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, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _________TO _________
COMMISSION FILE NUMBER: 0 - 21460
NFO WORLDWIDE, 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 __
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]
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of March 20, 1998 was approximately $403,305,965.
As of March 20, 1998 there were 20,906,153 shares of the registrant's Common
Stock outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Selected portions of NFO Worldwide, Inc.'s 1998 Proxy Statement are
incorporated by reference into Part III of this report on Form 10-K.
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PART I
Special Note Regarding Forward-Looking Statements
As certain of the statements made in the 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 integrating acquired
companies, the effects of the economic crisis in Asia 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.
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Item 1. Business
ORGANIZATION
NFO Worldwide, Inc., and its subsidiaries (the "Company" or "NFO") is a leading
provider of custom and syndicated marketing information, consulting, and related
services to companies in 23 countries throughout the world. The Company offers
its clients a wide variety of market research services that identify and measure
consumer beliefs, attitudes and behavior regarding specific products and
services. Through its proprietary pre-recruited consumer panels and other
specialized databases, NFO offers access to over 550,000 U.S. households
(approximately 1.4 million people) and, through a joint venture, to over 100,000
European households. The Company provides its services to more than 2,300
clients in key market segments such as packaged goods and foods, healthcare,
financial services, information technologies/telecommunications, and travel and
leisure.
The Company provides its marketing information services, databases and market
research services to a diverse group of clients, including 45 of the largest 100
companies of the Fortune 500 list, 23 of the top 25 U.S. bank holding companies,
and 23 of the world's 25 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,
through its largest subsidiary NFO Research, Inc., offers its clients a wide
variety of market research services that identify and measure consumer beliefs,
attitudes and behavior regarding specific products and services. 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
advantage over other marketing and consumer information services firms.
In September 1997, the Company changed its name from NFO Research, Inc. to NFO
Worldwide, Inc., which reflects its rapidly expanding international presence, as
well as its growing capabilities and commitment to meeting its clients'
requirements with world-class quality, effectiveness, speed and efficiency. This
steadfast commitment is demonstrated by the fact that the Company has been named
one of the 200 Best Small Companies in America by Forbes magazine in each of the
last two years. Furthermore, as evidence of its dynamic growth strategy and
desire for heightened visibility in worldwide markets, in December 1997 the
Company's common stock was listed on the New York Stock Exchange. Since going
public in 1993, the Company's stock had been traded on the NASDAQ.
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The Company's core business is NFO Research, Inc. ("NFO Research"), which
celebrated its 50th anniversary in 1996. The panel methodology, which was
pioneered by NFO Research, allows the Company to measure consumer responses to,
or usage of, particular products and services generally on a more timely and
cost-effective basis than firms using non-panel research methods. The Company is
thus able to provide critical information to America's largest corporations to
help them test, launch, market and advertise their products for competitive
advantage. In addition to the many routine types of marketing studies that are
available, the size and diversity of the NFO panel allows for specialized
research targeting specific ethnic and demographic segments. The integrity of
the panel is maintained through the expertise of a highly trained and
knowledgeable staff, state-of-the-art database systems, and an unwavering focus
on developing a strong rapport with panel members.
Acquisitions (1997 & 1998). The Company continued its aggressive
growth-via-acquisition strategy in 1997 with the acquisition of Prognostics, one
of the leading providers of survey-based quantitative customer satisfaction
research to information technology companies. Prognostics is based on Palo Alto,
California, with additional offices in Boston and London, and an affiliate
relationship in Tokyo. Through its proprietary software, advanced survey
methodology and in-depth industry knowledge, Prognostics offers the most
complete range of services in the marketplace. Information technology companies,
having begun to shift from an internal, engineering-based focus to an external,
market-driven philosophy, utilize Prognostics' services to assess their
strengths, vulnerabilities and competitive opportunities. The end result for the
client is improved customer retention rates, better-quality decisions and more
efficient use of resources.
Also in 1997, the Company expanded its presence in the financial services
industry through the acquisition of Access Research by The Spectrem Group.
Access was founded in 1987 and has built a national reputation as a leading
source of quantitative and qualitative research, consulting and communications
services addressing pension sales, operations and marketing issues, especially
in the 401(k) market. The combined resources of Spectrem and Access allow
clients to benefit from the most extensive and accurate research on plan
sponsors, plan participants and performance benchmarks, along with expert advice
on how to use that information to make successful decisions.
In addition to its domestic acquisitions in 1997, the Company took significant
steps to expand its presence overseas when it acquired The MBL Group Plc, a
leading international market research firm. The MBL Group Plc has 19 companies
and 27 offices in 17 countries throughout the world, including the UK, the
Middle East, Asia, Mainland China and Southeast Asia. With this acquisition, the
Company became the largest U.S. based custom market research firm and the ninth
largest market research organization in the world.
The Company concluded its 1997 merger activity in December by acquiring New
Zealand-based CM Research Group, the leading provider of custom market research
in that country and one of the largest market research organizations in
Australia. CM Research has 5 offices and 5 separate operating companies, and
conducts studies for a diversified list of blue chip clients. CM Research became
part of The MBL Group Plc for operational purposes, making the latter one of
only three market research firms in the world with full coverage of the
Asia-Pacific region.
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The Company continued to acquire strong market research firms in 1998, beginning
with the purchase of MarketMind Technologies and Ross-Cooper-Lund ("RCL") in
separate transactions. MarketMind, founded in 1987 and headquartered in
Melbourne, Australia, owns and licenses the MarketMind system, which utilizes
proprietary software that combines a set of key diagnostic measures together
with the integration, interactive analysis and display of multiple streams of
longitudinal data. The MarketMind system is licensed in 20 countries supporting
hundreds of brands. RCL is a rapidly growing research-based consulting firm
headquartered in Teaneck, New Jersey. RCL, which is the exclusive U.S. licensee
of the MarketMind system, conducts large-scale studies that help clients to
diagnose and monitor brand communications and to optimize media budgets.
On March 9, 1998, NFO signed a purchase offer for Toronto-based CF Group, Inc.,
Canada's largest market research firm. In addition to Toronto, CF Group has
offices in Montreal, Ottawa and Vancouver. CF Group operates three divisions
within Canada - Canadian Facts, Applied Research Consultants ("ARC"), and Burke
International Research which provide marketing, social and business research
services across a variety of industries. CF's data collection capabilities
include the largest personal (in-home) interviewing force in Canada, the largest
CATI (computer assisted telephone interviewing) system throughout 9 Canadian
cities, and extensive mall interviewing facilities. Additionally, CF maintains a
consumer access panel similar to NFO's, which will allow the Company to offer
its clients seamless cross-border panel-based research. Closing of this
acquisition is scheduled to occur on April 3, 1998.
Acquisitions (Pre-1997). The Company's continuing growth has been fueled not
only by the success of NFO Research, but also its strategy of acquiring other
leading marketing information firms that complement its existing family of
companies. In 1994, the Company acquired Payment Systems, Inc. ("PSI" or "PSI
Global"), a Tampa, Florida-based provider of syndicated research products to the
financial services industry. PSI has over 100 clients in such financial service
areas as retail, corporate and private banking; insurance; mutual funds; and
credit cards. PSI is also very active in the international market, with its
London office surveying households in nearly a dozen European countries to
determine consumer attitudes toward the usage of debit cards and other financial
products. Additionally, PSI conducts research in Africa, the Middle East, the
Asia-Pacific region, and in six Latin American countries. PSI conducts 19
different product studies annually, which are then sold to multiple clients.
In 1996, as part of its strategy to diversify into the investment industry and
insurance sectors, PSI acquired The Spectrem Group ("Spectrem"), which is
headquartered in San Francisco and has offices in New York, Los Angeles,
Chicago, and Philadelphia. Spectrem began operations in 1990 and has grown into
a premiere provider of consulting, mergers and acquisition advice and customized
information products to companies in the rapidly expanding investment services
industry. Spectrem is currently exploring international research and consulting
opportunities, which will initially involve the development of leading-edge
information on retirement services activities in selected international markets.
In response to the volatility of the healthcare industry and the resulting
opportunities afforded to providers of marketing information, the Company
acquired Migliara/Kaplan Associates ("M/K") and its affiliate, Chesapeake
Surveys, Inc. ("CSI"), in 1996. M/K, with offices in Baltimore and Princeton,
New Jersey, is the nation's largest custom market research firm serving the
pharmaceutical industry. CSI provides data collection and survey services. The
addition of M/K and CSI complements and expands the Company's existing
healthcare capabilities. Whereas the HealthMed division of NFO Research
concentrates primarily on the consumer, the studies conducted by M/K and
Chesapeake involve not only doctors but also insurance companies and other
third-party payers. M/K's clients now gain a multi-faceted perspective on all of
the latest issues affecting the healthcare and pharmaceutical industry.
Another rapidly changing industry is travel and tourism, which the Company
serves through its Plog Research, Inc. ("Plog") subsidiary. Acquired in 1996,
Plog is based in Los Angeles and is a leading provider of syndicated research to
airlines, hotels, cruise lines and rental car companies. Plog has also conducted
both custom and large-scale multi-sponsored studies for major travel and leisure
industries.
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In 1995, the Company signed a joint venture agreement 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 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 and Italy and are expected to commence in Spain in 1999. The
joint ventures' international subsidiaries include a combined panel of nearly
100,000 households in Germany, France, the UK and Italy.
NFO Worldwide is committed to providing its clients with increasingly
innovative, results-oriented solutions to their information needs. This is why
the Company has changed so dramatically over the years and will continue to do
so in the future, as it strives to become the undisputed global leader in the
marketing information business.
BUSINESS STRATEGY
The Company's goal is to develop into a broader marketing information services
business centered around panel methodology. 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
and 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 and
syndicated 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 market
research. The Company also is keenly interested in developing, purchasing or
licensing additional, horizontal value-added products and services in areas such
as ad testing, market modeling, and brand equity/continuous tracking. It is
hoped that the Company can utilize its strong client relationships within its
vertical industries to make these new products and services commercially
successful. Towards this end, in late 1997 the Company launched a Corporate
Product and Systems Development Group comprised of three senior individuals
within the company whose specific goal is to bring to market new, value-added
products and services.
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 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 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 NFO//net.source, the world's
largest representative panel of interactive users, which currently numbers over
135,000 households and over 300,000 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 believes it is one of the leaders in the
development of interactive and on-line interviewing in the market research
industry.
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.
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, Spectrem in 1996 and Prognostics and Access in 1997. The Company is keenly
interested in increasing its presence in the high tech, telecommunications,
health care 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, brand equity/continuous tracking,
interactive research and international expansion.
NFO's acquisitions have enabled 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 Company's criteria for acquisitions include 1) niche service companies that
are #1 or #2 in their markets, 2) strong management with vertical industry or
horizontal product/geographic experience, 3) value added services or products
and 4) a cultural fit with NFO. The Company has very rigorous acquisition
criteria, and personnel very experienced in the area of mergers and
acquisitions.
The Company has forged separate strategic alliances with major players in the
high-tech industry, which will enable it to further develop and provide
value-added products and services to its customer base. These alliances include
Yahoo!, Jupiter Communications, Live Picture and LiveWorld Productions . 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.
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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 worldwide market research spending was estimated
to be $11.2 billion in 1996 by the European Society for Opinion and Marketing
Research (ESOMAR) supplemented with NFO estimates. Spending in Europe is
estimated to be $5.1 billion and to be $1.6 billion in Japan and Southeast Asia.
In the aggregate, market research spending outside the United States represented
$7.3 billion, or 65% of worldwide spending. To date, custom panel based research
has not been widely used outside of the United States.
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 recent steps-- including its IPSOS-NFO European joint venture as
well as its acquisitions of The MBL Group Plc, CM Research, MarketMind
Technologies and CF Group-- are indications of the huge potential the Company
believes exists in the international market research arena.
THE COMPANY'S SERVICES
Consumer Packaged Goods - Custom Panel Research Service (NFO Research, Inc.).
Approximately one-third of the Company's revenues are derived from custom panel
research. NFO Research conducts its panel market research by surveying targeted
segments of the NFO Panel primarily through mail questionnaires and telephone
interviews and most recently, interactive web-based surveys. 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.
NFO Research 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, NFO Research 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 Research's surveys. In many cases, NFO Research can easily select
households with the desired targeted characteristics from data maintained by NFO
Research concerning the NFO Panel. In other cases involving the need to locate
households with targeted characteristics not previously identified, NFO Research
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
Research's "MultiCard Survey" program (discussed below). 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 Research 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 Research's extensive demographic
and geographical profiles of the NFO Panel households facilitate the ability of
NFO Research to assist its clients with such "target" or "micro-marketing." NFO
Research has capitalized on its expertise in locating and researching households
within specific geographic areas, with specific user characteristics or with
unusual profiles, such as individuals with certain ailments, 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 Research has pre-screened over 300,000 NFO Panel
households for individuals suffering from one of sixty different chronic and
acute ailments and conditions. NFO Research 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 135,000 households and over 300,000
individuals ("NFO//net.source"). 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
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.
NFO Research has operations facilities located in Toledo, Ohio and Greensboro,
North Carolina. The unit maintains large mailing and telecommunication
facilities in its main 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.
NFO Research maintains a sales and marketing staff in eight locations throughout
the United States. The research executives work primarily with the market
research departments and product brand management departments of its clients.
For many of its larger clients, NFO Research 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. The stability of the NFO panel makes such ongoing
studies possible, and often results in additional follow-up projects being
commissioned by the client.
NFO Research offers its clients a full range of custom panel market research
services and specializes in the performance of comprehensive, difficult or
complicated research projects. These services are provided to clients primarily
in the Consumer Package Goods industries but also are utilized by companies in
the financial services, health care, travel and automotive industries. NFO
Research believes that its expertise with these programs distinguishes it from
its competitors. NFO Research's consistently high response rates from its NFO
Panel members allow it 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.
NFO Research 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 NFO Research are used to perform the following basic
types of studies: 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 NFO Research; Purchase/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 Research has an arrangement with IPSOS-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 Research utilizes its Screen Test
product that 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. The Screen Test product is a self-erasing
videotape that provides the security needed for handling market research of
confidential materials.
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.
Health Care - Custom Research Services (Migliara/Kaplan and NFO HealthMed).
Migliara/Kaplan is the nation's largest custom full-service healthcare marketing
research company with offices in Baltimore, Princeton, NJ, and London. 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.
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In 1992, the Company's NFO Research subsidiary formed a new HealthMed division
to service the Health Care industry, and the pharmaceutical industry in
particular. The Chronic Ailment Panel was developed by screening NFO's
proprietary panel for individuals for over sixty ailments and chronic
conditions, eight disabling conditions and users of several diagnostic testing
kits. This specialized panel enables NFO Research's clients to quickly identify
and obtain information regarding very low incidence conditions and ailments.
Financial Services - Syndicated and Custom Services (PSI Global, Spectrem, and
Access Research). PSI Global offers a variety of syndicated programs that
provide insight to the financial services industry, as well as propriety
consulting services. The 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 Global has provided research on credit card
usage in Europe since 1990. PSI Global has since expanded its coverage to bring
the same market research and strategic business planning expertise to Asia and
Latin America. PSI Global has earned a reputation as one of the international
business community's foremost providers of market information and related
strategic consulting services. PSI Global has offices in Tampa, New York,
London, Singapore and San Francisco. PSI conducts a variety of semiannual
research programs, the data from which it uses to produce 19 syndicated
products. These programs include the Affluent Market Research Program, which
uses tested survey and research methodologies to study the affluent market from
both the consumer and industry perspective; the Card Services Research Program,
which provides information about the attitudes, trends, technologies and
strategies that influence the credit card industry; and the Financial Services
Research Program, which identifies trends in financial product/service usage,
shifts in usage between products, and changes in consumer portfolios.
Spectrem provides niche consulting and acquisition and divestiture advisory
services in the trust and investment products sectors. Founded in 1990, Spectrem
has six U.S. offices: San Francisco, Los Angeles, New York, Chicago,
Philadelphia and Tampa. Spectrem is a specialist in the business side of
investment and trust services and its professionals have held top positions at
leading banks, brokerage firms and investment management companies.
Access Research is a research-based financial services consulting firm
specializing in the retirement market. Access Research has built a national
reputation as a leading source of quantitative and qualitative research,
consulting and communications services addressing pension sales, operations and
marketing issues, especially in the 401(k) market. The company is located in
Windsor, CT.
Information Technologies/Telecommunications - Syndicated and Custom Services
(Prognostics, NFO Interactive, NYPM and InfoCom). Founded in 1981, Prognostics
is a leading provider of survey based quantitative customer satisfaction
research to information technology companies worldwide. Prognostics' clients
include Sun Microsystems, Oracle, Digital, IBM, Hewlett-Packard, Cisco, Novell
and Silicon Graphics. The Company is headquartered in Palo Alto, California,
has additional offices in Boston and London, and has an affiliate relationship
in Japan.
Using its proprietary methodology (Loyalty Gap Analysis), Prognostics measures
customer loyalty and quantifies the customer's intention to continue to purchase
products from a particular supplier. By measuring what is important to customers
and how satisfied they are with respect to specific attributes, the Prognostics
methodology generates a quantitative figure - called the loyalty gap - which
directly correlates to customer loyalty. Prognostics has developed a number of
syndicated/tracking survey products around this methodology, and also performs
specific, ad hoc research. Prognostics works with over 250 client companies
worldwide.
-10-
<PAGE>
In 1996, the Company established its 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 135,000 households and over 300,000
individuals. 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 and has introduced a number of new
interactive products to the marketplace.
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 535 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.
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 online subscribers and technologically advanced households. Clients
can access these consumers and others efficiently for information to make better
informed business decisions about the marketplace.
InfoCom 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.
Travel and Leisure-Custom and Syndicated Services (Plog Research). Plog Research
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 users, 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. Plog
is located in Los Angeles, CA and East Brunswick, NJ.
International Custom and Syndicated Services (The MBL Group Plc, CM Research and
IPSOS-NFO). The MBL Group Plc ("MBL") is a leading international market research
firm with 27 offices in 17 countries throughout the world. Founded in January
1965, MBL provides strategic planning, market research, and research-based
consulting, on a worldwide basis. Working through its own subsidiaries and
affiliates in the UK, the Middle East, Asia and Southeast Asia, the Company has
successfully carried out assignments in some 100 countries around the world.
MBL's orientation is towards value-added research; that is, research which is
oriented towards problem solving and interpretation of data, rather than simple
data provision.
Within the Group, MBL has specialists in ad hoc quantitative research,
qualitative research, telephone research and executive interviewing. MBL has
specialists in consumer, social, industrial and business-to-business research
and expertise in packaged goods, automotive, pharmaceutical, financial, airline
and travel industries. MBL's services include new product development
assistance, corporate image evaluation, employee and customer satisfaction
research, Total Quality Management studies, brand-development monitoring and
advertising development and tracking.
-11-
<PAGE>
MBL specializes in international/multi-national project coordination and
operates the ADD+IMPACT advertising pre-testing system, the Visionary Shopper, a
computer based virtual reality shopping system, and the Idea Map, a computer
based product and communication optimization system.
CM Research Group ("CM"), headquartered in Auckland, New Zealand, is well
diversified with a broad range of clients across all major business sectors
within New Zealand and Australia. CM has full quantitative and qualitative
custom research capabilities, as well as a number of proprietary and
self-developed branded products. CM's strength is in the area of continuous
consumer tracking services (monitors). One of the proprietary products used by
CM is the Stochastic Reaction Monitor, a continuous tracking strategic marketing
evaluation system, which is also used by MBL.
CLIENTS
The Company is a leading provider of custom and syndicated marketing information
services to America's largest corporations, as well as the international
business community. Including its subsidiaries, the Company conducted over 7,100
research projects for nearly 2,300 clients in 1997. In the U.S., the Company's
clients include 45 of the largest 100 companies on the Fortune 500 list, 23 of
the top 25 U.S. bank holding companies, and 23 of the world's 25 largest
pharmaceutical firms. The Company's enviable roster of clients is further
characterized by the longevity of many of these relationships. A number of the
Company's core business clients have had ongoing business relationships with the
Company for between 30 and 50 years. The longevity of these relationships is
enhanced by data comparability with information in the normative databases that
the Company has helped its clients build over the years. The Company's data is
also used by its clients beyond the research function. For example, some clients
have incorporated the Company's data into their internal performance evaluation
systems.
The Company's client list includes over 2,300 companies. No single client
represented more than 10% of its total revenues in 1997. The Company's ten
largest clients, which collectively represented 25% of its total 1997 revenues,
are as follows:
Bristol Myers Squibb Pfizer, Inc.
Citibank The Proctor & Gamble Company
Kraft Foods SBC Communications
Merck Unilever
Oracle Corporation Zeneca Pharmaceuticals Group
NFO also has provided the Consumer Confidence Survey among nationally
representative households each month for the past 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.
THE MARKET RESEARCH INDUSTRY
Revenues for the worldwide market research industry reached $11.2 billion in
1996, according to the latest data available from ESOMAR and supplemented by
company estimates. The U.S. market accounts for approximately 35% of total
worldwide spending, while Europe represented 46% of total spending, Asia 14%,
and the rest of the world just 5%.
-12-
<PAGE>
The $3.9 billion 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 American Marketing Association estimates that there are over
three thousand firms performing custom research services in the United States,
with no firm holding a dominant share of that market. The Company believes it is
the largest U.S. based custom market research firm.
Custom research may be conducted by panel surveys, unsolicited telephone
interviewing, door-to-door personal interviewing and central location
interviewing in places such as stores and shopping malls. The largest segment is
random telephone interviewing. The Company estimates that panel surveys account
for 12% of the segment and 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.
The Company is currently the fourth largest market research organization in the
U.S. and the single largest custom panel research firm within the industry. The
Company is the ninth largest research organization in the world. NFO is niche
oriented and attempts to exploit specific areas of market research where market
growth rates are high, margin potential is good, barriers to entry exist and
competition is limited. Within the United States, the Company believes it is
ranked number one in the following niche markets: custom healthcare research;
syndicated financial services research; panel-based packaged goods and services
research; travel/leisure research; and high-tech customer satisfaction research.
-13-
<PAGE>
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 the perceived movement towards
conducting market research using interactive methods will favorably impact its
business.
The U.S. market is enjoying healthy growth and is becoming more international in
scope. According to the June 1997 issue of Marketing News, more than 41% of the
combined revenues for the top 50 U.S. market research firms comes from
international activities. This revenue is generated through a combination of
subsidiaries, joint ventures, sales offices, and subcontracting of fieldwork to
non-U.S. firms. If the trend toward internationalization continues, the Top 50
U.S. research firms together will generate 50% of their revenues outside the
U.S. by the year 2000.
The custom market research industry is very competitive and highly fragmented,
with participants ranging from relatively small organizations to large,
multinational companies with substantial resources. NFO 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. NFO tends to be less
competitive in connection with projects involving simple study design or high
incidence characteristics, particularly those projects that can be performed by
telephone interviews.
COMPETITION
The Company's primary worldwide competitors are as follows: The Kantar Group
Ltd., based in London, UK; Taylor Nelson AGB Plc and the SOFRES Group, S.A. of
Paris, France, which merged in 1997; Gfk AG of Nuremberg, Germany; Infratest
Burke AG of Munich, Germany; IPSOS Group, S.A. of Paris, France (NFO's joint
venture partner); NPD Group of Port Washington, NY; Market Facts, Inc. of
Arlington Heights, IL; M/A/R/C Inc. of Irving, TX; Audits & Surveys Worldwide,
Inc. of New York, NY; and Opinion Research Corp. of Princeton, NJ.
In terms of total research revenues, NFO was ranked eighth ($109.2 million) in
the "Top 50 U.S. Research Organizations" list for 1996 published by Marketing
News in June 1997 and ranked fourth ($154.9 million) on a Pro Forma basis. In
the "Top 25 Global Research Organizations" list published by Marketing News, NFO
was ranked sixteenth overall and ninth on a Pro Forma basis. The companies were
ranked according to their total revenues. The top three U.S. research companies
were AC Nielsen Corp., Cognizant Corp. and Information Resources Inc., all of
whom primarily provide syndicated marketing information.
-14-
<PAGE>
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. 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. NFO considers these trademarks and service marks 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 December 31, 1997, the Company had over 5,400 employees (1,900 full-time
and 3,500 part-time.) Approximately 1,300 of the 5,400 reside in the U.S.
The Company emphasizes the comprehensive training of its 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
trained backup 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.
OTHER MATTERS
The Company is currently working to resolve the year 2000 problem, which results
from the fact that many existing computer programs were designed for optimal
computer performance on slower computers during the 1980's, and they did not
account for the impact of the upcoming new millenium. In early 1997 the Company
completed an impact analysis across all proprietary custom software programs and
systems, and has since been reviewing the results for any necessary year 2000
changes. As potential problems are identified, affected programs are being
modified by the Company's programming department to ensure future compliance.
NFO is also coordinating with clients, vendors, affiliates and other outside
parties who may affect, or be affected by, the Company's plans to address the
year 2000 issue. Any new programs being developed are made year 2000 compliant
from the outset, while certain existing systems are made year 2000 compliant as
they are reengineered. The Company is targeting January 1, 1999 to complete all
mission critical systems, including third party and supply chain vendors, and
June 30, 1999 for all other systems, for year 2000 compliancy.
-15-
<PAGE>
Item 2. Properties
The Company's primary U.S. operations facility, including data entry, computer,
mailing and product storage and handling facilities, a regional sales office and
the largest of the Company's three telephone interviewing facilities is located
in an approximately 98,000 square foot complex located on approximately 77 acres
owned by the Company in Toledo, Ohio. The facility was built in 1975 and
expanded in 1982 pursuant to the specifications of the Company. Currently, an
expansion project is underway that will add approximately 50,000 square feet of
office space to the facility as well as renovate the existing space. Completion
is expected in late 1998.
The Company's remaining facilities are all leased. The following is a summary of
the Company's office locations throughout the world:
Corporate Offices
-----------------
<TABLE>
<CAPTION>
Executive Greenwich, CT
Company Locations Company Locations
- ------- --------- ------- ---------
<S> <C> <C> <C>
NFO Research Toledo, OH MBL Group London, England
Atlanta, GA Dubai, United Arab Emirates
Chicago, IL Riya, Saudi Arabia
Cincinnati, OH Banjara Hills, Hyderabad
Greensboro, NC Colombo, Sri Lanka
Greenwich, CT Hong Kong
Minneapolis, MN Taipei, Taiwan
St. Louis, MO Shanghai, China
San Francisco, CA Quezon City, Manila
Bangkok, Thailand
Ho Chi Minh City, Vietnam
Singapore, Singapore
Migliara/Kaplan Baltimore, MD Jalan Chow Kit, Malaysia
Chesapeake Surveys Princeton, NJ Jakarta, Indonesia
London, England Bahrain, Bahrain
Dhaka, Bangladesh
Cairo, Egypt
PSI/Spectrem/Access Tampa, FL CM Research Auckland, New Zealand
New York, NY Wellington, New Zealand
San Francisco, CA Sydney, Australia
Los Angeles, CA Brisbane, Australia
Philadelphia, PA Melbourne, Australia
Chicago, IL
Hartford, CT
Windsor, CT
London, England
Singapore
Prognostics Palo Alto, CA IPSOS/NFO Paris, France
Boston, MA Hamburg, Germany
London, England London, England
Milan, Italy
NFO Interactive Greenwich, CT MarketMind Melbourne, Australia
Technologies
NYPM/InfoCom Greenwich, CT
San Francisco, CA
Plog Research Los Angeles, CA
East Brunswick, NJ
AMS Shelton, CT
Ross-Cooper-Lund Teaneck, NJ
</TABLE>
-16-
<PAGE>
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 New York Stock Exchange since
December 29, 1997. Prior to that, the Company's common stock was traded on the
Nasdaq National Market tier of the Nasdaq Stock Exchange since its initial
public offering was completed in April 1993. The Company's stock symbol is "NFO"
on the NYSE and was "NFOR" on the Nasdaq. As of March 24, 1998 there were 194
stockholders of record. The Company believes the total number of beneficial
shareholders to be in excess of 3,000 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 NYSE and Nasdaq. The stock prices have
been adjusted to give retroactive effect to the 3 for 2 stock split effected on
February 5, 1996 and October 15, 1997.
Sales Price
-----------
Calendar Year 1997 High Low
------------------ ---- ---
First Quarter $ 15.50 $ 11.17
Second Quarter 17.50 11.33
Third Quarter 18.50 14.50
Fourth Quarter 21.63 15.50
Calendar Year 1996
------------------
First Quarter 17.00 11.67
Second Quarter 16.83 13.17
Third Quarter 16.17 14.17
Fourth Quarter 16.17 14.33
Since its 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. Any future
determination to pay dividends will be at the discretion of the Company's Board
of Directors and will be dependent 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.
-17-
<PAGE>
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.
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.
-18-
<PAGE>
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.
(b) The following reports on Form 8-K were both filed on October 22, 1997 during
the three months ended December 31, 1997:
The Company has restated its 1996 Form 10-K financial information
combining NFO and Prognostics, which was purchased through a pooling of
interests.
The Company has supplementally restated its 1996 Form 10-K financial
information combining NFO, Prognostics, and The MBL Group Plc, which was
purchased through a pooling of interests.
-19-
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
-----------------------------------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1* Restated Certificate of Incorporation
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, 33-58748 10.3
1981,between County of Wood, Ohio and (Form S-1)
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 33-58748 10.4
September 27, 1991, between County of Wood, (Form S-1)
Ohio and the Predecessor relating to the
$3,200,000 Industrial Development Revenue Bond
10.3 Loan Agreement, dated as of December 1, 1983, 33-58748 10.5
between County of Wood, Ohio and the (Form S-1)
Predecessor relating to the $2,500,000
Industrial Development Revenue Bond
10.4 Amendment to Loan Agreement, dated as 33-58748 10.6
of September 27, 1991, between the County (Form S-1)
of Wood, Ohio and the Predecessor relating to
the $2,500,000 Industrial Development
Revenue Bond
10.5 Assignment and Assumption Agreement, 33-58748 10.3
dated as of September 27, 1991, between (Form S-1)
the Predecessor and the Company
10.6 Registration Agreement, dated September 27, 33-58748 10.10
1991, among the Company and its (Form S-1)
stockholders parties thereto
10.7 Stockholders Agreement, dated as of 33-58748 10.11
September 27, 1991, among the Company (Form S-1)
and its stockholders
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arrangement
-20-
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
-----------------------------------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.8 Amendment to Stockholders Agreement, 33-58748 10.12
dated as of April 6, 1993, among the (Form S-1)
Company and its stockholders
10.9+ Employment Agreement, dated March 15, Report on Form 10.14
1995 between the Company and 10-K for year ended
William E. Lipner December 31, 1994
10.10*+ Employment Agreement, dated as of
December 1, 1997, between the Company
and Patrick G. Healy filed herewith
10.11*+ Employment Agreement, dated as
of December 1, 1997 between the Company
and Allen R. DeCotiis filed herewith
10.12+ Employment Agreement, dated as of Report on Form 10.3
September 12, 1995 between the Company 10-Q for quarter ended
and Richard A. Spitzer September 30, 1995
10.13+ Employment Agreement, dated as of Report on Form 10.13
December 12, 1996, between the Company 10-K for year ended
and Charles B. Hamlin December 30, 1996
10.14+ Agreement dated October 25, 1994 Report on Form 10.1
between the Company and John Sculley 10-Q for quarter ended
September 30, 1995
10.15*+ Employment Agreement dated as of
December 1, 1997 between the Company
and Joseph M. Migliara
10.16 Credit Agreement dated as of March 9, Report on Form 2
1998 among the Company, the Banks 8-K for quarter dated
signatory thereto and Fleet Bank, March 24, 1998
National Association, as Agent
10.17+ NFO Research, Inc. Stock Option Plan, 333-38497 99
as amended (Form S-3)
10.18+ NFO Research, Inc. Directors' Stock Option Report on Form 10-K 10.26
Plan and Form of Directors' Stock Option for year ended
Agreement December 31, 1994
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arrangement
-21-
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
-----------------------------------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.19+ NFO Research, Inc. Profit Sharing Plan, and 33-83002 4.4
amendments thereto (Form S-8)
10.20+ NFO Research, Inc. Pension Plan, and 33-58748 10.26
amendments thereto (Form S-1)
10.21+ NFO Worldwide, Inc. Executive Deferred 33-58748 10.27
Benefit Plan (Form S-1)
10.22+ Deferred Compensation and Life Insurance Report on Form 10.29
Benefit Agreement, dated as of May 3, 1980, 10-K for year ended
Between the Company and William E. Lipner December 31, 1993
10.23 Office Lease for the Company's headquarters Report on Form 10.31
at Two Pickwick Plaza, Greenwich, Connecticut 10-K for year ended
dated as of April 3, 1987 between JMB Property December 31, 1994
Management Company and the Company, and
amendments thereto, as extended
10.24 Office Lease at 5 Centerview Drive, Suite 110, 33-58748 10.29
Greensboro, North Carolina dated December (Form S-1)
18, 1991 and amended on June 21, 1989 and
June 24, 1992
10.25 Office Lease for PSI headquarters at 3030 Report on Form 10.33
North Rocky Point Drive West, Tampa, Florida 10-K for year ended
dated September for year 10, 1993 between December 31, 1994
PSI and The Manufacturers Life Insurance Company
10.26 Office sub-lease for PSI headquarters at 3030 Report on Form 10.34
North Rocky Point Drive West, Tampa, Florida 10-K for year ended
dated September 10, 1994 between PSI and December 31, 1994
Knepper & Willard, Inc.
10.27* Office Lease for Migliara/Kaplan Associates,
Inc. headquartered at 9 Park Center Court,
Owings Mills, Maryland dated January 1, 1998
between Migliara/Kaplan Associates, Inc. and
Nine Park Center Court, LLC.
10.28 Agreement and Plan of Merger, dated as of Report on Form 1
January 1, 1994, by and among PSI Partners 8-K dated January 10,
Acquisition Corporation, Payment Systems, 1994
Inc., the Company and the stockholders of
PSI Partners Acquisition Corporation
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arrangement
-22-
<TABLE>
<CAPTION>
Incorporated by
Reference from
-----------------------------------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.29 Asset Purchase Agreement dated as Report on Form 10.2
of November 7,1994 among Advanced 10-Q for quarter
Marketing Solutions, Inc., as Seller, ended September 30,
Advanced Marketing Solutions Corp., as 1994
Buyer, and the Company
10.30 Master Joint Venture Agreement, dated Report on Form 10.27
as of July 6, 1995, among the Company, 10-K for year ended
IPSOS S.A. and Societe Civile A.P.L.T. December 31, 1995
10.31 Agreement and Plan of Merger, Report on Form 8-K 1
dated as of November 7, 1995, by and among dated January 3, 1996
the Company, Migliara-Kaplan & Associates,
Inc., and the Migliara/Kaplan Associates Inc.
and the stockholders of Migliara-Kaplan &
Associates, Inc.
10.32 Asset Purchase Agreement, dated as of Report on Form 8-K 2
November 7, 1995, by and among the dated January 3, 1996
Company, Chesapeake Surveys, Inc., a Maryland
corporation, and Chesapeake Surveys, Inc.,
a Delaware corporation
10.33 Agreement and Plan of Merger, dated as of Report on Form 10-K 10.30
December 8, 1995, by and among Plog for year ended
Research, Inc., a California corporation December 31, 1995
("PRI-California"), Plog Research, Inc., a
Delaware corporation, the Company, Stanley C. Plog
and the stockholders of PRI-California
10.34 Agreement and Plan of Merger, dated as Report on Form 8-K 1
of March 20, 1997, by and among dated October 22, 1997
Prognostics Corp., a Delaware Corporation,
Prognostics, a California corporation dated October
22, 1997 ("Prognostics"), the Company and
the shareholders of Prognostics
10.35 Share Purchase Agreement among the Report on Form 8-K 1
Company, NFO U.K., Inc. and the Shareholders dated July 11, 1997
of The MBL Group Plc
10.36 Form of Minority Shareholder Share Purchase Report on Form 8-K 2
Agreement for Acquisition of stock of Minority dated July 11, 1997
Shareholders in a subsidiary of The MBL Group Plc
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arrangement
-23-
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
-----------------------------------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
21* Subsidiaries of the Company
23.1* Consent of Arthur Andersen LLP
23.2* Consent of Soteriou Banerji
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>
*Filed herewith.
+Management contract or compensatory plan or arrangement
-24-
<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 30th day of March 1998.
NFO WORLDWIDE, INC.
By: /s/ 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 30, 1998.
/s/ William E. Lipner Chairman of the Board, President,
- --------------------- Chief Executive Officer and Director
William E. Lipner
/s/ Steven J. Gilbert Director
- ---------------------
Steven J. Gilbert
/s/ Patrick G. Healy President, Corporate Products/
- -------------------- Systems Development, Chief Financial
Patrick G. Healy Officer and Secretary (Principal
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 Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1* Restated Certificate of Incorporation
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, 33-58748 10.3
1981, between County of Wood, Ohio and (Form S-1)
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 33-58748 10.4
as of September 27, 1991, between County (Form S-1)
of Wood, Ohio and the Predecessor
relating to the $3,200,000 Industrial Development
Revenue Bond
10.3 Loan Agreement, dated as of December 1, 33-58748 10.5
1983, between County of Wood, Ohio and (Form S-1) the Predecessor
relating to the $2,500,000 Industrial Development Revenue Bond
10.4 Amendment to Loan Agreement, dated 33-58748 10.6
as of September 27, 1991, between (Form S-1)
the County of Wood, Ohio and the
Predecessor relating to the $2,500,000
Industrial Development Revenue Bond
10.5 Assignment and Assumption Agreement, 33-58748 10.3
dated as of September 27, 1991, between (Form S-1)
the Predecessor and the Company
10.6 Registration Agreement, dated September 33-58748 10.10
27, 1991, among the Company and its (Form S-1)
stockholders parties thereto
10.7 Stockholders Agreement, dated as 33-58748 10.11
of September 27, 1991, among the (Form S-1)
Company and its stockholders
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arrangement
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
-----------------------------------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.8 Amendment to Stockholders Agreement, 33-58748 10.12
dated as of April 6, 1993, among the (Form S-1)
Company and its stockholders
10.9+ Employment Agreement, dated March Report on Form 10-K 10.14
15, 1995 between the Company and for year ended
William E. Lipner December 31, 1994
10.10*+ Employment Agreement, dated as
of December 1, 1997 between the
Company and Patrick G. Healy
10.11*+ Employment Agreement, dated as
of December 1, 1997 between the
Company and Allen R. DeCotiis filed
herewith
10.12+ Employment Agreement, dated as Report on Form 10-Q
of September 12, 1995 between for quarter ended 10.3
the Company and Richard A. Spitzer September 30, 1995
10.13+ Employment Agreement, dated as Report on Form
of December 12, 1996, between the 10-K for year
Company and Charles B. Hamlin ended December 31, 1996
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*+ Employment Agreement, dated as of
December 1, 1997 between the Company
and Joseph M. Migliara
10.16 Credit Agreement dated as of Report on Form 8-K 2
March 9, 1998 among the Company, for quarter dated
the Banks signatory thereto and March 24, 1998
Fleet Bank, National Association, as Agent
10.17+ NFO Research, Inc. Stock Option 333-38497 99
Plan, as amended (Form S-3)
10.18+ NFO Research, Inc. Directors' Stock Report on Form 10-K 10.26
Option Plan and Form of Directors' Stock for year ended
Option Agreement December 31, 1994
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arrangement
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
-----------------------------------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.19+ NFO Research, Inc. Profit Sharing Plan, and 33-83002 4.4
amendments thereto (Form S-8)
10.20+ NFO Research, Inc. Pension Plan, and 33-58748 10.26
amendments thereto (Form S-1)
10.21+ NFO Worldwide, Inc. Executive Deferred 33-58748 10.27
Benefit Plan (Form S-1)
10.22+ Deferred Compensation and Life Insurance Benefit Report on Form 10-K 10.29
Agreement, dated as of May 3, 1980, for year ended
between the Company and William E. Lipner December 31, 1993
10.23 Office Lease for the Company's headquarters Report on Form 10-K 10.31
at Two Pickwick Plaza, Greenwich, Connecticut for year ended
dated as of April 3, 1987 between JMB Property December 31, 1994
Management Company and the Company, and
amendments thereto, as extended
10.24 Office Lease at 5 Centerview Drive, Suite 110, 33-58748 10.29
Greensboro, North Carolina dated December (Form S-1)
18, 1991 and amended on June 21, 1989
and June 24, 1992
10.25 Office Lease for PSI headquarters at Report on Form 10.33
3030 North Rocky Point Drive West, Tampa, 10-K for year ended
Florida dated September 10, 1993 between December 31, 1994
PSI and The Manufacturers Life Insurance
Company
10.26 Office sub-lease for PSI headquarters at 3030 Report on Form 10-K 10.34
North Rocky Point Drive West, Tampa, Florida for year ended
dated September 10, 1994 between PSI and December 31, 1994
Knepper & Willard, Inc.
10.27* Office Lease for Migliara/Kaplan Associates,
Inc. headquartered at 9 Park Center Court,
Owings Mills, Maryland dated January 1, 1998
between Migliara/Kaplan Associates, Inc. and
Nine Park Center Court, LLC.
10.28 Agreement and Plan of Merger, dated as of Report on Form 8-K 1
January 1, 1994, by and among PSI Partners dated January 10, 1994
Acquisition Corporation, Payment Systems, Inc.,
the Company and the stockholders of PSI
Partners Acquisition Corporation
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arrangement
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
-----------------------------------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
10.29 Asset Purchase Agreement dated as of Report on Form 10-Q 10.2
November 7, 1994 among Advanced for quarter ended
Marketing Solutions, Inc., as Seller, September 30, 1994
Advanced Marketing Solutions Corp., as Buyer,
and the Company
10.30 Master Joint Venture Agreement, dated as Report on Form 10-K 10.27
of July 6,1995, among the Company, IPSOS for year ended
S.A. and Societe Civile A.P.L.T. December 31, 1995
10.31 Agreement and Plan of Merger, dated as Report on Form 8-K 1
of November 7, 1995, by and among the dated January 3, 1996
Company, Migliara-Kaplan & Associates, Inc.,
Migliara/Kaplan Associates Inc. and the &
stockholders of Migliara-Kaplan Associates, Inc.
10.32 Asset Purchase Agreement, dated as of Report on Form 8-K 2
November 7, 1995, by and among the Company, dated January 3, 1996
Chesapeake Surveys, Inc., a Maryland corporation,
and Chesapeake Surveys, Inc., a Delaware corporation
10.33 Agreement and Plan of Merger, dated as Report on Form 10-K 10.30
of December 8, 1995, by and among Plog for year ended
Research, Inc., a California corporation December 31, 1995
("PRI-California"), Plog Research, Inc., a
Delaware corporation, the Company,
Stanley C. Plog and the stockholders of
PRI-California
10.34 Agreement and Plan of Merger, dated as of March Report on Form 8-K 1
20, 1997, by and among Prognostics Corp., a dated October 22, 1997
Delaware Corporation, Prognostics, a California
corporation ("Prognostics"), the Company and the
shareholders of Prognostics
10.35 Share Purchase Agreement among the Company, Report on Form 1
NFO U.K., Inc. and the Shareholders of The 8-K dated July 11, 1997
MBL Group Plc
10.36 Form of Minority Share Purchase Agreement Report on Form 8-K 2
among the Company,NFO U.K., Inc., and the dated July 11, 1997
Shareholders of The MBL Group Plc
</TABLE>
*Filed herewith.
+Management contract or compensatory plan or arragement
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
-----------------------------------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
21* Subsidiaries of the Company
23.1* Consent of Arthur Andersen LLP
23.2* Consent of Soteriou Banerji
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>
*Filed herewith.
+Management contract or compensatory plan or arrangement
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
OWNERSHIP, WHICH MERGES:
"NFO" WORLDWIDE, INC.", A DELAWARE CORPORATION,
WITH AND INTO "NFO RESEARCH, INC." UNDER THE NAME OF "NFO WORLDWIDE,
INC.", A CORPORATION ORGANIZED AND EXISTING UNDER THE LAWS OF THE STATE OF
DELAWARE, AS RECEIVED AND FILED IN THIS OFFICE THE TENTH DAY OF OCTOBER, A.D.
1997, AT 9 O'CLOCK A.M.
/s/ Edward J. Freel
-------------------
Edward J. Freel, Secretary of State
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 10/10/97
971342963 - 2273866
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
NFO WORLDWIDE, INC.
WITH AND INTO
NFO RESEARCH, INC.
-------------------------
Pursuant to Section 253 of
the General Corporation Law
of the State of Delaware
-------------------------
NFO RESEARCH, INC., a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), desiring to merge (the "Merger")
its wholly-owned subsidiary, NFO WORLDWIDE, INC., a corporation organized and
existing under the laws of the State of Delaware ("NFO Worldwide"), with and
into the Corporation, DOES HEREBY CERTIFY as follows:
FIRST: That the Corporation was incorporated under the laws of the
State of Delaware on September 17, 1991.
SECOND: That the Corporation owns all of the issued and outstanding
shares of common stock (the only outstanding class of stock) of NFO Worldwide,
which was incorporated under the laws of the State of Delaware on September 26,
1997.
THIRD: That the Board of Directors of the Corporation, in accordance
with Section 253 of the General Corporation Law of the State of Delaware, by
1
<PAGE>
unanimous written consent of its directors dated September 29, 1997 adopted the
following resolutions, which have not been modified or rescinded and are in full
force and effect on the date hereof, authorizing such merger upon the terms and
conditions set forth therein:
RESOLVED, that, pursuant to Section 253 of the General Corporation Law
of the State of Delaware (the "DGCL"), NFO Worldwide, Inc. ("NFO Worldwide") be
merged (the "Merger") with and into NFO Research, Inc. (the "Corporation") on
the following terms and conditions:
(i) The effective time of the Merger (the "Effective Time")
shall be the time of filing of a Certificate of Ownership and
Merger with the Secretary of State of the State of Delaware;
(ii) At the Effective Time and in accordance with applicable
law, NFO Worldwide shall be merged with and into the
Corporation, with the Corporation being the surviving
corporation of the Merger (the "Surviving Corporation"). At
the Effective Time, the separate existence of NFO Worldwide
shall cease and the other effects of the Merger shall be as
set forth in the DGCL (including, without limitation, Sections
259, 260 and 261 thereof);
(iii) Except as provided in paragraph (vi) below, the
Certificate of Incorporation of the Corporation, as in effect
immediately prior to the Effective Time, shall continue in
full force and effect as the Certificate of Incorporation of
the Surviving Corporation, until thereafter altered, amended
or repealed as provided therein and in accordance with
applicable law;
(iv) The By-laws of the Corporation, as in effect immediately
prior to the Effective Time, shall continue in full force and
effect as the By-laws of the Surviving Corporation, until
thereafter altered, amended or repealed as provided therein
and in accordance with applicable law;
(v) The officers and directors of the Corporation at the
Effective Time shall continue to be the officers and directors
of the Surviving Corporation and shall serve until their
respective successors are duly elected or appointed and
qualify or their earlier resignation or removal;
(vi) At the Effective Time, the name of the Surviving
Corporation shall be NFO Worldwide, Inc.;
2
<PAGE>
(vii) The President or any Vice President of the Corporation
shall be, and each of them hereby is, authorized to execute,
and the Secretary of the Corporation is hereby authorized to
attest to the execution of, a Certificate of Ownership and
Merger, and the President or any Vice President shall be, and
each of them hereby is, authorized to cause the Certificate of
Ownership and Merger to be filed with the Secretary of State
of the State of Delaware; and
(ix) The President, any Vice President and Secretary of the
Corporation are hereby authorized and empowered, acting in the
name and on behalf of the Corporation, to execute and deliver
such other instruments and documents and to take such other
actions which they, or any one of them, deem necessary or
appropriate to carry out the intent of these resolutions, the
due execution and delivery by them of any such instrument or
document and the taking by them of any such action to be
conclusive evidence of their approval and authority pursuant
to this resolution.
FOURTH: That the name of the Surviving Corporation shall be NFO
Research, Inc., changing its name to NFO Worldwide, Inc.
FIFTH: That at the Effective Time, the Certificate of Incorporation of
the Corporation, as in effect immediately prior to the Effective Time, shall
continue in full force and effect as the Certificate of Incorporation of the
Surviving Corporation, as amended to change the name of the Surviving
Corporation to "NFO Worldwide, Inc.", until further amended and changed pursuant
to the provisions of the General Corporation Law of the State of Delaware.
SIXTH: That the aforesaid resolution of Merger was duly adopted in
accordance with the applicable provisions of Section 253 of the General
Corporation Law of the State of Delaware.
SEVENTH: That the Merger shall become effective upon the filing of this
certificate with the Secretary of State of the State of Delaware.
3
<PAGE>
IN WITNESS WHEREOF, the undersigned, being the duly authorized officers
of the Corporation, have caused this Certificate of Ownership and Merger to be
signed and attested to this 10th day of October, 1997.
NFO RESEARCH, INC.
By: /s/ William E. Lipner
-------------------------
Name: William E. Lipner
Title: Chairman, President and
Chief Executive Officer
ATTEST:
By: /s/ Patrick G. Healy
- ------------------------
Name: Patrick G. Healy
Title: Executive Vice President-Finance
and Chief Financial Officer
4
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "NFO RESEARCH, INC.", FILED IN THIS OFFICE ON THE TWENTIETH DAY OF
SEPTEMBER, A.D. 1996, AT 11 O'CLOCK A.M.
/s/ Edward J. Freel
-------------------
Edward J. Freel, Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
NFO RESEARCH, INC.
(Under Section 242 of the Delaware General Corporation Law)
NFO Research, Inc., a corporation organized and existing under the
Delaware General Corporation Law (the "Corporation"), DOES HEREBY CERTIFY:
FIRST: The name of the Corporation is NFO Research, Inc.
SECOND: Article FOURTH of the Restated Certificate of Incorporation of
the Corporation is hereby amended by deleting the first paragraph thereof and
substituting in lieu thereof the following paragraph: "The total number of
shares which the Corporation shall have authority to issue is sixty-five million
(65,000,000), consisting of sixty million (60,000,000) shares of Common Stock,
par value $.01 per share (the "Common Stock") and five million (5,000,000)
shares of Preferred Stock, par value $.01 per share (the "Preferred Stock")."
1
<PAGE>
THIRD: The aforesaid amendment has been duly adopted in accordance with
Section 242 of the Delaware General Corporation Law.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by its duly authorized officer, this 20th day of September, 1996.
NFO RESEARCH, INC.
By: /s/ William E. Lipner
-------------------------
Name: William E. Lipner
Title: Chairman, President and
Chief Executive Officer
2
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "NFO RESEARCH, INC.", FILED IN THIS OFFICE ON THE SEVENTH DAY OF
AUGUST, A.D. 1995, AT 10:45 O'CLOCK A.M.
/s/ Edward J. Freel
-------------------
Edward J. Freel, Secretary of State
<PAGE>
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 10:45 AM 08/07/1995
950177323 - 2273866
CERTIFICATE OF AMENDMENT
OF THE
RESTATED CERTIFICATE OF INCORPORATION
OF
NFO RESEARCH, INC.
-----------------------------------------------------
Adopted in accordance with the
provisions of Section 242 of the General
Corporation Law of the State of Delaware
-----------------------------------------------------
We, William E. Lipner, President, and Steven J. Gilbert, Secretary, of
NFO RESEARCH, INC., a corporation organized and existing under and by virtue of
the General Corporation Law of the State of Delaware, as amended (the
"Corporation"), DO HEREBY CERTIFY under the seal of the Corporation as follows:
FIRST: Article FIFTH of the Restated Certificate of Incorporation of
the Corporation is hereby amended by deleting in its entirety and substituting
in lieu thereof the following new Article FIFTH:
FIFTH: At all meetings of stockholders, each
stockholder shall be entitled to vote, in person or by proxy,
the shares of voting stock owned by such stockholder of record
on the record date for the meeting. Except as otherwise
provided by statute or by the Restated Certificate of
Incorporation, at any meeting of stockholders (at which a
quorum was present to organize the meeting), any election of
directors shall be decided by a plurality of the votes cast at
such meeting by the holders of shares present in person or
represented by proxy and entitled to vote in
1
<PAGE>
the election and all other matters shall be decided by a
majority of the votes cast at such meeting by the holders of
shares present in person or represented by proxy and entitled
to vote thereon, in each case whether or not a quorum is
present when the vote is taken.
SECOND: The foregoing amendment was duly adopted in accordance
with Section 242 of the General Corporation Law of the State of Delaware by the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock of the Corporation, being the only class entitled vote at a duly
held meeting of stockholders.
IN WITNESS WHEREOF, we have signed this Certificate of
Amendment and caused the corporate seal of said NFO RESEARCH, INC. to be
hereunto affixed this 5th day of May, 1995.
/s/ William E. Lipner
---------------------
William E. Lipner
President
[SEAL]
ATTEST:
/s/ Steven J. Gilbert
- ---------------------
Steven J. Gilbert
Secretary
2
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED
CERTIFICATE OF "NFO RESEARCH, INC.", FILED IN THIS OFFICE ON THE TWELFTH DAY OF
APRIL, A.D. 1993, AT 3:30 O'CLOCK P.M.
/s/ Edward J. Freel
-------------------
Edward J. Freel, Secretary of State
<PAGE>
RESTATED CERTIFICATE OF INCORPORATION
OF
NFO RESEARCH, INC.
The undersigned, a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, as amended (the
"Corporation"), DOES HEREBY CERTIFY as follows:
1. The Certificate of Incorporation of the Corporation was filed in the
Office of the Secretary of State of the State of Delaware on September 17, 1991
and amended and restated on September 27, 1991 and further amended on October
21, 1991.
2. On December 21, 1992, the Corporation filed a Restated Certificate
of Incorporation with the Secretary of State of the State of Delaware.
3. On February 23, 1993, and March 15, 1993, in the manner prescribed
by Section 242 and 245 of the General Corporation Law of the State of Delaware,
as amended, resolutions were duly adopted by the Board of Directors and the
stockholders of the Corporation, respectively, duly adopting this Restated
Certificate of Incorporation and amending the Certificate of Incorporation of
the Corporation as herein provided.
4. Pursuant to the provisions of Section 103(d) of the General
Corporation Law of the State of Delaware, as amended, this Restated Certificate
of Incorporation is not to become effective until 9:00 a.m. New York time on
April 15, 1993 (the "Effective Date").
5. The text of the certificate of incorporation of the Corporation as
amended and restated herein, shall, at the effective time of this Restated
Certificate of Incorporation, read as follows:
* * *
FIRST: The name of the Corporation is NFO Research, Inc. (hereinafter
the "Corporation").
SECOND: The address of the registered office of the Corporation in the
State of Delaware is 1209 Orange Street, in the City of Wilmington, County of
New Castle. The name of the registered agent at that address is The Corporation
Trust Company.
THIRD: The purpose of the corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of the State of Delaware, as amended (the "GCL").
1
<PAGE>
FOURTH: The total number of shares which the Corporation shall have
authority to issue is twenty million (20,000,000), consisting of fifteen million
(15,000,000) shares of Common Stock, par value $.01 per share (the "Common
Stock") and five million (5,000,000) shares of Preferred Stock, par value $.01
per share (the "Preferred Stock").
A. PREFERRED STOCK. The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this Article FOURTH, to fix
by resolution or resolutions providing for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to Section 151
of the General Corporation Law of the State of Delaware, to establish from to
time the number of shares to be included in each such series, and to fix the
designation, powers, preferences and rights of the shares of each such series
and the qualifications, limitations or restrictions thereof.
The Board of Directors may from time to time increase the number of
shares of any series of Preferred Stock already created by providing that any
unissued shares of Preferred Stock shall constitute part of such series, or
decrease (but not below the number of shares thereof then outstanding) the
number of shares of any series of Preferred Stock already created by providing
that any unissued shares previously assigned to such series shall no longer
constitute part thereof. The Board of Directors is hereby empowered to classify
any unissued Preferred Stock by fixing or altering the terms thereof in respect
of the above-mentioned particulars and by assigning the same to any existing or
newly created series from time to time before the issuance of such Preferred
Stock.
B. COMMON STOCK. A statement of the designations, powers, preferences,
rights, qualifications, limitations and restriction in respect of the shares of
Common Stock is as follows:
(1) Dividends. The Board of Directors of the Corporation may cause
dividends to be paid to the holders of shares of Common Stock out of funds
legally available for the payment of dividends by declaring an amount per share
as a dividend. When and as dividends are declared, whether payable in cash, in
property or in shares of stock or other securities of the Corporation, the
holders of Common Stock shall be entitled to share ratably, according to the
number of shares of Common Stock held by them, in such dividends.
(2) Liquidation Rights. In the event of any voluntary or involuntary
liquidation, dissolution or winding up of the affairs of the Corporation, the
holders of Common Stock shall be entitled to share, ratably according to the
number of shares of Common Stock held by them, in all remaining assets of the
Corporation available for distribution to its stockholders.
(3) Voting Rights. Except as otherwise provided in this Certificate of
Incorporation or by applicable law, the holders of Common Stock shall be
entitled to vote on each matter on which the stockholders of the Corporation
shall be entitled to vote, and each
2
<PAGE>
holder of Common Stock shall be entitled to one vote for each share of such
stock held by him.
C. CONVERSION. (1) On the Effective Date, by virtue of the
effectiveness of this Restated Certificate of Incorporation, and without any
action on the holders of such shares, each share of Class A Common Stock and
each share of Class B Common Stock of the Corporation outstanding prior to the
effectiveness of this Restated Certificate of Incorporation shall be
extinguished and cease to exist and shall be converted into 33.82700 shares of
Common Stock and 22.57127 shares of Common Stock, respectively, which shares of
Common Stock shall be fully paid and nonassessable shares of the Corporation.
(2) No fractional shares of Common Stock shall be issued upon the
aforementioned conversion, but instead such fractional shares, which would have
been issuable but for the prohibition in this paragraph, shall evidence the
right to receive cash equal to the number of fractional shares multiplied by the
initial public offering price of the shares of Common Stock offered to the
public pursuant to the Company's Registration Statement on Form S-1 (File No.
33-58748) filed with the Securities and Exchange Commission.
(3) On the Effective Date or as soon as practicable thereafter, each
holder of the Class A Common Stock and Class B Common Stock shall surrender its
shares to the Secretary of the Company in exchange for (i) the number of shares
of Common Stock as determined in subparagraph (C)(1) above and (ii) the amount,
if applicable to such holder, referred to in subparagraph (C)(2) above payable
by check, to which such holder is entitled. No holder shall be entitled to any
interest on the cash in lieu of fractional shares to which it is entitled.
FIFTH: At all meetings of stockholders, each stockholder shall be
entitled to vote, in person or by proxy, the shares of voting stock owned by
such stockholders of record on the record date for the meeting. When a quorum is
present or represented at any meeting, the vote of the holders of a majority of
the voting power of all of the shares of stock of the Corporation outstanding
and entitled to vote on any matter, question or proposal brought before such
meeting shall decide such question, unless the question is one upon which, by
express provision of law, this Certificate of Incorporation or the By-Laws, a
different vote is required, in which case such express provision shall govern
and control the decision of such question.
SIXTH: The number of directors of the Corporation shall be fixed from
time to time by the vote of a majority of the entire Board of Directors, but
such number shall in no case be less than three nor more than twelve. Any such
determination made by the Board of Directors shall continue in effect unless and
until changed by the Board of Directors, but no such changes shall affect the
term of any directors then in office.
3
<PAGE>
A director shall hold office until the annual meeting for the year in
which his or her term expires and until his or her successor shall be elected
and shall qualify, subject, however, to prior death, resignation, retirement,
disqualification or removal from office.
Advance notice of nominations for the election of directors, other than
nominations by the Board of Directors or a committee thereof, shall be given to
the Corporation in the manner provided in the By-Laws.
SEVENTH: For the management of the business and for the conduct of the
affairs of the Corporation, and in further definition, limitation and regulation
of the powers of the Corporation and of its directors and of its stockholders or
any class thereof, as the case may be, it is further provided:
(1) The business and affairs of the Corporation shall be managed by or
under the direction of the Board of Directors.
(2) The directors shall have concurrent power with the stockholders to
make, alter, amend, change, add to or repeal the By-Laws of the Corporation.
(3) In addition to the powers and authority hereinbefore or by statute
expressly conferred upon them, the directors are hereby empowered to exercise
all such powers and do all such acts and things as may be exercised or done by
the Corporation, subject, nevertheless, to the provisions of the GCL, this
Certificate of Incorporation, and any By-Laws adopted by the stockholders;
provided, however, that no By-Laws hereafter adopted by the stockholders shall
invalidate any prior act of the directors which would have been valid if such
By-Laws had not been adopted.
EIGHTH: (1) Meetings of stockholders may be held within or without the
State of Delaware as the By-Laws may provide. The books of the Corporation may
be kept (subject to any provision contained in the GCL) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-Laws of the Corporation.
(2) Any action required or permitted to be taken by the stockholders of
the Corporation must be effected at a duly called annual or special meeting of
such holders and may not effected by a consent in writing by any such holders.
NINTH: (1) The Corporation shall, to the fullest extent permitted by
Section 145 of the GCL, as the same may be amended and supplemented, indemnify
any and all directors and officers whom it shall have power to indemnify under
said Section and may, upon the act of the Board of Directors, indemnify all
other persons whom it shall have power to indemnify under said Section, from and
against any and all of the expenses, liabilities or other matters referred to in
or converted by said Section, and the indemnification provided for herein shall
not be deemed exclusive of any other rights to which those indemnified may be
4
<PAGE>
entitled under any By-Law, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office. The rights to
indemnification hereunder shall continue as to a director or officer who has
ceased to be a director or officer, shall inure to the benefit of the heirs,
executors and administrators of the director or officer, and may, upon such act
of the Board of Directors, continue as to such other persons and inure to the
benefit of the heirs, executors and administrators of such other persons. The
rights to indemnification conferred in this ARTICLE NINTH shall also include the
right to be paid by the Corporation the expenses incurred in connection with any
such proceeding in advance of its final disposition to the fullest extent
authorized by Delaware law.
(2) No director shall be personally liable to the Corporation or any of
its stockholders for monetary damages for any breach of fiduciary duty as a
director, except for liability (i) for breach of the director's duty of loyalty
to the Corporation or its stockholders, (ii) for acts or omissions not in good
faith or which involve intentional misconduct or a knowing violation of law,
(iii) pursuant to Section 174 of the GCL or (iv) for any transaction from which
the director derived an improper personal benefit. Any repeal or modification of
this ARTICLE NINTH by the stockholders of the Corporation shall not adversely
affect any right or protection of a director of the Corporation existing at the
time of such repeal or modification with respect to acts or omissions occurring
prior to such repeal or modification.
(3) Neither the amendment, change, alteration nor repeal of this
ARTICLE NINTH, nor the adoption of any provision of this Certificate of
Incorporation or the By-Laws of the Corporation nor any modification of law,
shall eliminate or reduce the effect of this ARTICLE NINTH or the rights or any
protections afforded under this ARTICLE NINTH in respect of any acts or
omissions occurring prior to such amendment, change, alteration, repeal,
adoption or modification.
TENTH: The Corporation reserves the right to repeal, alter or amend
this Certificate of Incorporation in the manner now or hereafter prescribed by
statute. No repeal, alteration or amendment of this Certificate of Incorporation
shall be made unless the same is first approved by the Board of Directors of the
Corporation pursuant to a resolution adopted by the directors then in office in
accordance with the By-Laws and applicable law and thereafter approved by the
stockholders.
ELEVENTH: The Corporation has elected to be governed by Section 203 of
the GCL.
5
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Restated
Certificate of Incorporation to be signed by its President and attested to by
its Secretary.
NFO RESEARCH, INC.
(Corporate Seal) By: /s/ William E. Lipner
-------------------------
William E. Lipner
President
ATTEST:
/s/ Steven J. Gilbert
- ---------------------
Steven J. Gilbert
Secretary
6
NFO WORLDWIDE, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of December 1, 1997, by and between
NFO Worldwide, Inc., a Delaware corporation (the "Company"), and Patrick G.
Healy (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 President -- Corporate Products/Systems Development and Chief
Financial Officer 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 President -- Corporate Products/Systems Development and Chief Financial
Officer 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 President
- -- Corporate Products/Systems Development and Chief Financial Officer 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 a
salary at the annual rate of no less than $280,000 (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,
automobiles, club membership payments (which shall include the Company's payment
of all of the Executive's fees, bonds and annual dues for a country club
membership, but not personal expenses) 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
1, 2000, 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.
<PAGE>
3
(b) If at any time the Employment Period is
terminated by the Company without Cause, the Executive shall be entitled to
receive (x) the greater of (i) his Base Salary through December 1, 2000 and (ii)
his Base Salary for a period of twelve (12) months following termination and (y)
a one-time payment, due and payable within thirty days following such
termination, equal to the Executive's most recent Annual Bonus (excluding
extraordinary amounts), so long as the Executive has not materially breached the
provisions of paragraphs 6, 7 and 8 hereof.
(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
in Control" of the Company or, at any time, by the resignation of the Executive
for the reason specified in subsections (i) or (iv) of the definition of "Good
Reason" (subject to the cure period contained in such definition), 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 1, 2000, or (ii) the second 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 one-time payment, due and
payable within thirty days following such resignation, equal to the Executive's
most recent Annual Bonus (excluding extraordinary amounts).
For purposes of this Agreement, the phrase "Change in 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 consolida tion, 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 President
- -- Corporate Products/Systems Development and Chief Financial Officer, 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 President -- Corporate Products/Systems Development
and Chief Financial Officer; (ii) the Company fails to pay the Executive any
amounts otherwise due hereunder; (iii) the Executive's Base Salary is reduced or
his Fringe Benefits are reduced; or (iv) the Company's requiring the Executive
to move his primary place of employment to a location that is 50 miles or more
from the Company's executive headquarters in Greenwich, Connecticut; 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
Worldwide, 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
<PAGE>
4
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
subsid iaries 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 and its
predecessors 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 afore mentioned matters
are or become generally known to and available for use by the members of the
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 and 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 (x) in the case of
termination for
<PAGE>
5
Cause, for two years thereafter, or (y) in the case of resignation (other than
resignation for "Good Reason" following a "Change in Control" or, at any time,
resignation for the reason specified in subsections (i) or (iv) of the
definition of "Good Reason"), for one year thereafter (as applicable, the
"Noncompete Period"), he shall not directly or 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 Employment Period, the Noncompete
Period and, if applicable, for the period of two years following the expiration
(and non-renewal) of the Employment Period on December 1, 2000, 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 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).
<PAGE>
6
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 Worldwide, Inc.
2 Pickwick Plaza
Greenwich, Connecticut 06830
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
Employment Agreement dated as of September 12, 1995 between the Company and the
Executive is hereby terminated as of the date hereof and is replaced hereby. 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
<PAGE>
7
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 part, 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.
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.
<PAGE>
8
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the day and year first above written.
NFO WORLDWIDE, INC.
By: /s/ William E. Lipner
-------------------------
Name: William E. Lipner
Title: Chairman, President and
Chief Executive Officer
/s/ Patrick G. Healy
--------------------
Patrick G. Healy
NFO WORLDWIDE, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of December 1, 1997, by and between
NFO Worldwide, Inc., a Delaware corporation (the "Company"), and Allen R.
DeCotiis (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 President -- Financial Services, Travel & Leisure and
International Operations 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 President -- Financial Services, Travel & Leisure and International
Operations 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 President
- -- Financial Services, Travel & Leisure and International Operations 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; provided, however, that
the Executive may perform his duties from the New York City office of Payment
Systems, Inc.
<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 a
salary at the annual rate of no less than $280,000 (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 that the Executive currently receives, all group life,
hospitalization or disability insurance plans, health programs, pension plans,
profit sharing plans, similar benefit plans, automobile 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.
4.5 Country Club Membership. During the
Employment Period, the Company shall pay all of the Executive's fees, bonds and
annual dues for a country club membership. All personal expenses are to be paid
by the Executive.
4.6 Term Insurance. During the Employment
Period, the Company shall provide the Executive with a term life insurance
policy consistent with the policies of the Company's other members of the Office
of the President, providing coverage of $400,000 payable to a beneficiary to be
designated by the Executive.
<PAGE>
3
5. Term.
(a) The Employment Period shall end on December
1, 2000, 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 or the Employment Period is terminated,
at any time prior to a "Change in Control," by the resignation of the Executive
for the reason specified in subsections (i) or (iv) of the definition of "Good
Reason" (subject to the cure period contained in such definition), the Executive
shall be entitled to receive his Base Salary through December 1, 2000; provided,
however, that the Executive shall only be entitled to receive his Base Salary so
long as he has not materially breached the provisions of paragraphs 6, 7 and 8
hereof.
(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
in 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 1, 2000, 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 in 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
<PAGE>
4
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 consolida tion, 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 President
- -- Financial Services, Travel & Leisure and International Operations, 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 President -- Financial Services, Travel & Leisure
and International Operations; (ii) the Company fails to pay the Executive any
amounts otherwise due hereunder; (iii) the Executive's Base Salary is reduced or
his Fringe Benefits are reduced; or (iv) the Company's requiring the Executive
to move his primary place of employment to a location that is 50 miles or more
from the New York City office of Payment Systems, Inc.; 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, except as
may be required by law.
(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
Worldwide, 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
<PAGE>
5
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 subsid iaries or (v) any
other material breach of this Agreement which is not cured within 15 days after
written notice thereof to the Executive, as determined in the good faith
judgement of the Board.
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 and its
predecessors 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 afore mentioned matters
are or become generally known to and available for use by the members of the
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 and confirm
such ownership (including, without limitation, assignments, consents, powers of
attorney and other instruments).
<PAGE>
6
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 (x)
termination for Cause, resignation (other than resignation for "Good Reason"
following a "Change in Control") or, if applicable, the expiration (and
non-renewal) of the Employment Period on December 1, 2000, for three years
thereafter, or (y) termination without Cause, during the period in which the
Executive receives payments of Base Salary pursuant to paragraph 5(b) (without
regard to the proviso contained therein) (the applicable period being referred
to herein as the "Noncompete Period"), he shall not directly or 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 (i) 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 or (ii) performing management consulting service;
provided, however, that if ancillary to such management consulting services the
Executive or his client requires market research consulting services that are
performed by the Company or an affiliate thereof, he shall retain, or shall use
his best efforts to cause his client to retain the Company or such affiliate for
the performance of such services.
(b) During the Employment Period, the Noncompete
Period and, if applicable, for the period of three years following the
expiration (and non-renewal) of the Employment Period on December 1, 2000, 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 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.
<PAGE>
7
(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 Worldwide, Inc.
2 Pickwick Plaza
Greenwich, Connecticut 06830
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.
<PAGE>
8
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 part, 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.
9.9 Survival. Paragraphs 6, 7 and 8 and those
provisions of Paragraph 5 regarding compensation of the Executive following
termination of
<PAGE>
9
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 first above written.
NFO WORLDWIDE, INC.
By: /s/ William E. Lipner
-------------------------
Name: William E. Lipner
Title: Chairman, President and
Chief Executive Officer
/s/ Allen R. DeCotiis
---------------------
Allen R. DeCotiis
NFO WORLDWIDE, INC.
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of December 1, 1997, by and between
NFO Worldwide, Inc., a Delaware corporation (the "Company"), and Joseph M.
Migliara (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 President -- Healthcare and Consumer Packaged Goods 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 President -- Healthcare and Consumer Packaged Goods of the Company, and to
per form 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 President
- -- Healthcare and Consumer Packaged Goods 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's subsidiary,
Migliara/Kaplan Associates, Inc., 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 a
salary at the annual rate of no less than $280,000 (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 that the Executive currently receives, all group life,
hospitalization or disability insurance plans, health programs, pension plans,
profit sharing plans, similar benefit plans, automobile 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.
4.5 Country Club Membership. During the
Employment Period, the Company shall pay all of the Executive's fees, bonds and
annual dues for a country club membership. All personal expenses are to be paid
by the Executive.
4.6 Term Insurance. During the Employment
Period, the Company shall provide the Executive with a term life insurance
policy consistent with the policies of the Company's other members of the Office
of the President, providing coverage of $400,000 payable to a beneficiary to be
designated by the Executive.
<PAGE>
3
5. Term.
(a) The Employment Period shall end on December
1, 2000, 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 or the Employment Period is terminated,
at any time prior to a "Change in Control," by the resignation of the Executive
for the reason specified in subsections (i) or (iv) of the definition of "Good
Reason" (subject to the cure period contained in such definition), the Executive
shall be entitled to receive his Base Salary through December 1, 2000; provided,
however, that the Executive shall only be entitled to receive his Base Salary so
long as he has not materially breached the provisions of paragraphs 6, 7 and 8
hereof.
(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
in 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 1, 2000, 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 in 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
<PAGE>
4
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 consolida tion, 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 President
- -- Healthcare and Consumer Packaged Goods, 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
President -- Healthcare and Consumer Packaged Goods; (ii) the Company fails to
pay the Executive any amounts otherwise due hereunder; (iii) the Executive's
Base Salary is reduced or his Fringe Benefits are reduced; or (iv) the Company's
requiring the Executive to move his primary place of employment to a location
that is 50 miles or more from Migliara/Kaplan Associates, Inc. headquarters in
Owings Mills, Maryland; 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
Worldwide, 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
<PAGE>
5
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 subsid iaries 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 and its
predecessors 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 afore mentioned matters
are or become generally known to and available for use by the members of the
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 and confirm
such ownership (including, without limitation, assignments, consents, powers of
attorney and other instruments).
<PAGE>
6
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 (x)
termination for Cause, resignation (other than resignation for "Good Reason"
following a "Change in Control") or, if applicable, the expiration (and
non-renewal) of the Employment Period on December 1, 2000, for three years
thereafter, or (y) termination without Cause, during the period in which the
Executive receives payment of Base Salary pursuant to Section 5(b) (without
regard to the proviso contained therein) (the applicable period being referred
to herein as the "Initial Noncompete Period"), he shall not directly or
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 (any of the foregoing,
to "Compete"), within any geographical area in which the Company or its
subsidiaries engage or plan to engage in such businesses. In addition, the
Executive agrees that he shall not Compete in any such geographical area during
the two years following the termination of the Initial Noncompete Period (the
"Limited Noncompete Period" and, together with the Initial Noncompete Period,
the "Noncompete Period"); provided, however, that the Executive may perform
consulting services during the Limited Noncompete Period so long as any such
consulting services provided to any Client (as defined below) of the Company or
its subsidiaries (collectively, the "Companies"), are not the same as,
substantially similar to, or otherwise compete with, services offered by any of
the Companies. For purposes of this Section 8, the term "Client" shall mean a
person or entity who on the date of the termination of the Executive's
employment is a client of any of the Companies, or was a client of any of the
Companies at any time during the three years prior to such date. The Company and
the Executive agree, that in providing the consulting services referred to in
the proviso above, the Executive (i) may employ commonly accepted "generic
market research techniques" (such as focus groups), (ii) may not promote, use or
sell proprietary techniques, sales materials, programs or software of any of the
Companies or any techniques, sales materials, programs or software derived
therefrom and (iii) may not promote or position such services in a manner that
competes with any of the Companies. 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.
<PAGE>
7
(b) During the Employment Period, Noncompete
Period and, if applicable, for the period of three years following the
expiration (and non-renewal) of the Employment Period on December 1, 2000, 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 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:
<PAGE>
8
(i) If to the Company, to:
NFO Worldwide, Inc.
2 Pickwick Plaza
Greenwich, Connecticut 06830
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
Employment Agreement dated as of January 1, 1996 between Migliara/Kaplan
Associates, Inc. and the Executive is hereby terminated as of the date hereof
and is replaced hereby. 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.
<PAGE>
9
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 part, 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.
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 first above written.
NFO WORLDWIDE, INC.
By: /s/ William E. Lipner
-------------------------
Name: William E. Lipner
Title: Chairman, President and
Chief Executive Officer
/s/ Joseph M. Migliara
----------------------
Joseph M. Migliara
SECOND AMENDMENT TO LEASE
THIS SECOND AMENDMENT TO LEASE is made as of the 1st day of
January, 1998 (the "Effective Date"), by NINE PARK CENTER COURT, LLC, a Maryland
limited liability company (hereinafter referred to as "Landlord") and
MIGLIARA/KAPLAN ASSOCIATES, INC., a Delaware corporation ("Tenant").
EXPLANATORY STATEMENT
A. The Landlord, misidentified as "HSE II LLC," and Tenant,
misidentified variously as "MK Corporation" and as "Migliara/Kaplan Associates,"
are parties to a Lease Agreement dated as of December 3, 1996, as amended by
First Amendment to Lease dated October 10, 1997 (collectively, the "Lease"), for
the rental to Tenant of a portion of the Crossroads Professional Center, now
consisting of 38,000 square feet of gross rentable office space (the
"Premises").
B. Landlord and Tenant desire that the Tenant's name be correctly
identified, and that certain terms of the Lease be amended as hereinafter set
forth.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and of the
payment of the rent and of other considerations moving between the parties, the
parties hereto agree as follows:
1. AMENDMENT OF LEASE TERMS. Effective as of the Effective
Date, the following amendments to the Lease shall apply:
1.1 RENT. Section 2 of the First Amendment of Lease
is deleted in its entirety. Subparagraphs 4(a) and (b) of the Lease are hereby
deleted and the following are substituted in their place.
"(a) Tenant covenants and agrees to pay
Landlord, at Landlord's office or such other place as designated by
Landlord, without any prior demand and without any deduction or setoff
whatsoever, as annual rent ("Basic Rent") for the first two lease years
of the term as follows:
(i) For the first lease year, at the rate of
$17.00 per square foot for 27,000 gross rentable square feet, subject
to field measure ment, equaling the amount of Four Hundred Fifty-Nine
Thousand Dollars ($459,000.00) payable in advance on or before the
first day of each month during the first lease year of the term, in
equal monthly installments of Thirty- Eight Thousand Two Hundred Fifty
Dollars ($38,250.00) each;
<PAGE>
2
(ii) For the second year, Basic Rent at the
rate of $17.50 per square foot, equaling, subject to field measurement
of the Premises (38,000 gross rentable square feet), the amount of Six
Hundred Sixty-Five Thousand Dollars ($665,000.00), payable in advance
on or before the first day of each month of the second lease year, in
equal monthly installments of Fifty- Five Thousand Four Hundred Sixteen
Dollars Sixty-Seven Cents ($55,416.67) each.
In the event Landlord commences proceedings for non-payment of
rent, Tenant will not interpose any counterclaim of whatever nature or
description in any such proceeding except as such may be required by law to be
interposed or forever lost. This shall not, however, be construed in any way as
a waiver of Tenant's right to assert such claims in any separate action or
actions brought by Tenant.
(b) Beginning with the third lease year and
for each lease year thereafter, the Basic Rent shall be increased by
Three Percent (3%) over the prior year's Basic Rent. Corresponding
adjustments shall be made to the monthly installments due and payable."
2. POSSESSION AND IMPROVEMENTS. Section 3 of the First
Amendment of Lease is deleted in its entirety and Section 7 of the Lease is
amended as follows:
"2.1 On or before the Delivery Date, Landlord shall,
at its cost and expense, construct those improvements within the Premises for
Tenant's use and occupancy as shown and described on plans and specifications
attached to or referenced in Exhibit A to this Second Amendment to Lease (the
"Final Plans and Specifications"). Upon taking possession and occupying the
Premises, Tenant shall thereby be deemed to have accepted the same, with the
exception of those items contained in an agreed-upon punch-list and to have
acknowledged that the Premises are in the condition called for hereunder and
under the Final Plans and Specifications. Under no circumstances shall Landlord
be liable to Tenant for damages for any delay in commencing or completing
construction of the Premises or for a failure to complete or deliver the same.
Landlord shall have a reasonable time to correct all punch-list items.
2.2 So long as the Lease is in full force and effect
and no uncured event or default exists under the Lease, Landlord shall afford
Tenant an allowance in an amount not to exceed $100,000.00 (the "Allowance")
toward the cost of constructing renovations or additional leasehold improvements
to the Premises over and above the work shown on, described in or contemplated
by the Final Plans and Specifications, in accordance with and as finally shown
and described on additional plans and specifications to be prepared or approved
by Landlord ("Additional Leasehold Improvements"). The Allowance shall be
committed for use with respect to the Premises until one year after the Delivery
Date; if all or any of the Allowance
<PAGE>
3
shall not have been expended for the payment for completed work by such date
then, unless Landlord shall otherwise agree, Landlord's allocation of the
unexpected portion of such Allowance shall lapse and terminate. If the actual
cost of constructing the Additional Leasehold Improvements exceeds the
Allowance, Tenant to pay such excess, before the commencement of work."
3. LEASE OTHERWISE TO REMAIN IN FULL FORCE AND EFFECT. Except
as otherwise specifically set forth in this Agreement, each of the other terms,
covenants and conditions set forth in the Lease shall be and remain in full
force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this
SECOND AMENDMENT TO LEASE as of the date and year first above written.
WITNESS: LANDLORD:
NINE PARK CENTER COURT, LLC, a
Maryland limited liability company
By: HSE II ASSOCIATES LLC
Managing Member
By: /s/ J. Michael Abrams (SEAL)
----------------------------------
J. Michael Abrams, Manager
WITNESS OR ATTEST: TENANT:
MIGLIARA/KAPLAN ASSOCIATES, INC.,
a Delaware corporation
By: /s/ Joseph Migliaria (SEAL)
------------------------
Joseph Migliaria, President
<PAGE>
FIRST AMENDMENT OF LEASE
THIS FIRST AMENDMENT OF LEASE is made this 10th day of
October, 1997, by and between HSE II LLC, a Maryland limited liability company
("Landlord"), and Migliara/Kaplan Associates, a Delaware Corporation, having an
address at 4 Park Center Court, Owings Mills, Maryland 21117 ("Tenant").
RECITALS
By Lease dated December 3, 1996, the Landlord leased to Tenant
a portion of the Building containing approximately Sixteen Thousand Nine Hundred
Eight-Three (16,983) square feet of gross rentable office space.
The parties desire to expand the premises to Thirty-Eight
Thousand (38,000) square feet of gross rentable office space, and to adjust the
rent ant the Allowance provided for under the Lease.
AGREEMENTS
NOW, THEREFORE, in consideration of the matters hereinabove
recited, and other good and valuable considerations, the receipt of which is
hereby acknowledged, the parties agree as follows:
I. Paragraph 1 of the Lease is hereby deleted and the following
is substituted in its place:
1. PREMISES. The portion of the Building being leased to
Tenant contains approximately Thirty-Eight Thousand (38,000) square feet of
gross rentable office space of the Building as graphically shown on Exhibit A
(the "Premises"), which includes a 12% common area factor.
2. Subparagraphs 4(a) are hereby deleted and the following are
substituted in their place.
(a) Tenant covenants and agrees to pay Landlord, at
Landlord's office or such other place designated by Landlord, without
any prior demand and without any deduction or setoff whatsoever, as
annual rent ("Basic Rent") for the first two lease years of the Term,
as follows:
(i) For the first lease year, at the rate of
$16.50 per square foot for 27,000 gross rentable square feet,
subject to field measurement, equaling the amount of Four
Hundred Forty-five Thousand Five Hundred Dollars ($445,500.00)
payable in advance, on or before the first day of each month
during the first lease year of the term, in equal monthly
installments of Thirty-Seven Thousand One Hundred Twenty-Five
Dollars ($37,125.00) each;
<PAGE>
2
(ii) For the second lease year, Basic Rent
at the rate of $17.00 per square foot, equalling, subject to
field measurement of the Premises (38,000 gross rentable
square feet), the amount of Six Hundred Forty-Five Thousand
Eight Hundred Ten Dollars ($645,810.00), payable in advance,
on or before the first day of each month of the second lease
year, in equal monthly installments of Fifty- Three Thousand
Eight Hundred Seventeen Dollars and Fifty Cents ($53,817.50)
each;
In the event Landlord commences proceedings for
nonpayment of rent, Tenant will not interpose any counterclaim of
whatsoever nature or description in any such proceeding except as such
may be required by law to be interposed or forever lost. This shall
not, however, be construed in any way as a waiver of Tenant's right to
assert such claims in any separate action or actions brought by Tenant.
(b) Beginning with the third lease year and for each
lease year thereafter, the Basic Rent payable shall be increased by
Three Percent (3%) over the prior year's Basic Rent.
3. Paragraph 7 of the Lease is amended by changing the
Allowance from Three Hundred Seventy-Nine Thousand Eighty-Four Dollars
($379,084.00) to Eight Hundred Forty-Eight Thousand Two Hundred Fourteen Dollars
($848,214.00).
4. The Landlord and Tenant hereby ratify and confirm all of
the terms, covenants and conditions of the Lease, as modified by this First
Amendment.
IN WITNESS WHEREOF, the parties have executed this First
Amendment of Lease, under seal, on the day first above written.
WITNESS/ATTEST: HSE II LLC, a Maryland limited liability
company
By: /s/ J. Michael Abrams (SEAL)
----------------------------------
- -------------- J. Michael Abrams, Manager
LANDLORD
[SIGNATURES CONTINUED]
MIGLIARA/KAPLAN ASSOCIATES, INC.,
a Delaware corporation
By: /s/ Joseph Migliaria (SEAL)
------------------------
Joseph Migliaria, President
TENANT
<PAGE>
STANDARD OFFICE LEASE
THIS LEASE (the "Lease") made as of this 3rd day of December,
1996, by and between HSE II LLC, a Maryland limited liability company
("Landlord"), and Migliara/Kaplan Associates, Inc. a Delaware Corporation,
having an address at 4 Park Center Court, Owings Mills, Maryland 21117
("Tenant").
In consideration of the agreements and covenants hereinafter
set forth, Landlord hereby leases unto Tenant, and Tenant hereby leases from
Landlord the hereinafter described Premises located at 9 Park Center Court,
Owings Mills, Maryland 21117 in Crossroads Professional Center (the "Building"),
located in Baltimore County, Maryland (the "Land") (the Land and Building,
collectively, the "Property"), upon the following terms and conditions:
1. PREMISES.
The portion of the Building being leased to Tenant contains
approximately Sixteen Thousand Nine Hundred Eighty-Three (16,983) square feet of
gross rentable office space of the Building as graphically shown on Exhibit A
(the "Premises"), which includes a 12% common area factor.
2. TERM.
(a) This Lease is for a term of fifteen (15) years
(the "Term") commencing on that date Landlord delivers to Tenant a use and
occupancy certificate issued for the Premises by Baltimore County, Maryland.
This date shall be called the "Commencement Date." Landlord and Tenant agree to
execute a confirmatory agreement, provided by Landlord, verifying the actual
Commencement Date and the gross square footage of the Premises, in the form as
set forth in Exhibit B.
(b) The term "lease year" is hereby defined as the
twelve (12) month period beginning on the Commencement Date (unless the
Commencement Date is on other than the first day of a month, then in that case
the lease year shall begin on the first day of the month immediately following
the Commencement Date) and each successive twelve (12) month period thereafter
during the Term.
3. COMMON AREAS AND PARKING.
(a) During the Term, Tenant shall have a
non-exclusive license to use in common with others the driveways, footways,
sidewalks, parking areas, and exterior common areas adjacent to the building
(collectively the "Common Areas"), subject, however, to the rules and
regulations set forth on Exhibit C (the "Rules and Regulations") attached hereto
and made part hereof, and subject to such
<PAGE>
2
other rules and regulations for the use thereof as may be issued from time to
time by Landlord.
(b) Landlord shall at all times have full and
exclusive control, management, and direction of the Common Areas. Specifically,
Landlord shall have the right to police the Common Areas; to assign specific
parking areas for tenants and for visitors; to close temporarily all or any
portion of the parking areas as may be required for proper maintenance and/or
repair; to implement such control and security procedures for the regulation of
parking by tenants of the Buildings Landlord shall deem reasonably advisable;
and to do and perform such other acts in and to the Common Areas, including
further development of the Common Areas, as Landlord, in its sole reasonable
business judgment, provided such acts do not interfere in any material respect
with access to or visibility of the premises, the conduct of Tenant's business
or the availability of parking for Tenant's business, shall determine to be
reasonably advisable. It is understood and agreed by Tenant the Landlord shall
have no obligation to employ any security or parking personnel or device for
either the Land or the Premises or to furnish any type of system to control the
use of parking spaces by Tenant, its customers and invites, or any third party.
4. RENT.
(a) Tenant covenants and agrees to pay Landlord, at
Landlord's office or such other place designated by landlord, without any prior
demand and without any deduction or set-off whatsoever, as annual rent for each
year of the Term (as increased pursuant to Paragraph 4(b), the "Basic Rent") at
the rate of $16.50 per square foot, equaling, subject to field measurement of
the Premises, the amount of Two Hundred Eighty Thousand Two Hundred Nineteen
Dollars and Fifty Cents ($280,219.50) per annum, payable in advance, on or
before the first day of each month during the Term, in equal monthly
installments of Twenty-Three Thousand Three Hundred Fifty-One Dollars and
Sixty-Two Cents ($23,351.62) each. In the event Landlord commences proceedings
for non-payment of rent, Tenant will not interpose any counterclaim of
whatsoever nature or description in any such proceeding except as such may be
required by law to be interposed or forever lost. This shall not, however, be
construed in any way as a waiver of Tenant's right to assert such claims in any
separate action or actions brought by Tenant.
(b) Beginning with the second lease year and for each
lease year thereafter, the Basic Rent payable shall be increased by three
percent (3%) over the prior year's Basic Rent.
(c) Tenant covenants and agrees to pay Landlord
during the Term Tenant's Proportionate Share, as hereinafter defined, of the
increase in all real estate taxes (the "Taxes") assessed against the entire
property of which the Premises, the Building, and the Land are a part above the
Taxes for the fiscal year coinciding with the Commencement Date (the "Base Tax
Year"). Tenant's "Proportionate
<PAGE>
3
Share" shall be the proportion that the gross floor area of the Premises bears
to the total gross floor area of all leasable floor area in the Building as of
the first day of the calendar year during which such costs are incurred.
(i) It is understood that any such real
estate taxes shall include increases in assessment and tax rate, water
rents, rates and charges, sewer rents and other governmental charges of
every kind and nature whatsoever.
(ii) Upon the receipt of a bill for any such
taxes or charges, Landlord shall furnish Tenant a statement showing the
Taxes due and computing Tenant's Proportionate Share of the increase in
the Taxes above the Base Tax Year. Subject to Tenant's right to contest
provided in this Paragraph 4(c)(ii), Tenant shall pay its Proportionate
Share of the increase in the Taxes above the Base Tax Year within
thirty (30) days after receipt of such statement from Landlord. Tenant,
at its sole cost and expense, shall have the right separately to
contest the amount and/or validity of all such Taxes, but Landlord
shall join any such proceeding brought by Tenant if reasonably required
by Tenant to contest any such Taxes, at no cost to Landlord. However,
if required by the applicable governmental agency prior to resolution
of any dispute, Tenant's Proportionate Share of the increase in the
Taxes above the Base Tax Year shall be paid by Tenant.
(d) Tenant covenants and agrees to pay Landlord, as
additional rent for the Premises, Tenant's Proportionate Share of the increase
of all of the Landlord's Building Operating Costs (as hereinafter defined) above
the Landlord's Building Operating Costs for the calendar year in which the Lease
commences (the "Base Year").
(i) The term "Landlord's Building Operating
Costs" as used herein shall include the following costs, by way of
illustration, but not limitation: Landlord's Common Areas maintenance
costs, water and sewer charges, repairs, replacements, costs of capital
improvements (amortized over the useful life thereof), insurance
premiums, license, permit and inspection fees, heat, power (including
electricity and gas), steam, janitorial service, labor, air
conditioning, supplies, salaries, materials, tools, cleaning and
equipment, administrative and management fees.
(ii) A Statement of Landlord's Building
Operating Costs shall be prepared annually by the Landlord. In the
event that the total of the monthly installments paid by Tenant during
the calendar year is less than Tenant's actual Proportionate Share of
the increase in the Building Operating Costs above the Base Year for
such calendar year, Tenant shall pay the balance due and owing to
Landlord within thirty (30) days after such statement is given to
Tenant. In the event that the total of the monthly installments paid
<PAGE>
4
by Tenant during the calendar year exceeds Tenant's Proportionate Share
of the increase in the Building Operating Costs above the Base Year for
such calendar year, Landlord shall apply such excess to Tenant's next
accruing monthly installments of its Proportionate Share of the
Building Operating Costs.
(iii) Tenant's Proportionate Share of the
increase in the Operating costs for each calendar year, or partial
calendar year if applicable, during the Term shall be reasonably
estimated by Landlord at the beginning of each such calendar year (or
at the Commencement Date for the first calendar year or portion
thereof) and shall be paid by Tenant in equal monthly installments on
the first (1st) day of each month, in advance. Landlord reserves the
right to reasonably revise its estimate of the Operating Costs during
any calendar year and, upon written notice to Tenant, Tenant's monthly
payment of the increase in the Operating Costs above the Base Year
shall be adjusted to reflect Landlord's revised estimate.
(e) In the event this Lease shall terminate on any
date other than the last day of a calendar year, the amount of additional rent
payable by Tenant during the calendar year in which this Lease terminates shall
be prorated in the same proportion as the number of days from the commencement
of said calendar year to and including the date on which this Lease terminates,
bears to 360.
(f) Upon the nonpayment for ten (10) days after the
date due of any monthly or other installment of Basic Rent, additional rent, or
any other monetary sum due Landlord on its due date, to compensate Landlord for
its loss of earnings on any such funds unpaid, any payment of Basic Rent,
additional rent, or any other sum due Landlord, if not paid which ten (10) days
after written notice from Landlord, shall bear interest at the rate of twelve
percent (12%) per annum, from the date due until the date paid. Such interest
shall be due hereunder as additional rent and paid within the next monthly
installment of Basic Rent.
5. SECURITY DEPOSIT AND ADVANCE DEPOSIT OF RENT.
Intentionally deleted.
6. USE OF PREMISES.
Tenant shall use the Premises solely as an office and will not
use or permit or suffer the use of the Premises for any other purpose.
7. POSSESSION AND IMPROVEMENTS.
Landlord shall prepare the Building at Landlord's sole expense
in the condition as described on Exhibit D attached hereto and incorporated
herein by
<PAGE>
5
reference. On the Commencement Date or December 31, 1998, whichever occurs
earlier (the "Delivery Date"), Landlord shall deliver the Premises improved in a
condition to be mutually agreed to In writing by Landlord and Tenant, to be
performed by Landlord at Landlord's expense not to exceed the sum of Three
Hundred Seventy-Nine Thousand Eighty-Four Dollars ($379,084.00) (the
"Allowance"), with all costs over the Allowance payable by Tenant upon demand by
Landlord substantially completed, subject, however, to delays caused by
shortages of materials, delays in obtaining governmental permits, inspections,
and any cause not within the reasonable control of Landlord, and force majeure,
Tenant's sole remedy for Landlord's failure to deliver the Premises on the
Delivery Date, as extended, shall be to cancel this Lease.
8. ASSIGNMENT AND SUBLETTING.
Tenant shall not assign or encumber the Lease or Tenant's
interest hereunder, in whole or in part, nor sublet the Premises or any part
thereof, or permit the occupancy thereof, without the prior written consent of
Landlord, which consent shall not be unreasonably withheld. In the case of any
subletting pursuant to which Tenant receives any rent or other payments in
excess of the Basic Rent hereunder, or in the case of any subletting or
assignment in consideration for which Tenant receives any payment or other
consideration, all such excess rent, other payments and/or consideration,
one-half (1/2) of the amount thereof shall be promptly paid to Landlord, it
being the intention of the parties that Tenant and Landlord will share equally
any profit from any assignment or subletting. Consent by Landlord to any
assignment or subletting shall not in any manner relieve Tenant of its
responsibility and obligations under the Lease, or constitute a waiver of the
necessity for such consent to any subsequent assignment or subletting.
9. LANDLORD'S AND TENANT'S RESPONSIBILITIES FOR
REPAIR AND MAINTENANCE.
(a) Subject to reimbursement under Paragraph 4(d)
hereof of Tenant's Proportionate Share, Landlord shall be responsible for
repairs to the roof, the structural portions of the Building, and the Common
Areas of the Building. All work shall be performed in a good and workmanlike
fashion and the Building and Premises shall be kept free and clear from liens.
(b) Except as specifically provided above in this
Paragraph 9, Tenant agrees to keep the Premises and all furniture, fixtures and
equipment thereon furnished by Tenant in good order and repair during the Term
of this Lease at its own expense, together with all electrical, plumbing (up to
the main line), heating, air conditioning, doors, locks, and door frames, plate
glasses, unless caused by the negligence of Landlord, and all other glass in
windows, doors, and elsewhere, and other installments therein, in good order and
repair, to replace any such items with materials of like kind and quality, and
to surrender the Premises at
<PAGE>
6
the expiration of the Term, or at such other time as it may vacate the Premises,
in as good condition as that on the Commencement Date, except for ordinary wear
and tear and damage by fire or other hazard.
(c) Tenant shall repair promptly at its own expense
any damage (except if caused by fire or other casualty) to the Premises and,
upon demand, shall reimburse Landlord for the cost of the repair of any damage
elsewhere in the Building, caused by bringing into the Premises any property for
Tenant's use, or by the installation or removal of such property, regardless of
fault or by whom such damage shall be caused, unless caused by Landlord, its
agents, employees or contractors; and in default of such repairs by Tenant,
Landlord may make the same and Tenant shall pay the cost thereof to Landlord
promptly upon demand, as additional rent.
(d) Where Landlord is required to perform
construction, remodeling, repairs, services, maintenance, or other matters
pursuant to this Lease, Landlord shall perform them as an independent contractor
and shall not be considered an agent of the Tenant, nor shall any of Landlord's
contractors, subcontractors, servants, employees or clients be considered
subagents of the Tenant. Where Tenant is required to perform construction,
remodeling, repairs, services, maintenance, or other matters pursuant to this
Lease, Tenant shall perform them as an independent contractor and shall not be
considered an agent of the Landlord, nor shall any of Tenant's contractors,
subcontractors, servants, agents, employees or clients be considered subagents
of the Landlord.
(e) Tenant, at its sole cost and expense, shall
provide janitorial services to maintain the Premises in a neat, clean and
sanitary condition.
10. ALTERATIONS.
(a) Tenant will not make or permit anyone to make any
alterations, additions or improvements, structural or otherwise, in or to the
Premises or the Building without the prior written consent of Landlord, which
consent, in the case of any alterations, additions or improvements not involving
structural elements or the exterior of the Building or Premises, shall not be
unreasonably withheld, delayed or conditioned. Any such alterations, additions
or improvements, structural or otherwise, must conform to all governmental
regulations, as well as those established by the appropriate underwriter's
associations.
(b) As a condition precedent to such written consent
of Landlord (but not the sole condition precedent to such consent), Tenant shall
obtain and deliver to Landlord written and unconditional waivers of mechanics'
liens upon the Land and the Building, for all work, labor and services to be
performed, and materials to be furnished in connection with such work, signed by
all contractors, subcontractors, materialmen and laborers to become involved in
such work. Tenant
<PAGE>
7
shall not permit any mechanic's or materialman's lien to be established against
the Land or the Building, the Premises, or any portion thereof, or against
Tenant's leasehold interest in the Premises, in connection with or arising out
of any work done on the Premises. In the event that any notice is received by
Landlord with respect to any claim or any intent to file a mechanic's lien
against the Land or the Building, the Premises, or against the Tenant's
leasehold interest in the Premises, in connection with or arising out of any
work done on the Premises, or for materials claimed to have been furnished to
Tenant, such mechanic's lien shall be discharged by Tenant within ten (10) days
after receipt of the notice of intent to claim a lien at Tenant's sole cost and
expense by the payment thereof or by filing any bond required by law. If Tenant
shall fail to discharge any such mechanic's lien, Landlord may, at its option,
discharge the same and treat any and all cost thereof as additional rent payable
with the monthly installment of Basic Rent next becoming due. It is hereby
expressly covenanted and agreed that such discharge by Landlord shall not be
deemed to waive, or release, the default of Tenant in not discharging any such
lien. Tenant shall defend, indemnify, and hold Landlord safe and harmless from
and against any such alterations, additions or improvements, or in connection
with any petition for, establishment of, or threat of establishment of any such
lien, including, without limitation, reasonable attorneys' fees.
(c) Tenant agrees that any improvements and/or
alterations made by it which are attached to the Premises so that removal of
such improvements and/or alterations may, in Landlord's sole reasonable
discretion, damage the Premises, shall become the property of Landlord and
remain upon the Premises at the expiration or termination of the Term, provided
that, upon notice to Tenant, Landlord may require Tenant, upon the expiration or
termination of the Lease, to remove any or all of such improvements and/or to
restore the Premises to their condition as of the Commencement Date, excluding
ordinary wear and tear. All property permitted or required to be removed by
Tenant shall be deemed abandoned if not removed within ten (10) days after
notice is given to Tenant and Landlord may either retain it as Landlord's
property or may remove it at Tenant's expense.
11. ROOF AND WALLS; CHANGES AND ADDITIONS TO THE
LAND.
(a) Landlord shall have the exclusive right to use
all or any part of the roof of the Premises or the Building for any purpose; to
erect additional stories or other structures over all or any part of the
Premises or the Building provided such action does not adversely impact Tenant's
use of the Premises or the Common Area, including the parking area for an
unreasonable period in any material respect; to erect in connection with the
construction thereof temporary scaffolds and other aids to construction on the
exterior of the Premises or the Building, provided that access to the Premises
shall not be unreasonably impaired or denied in any material respect; and to
install, maintain, use, repair and replace within the Premises
<PAGE>
8
pipes, ducts, conduits, wires and all other mechanical equipment serving other
parts of the Building.
(b) Provided such action shall not impact on Tenant's
use of the Premises or in the Common Areas, including the parking area in any
material respect for an unreasonable period, Landlord reserves the right at any
time and from time to time to (i) make or permit changes or revisions in the
plan for the Land, including additions to, subtractions from, rearrangements of,
alterations, modifications of, or supplements to, the Land, walkways, driveways,
parking areas, or other Common Areas, (ii) construct other building or
improvements on the Land and make alterations or additions thereto and build
additional stories on any such building(s) and build adjoining same, and (iii)
to install, maintain, use, repair, and replace within the Premises pipes, ducts,
conduits, wires, and allocations within the Premises as will not unreasonably
deny Tenant's use thereof. Landlord may make any use it desires of the exterior
walls of the Premises, provided such action does not adversely impact Tenant's
use of the Premises in any material respect for an unreasonable period.
12. INSURANCE AND INDEMNIFICATION.
(a) Tenant agrees to defend, indemnify, and hold
Landlord safe and harmless from all claims for personal injury, death, or
property damage by any one or any cause on, in, upon or about the Premises not
caused by the gross negligence or willful misconduct of Landlord, its agents,
contractors or employees, including all costs, reasonable attorneys' fees and
other expenses incurred in the defense of any such claim, and to provide and
keep in force throughout the Term, in a reputable company or companies licensed
to do business in the State of Maryland and in form satisfactory to Landlord,
public liability insurance coverage with limits of not less than One Million
Dollars ($1,000,000.000) per injury, per occurrence, and Three Million Dollars
($3,000,000.00) per occurrence in the aggregate, and Two Hundred and Fifty
Thousand Dollars ($250,000.00) for damage to property. Tenant's insurance policy
or policies shall name Landlord and Tenant as insureds as their interests may
appear and over them from and against claims for personal injuries, death or
property damage occurring in, upon or about the Premises.
(b) Tenant agrees to obtain and keep in force
throughout the Term, at its own expense, in a reputable company or companies
licensed to do business in the State of Maryland, an insurance policy or
policies providing protection against any peril included within the
classification of "Fire and Extended Coverage," covering its leasehold estate in
the Premises and all trade fixtures, merchandise and other property in, on or
about the Premises, and all improvements and alterations made by or on behalf of
Tenant, for their full insurable value or replacement cost. Such policy or
policies of insurance shall be in form reasonably satisfactory to Landlord,
shall name Landlord as an additional insured and shall contain a provision by
which the insurer waives any right or subrogation against Landlord arising out
of any loss covered by such insurance. Landlord shall not be liable to Tenant
for any
<PAGE>
9
loss or damage to such improvements or Tenant's property or estate caused by
fire or any other risk that is (i) covered by such insurance or (ii) included in
the coverage of the standard fire and extended coverage insurance available in
Maryland for insuring such improvements, property and estate at the time of such
loss or damage. Further, Landlord shall not be liable to Tenant for any damage
to Tenant's property or estate caused by the negligence or intentional acts of
any other tenants in the Building or caused by any reason whatsoever, except if
caused by the gross negligence or wilful misconduct of Landlord, its agents,
contractors or employees. It is the intent of the foregoing, and Landlord and
Tenant covenant and agree, that Tenant shall protect itself against injury, loss
or damage to its property and estate arising from any cause whatsoever, other
than that caused solely by the negligence of Landlord or its agents, through
procurement of available insurance coverage, without subjecting Landlord to
liability to Tenant for any injury, loss or damage, and further, without
subjecting Landlord to subrogation claims of any insurer.
(c) Tenant shall not do or permit to be done, nor
keep or permit to be kept, anything in, upon or about the Premises which will
contravene the policies of insurance against loss or damage by fire or other
hazards, including, but not limited to, public liability, or which will prevent
procuring such policies in companies acceptable to Landlord. If anything done,
omitted to be done, or permitted to be done by Tenant, or kept, or permitted by
Tenant to be kept, in, upon or about the Premises shall cause the rate of fire
or other insurance on the Premises, the Building or on other property of
Landlord in the Building, in companies acceptable to Landlord, to be increased
beyond the minimum rate from time to time applicable to the Premises or the
Building, Tenant shall pay the amount of such increase promptly upon Landlord's
demand.
(d) All insurance policies to be maintained by Tenant
under this Paragraph 12 shall provide that they may not be cancelled or
materially modified without thirty (30) days' prior written notice to Landlord
and any known mortgage of the Premises or the Building, provided Tenant has been
provided with the name and address of Landlord's mortgagee.
(e) Tenant shall, prior to the entry by Tenant on the
Premises, and annually thereafter, without request by Landlord, furnish Landlord
with a certificate on ACORD Form 27 showing that its required insurance is in
full force and effect, and a copy of all such insurance policies.
(f) Landlord covenants to carry insurance for
replacement costs.
(g) All insurance policies with respect to the
Building and the Premises shall include a waiver by the insurer of all right of
subrogation against Landlord or Tenant, their officers, directors, employees,
agents and invitees in connection with any loss or damage thereby insured
against, to the extent of such
<PAGE>
10
insurance. Neither party, nor its partners, officers, directors, employees,
agents or invitees shall be liable to the other for loss or damage caused by any
risk covered by such insurance, provided such policies shall be obtainable, even
though such loss or damage might have been occasioned by the negligence of such
party, its officers, directors, employees, agents or invitees; provided,
however, that if, by reason of the foregoing waiver, either party shall be
unable to obtain any such insurance, such waiver shall be deemed not to have
been made by such party and, provided further that if either party shall be
unable to obtain any such insurance without the payment of an additional premium
therefor, then, unless the party claiming the benefit of such waiver shall agree
to pay such party for the cost of such additional premium within thirty (30)
days after notice setting forth such requirement and the amount of the
additional premium, such waiver shall be of no force and effect between such
party and such claiming party.
13. UTILITIES.
(a) The parties acknowledge that the Premises are
separately metered for water, fuel and electricity. Tenant shall pay promptly
when due all charges for water, fuel and electricity consumed on the Premises,
as well as any other charges incurred by Tenant in its use of the Premises, as
well as any other charges incurred by Tenant in its use of the Premises. In
addition, Tenant shall be responsible and pay when due all taxes of any kind
assessed against any leasehold interest or personal property of any kind, owned
by or placed in, upon or about the Premises by Tenant. In default of payment,
Landlord may, but is in no manner required to, make any such payment, and Tenant
agrees to pay Landlord for same promptly upon demand. Any such payment shall be
deemed collectible by Landlord as additional rent.
(b) Landlord shall not be liable in any way for any
damage or inconvenience caused by the cessation or interruption of heating, air
conditioning, electricity, or elevator service occasioned by fire, accident,
strikes, maintenance, alterations or repairs deemed necessary by Landlord, or
any other causes beyond Landlord's control, provided, however, if said cessation
or interruption shall continue for a continuous period of ninety (90) days or
more and shall adversely impact on Tenant's use of the Premises or Common Areas
in any material respect, at Tenant's option this Lease shall terminate and
neither Landlord nor Tenant shall have any further rights or obligations
hereunder, except as to those which accrued prior to such termination.
(c) Employees of Landlord shall not be responsible
for receiving any packages or other articles delivered to the Building for
Tenant. In the event that any employee or the Landlord does receive any such
packages or articles, such employee shall be deemed to be acting as the agent of
Tenant and not as the agent of Landlord, and Tenant shall be solely responsible
for the receipt of such
<PAGE>
11
packages or articles, unless caused by the gross negligence or wilful misconduct
of said employee.
14. SIGNS.
It is agreed that Tenant will not place or suffer to be placed
or to maintain on or visible from the exterior of the Premises any sign, awning,
advertising matter or other thing of any kind, nor to place or maintain any
decoration, lettering or advertising matter on the glass of any window or door
of the Premises, without first obtaining Landlord's written approval thereof,
which consent shall not be unreasonably withheld, delayed or conditioned. All
signs as may be approved by Landlord shall be maintained in good condition and
repair and in accordance with all applicable laws and regulations at all times.
15. DEFAULT AND REMEDIES.
(a) Tenant covenants and agrees to pay the Basic
Rent, together with all other sums of money which under the provisions hereof
may be considered as additional rent, at the times and in the manner hereinabove
set forth, and to pay other sums that may be due Landlord under this Lease
promptly upon their becoming due.
(b) Subject to the notice and cure period set forth
in Section 15(c) below, if the Basic Rent or additional rent agreed to be paid,
including all other sums of money which under the provisions hereof may be
considered as additional rent, or other sums due to Landlord shall not be paid
when due, Landlord may exercise any and all available remedies to the full
extent allowed by law. If said rent, including all such other sums, shall not be
paid when due, Landlord may at its option declare the tenancy hereunder
terminated, and/or forthwith be entitled to the benefit of any public general or
public local laws, now or hereafter enacted, relating to the speedy recovery of
possession of lands and tenements held over by tenants.
(c) If Tenant shall fail to pay any installment of
Basic Rent, additional rent, or any other sums due to Landlord within ten (10)
days of written notice from Landlord, violate any other covenant or agreement
made by it in the Lease and fail to cure such violation within thirty (30) days
after written notice from Landlord (but if Tenant cannot cure and such
non-monetary default within such grace period, and as long as Tenant has
commenced efforts to cure within such grace period and is diligently pursuing
said cure, Tenant shall have a reasonable time to cure said default before being
in default, not to exceed a total of ninety (90) days from the date of
Landlord's notice, hereunder, or if Tenant shall abandon, vacate, or cease to
operate said Premises for a continuous period of more than thirty (30) days,
then in any of said events, Landlord may, at its option, reenter and resume
possession of the Premises, and declare this Lease, and the tenancy hereby
created, terminated, and thereupon remove all persons and property from the
Premises, but not with process of
<PAGE>
12
any court of competent jurisdiction and not by self-help, and by force or
otherwise; and notwithstanding such reentry under this subparagraph (c) or
subparagraph (d), and Tenant shall remain liable for any rent and other amounts
due or accrued to Landlord or damages caused to Landlord prior thereto. Tenant
shall not be entitled to any excess of such amounts received from others over
the liability of Tenant hereunder. It shall be within the sole discretion of
Landlord to determine to whom, or whether to anyone, the Premises shall be so
rented, the amount of the rent and all other terms and conditions of said
renting, and the period or periods thereof, whether less than, equal to or
beyond the aforesaid unexpired term of the Lease, and Landlord shall have no
duty to mitigate damages for which Tenant is liable hereunder. Further, Landlord
shall be entitled, at its option, to any and all other remedies available to a
Landlord at law or in equity, including relief by injunction, or otherwise,
against continuance of any violation of a covenant or agreement of the Lease.
(d)(i) If Tenant shall generally not pay its debts as
they become due or shall admit in writing its inability to pay its debts, or
shall make a general assignment for the benefit of creditors, or (ii) if Tenant
shall commence any case, proceeding or other action seeking reorganization,
arrangement, adjustment, liquidation, dissolution or composition of it or its
debts under any law relating to bankruptcy, insolvency, reorganization or relief
of debtors, or seeking appointment of a receiver, trustee, custodian or other
similar official for it or for all or any substantial part of its property, or
(iii) if Tenant shall take any corporate action to authorize any of the actions
set forth in subparagraphs (i) or (ii) above, or (iv) if any case, proceeding or
other action against Tenant shall be commenced seeking to have an order for
relief entered against it as debtor, or seeking reorganization, arrangement,
adjustment, liquidation, dissolution or composition of it or its debts under any
law relating to bankruptcy, insolvency, reorganization or relief of debtors, or
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its property, and such case,
proceeding or other action (a) results in the entry of an order for relief
against it which is not fully stayed within fifteen (15) days after the entry
thereof, or (b) remains undismissed for a period of, fifteen (15) days, or (v)
if any execution, attachment or mechanics' lien against Tenant or the Premises
be unsatisfied or unsecured by adequate corporate surety bond or cash security
(the election of the surety bond or cash to be in the sole but reasonable
discretion of Landlord) for more than ten (10) days, Landlord, may at its
option, in any of such events, terminate the Lease, retaining all rights against
Tenant, and its receiver, trustee, custodian or similar official permitted,
under subparagraphs (c) and (d).
(e) Notwithstanding the provisions in subparagraph
(d) above, to the extent permitted by applicable federal or state law, in the
event of an assignment by operation of law under the federal Bankruptcy Code, or
any state bankruptcy or insolvency law and Landlord elects not to terminate the
Lease, the assignee shall provide Landlord with adequate assurance of future
performance of all of the terms, conditions and covenants of the Lease, which
shall include, but which
<PAGE>
13
shall not be limited to, assumption of all the terms, covenants and conditions
of the Lease by the assignee and the making by the assignee of the following
express covenants to Landlord: (i) that assignee has sufficient capital to pay
the Basic Rent, additional rent and other charges due under the Lease for the
entire Term; (ii) that assumption of the Lease by the assignee will not cause
Landlord to be in violation or breach of any provision in any other lease,
financing agreement or operating agreement relating to the Building; and (iii)
that such assignment and assumption by the assignee will not substantially
disrupt or materially impair any existing tenant mix in the Building.
16. DESTRUCTION.
(a) If the Premises shall be damaged by fire, the
elements, unavoidable accident or other casualty, but are not thereby rendered
untenantable in whole or in part, Landlord shall cause such damage to be
repaired, and rent shall not be abated. If, by reason of such occurrence, the
Premises shall be rendered untenantable only in part, Landlord shall cause the
damage to be repaired or restored with reasonable diligence, and the rent shall
be abated proportionately as to the portion of the Premises rendered
untenantable until such time as the Premises are restored, as reasonably
determined by Landlord.
(b) If the Premises shall be damaged by fire, the
elements or other casualty, and the cost of repairing such damage shall equal
fifty percent (50%) or more of the fair replacement value of the Premises
immediately prior to such damage, or if a substantial portion of the Building or
the Land excluding the Premises shall be damaged by such casualty, the Landlord
may elect to cause such damage to be repaired or restored, in which event this
Lease shall continue in full force and effect, provided, however, if such repair
or restoration is not completed within one hundred eighty (180) days after
occurrence of the casualty Tenant shall have the option to terminate this Lease
by giving Landlord written notice of its election within ten (10) days after
such one hundred eighty (180) day period. In the event of such termination,
neither Landlord nor Tenant shall have any further rights or obligations
hereunder except as to those which accrued prior to such termination. In the
event Landlord shall elect to cause the damage to be repaired or restored, the
Basic Rent shall be abated proportionately as to the portion of the Premises
rendered untenantable for the period of such unfitness for occupancy, as
reasonably determined by Landlord. Landlord shall have the right, at its
election, to terminate the Lease by giving to Tenant, within sixty (60) days
following the date of said casualty, five (5) days prior written notice of
Landlord's election to terminate the Lease. In the event of such termination,
Basic Rent, additional rent and other charges shall be adjusted as of the date
of the termination.
(c) In no event, however, shall Landlord be required
to expend any amounts in excess of the net insurance proceeds actually paid to
and
<PAGE>
14
available to Landlord, or to expend any amounts on account of improvements made
by Tenant or to the Premises.
(d) Anything contained in any provision of this Lease
to the contrary notwithstanding, if any such damage to the Premises or the Land
are caused by or result from the negligent or intentionally tortious act or
omission of the Tenant, those claiming under the Tenant or any of their
respective officers, employees, agents or invitees.
(1) the rent shall not be suspended or
apportioned as aforesaid to the extent Landlord recovers such rent from any
insurance proceeds received by Landlord (net of all reasonable costs incurred by
Landlord in connection with adjusting the loss and obtaining payment of such
insurance proceeds), and
(2) the Tenant shall pay to the Landlord
upon demand, as additional rent, the cost of (i) any repairs and restoration
made or to be made as a result of such damage to the extent not covered by
insurance proceeds received by Landlord (net of all reasonable costs incurred by
Landlord in connection with adjusting the loss and obtaining payment of such
insurance proceeds), or (ii) (if the Landlord elects not to restore the Premises
or Building) any damage or loss which the Landlord incurs as a result of such
damage to the extent not covered by insurance proceeds received by Landlord (net
of all reasonable costs incurred by Landlord in connection with adjusting the
loss and obtaining payment of such insurance proceeds), or (iii) (if the
Landlord elects not to restore the Premises or Building) any damage or loss
which the Landlord incurs as a result of such damage to the extent not covered
by insurance proceeds received by Landlord (net of all reasonable costs incurred
by Landlord in connection with adjusting the loss and obtaining payment of such
insurance proceeds).
17. CONDEMNATION.
(a) In the event eminent domain proceedings shall be
instituted against the Premises or the Building, the Lease shall terminate at
the option of Landlord when title to the Premises, or a portion thereof, is
taken by the condemning authority, at which time all rent and other payments due
hereunder shall abate on a per-square foot basis for such portion, if any, of
the Premises as shall be rendered fit for occupancy inconsequence of such
damage, for the period of such unfitness for occupancy. If the Lease is not so
terminated Landlord shall, at its own expense, up to the amount of net
condemnation proceeds actually paid to and available to Landlord, restore the
remainder of the Premises as a condition as similar as possible to that in which
they were prior to the taking, having due regard for any reduced area of the
Premises. Until such restoration is completed, and thereafter, all rent and
other payments due hereunder shall be equitably adjusted, taking into
consideration the proportion and the nature of the area of the Premises taken,
and the period of time of such taking, as reasonably determined by Landlord.
<PAGE>
15
(b) All condemnation awards for any of Premises or
the Building or any interest therein shall belong to and be the sole property of
Landlord. Tenant hereby assigns to Landlord all rights with respect to any and
all such condemnation awards; provided, however, nothing contained herein shall
prevent Tenant from applying for reimbursement from the condemning authority (if
permitted by law) for moving expenses, or the expense of removal of Tenant's
trade fixtures, or loss of Tenant's business good will, but only if such action
shall not reduce the amount of the award or other compensation otherwise
recoverable from the condemning authority by Landlord.
18. WASTE.
Tenant shall not commit or suffer to be committed any waste
upon the Premises or any nuisance or other act or thing which may disturb the
quiet enjoyment of any other tenant in the Building or any person adjacent to
the property of which the Premises are a part.
19. INSPECTION OF PREMISES.
Landlord, its agents, employees and contractors shall have the
right to enter the Premises at any reasonable time upon reasonable advance
notice to examine the same, to enforce or carry out the provisions of the Lease,
to make such repairs, alterations or improvements as Landlord deems reasonable,
necessary or desirable and to show the Premises to prospective purchasers or
lessees of the Building. Within the last six (6) months of the term, Landlord
shall have the right to display on the exterior of the Premises a customary "For
Rent" sign.
20. COMPLIANCE WITH LAW.
Tenant shall, at Tenant's sole cost and expense, comply with
all the requirements of all county, municipal, state, federal and other
applicable governmental authorities, now in force, or which may hereafter be in
force, pertaining to the said Premises, and shall faithfully observe in the use
of the Premises all municipal and county ordinances and state and federal
statutes now in force or which may hereafter be in force.
21. LIABILITY.
(a) Landlord shall not be liable for any damage to
property of Tenant or of others located on the Premises not for the loss of or
damage to any property of Tenant or of others by theft or otherwise, unless
caused by Landlord's gross or willful negligence. Landlord shall not be liable
for any injury or damage to persons or property resulting from fire, explosion,
falling plaster, steam, gas, electricity, water, rain or snow or leaks from any
part of the Premises or from the pipes, appliance or plumbing works or from the
roof, street or subsurface or from any
<PAGE>
16
other place or by dampness or by any other cause of whatsoever nature, unless
caused by Landlord's gross or wilful negligence. Landlord shall not be liable
for any such damage caused by persons in the Premises, other tenants of the
Building, occupants of adjacent property or the public or caused by operations
in construction of any private, public or quasi-public work, unless caused by
Landlord's gross or willful negligence or willful misconduct. Landlord shall not
be liable for any latent defect in the Premises or in the Building, unless
caused by Landlord's gross or willful negligence or willful misconduct,
provided, however, Tenant may by written notice to Landlord terminate Lease if
said cessation or interruption for any of the reasons set forth in the previous
sentence unless caused by gross negligence of Tenant adversely impacts Tenant's
use of the Premises in any material respect and shall continue for a continuous
period of ninety (90) days or more. All property of Tenant kept or stored on the
Premises shall be so kept or stored at the risk of Tenant only and Tenant shall
hold Landlord harmless from any claim arising out of damage to the same,
including subrogation claims by Tenant's insurance carrier.
(b) In the event of the transfer and assignment by
Landlord of its interest in the Lease, Landlord shall thereby be released from
any further responsibility hereunder, and Tenant agrees to look solely to such
successor in interest of the Landlord for performance of such obligations,
except as to breaches which occurred prior to said transfer and assignment and
of which Landlord had been notified of in writing by Tenant. Any security given
by Tenant to Landlord to secure performance of Tenant's obligations hereunder
may be assigned and transferred by Landlord to such successor in interest of
Landlord; and, upon receipt of such security, Landlord shall thereby be
discharged of any further obligation relating thereto. The term "Landlord" as
used in this Lease shall mean the owner of the Land, at the time in question,
and in the event of the transfer (whether voluntary or involuntary) by such
owner of its interest in the Land, such owner shall thereupon be released and
discharged from all covenants and obligations of the Lease thereafter accruing,
but such covenants and obligations shall be binding during the Term upon each
new owner for the duration of such owner's ownership.
22. NON-PERFORMANCE.
Tenant will perform its covenants expressed in the Lease;
Tenant will promptly upon receipt of written notice specifying action desired by
Landlord pursuant to any of Tenant's covenants comply with such notice to the
extent the action specified is consistent with that required by Tenant's
covenants under this Lease; and, in addition to Landlord's immediate remedies
for Tenant's default, if compliance to Landlord's reasonable satisfaction has
not begun within fifteen (15) days after delivery of such notice (except that in
an emergency, Landlord need not give any notice), and thereafter diligently
continue, then Landlord may, at its option, perform such action required of
Tenant by the notice, and for such purpose Landlord, its agents, servants, and
employees, may enter upon the Premises, if necessary, Tenant waiting any claim
to loss or damage from such action, and agreeing to pay Landlord promptly upon
<PAGE>
17
demand any expense incurred and money paid on its behalf. Any money paid or
expense incurred by Landlord shall be considered additional rent, payable
together with the next monthly installment of rent falling due after Landlord's
demand for payment, and subject to all provisions of the Lease and of law as to
default in rent.
23. TERMINATION AND HOLDING OVER.
The Lease and the tenancy hereby created shall cease to ____
at the end of the Term, without the necessity of any notice from either Landlord
or Tenant to terminate the same, and Tenant hereby waives notice to remove and
agrees that Landlord shall be entitled to the benefit of all provisions of law
respecting the summary recovery of possession of Premises from a tenant holding
over to the same extent as if statutory notice were given. The rental for the
period of any holdover tenancy shall equal 150% of the Basic Rent and additional
rent payable under the Lease, but such rental shall not preclude Landlord from
recovering from Tenant any damages caused by Tenant's holding over. At the end
of the Term Tenant agrees to leave the Premises in as good condition as on the
Commencement Date, ordinary wear and tear, and damage by fire and other casualty
excepted.
24. QUIET ENJOYMENT.
Upon payment by Tenant of the rents herein provided, and the
observance and performance of all the covenants, terms and conditions to be
observed and performed by Tenant, Tenant shall, subject to terms and conditions
of this Lease, peaceably and quietly hold and enjoy the Premises for the Term of
this Lease.
25. SUBORDINATION AND ATTORNMENT.
The Lease is and shall be subject and subordinate to the lien
of all and any mortgage or deed of trust now or at any time hereafter placed
upon the Land, the Building, the Premises, or Landlord's leasehold interest
therein, and to any and all renewals, extensions, modifications and refinancing
thereof. Tenant hereby agrees to execute any and all instruments (including
estoppel certificate) to effect such subordination that Landlord may request or
require within five (5) business days after Landlord's request therefor. Tenant
agrees to attorn to any successor to Landlord's interest in the Premises,
whether by sale, foreclosure or otherwise.
26. ENVIRONMENTAL COMPLIANCE.
Tenant shall (a) not engage in any activity on, above, or
under the Premises which result in any "hazardous materials" (defined herein)
contamination to the Premises, the Building or the Land, (b) immediately give
notice to Landlord upon Tenant's Management Group as hereinafter defined
acquiring knowledge of the presence of any "hazardous waste" or "hazardous
substance" or "hazardous material" (as those terms are defined herein) on the
Premises, the Building or the Land, or any
<PAGE>
18
hazardous materials contamination with a complete description thereof, (c)
comply with laws requiring the removal, treatment or disposal of any hazardous
material contamination which result from actions taken by Tenant from and after
the Commencement Date, and provide Landlord with satisfactory evidence of such
compliance; (d) provide Landlord, within thirty (30) days after notice, with a
bond, letter of credit or similar financial assurance (i) evidencing to
Landlord's satisfaction that the necessary funds are available to pay the cost
of removing, treating and disposing any hazardous materials contamination for
which Tenant is responsible as a result of its action from and after the
Commencement Date and (ii) discharging any lien which may be established on the
Premises or the Land, as a result thereof; and (e) defend, indemnify and hold
harmless Landlord and its mortgagee, if any, from any and all claims which may
be asserted as a result of the presence of any hazardous substance or hazardous
water or hazardous material on the Premises, the Building or the Land,
facilities, soil, ground water, air, or other elements on, or off, any other
property as a result of any hazardous substance or hazardous waste or hazardous
material at any time emanating from the Premises. The term "hazardous waste" as
used herein shall have the same meaning as defined in the Resource Conservation
and Recovery Act of 1976, as amended from time to time, and regulations
promulgated thereunder. The term "hazardous substance" as used herein shall have
the same meaning as defined in: (a) the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended from time to time, and
regulations promulgated thereunder; and/or (b) the Maryland Environment Code
Ann., Title 7, subtitle 2, as amended from time to time, and regulations
promulgated thereunder. The term "hazardous material" as used herein shall mean
any "oil, petroleum products and their by-products" as defined by the Maryland
Natural Resource Code Ann. 8-1411(a)(3) as amended. The term "Tenant's
Management Group" shall be deemed solely to include officers and departmental
directors of Tenant.
27. NOTICES.
All payments of rent shall be made to Landlord, c/o Abrams
Development Group, Inc., Suite 5, Columbia 100 Parkway, Columbia, Maryland
21045, or at such other place as Landlord shall designate. All notices required
or permitted to be given under the Lease shall be in writing and deemed to be
properly served within three (3) business days, if sent by certified mail,
postage prepaid, to Landlord at the address to which rental payments are to be
sent, and to Tenant at the Premises, but either party may by written notice to
the other stipulate a different address.
28. NO WAIVER.
The mention in the Lease of any specific right or remedy shall
not preclude either party from exercising any other right or from having any
other remedy or from maintaining any action to which it may be otherwise
entitled whether
<PAGE>
19
at law or in equity; and the failure of said party to insist in any one or more
instances upon a strict performance of any covenant of the Lease or to exercise
any option or right herein contained shall not be construed as a waiver or
relinquishment for the future enforcement of such covenant, right or option, but
the same shall remain in full force and effect, unless the contrary is expressed
in writing by said party. Each party agrees to pay the other party reasonable
attorneys' fees incurred in connection with enforcing the Lease, provided the
other party prevails in any enforcement action.
29. COMMISSIONS.
Landlord and Tenant hereby confirm to each other that there
were no brokers involved in the transaction represented by this Lease.
30. COMPLETE AGREEMENT.
The Lease is intended by the parties as a final and complete
expression of their agreement and as an exclusive statement of the terms
thereof. The Lease and the covenants and conditions herein contained shall inure
to the benefit of and be binding upon Landlord, its successors and assigns, and
shall be binding upon Tenant, its successors and assigns, and shall inure to the
benefit of Tenant and only such assigns of Tenant to whom the assignment by
Tenant has been consented to by Landlord. All claims, demands or causes of
action which Tenant may have against Landlord shall be enforceable solely
against Landlord's interest in the Premises, the Building, and the Land, and not
out of any other assets of Landlord or any of its principals.
31. SEVERABILITY.
If any provision of the Lease shall be held invalid or
unenforceable, the validity and enforceability of the remaining provisions of
the Lease shall not be affected thereby.
32. RECORDATION.
If Tenant desires to record a memorandum of the Lease,
Landlord agrees to execute same; provided that such memorandum shall be recorded
at Tenant's sole expense.
33. CAPTIONS.
The captions and headings used in the Lease are for
convenience and reference only and shall not constitute a part of the Lease, nor
shall they affect the meaning, construction, or effect of the Lease.
<PAGE>
20
34. EXHIBITS AND RIDERS.
All Exhibits and Riders referred to herein are hereby
incorporated into and made a part of this Lease.
35. OPTION TO RENEW.
(a) If this Lease shall then be in force and Tenant
is not in default of any of the terms, covenants, conditions, or agreements
hereunder, at the time of the exercise of said option or at the time of the
commencement date of the renewal term, nor as of either of said dates shall
there have occurred an event which with either the passage of time or the giving
of such notice would constitute such a default, Tenant shall have the right and
option to renew or extend the term of this Lease for one (1) additional term
(the "Renewal Term"), and the Renewal Term shall be for a period of ten (10)
years. In order to exercise said option to renew or extend, Tenant shall give
written notice of intention to exercise said option to Landlord at least one (1)
year prior to the expiration of the Term hereof. Said extension shall be subject
to all the terms, covenants and conditions of the initial Term, except that
there shall be no further right or renewal after the first Renewal Term.
(b) The annual Basic Rent payable for the first year
of the Renewal Term shall be increased by three percent (3%) over the Basic Rent
for the last lease year of the Term, and the Basic Rent for each subsequent
lease year of the Renewal Term shall be increased by three percent (3%) over the
Basic Rent from the preceding lease year of the Renewal Term.
<PAGE>
21
36. WAIVER OF JURY TRIAL.
LANDLORD AND TENANT WAIVE THE RIGHT TO A TRIAL BY JURY IN ANY
ACTION OR PROCEEDING BASED UPON, OR RELATED TO, THE SUBJECT MATTER OF THIS
LEASE. THIS WAIVER IS KNOWINGLY, INTENTIONALLY, AND VOLUNTARILY MADE BY TENANT
AND TENANT ACKNOWLEDGES THAT NEITHER LANDLORD NOR ANY PERSON ACTING ON BEHALF OF
LANDLORD HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OR TRIAL BY
JURY OR IN ANY WAY TO MODIFY OR NULLIFY ITS EFFECT. TENANT FURTHER ACKNOWLEDGES
THAT IT HAS BEEN REPRESENTED (OR HAS HAD THE OPPORTUNITY TO BE REPRESENTED) IN
THE SIGNING OF THIS LEASE AND IN THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL
COUNSEL, SELECTED OF ITS OWN FREEWILL, AND THAT IT HAS HAD THE OPPORTUNITY TO
DISCUSS THIS WAIVER WITH COUNSEL, TENANT FURTHER ACKNOWLEDGES THAT IT HAS READ
AND UNDERSTANDS THE MEANING AND RAMIFICATION OF THIS WAIVER PROVISION AND AS
EVIDENCE OF THIS FACT SIGNS ITS INITIALS.
------------------------------
INITIALS OF TENANT
37. LANDLORD'S SOLE REASONABLE DISCRETION.
Wherever this Lease requires Landlord to act or otherwise
exercise its discretion, Landlord will act or otherwise exercise its discretion
in its sole reasonable discretion.
IN WITNESS WHEREOF, the parties have executed this Lease,
under seal, on the day first above written.
WITNESS/ATTEST: HSE II LLC
By: /s/ J. Michael Abrams (SEAL)
-------------------------
J. Michael Abrams, Manager
As to Landlord
By: MIGLIARA/KAPLAN ASSOCIATES, INC.
By: /s/ Joseph Migliara (SEAL)
-----------------------
Joseph Migliara, President
As to Tenant
<PAGE>
22
EXHIBIT "A"
FLOOR PLAN OF BUILDING
<PAGE>
23
EXHIBIT "B"
AGREEMENT SETTING COMMENCEMENT DATE OF LEASE AND
SQUARE FOOTAGE REQUIREMENTS
WHEREAS, HSB II, LLC (hereinafter called "Landlord") and
MIGLIARA/KAPLAN ASSOCIATES, INC. (hereinafter called "Tenant") have
entered into a Lease dated __________________________ for certain premises as
described in this Lease and
WHEREAS, the Landlord and Tenant desire to hereby confirm the
Commencement Date of the Term as more specifically -provided in Paragraph 2(a)
of the Lease and the gross square footage of the Premises.
NOW THEREFORE, the Commencement Date of the Lease is hereby
agreed to be ________________________, and the gross square footage of the
Premises is hereby agreed to be _____________________ square feet.
Agreement dated this _______ day of ___________,
1996.
WITNESS/ATTEST: HSE II LLC
(SEAL)
-------------------------
J. Michael Abrams, Manager
As to Landlord
By: MIGLIARA/KAPLAN ASSOCIATES, INC.
(SEAL)
-----------------------
Joseph Migliara, President
As to Tenant
SAMPLE ONLY
<PAGE>
24
EXHIBIT "C"
RULES AND REGULATIONS
1. The common areas shall not be obstructed by any of the
tenants, or used by them for any other purpose than for ingress and egress to
and from their respective leased premise.
2. Tenants, their agents, employees or visitors, shall not
make or commit any improper noises or disturbances of any kind in the Building,
or mark or defile the windows or doors of the Building or interfere in any way
with other tenants or those having business with them.
3. No articles shall be fastened to or holes drilled or nails
or screws driven into the walls, windows, partitions, nor shall the walls or
partitions be painted, papered or otherwise covered or in any way marketed or
broken, without first obtaining the written consent of the Landlord.
4. Nothing shall be placed on the outside of the Building, or
on the windows, window sills or projections.
5. Any window treatments must be approved by Landlord.
6. Attaching of wires to the outside of the Building is
absolutely prohibited without the first obtaining the written approval of
Landlord.
7. The Landlord shall in all cases have the right to prescribe
the weight and proper position of safes or other heavy objects in the Building;
and the bringing in of said safes, all furniture, fixtures, or supplies, the
taking out of said articles, and the moving about of said articles within the
Building, shall only be at such time and in such manner as the landlord shall
designate; and any damage caused by any of the before mentioned operations, or
by any of the said articles during the time they are in the Building, shall be
repaired by Tenant at Tenant's expense.
8. No tenant shall do or permit anything to be done in the
Premises, or bring or keep any item therein which will in any way obstruct or
interfere with the rights of other tenants, or in any way injure or annoy them,
or conflict with the laws relating to fires, or with the regulations of the Fire
Department or conflict with any of the rules and ordinances of the Department of
Health.
9. Tenants will see that windows are closed and the doors
securely locked before leaving the Building.
10. No animals or birds shall be brought into or kept in or
upon the leased premises.
<PAGE>
25
11. The use of the leased premises as sleeping apartments, for
the preparation of foods, or for any immoral or illegal purpose is absolutely
prohibited.
12. No Tenant shall conduct, or permit any other person to
conduct any auction upon the premises, or otherwise to wholesale or retain,
goods, wares, or merchandise upon or from said premises.
13. All glass, locks and trimmings, in or about the doors and
windows of the Premises and all electric fixtures which belong to the Building
shall be kept whole, and whenever broken by any one, shall be immediately
replaced or repaired and put in order by Tenant under the direction and to the
satisfaction of the Landlord and the same shall be left whole and in good repair
upon the termination of this Lease.
14. Any and all damage to floors, walls or ceilings due to
Tenant or Tenant's employees' failure to shut off running water or liquid, shall
be paid by Tenant.
15. Landlord reserves the right to make any or all alterations
in the premises as may be required by Tenant, the expense of such alterations to
be paid by Tenant.
16. Tenant agrees to keep the inside and outside of all
exterior surfaces and of all glass in the doors and windows of the Premises
clean; not to place or maintain any equipment or other articles outside the
Premises; to maintain the Premises in a clean, orderly and sanitary condition
and free of insects, rodents, vermin and other pests; not to permit undue
accumulations of garbage, trash, rubbish and other refuse, and to keep such
refuse in proper containers on the interior of the Premises, until removed; not
to overload any portion of the floor; to comply with all laws and ordinances and
all rules and regulations of any governmental entity having jurisdiction over
the Premises, and all recommendations with respect to the Premises made by any
public or private agency having authority over insurance rates; to conduct its
business in the Premises in accordance with high standards of operation; not to
paint or decorate any part of the exterior of the semipermanent manner any part
of the interior of the Premises without first obtaining Landlord's written
approval of such painting or decoration which approved shall not be unreasonably
withheld, delayed or conditioned. Upon order of Landlord, Tenant will promptly
remove any paint or any decoration which has been applied to or installed upon
the Premises without Landlord's prior written approval, or take such other
action with reference thereto as Landlord may reasonably direct.
17. Tenant shall not permit, allow, or cause to be used in or
at the Premises any advertising media or device such as sound reproduction
devices, excessively bright lights, changing, flashing, flickering or moving
lights or lighting devices, or any similar devices, the effect of which shall be
audible or visible from
<PAGE>
26
the exterior of said Premises. Tenant shall keep all mechanical apparatus free
of vibration and noise which may be transmitted beyond the confines of the
Premises. Tenant shall not install or operate in the Premises any electrically
operated equipment including computers, data processing or other such equipment
which may overload the electric wiring serving the Premises or within the
Premises, without first obtaining Landlord's written approval.
18. Tenant agrees not to receive or ship articles of any kind
except at the times and in the manner designated by Landlord; not to allow
trucks or other vehicles servicing its stores to stand or park in the custom
parking area and access roads; not to park, and to require its employees to
refrain from parking, any vehicle on the Land, except in such places as may be
reasonably designated by Landlord for the use of Tenant and its employees, and,
on request furnish to Landlord a written statement of the names of all
employees, agents, and representatives employed in or at the Premises by Tenant,
and the license registration number of all vehicles owned or used by Tenant or
by such other employees, agents, or representatives.
<PAGE>
27
EXHIBIT D
LANDLORD'S WORK
The Building containing the Premises shall be prepared by
Landlord at Landlord's expense (and not allocable to the Allowance) as follows:
Concrete floor (exclusive of floor treatments for the
Premises). Uninsulated exterior walls. Electrical system
(excluding junction boxes serving the Premises).
Also excluded from the Landlord's basic work, among other
things, are window treatments, exterior doors for the Premises (but not the
Building), plumbing lines and fixtures, and interior space planning. All of
these items will be included in the work and services covered by the Allowance.
EXHIBIT 21
Subsidiaries of the Company
Jurisdiction Directly Held By
Subsidiary of Incorporation and Wholly Owned By
---------- ---------------- -------------------
NFO Research, Inc. Delaware NFO Worldwide, Inc.
PSI Holding, Corp. Delaware NFO Worldwide, Inc.
Advanced Marketing
Solutions Corp. Delaware NFO Worldwide, Inc.
Plog Research, Inc. Delaware NFO Worldwide, Inc.
NFO International, Inc. Delaware NFO Worldwide, Inc.
Prognostics Corp. Delaware NFO Worldwide, Inc.
Migliara/Kaplan Associates,
Inc. Delaware NFO Worldwide, Inc.
Chesapeake Surveys, Inc. Delaware Migliara/Kaplan
Associates, Inc.
NFO Europe, Inc. Delaware NFO International, Inc.
NFO APIM, Inc. Delaware NFO International, Inc.
NFO Germany, Inc. Delaware NFO Europe, Inc.
NFO APLT, Inc. Delaware NFO Europe, Inc.
NFO France, Inc. Delaware NFO Europe, Inc.
NFO U.K., Inc. Delaware NFO Europe, Inc.
PSI Singapore LC NFO APIM, Inc.
NFO Asia-Pacific, Inc. Delaware NFO APIM, Inc.
The MBL Group, Inc. Delaware NFO Worldwide, Inc.
Payment Systems
International Limited United Kingdom The MBL Group Plc
BJM Research and
Consulting Ltd. United Kingdom The MBL Group Plc
<PAGE>
EXHIBIT 21
Subsidiaries of the Company (cont'd)
Jurisdiction Directly Held By
Subsidiary of Incorporation and Wholly Owned By
---------- ---------------- -------------------
Market Behaviour Ltd. United Kingdom The MBL Group Plc
MERAC WLL Ltd. Bahrain The MBL Group Plc
MERAC Arabia Company Ltd. United Kingdom MERAC WLL Ltd.
MERAC EGYPT Ltd. Egypt MERAC WLL Ltd.
Marketing Blueprint Ltd. United Kingdom The MBL Group Plc
MBL Research and
Consultancy Group (P) Ltd. India The MBL Group Plc
Market Behaviour Ltd. Bangladesh MBL Research and
Consultancy Group
(P) Ltd.
Market Behaviour Ltd. Sri Lanka MBL Research and
Consultancy Group
(P) Ltd.
MBL Asia-Pacific Ltd. Hong Kong The MBL Group Plc
Market Behaviour
(China) Ltd. Hong Kong MBL Asia-Pacific Ltd.
Market Behaviour
(Thailand) Ltd. Hong Kong MBL Asia-Pacific Ltd.
Market Behaviour
(Thailand) Ltd. Thailand MBL Asia-Pacific Ltd.
Market Behaviour
(Malaysia) Ltd. Malaysia MBL Asia-Pacific Ltd.
Market Behaviour
(Vietnam) Ltd. Hong Kong MBL Asia-Pacific Ltd.
Trends-MBL Inc. Philippines MBL Asia-Pacific Ltd.
<PAGE>
EXHIBIT 21
Subsidiaries of the Company (cont'd)
Jurisdiction Directly Held By
Subsidiary of Incorporation and Wholly Owned By
---------- ---------------- -------------------
Market Behaviour
(Hong Kong) Ltd. Hong Kong MBL Asia-Pacific Ltd.
Market Behaviour
(International) Ltd.:Taiwan Hong Kong MBL Asia-Pacific Ltd.
Market Behaviour
(International) Ltd. Hong Kong MBL Asia-Pacific Ltd.
International Research
Associates (Hong Kong) Ltd. Hong Kong MBL Asia-Pacific Ltd.
Consensus-ME Ltd.:Indonesia Hong Kong MBL Asia-Pacific Ltd.
PT Continental Seraratama
Surveys Indonesia Consensus-ME Ltd:
Indonesia
Market Behaviour (Singapore)
Plc Ltd: Singapore MBL Asia-Pacific Ltd.
CM Research New Zealand NFO Asia-Pacific Ltd.
NFO USA, Inc. Delaware NFO Worldwide, Inc.
Ross-Cooper-Lund Delaware NFO USA, Inc.
MarketMind Inc. Delaware NFO USA, Inc.
MarketMind Australia NFO Worldwide, Inc.
NFO Canada Ontario, Canada NFO Worldwide, Inc.
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated February 23, 1998, except for Note 21, as to which
the date is March 12, 1998, included in NFO Worldwide, Inc.'s annual report on
Form 10-K for the year ended December 31, 1997 into the Company's previously
filed Registration Statements, File Nos. 33-73516, 33-83002, 33-91936,
333-24297, 333-24299 and 333-38497.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
New York, New York,
March 26, 1998.
EXHIBIT 23.2
CONSENT OF REGISTERED AUDITORS AND CHARTERED ACCOUNTANTS
As registered auditors and chartered accountants, we hereby consent to the
incorporation by reference of our report dated February 23, 1998, on the
financial statements of The MBL Group Plc as of December 31, 1997 and 1996, and
for each of the years in the three year period ended December 31, 1997, included
in NFO Worldwide, Inc.'s annual report on Form 10-K for the year ended December
31, 1997 into NFO Worldwide, Inc.'s previously filed Registration Statements,
File Nos. 33-73516, 33-83002, 33-91936, 333-24297, 333-24299 and 333-38497.
/s/ Soteriou Banerji
- --------------------
London, England
March 27, 1998.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
financial statements contained in NFO Worldwide, Inc.'s report on Form 10-K for
the year ended December 31, 1997, 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-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 8,055
<SECURITIES> 0
<RECEIVABLES> 56,213
<ALLOWANCES> 471
<INVENTORY> 0
<CURRENT-ASSETS> 70,832
<PP&E> 32,232
<DEPRECIATION> 12,315
<TOTAL-ASSETS> 170,274
<CURRENT-LIABILITIES> 42,368
<BONDS> 24,823
<COMMON> 208
0
0
<OTHER-SE> 96,516
<TOTAL-LIABILITY-AND-EQUITY> 170,274
<SALES> 190,229
<TOTAL-REVENUES> 190,229
<CGS> 83,357
<TOTAL-COSTS> 166,954
<OTHER-EXPENSES> (59)
<LOSS-PROVISION> 151
<INTEREST-EXPENSE> 928
<INCOME-PRETAX> 22,406
<INCOME-TAX> 8,895
<INCOME-CONTINUING> 12,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,505
<EPS-PRIMARY> .62
<EPS-DILUTED> .60
<FN>
* Information has been prepared in accordance with SFAS No. 128, basic and
diluted EPS have been provided in place of primary and fully diluted,
respectively.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED 1996
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 9,579
<SECURITIES> 0
<RECEIVABLES> 41,641
<ALLOWANCES> 447
<INVENTORY> 0
<CURRENT-ASSETS> 57,260
<PP&E> 22,052
<DEPRECIATION> 9,086
<TOTAL-ASSETS> 125,443
<CURRENT-LIABILITIES> 37,610
<BONDS> 4,841
<COMMON> 134
0
0
<OTHER-SE> 74,263
<TOTAL-LIABILITY-AND-EQUITY> 125,443
<SALES> 154,943
<TOTAL-REVENUES> 154,943
<CGS> 66,693
<TOTAL-COSTS> 133,566
<OTHER-EXPENSES> (102)
<LOSS-PROVISION> 243
<INTEREST-EXPENSE> 458
<INCOME-PRETAX> 21,021
<INCOME-TAX> 8,983
<INCOME-CONTINUING> 10,616
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,616
<EPS-PRIMARY> .53
<EPS-DILUTED> .51
<FN>
* Information has been prepared in accordance with SFAS No. 128, basic and
diluted EPS have been provided in place of primary and fully diluted,
respectively.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
RESTATED 1995
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 10,530
<SECURITIES> 0
<RECEIVABLES> 28,022
<ALLOWANCES> 247
<INVENTORY> 0
<CURRENT-ASSETS> 42,859
<PP&E> 16,988
<DEPRECIATION> 6,832
<TOTAL-ASSETS> 86,781
<CURRENT-LIABILITIES> 27,178
<BONDS> 2,021
<COMMON> 94
0
0
<OTHER-SE> 51,132
<TOTAL-LIABILITY-AND-EQUITY> 86,781
<SALES> 113,095
<TOTAL-REVENUES> 113,095
<CGS> 48,431
<TOTAL-COSTS> 96,626
<OTHER-EXPENSES> (646)
<LOSS-PROVISION> 39
<INTEREST-EXPENSE> 318
<INCOME-PRETAX> 16,797
<INCOME-TAX> 6,172
<INCOME-CONTINUING> 9,159
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 9,159
<EPS-PRIMARY> .49
<EPS-DILUTED> .48
<FN>
* Information has been prepared in accordance with SFAS No. 128, basic and
diluted EPS have been provided in place of primary and fully diluted,
respectively.
</FN>
</TABLE>
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Years Ended December 31,
1997(4) 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA(3)
Revenues $190,229 $154,943 $113,095 $90,435 $76,738
Operating Income 23,275 21,377 16,469 13,123 10,295
Net Income 12,505 10,616 9,159 7,671 4,992
Basic Earnings per Share(1) $ 0.62 $ 0.53 $ 0.49 $ 0.41
Pro Forma Basic Earnings per Share(2) $ 0.29
Diluted Earnings per Share(1) $ 0.60 $ 0.51 $ 0.48 $ 0.41
Pro Forma Diluted Earnings per Share(2) $ 0.29
BALANCE SHEET DATA(3)
Working Capital $ 28,464 $ 19,650 $ 15,681 $ 7,918 $ 7,028
Total Assets 170,274 125,443 86,781 75,465 60,438
Total Debt 25,169 5,300 2,664 4,656 6,359
</TABLE>
(1) For comparability, the diluted and basic earnings per share reflect the 3
for 2 stock splits effected on October 15, 1997, February 5, 1996, and April 5,
1994.
(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) The above tables have been prepared to give retroactive effect to the
mergers with Prognostics on April 1, 1997 and the MBL Group Plc. on July 11,
1997. For discussion of acquisitions, see Footnote 18 to the Consolidated
Financial Statements.
(4) Includes charges of $1.3 million, or $.06 per share, in pooling transaction
expenses related to the acquisitions of Prognostics and the MBL Group Plc.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
BUSINESS
NFO Worldwide, Inc. (formerly named NFO Research, Inc.) together with its
subsidiaries (the "Company") is a leading provider of custom and syndicated
marketing information to some of the largest companies both in the United States
and international markets using, among other things, a proprietary panel (the
"NFO Panel") of pre-recruited consumer households.
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 1996 1995
Years Ended December 31, Over Over
1997 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
REVENUES $190,229 $154,943 $113,095 22.8% 37.0%
Cost of Revenues 83,357 66,693 48,431 25.0 37.7
Selling, General & Administrative
Expenses 76,705 61,591 44,167 24.5 39.5
Amortization Expense 4,094 2,926 2,203 39.9 32.8
Depreciation Expense 2,798 2,356 1,825 18.8 29.1
--------------------------------------------------------------------
OPERATING INCOME 23,275 21,377 16,469 8.9 29.8
Interest Expense, Net 669 38 (142) 1,660.5 N/M
Equity Interest in Net Loss (Income)
of Affiliated Companies 200 318 (186) (37.1) (271.0)
--------------------------------------------------------------------
INCOME BEFORE INCOME TAXES AND
MINORITY INTEREST 22,406 21,021 16,797 6.6 25.1
Provision for Income Taxes 8,895 8,983 6,172 (1.0) 45.5
--------------------------------------------------------------------
Net Income Before Minority Interest 13,511 12,038 10,625 12.2 13.3
Minority Interest 1,006 1,422 1,466 (29.3) (3.0)
--------------------------------------------------------------------
NET INCOME $ 12,505 $ 10,616 $ 9,159 17.8% 15.9%
====================================================================
BASIC SHARES OUTSTANDING(1) 20,265 19,911 18,716 1.8% 6.4%
====================================================================
BASIC EARNINGS PER SHARE(1) $ .62 $ .53 $ .49 16.9% 8.2%
====================================================================
DILUTED SHARES OUTSTANDING(1) 20,832 20,746 19,193 .4% 8.1%
====================================================================
DILUTED EARNINGS PER SHARE(1) $ .60 $ .51 $ .48 17.6% 6.3%
====================================================================
</TABLE>
(1) For comparability, the earnings per share and share data reflect the 3 for 2
stock splits effected October 15, 1997 and February 5, 1996.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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
report. In addition, the success of the Company's worldwide expansion efforts is
dependent in part upon the successful application of NFO's methodologies to
different business and consumer environments.
ACQUISITIONS
On April 1, 1997, the Company acquired 100 percent of the stock of Prognostics,
Palo Alto, CA, a leading provider of survey-based quantitative customer
satisfaction research to information technology companies worldwide. The Company
issued 2,589,720 (adjusted for the 3 for 2 stock split effective October 15,
1997) shares of NFO Common Stock. The transaction was accounted for as a pooling
of interests.
On July 11, 1997, the Company acquired The MBL Group Plc ("MBL")
headquartered in London, England, a leading international market research firm
with 27 offices in 17 countries throughout the UK, the Middle East, and Asia.
The Company issued 2,046,363 (adjusted for the 3 for 2 stock split effective
October 15, 1997) shares of NFO Common Stock. The acquisition was accounted for
as a pooling of interests. The Company also entered into agreements with
minority shareholder employees of the various MBL operating subsidiaries to
repurchase a portion of the minority shares during 1997 and the remainder in
three years. The purchase of the minority interests in MBL's subsidiaries has
been accounted for using the purchase method.
As a result of the pooling of interests transactions, the accompanying
financial statements reflect the combined results of NFO, Prognostics, and MBL
for all periods presented.
On May 28, 1997, the Company acquired Access Research, Inc., Windsor, CT, a
research-based financial services consulting firm specializing in the retirement
market. On December 12, 1997, the Company acquired 100 percent of the stock of
CM Research Group, Ltd., headquartered in Auckland, New Zealand. CM is the
leading provider of custom market research in New Zealand and one of the larger
market research organizations in Australia. These acquisitions were accounted
for using the purchase method.
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. These
acquisitions were accounted for using the purchase method.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
1997 COMPARED TO 1996
The Company's revenues increased 23 percent to $190.2 million from $154.9
million the previous year. Strong revenue growth occurred in the Company's
financial services, health care, and international business units which
collectively grew by 37 percent. Approximately $6 million of this total increase
was attributable to the first time consolidation of the Company's Middle
Eastern, Indian, and Access Research operations in the second half of 1997.
Cost of revenues increased 25 percent to $83.4 million from $66.7 million
in the prior year. The increase in cost of revenues was primarily the result of
increased revenues. The remainder of the increase in cost of revenues was the
result of the newly consolidated Middle Eastern, Indian, and Access Research
operations ($3.0 million) having higher than average cost of revenues, along
with the Company's continued investment in its Interactive initiatives ($.7
million).
Selling, general, and administrative expenses increased 25 percent to $76.7
million from $61.6 million a year ago. This increase includes $1.3 million in
pooling transaction expenses related to the acquisitions of Prognostics and MBL.
Excluding these transaction expenses, selling, general, and administrative
expenses increased 22.4 percent over 1996. Other principal factors include the
first time inclusion of the Company's Middle Eastern and Indian operations ($2.3
million), increased staffing expenses ($3.9 million), the increases associated
with the acquisitions of Spectrem in August 1996, and Access Research in May
1997 ($1.9 million), the Company's Interactive activities ($1.2 million) and
inflationary factors.
Amortization expense increased 40 percent to $4.1 million from $2.9 million
in the previous year. The primary cause of the increase was a special write-down
of the carrying value of intangible assets ($.6 million) associated with AMS,
the Company's expert computer software company. Additional increases in
amortization expenses in 1997 related to the purchase of a significant portion
of the minorities' interests in MBL, and to the increased amortization costs
associated with the earnout payments made pursuant to certain companies'
financial performance during 1996.
As a result of the items discussed above, operating income in 1997
increased 9 percent to $23.3 million from $21.4 million in the prior year.
Excluding the $1.3 million of pooling transaction expenses described above, as
well as the increased investments in the Company's Interactive operations ($1.0
million), and the negative effect on foreign currency translation ($.3 million),
operating income increased 21 percent. Operating margins for 1997, excluding
these items, were 13.6 percent compared to 13.8 percent in 1996.
Interest expense increased to $.7 million from less than $.1 million in the
prior year. The increase was primarily the result of increased borrowing to fund
acquisitions (approximately $20 million) and capital expenditures (approximately
$9 million).
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Income tax expense decreased $.1 million to $8.9 million from $9.0 million
a year ago. The expense reflects the Company's combined U.S. Federal and State
tax rate of approximately 39 percent, plus the effects of non-deductible
expenses, primarily goodwill amortization and the transaction expenses related
to the two pooling of interests that occurred in 1997, and the lower tax rates
in many of the countries outside the U.S. where the Company has operations. The
decrease in the effective tax rate from 42.7 percent to 39.7 percent was largely
due to a reduction in the non-U.S. effective tax rate, somewhat offset by the
non-deductibility of the pooling transaction expenses.
Minority interests decreased by 29 percent to $1.0 million from $1.4
million last year. The decline was directly related to the purchase of a
significant portion of the minorities' shares in the MBL acquisition in July
1997.
The result of items discussed above is that net income increased 18 percent
to $12.5 million from $10.6 million a year ago. The 18 percent increase in
diluted earnings per share to $.60 from $.51 is the direct result of the
increase in net income. Diluted earnings per share has been adjusted for the
stock split effected on October 15, 1997. Net income excluding the pooling
transaction expenses rose 30 percent and diluted earnings per share rose 29
percent.
1996 COMPARED TO 1995
The Company's revenues increased 37 percent to $154.9 million from $113.1
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 12 percent, led by
strong showings in its financial services, packaged goods sectors, and the
Company's international operations.
Costs of revenues increased 38 percent to $66.7 million from $48.4 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 cost of revenues
increased $5.8 million, or 12 percent which is in line with revenue increases.
Selling, general and administrative expenses increased 40 percent to $61.6
million from $44.2 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 the U.S., Europe, and Asia Pacific, development of the Company's new
online interactive research capabilities, and inflationary increases.
Operating income in 1996 increased 30 percent to $21.4 million from $16.5
million in the previous year. This increase is primarily the result of the items
discussed above. Operating margins for 1996 were 13.8 percent compared to 14.6
percent a year ago. The decrease in operating margins reflects the Company's
investment in interactive research capabilities and expansion of its business
activity worldwide.
Income tax expense reflects the Company's combined U.S. Federal and State
tax rate of approximately 39 percent, plus the effects of non-deductible
expenses (primarily goodwill amortization) and taxes on the Company's
international operations. The increase in the effective tax rate from 36.7
percent to 42.7 percent was largely due to the effect of the acquisitions
mentioned above and a higher effective tax rate for the Company's international
operations.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The result of the items discussed above is that net income increased 15.9
percent to $10.6 million from $9.2 million in the previous year. Diluted
earnings per share increased to $.51 from $.48 a year ago. The increase in
diluted 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 acquisitions. Diluted
earnings per share have been adjusted for the stock splits effected on February
5, 1996 and October 15, 1997.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of December 31, 1997 was $28.5 million, an increase of $8.8
million from December 31, 1996. The primary reasons for the change in working
capital were increases in accounts receivable of $9.8 million and unbilled
receivables of $4.7 million partially offset by an increase of $4.0 million in
accounts payable and a reduction in cash on hand of $1.5 million.
On March 9, 1998, the Company successfully entered into two financing
agreements: a private placement of $40 million of Senior Notes and a $75 million
revolving credit facility. Borrowings available under these combined facilities
total $115 million and are unsecured. Proceeds will be used to pay off the
Company's existing debt of approximately $32 million, finance acquisitions,
capital expenditures and working capital. The revolving credit facility replaces
the Company's existing $35 million revolving credit facility.
The $40 million in Senior Notes, due March 1, 2008, bear interest at the
fixed rate of 6.43 percent and are repayable in equal installments of
approximately $5.7 million per year starting in 2002. The $75 million unsecured
credit facility has an ultimate maturity date of March 2003 and enables NFO to
borrow in multiple currencies at interest rates tied to LIBOR or the prime rate,
at the Company's option.
The Company anticipates that existing cash, together with internally
generated funds and its credit availabilities, will provide the Company with the
resources needed to satisfy potential acquisitions, capital expenditures, and
the Company's growing working capital requirements. The timing and magnitude of
future acquisitions will be the single most important factor in determining the
Company's long-term capital needs.
The Company is currently in the process of conducting a comprehensive
review of its systems and products to determine the extent and impact of year
2000 issues on the Company. Based on its preliminary review, year 2000 issues
will be addressed in a timely fashion and the Company expects that year 2000
issues will not have a material impact on its financial position or results of
operations.
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.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 27.3
percent and 29.4 percent of the Company's annual revenues. Each of the remaining
three quarters ranged between 21.6 percent and 25.9 percent of the annual total.
FUTURE REQUIRED ACCOUNTING CHANGES
On June 10, 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 130, Reporting Comprehensive Income (SFAS No.
130). This statement establishes standards for reporting and display of
comprehensive income and its components in financial statements. The adoption of
this standard will not impact results from operations, financial condition, or
long-term liquidity, but will require the Company to classify items of other
comprehensive income by their nature in a financial statement and display the
accumulated balance of other comprehensive income separately in the equity
section of the balance sheet. The Company is required to adopt the new standard
for periods beginning after December 15, 1997.
NFO WORLDWIDE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
NUMBER
------
Consolidated Financial Statements for the years ended December 31,
1997, 1996 and 1995:
Reports of Independent Public Accountants......................... 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
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of NFO Worldwide, Inc.:
We have audited the accompanying consolidated balance sheets of NFO Worldwide,
Inc. (a Delaware corporation) and subsidiaries as of December 31, 1997 and 1996,
and the related consolidated statements of income, stockholders' equity and cash
flows for each of the years in the three-year period ended December 31, 1997.
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 did not audit the financial statements of The MBL Group Plc,
included in the consolidated financial statements of NFO Worldwide, Inc., which
statements reflect total assets and total revenues of 13 percent and 26 percent,
respectively, in 1997, total assets and total revenues of 15 percent and 25
percent, respectively, in 1996, and total revenues of 31 percent in 1995, of the
related consolidated totals, after adjustment to reflect translation into U.S.
dollars and generally accepted accounting principles in the United States. The
financial statements of The MBL Group Plc, prior to those adjustments, were
audited by other auditors whose report thereon has been furnished to us, and our
opinion expressed herein, insofar as it relates to the amounts included for The
MBL Group Plc, is based solely on the report of the other auditors.
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 consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits and
the report of other auditors provide a reasonable basis for our opinion.
In our opinion, based on our audits and the report of the other auditors, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of NFO Worldwide, Inc. and
subsidiaries as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1997, 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, based on
our audit and the report of other auditors, 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 23, 1998, except for Note 21,
as to which the date is March 12, 1998.
F-2
<PAGE>
REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF THE MBL GROUP Plc
We have audited the financial statements of The MBL Group Plc as of December 31,
1997 and 1996 and for each of the years ended December 31, 1997, 1996, and 1995,
which have been prepared under the historical cost convention and in accordance
with generally accepted accounting principles applicable in the United Kingdom.
Respective Responsibilities of Directors and Auditors
The Company's directors are responsible for the preparation of financial
statements. It is our responsibility to form an independent opinion, based on
our audit, on those statements and to report our opinion to you.
Basis of Opinion
We conducted our audit in accordance with Auditing Standards issued by the
Auditing Practices Board which are substantially the same as those followed in
the United States. An audit includes examination, on a test basis, of evidence
relevant to the amounts and disclosures in the financial statements. It also
includes an assessment of the significant estimates and judgements made by the
directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Company's circumstances, consistently
applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion, the financial statements give a true and fair view of the state
of affairs of the company and of the group as of December 31, 1997 and 1996, and
of the group's profit and cash flows for each of the years ended December 31,
1997, 1996, and 1995 and have been properly prepared in accordance with
generally accepted accounting principles in the United Kingdom.
/s/ Soteriou Banerji
- --------------------
Registered Auditors and Chartered Accountants
253 Gray's Inn Road
London, WC1X 8QT
Date February 23, 1998
F-3
<PAGE>
CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1997 AND 1996 (IN THOUSANDS,
EXCEPT PER SHARE DATA)
1997 1996
- --------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS
Cash and Cash Equivalents (Note 2) $ 8,055 $ 9,579
Receivables:
Trade, Less Allowance for Doubtful Accounts of
$471 and $447 in 1997 and 1996, respectively 47,044 37,231
Unbilled Receivables 8,698 3,963
Prepaid Expenses and Other Current Assets (Note 8) 7,035 6,487
----- -----
Total Current Assets 70,832 57,260
PROPERTY AND EQUIPMENT, NET (NOTES 2 AND 3) 19,917 12,966
CUSTOMER LISTS, GOODWILL AND OTHER INTANGIBLE ASSETS
(NOTES 2 AND 4) 74,409 50,192
OTHER ASSETS (NOTES 2, 8 AND 19) 5,116 5,025
----- -----
TOTAL ASSETS (NOTE 5) $170,274 $125,443
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Current Maturities of Long-Term Debt (Note 5) $ 346 $ 459
Accounts Payable 9,139 5,164
Accrued Liabilities (Note 6) 18,757 18,761
Customer Billings in Excess of Revenues Earned 14,126 13,226
------ ------
Total Current Liabilities 42,368 37,610
------ ------
LONG-TERM LIABILITIES
Long-Term Debt, Less Current Portion (Note 5) 24,823 4,841
Accrued Pension, Postretirement Benefits and Other
(Notes 8, 9 and 10) 4,123 4,718
----- -----
Total Long-Term Liabilities 28,946 9,559
------ -----
Total Liabilities 71,314 47,169
------ ------
COMMITMENTS AND CONTINGENCIES (NOTES 7, 16, AND 18)
MINORITY INTEREST 2,236 3,877
----- -----
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; 20,730 and 20,055 shares issued and
outstanding at December 31, 1997 and 1996, respectively 208 134
Additional Paid-In Capital 51,766 40,662
Retained Earnings 46,045 33,540
Minimum Pension Liability, Net of Income Taxes (Note 9) (346) (323)
Foreign Currency Translation Adjustment (949) 384
---- ---
Total Stockholders' Equity 96,724 74,397
------ ------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $170,274 $125,443
======== ========
See notes to consolidated financial statements.
F-4
<PAGE>
CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1997, 1996, AND
1995 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUES (NOTES 2 AND 15) $190,229 $154,943 $113,095
COSTS AND EXPENSES
COST OF REVENUES 83,357 66,693 48,431
SELLING, GENERAL AND ADMINISTRATIVE (NOTE 18) 76,705 61,591 44,167
AMORTIZATION 4,094 2,926 2,203
DEPRECIATION 2,798 2,356 1,825
----- ----- -----
OPERATING INCOME 23,275 21,377 16,469
INTEREST EXPENSE (INCOME), NET (NOTE 12) 669 38 (142)
EQUITY INTEREST IN NET LOSS (INCOME) OF AFFILIATED
COMPANIES (NOTE 19) 200 318 (186)
--- --- ----
INCOME BEFORE INCOME TAXES AND MINORITY INTEREST 22,406 21,021 16,797
PROVISION FOR INCOME TAXES (NOTE 8) 8,895 8,983 6,172
-------------------------------------------
NET INCOME BEFORE MINORITY INTEREST 13,511 12,038 10,625
MINORITY INTEREST 1,006 1,422 1,466
-------------------------------------------
NET INCOME $ 12,505 $ 10,616 $ 9,159
===========================================
EARNINGS PER SHARE (NOTE 13):
BASIC $ .62 $ .53 $ .49
===========================================
DILUTED $ .60 $ .51 $ .48
===========================================
WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING AND COMMON EQUIVALENT
SHARES DURING THE PERIOD:
BASIC 20,265 19,911 18,716
===========================================
DILUTED 20,832 20,746 19,193
===========================================
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
Foreign
Additional Minimum Currency Total
Common Common Paid-In Retained Pension Translation Stockholders'
Shares Stock Capital Earnings Liability Adjustment Equity
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1994,
as previously reported 13,971 $ 62 $25,945 $10,684 $(333) $0 $36,358
Acquisition of Prognostics,
Accounted for as a Pooling of Interests 2,355 16 (15) 1,228 1,229
Acquisition of MBL,
Accounted for as a Pooling of Interests 2,046 14 137 3,303 139 3,593
--------------------------------------------------------------------------------
Balance at December 31, 1994, as restated
(Note 18) 18,372 $ 92 $26,067 $15,215 $(333) $139 $41,180
Acquisition (Note 18) 41 361 361
Other Issuances 130 1 916 917
Issuance of Prognostics
Shares in Exchange for Non-Recourse Notes
(Note 11) 234 1 (1) -
Accrual of Minimum Pension
Liability, Net of Income Taxes (Note 9) (336) (336)
Translation Adjustments (55) (55)
Net Income 9,159 9,159
--------------------------------------------------------------------------------
Balance at December 31, 1995 18,777 $ 94 $27,343 $24,374 $(669) $ 84 $51,226
Acquisitions (Note 18) 1,128 8 12,077 12,085
Stock Split (Note 11) 31 (31) -
Other Issuances 117 1 1,132 1,133
Reduction of Minimum Pension Liability,
Net of Income Taxes (Note 9) 346 346
Conversion of Note Payable (Notes 5 and 18) 33 141 141
Translation Adjustments 300 300
Dividends to Former Stockholders of the MBL
Group Prior to Merger (Note 11) (1,450) (1,450)
Net Income 10,616 10,616
--------------------------------------------------------------------------------
Balance at December 31, 1996 20,055 $134 $40,662 $33,540 $(323) $384 $74,397
Acquisitions (Note 18) 497 4 7,713 7,717
Stock Split (Note 11) 68 (68) -
Other Issuances 161 1 926 927
Accrual of Minimum Pension Liability,
Net of Income Taxes (Note 9) (23) (23)
Conversion of Note Payable (Notes 5 and 18) 17 1 83 84
Translation Adjustments (1,333) (1,333)
Tax Benefit on Exercised Options (Note 11) 2,439 2,439
Payment of Non-Recourse Notes (Note 11) 11 11
Net Income 12,505 12,505
--------------------------------------------------------------------------------
Balance at December 31, 1997 20,730 $208 $51,766 $46,045 $(346) $(949) $96,724
--------------------------------------------------------------------------------
</TABLE>
The shares presented reflect 3 for 2 stock splits effected on February 5, 1996
and October 15, 1997 (Note 11). See notes to consolidated financial statements.
F-6
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1997,
1996 AND 1995 (IN THOUSANDS)
<TABLE>
<CAPTION>
1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income $12,505 $10,616 $ 9,159
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Minority Interest 1,006 1,422 1,466
Amortization 4,094 2,926 2,203
Depreciation 2,798 2,356 1,825
Deferred Income Taxes (440) 430 (188)
Equity Interest in Net Loss (Income) of Affiliated Companies 200 318 (186)
Dividends Paid to Minority Interest (369) (695) (620)
Other 103 82 234
------------------------------------------
Subtotal 19,897 17,455 13,893
Change in Assets and Liabilities that Provided (Used) Cash,
Net of Effects of Acquisitions:
Trade Receivables (7,926) (7,044) (5,575)
Unbilled Receivables (4,735) (478) (2,834)
Prepaid Expenses and Other Current Assets (398) (1,645) (956)
Accounts Payable and Accrued Liabilities 3,347 2,435 3,251
Customer Billings in Excess of Revenues Earned 776 (684) (176)
Other, Net (104) (514) (151)
------------------------------------------
Net Cash Provided by Operating Activities 10,857 9,525 7,452
------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisitions (Net of Cash Acquired) (20,020) (7,258) (361)
Capital Expenditures (Net of Minor Disposals) (9,030) (4,460) (3,023)
Purchase of Intangible Assets (640) (70) (255)
Investments in Affiliated Companies (820) (872) (1,407)
------------------------------------------
Net Cash Used in Investing Activities (30,510) (12,660) (5,046)
------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Common Stock, Net of Expenses 938 769 687
Payments on Long-Term Debt (4,884) (12,124) (1,816)
Principal Payments on Capital Lease Obligations (54) (127) (191)
Dividends Paid to Subsidiary Shareholders (Note 11) (988) (472) -
Proceeds from Line of Credit and Other Long-Term Debt 24,464 14,000 -
------------------------------------------
Net Cash Provided by (Used in) Financing Activities 19,476 2,046 (1,320)
------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (1,347) 138 (58)
------------------------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (1,524) (951) 1,028
------------------------------------------
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 9,579 10,530 9,502
------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 8,055 $ 9,579 $10,530
==========================================
See notes to consolidated financial statements.
</TABLE>
F-7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995
1. BUSINESS
NFO Worldwide, Inc. (formerly named NFO Research, Inc.) together with its
subsidiaries (the "Company") is a leading provider of custom and syndicated
marketing information to some of the largest companies both in the United States
and international markets using, among other things, a proprietary panel (the
"NFO Panel") of pre-recruited consumer households.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION - The consolidated financial statements of the Company
have been prepared to give retroactive effect to the mergers with Prognostics on
April 1, 1997 and The MBL Group Plc on July 11, 1997, both accounted for as
pooling of interests (see Note 18).
CONSOLIDATION - The consolidated financial statements include the accounts of
NFO Worldwide, Inc. and all its 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
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
$1,164,000, $1,347,000, and $933,000 on Panel enhancing and rebuilding in 1997,
1996 and 1995, 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.
F-8
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
INVESTMENTS IN AFFILIATED COMPANIES - Investments in affiliated companies are
accounted for using the equity method, under which the Company's share of
earnings of these affiliates is reflected in income as earned and dividends are
credited against the investment in affiliated companies when received.
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 equaled
the carrying amounts at December 31, 1997 and exceeded the carrying amounts
by approximately $170,000 at December 31, 1996.
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.
NET INCOME PER SHARE - Basic net income per share is computed using the weighted
average number of common shares outstanding during the period. Diluted net
income per share reflects the dilutive effect of common equivalent shares and
increased shares that would result from contingently issuable common shares. The
effects of anti-dilution are not presented. The 1996 and 1995 earnings per share
amounts have been restated in accordance with Statement of Financial Accounting
Standards No. 128.
F-9
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following at December 31, 1997
and 1996 (in thousands):
<TABLE>
<CAPTION>
Estimated
Useful Lives 1997 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 1,703 $ 1,663
Buildings and Leasehold
Improvements 10-40 years 5,888 5,678
Data Processing and
Communications Equipment 3-5 years 13,340 7,772
Furniture and Other
Equipment 4-8 years 7,872 6,939
Construction in Progress 3,429 -
----- -----
Total $32,232 $22,052
Less Accumulated Depreciation
and Amortization (12,315) (9,086)
------- ------
Total $19,917 $12,966
======= =======
</TABLE>
The Construction in Progress relates to the expansion of the Company's
operations facility in Toledo, Ohio.
4. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31, 1997 and 1996 (in
thousands):
1997 1996
- ------------------------------------------------------------------------------
Goodwill, Net of Amortization of $6,638 and
$3,903 in 1997 and 1996, respectively $59,976 $35,068
Customer Lists, Net of Amortization of $7,714
and $6,548 in 1997 and 1996,
respectively 13,615 14,789
Other, Net of Amortization of $2,262 and
$2,069 in 1997 and 1996, respectively 818 335
--- ---
Total $74,409 $50,192
======= =======
In 1997, the Company wrote off the unamortized balance of goodwill of $568,000
associated with AMS, the Company's expert computer software company. This amount
is included in amortization expense in the accompanying consolidated income
statements.
F-10
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
5. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 1997 and 1996 (in
thousands):
1997 1996
- ------------------------------------------------------------------------------
Note Payable to Banks under a Revolving
Credit Agreement Due December 31, 1999,
with Interest Ranging Between 5.7 Percent
and 6.7 Percent. $23,500 $4,000
Industrial Development Revenue Bonds Due
in Monthly Installments of $10, Plus Interest
at 80 Percent of the Prime Rate (effective
rate of 6.8 Percent at December 31, 1997
and 6.6 Percent at December 31, 1996)
through January 2004. The Bonds Are
Collateralized by Real Estate with a Net
Book Value of $1,296 at December 31, 1997 772 876
Industrial Development Revenue Bonds
Repaid in 1997. - 281
Note Payable Converted during 1997 to
Common Stock of the Company - 69
Other 897 74
--- --
Total 25,169 5,300
Less Current Maturities (346) (459)
---- ----
Total $24,823 $4,841
======= ======
As of December 31, 1997, the Company had a revolving line of credit agreement
with three major banks which provided for borrowings up to $35 million and was
secured by substantially all assets of the Company. This facility was replaced
with a new one on March 9, 1998 (see Note 21).
Required principal payments on long-term debt and other obligations are as
follows at December 31, 1997 (in thousands):
1998 $ 346
1999 23,880
2000 379
2001 292
2002 125
Thereafter 147
---
Total $ 25,169
========
F-11
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31, 1997 and 1996 (in
thousands):
1997 1996
- ------------------------------------------------------------------------------
Accrued Compensation and Payroll Taxes $ 5,031 $ 4,888
Income Taxes Payable (Note 8) 1,075 2,412
Accrued Vacation 1,089 1,044
Purchase Price Payable (Note 18) 4,229 3,733
Accrued Pension (Note 9) 350 350
Accrued Profit Sharing (Note 9) 812 719
Dividends Payable (Note 11) - 1,027
Other Accrued Liabilities 6,171 4,588
----- -----
Total $ 18,757 $ 18,761
======== ========
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, 1997, are as
follows (in thousands):
1998 $ 5,988
1999 5,511
2000 5,383
2001 3,910
2002 2,934
Thereafter 18,093
------
Total $41,819
=======
Rental expense for the years ended December 31, 1997, 1996 and 1995, including
leases on a month-to-month basis, was approximately $6,306,000, $4,189,000, and
$3,267,000, 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 1997, are believed to be consistent with arms
length transactions.
F-12
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
8. INCOME TAXES
Income Before Income Taxes and Minority Interest is as follows for the years
ended December 31, 1997, 1996, and 1995 (in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------
Income Before Income Taxes and
Minority Interest:
U.S. $18,066 $17,115 $11,853
Foreign 4,340 3,906 4,944
----- ----- -----
Total $22,406 $21,021 $16,797
======= ======= =======
The provision for income taxes is as follows for the years ended December 31,
1997, 1996, and 1995 (in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------
Current provision:
Federal $6,650 $6,193 $4,120
State and Local 1,553 1,150 1,140
Foreign 1,118 1,210 1,100
----- ----- -----
Total 9,321 8,553 6,360
----- ----- -----
Deferred Provision (Credit):
Federal (621) 256 (160)
State and Local (106) 46 (28)
Foreign 301 128 -
--- --- ---
Total (426) 430 (188)
---- --- ----
Total Provision $8,895 $8,983 $6,172
====== ====== ======
Temporary differences giving rise to the recorded deferred income tax asset and
liability at December 31, 1997 and 1996, are as follows (in thousands):
1997 1996
- --------------------------------------------------------------------------------
Asset:
Depreciation and Amortization $ 337 $ 610
Pension, Postretirement Benefits and
Deferred Compensation 1,228 907
Vacation 389 341
State and Local Taxes 355 364
Other 729 76
--- --
Total Asset $ 3,038 $2,298
------- ------
Liability:
Undistributed Earnings $ 399 $ -
Other 38 139
-- ---
Total Liability $ 437 $ 139
======= ======
F-13
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
A reconciliation between the Company's effective tax rate and the U.S. statutory
rate at December 31, 1997, 1996 and 1995, is as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Statutory Rate 35.0% 35.0% 34.7%
Nondeductible Expenses 2.3 2.2 1.2
Nondeductible Pooling Expenses 2.0 - -
State and Local Income Taxes,
Net of Federal Benefit 4.0 3.8 4.3
Effect of Foreign Tax Rates
Different than U.S. Tax Rate (1.8) (.3) (4.1)
Other (1.8) 2.0 0.6
---------------------------
Effective Tax Rate 39.7% 42.7% 36.7%
---------------------------
As of December 31, 1997, the Company has not provided for withholding or
applicable foreign income taxes on approximately $6.7 million of accumulated
undistributed earnings of its foreign subsidiaries as they are considered by
management to be permanently reinvested. If these undistributed earnings were
not considered to be permanently reinvested, approximately $3.0 million of
deferred income taxes would have been provided.
9. EMPLOYEE BENEFIT PLANS
One of the Company's subsidiaries has a defined benefit pension plan covering
substantially all that subsidiary's 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, 1997 and 1996 (in thousands):
1997 1996
- --------------------------------------------------------------------------------
Actuarial Present Value of Benefit
Obligations:
Accumulated Benefit Obligation, Including Vested
Benefits of $5,982 and $5,087 at December 31,
1997 and 1996, respectively $6,678 $5,680
====== ======
Projected Benefit Obligation for Service
Rendered to Date $7,029 $5,908
Plan Assets at Fair Value (Principally Invested in
Equity Securities and Guaranteed Fixed Income
Insurance Contracts) 6,214 5,113
----- -----
Projected Benefit Obligation in Excess of Plan
Assets 815 795
Unrecognized Net Experience Differences (954) (809)
Unrecognized Prior Service Cost 27 34
Adjustment Required to Recognize
Minimum Liability before Income Taxes 576 547
--- ---
Accrued Pension Cost $ 464 $ 567
====== ======
F-14
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
The Company's required minimum funding amount of $350,000, which is included in
the above accrued pension cost, is included in current liabilities as of
December 31, 1997 and 1996, respectively.
Pension expense for the years ended December 31, 1997, 1996, and 1995 consists
of the following (in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------
Service Cost $547 $502 $405
Interest Cost on Projected
Benefit Obligation 465 411 347
Actual (Gain)/Loss on Assets (804) (740) (488)
Net Amortization and Deferral 388 485 315
--- --- ---
Net Periodic Pension Cost $596 $658 $579
===========================
Assumptions used in determining pension plan amounts were as follows:
1997 1996 1995
- --------------------------------------------------------------------------------
Discount Rate 7.5% 7.75% 7.75%
Rate of Increase in
Compensation Levels 4.75 4.75 4.75
Expected Long-Term Rate
of Return on Assets 9.0 9.0 9.0
Certain of the Company's subsidiaries maintain profit sharing plans, established
under Section 401(k) of the Internal Revenue Code, which cover the majority of
full-time U.S. 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 $939,000, $931,000, and $801,000
for the years ended December 31, 1997, 1996, and 1995, respectively.
The Company has unfunded, nonqualified deferred compensation plans for certain
key executives. The plans provide, 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
$880,000 and $692,000 at December 31, 1997 and 1996, respectively, representing
the present value of the benefits expected to be provided based on the
employees' service to that date.
Certain of the Company's foreign subsidiaries maintain benefit plans similar to
defined contribution plans for certain employees. The Company has no benefit
obligations beyond the contributions that are made by the Company. The Company's
total contributions related to these plans amounted to approximately $420,000,
$400,000, and $300,000 for the years ended December 31, 1997, 1996, and 1995,
respectively.
F-15
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
10. POSTRETIREMENT BENEFIT PROGRAMS
Certain of the Company's subsidiaries sponsor two defined benefit postretirement
programs that cover salaried and nonsalaried U.S. 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, 1997 and 1996 (in thousands):
1997 1996
- --------------------------------------------------------------------------------
Accumulated Postretirement
Benefit Obligation:
Retired Participants and Beneficiaries $ 348 $ 392
Fully Eligible Active Program Participants 495 417
Other Active Program Participants 383 309
--- ---
Accumulated Postretirement Benefit
Obligation in Excess of Plan Assets 1,226 1,118
Unrecognized Net Loss (64) (125)
--- ---
Unfunded Accumulated Postretirement
Benefit Obligation, Included in Long-
Term Liabilities in the Accompanying
Balance Sheet $1,162 $ 993
====== =====
Net periodic postretirement benefit cost for 1997, 1996, and 1995 includes the
following components (in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------
Benefits Attributed to Service
During the Period $ 96 $ 72 $ 46
Interest Cost on Accumulated
Postretirement Benefit Obligation 77 76 61
Net Amortization and Deferral (3) 4 (2)
----------------------------
Net Periodic Postretirement
Benefit Cost $ 170 $ 152 $ 105
============================
The assumed discount rate used to measure the postretirement benefit
obligation is 7.25 percent, 7.5 percent, and 7.5 percent, in 1997, 1996, and
1995, respectively.
The health care trend rates assumed in the above estimates include an
initial assumed rate of 9 percent, grading down to a level 5 percent over 4
years.
F-16
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
The effect of a 1 percent increase in the assumed healthcare trend rates
would be to increase the obligation at December 31, 1997, by approximately
$230,000, and the aggregate of the service and interest cost components of net
periodic postretirement benefit cost for the year then ended by approximately
$38,000.
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.
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.
DIVIDENDS - The Company did not declare or pay dividends to common shareholders
of NFO Worldwide, Inc. during 1997, 1996, or 1995. Dividends reflected in the
accompanying statements of stockholders' equity were paid to shareholders of MBL
prior to the merger (see Note 18).
STOCK SPLITS - 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. Additionally, a 3 for 2 stock split was authorized on September 17,
1997, and effected on October 15, 1997, for stockholders of record on September
30, 1997. As a result, approximately 6,850,000 additional shares of NFO Common
Stock were issued. All per share and share amounts in the accompanying
consolidated financial statements have been restated to reflect the above stock
splits.
STOCK ISSUED IN EXCHANGE FOR NON-RECOURSE NOTES - In December 1994, Prognostics
issued 10,000 shares of Non-Voting Common Stock (899,922 common shares of NFO
post-combination, footnote 18) to an employee. The Shares were issued in
exchange for a non-recourse promissory note in the amount of $40,000 secured by
the issued shares. The note bears interest at 8 percent per annum payable
quarterly. The outstanding principal is due in December 1998.
In August 1995, Prognostics issued 2,595 shares of Non-Voting Common Stock
(233,529 common shares of NFO post-combination) to certain employees. The shares
were issued in exchange for non-recourse promissory notes totaling $10,000
secured by the issued shares. The notes bear interest at 8 percent per annum
payable quarterly. The outstanding principal is due in August 1999.
Approximately $11,000 of the above notes were repaid in 1997, resulting in
a tax benefit of approximately $1.75 million. The Company has reflected the
remaining notes receivable as an offset to additional paid-in capital. The fair
value of the stock on the date of sale, issued in exchange for the non-recourse
notes, was assumed to be equal to the face amount of the notes and, accordingly,
the Company has not recognized any compensation expense under Accounting
Principles Board Opinion No. 25 and related Interpretations.
F-17
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
STOCK OPTIONS - The Company has adopted the NFO Worldwide, 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 2,812,500, 540,000, and 56,250 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 22,500 shares be
automatically granted to each nonemployee director upon initial election and
that options on 15,000 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.
F-18
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
A summary of the status of the Company's plans that issue options as of December
31, 1997, 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 1,168,425 $ 5.34
Granted 425,250 9.80
Exercised (114,300) 4.75
Cancelled/Expired (31,500) 5.05
-----------------------------
Outstanding at December 31, 1995 1,447,875 6.71
Granted 663,758 14.19
Exercised (99,825) 5.03
Cancelled/Expired (15,375) 7.57
-----------------------------
Outstanding at December 31, 1996 1,996,433 $ 9.27
Granted 544,750 16.49
Exercised (148,550) 5.03
Cancelled/Expired (2,997) 15.17
-----------------------------
Outstanding at December 31, 1997 2,389,636 $11.17
=============================
Exercisable at December 31: 1995 622,875 $ 5.75
1996 1,014,671 $ 6.67
1997 1,372,832 $ 8.37
Weighted-average fair-value of options
granted during: 1995 $ 5.45
1996 $ 8.03
1997 $ 9.25
Available for Grant at December 31, 1997 596,368
The following table summarizes information about options outstanding at December
31, 1997:
Options Outstanding
-------------------
Weighted-Average
Number ----------------
Range of Outstanding Remaining Exercise
Exercise Prices at 12/31/97 Contractual Life Price
- --------------------------------------------------------------------------------
4.44 - 9.50 861,375 2.4 $ 5.92
9.51 - 13.05 532,511 7.2 10.97
13.06 - 17.12 995,750 8.8 15.82
Options Exercisable
-------------------
Number Weighted-
Range of Exercisable Average
Exercise Prices at 12/31/97 Exercise Prices
- --------------------------------------------------------------------------------
4.44 - 9.50 843,373 $ 5.86
9.51 - 13.05 325,003 10.91
13.06 - 17.12 204,456 14.69
F-19
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
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:
1997 1996 1995
- --------------------------------------------------------------------------------
Risk-Free Interest Rate 6.0% 6.1% 6.0%
Expected Life 6.8 years 6.8 years 6.6 years
Expected Volatility 46% 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):
1997 1996 1995
- --------------------------------------------------------------------------------
Net Income
As Reported $12,505 $10,616 $ 9,159
Pro Forma $ 9,380 $ 8,937 $ 8,674
Basic Earnings Per Share
As Reported $ .62 $ .53 $ .49
Pro Forma $ .46 $ .45 $ .46
Diluted Earnings Per Share
As Reported $ .60 $ .51 $ .48
Pro Forma $ .45 $ .43 $ .45
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, for grants since 1995 only.
12. INTEREST EXPENSE, NET
Interest expense, net, consists of the following for the years ended December
31, 1997, 1996, and 1995 (in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------
Interest Income $ (259) $ (420) $ (460)
Interest Expense 928 458 318
--- --- ---
Total $ 669 $ 38 $ (142)
======= ======= =======
F-20
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
13. EARNINGS PER SHARE
Earnings per share have been restated to give effect to the Company's stock
splits (Note 11). The following table reconciles the net income and weighted
average number of shares included in the basic earnings per share calculation to
the net income and weighted average number of shares used to compute diluted
earnings per share (in thousands of dollars, except share data):
1997 1996 1995
- --------------------------------------------------------------------------------
Net income Used for Basic and
Diluted Earnings Per Share $12,505 $10,616 $9,159
------- ------- ------
Weighted Average Number of Shares
Outstanding Used for Basic
Earnings Per Share (thousands) 20,265 19,911 18,716
Dilutive Stock Options 460 741 416
Contingently Issuable Common Shares 107 94 61
--- -- --
Weighted Average Number of Shares
Outstanding and Common
Share Equivalents Used for
Diluted Earnings Per Share
(thousands) 20,832 20,746 19,193
------ ------ ------
14. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information for the years ended December 31, 1997, 1996,
and 1995 consists of the following (in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------
Cash Paid During the Period for:
Interest $ 786 $ 462 $ 307
------- ------- -------
Income Taxes $ 6,844 $ 7,813 $ 5,385
------- ------- -------
Noncash Investing and Financing
Activities:
Increase in Goodwill Resulting
from Contingent Purchase
Price Earned (Note 18) $ 4,797 $ 3,733 $ 1,047
------- ------- -------
Notes Payable Assumed
in Acquisitions (Note 18) $ 617 $ 1,018 -
------- ------- -------
15. MAJOR CUSTOMERS
No single customer accounted for more than 10 percent of net revenues during
1996 or 1997. Net revenues from one major long-standing customer were
approximately $12,200,000 for the year ended December 31, 1995.
F-21
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
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.
Pursuant to certain acquisition related purchase and sale agreements (see Note
18), the Company is contingently liable to make additional purchase price
payments, provided the acquired companies achieve certain pre-defined earnings
targets.
17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
Quarterly results were as follows (in thousands, except per share data):
<TABLE>
<CAPTION>
First Second Third Fourth
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1997:
Revenues $42,020 $47,025 $49,340 $51,844
Earnings before Taxes
and Minority Interest 4,671 5,683 5,980 6,072
Net Income 2,351 2,722 3,201 4,231
Basic Earnings per Share .12 .13 .16 .21
Diluted Earnings per Share .11 .13 .15 .20
The second and third quarter results include charges of $460,000 and $840,000, respectively associated with the pooling transaction
expenses incurred as the result of the Prognostics and MBL acquisitions.
1996:
Revenues $33,490 $37,696 $38,241 $45,516
Earnings before Taxes
and Minority Interest 3,461 6,092 5,390 6,078
Net Income 1,785 2,934 2,868 3,029
Basic Earnings per Share .09 .15 .14 .15
Diluted Earnings per Share $ .09 $ .14 $ .14 $ .14
</TABLE>
18. ACQUISITIONS AND JOINT VENTURES
On May 28, 1997, the Company acquired Access Research, Inc., a research-based
financial services consulting firm specializing in the retirement market. The
entire purchase price of approximately $4.0 million was paid in cash at closing.
On December 12, 1997, the Company acquired CM Research Group Limited.
Headquartered in Aukland, New Zealand, CM Research Group is the leading provider
of custom market research in New Zealand, and one of the larger market research
organizations in Australia. The Company acquired 100 percent of the outstanding
stock of CM Research Group for a purchase price of approximately $8.8 million,
including the assumption of debt. Of the total purchase price, 30 percent is
payable based on CM Research Group's achieving certain earnings targets over the
next two years. All amounts are payable 75 percent in cash and 25 percent in
newly issued shares of NFO Common Stock.
F-22
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
The above 1997 acquisitions include allocations to goodwill of $9.3
million. The initial purchase price allocations were based on preliminary
estimates of fair market value and are subject to revision. The pro forma
effects of these acquisitions are not material.
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 years ended December
31, 1997 and 1996, the amount of additional purchase price earned was
approximately $4.2 million and $3.6 million, respectively.
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 two years ended December 31, 1996 and 1997,
the amount of additional purchase price 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. 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. For the twelve months ended August 31, 1997,
the amount of additional purchase price actually earned was approximately $.6
million.
The 1996 acquisitions include allocations to goodwill and customer lists
of $24.9 and $5.6 million, respectively.
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 1995 are as
follows (in thousands, except per share amounts):
1995
- --------------------------------------------------------------------------------
Revenue $130,171
Net Income $ 9,209
Basic Earnings per Share $ .49
Diluted Earnings per Share $ .48
The pro forma effects of Spectrem are not material, and therefore, are not
included.
F-23
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
All of the acquisitions described above were accounted for as purchases
and their results of operations have been included in the accompanying
consolidated financial statements from their respective dates of acquisition.
On April 1, 1997, the Company issued 2,589,720 shares of NFO Common Stock
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.
On July 11, 1997, the Company issued 2,046,363 shares of NFO Common Stock
to acquire all of the outstanding stock of The MBL Group Plc, a leading
international market research firm with 27 offices in 17 countries throughout
the UK, the Middle East, and Asia.
The acquisitions were accounted for as poolings of interests. As a result,
the accompanying financial statements have been restated to reflect the combined
results of NFO, Prognostics, and MBL for all periods presented. The Company
incurred approximately $1.3 million in pooling transaction expenses in
connection with the two poolings of interests. These expenses are included in
selling, general, and administrative expenses in 1997.
Separate results of operations for the periods prior to the mergers with
Prognostics and MBL are as follows:
1997* 1996 1995
- --------------------------------------------------------------------------------
Revenues
NFO $167,230 $109,162 $ 73,098
Prognostics 1,846 7,739 5,073
MBL 21,153 38,042 34,924
------ ------ ------
Combined $190,229 $154,943 $113,095
======== ======== ========
Net Income
NFO $ 11,916 $ 9,016 $ 6,721
Prognostics 130 454 60
MBL 459 1,146 2,378
------ ------ ------
Combined $ 12,505 $ 10,616 $ 9,159
======== ======== ========
*1997 includes results of operations for MBL through the first six months of
1997 and Prognostics for the first three months of 1997. Results subsequent to
dates of merger are included in NFO's operations.
In addition, the Company has entered into agreements with the minority
shareholders of the various MBL subsidiaries to repurchase a portion of such
shareholders' minority shares during 1997. The consideration for this initial
purchase of the minority interests was approximately $14.5 million, of which
$11.1 million was paid in cash and $3.4 million via the issuance of 216,850
newly issued shares of NFO Common Stock. The remaining minority interests will
then be repurchased in three years based on the higher of (a) a multiple of
average profits for the three years ending December 31, 1999 or (b) the original
valuation. The purchase of the minority interests in MBL's subsidiaries was
accounted for using the purchase method of accounting. The minority interest
purchases resulted in an allocation of $13 million to goodwill. The initial
purchase price allocations were based on preliminary estimates of fair market
value and are subject to revision. The pro forma effects of these minority
interest purchases are not material.
F-24
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
19. INVESTMENTS IN AFFILIATES
At December 31, 1996, the Company had a 42 percent interest in Merac WLL, a
marketing research company based in Bahrain and the Company had a 40 percent
interest in MBL Research and Consultancy Group (P), Ltd., a marketing research
company based in India. During 1997, as part of the MBL minority interest
purchases discussed in Note 18, the Company acquired a majority interest in
these affiliates. These affiliates have been consolidated since the majority
interest acquisition date.
The Company entered into agreements in 1995 with IPSOS, S.A. ("IPSOS"), a
major European marketing research firm, and LT Participants ("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 four are currently
operational. The Company initially has 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 prior to July 2002 by purchasing LT's interest.
LT has the right to sell its joint venture interests to the Company anytime
after July 1998. As part of these agreements, the Company has purchased a
comparable portion of IPSOS' existing access panel businesses in Germany and
France.
During 1997 and 1996, the Company invested approximately $820,000 and
$999,000 respectively, in these joint ventures. NFO's portion of the IPSOS joint
ventures' activities resulted in a loss of $291,000 and $453,000 during 1997 and
1996, respectively, which is reflected in equity interest in net loss (income)
of affiliated companies on the consolidated income statements.
The Company's carrying amount of the above investments is reflected in
other assets in the accompanying consolidated balance sheets.
20. SEGMENT DATA
The Company operates in one industry segment, market research, and two
geographic segments. The two geographic segments are: United States, and
International.
Intersegment sales are generally recorded at market or equivalent value.
Net income by geographic segment consists of net sales less related costs and
expenses. Corporate operating expenses have been allocated directly to the
geographic segments. Identifiable assets by geographic segment are those assets
that are used in the Company's operations in each geographic segment.
F-25
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31,
1997, 1996 AND 1995 (CONTINUED)
Geographic segment information is as follows for the years ended December 31,
1997, 1996, and 1995 (in thousands):
1997 1996 1995
- --------------------------------------------------------------------------------
Revenues
United States $141,119 $116,901 $ 78,171
International 49,110 38,042 34,924
------ ------ ------
Total Revenues $190,229 $154,943 $113,095
======== ======== ========
1997 1996 1995
- --------------------------------------------------------------------------------
Net Income
United States* $ 11,602 $ 9,470 $ 6,781
International* 903 1,146 2,378
--- ----- -----
Net Income $ 12,505 $ 10,616 $ 9,159
======== ======== ========
*Pooling transaction expenses of $460 and $840 are included in 1997 in the
United States and International segments, respectively.
1997 1996
- ---------------------------------------------------------------------
Identifiable Assets at December 31
United States $126,317 $106,133
International 43,957 19,310
------ ------
Total Identifiable Assets $170,274 $125,443
-------- --------
21. SUBSEQUENT EVENTS
On March 4, 1998, the Company acquired Ross-Cooper-Lund, a strategic market
research firm headquartered in Teaneck, New Jersey and MarketMind Technologies,
located in Melbourne, Australia, developer of the MarketMindTM continuous
information tracking system. In separate transactions, NFO acquired
substantially all the net assets of each company for the combined consideration
of $16.6 million. These purchases will be accounted for using the purchase
method of accounting.
On March 9, 1998, the Company signed a definitive agreement of Offer To Purchase
CF Group, Inc. Founded in 1932, CF Group, Inc. is the largest market research
organization in Canada. CF Group, Inc. is headquartered in Toronto and has
client service offices in Montreal, Ottawa, and Vancouver. The definitive
agreement of Offer To Purchase contemplates the acquisition by NFO of 100
percent of the outstanding stock of CF Group, Inc. for a total purchase price of
approximately Canadian $20 million. The acquisition is conditional upon the
tender of at least 90 percent of CF Group, Inc.'s outstanding shares by its
employee shareholders. This purchase will be accounted for using the purchase
method accounting.
On March 12, 1998, the Company announced it had successfully concluded a private
placement of $40 million in fixed rate Senior Notes and entered into a $75
million revolving credit agreement. Borrowings under these combined $115 million
credit facilities will be unsecured, the proceeds of which will be used to
refinance the Company's existing debt of approximately $32 million and to
finance acquisitions, capital expenditures, and working capital. The $75 million
revolving credit facility, with an ultimate maturity date of March 2003,
replaces the Company's current bank line of $35 million and will enable the
Company to borrow in multiple currencies at interest rates tied to LIBOR or the
prime rate, at the Company's option. The $40 million in Senior Notes are due
March 1, 2008, bear interest at the fixed rate of 6.43 percent and are to be
repaid in equal annual installments of approximately $5.7 million starting in
the year 2002.
F-26
NFO WORLDWIDE, 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> <C>
Allowance for doubtful acounts:
January 1 -
December 31, 1997 $ 447 $ 151 $ 127 $ 471
January 1 -
December 31, 1996 $ 247 $ 243 $ 43 $ 447
January 1 -
December 31, 1995 $ 237 $ 39 $ 29 $ 247
</TABLE>
Notes:
(a) Column "C(2)" has been omitted as it did not contain any amounts.
(b) Write off of uncollectible accounts.
S-2
