity, as the case may be, of such
promissory note. James B. Wood hereby covenants and agrees that upon the earlier
of the (i) repayment of all or a portion or (ii) maturity (if James B. Wood has
not surrendered shares of NFO Common Stock collateralizing such promissory note)
of the Promissory Note, dated August 31, 1995, in the original principal of
$3,460, made by James B. Wood in favor of the Company, he shall promptly remit
to the Surviving Corporation the funds
<PAGE>
61
necessary for withholding of any taxes required by any governmental authority in
connection with each such repayment or the maturity, as the case may be, of such
promissory note.
(b) Thomas Rich hereby covenants and agrees that upon the
earlier of the (i) repayment of all or a portion or (ii) maturity (if Thomas
Rich has not surrendered shares of NFO Common Stock collateralizing such
promissory note) of the Promissory Note, dated August 31, 1995, in the original
principal amount of $3,460, made by Thomas Rich in favor of the Company, he
shall promptly remit to the Surviving Corporation the funds necessary for
withholding of any taxes required by any governmental authority in connection
with each such repayment or the maturity, as the case may be, of such promissory
note.
(c) Jay H. Friedman hereby covenants and agrees that upon the
earlier of the (i) repayment of all or a portion or (ii) maturity (if Jay H.
Friedman has not surrendered shares of NFO Common Stock collateralizing such
promissory note) of the Promissory Note, dated August 31, 1995, in the original
principal amount of $3,460, made by Jay H. Friedman in favor of the Company, he
shall promptly remit to the Surviving Corporation the funds necessary for
withholding of any taxes required by any governmental authority in connection
with each such repayment or the maturity, as the case may be, of such promissory
note.
<PAGE>
62
ARTICLE 6
CONDITIONS
6.1 CONDITIONS TO OBLIGATION OF NFO AND MERGER SUB. The obliga tion
of NFO and Merger Sub to effect the Merger shall be subject to the fulfillment
at or prior to the Effective Time of the following additional conditions, any
one or more of which may be waived by NFO and Merger Sub:
(a) All requisite approvals of the Shareholders of the Company
under the DGCL, the California Code and the Company's articles of incorporation
shall have been obtained for this Agreement, the Merger and the transactions
contemplated hereby;
(b) Those Shareholders and other persons who are named in the
Employment and Consulting Agreements shall have entered into the Employment and
Consulting Agreements;
(c) The Company and the Shareholders each shall have performed
and complied with all covenants and agreements required by this Agreement to be
performed or complied with by each of them on or prior to the Effective Time
pursuant to the terms hereof;
(d) The representations and warranties of the Company and the
Shareholders contained in this Agreement shall be true and correct on and as of
the Effective Time as if made on and as of such date except for representations
and warranties expressly made as of a specific date, which shall be true and
correct as of such date;
<PAGE>
63
(e) The Company and each Shareholder shall have delivered to
NFO and Merger Sub a certificate in form and substance reasonably satisfactory
to NFO and Merger Sub, dated the Closing Date, certifying as to the matters set
forth in Sections 6.1(c) and (d);
(f) NFO and Merger Sub shall have received the opinion of
Tomlinson, Zisko, Morosoli & Maser LLP, counsel to the Company and the
Shareholders, dated the date of the Closing, addressed to NFO and Merger Sub,
substantially in the form of Exhibit H and with customary assumptions,
exceptions and qualifications;
(g) There shall not have occurred after the date hereof any
material adverse change in the Condition of the Company or its subsidiaries
taken as a whole;
(h) No order, statute, rule, regulation, executive order,
stay, decree, judgment or injunction shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which prohibits
or prevents the consummation of the Merger;
(i) The Company shall have delivered to NFO and Merger Sub
certificates, in form and substance reasonably satisfactory to NFO and Merger
Sub, signed by an executive officer thereof, dated the Closing Date, certifying
that full and complete copies of the following are attached thereto: minutes of
the Board of Directors and shareholders of the Company (or unanimous written
consents of the Board of Directors and shareholders of the Company) authorizing
and approving this Agreement and the transactions contemplated hereby, copies of
the articles of
<PAGE>
64
incorporation and by-laws of the Company as in effect on the date thereof, and
such other documents or instruments as Merger Sub may reasonably request in
writing not less than two days prior to the Closing Date to carry out the intent
and purpose of this Agreement;
(j) Any and all permits and approvals from any govern mental
or regulatory body required for the lawful consummation of the Closing shall
have been obtained;
(k) All consents, permits and approvals from parties to any
contracts or other agreements with the Company which may be required in
connection with the performance by the Company of its obligations under this
Agreement or the continuance of such contracts or other agreements after the
Closing shall have been obtained;
(l) Except as set forth on Schedule 6.1(l), the Shareholders
and each affiliate of the Company shall have paid to the Company any amounts
owed by such person to the Company;
(m) No action, suit or proceeding shall have been instituted
before any court or governmental body or instituted or threatened by any
governmental agency or body to restrain or prevent the carrying out of the trans
actions contemplated hereby, or which has or may have, in the opinion of NFO or
Merger Sub, a materially adverse effect on the Condition of the Company;
(n) Each of the Shareholders and the Escrow Agent shall
have executed and delivered the Indemnification and Escrow Agreement;
<PAGE>
65
(o) NFO shall have received a copy of the unaudited
consolidated balance sheet of the Company for the month ended February 28, 1997
and such balance sheet shall be prepared in accordance with GAAP and consistent
with past practice of the Company and shall fairly present the consolidated
financial condition and results of operations of the Company and its
Subsidiaries on and as of the date thereof, and such financial condition and
results of operations shall be reasonably consistent with the expectations of
the Company in all material respects as it relates to the month of February,
1997;
(p) Each of James B. Wood, Jay H. Friedman and Thomas
Rich shall have executed and delivered the Release of Claims, substantially in
the form of Exhibit I; and
(q) NFO shall have received a final copy of the letter of
Price Waterhouse LP. referred to in Section 4.30 of this Agreement, which letter
shall be identical in all material respects to the draft of such letter
previously provided to NFO.
6.2 CONDITIONS TO OBLIGATION OF THE COMPANY AND THE SHAREHOLDERS.
The obligation of the Company and the Shareholders to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
additional conditions, any one or more of which may be waived by the Company and
the Shareholders:
(a) NFO and Merger Sub shall each have performed and complied
with all covenants and agreements required by this Agreement to be
<PAGE>
66
performed or complied with by it on or prior to the Effective Time pursuant to
the terms hereof;
(b) The representations and warranties of NFO and Merger Sub
contained in this Agreement shall be true and correct on and as of the Effective
Time as if made on and as of such date except for representations and warranties
expressly made as of a specific date, which shall be true and correct as of such
date;
(c) NFO and Merger Sub shall have delivered to the Company and
each Shareholder a certificate in form and substance reasonably satisfactory to
them, dated the Closing Date, certifying as to the matters set forth in Sections
6.2(a) and (b);
(d) The Company and the Shareholders shall have received the
opinion of Paul, Weiss, Rifkind, Wharton & Garrison, counsel to NFO and Merger
Sub, dated the date of the Closing, addressed to the Company and the
Shareholders, substantially in the form of Exhibit J attached hereto and with
customary assumptions, exceptions and qualifications;
(e) No order, statute, rule, regulation, executive order,
stay, decree, judgment or injunction shall have been enacted, entered,
promulgated or enforced by any court or governmental authority which prohibits
or prevents the consummation of the Merger;
<PAGE>
67
(f) NFO and Merger Sub shall each have delivered to the
Company certificates, in form and substance reasonably satisfactory to the
Company, signed by an executive officer thereof, dated the Closing Date,
certifying that full and complete copies of the following are attached thereto:
minutes of the Board of Directors thereof and, in the case of Merger Sub, the
Shareholders thereof (or unanimous written consents in lieu thereof) authorizing
and approving this Agreement and the transactions contemplated hereby, copies of
the certificate of incorporation and by-laws thereof as in effect on the date
thereof, and such other documents or instruments as the Company may reasonably
request in writing not less than two days prior to the Closing Date to carry out
the intent and purpose of this Agreement;
(g) NFO shall have executed and delivered the Registration
Rights Agreement, dated as of the Closing Date, between NFO and the
Shareholders, substantially in the form of Exhibit K attached hereto; and
(h) The Shareholders shall have received a final copy of the
letter of Arthur Andersen LLP referred to in Section 3.9 of this Agreement,
which letter shall be identical in all material respects to the draft of such
letter previously provided to the Shareholders.
ARTICLE 7
CLOSING
7.1 TIME AND PLACE OF CLOSING. Subject to the provisions of
Article 6, the closing of the Merger (the "Closing") shall take place (i) at the
offices
<PAGE>
68
of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New
York, NY 10019, at 5:30 P.M., local time, as of April 1, 1997, or (ii) at such
other place, at such other time or on such other date as the Constituent
Corporations may mutually agree (the date of the Closing is herein referred to
as the "Closing Date").
7.2 FILING OF CERTIFICATE OF MERGER. At the Closing, Merger Sub and
the Company shall cause the Certificate of Merger to be executed and filed with
the Secretary of State of the State of Delaware and the Secretary of State of
the State of California as provided in the DGCL and the California Code,
respectively, and shall take any and all other lawful actions and do any and all
other lawful things to cause the Merger to become effective.
ARTICLE 8
TERMINATION AND ABANDONMENT
8.1 TERMINATION. This Agreement may be terminated and the Merger
contemplated hereby may be abandoned at any time prior to the Effective Time,
whether before or after approval by the Shareholders of the Company, by (a)
mutual agreement of Merger Sub and the Company, or (b) by either the Merger Sub
or the Company if the Effective Time shall not have occurred on or before June
1, 1997.
8.2 PROCEDURE AND EFFECT OF TERMINATION. In the event of termina
tion and abandonment of the Merger by Merger Sub and the Company pursuant to
Section 8.1(a) or by either the Merger Sub or the Company pursuant to Section
8.1(b), written notice thereof shall forthwith be given to the other parties and
this
<PAGE>
69
Agreement shall terminate and the Merger shall be abandoned without further
action by any of the parties hereto. Any termination of this Agreement shall be
without prejudice to the rights of any party on account of the non-satisfaction
of the conditions set forth in Article 6 resulting from the intentional or
willful breach or violation of the representations, warranties, covenants or
agreements of another party under this Agreement. Notwithstanding anything in
this Agreement to the contrary, Sections 5.5, 5.8, 10.5 and 10.9 shall survive
any termination of this Agreement.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS & WARRANTIES;
INDEMNIFICATION
9.1 SURVIVAL. Notwithstanding any right of the parties hereto fully
to investigate the affairs of the Company and Merger Sub and notwithstanding any
knowledge of facts determined or determinable by any party hereto pursuant to
such investigation or right of investigation, each party hereto shall have the
right to rely fully upon the representations and warranties of the other parties
contained in this Agreement. The representations and warranties and covenants
and agreements of the parties hereto shall survive the execution and delivery
hereof and the Closing hereunder. The representations and warranties shall
thereafter terminate and expire on the earlier of (i) one year from the
Effective Time, or (ii) the date on which Arthur Andersen LLP (or its successor)
delivers to NFO its final audit opinion on the consolidated financial statements
of NFO for the fiscal year ending December 31, 1997.
<PAGE>
70
9.2 INDEMNIFICATION. Indemnification hereunder shall be governed by
the Indemnification and Escrow Agreement. The rights of NFO to indemnification
under the Indemnification and Escrow Agreement shall constitute the sole and
exclusive remedies of NFO from and after the Closing Date with respect to the
matters in respect of which indemnification may be sought hereunder; PROVIDED,
HOWEVER, nothing in the Indemnification and Escrow Agreement shall be deemed to
preclude NFO from seeking equitable or other relief for any failure of any party
to this Agreement to perform any covenant or agreement required to be performed
by such party.
ARTICLE 10
MISCELLANEOUS
10.1 AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified or supplemented only by a written agree ment
signed by the parties hereto.
10.2 WAIVER OF COMPLIANCE; CONSENTS. Any failure of NFO or Merger
Sub, on the one hand, or the Company or the Shareholders, on the other hand, to
comply with any obligation, covenant, agreement or condition herein may be
waived by Merger Sub or the Company, respectively, only by a written instrument
signed by the party granting such waiver, but such waiver or failure to insist
upon strict compliance with such obligation, covenant, agreement or condition
shall not operate as a waiver of, or estoppel with respect to, any subsequent or
other failure. Whenever this Agreement requires or permits consent by or on
behalf of any party
<PAGE>
71
hereto, such consent shall be given in writing in a manner consistent with the
requirements for a waiver of compliance as set forth in this Section 10.2.
10.3 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed to have been duly given when delivered in
person, by telecopier (with a confirmed receipt thereof) or registered or
certified mail (postage prepaid, return receipt requested) to the respective
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Merger Sub, to:
Prognostics Corp.
2 Pickwick Plaza
Suite 400
Greenwich, Connecticut 06830
Telecopy No.: (203) 629-8885
Attention: Chief Financial Officer
with a copy to:
Paul, Weiss, Rifkind, Wharton &
Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy No.: (212) 757-3990
Attention: James M. Dubin, Esq.
(b) if to NFO, to:
NFO Research, Inc.
2 Pickwick Plaza
Suite 400
Greenwich, Connecticut 06830
Telecopy No.: (203) 629-8885
Attention: Chief Financial Officer
<PAGE>
72
with a copy to:
Paul, Weiss, Rifkind, Wharton &
Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy No.: (212) 757-3990
Attention: James M. Dubin, Esq.
(c) if to the Company, to:
Prognostics
Stanford Research Park
900 Hansen Way
Palo Alto, CA 94304-1060
Telecopy No.: (415) 812-3920
Attention: James B. Wood
with a copy to:
Tomlinson, Zisko, Morosoli & Maser LLP
200 Page Mill Road
Second Floor
Palo Alto, CA 94306
Telecopy No: (415) 324-1808
Attention: Timothy Tomlinson, Esq.
(d) if to any Shareholder prior to the Effective Time, to him:
c/o Prognostics
Stanford Research Park
900 Hansen Way
Palo Alto, CA 94304-1060
Telecopy No.: (415) 812-3920
if to any Shareholder subsequent to the Effective Time,
to him:
c/o Prognostics Corp.
Stanford Research Park
900 Hansen Way
Palo Alto, CA 94304-1060
Telecopy No.: (415) 812-3920
<PAGE>
73
in either case with a copy to:
Tomlinson, Zisko, Morosoli & Maser LLP
200 Page Mill Road
Second Floor
Palo Alto, CA 94306
Telecopy No: (415) 324-1808
Attention: Timothy Tomlinson, Esq.
(e) if to the Surviving Corporation, to:
c/o Prognostics Corp.
Stanford Research Park
900 Hansen Way
Palo Alto, CA 94304-1060
Telecopy No.: (415) 812-3920
Attention: James B. Wood
with copies to:
NFO Research, Inc.
2 Pickwick Plaza
Suite 400
Greenwich, Connecticut 06830
Telecopy No.: (203) 629-8885
Attention: Chief Financial Officer
and
Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019-6064
Telecopy No. (212) 757-3990
Attention: James M. Dubin, Esq.
10.4 ASSIGNMENT. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned by any of
the
<PAGE>
74
parties hereto without the prior written consent of the other parties, nor is
this Agreement intended to confer upon any other person except the parties
hereto any rights or remedies hereunder; PROVIDED, HOWEVER, that the rights of
NFO and Merger Sub may be transferred in whole or in part to any affiliate
thereof.
10.5 EXPENSES.
(a) Except as otherwise specifically provided herein, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby by NFO or Merger Sub shall be paid by NFO or
Merger Sub and all such costs and expenses, in an amount not in excess of
$150,000, but excluding all costs and expenses of Robertson Stephens & Company,
incurred by the Company and the Shareholders shall be paid by the Company. Any
costs and expenses incurred by the Company and the Shareholders in excess of
$150,000, as well as all costs and expenses of Robertson Stephens & Company,
shall be paid by the Shareholders.
(b) If the Company or any Shareholder, on the one hand, or NFO
or Merger Sub, on the other hand (in any case, the "Refusing Party"), shall
intentionally or willfully (i) refuse to consummate the Merger on the Closing
Date, (ii) cause a material breach of any covenant contained herein which
directly results in the consummation of the Merger NOT going forward on the
Closing Date, subject to applicable cure periods, or (iii) fails to satisfy any
of the conditions to closing contained herein, then, so long as the parties that
are not the Refusing Parties are ready, willing and able to consummate the
Merger and have satisfied in all material respects the conditions set forth in
Article 6 applicable to them, the Refusing Parties
<PAGE>
75
shall promptly pay an amount equal to $1,000,000 to the parties that are not the
Refusing Parties.
10.6 GOVERNING LAW. This Agreement shall be governed by the laws of
the State of Delaware applicable to agreements made and to be performed entirely
within such State, except that any provisions required to be governed by the
laws of the State of California, as well as Sections 5.12, 5.13, 5.14 and 5.15,
shall be governed thereby.
10.7 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.8 INTERPRETATION. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement. As used in this Agreement, (i) the term
"person" shall mean and include an individual, a partnership, a company, a joint
venture, a corporation, a trust, an unincorporated organization and a government
or any department or agency thereof; (ii) the term "affiliate," with respect to
any person, shall mean and include any person controlling, controlled by or
under common control with such person; and (iii) the term "subsidiary" of any
specified person shall mean any corporation 50% or more of the outstanding
voting power of which, or any partnership, company, joint venture or other
entity 50% or more of the total equity interest of which, is directly or
indirectly owned by such specified person. For
<PAGE>
76
purposes of this Agreement, all references to "subsidiaries" of a person shall
be deemed to mean "subsidiary" if such person has only one subsidiary.
10.9 ENTIRE AGREEMENT. This Agreement, including the documents or
instruments referred to herein, embodies the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein. There
are no restrictions, promises, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to herein. This
Agreement supersedes all prior agreements and understandings whether oral or
written between the parties with respect to the subject matter hereof.
10.10 NO THIRD PARTY BENEFICIARIES. This Agreement is not intended
to, and does not, create any rights or benefits of any party other than the
parties hereto.
IN WITNESS WHEREOF, Merger Sub, NFO, the Shareholders and the
Company have caused this Agreement to be signed by their respective duly
authorized officers as of the 20th day of March, 1997.
PROGNOSTICS CORP.
By: /s/ Patrick G. Healy
------------------------------------
Name: Patrick G. Healy
Title: Executive Vice President
<PAGE>
77
NFO RESEARCH, INC.
By: /s/ William E. Lipner
------------------------------------
Name: William E. Lipner
Title: President and Chief Executive
Officer
PROGNOSTICS
By: /s/ James B. Wood
------------------------------------
Name:
Title:
/s/ James B. Wood
------------------------------------
James B. Wood
/s/ Walter P. Smith
------------------------------------
Walter P. Smith *
/s/ Jay H. Friedman
------------------------------------
Jay H. Friedman
/s/ Thomas Rich
------------------------------------
Thomas Rich
* As Trustee of the Walter P. Smith Trust (2/20/86), and for purposes
of covenanting and agreeing to personally be bound by Section 5.13 hereof.
EXHIBIT 11
COMPUTATIONS OF NET INCOME PER COMMON SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEARS ENDED DECEMBER 31,
1996 1995
---- ----
PRIMARY:
WEIGHTED AVERAGE SHARES OUTSTANDING 10,184 9,388
DILUTIVE STOCK OPTIONS 506 275
OTHER COMMON SHARE EQUIVALENTS 128 33
10,818 9,696
======= =======
NET INCOME $ 9,016 $ 6,721
======= =======
PRIMARY EARNINGS PER SHARE $ .83 $ .69
======= =======
The earnings per share and share data reflect the three-for-two stock split
effected on February 5, 1996. Fully diluted earnings per common share has not
been presented on the basis that the difference between fully diluted and
primary earnings per share is less than $0.01 per share.
EXHIBIT 21
Subsidiaries of the Company
<TABLE>
<CAPTION>
Directly Held By Jurisdiction
Subsidiary of Incorporation and Wholly Owned By
---------- ---------------- -------------------
<S> <C> <C>
PSI Holding, Corp. Delaware NFO Research, Inc.
Payment Systems, Inc. Florida PSI Holding Corp.
The SPECTREM Group, Inc. Delaware Payment Systems, Inc.
Migliara/Kaplan Associates, Inc. Delaware NFO Research, Inc.
Chesapeake Surveys, Inc. Delaware Migliara/Kaplan
Associates, Inc.
Plog Research, Inc. Delaware NFO Research, Inc.
Advanced Marketing Solutions
Corp. Delaware NFO Research, Inc.
NFO International, Inc. Delaware NFO Research, Inc.
NFO Europe, Inc. Delaware NFO International, Inc.
NFO France, Inc. Delaware NFO Europe, Inc.
NFO APLT, Inc. Delaware NFO Europe, Inc.
NFO Germany, Inc. Delaware NFO Europe, Inc.
NFO U.K., Inc. Delaware NFO Europe, Inc.
Payment Systems International
Limited United Kingdom NFO U.K., Inc.
</TABLE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 18, 1997, except for Note 19, as to which
the date is March 20, 1997, included in NFO Research, Inc.'s annual report on
Form 10-K for the year ended December 31, 1996, into the Company's previously
filed Registration Statements, File Nos. 33-91936, 33-73516 and 33-83002.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
New York, New York,
March 28, 1997.
INDEPENDENT AUDITORS' CONSENT
To the Board of Directors and Stockholders
NFO Research, Inc.
Greenwich, Connecticut
We consent to the incorporation by reference in this Registration Statement Nos.
33-73516, 33-83002 and 33-91936 of NFO Research, Inc. on Forms S-8 of our report
dated February 17, 1995, appearing in this Annual Report on Form 10-K of NFO
Research, Inc. for the year ended December 31,1996.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Ann Arbor, Michigan
March 28, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE FINANCIAL STATEMENTS CONTAINED IN NFO RESEARCH, INC.'S
REPORT ON FORM 10-K FOR THE QUARTER ENDED DECEMBER 31, 1996,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,086
<SECURITIES> 0
<RECEIVABLES> 28,834
<ALLOWANCES> 143
<INVENTORY> 0
<CURRENT-ASSETS> 36,086
<PP&E> 16,809
<DEPRECIATION> 5,796
<TOTAL-ASSETS> 101,457
<CURRENT-LIABILITIES> 25,315
<BONDS> 4,821
0
0
<COMMON> 103
<OTHER-SE> 66,639
<TOTAL-LIABILITY-AND-EQUITY> 101,457
<SALES> 109,162
<TOTAL-REVENUES> 109,162
<CGS> 48,329
<TOTAL-COSTS> 92,167
<OTHER-EXPENSES> 211
<LOSS-PROVISION> 20
<INTEREST-EXPENSE> 458
<INCOME-PRETAX> 16,326
<INCOME-TAX> 7,310
<INCOME-CONTINUING> 9,016
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,016
<EPS-PRIMARY> .83
<EPS-DILUTED> .83
</TABLE>
Selected Financial Data
(in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
Income Statement Data(3)
<S> <C> <C> <C> <C> <C>
Revenues $109,162 $ 73,098 $ 61,545 $ 51,888 $ 47,074
Operating Income 16,995 11,787 9,350 7,692 6,515
Net Income 9,016 6,721 5,581 3,613 2,266
Earnings per Share(1) $ 0.83 $ 0.69 $ 0.59
Pro Forma Earnings per Share(2) $ 0.43 $ 0.33
Balance Sheet Data(3)
Working Capital (Deficiency) $ 10,771 $ 7,849 $ 1,874 $ 3,604 $ (864)
Total Assets 101,457 66,764 60,246 48,807 49,557
Total Debt 5,280 2,052 3,315 4,963 23,723
</TABLE>
(1) Adjusted to reflect 3 for 2 stock splits effected on April 5, 1994 and
February 5, 1996.
(2) Adjusted to reflect the above stock splits, and assumes the common stock
issued in connection with the Company's initial public offering in April
1993 was outstanding for the entire period.
(3) For discussion of acquisitions, see Footnote 18 to the Consolidated
Financial Statements.
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Background
NFO Research, Inc. and its subsidiaries (the "Company") is a leading provider of
custom and syndicated market information to America's largest companies as well
as the international business community. Through its pre-recruited consumer
panel and other specialized databases, NFO offers access to more than 525,000
households and over 1.3 million people.
Results of Operations
The following table sets forth for the periods indicated certain income
statement data for the Company.
<TABLE>
<CAPTION>
Percentage
Increase
(Decrease)
Income Statements
Years Ended December 31, 1996 1995
---------------------------------- Over Over
1996 1995 1994 1995 1994
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $109,162 $ 73,098 $ 61,545 49.3% 18.8%
Cost of Revenues 48,329 32,356 26,783 49.4 20.8
Selling, General & Administrative Expenses 39,279 25,559 22,355 53.7 14.3
Amortization Expense 2,891 2,157 2,031 34.0 6.2
Depreciation Expense 1,668 1,239 1,026 34.6 20.8
-------- -------- -------- ---- ----
Operating Income 16,995 11,787 9,350 44.2 26.1
Interest Expense, Net 216 26 103 730.8 (74.8)
Other Expenses 453 -- 258 -- --
-------- -------- -------- ---- ----
Income Before Income Taxes 16,326 11,761 8,989 38.8 30.8
Income Tax Provision 7,310 5,040 3,408 45.0 47.9
-------- -------- -------- ---- ----
Net Income $ 9,016 $ 6,721 $ 5,581 34.1% 20.4%
-------- -------- -------- ---- ----
Weighted Average Shares Outstanding(1) 10,818 9,696 9,483 11.6% 2.2%
======== ======== ======== ==== ====
Earnings per Share(1) $ .83 $ .69 $ .59 20.3% 16.9%
======== ======== ======== ==== ====
</TABLE>
(1) Adjusted to reflect 3 for 2 stock splits effected on April 5, 1994 and
February 5, 1996.
Special Note Regarding Forward-Looking Statements
As certain of the statements made in this annual report are "forward-looking
statements" (within the meaning of the Private Securities Litigation Reform Act
of 1995), they involve known and unknown risks, uncertainties and other factors
that may cause actual results, performance or achievements of the Company to be
materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, clients' timing of new product introductions and reformulations,
clients' marketing budgets, industry and economic conditions, changes in
management or ownership of a client, the effect of the Company's competition on
client purchasing decisions, the strategic decisions of the Company's management
team, the extent to which the Company is successful in developing and marketing
its interactive market research techniques and other factors referenced in this
annual report. In addition, the success of the Company's European expansion
efforts is dependent in part upon a productive joint venture relationship and
upon the successful application of NFO's methodologies to different business and
consumer environments.
<PAGE>
Acquisitions
On January 3, 1996, the Company acquired Migliara-Kaplan & Associates, Inc.
("M/K"), Chesapeake Surveys, Inc. ("CSI"), and Plog Research, Inc. ("Plog"). M/K
is one of the nation's leading full-service health care marketing information
companies with offices in Baltimore, MD and Princeton, NJ. CSI provides data
collection and survey services, such as focus groups and random telephone
interviews. Plog is the nation's leading travel industry marketing research
organization. On August 15, 1996, the Company acquired The SPECTREM Group, Inc.
("Spectrem"). Spectrem provides niche consulting and acquisition and divestiture
advisory services in the trust and investment products sectors.
1996 Compared to 1995
The Company's revenues increased 49 percent to $109.2 million from $73.1 million
the previous year. The acquisitions of M/K, CSI, and Plog in January 1996 and
Spectrem in August 1996 contributed $28 million to this increase. Revenues in
the Company's remaining business increased by 10 percent, led by strong showings
in its financial services and packaged goods sectors.
Costs of revenues increased 49 percent to $48.3 million from $32.4 million a
year ago. The increase was primarily the result of the first time inclusion of
M/K, CSI, Plog and Spectrem ($12.5 million), while remaining costs of revenues
increased $3.4 million, or 10.5 percent which was in line with revenue
increases.
Selling, general and administrative expenses increased 54 percent to
$39.3 million from $25.6 million in the previous year. The first time inclusion
of M/K, CSI, Plog and Spectrem accounted for $9.6 million, while other principal
contributing factors included increased staffing caused by increased business
activity in both the U.S. and Europe, development of the Company's new online
interactive research capabilities, and inflationary increases.
Operating income in 1996 increased 44 percent to $17.0 million from $11.8
million in the prior year. This increase is primarily the result of the items
discussed above. Operating margins for 1996 were 15.6 percent compared to 16.1
percent a year ago. Excluding the Company's investments related to Interactive
Business Development, operating margins were actually higher in 1996 than 1995.
Income tax expense reflects the Company's combined Federal and State
statutory tax rate of approximately 39 percent, plus the effects of
non-deductible expenses, primarily goodwill. The increase in the effective tax
rate from 42.9 percent to 44.8 percent was largely due to the effect of the
acquisitions mentioned above.
The result of the items discussed above is that net income increased 34
percent to $9.0 million from $6.7 million in the previous year. Earnings per
share increased to $.83 from $.69 a year ago. The increase in earnings per share
was primarily due to increased earnings and occurred in spite of a greater
number of outstanding shares caused primarily by the issuance of additional
shares in connection with the recent acquisitions. The earnings per share have
been adjusted for the stock split effected on February 5, 1996.
1995 Compared to 1994
The Company's revenues increased 18.8 percent to $73.1 million from $61.5
million the previous year. All of the Company's business units grew at
double-digit rates for the year. The Company's telecommunications business unit,
as well as its financial services, HealthMed, and packaged goods businesses had
strong growth in 1995.
Costs of revenues increased 20.8 percent to $32.4 million from $26.8 million
a year ago. The increase was primarily due to the overall increase in business
volume, a slight change in product mix, and an increase in postal rates. Postal
rates increased January 1, 1995 and the Company passed through, without its
normal markup, any incremental postage charges on projects performed in the
first quarter of 1995 that were sold prior to January 1, 1995.
Selling, general and administrative expenses for 1995 increased 14.3 percent
to $25.6 million from $22.4 million in 1994. The principal contributing factors
were the first-time inclusion of Advanced Marketing Solutions Corp. ("AMS"),
acquired in December 1994 ($.7 million), increases at PSI related to the opening
of a new office in London, England and the expansion of its existing offices in
Tampa, Florida, and new product development ($.5 million), increases in
marketing expenses and product development costs of $.7 million and general
inflationary increases.
<PAGE>
Operating income in 1995 increased 26.1 percent to $11.8 million from $9.4
million in the prior year. This increase was primarily the result of the items
discussed above. Operating margins increased to 16.1 percent from 15.2 percent
for 1994.
The result of the items discussed above is that net income increased 20.4
percent to $6.7 million from $5.6 million in the prior year. Earnings per share
increased 16.9 percent to $.69 from $.59 a year ago. The earnings per share
amounts have been adjusted for the stock split effected on February 5, 1996.
Liquidity and Capital Resources
Working capital as of December 31, 1996 was $10.8 million, an increase of $2.9
million from December 31, 1995. The primary reason for the change in working
capital was an increase in accounts receivable partially offset by an increase
in accrued expenses.
The Company has a credit facility (the "Credit Facility") with three major
U.S. banks. The Credit Facility provides NFO with a credit availability of $45
million which declines to $35 million and $25 million on December 29, 1997 and
1998, respectively. The Company may borrow under this facility at rates based on
specific margins above the Eurodollar base rate, the Federal Fund Rate or the
Prime Rate, at the Company's option. At December 31, 1996, the Company had loans
outstanding of $4 million under the Credit Facility.
The Credit Facility includes covenants which require the Company to maintain
certain ratios and net worth levels and place certain restrictions on
investments, sales of assets, issuance of new debt, payment of dividends,
incurring of liens and the guarantee of obligations of third parties. The
Company believes that none of these restrictions will have a significant impact
on its business or operations as presently contemplated.
During the year, the Company made capital expenditures of approximately $3.3
million. Capital expenditures in 1997 are expected to be substantially higher
than this level due to the planned expansion of the Company's operations
capacity.
The Company anticipates that existing cash, together with internally
generated funds and its credit availability, will provide the Company with the
resources that are needed to satisfy potential acquisitions, capital
expenditures, and the Company's growing working capital requirements in fiscal
1997 and subsequent years. The timing and magnitude of future acquisitions will
be the single most important factor in determining the Company's long-term
capital needs.
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 resulting from inflation.
Seasonality
The Company's business activity has traditionally reflected a modest seasonality
factor with slightly higher revenues in the Company's fourth quarter. This
seasonality reflects increased research spending in the fourth quarter by
clients seeking to complete research studies prior to the holiday season and the
close of their fiscal year. Also, the Company generally initiates several
large-scale annual projects and tracking programs during the fourth quarter of
each year.
Over the past three years, the fourth quarter has represented between 28.4
percent and 29.8 percent of the Company's annual revenues. Each of the remaining
three quarters ranged between 22.1 percent and 25.4 percent of the annual total.
NFO RESEARCH, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
NUMBER
------
Consolidated Financial Statements for the years ended December 31, 1996, 1995
and 1994:
<S> <C>
Independent Auditors' Reports.................................................... F2 & F3
Consolidated Balance Sheets...................................................... F-4
Consolidated Income Statements................................................... F-5
Consolidated Statements of Stockholders' Equity.................................. F-6
Consolidated Statements of Cash Flows............................................ F-7
Notes to Consolidated Financial Statements....................................... F-8
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and
Stockholders of NFO Research, Inc.:
We have audited the accompanying consolidated balance sheets of NFO Research,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1996 and 1995,
and the related consolidated statements of income, stockholders' equity and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of NFO Research, Inc. and
subsidiaries as of December 31, 1996 and 1995, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule referred to in Item 14 is
presented for the purpose of complying with the Securities and Exchange
Commission's rules and is not part of the consolidated financial statements.
This schedule has been subjected to the auditing procedures applied in the
audits of the consolidated financial statements and, in our opinion, fairly
states in all material respects the financial data required to be set forth
therein in relation to the consolidated financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
New York, New York,
February 18, 1997, except for Note 19,
as to which the date is March 20, 1997.
F-2
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
NFO Research, Inc.
Greenwich, Connecticut
We have audited the accompanying consolidated statements of income,
stockholders' equity, and cash flows of NFO Research, Inc. and subsidiaries for
the year ended December 31, 1994. Our audit also included the financial
statement schedule referred to in Item 14. These financial statements and
financial statement schedule are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements and
financial statement schedule 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, such consolidated financial statements present fairly, in all
material respects, the results of operations and cash flows of NFO Research,
Inc. and subsidiaries for the year ended December 31, 1994 in conformity with
generally accepted accounting principles. Also, in our opinion, such 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.
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Ann Arbor, Michigan
February 17, 1995
F-3
<PAGE>
Consolidated Balance Sheets
As of December 31, 1996 and 1995
(in thousands, except per share data)
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 4,086 $ 5,677
Receivables:
Trade, Less Allowance for Doubtful Accounts
of $143 and $139 in 1996 and 1995, respectively 24,728 14,155
Unbilled Receivables 3,963 3,188
Prepaid Expenses and Other Current Assets (Note 8) 3,309 2,734
--------- ---------
Total Current Assets 36,086 25,754
--------- ---------
Property and Equipment, Net (Note 3) 11,013 8,756
--------- ---------
Customer Lists, Goodwill and Other Intangible Assets (Notes 2 and 4) 49,412 26,501
--------- ---------
Other Assets
Deferred Income Taxes (Note 8) 2,074 4,137
Other (Note 18) 2,872 1,616
--------- ---------
Total other assets 4,946 5,753
--------- ---------
Total Assets (Note 5) $ 101,457 $ 66,764
========= =========
Liabilities and Stockholders' Equity
Current Liabilities
Current Maturities of Long-Term Debt (Note 5) $ 459 $ 643
Accounts Payable 2,182 1,543
Accrued Liabilities (Note 6) 13,568 8,700
Customer Billings in Excess of Revenues Earned 9,106 7,019
--------- ---------
Total Current Liabilities 25,315 17,905
--------- ---------
Long-Term Liabilities
Long-Term Debt, Less Current Portion (Note 5) 4,821 1,409
Accrued Pension, Postretirement Benefits and Other (Notes 9 and 10) 4,579 3,429
--------- ---------
Total Long-Term Liabilities 9,400 4,838
--------- ---------
Total Liabilities 34,715 22,743
--------- ---------
Commitments and Contingencies (Notes 7, 16, and 18)
Stockholders' Equity (Note 11)
Serial Preferred Stock, Par Value $.01 per Share;
5,000 Shares Authorized; None Issued
Common Stock, Par Value $.01 per Share; 60,000 shares
authorized; 10,280 and 9,428 shares issued and
outstanding at December 31, 1996 and 1995, respectively 103 63
Additional Paid-In Capital 40,541 27,222
Retained Earnings 26,421 17,405
Additional Minimum Liability, Net of Income Taxes (Note 9) (323) (669)
--------- ---------
Total Stockholders' Equity 66,742 44,021
--------- ---------
Total Liabilities and Stockholders' Equity $ 101,457 $ 66,764
========= =========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
Consolidated Income Statements
For the years ended December 31, 1996, 1995 and 1994
(in thousands, except per share data)
1996 1995 1994
---- ---- ----
Revenues (Notes 2 and 15) $109,162 $ 73,098 $ 61,545
Costs and Expenses
Cost of Revenues 48,329 32,356 26,783
Selling, General and Administrative 39,279 25,559 22,355
Amortization of Intangible Assets 2,891 2,157 2,031
Depreciation 1,668 1,239 1,026
-------- -------- --------
Operating Income 16,995 11,787 9,350
Interest Expense, Net (Note 12) 216 26 103
Other Expenses (Notes 4 and 18) 453 -- 258
-------- -------- --------
Income Before Income Taxes 16,326 11,761 8,989
Provision for Income Taxes (Note 8) 7,310 5,040 3,408
-------- -------- --------
Net Income $ 9,016 $ 6,721 $ 5,581
======== ======== ========
Earnings per Share (Note 13) $ .83 $ .69 $ .59
======== ======== ========
See notes to consolidated financial statements.
F-5
<PAGE>
Consolidated Statements of
Stockholders' Equity
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
Additional Additional Total
Common Common Paid-In Retained Minimum Stockholders'
Shares Stock Capital Earnings Liability Equity
------ ----- ------- -------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 9,000 $ 40 $ 23,242 $ 5,103 $ (511) $ 27,874
Acquisition (Note 18) 268 1 2,400 2,401
Stock Split (Note 11) 21 (21) --
Other Issuances 46 324 324
Reduction of Additional Minimum Liability,
Net of Income Taxes (Note 9) 178 178
Net Income 5,581 5,581
------ -------- -------- -------- -------- --------
Balance at December 31, 1994 9,314 $ 62 $ 25,945 $ 10,684 $ (333) $ 36,358
Acquisition (Note 18) 27 361 361
Other Issuances 87 1 916 917
Accrual of Additional Minimum Liability,
Net of Income Taxes (Note 9) (336) (336)
Net Income 6,721 6,721
------ -------- -------- -------- -------- --------
Balance at December 31, 1995 9,428 $ 63 $ 27,222 $ 17,405 $ (669) $ 44,021
Acquisitions (Note 18) 752 8 12,077 12,085
Stock Split (Note 11) -- 31 (31) --
Other Issuances 78 1 1,132 1,133
Reduction of Additional Minimum Liability,
Net of Income Taxes (Note 9) 346 346
Conversion of Note Payable (Notes 5 and 18) 22 -- 141 141
Net Income 9,016 9,016
------ -------- -------- -------- -------- --------
Balance at December 31, 1996 10,280 $ 103 $ 40,541 $ 26,421 $ (323) $ 66,742
====== ======== ======== ======== ======== ========
</TABLE>
The shares presented reflect 3 for 2 stock splits effected on April 5, 1994 and
February 5, 1996 (Note 11).
See notes to consolidated financial statements.
F-6
<PAGE>
Consolidated Statements of Cash Flows
For the years ended December 31, 1996, 1995 and 1994
(in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income $ 9,016 $ 6,721 $ 5,581
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Amortization of Intangible Assets 2,891 2,157 2,031
Depreciation 1,668 1,239 1,026
Write-off of Debt Issuance Costs 258
Deferred Income Taxes (99) (196) 178
Equity Interest in Net Loss of Joint Venture 453
-------- -------- --------
Subtotal 13,929 9,921 9,074
Change in Assets and Liabilities that Provided (Used) Cash,
Net of Effects of Acquisitions:
Trade Receivables (6,060) (3,072) (2,613)
Unbilled Receivables (478) (2,834) (18)
Prepaid Expenses and Other Current Assets (287) (856) (159)
Accounts Payable and Accrued Liabilities 1,962 1,677 (269)
Customer Billings in Excess of Revenues Earned (1,456) (908) 1,453
Other, Net (668) 53 (254)
-------- -------- --------
Net Cash Provided by Operating Activities 6,942 3,981 7,214
-------- -------- --------
Cash Flows From Investing Activities
Acquisitions (Net of Cash Acquired) (7,258) (361) (1,999)
Capital Expenditures, (Net of Minor Disposals) (3,326) (2,097) (1,385)
Purchase of Intangible Assets (70) (255)
Investments in Joint Venture (999) (1,290)
-------- -------- --------
Net Cash Used in Investing Activities (11,653) (4,003) (3,384)
-------- -------- --------
Cash Flows From Financing Activities
Issuance of Common Stock, Net of Expenses 769 687 324
Payments on Long-Term Debt (11,522) (1,085) (2,978)
Principal Payments on Capital Lease Obligations (127) (191) (183)
Proceeds from Line of Credit 14,000
-------- -------- --------
Net Cash Provided by (Used in) Financing Activities 3,120 (589) (2,837)
-------- -------- --------
Increase (Decrease) In Cash And Cash Equivalents (1,591) (611) 993
Cash And Cash Equivalents, Beginning Of Period 5,677 6,288 5,295
-------- -------- --------
Cash And Cash Equivalents, End Of Period $ 4,086 $ 5,677 $ 6,288
======== ======== ========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE>
Notes to Consolidated Financial Statements
For the years ended December 31, 1996, 1995 and 1994
1. Business
NFO Research, Inc. together with its subsidiaries (the "Company") is a leading
provider of custom and syndicated market information to America's largest
companies, as well as the international business community. The company gathers
information primarily using a proprietary panel of pre-recruited consumer
households (the "Panel").
2. Summary of Significant Accounting Policies
Consolidation - The consolidated financial statements include the accounts of
the Company and all subsidiaries. All significant intercompany accounts and
transactions have been eliminated.
Revenue Recognition - The Company recognizes revenue on projects, which are
substantially all short-term, by generally applying recent historical
contribution margins to project costs as incurred. A provision for anticipated
losses is recorded in the period in which they first become determinable.
Cash and Cash Equivalents - The Company considers all investments with a
maturity of three months or less when purchased to be cash equivalents.
Depreciation - The Company provides depreciation over the estimated useful
lives of the depreciable assets using the straight-line method.
Intangible Assets - The Company provides amortization of these assets using
the straight-line method over their estimated period of benefit or contractual
life, principally as follows:
Years
-----
Customer Lists 15-20
Customized Software 5
Debt Issuance Costs 5
Goodwill 5-30
The Company periodically evaluates the recoverability of goodwill and other
intangible assets by assessing whether the unamortized intangible assets can be
recovered from undiscounted future cash flows from operations.
Panel - The Company enhances and rebuilds its Panel on a continuous basis,
and the related costs are charged to expense as incurred. The Company expensed
$1,347,000, $933,000, and $1,061,000 on Panel enhancing and rebuilding in 1996,
1995 and 1994, respectively.
Income Taxes - Deferred income taxes are recorded to reflect the tax
consequences of differences between the tax bases of the Company's assets and
liabilities and their financial reporting amounts at each balance sheet date.
Fair Value of Financial Instruments - The following methods and assumptions
were used to estimate the fair value of each category of the Company's financial
instruments.
Cash and Short-Term Financial Instruments - The carrying amount approximates
fair value due to the short maturity of these instruments.
Long-Term Financial Instruments - The fair value has been estimated using the
expected future cash flows discounted at market interest rates as adjusted for
conversion privileges. Fair value of long-term debt exceeded the carrying
amounts by approximately $170,000 and $400,000 at December 31, 1996 and 1995,
respectively.
Use of Estimates - The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
3. Property and Equipment
Property and equipment, including equipment held under capital leases (Note 5),
consists of the following at December 31, 1996 and 1995 (in thousands):
Estimated
Useful Lives 1996 1995
------------ ---- ----
Land $ 1,663 $ 933
Buildings and
Leasehold Improvements 10-40 years 5,157 4,998
Data Processing and
Communications Equipment 3-5 years 5,979 4,485
Furniture and Other
Equipment 4-8 years 4,010 2,388
----------- -------- --------
Total $ 16,809 $ 12,804
Less Accumulated
Depreciation and
Amortization (5,796) (4,048)
-------- --------
Total $ 11,013 $ 8,756
======== ========
F-8
<PAGE>
4. Intangible Assets
Intangible assets consist of the following at December 31, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Customer Lists, Net of Amortization of $6,548 and $5,299 in 1996 and 1995, respectively $14,789 $10,440
Customized Software, Net of Amortization of $1,635 and $1,406 in 1996 and 1995, respectively -- 229
Debt Issuance and Other costs, Net of Amortization of $338 and $224 in 1996 and 1995, respectively 332 386
Goodwill, Net of Amortization of $3,665 and $2,366 in 1996 and 1995, respectively 34,291 15,446
------- -------
Total $49,412 $26,501
======= =======
</TABLE>
The Company wrote off unamortized debt issuance costs of $258,000 in 1994 in
conjunction with the replacement of an existing debt agreement with a new one.
5. Long-Term Debt
Long-term debt consists of the following at December 31, 1996 and 1995 (in
thousands):
<TABLE>
<CAPTION>
1996 1995
---- ----
<S> <C> <C>
Industrial Development Revenue Bonds Due in Monthly Installments of $37 Including Interest
at 70 Percent of the Prime Rate (effective rate of 5.8 Percent at December 31, 1996 and 6.0 Percent
at December 31, 1995) through September 1997. The Bonds Are Collateralized by Real Estate with
a Net Book Value of $1,064 at December 31, 1996 $ 281 $ 672
Industrial Development Revenue Bonds Due in Monthly Installments of $10, Plus Interest at 80 Percent
of the Prime Rate (effective rate of 6.6 Percent at December 31, 1996 and 6.8 Percent at December 31, 1995)
through January 2004. The Bonds Are Collateralized by Real Estate with a Net Book Value of $1,349
at December 31, 1996 876 1,001
Note Payable to Banks under a Revolving Credit Agreement Due December 31, 1999, with Interest
Ranging Between 6.3 Percent and 6.4 Percent 4,000 --
Note Payable (Face Amount of $125 in 1996 and $375 in 1995) Due November 2004, with
Interest Imputed at 7.0 Percent. Holder Has Option to Convert All or Part of Note to Common
Stock of the Company 69 198
Obligations Under Long-Term Capital Leases, Due in Monthly Installments of $13 through January 1997,
and $6 through October 1997, Interest Ranging between 9.6 percent and 9.7 percent 54 181
------- -------
Total 5,280 2,052
Less Current Maturities (459) (643)
------- -------
Total $ 4,821 $ 1,409
======= =======
</TABLE>
F-9
<PAGE>
The Company has a revolving line of credit agreement with three major banks
which provides for borrowings up to $45 million. The agreement expires on
December 31, 1999, and is secured by substantially all assets of the Company. At
December 31, 1996, there was $4 million outstanding under this agreement. There
were no borrowings outstanding under this agreement at December 31, 1995.
The available line of credit under the revolving credit agreement was reduced
by $5,000,000 in December 1996, and will be reduced by $10,000,000 on December
29, 1997 and 1998. The credit agreement also has certain mandatory reductions
due to excess cash flow (as defined), asset sales in excess of specified amounts
and a portion of the net proceeds received from any public issuances of
securities of the Company.
Interest is payable quarterly on the outstanding balance at variable rates
depending on the Company's leverage ratio as defined in the agreement. The rates
are based on specified margins above the Eurodollar Rate, the Federal Funds Rate
or the Prime Rate, at the Company's option. Commitment fees are payable
quarterly at varying rates depending on the Company's leverage ratio (as defined
in the agreement).
The revolving credit agreement includes covenants which require the Company
to maintain certain financial ratios and net worth levels and place certain
restrictions on investments, sales of assets, issuance of new debt, payment of
dividends, incurring of liens and the guarantee of obligations of third parties.
Required principal payments on long-term debt and capital lease obligations
are as follows at December 31, 1996 (in thousands):
Capital
Debt Leases
---- ------
1997 $ 405 $56
1998 125
1999 4,125
2000 125
2001 125
Thereafter 377
------ ---
Total 5,282 56
Less Amount Representing Interest (56) (2)
------ ---
Present Value of Minimum Payments $5,226 $54
====== ===
6. Accrued Liabilities
Accrued liabilities consist of the following at December 31, 1996 and 1995 (in
thousands):
1996 1995
---- ----
Accrued Compensation and Payroll Taxes $ 3,659 $ 2,064
Income Taxes Payable (Note 8) 1,231 1,078
Accrued Vacation 1,032 849
Purchase Price Payable (Note 18) 3,733 1,047
Accrued Pension (Note 9) 350 667
Accrued Profit Sharing (Note 9) 719 626
Other Accrued Liabilities 2,844 2,369
------- -------
Total $13,568 $ 8,700
======= =======
7. Operating Leases
The Company leases office space and equipment under noncancelable operating
leases that expire at various dates through 2002. Certain of these leases are
subject to rent review and contain escalation clauses. Future minimum annual
payments required under the noncancelable leases as of December 31, 1996, are as
follows (in thousands):
1997 $2,325
1998 2,328
1999 1,644
2000 1,434
2001 1,269
Thereafter 133
------
Total $9,133
======
Rental expense for the years ended December 31, 1996, 1995 and 1994,
including leases on a month-to-month basis, was approximately $2,638,000,
$1,744,000, and $1,470,000, respectively.
Certain of the Company's subsidiaries rent space in office buildings owned or
partially owned by officers of the subsidiaries. Such rents, which are
approximately $.5 million in 1996, are believed to be consistent with arms
length transactions.
F-10
<PAGE>
8. Income Taxes
The provision for income taxes is as follows for the years ended December 31,
1996, 1995, and 1994 (in thousands):
1996 1995 1994
---- ---- ----
Current Provision:
Federal $ 6,249 $ 4,100 $ 2,479
State and Local 1,160 1,136 751
------- ------- -------
Total 7,409 5,236 3,230
------- ------- -------
Deferred Provision (Credit):
Federal (85) (167) 119
State and Local (14) (29) 59
------- ------- -------
Total (99) (196) 178
------- ------- -------
Total Provision $ 7,310 $ 5,040 $ 3,408
======= ======= =======
Temporary differences giving rise to the recorded deferred income tax asset
at December 31, 1996 and 1995, are as follows (in thousands):
1996 1995
---- ----
Depreciation and Amortization $ 610 $2,997
Pension, Postretirement Benefits and
Deferred Compensation 907 1,047
Vacation 341 305
State and Local Taxes 364 282
Other 652 147
------ ------
Total $2,874 $4,778
====== ======
A reconciliation between the Company's effective tax rate and the U.S.
statutory rate at December 31, 1996, 1995 and 1994, is as follows:
1996 1995 1994
---- ---- ----
Statutory Rate 34.6% 34.2% 34.0%
Nondeductible Expenses 2.9 1.7 3.9
State and Local Income Taxes,
Net of Federal Benefit 4.6 6.1 5.9
Section 197 Election (see below) (4.4)
Other 2.7 0.9 (1.5)
----- ----- -----
Effective Tax Rate 44.8% 42.9% 37.9%
===== ===== =====
In July 1994, the Company elected to adopt Section 197 of the Internal
Revenue Code, which relates to the amortization of intangible assets. This
election allows the Company to deduct some previously nondeductible
amortization, including some goodwill, for tax purposes. As a result, the
Company's effective tax rate for 1994 was reduced by 4.4 percent. Also as a
result of the election, the Company recorded a $2.7 million reduction of
goodwill and a reduction of tax expense of approximately $.5 million in 1994,
relating principally to the deductibility of previously nondeductible intangible
amortization for prior periods. In connection with the election, the Company
made tax payments related to changes in intangible asset tax lives for prior
periods of approximately $1 million during 1994. Those payments were provided
for in prior periods, and therefore had no impact on 1994 earnings.
9. Employee Benefit Plans
The Company has a defined benefit pension plan covering substantially all its
employees. Benefits provided by the plan are based on salary and years of
service. The Company's funding policy is to contribute annually the maximum
amount that can be deducted for federal income tax purposes. Contributions are
intended to provide not only for benefits attributed to service to date but also
for those expected to be earned in the future.
The following table sets forth the plan's funded status and amounts
recognized in the Company's balance sheets at December 31, 1996 and 1995 (in
thousands):
1996 1995
---- ----
Actuarial Present Value of Benefit
Obligations:
Accumulated Benefit Obligation
Including Vested Benefits of
$5,087 and $4,588 at December 31,
1996 and 1995, respectively $ 5,680 $ 5,135
======= =======
Projected Benefit Obligation for
Service Rendered to Date $ 5,908 $ 5,248
Plan Assets at Fair Value (Principally
Invested in Equity Securities and
Guaranteed Fixed Income
Insurance Contracts) 5,113 3,554
------- -------
Projected Benefit Obligation
in Excess of Plan Assets 795 1,694
Unrecognized Net Experience Differences (809) (1,286)
Prior Service Cost 34 40
Adjustment Required to Recognize
Minimum Liability before Income Taxes 547 1,133
------- -------
Accrued Pension Cost $ 567 $ 1,581
======= =======
The Company's required minimum funding amounts of $350,000 and $667,000,
which are included in the above accrued pension cost, are included in current
liabilities as of December 31, 1996 and 1995, respectively.
F-11
<PAGE>
Pension expense for the years ended December 31, 1996, 1995, and 1994
consists of the following (in thousands):
1996 1995 1994
---- ---- ----
Service Cost $ 502 $ 405 $ 410
Interest Cost on Projected
Benefit Obligation 411 347 303
Actual (Gain)/Loss on Assets (740) (488) 16
Net Amortization and Deferral 485 315 (180)
----- ----- -----
Net Periodic Pension Cost $ 658 $ 579 $ 549
===== ===== =====
Assumptions used in determining pension plan amounts were
as follows:
1996 1995 1994
---- ---- ----
Discount Rate 7.75% 7.75% 8.5%
Rate of Increase in
Compensation Levels 4.75 4.75 5.0
Expected Long-Term Rate
of Return on Assets 9.0 9.0 9.0
The Company maintains a profit sharing plan, established under Section 401(k)
of the Internal Revenue Code, which covers substantially all full-time
employees. Profit sharing contributions to the plan are at the discretion of the
Company's Board of Directors and are generally tied to annual profit
performance. The plan also contains a 401(k) feature whereby all eligible
employees may contribute up to 15 percent of their basic compensation. The
Company makes a matching contribution equal to 25 percent of the first 6 percent
of each participant's voluntary contribution. The Company's total contributions
related to the plan amounted to approximately $931,000, $801,000, and $700,000
for the years ended December 31, 1996, 1995, and 1994, respectively.
The Company has an unfunded, nonqualified deferred compensation plan for
certain key executives. The plan provides, among other things, for certain
deferred compensation to take effect on the employee's retirement, disability,
death or other termination of employment. Long-term liabilities include
approximately $692,000 and $314,000 at December 31, 1996 and 1995, respectively,
representing the present value of the benefits expected to be provided based on
the employees' service to that date.
10. Postretirement Benefit Programs
The Company sponsors two defined benefit postretirement programs that cover
salaried and nonsalaried employees. One program provides medical benefits, and
the other provides life insurance benefits. The postretirement healthcare
program is contributory, with retiree contributions adjusted annually; the life
insurance program is noncontributory.
The health care program currently requires the retiree to pay 50 percent of
the cost of coverage for the retiree and dependents both before and after
attaining age 65. For those retiring on or after January 1, 1994, the co-pay
increases at age 65 to 75 percent of the cost of coverage for the retiree and
100 percent of the cost of coverage for dependents. In addition, an employee
must complete 10 years of service after age 45 to be eligible for postretirement
medical coverage. The Company does not fund its postretirement health care or
life insurance programs.
The following sets forth the programs' status reconciled with the amount
shown in the Company's balance sheets at December 31, 1996 and 1995 (in
thousands):
1996 1995
---- ----
Accumulated Postretirement
Benefit Obligation:
Retired Participants and Beneficiaries $ 392 $ 367
Fully Eligible Active Program Participants 417 324
Other Active Program Participants 309 228
------- -------
Accumulated Postretirement Benefit
Obligation in Excess of
Plan Assets 1,118 919
Unrecognized Net Loss (125) (21)
------- -------
Unfunded Accumulated Postretirement
Benefit Obligation, Included in
Long-Term Liabilities in the Accompanying
Balance Sheet $ 993 $ 898
======= =======
Net periodic postretirement benefit cost for 1996, 1995, and 1994 includes
the following components (in thousands):
1996 1995 1994
---- ---- ----
Benefits Attributed to Service
During the Period $ 72 $ 46 $ 48
Interest Cost on Accumulated
Postretirement Benefit Obligation 76 61 50
Net Amortization and Deferral 4 (2)
----- ----- -----
Net Periodic Postretirement
Benefit Cost $ 152 $ 105 $ 98
===== ===== =====
F-12
<PAGE>
The assumed discount rate used to measure the postretirement benefit
obligation is 7.5 percent, 7.5 percent, and 8.25 percent, in 1996, 1995, and
1994, respectively.
The health care trend rates assumed in the above estimates include an initial
assumed rate of 10 percent, grading down to a level 5 percent over 8 years.
The effect of a 1 percent increase in the assumed healthcare trend rates
would be to increase the obligation at December 31, 1996, by approximately
$145,000, and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by approximately
$23,000.
11. Capital Stock
Common Stock - In September 1996, the Company's Certificate of Incorporation
was amended to increase the number of authorized shares of Common Stock to 60
million shares from 15 million shares.
Stock Splits - On February 28, 1994, the Company's Board of Directors
authorized a 3 for 2 stock split of the Company's common stock effected on April
5, 1994, for stockholders of record on March 15, 1994. As a result,
approximately 2,063,000 additional shares were issued in 1994. Additionally, a 3
for 2 stock split was authorized on January 5, 1996, and effected on February 5,
1996, for stockholders of record on January 22, 1996. As a result, approximately
3,375,000 additional shares of NFO Common Stock were issued. All per share and
share amounts in the accompanying financial statements have been restated to
reflect both stock splits.
Preferred Stock - In connection with the initial public offering, the Company
authorized 5,000,000 shares of Serial Preferred Stock to be issued in one or
more series, with the Board of Directors to have the authority to fix
designations, preferences, powers and relative participating, optional or other
rights and restrictions thereof.
Stock Options - The Company has adopted the NFO Research, Inc. Stock Option
Plan (the "Stock Option Plan"), the Directors' Stock Option Plan (the
"Directors' Stock Option Plan"), and a Consultant's Plan. The Plans provide for
the grant of "nonqualified" options to purchase shares of common stock. The
exercise price of the options is the market value of the Company's common stock
on the date of the grant. The number of shares of common stock reserved for
issuance under the Stock Option Plan, the Directors' Stock Option Plan, and the
Consultant's Plan is 1,875,000, 360,000, and 37,500 shares, respectively. If, as
to any number of shares, any option granted pursuant to the Plans shall expire
or terminate for any reason, such number of shares shall again be available for
grant under the Plans.
Under the Stock Option Plan, options become exercisable at such time or times
as determined at the date of grant and expire not more than 10 years from the
date of grant. Options granted under the Stock Option Plan generally become
exercisable over a three-year period at the rate of one-third of the shares
awarded each year.
The Directors' Stock Option Plan provides that options on 15,000 shares be
automatically granted to each nonemployee director upon initial election and
that options on 7,500 shares be granted upon each occasion thereafter that the
director is elected or reelected to such position. Under the Directors' Stock
Option Plan, options become exercisable at any time after the six-month
anniversary of the date the option was awarded and expire not more than five
years from the date of grant.
Under the Consultant's Plan the options are exercisable any time after the
six-month anniversary of the date the option was awarded and expire five years
from the date of grant.
The Company applies Financial Accounting Standards Board Statement No. 123
(SFAS 123) in accounting for its stock-based compensation plans. In accordance
with SFAS 123, the Company applies Accounting Principles Board Opinion No. 25
and related Interpretations for expense recognition. All stock options issued by
the Company are exercisable at a price equal to the market price at the date of
grant. Accordingly, no compensation cost has been recognized for any of the
options granted under the Plans.
A summary of the status of the Company's plans that issue options as of
December 31, 1996 and 1995, and changes during the years ending on those dates,
is presented below:
Number Weighted
of Shares Average Price
--------- -------------
Outstanding at December 31, 1994 778,950 $ 8.01
Granted 283,500 14.70
Exercised (76,200) 7.13
Cancelled/Expired (21,000) 7.58
--------- ---------
Outstanding at December 31, 1995 965,250 10.06
Granted 442,505 21.28
Exercised (66,550) 7.55
Cancelled/Expired (10,250) 11.36
--------- ---------
Outstanding at December 31, 1996 1,330,955 $ 13.91
========= =========
Exercisable at December 31, 1995 415,250 $ 8.62
Exercisable at December 31, 1996 676,447 $ 10.01
Weighted-average fair-value of options
granted during 1995 $ 8.17
Weighted-average fair-value of options
granted during 1996 $ 12.04
Available for Grant at December 31, 1996 758,745
F-13
<PAGE>
The following table summarizes information about options outstanding at
December 31, 1996:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
--------------------------------------- -----------------------------
Weighted-Average
Number ------------------------- Number Weighted-
Range of Outstanding Remaining Exercise Exercisable Average
Exercise Prices at 12/31/96 Contractual Life Price at 12/31/96 Exercise Prices
- --------------- ----------- ---------------- ----- ----------- ---------------
<S> <C> <C> <C> <C> <C>
6.67 - 11.15 553,950 3.7 $ 7.89 466,950 $ 7.78
11.16 - 15.83 336,000 7.3 14.15 167,002 13.40
15.84 - 22.75 441,005 9.3 21.28 42,495 21.12
</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 by year:
1996 1995
---- ----
Risk-Free Interest Rate 6.1% 6.0%
Expected Life 6.8 years 6.6 years
Expected Volatility 46% 46%
Had compensation cost for the Plans been determined based on the fair value
at the grant dates for awards under those Plans consistent with the method
described in SFAS 123, Accounting for Stock-Based Compensation, the Company's
net income and earnings per share, would have been reduced to the pro forma
amounts indicated below:
(in thousands of dollars, except per share data) 1996 1995
---- ----
Net Income
As Reported $9,016 $6,721
Pro Forma $7,337 $6,236
Earnings Per Share
As Reported $ .83 $ .69
Pro Forma $ .68 $ .64
The Company cautions that the pro forma net income and per share results in
the initial years of adoption are overstated due to the recognition of pro forma
compensation cost over the vesting period.
12. Interest Expense, Net
Interest expense, net, consists of the following for the years ended December
31, 1996, 1995, and 1994 (in thousands):
1996 1995 1994
---- ---- ----
Interest Income $(242) $(292) $(151)
Interest Expense 458 318 254
----- ----- -----
Total $ 216 $ 26 $ 103
===== ===== =====
13. Earnings Per Share
Earnings per share has been computed using the weighted average number of shares
outstanding during each year including common stock equivalents, when dilutive,
using the treasury stock method. Common stock equivalents include stock options,
contingent acquisition consideration and convertible debt. Earnings per share
have been restated to give effect to the Company's stock splits.
14. Supplemental Cash Flow Information
Supplemental cash flow information for the years ended December 31, 1996, 1995,
and 1994 consists of the following (in thousands):
1996 1995 1994
---- ---- ----
Cash Paid During the Period for:
Interest $ 462 $ 307 $ 269
====== ====== ======
Income Taxes $6,674 $4,510 $4,208
====== ====== ======
Noncash Investing and Financing
Information:
Increase in Goodwill Resulting
from Contingent Purchase
Price Earned (Note 18) $3,733 $1,047 $ 722
====== ====== ======
Notes Payable Assumed
in Acquisitions (Note 18) $1,018 -- $ 795
====== ====== ======
Capital Lease Obligation Incurred
on Leases for New Equipment $ 173
======
F-14
<PAGE>
15. Major Customers
The Company's operations are conducted within one business segment, and revenues
attributable to international customers are approximately 4% of total revenues.
Net revenues from one major long-standing customer were approximately
$12,843,000, $12,200,000, and $10,873,000 for the years ended December 31, 1996,
1995, and 1994, respectively.
16. Commitments and Contingencies
The Company has employment agreements with its principal executives and certain
other key employees. These agreements generally do not extend more than three
years and contain renewal options.
The Company has an agreement with a stockholder requiring the Company to
reimburse that stockholder $10,000 per month as a non-allocable expense
reimbursement.
17. Quarterly Results of Operations (Unaudited)
Quarterly results were as follows (in thousands, except per share data):
First Second Third Fourth
----- ------ ----- ------
1996:
Revenues $24,106 $25,644 $26,838 $32,574
Earnings before Taxes 3,165 4,167 4,471 4,523
Net Income 1,701 2,240 2,475 2,600
Earnings per Share $ .16 $ .21 $ .23 $ .24
1995:
Revenues $16,218 $17,353 $18,564 $20,963
Earnings before Taxes 2,258 2,998 3,163 3,342
Net Income 1,285 1,728 1,782 1,926
Earnings per Share $ .13 $ .18 $ .18 $ .20
Earnings per share were computed giving effect to a 3 for 2 stock split
effected on February 5, 1996 (Note 11).
18. Acquisitions and Joint Ventures
On January 3, 1996, the Company acquired Migliara/Kaplan Associates, Inc.
("M/K") and substantially all the net assets of Chesapeake Surveys, Inc.
("CSI"). M/K is a full-service health care marketing information company with
offices in Baltimore, Maryland and Princeton, New Jersey. CSI, a sister company
of M/K, provides data collection and survey services such as focus groups and
random telephone interviews. Of the total purchase price, approximately $11.45
million was paid at closing, approximately 31 percent of which was paid in cash
and 69 percent in newly issued shares of NFO common stock. Additional portions
of the purchase price are due based on M/K earnings, as defined, during the
three years following the date of acquisition and payable approximately 30
percent in cash and 70 percent in NFO common stock. For the year ended December
31, 1996, the amount of additional purchase price actually earned was
approximately $3.6 million.
On January 3, 1996, the Company acquired Plog Research, Inc. ("Plog"). Plog
supplies syndicated market research products, as well as marketing and
forecasting services to the travel and tourism industries. Of the total purchase
price, approximately $5 million was paid at closing, 50 percent in cash and 50
percent in newly issued shares of NFO common stock. Additional portions of the
purchase price are due based on Plog's earnings, as defined, during the three
years following the date of acquisition and payable equally in cash and the
Company's common stock. For the year ended December 31, 1996, the amount of
additional purchase price actually earned was approximately $.1 million.
On August 15, 1996, the Company acquired The SPECTREM Group, Inc.
("Spectrem"). Spectrem provides niche consulting and acquisition and divesture
advisory services in the trust and investment areas to U.S. banks. Of the total
purchase price, approximately $2.4 million was paid at closing, 50 percent in
cash and 50 percent in newly issued shares of NFO common stock. The remaining
purchase price is due based on Spectrem's earnings, as defined, during the three
years following the date of acquisition.
The 1996 acquisitions include allocations to goodwill and customer lists of
$20.1 and $5.6 million, respectively. Spectrem's initial purchase price
allocation was based on preliminary estimates of fair market value and is
subject to revision.
F-15
<PAGE>
Effective January 1, 1994, the Company acquired Payment Systems, Inc.
("PSI"), a syndicated market research provider to the financial services
industry. Of the total purchase price for PSI, $4.8 million was paid at closing
in equal proportions of cash and NFO common stock (268,159 post-split shares).
Additional portions of the purchase price were due based on PSI's earnings, as
defined, during the two years following the date of acquisition and payable
equally in cash and the Company's common stock. For the years ended December 31,
1995 and 1994, the amount of additional purchase price actually earned was
$1,047,000 and $722,000, respectively. The excess of the pur-chase price over
the fair market value of the net assets acquired resulted in allocations to
goodwill and other intangibles of approximately $5.8 million.
Effective November 30, 1994, the Company acquired Advanced Marketing
Solutions, Inc. ("AMS"), a provider of custom "expert" computer software systems
to the market research industry. Of the total purchase price for AMS, the
Company paid $875,000 in cash and issued a non-interest bearing convertible
subordinated note with a face value of $375,000 at closing. The note was
converted in 1996 into 22,124 shares of the Company's common stock and a new
non-interest bearing convertible subordinated note was issued with an eight-year
life and a face value of $125,000. The note has been discounted to a net present
value of $69,000 in the accompanying financial statements. The remainder of the
purchase price is payable over the first three years after the acquisition,
approximately 57 percent in cash and 43 percent in non-interest bearing
convertible subordinated notes, subject to annual adjustments based on AMS's
actual earnings, as defined, each year. During 1996 and 1995, no additional
consideration was earned or payable. Substantially all of the purchase price was
allocated to goodwill based on the fair value of the net assets acquired.
All of the acquisitions described above were accounted for as purchases and
their results of operations have been included in the accompanying financial
statements from their respective dates of acquisition.
The unaudited consolidated results of operations on a pro forma basis as if
M/K, CSI, and Plog had been acquired as of the beginning of the Company's fiscal
year 1995 are as follows (in thousands, except per share amounts):
1995
----
Revenue $90,174
Net Income 6,771
Earnings per Share $ .65
The pro forma effects of Spectrem and AMS are not material, and therefore,
are not included.
The Company entered into agreements in 1995 with IPSOS, S.A. ("IPSOS"), a
major European marketing research firm, and LT Participations ("LT"), an IPSOS
affiliate, to launch access panel activities in Europe. Under the terms of the
agreements, the Company, IPSOS, and LT have agreed to launch joint venture
companies in five western European countries of which three are currently
operational. The Company initially will have approximately an 18 percent
interest in each joint venture but has the option, at its own discretion, to
increase its ownership interest to 50 percent during the next seven years by
purchasing LT's interest. LT has the right to sell its joint venture interests
to the Company anytime after three years. As part of these agreements, the
Company has purchased a comparable portion of IPSOS' existing access panel
businesses in Germany and France.
During 1996 and 1995, the Company invested approximately $999,000 and
$1,290,000 respectively, in these joint ventures, which is included in other
assets in the accompanying balance sheets. This investment has been accounted
for using the equity method of accounting. NFO's portion of the joint ventures'
1996 activities resulted in a loss of $453,000, which is reflected in other
expenses on the consolidated income statement.
19. Subsequent Event
On March 20, 1997, the Company signed an agreement and plan of merger to
acquire 100% of the stock of Prognostics, a leading provider of survey-based
quantitative customer satisfaction research to information technology companies
worldwide. Founded in 1981, Prognostics is headquartered in Palo Alto,
California and has additional offices in Boston and London, as well as an
affiliate relationship in Japan. The purchase will be consummated on April 1,
1997 when the Company will issue 1,726,480 shares of NFO Common Stock. The
purchase will be accounted for as a pooling of interests.
F-16
NFO RESEARCH, INC.
INDEX TO FINANCIAL INFORMATION AND SCHEDULES
PAGE
NUMBER
------
Schedule II - Valuation and Qualifying Accounts..................... S-2
S-1
<PAGE>
SCHEDULE II
Valuation and Qualifying Accounts
(In thousands)
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E
(a) (b)
Balance at Additions
Beginning of charged to costs Balance at
Description Period and expenses Deductions End of Period
- ----------- ------ ------------ ---------- -------------
<S> <C> <C> <C>
Allowance for doubtful accounts:
January 1 -
December 31, 1996 $ 139 $ 20 $ 16 $ 143
January 1 -
December 31, 1995 $ 140 $ 28 $ 29 $ 139
January 1 -
December 31, 1994 $ 96 $ 76 $ 32 $ 140
</TABLE>
Notes:
(a) Column "C(2)" has been omitted as it did not contain any amounts.
(b) Write off of uncollectible accounts.
S-2
