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, 1998
[ ] 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
-------- ----------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
2 PICKWICK PLAZA, GREENWICH, CT. 06830
- -------------------------------- -----
(Address of principle executive offices) (Zip Code)
(203) 629 - 8888
----------------
(Registrant's telephone number, including area code)
COMMON STOCK, PAR VALUE $.01 PER SHARE
--------------------------------------
(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 (Section 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 26, 1999, was approximately $160,431,671.
As of March 26, 1999, there were 21,435,826 shares of the registrant's Common
Stock outstanding.
DOCUMENT INCORPORATED BY REFERENCE
Selected portions of NFO Worldwide, Inc.'s 1999 Proxy Statement are
incorporated by reference into Part III of this report on Form 10-K.
<PAGE>
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 developing and marketing
its interactive marketing research techniques, the effect of foreign exchange
rate fluctuations, and other factors referenced in this Form 10-K. 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.
ITEM 1. BUSINESS
ORGANIZATION
NFO Worldwide, Inc., together with its subsidiaries (the "Company" or "NFO"), is
a leading provider of research-based marketing information and counsel to the
worldwide business community, including over 3,000 clients globally. The Company
combines in-depth knowledge of key market sectors - consumer packaged goods and
foods, healthcare, financial services, travel and leisure, information
technology, automotive and business-to-business - with innovative data
collection methodologies and value added products. Key products and services
include continuous brand tracking, online research, consumer panels, and
multi-country research, as well as market evaluation, product development,
customer satisfaction, pricing, distribution and advertising effectiveness.
Through its proprietary pre-recruited consumer panel (the "NFO Panel" or the
"Panel") and other specialized databases, NFO offers access to over 600,000
North American households (over 1.5 million people) and to over 100,000 European
households. The Company offers its clients a wide variety of marketing research
services that identify and measure consumer beliefs, attitudes and behavior
regarding specific products and services. The Company believes that's its
products and services enable clients to develop better products, build more
powerful brands, and design and implement more effective marketing and
advertising strategies. The Company provides its services in 31 countries and
has 12,600 full and part-time employees.
The Company provides its marketing information services, databases and marketing
research services to a diverse group of clients, including 59 of the largest 100
companies of the FORTUNE 500 list, 23 of the top 25 U.S. bank holding companies,
and 37 of the world's 50 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.
2
<PAGE>
The Company, through its largest subsidiary NFO Research, Inc. ("NFOR"),
pioneered panel research over 50 years ago. The size and diversity of the NFO
Panel allows for specialized research targeting specific ethnic and demographic
segments in addition to routine types of marketing studies. 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. The Company believes that the size and
quality of the NFO Panel, its expertise in the custom design and execution of
marketing research, its experience in panel and information management and its
systems and processing capabilities give it a competitive advantage over other
marketing and consumer information services firms. The Company also believes
that these advantages enable it to identify various targeted consumer groups and
to measure their responses to or use of particular products and services
generally on a more timely and cost-effective basis than firms using non-panel
research methods.
In September 1997, the Company changed its name from NFO Research, Inc. to NFO
Worldwide, Inc., reflecting 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. The
Company was named one of the 200 Best Small companies in America by Forbes
magazine in 1996 and 1997 and has since outgrown the criteria for the award.
Recently, the Company was named by Inside Research magazine as the fastest
growing marketing research firm in the world for the past five 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.
ACQUISITIONS (1998). This past year was a period of unprecedented growth through
acquisitions at NFO. Most significant was the November 1998 acquisition of
Infratest Burke Aktiengesellschaft Holding ("Infratest Burke"). Founded in 1947,
Infratest Burke is headquartered in Munich, Germany, and ranks as one of the top
four custom marketing research firms in Europe with 35 offices in 15 countries.
The combination of NFO and Infratest Burke created the sixth largest marketing
research firm in the world, and one of the top three custom marketing research
companies globally. NFO was already the largest custom marketing research firm
in North America.
The Company completed two acquisitions in October 1998, Donovan Research Pty.
Ltd. ("Donovan") and City Research Group Plc ("City Research"). Donovan, founded
in 1974 and headquartered in Perth, Australia, is a full service custom research
agency with a leading position in fast-moving consumer goods, public policy,
tourism, customer satisfaction and continuous tracking research. In addition to
its own branded products, AdTest and Packtest, Donovan is also the exclusive
regional licensee of MarketMind(TM), a global brand tracking system acquired by
NFO in March 1998. City Research, founded in 1978 and headquartered in London,
England, is a leading UK marketing research firm specializing in financial
services. The company provides syndicated products customized for commercial
banking clients, including comprehensive market share data and information
relating to customer needs, customer satisfaction, and customer retention.
3
<PAGE>
The Company acquired Stochastic International Pty. Ltd. ("Stochastic") in August
1998. Stochastic is the developer of the Stochastic Reaction Monitor continuous
brand tracking system, which provides guidance on brand positioning to more than
60 companies in 33 countries. Stochastic was founded in 1981 and is
headquartered in London, England.
The Company completed three separate acquisitions in the spring of 1998, CF
Group, Inc. ("CF") in April and MarketMind Technologies ("MarketMind") and
Ross-Cooper-Lund ("RCL") in March. Founded in 1932, CF is headquartered in
Toronto and has client service offices in Montreal, Ottawa and Vancouver. CF
operates three divisions within Canada - Canadian Facts, the largest custom
marketing research organization in Canada, 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 NFOR's, which
allows the Company to offer its clients seamless cross-border panel-based
research.
MarketMind, founded in 1987 with offices in Teaneck, New Jersey, and Melbourne,
Australia, owns and licenses the MarketMind(TM) system, which uses proprietary
software that combines a set of key diagnostic measures together with the
integration, interactive analysis and display of multiple streams of
longitudinal data.
RCL is a rapidly growing research-based consulting firm that conducts
large-scale studies that help clients to diagnose and monitor brand
communications and to optimize media budgets. RCL is located in Teaneck, New
Jersey, and is the exclusive licensee of the MarketMind(TM) system in the U.S.
ACQUISITIONS (1997). The Company aggressively pursued its growth-via-acquisition
strategy in 1997 with the December acquisition of New Zealand-based CM Research
Group ("CM Research"), the leading provider of custom marketing research in that
country and one of the largest marketing 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 MBL
(defined below) for operational purposes, making the latter one of only three
marketing research firms in the world with full coverage of the Australasia
region.
The Company took significant steps to expand its presence overseas when, in July
1997, it acquired The MBL Group Plc ("MBL"), a leading international marketing
research firm. MBL has 19 companies and 27 offices in 17 countries throughout
the world, including the UK, the Middle East, Asia, Mainland China and Southeast
Asia. Within the group, MBL has specialists in ad hoc quantitative research,
qualitative research, telephone research, and executive interviewing. MBL also
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.
The Company expanded its presence in the financial services industry through the
May 1997 acquisition of Access Research ("Access") by Spectrem. Access was
4
<PAGE>
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 April, the Company acquired 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.
ACQUISITIONS (PRE-1997). In 1994, the Company acquired Payment Systems, Inc.
("PSI"), 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.
In 1996, as part of its strategy to diversify into the investment industry and
insurance sectors, PSI acquired 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.
In response to the competitive environment within 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, is the nation's largest custom market research firm serving the
pharmaceutical industry. CSI provides data collection and survey services. The
studies conducted by M/K and CSI involve not only doctors but other third
parties, which compliments the NFOR HealthMed division's focus on the consumer.
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.
5
<PAGE>
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, and operations subsequently began
in the UK and Italy, also. 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 become the worldwide leader in custom marketing
research. In order to accomplish this mission, NFO is aggressively pursuing a
four-pronged business development strategy.
BROADEN AND EXPAND CORE BUSINESS. The Company is combining and leveraging its
outstanding array of branded products, innovative research techniques and
people, with its global scale and vertical market sector expertise. The Company
intends to develop new services and research concepts that will distinguish it
from other marketing research companies while furthering its development as a
marketing information services company that can deliver superior research
products on a world-wide scale. The Company intends to use its panel methodology
and expertise in custom and syndicated research to expand existing client
relationships and to target new clients, particularly in the pharmaceutical,
high tech, telecommunications and financial services industries in which the
Company perceives a growing need for marketing 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. The Company has expanded beyond
its core packaged goods business with new services while developing a strong
presence in healthcare, information technologies/telecommunications, and
financial services.
TECHNOLOGICAL ADVANCEMENTS. The Company's strategy is to pioneer new advances in
technology that will deliver its services more quickly, cost effectively, and
creatively, including opportunities in the areas of on-line marketing research
and data collection. 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. In 1998, the Company
deployed various technologies to speed the labor-intensive coding process for
processing questionnaires. In addition, the Company is currently in the process
of upgrading its questionnaire development to Microsoft Word for enhanced
compatibility. The Company also uses a 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 the Company utilizes a document imaging system that saves
a significant amount of the time required to process questionnaire responses
compared to conventional data entry.
6
<PAGE>
NFO believes that the advent and growing penetration of on-line and Internet
services will change the mix of media used to conduct marketing research and
will grow the overall size of the marketing 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 marketing 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 a 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
marketing research. During 1996, the Company developed NFO//net.source, the
world's largest representative panel of interactive users, which currently
numbers over 190,000 households and over 530,000 individuals. By utilizing
e-mail and the World Wide Web to communicate with these panelists, the elapsed
time of collecting research information is shortened. This Interactive Panel
enables NFO to provide clients with access to a rich source of information about
the interactive market and provides the ability to conduct interactive research
with accuracy and speed.
The Company has created proprietary software systems to facilitate the
information collection process and shorten the cycle times required for
marketing research. These systems include survey development tools, database
management and integration systems, analytic software and Internet software
reporting tools. Development has also included extensive process development and
calibration studies to ensure NFO's interactive methods provide accurate results
and are responsive to customer needs.
The Company's interactive products include NFO//net.survey, custom quantitative
research via the Internet, NFO//net.gauge, web-site evaluation services,
NFO//net.focus, the conduct of focus groups using the Internet,
NFO//net.concept, a new tool to speed time to market and save product
development resources, and NFO//net.query, an interactive weekly e-mail survey.
The products are marketed by the various NFO companies. In addition, 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, 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 marketing research. The Company believes it is one of the
leaders in the development of interactive and on-line interviewing in the
marketing research industry.
STRATEGIC ALLIANCES AND ACQUISITIONS. To enhance its development as a marketing
information company, the Company will seek to develop alliances or to acquire
companies which will establish or improve the Company's position in key market
7
<PAGE>
segments or enhance its research functions or technologies. Examples of this
strategy were the acquisitions of PSI and AMS in 1994, M/K, CSI, Plog, and
Spectrem in 1996, and MBL, Access, CM Research and Prognostics in 1997. The
Company continued this strategy in 1998 with the acquisitions of CF, MarketMind,
RCL, Stochastic, Donovan, City Research, and in November 1998, the acquisition
of Infratest Burke, one of the top four marketing research firms in Europe and
the eighth largest marketing research company in the world based on revenues.
The Company is keenly interested in increasing its presence in the high tech,
telecommunications, healthcare and financial services sectors. In addition, the
Company is interested in increasing its horizontal product and service
capabilities in the areas of ad testing, market modeling, brand
equity/continuous tracking, and interactive research.
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 market sector
or horizontal product/service or 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.
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 marketing research spending was
estimated to be $12.1 billion in 1997 by the European Society for Opinion and
Marketing Research (ESOMAR) supplemented with NFO estimates. Spending is
estimated at $5.3 billion in Europe, $4.6 billion in the U.S. and Canada, $1.8
billion in Australasia and the Middle East, and $.4 billion elsewhere. In the
aggregate, marketing research spending outside North America represented $7.5
billion, or nearly 62%, of worldwide spending. To date, custom panel-based
research has not been widely used outside of the U.S.
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 marketing
research.
The Company's recent steps - including its acquisitions of MBL, CM Research, and
CF - are indications of the potential the Company believes exists in the
international marketing research arena. In addition, the Company's acquisition
of Infratest Burke is expected to significantly enhance its capabilities on the
international front.
THE COMPANY'S SERVICES
The Company has three operating segments (as defined pursuant to Statement of
Financial Accounting Standards No. 131): North America, Europe and Australasia
and the Middle East. Within each of these operating segments, the Company has
8
<PAGE>
subsidiaries specializing in various market sectors and types of marketing
research services including consumer packaged goods and foods, healthcare,
financial services, travel and leisure, information technology, automotive,
business-to-business, panel-based research, continuous tracking, and stakeholder
management.
During 1998, the Company's North American revenues were $189.6 million, or
nearly 68%, of the Company's consolidated total of $280.1 million before
elimination of intercompany revenues of $4.8 million. European revenues were
$50.3 million, or 18% of the consolidated total, while revenues for Australasia
and the Middle East represented the remaining 14%. The Company believes that it
is the largest custom marketing research firm in North America, the third
largest in Europe, and among the top five marketing research firms in
Australasia and the Middle East. The Company believes it is the third largest
custom marketing research firm in the world.
A discussion of each of the operating segments and their larger subsidiaries and
key industries follows.
NORTH AMERICA
CUSTOM RESEARCH AND SYNDICATED SERVICES - NFO RESEARCH. Approximately one-fourth
of the Company's revenues are derived from custom panel research, and NFOR is
the largest of the Company's North American subsidiaries. NFOR conducts its
panel marketing 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. NFOR 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 U.S.
NFOR believes that it can generally perform custom marketing research more
efficiently and reliably than firms using random research methods. Through the
pre-recruited NFO Panel, NFOR 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 NFOR's surveys. In many cases, NFOR can easily select households with the
desired targeted characteristics from data maintained by NFOR concerning the NFO
Panel. In other cases involving the need to locate households with targeted
characteristics not previously identified, NFOR 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 NFOR's "MultiCard Survey" program. 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, NFOR can quickly perform the marketing research project by
surveying those sample households.
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 NFOR's extensive demographic and
9
<PAGE>
geographical profiles of the NFO Panel households facilitate the ability of NFOR
to assist its clients with such "target" or "micro-marketing." NFOR 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,
administered by NFOR's HealthMed division, which was created in 1992 to service
the healthcare industry. The Chronic Ailment Panel was developed by screening
NFO's Panel of individuals for over sixty ailments and chronic conditions, eight
disabling conditions and users of several diagnostic testing kits. This
specialized sub-panel enables NFOR's clients to quickly identify and obtain
information regarding very low incidence conditions and ailments.
NFOR has operations facilities located in Toledo and Greensboro. NFOR 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. NFOR maintains a sales and marketing staff in nine
locations throughout the U.S. The research executives work primarily with the
marketing research departments and product brand management departments of its
clients. For many of its larger clients, NFOR 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.
The services provided by NFOR, as well as by some of the Company's other
subsidiaries, 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 NFOR; 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.
NFOR 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. NFOR 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 marketing research of confidential
materials.
10
<PAGE>
The Company and BASES Worldwide ("BASES") jointly offer Volumetric Concept
Screening by Mail ("VCSM") to clients. BASES is a well-respected marketing
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.
HEALTHCARE - MIGLIARA/KAPLAN. M/K is the nation's largest custom full-service
healthcare marketing research company with offices in Baltimore, Princeton, 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 3,400 custom studies for more than 150 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.
M/K is also a leader in multivariate methods, including conjoint analysis with
market simulation, perceptual mapping, correspondence analysis, multidimensional
scaling, psychographic/lifestyle segmentation analysis, and factor and cluster
analysis.
M/K takes pride in the fact that many of its original clients are still with the
firm and have expanded their relationship over the years. Eighty percent of
M/K's client base is comprised of repeat business. M/K has historically
attracted clients from all corners of the healthcare industry, with management
expertise in both diagnostics and pharmaceuticals, giving them firsthand
knowledge of the issues surrounding brand management and the positioning of new
technologies.
FINANCIAL SERVICES - PSI GLOBAL. PSI 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 has provided research on credit card usage
in Europe since 1990. PSI has since expanded its coverage to bring the same
marketing research and strategic business planning expertise to Asia and Latin
America.
11
<PAGE>
FINANCIAL SERVICES - SPECTREM. 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.
FINANCIAL SERVICES - ACCESS RESEARCH. 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.
FINANCIAL SERVICES - CITY RESEARCH. City Research, founded in 1978 and
headquartered in London, England, is a leading UK marketing research firm
specializing in the financial services sector. City Research's products are
complimentary to PSI's, and City Research works in conjunction with PSI to sell
to the financial services industry throughout the UK. The company provides
syndicated products customized for commercial banking clients, including
comprehensive market share data and information relating to customer needs,
customer satisfaction, and customer retention.
TECHNOLOGIES - PROGNOSTICS. Founded in 1981, Prognostics is a leading provider
of survey-based quantitative customer satisfaction research to information
technology companies worldwide. The Company is headquartered in Palo Alto,
California, and 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 clients worldwide.
TECHNOLOGIES - NFO INTERACTIVE. In 1996, the Company established its NFO
Interactive division for the purpose of developing an interactive methodology
for performing marketing research. The Company has developed NFO//net.source, an
interactive consumer panel of on-line households numbering over 190,000
households and over 530,000 individuals. With NFO//net.source, clients can
segment the market for selected groups of interactive customers. And, with
response rates in excess of 70% from NFO Interactive's pre-recruited on-line
panel, clients are assured of accurate results without the non-response and
self-selected bias often common with other interactive research methods. NFO
Interactive offers several products:
NFO//net.survey is custom quantitative research via the Internet using the
NFO//net.source on-line panel with the significant advantage of speed. Results
are often available in eight to ten days for Web-based surveys and as fast as
three to five days for e-mail surveys.
NFO//net.gauge delivers sophisticated, customized web-site analysis that goes
beyond the surface and truly evaluates a client's web-site effectiveness. The
product can trigger intelligent surveys to a random sample of visitors to the
site, or alternatively can arrange to have the site evaluated by a specific
target market using the NFO//net.source interactive panel. Using NFO//net.gauge,
clients are able to address critical issues such as who visits their web-site,
are they satisfied with it, and how does the site compare to that of the
competition.
12
<PAGE>
NFO//net.query is an interactive weekly e-mail survey providing responses from
more than 2000 households. It's a short, multi-client survey fielding up to
three questions each week with a very high response rate. Clients are able to
share the costs to determine the incidence of specific criteria, pre-screen for
on-line surveys or focus groups, test an idea, or get the answers to
need-to-know questions.
NFO//net.concept is a new tool to speed time to market and save product
development resources. It is not meant to be a substitute for formal concept
testing but rather it is a complimentary tool designed to help clients initially
gauge the potential of new product and marketing concepts. Essentially,
NFO//net.concept helps clients determine which potential ideas regarding
products, line extensions, or promotions deserve the clients scarce resources.
NFO//net.focus is the on-line equivalent to the conventional focus group, but
with the significant advantages of no geographic boundaries and no travel costs.
This product allows for 2-D, 3-D and soon live motion video for concept testing,
package testing, and product development.
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 addition, interactive information
collection has the advantage of low distribution and collection costs.
TECHNOLOGIES - NFO AD:IMPACT. Formerly known as National Yellow Pages Monitor
("NYPM"), NFO Ad:Impact now augments the former company's global-leading Yellow
Pages service offerings with several unique, Web-based audience measurement
applications. Launched in 1987, NFO Ad:Impact is the leading provider of
syndicated audience measurement to the $12 billion Yellow Pages industry. NFO
Ad:Impact 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. NFO Ad:Impact also offers other syndicated and
custom research services to the Yellow Pages industry, including Active
Intermedia Measurement (AIM), Business Usage research and Web Site Survey
studies.
In 1998, NFO Ad:Impact added several syndicated Web-based audience measurement
applications utilizing the NFO Interactive Panel to gather its local market
online information. New analytical tools have been developed that will forecast
for local media providers showing how consumers' use of traditional Yellow Pages
and newspaper products will be affected by consumers' use of local online media.
NFO Ad:Impact provides a broad array of unique services that will help local and
national media players quantify the value of local advertising to local
advertisers. For example, one of the company's products, NFO//consumer.choice,
measures consumer awareness, usage of, and related actions taken (merchant
contact and/or purchase) from online searches. It is the benchmark local Web
audience measurement product, currently monitoring over 50 sites in each of 25
markets. The expanding base of clients of this service include Internet
newspapers, Internet Yellow Pages, city guides, search engines, and vertical Web
content providers like Cybermeals.
13
<PAGE>
TECHNOLOGIES - INFOCOM. 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.
CONTINUOUS BRAND TRACKING - MARKETMIND. MarketMind, founded in 1987 and located
in Teaneck, New Jersey and Melbourne, Australia, owns and licenses the
MarketMind(TM) system, which uses 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(TM) system is
licensed in 20 countries supporting hundreds of brands. The system can be
utilized for a number of purposes including: brand health monitoring, new
product launches, line extensions, special promotions, price discount and
premium tests, loyalty programs, public relations exercises, channel changes,
brand repositioning, customer satisfaction measurement, corporate image studies,
and marketing mix modeling.
CONTINUOUS BRAND TRACKING - STOCHASTIC. Stochastic is the developer of the
Stochastic Reaction Monitor continuous brand tracking system, which provides
guidance on brand positioning to more than 60 companies in 33 countries.
Stochastic was founded in 1981 and is headquartered in London.
CONTINUOUS BRAND TRACKING - ROSS-COOPER-LUND. RCL is a rapidly growing
brand-based marketing research firm headquartered in Teaneck, New Jersey. RCL
conducts research that helps clients understand brand equity, advertising
testing, product development and testing, and large-scale studies that help
clients to diagnose and monitor brand communications and to optimize media
budgets. RCL is the exclusive U.S. licensee of the MarketMind(TM) continuous
information tracking system.
TRAVEL AND LEISURE - PLOG RESEARCH. Plog offers a number of syndicated products
to the travel and leisure industries. Plog's products provide information
regarding the attitudes and purchasing behavior of airline 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 and
East Brunswick, New Jersey.
CANADA - CF GROUP. Founded in 1932, CF is headquartered in Toronto and has
client service offices in Montreal, Ottawa and Vancouver. CF operates three
divisions within Canada - Canadian Facts, the largest custom marketing research
organization in Canada, 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
14
<PAGE>
CATI (computer-assisted telephone interviewing) system with over 350 stations
throughout 10 Canadian cities, and extensive mall interviewing facilities. CF
serves its clients in a broad range of research categories including
advertising, concept and product service evaluation, public policy and political
research, business-to-business, and customer and employee satisfaction surveys.
CF's Canadian access panel, Canadian Family Opinion, when used in combination
with the NFO Panel enables clients to utilize the largest access panel in North
America for seamless cross-border research.
EUROPE
INFRATEST BURKE - INTERNATIONAL CUSTOM AND SYNDICATED SERVICES. NFO acquired
Infratest Burke in November 1998. Infratest Burke is a leading European
marketing research firm founded in 1947 and headquarter in Munich, Germany, with
35 offices in 15 countries. Infratest Burke was ranked by Marketing News in 1997
as the 8th largest marketing research organization in the world. In 1998, the
company served over 1,400 clients with 2,600 research and consultancy projects
and conducted over 2.2 million interviews. Infratest Burke has performed over
35,000 research projects since 1980 and has enjoyed over an 80% customer loyalty
rate from repeat clients. Infratest Burke has some of Europe's largest CATI
(computer-assisted telephone interviewing) and CAPI (computer-assisted personal
interviewing) systems, with over 700 and 900 stations, respectively. Infratest
Burke is ISO 9001 certified in key locations such as Germany, Italy, Sweden and
the UK.
Infratest Burke's products and services include professional expertise and
advanced technical resources in four major fields of activity: strategic and
tactical marketing, public policies, customer retention and personnel
development. The company conducts both quantitative and qualitative research for
a wide range of client management projects and provides multi-client research
regarding consumer business statistics. Other services include omnibus surveys,
hall/mall tests, and retail analysis. Among its major offerings are
AD-VISOR/A.C.E. (Advertising Campaign Evaluation), an on-air copy testing
service; COSMOS, a concept, product, and pricing optimization model; PRICER, a
pricing strategy analysis model; TRI:M, a customer retention model; and BASES, a
simulated test market software package that allows consumer packaged goods
marketers to predict the likely sales and success of new products before they
are formally launched to consumers. Infratest Burke has been the exclusive
European licensee of the BASES system for about 20 years.
Infratest Burke provides a wide array of specially-designed marketing research
studies and advisory services in selected key industry segments:
CONSUMER GOODS AND DURABLES - For more than four decades, Infratest Burke has
provided comprehensive marketing research services to global manufactures,
marketers and retailers of consumer goods and durables, including those involved
with food, soft drinks, diary products, toiletries, white goods,
clothing/apparel, and sporting goods. Infratest Burke supports its clients in
all aspects of their strategic and tactical brand marketing initiatives through
the use of both individually designed ad hoc studies and unique standardized
tools with an ultimate goal of determining the underlying consumer trends for
their clients products. The company believes it has developed industry-leading
marketing research tools and technologies in the area of sales forecasts and
image research that benefit their clients in providing consistency and
reliability of marketing data on a world-wide basis.
15
<PAGE>
AUTOMOTIVE/TRANSPORTATION - For 25 years, Infratest Burke has conducted an
ongoing public opinion survey for is automotive clients structured to determine
and evaluate consumer attitudes on automotive-related products and services. The
company also conducts comprehensive new car and used car buyer surveys, which
attempt to uncover market patterns, buyer motivation, brand loyalty, and
consumer satisfaction. The company has designed ground-breaking measuring tools
specifically designed for transportation and traffic system analysis, including
products that monitor the needs and value of various transport systems and
products that assemble and interpret travel industry data to monitor the reasons
and motivations for personal and business travel and tourism.
INFORMATION TECHNOLOGY/TELECOMMUNICATIONS/MEDIA - Infratest Burke's clients in
this industry include hardline and cellular phone operators, voice/data
communication network providers, computer hardware manufacturers, software
developers, mainframe/workstation designers, fax/copier manufacturers, and
similar organizations. Products provided by the company are designed to provide
timely strategic information relating to market segmentation and positioning,
pricing policies, sales forecasts, new product launching analyses, advertising
campaign evaluations, standardized "dummy tests", electronic measuring methods,
and customer satisfaction and loyalty surveys. Infratest Burke has a long
history in this industry, originally serving radio broadcasting clients with
national audience measurement. Today, Infratest Burke provides specially
designed research studies for many private and public radio and TV companies,
print and electronic media providers, video/music industry participants, and
advertising companies.
HEALTHCARE/DRUGS - This industry in Europe is greatly affected by political
decisions and public pressure to develop new products. Successfully bringing a
new product to market depends increasingly on marketing research and marketing
support. Infratest Burke's specially commissioned studies and analyses focus on
providing clients strategic and timely data on the depth and breadth of
potential market segments, forecasted sales and penetration levels, early
warning studies, pricing and positioning models, customer needs and satisfaction
studies, economic analysis, continuous tracking systems, and qualitative
research projects.
FINANCIAL SERVICES - This industry has shown considerable growth due to changes
occurring in the industry, such as the pan-European currency unification and the
increasing use of electronic banking and media. The company's products are
designed to help clients across the complete marketing function, from pricing
and demand research studies, to sales analyses, to communications and
advertising research studies, in areas such as direct/electronic banking,
discount brokerage services, direct insurance, and other financial services
areas. The company developed its Financial Market Data Service ("FMDS") in
Europe more than 25 years ago as a continuous structural analysis survey tool to
gather and organize data within this sector.
BJM/MARKETING BEHAVIOUR/MARKETING BLUEPRINT - INTERNATIONAL. These UK-based
research firms were originally part of NFO's MBL Group and offer qualitative and
quantitative ad hoc research with high standards of research design and
creativity. Their clients cover a wide range of industries, including consumer
goods, business-to-business, service providers, pharmaceutical, automotive,
retail, and drinks. NFO's MBL Group UK companies are among the top ten marketing
research firms in Europe, and conduct research projects in 30 countries.
Operationally, these companies are now part of the European operating segment.
16
<PAGE>
BJM is the exclusive UK licensee of the Stochastic Reaction Monitor. Use of this
product provides clients, in essence, a continuous dialogue with their target
consumers, covering what they perceive the brands to be communicating, as well
as the impact of this on their beliefs about the brands and, where appropriate,
their behavior. The measures provided are rich in diagnostics, allowing a
greater understanding of the marketing process and indicating routes to improve
the cost-effectiveness of marketing activity.
EUROPEAN PANEL JOINT VENTURE. In 1995, the Company signed a joint venture
agreement with IPSOS, S.A. ("IPSOS"), a European marketing research firm, and LT
Participations ("LT"), an IPSOS affiliate, to launch joint venture companies,
originally 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 UK and Italy.
The joint ventures' international subsidiaries are numerous and include a
combined panel of nearly 100,000 households in Germany, France, the UK and
Italy.
AUSTRALASIA AND THE MIDDLE EAST
MBL GROUP - INTERNATIONAL CUSTOM AND SYNDICATED SERVICES. MBL is a leading
international marketing research firm with offices in 16 countries throughout
Australasia and the Middle East. Founded in 1965, MBL provides strategic
planning, marketing research, and research-based consulting, on a worldwide
basis. Working through its own subsidiaries and affiliates in the Middle East,
Asia, and Southeast Asia, MBL has successfully carried out assignments in some
100 countries around the world. MBL's orientation is towards value-added
research - research which is oriented towards problem solving and interpretation
of data, rather than simple data provision. The company provides research-based
consultancy - answers to problems - not just answers to questions.
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.
MBL specializes in international/multi-national project coordination and
operates the Stochastic Reaction Monitor brand-development franchise and 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. CM Research, headquartered in Auckland, New Zealand, is the leading
provider of custom marketing research in New Zealand and one of the larger
marketing research organizations in Australia. With offices in five cities in
both countries, CM Research provides a number of proprietary and self-developed
brand services to a blue-chip client list.
DONOVAN. Donovan, founded in 1974 and headquartered in Perth, Australia, is a
full service custom research agency with a leading position in fast-moving
consumer goods, public policy, tourism, customer satisfaction, and continuous
17
<PAGE>
tracking research. In addition to its own branded products, AdTest and Packtest,
Donovan is also the exclusive regional licensee of MarketMind(TM), the global
brand tracking system acquired by NFO in March 1998.
CLIENTS
The Company is a leading provider of research-based marketing information and
counsel to the worldwide business community. Including its subsidiaries, the
Company conducts over 11,000 research projects annually for more than 3,000
clients in 31 countries. The Company's clients include 59 of the largest 100
companies on the FORTUNE 500 list, 23 of the top 25 U.S. bank holding companies,
and 37 of the world's 50 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 3,000 companies. No single client
represented more than 10% of its total revenues in 1998 or 1997. The Company's
ten largest clients, which collectively represented approximately 21% of its
total 1998 revenues, are as follows:
oBristol Myers Squibb oPfizer, Inc.
oBritish American Tabacco oThe Procter & Gamble Company
oCitibank oSearle
oCoca-Cola oTelecom NZ Ltd.
oGilette oUnilever
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 businesses in management practices and policy. The
U.S. 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 MARKETING RESEARCH INDUSTRY
Revenues for the worldwide marketing research industry reached $12.1 billion in
1997 according to the latest data from ESOMAR and supplemented by company
estimates. Spending is estimated at $5.3 billion in Europe (44%), $4.6 billion
in the U.S. and Canada (38%), $1.8 billion in Australasia and the Middle East
(15%) and $.4 billion elsewhere (3%). In the aggregate, marketing research
spending outside the U.S. represented $7.5 billion, or nearly 62%, of worldwide
spending. To date, custom panel-based research has not been widely used outside
of the U.S.
18
<PAGE>
The $4.6 billion domestic marketing 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 OR AD HOC 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 U.S., with no
firm holding a dominant share of that market. NFO believes it is the largest
U.S.-based custom marketing 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 largest custom PANEL research firm within the
industry, the sixth largest research organization in the world, and one of the
top three CUSTOM marketing research firms worldwide. NFO is niche oriented and
attempts to exploit specific areas of marketing research where market growth
rates are high, margin potential is good, and barriers to entry/exit and
competition are limited. Within the U.S., 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; high tech customer satisfaction research; and travel/leisure research.
The U.S. market is enjoying healthy growth and is becoming more international in
scope. According to the June 1998 issue of Marketing News, more than 39% of the
combined revenues for the top 50 U.S. marketing research firms come 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, Marketing
News estimates the Top 50 U.S. research firms together will generate 50% of
their revenues outside the U.S. by the year 2000.
19
<PAGE>
The custom marketing 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
marketing research product; the ability to design, perform and report on a
research project in a short period of time; its price; consistency of service;
the NFO Panel; and the global coverage that enables the delivery of consistent
research in a multi-country study environment. 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: Taylor Nelson
Sofres, based in London; The Kantar Group Ltd., based in London, UK; Gfk AG of
Nuremberg, Germany; IPSOS Group, S.A. of Paris, France; 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, in 1997 NFO was ranked fifth ($190 million)
in the "Top 50 U.S. Research Organizations" list published by MARKETING NEWS in
June 1998, up from sixth in the prior year. In the "Top 25 Global Research
Organizations" list published by MARKETING NEWS, NFO was ranked ninth overall,
up from sixteenth in the prior year. The top three U.S. research companies were
ACNielsen Corp., Cognizant Corp. and Information Resources Inc., all of whom
primarily provide syndicated marketing information.
With the acquisition of Infratest Burke in November 1998, NFO believes it has
become the sixth largest marketing research firm in the world and the third
largest custom marketing research company worldwide based on revenues. The
Company believes it is the largest custom marketing research firm in North
America, the third largest in Europe and among the top five in Australasia and
the Middle East.
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 Worldwide, NFO Research, National Family
Opinion, Payment Systems, PSI, Migliara/Kaplan, Screen Test, MarketMind 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. Certain of the Company's
non-domestic subsidiaries also maintain various trademarks and patents in the
countries in which they operate.
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.
20
<PAGE>
EMPLOYEES
As of December 31, 1998, the Company had 12,600 employees (3,100 full-time and
9,500 part-time). Approximately 1,300 of the 12,600 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 marketing 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 domestic employees are subject to a collective bargaining
agreement. CF has two separate unions covering certain of its employees in
Canada; the United Steelworkers of America covers 137 employees, and Le Syndicat
des Travailleuses et Travailleurs covers 45 employees. The Company has not
experienced any work stoppages and believes its relations with its employees are
good.
OTHER MATTERS
See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS for a discussion of the Year 2000 and Euro conversion
issues and Market Risk Management.
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 148,000 square foot complex located on approximately 77
acres owned by the Company in Toledo, Ohio. The facility was built in 1975 and
first expanded in 1982. The Company recently completed an expansion project
which added approximately 50,000 square feet of office space to the facility and
renovated the existing space.
21
<PAGE>
The Company's remaining facilities are all leased. The following is a summary of
the Company's office locations throughout the world:
<TABLE>
<CAPTION>
COMPANY LOCATIONS COMPANY LOCATIONS
<S> <C> <C> <C>
EXECUTIVE OFFICES Greenwich, CT INFRATEST BURKE Munich, Germany
Berlin, Germany
NFO RESEARCH Toledo, OH Bonn, GermanyAtlanta, GA
Frankfurt, Germany
Chicago, IL Hamburg, Germany
Cincinnati, OH Wetzler, Germany
Greensboro, CT Edinburgh, Scotland
Greenwich, CT London, England
Minneapolis, MN Paris, France
St. Louis, MO Bologna, Italy
San Francisco, CA Florence, Italy
Milan, Italy
MIGLIARA/KAPLAN Baltimore, MD Gothenburg, Sweden
CHESAPEAKE SURVEYS Princeton, NJ Stockholm, Sweden
London, England Amsterdam, Netherlands
Istanbul, Turkey
PSI/SPECTREM/ACCESS Tampa, FL Copenhagen, Denmark
New York, NY Madrid, Spain
San Francisco, CA Cincinnati, OH
Los Angeles, CA
Philadelphia, PA MBL GROUP London, England
Chicago, IL Dubai, United Arab Emirates
Hartford, CT Riyadh, Saudi Arabia
London, England Hyderabad, India
Singapore Colombo, Sri Lanka
Hong Kong
CITY RESEARCH London, England Taipei, Taiwan
Shanghai, China
PROGNOSTICS Palo Alto, CA Manila, Philippines
Boston, MA Bangkok, Thailand
London, England Ho Chi Minh City, Vietnam
Singapore
NFO INTERACTIVE Greenwich, CT Kuala Lumpur, Malaysia
Jakarta, Indonesia
NFO AD:IMPACT Greenwich, CT Bahrain, Bahrain
San Francisco, CA Dhaka, Bangladesh
Cairo, Egypt
NFO INFOCOM Greenwich, CT
St. Louis, MO CM RESEARCH Auckland, New Zealand
Wellington, New Zealand
MARKETMIND Teaneck, NJ Sydney, Australia
Melbourne, Australia Brisbane, Australia
Melbourne, Australia
STOCHASTIC London, England
DONOVAN Perth, Australia
ROSS-COOPER-LUND Teaneck, NJ
EUROPEAN Paris, France
PLOG RESEARCH Los Angeles, CA JOINT VENTURE Hamburg, Germany
East Brunswick, NJ London, England
Milan, Italy
AMS Greenwich, CT
CF GROUP Toronto, Canada
Montreal, Canada
Ottawa, Canada
Vancouver, Canada
</TABLE>
22
<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 26, 1999, there were 224
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
October 15, 1997.
Sales Price
-----------
Calendar Year 1998 High Low
------------------ ---- ---
First Quarter $ 21.375 $ 16.750
Second Quarter 22.000 15.625
Third Quarter 18.750 9.000
Fourth Quarter 14.750 5.550
Calendar Year 1997 High Low
------------------ ---- ---
First Quarter $ 15.500 $ 11.170
Second Quarter 17.500 11.330
Third Quarter 18.500 14.500
Fourth Quarter 21.630 15.500
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 repay indebtedness and 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.
23
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
Information required by this item is shown in Exhibit 99.1 and is hereby
incorporated by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Information required by this item is shown in Exhibit 99.2 and is hereby
incorporated by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Information required by this item is shown in Exhibit 99.3 and 99.4 and is
hereby incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
The Company has had no disagreements on accounting and financial disclosures
with its independent public accountants.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required in response to this item is incorporated by reference
to the Company's Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this report. With the exception of the information
specifically incorporated by reference, the Company's Proxy Statement is not to
be deemed filed as part of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required in response to this item is incorporated by reference
to the Company's Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this report.
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.
24
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required in response to this item is incorporated by reference
to the Company's Proxy Statement to be filed with the Securities and Exchange
Commission pursuant to Regulation 14A not later than 120 days after the end of
the fiscal year covered by this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(A) (1)-(2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES:
The list of financial statements set forth in the Index to Financial Statements
at Page F-1 of Exhibit 99.3 is hereby incorporated by 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 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) REPORTS ON FORM 8-K
The following reports on Form 8-K were both filed during the three months ended
December 31, 1998:
Current Report on Form 8-K dated December 7, 1998, disclosing the change in the
registered auditor and chartered accountants of The MBL Group Plc.
Current Report on Form 8-K dated November 20, 1998, disclosing the purchase of
Infratest Burke Aktiengesellschaft Holding.
25
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
--------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ------ ------------- -------
<S> <C> <C> <C>
3.1 Restated Certificate of Incorporation Report on Form 10-K
for the year ended
December 31, 1997.
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, 33-58748 10.5
1983, 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
*Filed herewith.
+Management contract or compensatory plan or arrangement.
26
<PAGE>
Incorporated by
Reference from
--------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ------ ------------- -------
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-K 10.14
1995, between the Company and for the year ended
William E. Lipner December 31, 1994.
10.10+ Employment Agreement, dated as of Report on Form 10-K 10.10
December 1, 1997, between the Company for the year ended
and Patrick G. Healy December 31, 1997.
10.11+ Employment Agreement, dated as Report on Form 10-K 10.11
of December 1, 1997, between the Company for the year ended
and Allen R. DeCotiis December 31, 1997.
10.12+ Employment Agreement, dated as of Report on Form 10-Q 10.3
September 12, 1995, between the Company for the quarter ended
and Richard A. Spitzer September 30, 1995.
10.13+ Employment Agreement, dated as of December 12, Report on Form 10-K 10.13
December 12, 1996, between the Company for the year ended
between the Company and Charles B. Hamlin December 30, 1996.
10.14+ Agreement, dated October 25, 1994, Report on Form 10-Q 10.1
between the Company and John Sculley for the quarter ended
September 30, 1995.
10.15+ Employment Agreement, dated as of Report on Form 10-K 10.15
December 1, 1997, between the Company for the year ended
and Joseph M. Migliara December 31, 1997.
10.16 Credit Agreement, dated as of March 9, Report on Form 8-K 2
1998, among the Company, the Banks dated March 24, 1998.
signatory thereto and Fleet Bank,
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 the year ended
Agreement December 31, 1994.
*Filed herewith.
+Management contract or compensatory plan or arrangement.
27
<PAGE>
Incorporated by
Reference from
--------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ------ ------------- -------
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-K 10.29
Benefit Agreement, dated as of May 3, 1980, for the 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 the 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, 1981, and amended on June 21, 1989, and
June 24, 1992
10.25 Office Lease for PSI headquarters at 3030 Report on Form 10-K 10.33
North Rocky Point Drive West, Tampa, Florida for the year ended
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 the year ended
dated September 10, 1994, between PSI and December 31, 1994.
Knepper & Willard, Inc.
10.27 Office Lease for Migliara/Kaplan Associates, Report on Form 10-K 10.27
Inc. headquartered at 9 Park Center Court, for the year ended
Owings Mills, Maryland dated January 1, 1998, December 31, 1997.
between Migliara/Kaplan Associates, Inc. and
Nine Park Center Court, LLC.
*Filed herewith.
+Management contract or compensatory plan or arrangement.
28
<PAGE>
Incorporated by
Reference from
--------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ------ ------------- -------
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
10.29 Asset Purchase Agreement, dated as Report on Form 10-Q 10.2
of November 7, 1994, among Advanced for the 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 Report on Form 10-K 10.27
as of July 6, 1995, among the Company, for the year ended
IPSOS S.A. and Societe Civile A.P.L.T. December 31, 1995.
10.31 Agreement and Plan of Merger, dated as of Report on Form 8-K 1
November 7, 1995, by and among the dated January 3, 1996.
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 the 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
*Filed herewith.
+Management contract or compensatory plan or arrangement.
29
<PAGE>
Incorporated by
Reference from
--------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ------ ------------- -------
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
10.37 Stock Purchase Agreement, dated as of November 10, Report on Form 8-K 10.1
1998, by and among NFO Europe (Deutschland) dated November 20,
GmbH & Co. KG, NFO Worldwide, Inc. (the "Company") 1998.
and all of the Stockholders (the "Sellers") of Infratest
Burke Aktiengesellschaft Holding ("Infratest Burke").
10.38 Letter Agreement, dated November 17, 1998, among Report on Form 8-K 10.2
the Company, Infratest Burke and the Sellers. dated November 20,
1998.
10.39 Note Purchase Agreement, dated as of November 20, Report on Form 8-K 10.3
1998, between the Company and each of the purchasers dated November 20,
signatory thereto relating to the Company's Adjustable 1998.
Rate Series A Senior Notes due 2005 and the Company's
Adjustable Rate Series B Senior Notes due 2008.
10.40 Note Purchase Agreement, dated as of November 20, Report on Form 8-K 10.4
1998, between the Company and each of the purchasers dated November 20,
signatory thereto relating to the Company's 9.84% 1998.
Senior Subordinated Notes due 2008.
10.41 Amendment, dated as of November 20, 1998, to the Report on Form 8-K 10.5
separate Note Purchase Agreements dated as of March 9, dated November 20,
1998, between the Company and each of the institutions 1998.
signatory thereto.
10.42 Amendment No. 1, dated as of November 20, 1998, to Report on Form 8-K 10.6
the Credit Agreement dated as of March 9, 1998, by dated November 20,
and among the Company, Fleet National Bank and The 1998.
Chase Manhattan Bank, as co-agents, and the banks
signatory thereto.
*Filed herewith.
+Management contract or compensatory plan or arrangement.
30
<PAGE>
Incorporated by
Reference from
--------------
NFO Worldwide, Inc.
Registration
Exhibit Statement
Number No. or Report Exhibit
- ------ ------------- -------
10.43* Note Purchase Agreement, dated as of March 26, 1999,
between the Company and each of the purchasers
signatory thereto relating to the Company's $7 million
7.52% Senior Notes due November 15, 2005.
10.44* Note Purchase Agreement, dated as of March 26, 1999,
between the Company and each of the purchasers
signatory thereto relating to the Company's $8 million
9.84% Senior Subordinated Notes due November 15, 2008.
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
*Filed herewith.
+Management contract or compensatory plan or arrangement.
</TABLE>
31
<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
1999.
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, 1999.
/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 - Australasia and the Middle East,
- -------------------- Chief Financial Officer and Secretary
Patrick G. Healy (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
32
<PAGE>
<TABLE>
<CAPTION>
Incorporated by
Reference from
--------------
NFO Worldwide, Inc.
Registration Sequential
Exhibit Statement Page
Number No. or Report Exhibit Number
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3.1 Restated Certificate of Incorporation Report on Form 10-K 3.1
for the year ended
December 31, 1997.
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
*Filed herewith.
+Management contract or compensatory plan or arrangement.
33
<PAGE>
Incorporated by
Reference from
--------------
NFO Worldwide, Inc.
Registration Sequential
Exhibit Statement Page
Number No. or Report Exhibit Number
- ------------------------------------------------------------------------------------------------------------------------------------
10.7 Stockholders Agreement, dated as 33-58748 10.11
of September 27, 1991, among the (Form S-1)
Company and its stockholders
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 the year ended
William E. Lipner December 31, 1994.
10.10+ Employment Agreement, dated as Report on Form 10-K 10.10
of December 1, 1997, between the for the year ended
Company and Patrick G. Healy December 31, 1997.
10.11+ Employment Agreement, dated as Report on Form 10-K 10.11
of December 1, 1997, between the for the year ended
Company and Allen R. DeCotiis filed December 31, 1997.
herewith
10.12+ Employment Agreement, dated as Report on Form 10-Q 10.3
of September 12, 1995, between for the quarter ended
the Company and Richard A. Spitzer September 30, 1995.
10.13+ Employment Agreement, dated as Report on Form 10-K 10.13
of December 12, 1996, between the for the year ended
Company and Charles B. Hamlin December 31, 1996.
10.14+ Agreement, dated October 25, 1994, Report on Form 10-Q 10.1
between the Company and John Sculley for the quarter ended
September 30, 1995.
10.15+ Employment Agreement, dated as of Report on Form 10-K 10.15
December 1, 1997, between the Company for the year ended
and Joseph M. Migliara December 31, 1997.
10.16 Credit Agreement, dated as of Report on Form 8-K 2
March 9, 1998, among the Company, dated March 24, 1998.
the Banks signatory thereto and
Fleet Bank, National Association, as Agent
*Filed herewith.
+Management contract or compensatory plan or arrangement.
34
<PAGE>
Incorporated by
Reference from
NFO Worldwide, Inc.
Registration Sequential
Exhibit Statement Page
Number No. or Report Exhibit Number
- ------------------------------------------------------------------------------------------------------------------------------------
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 the year ended
Option Agreement December 31, 1994.
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 the 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 the 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, 1981, 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.
*Filed herewith.
+Management contract or compensatory plan or arrangement.
35
<PAGE>
Incorporated by
Reference from
--------------
NFO Worldwide, Inc.
Registration Sequential
Exhibit Statement Page
Number No. or Report Exhibit Number
- ------------------------------------------------------------------------------------------------------------------------------------
10.27 Office Lease for Migliara/Kaplan Associates, Report on Form 10-K 10.27
Inc. headquartered at 9 Park Center Court, for the year ended
Owings Mills, Maryland dated January 1, 1998, December 31, 1997.
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
10.29 Asset Purchase Agreement, dated as of Report on Form 10-Q 10.2
November 7, 1994, among Advanced for the 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 the 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 the 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
*Filed herewith.
+Management contract or compensatory plan or arrangement.
36
<PAGE>
Incorporated by
Reference from
--------------
NFO Worldwide, Inc.
Registration Sequential
Exhibit Statement Page
Number No. or Report Exhibit Number
- ------------------------------------------------------------------------------------------------------------------------------------
10.34 Agreement and Plan of Merger, dated as Report on Form 8-K 1
of March 20, 1997, by and among Prognostics dated October 22, 1997.
Corp., a 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 8-K 1
NFO U.K., Inc. and the Shareholders of The 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
10.37 Stock Purchase Agreement, dated as of November Report on Form 8-K 10.1
10, 1998, by and among NFO Europe (Deutschland) dated November 20, 1998.
GmbH & Co. KG, NFO Worldwide, Inc. (the "Company")
and all of the Stockholders (the "Sellers") of
Infratest Burke Aktiengesellschaft Holding
("Infratest Burke").
10.38 Letter Agreement, dated November 17, 1998, among Report on Form 8-K 10.2
the Company, Infratest Burke and the Sellers. dated November 20, 1998.
10.39 Note Purchase Agreement, dated as of November Report on Form 8-K 10.3
20, 1998, between the Company and each of the dated November 20, 1998.
purchasers signatory thereto relating to the
Company's Adjustable Rate Series A Senior Notes
due 2005 and the Company's Adjustable Rate Series
B Senior Notes due 2008.
10.40 Note Purchase Agreement, dated as of November Report on Form 8-K 10.4
20, 1998, between the Company and each of the dated November 20, 1998.
purchasers signatory thereto relating to the
Company's 9.84% Senior Subordinated Notes due 2008.
10.41 Amendment, dated as of November 20, 1998, to the Report on Form 8-K 10.5
separate Note Purchase Agreements dated as of dated November 20, 1998.
March 9, 1998, between the Company and each of the
institutions signatory thereto.
*Filed herewith.
+Management contract or compensatory plan or arrangement.
37
<PAGE>
Incorporated by
Reference from
--------------
NFO Worldwide, Inc.
Registration Sequential
Exhibit Statement Page
Number No. or Report Exhibit Number
- ------------------------------------------------------------------------------------------------------------------------------------
10.42 Amendment No. 1, dated as of November 20, 1998, Report on Form 8-K 10.6
to the Credit Agreement dated as of March 9, 1998, dated November 20, 1998.
by and among the Company, Fleet National Bank and
The Chase Manhattan Bank, as co-agents, and the banks
signatory thereto.
10.43* Note Purchase Agreement, dated as of March 26, 1999, 39
between the Company and each of the purchasers signatory
thereto relating to the Company's $7 million 7.52%
Senior Notes due November 15, 2005.
10.44* Note Purchase Agreement, dated as of March 26, 1999, 86
between the Company and each of the purchasers
signatory thereto relating to the Company's $8 million
9.84% Senior Subordinated Notes due November 15, 2008.
21* Subsidiaries of the Company 152
23.1* Consent of Arthur Andersen LLP 158
23.2* Consent of Soteriou Banerji 159
27* Financial Data Schedule 160
99.1* Selected Financial Data 161
99.2* Management's Discussion and Analysis of Financial Condition 162
and Results of Operations
99.3* Financial Statements 170
99.4* Financial Statement Schedules 195
*Filed herewith.
+Management contract or compensatory plan or arrangement.
</TABLE>
38
EXHIBIT 10.43
- --------------------------------------------------------------------------------
NFO WORLDWIDE, INC.
---------------------------------------------------
NOTE PURCHASE AGREEMENT
---------------------------------------------------
Dated as of March 15, 1999
$7,000,000 7.52% Senior Notes Due November 15, 2008
- --------------------------------------------------------------------------------
39
<PAGE>
NFO WORLDWIDE, INC.
2 Pickwick Plaza
Greenwich, CT 06830
7.52% Senior Notes Due November 15, 2008
Dated as of March 15, 1999
To the Purchaser Named on
the Signature Page Hereto
Ladies and Gentlemen:
NFO WORLDWIDE, INC., a Delaware corporation (together with its
successors and assigns, the "Company"), agrees with you as follows:
1. AUTHORIZATION OF NOTES.
The Company will authorize the issue and sale of $7,000,000 aggregate
principal amount of its 7.52% Senior Notes due November 15, 2008. Such notes
shall be substantially in the form set out in Exhibit 1 with such changes
therefrom, if any, as may be approved by you and the Company. The term "Notes",
as used herein, shall include each of such notes and any promissory notes
delivered pursuant to any provision of this Agreement or the Other Agreement (as
hereinafter defined) and any promissory notes delivered in substitution or
exchange for any Notes pursuant to any such provision, and the term "Note" shall
refer to any one of such Notes. Certain capitalized terms used in this Agreement
are defined in Schedule B; references to a "Schedule" or an "Exhibit" are,
unless otherwise specified, to a Schedule or an Exhibit attached to this
Agreement.
2. SALE AND PURCHASE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Section 3, Notes in the principal amount specified below your
name in Schedule A at the purchase price of 100% of the principal amount
thereof. Contemporaneously with entering into this Agreement, the Company is
entering into a separate Note Purchase Agreement (the "Other Agreement")
identical with this Agreement with the purchaser named in Schedule A (the "Other
Purchaser"), providing for the sale at the Closing to the Other Purchaser of
Notes in the principal amount specified below such Other Purchaser's name in
Schedule A. Your obligation hereunder and the obligations of the Other Purchaser
under the Other Agreement are several and not joint obligations, and you shall
have no obligation under the Other Agreement and no liability to any Person for
the performance or non-performance by the Other Purchaser thereunder.
40
<PAGE>
3. THE CLOSING.
The closing of the sale and purchase of the Notes (the "Closing") to be
purchased by you and the Other Purchaser shall occur at the offices of Hebb &
Gitlin, P.C., One State Street, Hartford, Connecticut at 10:00 a.m., local time,
on March 26, 1999 (the "Closing Date"). At the Closing, the Company will deliver
to you the Notes to be purchased by you in the form of a single Note (or such
greater number of Notes in denominations of at least $100,000 as you may
request), dated the Closing Date and registered in your name (or in the name of
your nominee), as indicated in Schedule A, against payment by federal funds wire
transfer in immediately available funds of the amount of the purchase price
therefor as directed by the Company in Schedule C. If at the Closing the Company
shall fail to tender such Notes to you as provided above in this Section 3, or
any of the conditions specified in Section 4 shall not have been fulfilled to
your satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.
4. CONDITIONS TO CLOSING.
Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:
4.1 Representations and Warranties.
The representations and warranties of the Company in this Agreement
shall be correct when made and at the time of the Closing.
4.2 Performance; No Default.
The Company shall have performed and complied with all agreements and
conditions contained in this Agreement required to be performed or complied with
by it prior to or at the Closing and after giving effect to the issue and sale
of the Notes (and the application of the proceeds thereof as contemplated by
Schedule 5.14) no Default or Event of Default shall have occurred and be
continuing. Neither the Company nor any Subsidiary shall have entered into any
transaction since the date of the Memorandum that would have been prohibited by
any of Sections 10.1, 10.2, 10.3, 10.5, 10.8, 10.9 or 10.11 had such Sections
applied since such date.
4.3 Compliance Certificates.
(a) Officer's Certificate. The Company shall have delivered to
you an Officer's Certificate, dated the Closing Date, certifying that
the conditions specified in Sections 4.1, 4.2 and 4.9 have been
fulfilled, and that the Junior Financing Condition (as defined in the
Existing Note Purchase Agreements) has been satisfied.
(b) Secretary's Certificate. The Company shall have delivered
to you a certificate of its Secretary or one of its Assistant
Secretaries, dated the Closing Date, certifying as to the resolutions
attached thereto and other corporate proceedings relating to the
authorization, execution and delivery of the Notes, this Agreement and
the Other Agreement.
41
<PAGE>
(c) Initial Guarantor Secretary's Certificates. Each of the
Initial Guarantors shall have delivered to you a certificate of its
Secretary or one of its Assistant Secretaries, dated the Closing Date,
certifying as to the resolutions attached thereto and other corporate
proceedings relating to the authorization, execution and delivery of
the Guaranty Agreement to which such Initial Guarantor is a party.
4.4 Opinions of Counsel.
You shall have received opinions in form and substance satisfactory to
you, each dated the Closing Date, from
(a) Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the
Company and the Initial Guarantors, substantially in the form set out
in Exhibit 4.4(a) and covering such other matters incident to the
transactions contemplated hereby as you or your counsel may reasonably
request (and the Company hereby instructs such counsel to deliver such
opinion to you), and
(b) Hebb & Gitlin, your special counsel in connection with
such transactions, substantially in the form set out in Exhibit 4.4(b)
and covering such other matters incident to such transactions as you
may reasonably request.
4.5 Purchase Permitted By Applicable Law, etc.
On the Closing Date, your purchase of Notes shall (a) be permitted by
the laws and regulations of each jurisdiction to which you are subject, without
recourse to provisions (such as section 1405(a)(8) of the New York Insurance
Law) permitting limited investments by insurance companies without restriction
as to the character of the particular investment, (b) not violate any applicable
law or regulation (including, without limitation, Regulation T, U or X of the
Board of Governors of the Federal Reserve System) and (c) not subject you to any
tax, penalty or liability under or pursuant to any applicable law or regulation.
If requested by you, you shall have received an Officer's Certificate certifying
as to such matters of fact as you may reasonably specify to enable you to
determine whether such purchase is so permitted.
4.6 Sale of Other Notes.
Contemporaneously with the Closing the Company shall sell to the Other
Purchaser and the Other Purchaser shall purchase the Notes to be purchased by it
at the Closing as specified in Schedule A.
4.7 Payment of Special Counsel Fees.
Without limiting the provisions of Section 15.1, the Company shall have
paid on or before the Closing the fees, charges and disbursements of your
special counsel referred to in Section 4.4(b) to the extent reflected in a
statement of such counsel rendered to the Company at least one Business Day
prior to the Closing Date.
42
<PAGE>
4.8 Private Placement Number.
A Private Placement Number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for the Notes.
4.9 Changes in Corporate Structure.
Except as specified in Schedule 4.9, the Company shall not have changed
its jurisdiction of incorporation or been a party to any merger or consolidation
and shall not have succeeded to all or any substantial part of the liabilities
of any other entity, at any time following the date of the most recent interim
financial statements referred to in Schedule 5.5.
4.10 Subordinated Notes.
Contemporaneously with the Closing the Company shall sell, and receive
payment (at par) for, Subordinated Funded Debt in an aggregate principal amount
of not less than $8,000,000, which Subordinated Funded Debt shall have
subordination and other provisions which are acceptable to you in all respects.
On or before the Closing Date the Note Purchase Agreement dated as of November
20, 1998 relating to $17,000,000 principal amounts of the Company's subordinated
notes shall have been amended and such amendment shall be satisfactory to you in
all respects.
4.11 Guaranty Agreements.
You shall have received a counterpart of each of the Guaranty
Agreements, duly executed and delivered by each of the Initial Guarantors,
substantially in the form of Exhibit 4.11, and such Guaranty Agreements shall be
in full force and effect.
4.12 Sharing Agreement.
You, the Other Purchaser, the holders of the Existing Notes and the
bank lenders under the Fleet/Chase Debt Facility shall have entered into an
Amended and Restated Sharing Agreement substantially in the form of Exhibit 4.12
(the "Sharing Agreement"), and such agreement shall be in full force and effect.
4.13 Amendments to Existing Agreements.
The Company shall have entered into amendments to each of the Existing
Note Purchase Agreements, the subordinated note purchase agreements dated as of
November 20, 1998, and the Fleet/Chase Debt Facility, and such amendments shall
be satisfactory to you in all respects.
4.14 Proceedings and Documents.
All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be satisfactory to you
43
<PAGE>
and your special counsel, and you and your special counsel shall have received
all such counterpart originals or certified or other copies of such documents as
you or they may reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to you, as of the Closing Date,
that:
5.1 Organization; Power and Authority.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of Delaware, and is duly qualified as a foreign
corporation and is in good standing in each jurisdiction in which such
qualification is required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect. The Company
has the corporate power and authority to own or hold under lease the properties
it purports to own or hold under lease, to transact the business it transacts
and proposes to transact, to execute and deliver this Agreement and the Other
Agreement and the Notes and to perform the provisions hereof and thereof.
5.2 Authorization, etc.
This Agreement, the Other Agreement and the Notes have been duly
authorized by all necessary corporate action on the part of the Company, and
this Agreement constitutes, and upon execution and delivery thereof each Note
will constitute, a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (b) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
5.3 Disclosure.
The Company, through its agent, William Blair & Company, has delivered
to you and each Other Purchaser a copy of a Private Placement Memorandum, dated
February 10, 1999 (the "Memorandum"), relating to the transactions contemplated
hereby. The Memorandum fairly describes, in all material respects, the general
nature of the business and principal properties of the Company and its
Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the
Memorandum, the documents, certificates or other writings delivered to you by or
on behalf of the Company in connection with the transactions contemplated hereby
and the financial statements listed in Schedule 5.5, taken as a whole, do not
contain any untrue statement of a material fact or omit to state any material
fact necessary to make the statements therein not misleading in light of the
circumstances under which they were made. Except as disclosed in the Memorandum
or as expressly described in Schedule 5.3, or in one of the documents,
certificates or other writings identified therein, or in the financial
statements listed in Schedule 5.5, since December 31, 1997, there has been no
change in the financial condition, operations, business, properties or prospects
of the Company or any Subsidiary except changes that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect.
There is no fact known to the Company that could reasonably be expected to have
a Material Adverse Effect that has not been set forth herein or in the
Memorandum or in the other documents, certificates and other writings delivered
to you by or on behalf of the Company specifically for use in connection with
the transactions contemplated hereby.
44
<PAGE>
5.4 Organization and Ownership of Shares of Subsidiaries; Affiliates.
(a) Schedule 5.4 contains (except as noted therein) complete and
correct lists of (i) the Company's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its
organization, and the percentage of shares of each class of its
Capital Stock or similar equity interests outstanding owned by the
Company and each other Subsidiary and (ii) the Company's Affiliates,
other than Subsidiaries.
(b) All of the outstanding shares of Capital Stock or similar
equity interests of each Subsidiary shown in Schedule 5.4 as being
owned by the Company and its Subsidiaries have been validly issued,
are fully paid and nonassessable and are owned by the Company or
another Subsidiary free and clear of any Lien (except as otherwise
disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation
or other legal entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and is
duly qualified as a foreign corporation or other legal entity and is
in good standing in each jurisdiction in which such qualification is
required by law, other than those jurisdictions as to which the
failure to be so qualified or in good standing could not, individually
or in the aggregate, reasonably be expected to have a Material Adverse
Effect. Each such Subsidiary has the corporate or other power and
authority to own or hold under lease the properties it purports to own
or hold under lease and to transact the business it transacts and
proposes to transact.
(d) No Subsidiary is a party to, or otherwise subject to any
legal restriction or any agreement (other than this Agreement, the
agreements listed in Schedule 5.4 and customary limitations imposed by
corporate law statutes) restricting the ability of such Subsidiary to
pay dividends out of profits or make any other similar distributions
of profits to the Company or any of its Subsidiaries that owns
outstanding shares of Capital Stock or similar equity interests of
such Subsidiary, except for any such restrictions and agreements that
are applicable to Subsidiaries which, taken together, are not
Material.
(e) There are no Unrestricted Subsidiaries.
(f) No Subsidiary other than the Initial Guarantors is a
guarantor of the Fleet/Chase Debt Facility.
5.5 Financial Statements.
The Company has delivered to you and the Other Purchaser copies of the
financial statements of the Company and its Subsidiaries listed in Schedule 5.5.
All of said financial statements (including in each case the related schedules
and notes) fairly present in all material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such Schedule and the consolidated results of their operations and
cash flows for the respective periods so specified and have been prepared in
accordance with GAAP consistently applied throughout the periods involved except
as set forth in the notes thereto (subject, in the case of any interim financial
statements, to normal year-end adjustments).
45
<PAGE>
5.6 Compliance with Laws, Other Instruments, etc.
The execution, delivery and performance by the Company of this
Agreement and the Notes will not
(a) except for any contravention, breach or default that would
not have a Material Adverse Effect, contravene, result in any breach
of, or constitute a default under, or result in the creation of any
Lien in respect of any property of the Company or any Subsidiary under,
any indenture, mortgage, deed of trust, loan, purchase or credit
agreement, lease, corporate charter or by-laws, or any other agreement
or instrument to which the Company or any Subsidiary is bound or by
which the Company or any Subsidiary or any of their respective
properties may be bound or affected,
(b) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of
any court, arbitrator or Governmental Authority applicable to the
Company or any Subsidiary, or
(c) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company or
any Subsidiary.
5.7 Governmental Authorizations, etc.
No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement or the
Notes.
5.8 Litigation; Observance of Agreements, Statutes and Orders.
(a) There are no actions, suits or proceedings pending or, to
the knowledge of the Company, threatened against or affecting the
Company or any Subsidiary or any property of the Company or any
Subsidiary in any court or before any arbitrator of any kind or before
or by any Governmental Authority that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse
Effect.
(b) Neither the Company nor any Subsidiary is in default under
any term of any agreement or instrument to which it is a party or by
which it is bound, or any order, judgment, decree or ruling of any
court, arbitrator or Governmental Authority or is in violation of any
applicable law, ordinance, rule or regulation (including, without
limitation, Environmental Laws) of any Governmental Authority, which
default or violation, individually or in the aggregate, could
reasonably be expected to have a Material Adverse Effect.
5.9 Taxes.
The Company and its Subsidiaries have filed all tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments levied
upon them or their properties, assets, income or franchises, to the extent such
taxes and assessments have become due and payable and before they have become
46
<PAGE>
delinquent, except for any taxes and assessments (a) the amount of which is not
individually or in the aggregate Material or (b) the amount, applicability or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Company or a Subsidiary, as the case
may be, has established adequate reserves in accordance with GAAP. The Company
knows of no basis for any other tax or assessment that could reasonably be
expected to have a Material Adverse Effect. The charges, accruals and reserves
on the books of the Company and its Subsidiaries in respect of Federal, state or
other taxes for all fiscal periods are adequate. The Federal income tax
liabilities of the Company and its Subsidiaries have been determined by the
Internal Revenue Service and paid for all fiscal years up to and including the
fiscal year ended December 31, 1992.
5.10 Title to Property; Leases.
The Company and its Subsidiaries have good and sufficient title to
their respective properties that individually or in the aggregate are Material,
including all such properties reflected in the most recent audited balance sheet
referred to in Section 5.5 or purported to have been acquired by the Company or
any Subsidiary after said date (except as sold or otherwise disposed of in the
ordinary course of business), in each case free and clear of Liens prohibited by
this Agreement. All leases that individually or in the aggregate are Material
are valid and subsisting and are in full force and effect in all material
respects.
5.11 Licenses, Permits, etc.
Except as disclosed in Schedule 5.11,
(a) the Company and its Subsidiaries own or possess all
licenses, permits, franchises, authorizations, patents, copyrights,
service marks, trademarks and trade names, or rights thereto, that
individually or in the aggregate are Material, without known conflict
with the rights of others;
(b) to the best knowledge of the Company, no product or
practice of the Company or any Subsidiary infringes in any material
respect any license, permit, franchise, authorization, patent,
copyright, service mark, trademark, trade name or other right owned by
any other Person; and
(c) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other right owned or used by the Company or
any of its Subsidiaries.
5.12 Compliance with ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except
for such instances of noncompliance as have not resulted in and could
not reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate has incurred any liability
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans (as defined
in section 3 of ERISA), and no event, transaction or condition has
occurred or exists that could reasonably be expected to result in the
incurrence
47
<PAGE>
of any such liability by the Company or any ERISA Affiliate, or in the
imposition of any Lien on any of the rights, properties or assets of
the Company or any ERISA Affiliate, in either case pursuant to Title I
or IV of ERISA or to such penalty or excise tax provisions or to
section 401(a)(29) or 412 of the Code, other than such liabilities or
Liens as would not be individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities under
each of the Plans (other than Multiemployer Plans), determined as of
the end of such Plan's most recently ended plan year on the basis of
the actuarial assumptions specified for funding purposes in such
Plan's most recent actuarial valuation report, did not exceed the
aggregate current value of the assets of such Plan allocable to such
benefit liabilities by more than $1,500,000. The term "benefit
liabilities" has the meaning specified in section 4001 of ERISA and
the terms "current value" and "present value" have the meaning
specified in section 3 of ERISA.
(c) The Company and the ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of
Multiemployer Plans that individually or in the aggregate are
Material.
(d) The expected postretirement benefit obligation (determined as
of the last day of the Company's most recently ended fiscal year in
accordance with Financial Accounting Standards Board Statement No.
106, without regard to liabilities attributable to continuation
coverage mandated by section 4980B of the Code) of the Company and its
Subsidiaries is not Material.
(e) The execution and delivery of this Agreement and the issuance
and sale of the Notes hereunder will not involve any transaction that
is subject to the prohibitions of section 406 of ERISA or in
connection with which a tax could be imposed pursuant to section
4975(c)(1)(A)-(D) of the Code. The representation by the Company in
the first sentence of this Section 5.12(e) is made in reliance upon
and subject to the accuracy of your representation in Section 6.2 as
to the sources of the funds used to pay the purchase price of the
Notes to be purchased by you.
(f) Schedule 5.12 sets forth all ERISA Affiliates and all
"employee benefit plans" maintained by the Company (or any "affiliate"
thereof) or in respect of which the Notes could constitute an
"employer security" ("employee benefit plan" has the meaning specified
in section 3 of ERISA, "affiliate" has the meaning specified in
section 407(d) of ERISA and section V of the Department of Labor
Prohibited Transaction Exemption 95- 60 (60 FR 35925, July 12, 1995)
and "employer security" has the meaning specified in section 407(d) of
ERISA).
5.13 Private Offering by the Company.
Neither the Company nor anyone acting on its behalf has offered the
Notes or any similar securities for sale to, or solicited any offer to buy any
of the same from, or otherwise approached or negotiated in respect thereof with,
any Person other than you, the Other Purchaser and not more than 30 other
Institutional Investors, each of which has been offered the Notes at a private
sale for investment. Neither the Company nor anyone acting on its behalf has
taken, or will take, any action
48
<PAGE>
that would subject the issuance or sale of the Notes to the
registration requirements of section 5 of the Securities Act.
5.14 Use of Proceeds; Margin Regulations.
The Company will apply the proceeds of the sale of the Notes as set
forth in Schedule 5.14. No part of the proceeds from the sale of the Notes
hereunder will be used, directly or indirectly, for the purpose, whether
immediate, incidental or ultimate, of buying or carrying any margin stock within
the meaning of Regulation U of the Board of Governors of the Federal Reserve
System (12 CFR 221), or for the purpose of buying or carrying or trading in any
securities under such circumstances as to involve the Company in a violation of
Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a
violation of Regulation T of said Board (12 CFR 220). Margin stock does not
constitute more than 1% of the value of the consolidated assets of the Company
and its Subsidiaries and the Company does not have any present intention that
margin stock will constitute more than 1% of the value of such assets. As used
in this Section, the term "margin stock" shall have the meaning assigned to it
in said Regulation U.
5.15 Existing Debt; Future Liens.
(a) Except as described therein, Schedule 5.15 sets forth a
complete and correct list of each issue of outstanding Debt of the
Company and its Subsidiaries with an outstanding principal amount of at
least $1,000,000 as of the Closing Date (and specifying, as to each
such Debt, the collateral, if any, securing such Debt). The aggregate
amount of all Debt of the Company and its Subsidiaries not listed on
Schedule 5.15 is less than $2,000,000. Neither the Company nor any
Subsidiary is in default and no waiver of default is currently in
effect, in the payment of any principal of or interest on any Debt of
the Company or such Subsidiary and no event or condition exists with
respect to any Debt of the Company or any Subsidiary that would permit
(or that with notice or the lapse of time, or both, would permit) one
or more Persons to cause such Debt to become due and payable before its
stated maturity or before its regularly scheduled dates of payment.
(b) Except as disclosed in Schedule 5.15, neither the Company
nor any Subsidiary has agreed or consented to cause or permit in the
future (upon the happening of a contingency or otherwise) any of its
property, whether now owned or hereafter acquired, to be subject to a
Lien not permitted by Section 10.5.
5.16 Foreign Assets Control Regulations, etc.
Neither the sale of the Notes by the Company hereunder nor its use of
the proceeds thereof will violate the Trading with the Enemy Act, as amended, or
any of the foreign assets control regulations of the United States Treasury
Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling
legislation or executive order relating thereto.
5.17 Status under Certain Statutes.
Neither the Company nor any Subsidiary is subject to regulation under
the Investment Company Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, the Transportation Acts (49 U.S.C.), as
amended, or the Federal Power Act, as amended.
49
<PAGE>
5.18 Environmental Matters.
Neither the Company nor any Subsidiary has knowledge of any claim or
has received any notice of any claim, and no proceeding has been instituted
raising any claim against the Company or any of its Subsidiaries or any of their
respective real properties now or formerly owned, leased or operated by any of
them or other assets, alleging any damage to the environment or violation of any
Environmental Laws, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect. Except as otherwise disclosed
to you in writing,
(a) neither the Company nor any Subsidiary has knowledge of any
facts which would give rise to any claim, public or private, of
violation of Environmental Laws or damage to the environment emanating
from, occurring on or in any way related to real properties now or
formerly owned, leased or operated by any of them or to other assets
or their use, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect;
(b) neither the Company nor any of its Subsidiaries has stored
any Hazardous Materials on real properties now or formerly owned,
leased or operated by any of them and has not disposed of any
Hazardous Materials in a manner contrary to any Environmental Laws in
each case in any manner that could reasonably be expected to result in
a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in compliance
with applicable Environmental Laws, except where failure to comply
could not reasonably be expected to result in a Material Adverse
Effect.
5.19 Year 2000 Matters.
The Company has reasonable grounds for believing that it will be Year
2000 Compliant and Ready on or before December 1, 1999. "Year 2000 Compliant and
Ready" means that
(a) the Company's and its Subsidiaries' hardware and software
systems, with respect to the operation of their business, will (i)
handle satisfactorily date information involving any and all dates
before, during and/or after January 1, 2000, including accepting
input, providing output and performing date calculations in whole or
in part and (ii) operate accurately, without Material interruption, on
and in respect of any and all dates before, during and/or after
January 1, 2000 and without any Material change in performance; and
(b) the Company has developed alternative plans to ensure
business continuity in all Material respects in the event of the
failure of the items identified in clauses (i) and (ii) in the
foregoing clause (a).
6. REPRESENTATIONS OF THE PURCHASER.
6.1 Purchase for Investment.
50
<PAGE>
You represent that you are purchasing the Notes for your own account or
for one or more separate accounts maintained by you or for the account of one or
more pension or trust funds and not with a view to the distribution thereof,
provided that the disposition of your or their property shall at all times be
within your or their control. You understand that the Notes have not been
registered under the Securities Act and may be resold only if registered
pursuant to the provisions of the Securities Act or if an exemption from
registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Notes.
6.2 Source of Funds.
You represent that at least one of the following statements is an
accurate representation as to each source of funds (a "Source") to be used by
you to pay the purchase price of the Notes to be purchased by you hereunder:
(a) the Source is an "insurance company general account" as
defined in United States Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 (60 FR 35925, July 12, 1995) and in respect
thereof you represent that there is no "employee benefit plan" (as
defined in section 3(3) of ERISA and section 4975(e)(1) of the Code,
treating as a single plan all plans maintained by the same employer or
employee organization or affiliate thereof) with respect to which the
amount of the general account reserves and liabilities of all contracts
held by or on behalf of such plan exceeds 10% of the total reserves and
liabilities of such general account (exclusive of separate account
liabilities) plus surplus, as set forth in the National Association of
Insurance Commissioners' Annual Statement filed with your state of
domicile and that such acquisition is eligible for and satisfies the
other requirements of such exemption; or
(b) if you are an insurance company, the Source does not
include assets allocated to any separate account maintained by you in
which any employee benefit plan (or its related trust) has any
interest, other than a separate account that is maintained solely in
connection with your fixed contractual obligations under which the
amounts payable, or credited, to such plan and to any participant or
beneficiary of such plan (including any annuitant) are not affected in
any manner by the investment performance of the separate account; or
(c) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29,
1990), or (ii) a bank collective investment fund, within the meaning of
the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed
to the Company in writing pursuant to this paragraph (c), no employee
benefit plan or group of plans maintained by the same employer or
employee organization beneficially owns more than 10% of all assets
allocated to such pooled separate account or collective investment
fund; or
(d) the Source constitutes assets of an "investment fund"
(within the meaning of part V of PTE 84-14 (the "QPAM Exemption"))
managed by a "qualified professional asset manager" or "QPAM" (within
the meaning of part V of the QPAM Exemption), no employee benefit
plan's assets that are included in such investment fund, when combined
with the assets of all other employee benefit plans established or
maintained by the same employer or by an affiliate (within the meaning
of section V(c)(1) of the QPAM Exemption) of such employer or
51
<PAGE>
by the same employee organization and managed by such QPAM, exceed 20%
of the total client assets managed by such QPAM, the conditions of
part I(c) and (g) of the QPAM Exemption are satisfied, neither the
QPAM nor a person controlling or controlled by the QPAM (applying the
definition of "control" in section V(e) of the QPAM Exemption) owns a
5% or more interest in the Company and
(i) the identity of such QPAM and
(ii) the names of all employee benefit plans whose assets are
included in such investment fund have been disclosed to the Company in
writing pursuant to this paragraph (d); or
(e) the Source is a governmental plan; or
(f) the Source is one or more employee benefit plans, or a separate account
or trust fund comprised of one or more employee benefit plans, each of which has
been identified to the Company in writing pursuant to this paragraph (f); or
(g) the Source does not include assets of any employee benefit plan
described in section 4975(e) of the Code, other than a plan exempt from the
coverage of ERISA and the provisions of section 4975 of the Code.
As used in this Section 6.2, the terms "employee benefit plan", "governmental
plan" and "separate account" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.1 Financial and Business Information.
The Company shall deliver to each holder of Notes that is an
Institutional Investor:
(a) Quarterly Statements -- within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than the
last quarterly fiscal period of each such fiscal year), duplicate copies
of,
(i) consolidated balance sheets of the Company and its
Subsidiaries, and of the Company and the Restricted Subsidiaries, as
at the end of such quarter, and
(ii) consolidated statements of income, shareholders' equity and
cash flows of the Company and its Subsidiaries, and of the Company and
the Restricted Subsidiaries, for such quarter and (in the case of the
second and third quarters) for the portion of the fiscal year ending
with such quarter,
setting forth in each case in comparative form the figures for the
corresponding periods in the previous fiscal year, all in reasonable
detail, prepared in accordance with GAAP applicable to quarterly
financial statements generally, and certified by a Senior Financial
Officer as fairly presenting, in all material respects, the
consolidated financial position of the companies being reported on and
their consolidated results of operations and cash flows, subject to
changes
52
<PAGE>
resulting from year-end adjustments, provided that, so long as no
Unrestricted Subsidiaries existed at any time during the periods
covered by such financial statements, delivery within the time period
specified above of copies of the Company's Quarterly Report on Form
10-Q prepared in compliance with the requirements therefor and filed
with the Securities and Exchange Commission shall be deemed to satisfy
the requirements of this Section 7.1(a);
(b) Annual Statements -- within 120 days after the end of each
fiscal year of the Company, duplicate copies of,
(i) consolidated balance sheets of the Company and its
Subsidiaries, and of the Company and the Restricted Subsidiaries,
as at the end of such year, and
(ii) consolidated statements of income, shareholders' equity
and cash flows of the Company and its Subsidiaries, and of the
Company and the Restricted Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in accordance
with GAAP, and accompanied by
(A) an opinion thereon of independent
certified public accountants of recognized national
standing, which opinion shall state that such
financial statements present fairly, in all material
respects, the consolidated financial position of the
companies being reported upon and their consolidated
results of operations and cash flows and have been
prepared in conformity with GAAP, and that the
examination of such accountants in connection with
such financial statements has been made in accordance
with generally accepted auditing standards, and that
such audit provides a reasonable basis for such
opinion in the circumstances, and
(B) a certificate of such accountants
stating that they have reviewed this Agreement and
stating further whether, in making their audit, they
have become aware of any condition or event that then
constitutes a Default or an Event of Default, and, if
they are aware that any such condition or event then
exists, specifying the nature and period of the
existence thereof (it being understood that such
accountants shall not be liable, directly or
indirectly, for any failure to obtain knowledge of
any Default or Event of Default unless such
accountants should have obtained knowledge thereof in
making an audit in accordance with generally accepted
auditing standards or did not make such an audit),
provided that, so long as no Unrestricted Subsidiaries existed at any
time during the periods covered by such financial statements, the
delivery within the time period specified above of the Company's Annual
Report on Form 10-K for such fiscal year prepared in accordance with
the requirements therefor and filed with the Securities and Exchange
Commission, together with the accountant's certificate described in
clause (B) above, shall be deemed to satisfy the requirements of this
Section 7.1(b);
53
<PAGE>
(c) SEC and Other Reports -- promptly upon their becoming available,
one copy of (i) each financial statement, report (including, without
limitation, the Company's annual report to shareholders, if any, prepared
pursuant to Rule 14a-3 under the Exchange Act), notice or proxy statement
sent by the Company or any Subsidiary to public securities holders
generally, and (ii) each regular or periodic report, each registration
statement (without exhibits except as expressly requested by such holder),
and each prospectus and all amendments thereto filed by the Company or any
Subsidiary with the Securities and Exchange Commission and of all press
releases and other statements made available generally by the Company or
any Subsidiary to the public concerning developments that are Material;
(d) Notice of Default or Event of Default -- promptly, and in any
event within five days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default or that any Person has given
any notice or taken any action with respect to a claimed default hereunder
or that any Person has given any notice or taken any action with respect to
a claimed default of the type referred to in Section 11(f), a written
notice specifying the nature and period of existence thereof and what
action the Company is taking or proposes to take with respect thereto;
(e) ERISA Matters -- promptly, and in any event within five days after
a Responsible Officer becoming aware of any of the following, a written
notice setting forth the nature thereof and the action, if any, that the
Company or an ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as defined in
section 4043(c) of ERISA and the regulations thereunder, for which
notice thereof has not been waived pursuant to such regulations as in
effect on the Closing Date; or
(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Company or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action
has been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result in
the incurrence of any liability by the Company or any ERISA Affiliate
pursuant to Title I or IV of ERISA or the penalty or excise tax
provisions of the Code relating to employee benefit plans, or in the
imposition of any Lien on any of the rights, properties or assets of
the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA
or such penalty or excise tax provisions, if such liability or Lien,
taken together with any other such liabilities or Liens then existing,
could reasonably be expected to have a Material Adverse Effect;
(f) Notices from Governmental Authority -- promptly, and in any event
within 30 days of receipt thereof, copies of any notice to the Company or
any Subsidiary from any Federal or state Governmental Authority relating to
any order, ruling, statute or other law or regulation that could reasonably
be expected to have a Material Adverse Effect;
54
<PAGE>
(g) Actions, Proceedings -- promptly after a Responsible Officer
becomes aware of the commencement thereof, notice of any action or
proceeding relating to the Company or any Subsidiary in any court or
before any Governmental Authority or arbitration board or tribunal as
to which there is a reasonable possibility of an adverse determination
and that, if adversely determined, could reasonably be expected to
have a Material Adverse Effect; and
(h) Requested Information -- with reasonable promptness, such
other data and information relating to the business, operations,
affairs, financial condition, assets or properties of the Company or
any of its Subsidiaries (including, without limitation, information
regarding the impact of the occurrence of the year 2000 on the Company
and its Subsidiaries and plans of the Company to address any such
impact) or relating to the ability of the Company to perform its
obligations hereunder and under the Notes as from time to time may be
reasonably requested by any such holder of Notes, or such information
regarding the Company required to satisfy the requirements of 17
C.F.R. ss.230.144A, as amended from time to time, in connection with
any contemplated transfer of the Notes.
7.2 Officer's Certificate.
Each set of financial statements delivered to a holder of Notes
pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a
certificate of a Senior Financial Officer setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was
in compliance with the requirements of Sections 10.1 through 10.12,
inclusive, and Sections 10.14 through Section 10.16, inclusive, during
the quarterly or annual period covered by the statements then being
furnished (including with respect to each such Section, where
applicable, the calculations of the maximum or minimum amount, ratio
or percentage, as the case may be, permissible under the terms of such
Sections, and the calculation of the amount, ratio or percentage then
in existence); and
(b) Event of Default -- a statement that such officer has
reviewed the relevant terms hereof and has made, or caused to be made,
under his or her supervision, a review of the transactions and
conditions of the Company and its Subsidiaries from the beginning of
the quarterly or annual period covered by the statements then being
furnished to the date of the certificate and that such review has not
disclosed the existence during such period of any condition or event
that constitutes a Default or an Event of Default or, if any such
condition or event existed or exists (including, without limitation,
any such event or condition resulting from the failure of the Company
or any Subsidiary to comply with any Environmental Law), specifying
the nature and period of existence thereof and what action the Company
shall have taken or proposes to take with respect thereto.
7.3 Inspection.
The Company shall permit the representatives of each holder of Notes
that is an Institutional Investor:
55
<PAGE>
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such holder and upon reasonable prior notice
to the Company, to visit the principal executive office of the Company,
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers, and (with the consent of the
Company, which consent will not be unreasonably withheld) its
independent public accountants, and (with the consent of the Company,
which consent will not be unreasonably withheld) to visit the other
offices and properties of the Company and each Subsidiary, all at such
reasonable times and as often as may be reasonably requested in
writing; and
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Company, to visit and inspect any of the offices
or properties of the Company or any Subsidiary, to examine all their
respective books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent
public accountants (and by this provision the Company authorizes said
accountants to discuss the affairs, finances and accounts of the
Company and its Subsidiaries), all at such times and as often as may be
requested.
8. PAYMENT OF THE NOTES.
8.1 Required Prepayments; Payment at Maturity.
The Company will prepay $1,000,000 principal amount of the Notes on
November 15, 2002, and on each November 15 thereafter to and including November
15, 2007, or, in each case, such lesser principal amount as shall be outstanding
on each such November 15, all such prepayments to be made at par and without
payment of any Make-Whole Amount. The Company will pay all of the principal
amount of the Notes remaining outstanding, if any, on November 15, 2008. Each
partial prepayment of the Notes pursuant to Section 8.2 will be applied first,
to the amount due on the maturity date of the Notes and second, to the mandatory
prepayments applicable to the Notes, as set forth in this Section 8.1, in the
inverse order of the maturity thereof.
8.2 Optional Prepayments with Make-Whole Amount.
The Company may, at its option, upon notice as provided below, prepay
at any time all, or from time to time any part of, the Notes (but if in part, in
an amount not less than $1,000,000 or such lesser amount as shall then be
outstanding), at 100% of the principal amount so prepaid, plus accrued interest
on, and the Make-Whole Amount determined for the prepayment date with respect
to, such principal amount. The Company will give each holder of Notes written
notice of each optional prepayment under this Section 8.2 not less than 30 days
and not more than 60 days prior to the date fixed for such prepayment. Each such
notice shall specify such prepayment date, the aggregate principal amount of the
Notes to be prepaid on such date, the principal amount of each Note held by such
holder to be prepaid (determined in accordance with Section 8.3), and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid, and shall be accompanied by a certificate of a Senior Financial
Officer as to the estimated Make- Whole Amount due in connection with such
prepayment (calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation. Two Business Days
prior to such prepayment, the Company shall deliver to each holder of Notes a
certificate of a Senior Financial Officer specifying the calculation of such
Make-Whole Amount as of the specified prepayment date.
56
<PAGE>
8.3 Allocation of Partial Prepayments.
In the case of each partial prepayment of the Notes, the principal
amount of the Notes to be prepaid shall be allocated among all of the Notes at
the time outstanding in proportion, as nearly as practicable, to the respective
unpaid principal amounts thereof not theretofore called for prepayment.
8.4 Maturity; Surrender, etc.
In the case of each prepayment of Notes pursuant to this Section 8, the
principal amount of each Note to be prepaid shall mature and become due and
payable on the date fixed for such prepayment, together with interest on such
principal amount accrued to such date and the applicable Make-Whole Amount, if
any. From and after such date, unless the Company shall fail to pay such
principal amount when so due and payable, together with the interest and Make-
Whole Amount, if any, as aforesaid, interest on such principal amount shall
cease to accrue. Any Note paid or prepaid in full shall be surrendered to the
Company and canceled and shall not be reissued, and no Note shall be issued in
lieu of any prepaid principal amount of any Note.
8.5 No Other Optional Prepayments or Purchase of Notes.
The Company will not prepay (whether directly or indirectly by
purchase, redemption or other acquisition) any of the outstanding Notes except
(a) upon the payment or prepayment of the Notes in accordance with the terms of
this Section 8 or upon an acceleration of the maturity of the Notes pursuant to
Section 12 or (b) pursuant to an offer to purchase made by the Company pro rata
to the holders of all Notes at the time outstanding upon the same terms and
conditions. Any such offer (i) need not comply with the other provisions of this
Section 8 (including, without limitation, the requirement to pay any Make-Whole
Amount), (ii) shall provide each holder with sufficient information to enable it
to make an informed decision with respect to such offer, and (iii) shall remain
open for at least 10 Business Days. The Company will promptly cancel all Notes
acquired by it or any Affiliate pursuant to any payment, prepayment or purchase
of Notes pursuant to any provision of this Section 8 and no Notes may be issued
in substitution or exchange for any such Notes.
8.6 Make-Whole Amount.
The term "Make-Whole Amount" means, with respect to any Note, an amount
equal to the excess, if any, of the Discounted Value of the Remaining Scheduled
Payments with respect to the Called Principal of such Note over the amount of
such Called Principal, provided that the Make- Whole Amount may in no event be
less than zero. For the purposes of determining the Make- Whole Amount, the
following terms have the following meanings:
"Called Principal" means, with respect to any Note, the
principal of such Note that is to be prepaid pursuant to Section 8.2 or
has become or is declared to be immediately due and payable pursuant to
Section 12.1, as the context requires.
57
<PAGE>
"Discounted Value" means, with respect to the Called Principal
of any Note, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective
scheduled due dates to the Settlement Date with respect to such Called
Principal, in accordance with accepted financial practice and at a
discount factor (applied on the same periodic basis as that on which
interest on the Notes is payable) equal to the Reinvestment Yield with
respect to such Called Principal.
"Reinvestment Yield" means, with respect to the Called
Principal of any Note, 0.50% over the yield to maturity implied by (a)
the yields reported, as of 10:00 A.M. (New York City time) on the
second Business Day preceding the Settlement Date with respect to such
Called Principal, on the display designated as "Page UST" on the
Bloomberg Financial Market Service (or such other display as may
replace Page UST on the Bloomberg Financial Market Service) for
actively traded U.S. Treasury securities having a maturity equal to the
Remaining Average Life of such Called Principal as of such Settlement
Date, or (b) if such yields are not reported as of such time or the
yields reported as of such time are not ascertainable, the Treasury
Constant Maturity Series Yields reported, for the latest day for which
such yields have been so reported as of the second Business Day
preceding the Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any comparable
successor publication) for actively traded U.S. Treasury securities
having a constant maturity equal to the Remaining Average Life of such
Called Principal as of such Settlement Date. Such implied yield will be
determined, if necessary, by (i) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted
financial practice and (ii) interpolating linearly between (1) the
actively traded U.S. Treasury security with the duration closest to and
greater than the Remaining Average Life and (2) the actively traded
U.S. Treasury security with the duration closest to and less than the
Remaining Average Life.
"Remaining Average Life" means, with respect to any Called
Principal, the number of years (calculated to the nearest one-twelfth
year) obtained by dividing (a) such Called Principal into (b) the sum
of the products obtained by multiplying (i) the principal component of
each Remaining Scheduled Payment with respect to such Called Principal
by (ii) the number of years (calculated to the nearest one-twelfth
year) that will elapse between the Settlement Date with respect to such
Called Principal and the scheduled due date of such Remaining Scheduled
Payment.
"Remaining Scheduled Payments" means, with respect to the
Called Principal of any Note, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with
respect to such Called Principal if no payment of such Called Principal
were made prior to its scheduled due date, provided that if such
Settlement Date is not a date on which interest payments are due to be
made under the terms of the Notes, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of
interest accrued to such Settlement Date and required to be paid on
such Settlement Date pursuant to Section 8.2 or 12.1.
"Settlement Date" means, with respect to the Called Principal
of any Note, the date on which such Called Principal is to be prepaid
pursuant to Section 8.2 or has become or is declared to be immediately
due and payable pursuant to Section 12.1, as the context requires.
58
<PAGE>
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
9.1 Compliance with Law.
The Company will and will cause each of its Restricted Subsidiaries to
comply with all laws, ordinances or governmental rules or regulations to which
each of them is subject, and will obtain and maintain in effect all licenses,
certificates, permits, franchises and other governmental authorizations
necessary to the ownership of their respective properties or to the conduct of
their respective businesses, in each case to the extent necessary to ensure that
non-compliance with such laws, ordinances or governmental rules or regulations
or failures to obtain or maintain in effect such licenses, certificates,
permits, franchises and other governmental authorizations could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect.
9.2 Insurance.
The Company will and will cause each of the Restricted Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to their respective properties and businesses against such casualties and
contingencies, of such types, on such terms and in such amounts (including
deductibles, co-insurance and self-insurance, if adequate reserves are
maintained with respect thereto) as is customary in the case of entities of
established reputations engaged in the same or a similar business and similarly
situated.
9.3 Maintenance of Properties.
The Company will and will cause each of the Restricted Subsidiaries to
maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary wear
and tear), so that the business carried on in connection therewith may be
properly conducted at all times, provided that this Section shall not prevent
the Company or any Restricted Subsidiary from discontinuing the operation and
the maintenance of any of its properties if such discontinuance is desirable in
the conduct of its business and the
Company has concluded that such discontinuance could not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect.
9.4 Payment of Taxes and Claims.
The Company will and will cause each of the Restricted Subsidiaries to
file all tax returns required to be filed in any jurisdiction and to pay and
discharge all taxes shown to be due and payable on such returns and all other
taxes, assessments, governmental charges, or levies imposed on them or any of
their properties, assets, income or franchises, to the extent such taxes,
assessments, charges or levies have become due and payable and before they have
become delinquent and all claims for which sums have become due and payable that
have or might become a Lien on properties or assets of the Company or any
Restricted Subsidiary, provided that neither the Company nor any Restricted
Subsidiary need pay any such tax or assessment or claims if (a) the amount,
applicability or validity thereof is contested by the Company or such Restricted
Subsidiary on a timely basis in good faith and in appropriate proceedings, and
the Company or a Restricted Subsidiary has established adequate
59
<PAGE>
reserves therefor in accordance with GAAP on the books of the Company or such
Restricted Subsidiary or (b) the nonpayment of all such taxes, assessments,
charges and levies in the aggregate could not reasonably be expected to have a
Material Adverse Effect.
9.5 Corporate Existence, etc.
The Company will at all times preserve and keep in full force and
effect its corporate existence. Subject to Sections 10.10 and 10.11, the Company
will at all times preserve and keep in full force and effect the corporate
existence of each of the Restricted Subsidiaries (unless merged into the Company
or a Restricted Subsidiary) and all rights and franchises of the Company and the
Restricted Subsidiaries unless, in the good faith judgment of the Company, the
termination of or failure to preserve and keep in full force and effect such
corporate existence, right or franchise could not, individually or in the
aggregate, have a Material Adverse Effect.
9.6 Line of Business.
The Company will not, and will not permit any of its Restricted
Subsidiaries to, engage in any business other than the businesses described in
the Memorandum and businesses reasonably related thereto.
9.7 Additional Guaranty Agreements; Release of Guaranty
Agreements.
(a) Additional Guaranties. The Company will cause each
Subsidiary that at any time becomes liable in respect of any Guaranty
of any of the Company's obligations under the Fleet/Chase Debt Facility
after the Closing Date to become (simultaneously or prior to becoming
liable in respect of such Guaranty of any of the obligations under the
Fleet/Chase Debt Facility) a Guarantor in respect of this Agreement,
the Other Agreement and the Notes by executing and delivering to each
holder of Notes a Guaranty Agreement in the form set out in Exhibit
4.14.
(b) Release of Guaranties. Simultaneously with the release of
any Subsidiary's Guaranty of the Company's obligations under the
Fleet/Chase Debt Facility, such Subsidiary's Guaranty of the Notes
shall be deemed to have been released, provided that such Subsidiary's
Guaranties of the Company's obligations under the Subordinated Notes
and the Existing Notes shall be released at the same time. The holders
of the Notes shall take such action as shall be reasonably requested by
the Company to effect such release. The Company shall give prompt
written notice to all holders of the Notes upon any Subsidiary's being
released from any Guaranty of the Fleet/Chase Debt Facility.
10. NEGATIVE COVENANTS.
The Company covenants that, on and after the Closing Date and so long
as any of the Notes are outstanding:
10.1 Senior Funded Debt.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume, guarantee, or otherwise become
directly or indirectly liable
60
<PAGE>
with respect to, any Senior Funded Debt (including, without limitation, Senior
Funded Debt incurred under the Fleet/Chase Debt Facility), other than Existing
Senior Funded Debt, the Notes, InterCompany Debt and Swaps, unless, immediately
after giving effect thereto and to the application of the proceeds thereof (and
without duplication),
(a) no Default or Event of Default exists, and
(b) (i) the sum of
(A) Consolidated Senior Funded Debt plus
(B) the greater of
(1) zero, if there shall have been a
period of 30 consecutive days during the
period of four consecutive fiscal quarters
of the Company then most recently ended when
Consolidated Current Debt was zero, or
(2) the lowest average daily amount
of Consolidated Current Debt outstanding
during any period of 30 consecutive days
during the period of four consecutive fiscal
quarters of the Company then most recently
ended, if Consolidated Current Debt was not
zero during any such period of 30
consecutive days
to
(ii) Pro Forma EBITDA for such period of four
consecutive fiscal quarters,
does not exceed 3.0 to 1.0.
Any Person becoming a Restricted Subsidiary at any time shall be deemed
to have incurred at such time all of its Debt outstanding at such time.
10.2 Subordinated Funded Debt.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume, guarantee, or otherwise become
directly or indirectly liable with respect to, any Subordinated Funded Debt,
other than Existing Subordinated Funded Debt, the Subordinated Notes,
Inter-Company Debt and Swaps, unless, immediately after giving effect thereto
and to the application of the proceeds thereof (and without duplication),
(a) no Default or Event of Default exists, and
(b) (i) the sum of
(A) Consolidated Funded Debt plus
61
<PAGE>
(B) the greater of
(1) zero, if there shall have been a
period of 30 consecutive days during the
period of four consecutive fiscal quarters
of the Company then most recently ended when
Consolidated Current Debt was zero, or
(2) the lowest average daily amount
of Consolidated Current Debt outstanding
during any period of 30 consecutive days
during the period of four consecutive fiscal
quarters of the Company then most recently
ended, if Consolidated Current Debt was not
zero during any such period of 30
consecutive days to
(ii) Pro Forma EBITDA for such period of four
consecutive fiscal quarters
does not exceed 3.5 to 1.0.
Any Person becoming a Restricted Subsidiary at any time shall be deemed
to have incurred at such time all of its Debt outstanding at such time.
The Company will not, directly or indirectly, without the written
consent of the Required Holders, (i) amend, modify, supplement, waive compliance
with, or assent to noncompliance with, any term, provision or condition of
Section 13 of the Subordinated Note Purchase Agreements, (ii) increase the
interest rate, or change the amortization schedule, applicable to the
Subordinated Notes as in effect immediately after the consummation of the
issuance thereof or (iii) repurchase, redeem or voluntarily prepay in whole or
in part, any principal, interest or other amounts payable in respect of the
Subordinated Notes, or take any action, or set aside any reserve, in furtherance
of the foregoing, it being understood that (subject to said Section 13) the
foregoing shall not prohibit any scheduled or other required payment of
principal or interest. Notwithstanding the foregoing, the Company may, without
the consent of any holder of Notes, voluntarily prepay the Subordinated Notes
with the proceeds of a Capital Stock offering at any time before May 19, 2000.
10.3 Current Debt.
The Company will not, and will not permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume, guarantee, or otherwise become
directly or indirectly liable with respect to, any Current Debt, other than
Existing Current Debt, Inter-Company Debt and Swaps, unless, immediately after
giving effect thereto and to the application of the proceeds thereof,
(a) no Default or Event of Default exists, and
(b) there shall have been a period of 30 consecutive days
during the period of 12 consecutive months then most recently ended on
each day of which either
(i) no Consolidated Current Debt was outstanding, or
62
<PAGE>
(ii) the Company or such Restricted Subsidiary could
have incurred (but did not incur) Senior Funded Debt
pursuant to Section 10.1 in an amount not less than the
amount of Consolidated Current Debt outstanding on such day.
Any Person becoming a Restricted Subsidiary at any time shall be deemed
to have incurred at such time all of its Debt outstanding at such time.
10.4 Interest Coverage Ratio.
The Company will not permit the ratio of (x) Pro Forma EBITDA for any
period of four consecutive fiscal quarters of the Company to (y) Pro Forma
Consolidated Interest Expense for such period to be less than 2.5 to 1.0.
10.5 Liens.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly create, incur, assume or permit to exist
(upon the happening of a contingency or otherwise) any Lien on or with respect
to any property or asset (including, without limitation, any document or
instrument in respect of goods or accounts receivable) of the Company or any
such Restricted Subsidiary, whether now owned or held or hereafter acquired, or
any income or profits therefrom (whether or not provision is made for the equal
and ratable securing of the Notes in accordance with the last paragraph of this
Section 10.5), or assign or otherwise convey any right to receive income or
profits, except:
(a) Liens existing on the date of this Agreement which secure
Debt of the Company and the Restricted Subsidiaries outstanding on the
Closing Date, which Liens, to the extent not described on Schedule
5.15, secure an aggregate amount of such Debt not in excess of
$2,000,000;
(b) Liens renewing or replacing Liens then in existence and
permitted by paragraph (a) of this Section 10.5 to the extent that the
underlying obligations secured by such existing Liens are being
extended, renewed or refunded, provided that
(i) no such renewal or replacement Lien shall extend
to any property of the Company or any Restricted Subsidiary
other than property already encumbered by the existing Lien
being so renewed or replaced,
(ii) the principal amount of the underlying
obligation secured by such existing Lien which could have been
outstanding at the time of such renewal or replacement shall
not be increased in connection with such renewal or
replacement, and
(iii) immediately prior to, and immediately after
giving effect to, such renewal or replacement, no Default or
Event of Default exists or would exist;
(c) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business
63
<PAGE>
(i) in connection with workers' compensation, unemployment
insurance and other types of social security or retirement
benefits, or
(ii) to secure (or to obtain letters of credit that secure)
the performance of tenders, statutory obligations, surety bonds,
bids, leases (other than Capital Leases), performance bonds,
purchase, construction or sales contracts and other similar
obligations, in each case not incurred or made in connection with
the borrowing of money, the obtaining of advances or credit or
the payment of the deferred purchase price of property;
(d) (i) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Liens, in each case
incurred in the ordinary course of business for sums not yet due and
payable or the payment of which is not at the time required by Section 9.4,
and
(ii) Liens arising solely by virtue of any statutory or common
law provisions or, in the case of Infratest or any of its
subsidiaries, Liens arising by virtue of any deposit agreement, in
each case relating to bankers' Liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained
with a creditor depository institution, provided that such deposit
account is not a dedicated cash collateral account and is not subject
to restrictions against access by the Company or any Restricted
Subsidiary in excess of those set forth by regulations promulgated by
the Federal Reserve Board (or, in the case of Infratest, applicable
German statutes or regulations);
(e) Liens arising from judicial attachments or judgments, or securing
appeal bonds, and other similar Liens, provided that
(i) the execution or other enforcement of such Liens is
effectively stayed, and
(ii) the claims secured thereby are being actively contested in
good faith and adequate reserves in respect thereof have been
established by the Company or such Restricted Subsidiary in accordance
with GAAP;
(f) leases or subleases granted to others, easements, rights-of-way,
restrictions and other similar charges or encumbrances, in each case
incidental to, and not interfering with, the ordinary conduct of the
business of the Company or any of the Restricted Subsidiaries, provided
that such Liens do not, in the aggregate, materially impair the use of such
property by the Company or such Restricted Subsidiary;
(g) Liens for taxes, assessments or other governmental charges which
are not yet due and payable or the payment of which is not at the time
required by Section 9.4;
(h) any Lien existing on property of a Person immediately prior to its
being consolidated with or merged into the Company or a Restricted
Subsidiary, or immediately prior to its becoming a Restricted Subsidiary,
or any Lien existing on any property acquired by the Company or any
Restricted Subsidiary at the time such property is so acquired (whether or
not the Debt secured thereby shall have been assumed), provided that (i) no
such
64
<PAGE>
Lien shall have been created or assumed in contemplation of such
consolidation or merger or such acquisition of property, and (ii) each such
Lien shall extend solely to the item or items of property so acquired;
(i) Liens on property of a Restricted Subsidiary, provided that such
Liens secure only Debt owing to the Company or a Restricted Subsidiary; and
(j) other Liens not otherwise permitted by paragraphs (a) through (i)
of this Section 10.5, so long as the sum, without duplication, of
(i) the aggregate amount of Indebtedness secured by such Liens,
plus
(ii) the aggregate amount of unsecured Debt of all Restricted
Subsidiaries, including, without limitation, the IBH Debt, outstanding
at such time (other than any such Debt owing to the Company or other
Restricted Subsidiaries)
shall not exceed 15% of Consolidated Total Capitalization.
If, notwithstanding the prohibition contained herein, the Company
shall, or shall permit any of the Restricted Subsidiaries to, directly or
indirectly create, incur, assume or permit to exist any Lien, other than those
Liens permitted by the provisions of paragraphs (a) through (j) of this Section
10.5, it will make or cause to be made effective provision whereby the Notes
will be secured equally and ratably with any and all other obligations thereby
secured, such security to be pursuant to agreements reasonably satisfactory to
the Required Holders and, in any such case, the Notes shall have the benefit, to
the fullest extent that, and with such priority as, the holders of the Notes may
be entitled under applicable law, of an equitable Lien on such property. Such
violation of this Section 10.5 will constitute an Event of Default, whether or
not provision is made for an equal and ratable Lien pursuant to this Section
10.5. The filing of a financing statement to evidence for information purposes a
lessor's interest in property leased to the Company or a Restricted Subsidiary
shall be deemed not to constitute the creation of a Lien.
10.6 Restricted Subsidiary Debt.
The Company will not at any time permit any Restricted Subsidiary to,
directly or indirectly, create, incur, assume, guarantee, or otherwise be or
become directly or indirectly liable with respect to, any Debt, other than (x)
Debt owing to any other Restricted Subsidiary or to the Company (including any
Guaranty of any Debt of any Restricted Subsidiary) and (y) the Excluded
Guaranties, unless (without duplication)
(a) the aggregate amount of unsecured Debt of all Restricted
Subsidiaries, including, without limitation, the IBH Debt, outstanding at
such time (other than (i) any such Debt owing to the Company or Restricted
Subsidiaries and (ii) the Excluded Guaranties), plus
(b) the aggregate amount of obligations secured by Liens permitted
pursuant to Section 10.5(j) outstanding at such time,
does not exceed 15% of Consolidated Total Capitalization determined at such
time.
65
<PAGE>
10.7 Consolidated Net Worth.
The Company will not, at any time, permit Consolidated Net Worth to be
less than the sum of (a) $95,000,000 plus (b) an aggregate amount equal to 50%
of Consolidated Net Income (but only if a positive number) for each completed
fiscal quarter as of such time beginning with the fiscal quarter ending December
31, 1998.
10.8 Sale-and-Leaseback Transactions.
The Company will not, and will not permit any Restricted Subsidiary to,
enter into any Sale-and-Leaseback Transaction, unless, immediately after giving
effect thereto, the aggregate amount of all Attributable Debt of the Company and
the Restricted Subsidiaries, determined on a consolidated basis, would not
exceed $5,000,000.
10.9 Restricted Investments.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, declare, make or authorize any Restricted Investment unless
immediately after giving effect to such action:
(a) the aggregate value of all Restricted Investments of the Company
and the Restricted Subsidiaries (valued immediately after such action)
would not exceed 10% of Consolidated Total Capitalization; and
(b) no Default or Event of Default would exist.
Any designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall
be deemed to be the making of a Restricted Investment by the owner of the
Capital Stock of such newly designated Unrestricted Subsidiary in an amount
equal to all the share capital and other Investments in such Unrestricted
Subsidiary held by the Company and each other Restricted Subsidiary. For the
avoidance of doubt, it is understood that any Restricted Investments outstanding
prior to the Closing Date shall be deemed not to have been declared, made or
authorized at a time when this covenant was effective.
10.10 Merger, Consolidation, Etc.
The Company will not, and will not permit any Restricted Subsidiary to,
consolidate with or merge with any other corporation or convey, transfer or
lease substantially all of its assets in a single transaction or series of
transactions to any Person except that:
(a) the Company may consolidate with or merge with another corporation
or convey or transfer (except by lease) all or substantially all of its
assets in a single transaction or series of transactions to another Person
if:
(i) the successor formed by such consolidation or the survivor of
such merger or the Person that acquires by conveyance or transfer all
or substantially all of the assets of the Company as an entirety, as
the case may be (the "Successor Corporation"), shall be a solvent
corporation organized and existing under the laws of the United States
of America, any State thereof or the District of Columbia;
66
<PAGE>
(ii) if the Company is not the Successor Corporation, such
corporation shall have executed and delivered to each holder of Notes
its assumption of the due and punctual performance and observance of
each covenant and condition of this Agreement and the Notes (pursuant
to such agreements and instruments as shall be reasonably satisfactory
to the Required Holders), and the Company shall have caused to be
delivered to each holder of Notes an opinion of nationally recognized
independent counsel, or other independent counsel reasonably
satisfactory to the Required Holders, to the effect that all
agreements or instruments effecting such assumption are enforceable in
accordance with their terms and comply with the terms hereof; and
(iii) immediately after giving effect to such transaction:
(A) no Default or Event of Default would exist, and
(B) the Successor Corporation would be able to incur $1 of
Funded Debt pursuant to both Section 10.1 and Section 10.2;
(b) a Restricted Subsidiary may consolidate with or merge with the
Company (so long as the Company is the surviving corporation) or another
Restricted Subsidiary or convey, transfer or lease all or substantially all
of its assets in a single transaction or series of transactions to the
Company or another Restricted Subsidiary; and
(c) a Restricted Subsidiary may consolidate with or merge with another
corporation or convey, transfer or lease all or substantially all of its
assets in a single transaction or series of transactions to another Person
if:
(i) such transaction is in compliance with Section 10.11 hereof;
or
(ii) immediately after giving effect to such transaction:
(A) no Default or Event of Default would exist, and
(B) the Company would be able to incur $1 of Funded Debt
pursuant to both Section 10.1 and Section 10.2.
No such conveyance or transfer of all or substantially all of the assets of the
Company shall have the effect of releasing the Company or any Successor
Corporation from its liability under this Agreement or the Notes.
10.11 Sale of Assets, Etc.
(a) Sale of Assets. The Company will not, and will not permit any
Restricted Subsidiary to, make any Asset Disposition unless:
(i) in the good faith opinion of the Company, the Asset
Disposition is in exchange for consideration having a Fair Market
Value at least equal to that of the
67
<PAGE>
property exchanged and is in the best interest of the Company or such
Restricted Subsidiary;
(ii) immediately after giving effect to the Asset Disposition, no
Default or Event of Default would exist; and
(iii) immediately after giving effect to the Asset Disposition,
the sum of the Net Proceeds Amounts in respect of all property that
was the subject of any Asset Disposition occurring in the period of
365 days ending with and including the date of such Asset Disposition,
minus the aggregate cost of Capital Assets acquired by the Company and
the Restricted Subsidiaries during such period, would not exceed 15%
of Consolidated Total Assets as of the end of the then most recently
ended fiscal year of the Company.
(b) Disposal of Ownership of a Restricted Subsidiary. The Company will
not, and will not permit any of the Restricted Subsidiaries to, sell or
otherwise dispose of any shares of Restricted Subsidiary Stock (including,
without limitation, pursuant to any merger, consolidation or other
transaction specified in Section 10.10(c) hereof, but excluding any
transaction permitted by Section 10.10(b) hereof), nor will the Company
permit any such Restricted Subsidiary to issue, sell or otherwise dispose
of any shares of its own Restricted Subsidiary Stock, provided that the
foregoing restrictions do not apply to:
(i) the issue of directors' qualifying shares by any such
Subsidiary;
(ii) any such Transfer of Restricted Subsidiary Stock
constituting a Transfer described in clause (a) of the definition of
"Asset Disposition"; and
(iii) the Transfer of all of the Restricted Subsidiary Stock of a
Restricted Subsidiary owned by the Company and the other Restricted
Subsidiaries if:
(A) such Transfer satisfies the requirements of Section
10.11(a) hereof,
(B) in connection with such Transfer the entire Investment
(whether represented by stock, Debt, claims or otherwise) of the
Company and the other Restricted Subsidiaries in such Restricted
Subsidiary is sold, transferred or otherwise disposed of to a
Person other than (1) the Company, (2) another Restricted
Subsidiary not being simultaneously disposed of, or (3) an
Affiliate, and
(C) the Restricted Subsidiary being disposed of has no
continuing Investment in any other Restricted Subsidiary not
being simultaneously disposed of or in the Company.
Any designation of a Restricted Subsidiary as an Unrestricted
Subsidiary shall be deemed to be an Asset Disposition of all of the Restricted
Subsidiary Stock of such newly designated Unrestricted Subsidiary.
68
<PAGE>
(c) Release of Guaranties of Subsidiaries. If, with respect to any
Subsidiary that is a Guarantor,
(i) all of the Company's and any Restricted Subsidiary's Capital
Stock or other equity ownership interests in such Guarantor is
Transferred (including by way of a merger) to a Person other than the
Company or a Restricted Subsidiary in accordance with the requirements
of this Section 10.11,
(ii) such Guarantor engages in a transaction permitted by Section
10.10(c) with any such Person and the surviving Person or transferee
is not a Subsidiary, or
(iii) such Guarantor sells all or substantially all of its assets
to another Subsidiary or the Company and, in the case of a sale to
another Subsidiary, such other Subsidiary becomes a Guarantor by
executing a Guaranty Agreement, then the Company may elect to cause
the withdrawal of the Guaranty Agreement of such Guarantor. Such
election may be exercised if (A) no Default or Event of Default exists
and (B) such Guarantor has no Guaranty obligation in respect of any
Debt under the Fleet/Chase Debt Facility, the Existing Notes or the
Subordinated Notes (except any such obligation which is being released
simultaneously with the release of such Guaranty Agreement), and if a
Senior Financial Officer of the Company certifies in writing to each
holder of Notes that the conditions specified in the foregoing clauses
(A) and (B) have been satisfied. Thereafter, the Guaranty Agreement of
such Guarantor shall be terminated, null and void and without effect
and, upon request of the Company, and in reliance on the accuracy of
the Company's written certification, each holder of Notes shall
acknowledge such termination.
10.12 Limitation on Contribution to Company Financial Performance by
Unrestricted Subsidiaries.
(a) The Company will not at any time permit Consolidated Total Assets
to be less than 80% of consolidated total assets of the Company and its
Subsidiaries as reflected on a consolidated balance sheet of such Persons
prepared in accordance with GAAP.
(b) The Company will not permit Pro Forma EBITDA for any period of
four consecutive fiscal quarters of the Company to be less than 80% of Pro
Forma EBITDA (determined as if each reference in such definition to
"Restricted Subsidiaries" were to "Subsidiaries") for such period.
10.13 Transactions with Affiliates.
Except as set forth in Schedule 10.13, the Company will not, and will
not permit any Restricted Subsidiary to, enter into directly or indirectly any
transaction or group of related transactions (including, without limitation, the
purchase, lease, sale or exchange of properties of any kind or the rendering of
any service) with any Affiliate (other than the Company or another Restricted
Subsidiary), except in the ordinary course and pursuant to the reasonable
requirements of the Company's or such Restricted Subsidiary's business and upon
fair and reasonable terms no less favorable to the Company or such Restricted
Subsidiary than would be obtainable in a comparable arm's-length transaction
with a Person not an Affiliate.
69
<PAGE>
10.14 Leverage Ratios.
(a) Senior Leverage Ratio. The Company will not permit the ratio of
(x) Consolidated Senior Funded Debt, determined at the end of any fiscal
quarter of the Company, to (y) Pro Forma EBITDA for the period of four
consecutive fiscal quarters of the Company ending with, and including, such
fiscal quarter to be greater than 3.25 to 1.0.
(b) Total Leverage Ratio. The Company will not permit the ratio of (x)
Consolidated Funded Debt, determined at the end of any fiscal quarter of
the Company, to (y) Pro Forma EBITDA for the period of four consecutive
fiscal quarters of the Company ending with, and including, such fiscal
quarter to be greater than (i) 3.75 to 1.0 at any time on or before
December 31, 1999 and (ii) 3.50 to 1.0 at any time thereafter.
10.15 Limit on Acquisitions.
The Company will not, and will not permit any Restricted Subsidiary to,
make any Acquisition unless:
(a) no Default or Event of Default exists or would result from such
Acquisition;
(b) the Person or assets acquired, as the case may be, involve
substantially the same or a similar line of business engaged in by the
Company and its Restricted Subsidiaries;
(c) the Company demonstrates that, on a consolidated basis with the
Person and/or assets to be acquired, in accordance with GAAP, the Company
would have been in compliance with Sections 10.4, 10.7, 10.14(a) and
10.14(b) on a trailing four quarters pro forma basis as of the last day of
the then most recently completed fiscal quarter of the Company; and
(d) the aggregate amount expended by the Company and its Restricted
Subsidiaries, whether in cash, Securities or other property, for all
Acquisitions permitted hereunder within any one calendar year does not
exceed $20,000,000 or its equivalent in other currencies.
10.16 IBH Debt.
The Company will not permit the IBH Debt to be renewed, replaced,
extended or refinanced and shall not permit the maximum aggregate principal
amount thereof which may be outstanding at any time to exceed the sum of (x)
68,000,000 Deutsche Marks and (y) $10,000,000 (or the equivalent thereof in
other currencies).
11. EVENTS OF DEFAULT.
An "Event of Default" shall exist if any of the following conditions or
events shall occur and be continuing:
70
<PAGE>
(a) the Company defaults in the payment of any principal or Make-Whole
Amount, if any, on any Note when the same becomes due and payable, whether
at maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) the Company defaults in the payment of any interest on any Note
for more than five Business Days after the same becomes due and payable; or
(c) the Company defaults in the performance of or compliance with any
term contained in any of Sections 10.1 through 10.12, inclusive, Section
10.14 through Section 10.16, inclusive, or Section 7.1(d); or
(d) the Company defaults in the performance of or compliance with any
term contained herein (other than those referred to in paragraphs (a), (b)
and (c) of this Section 11) and such default is not remedied within 30 days
after the earlier of (i) a Responsible Officer obtaining actual knowledge
of such default and (ii) the Company receiving written notice of such
default from any holder of a Note; or
(e) any representation or warranty made in writing by or on behalf of
the Company or by any officer of the Company in this Agreement or in any
writing furnished in connection with the transactions contemplated hereby
proves to have been false or incorrect in any material respect on the date
as of which made; or
(f) (i) the Company or any Restricted Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any principal
of or premium or make- whole amount or interest on any Indebtedness (other
than Indebtedness under this Agreement and the Notes) beyond any period of
grace provided with respect thereto (after giving effect to any consents or
waivers in respect thereof), that individually or together with such other
Indebtedness as to which any such failure exists has an aggregate
outstanding principal amount of at least $2,000,000, or
(ii) the Company or any Restricted Subsidiary is in default in
the performance of or compliance with any term of any evidence of any
Indebtedness (other than Indebtedness under this Agreement and the
Notes), that individually or together with such other Indebtedness as
to which any such failure exists has an aggregate outstanding
principal amount of at least $2,000,000, or of any mortgage, indenture
or other agreement relating thereto or any other condition exists, and
as a consequence of such default or condition such Indebtedness has
become, or has been declared (or, after giving effect to any consents
or waivers in respect thereof, one or more Persons are entitled to
declare such Indebtedness to be), due and payable before its stated
maturity or before its regularly scheduled dates of payment, or
(iii) as a consequence of the occurrence or continuation of any
event or condition (other than the passage of time or the right of the
holder of Indebtedness to convert such Indebtedness into equity
interests),
(A) the Company or any Subsidiary has become obligated to
purchase or repay Indebtedness before its regular maturity or
before its
71
<PAGE>
regularly scheduled dates of payment in an aggregate outstanding
principal amount of at least $2,000,000, or
(B) one or more Persons have the right to require the
Company or any Subsidiary so to purchase or repay such
Indebtedness, or
(iv) the Company is in default in the performance of or
compliance with any term of the Indebtedness evidenced by the
Subordinated Notes or of the Subordinated Note Purchase Agreements, or
of any other agreement relating thereto or any other condition exists,
and as a consequence of such default or condition such Indebtedness
has become, or has been declared, due and payable before its stated
maturity or before its regularly scheduled dates of payment; or
(g) the Company or any Restricted Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they become
due, (ii) files, or consents by answer or otherwise to the filing against
it of, a petition for relief or reorganization or arrangement or any other
petition in bankruptcy, for liquidation or to take advantage of any
bankruptcy, insolvency, reorganization, moratorium or other similar law of
any jurisdiction, (iii) makes an assignment for the benefit of its
creditors, (iv) consents to the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to it or with
respect to any substantial part of its property, (v) is adjudicated as
insolvent or to be liquidated, or (vi) takes corporate action for the
purpose of any of the foregoing; or
(h) a court or governmental authority of competent jurisdiction enters
an order appointing, without consent by the Company or any Restricted
Subsidiary, a custodian, receiver, trustee or other officer with similar
powers with respect to the Company or any Restricted Subsidiary or with
respect to any substantial part of the property of the Company or any
Restricted Subsidiary, or constituting an order for relief or approving a
petition for relief or reorganization or any other petition in bankruptcy
or for liquidation or to take advantage of any bankruptcy or insolvency law
of any jurisdiction, or ordering the dissolution, winding-up or liquidation
of the Company or any Restricted Subsidiary, or any such petition shall be
filed against the Company or any Restricted Subsidiary and such petition
shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money aggregating
in excess of $1,000,000 above the level of coverage provided by any
applicable insurance policy are rendered against one or more of the Company
and the Restricted Subsidiaries and which judgments are not, within 30 days
after entry thereof, bonded, discharged or stayed pending appeal, or are
not discharged within 30 days after the expiration of such stay; or
(j) except as otherwise specifically permitted by this Agreement
(including, without limitation, Sections 9.7(c) and 10.11(c)) or the
Guaranty Agreement,
(i) any of the Guaranty Agreements shall cease to be in full
force and effect or shall be declared by a court or Governmental
Authority of competent jurisdiction to be void or unenforceable
against the Guarantor thereunder,
72
<PAGE>
(ii) the validity or enforceability of any of the Guaranty
Agreements against the Guarantor thereunder shall be contested by such
Guarantor, the Company or any Person owning, directly or indirectly, a
majority of the common stock of the Company, or
(iii) any Guarantor, the Company or any such Person identified in
clause (ii) of this Section 11(j) shall deny that such Guarantor has
any further liability or obligation under such Guarantor's Guaranty
Agreement; or
(k) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought
or granted under section 412 of the Code,
(ii) a notice of intent to terminate any Plan shall have been or
is reasonably expected to be filed with the PBGC or the PBGC shall
have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have
notified the Company or any ERISA Affiliate that a Plan may become a
subject of any such proceedings,
(iii) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans,
determined in accordance with Title IV of ERISA, shall exceed
$6,000,000,
(iv) the Company or any ERISA Affiliate shall have incurred or is
reasonably expected to incur any liability pursuant to Title I or IV
of ERISA or the penalty or excise tax provisions of the Code relating
to employee benefit plans,
(v) the Company or any ERISA Affiliate withdraws from any
Multiemployer Plan, or
(vi) the Company or any Subsidiary establishes or
amends any employee welfare benefit plan that provides
post-employment welfare benefits in a manner that would
increase the liability of the Company or any Subsidiary
thereunder;
and any such event or events described in clauses (i) through (vi) above,
either individually or together with any other such event or events, could
reasonably be expected to have a Material Adverse Effect.
As used in Section 11(k), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in section 3 of ERISA.
73
<PAGE>
12. REMEDIES ON DEFAULT, ETC.
12.1 Acceleration.
(a) If an Event of Default with respect to the Company
described in paragraph (g) or paragraph (h) of Section 11 (other than
an Event of Default described in clause (i) of paragraph (g) or
described in clause (vi) of paragraph (g) by virtue of the fact that
such clause encompasses clause (i) of paragraph (g)) has occurred, all
the Notes then outstanding shall automatically become immediately due
and payable.
(b) If any other Event of Default has occurred and is
continuing, any holder or holders of more than 66-2/3% in principal
amount of the Notes at the time outstanding may at any time at its or
their option, by notice or notices to the Company, declare all the
Notes then outstanding to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b)
of Section 11 has occurred and is continuing, any holder or holders of
Notes at the time outstanding affected by such Event of Default may at
any time, at its or their option, by notice or notices to the Company,
declare all the Notes held by it or them to be immediately due and
payable.
Upon any Notes becoming due and payable under this Section 12.1,
whether automatically or by declaration, such Notes will forthwith mature and
the entire unpaid principal amount of such Notes, plus (x) all accrued and
unpaid interest thereon and (y) the Make-Whole Amount determined in respect of
such principal amount (to the full extent permitted by applicable law), shall
all be immediately due and payable, in each and every case without presentment,
demand, protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
12.2 Other Remedies.
If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 12.1, the holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.
12.3 Rescission.
74
<PAGE>
At any time after any Notes have been declared due and payable pursuant
to clause (b) or clause (c) of Section 12.1, the holders of not less than
66-2/3% in principal amount of the Notes then outstanding, by written notice to
the Company, may rescind and annul any such declaration and its consequences if
(a) the Company has paid all overdue interest on the Notes, all principal of and
Make-Whole Amount, if any, due and payable on any Notes other than by reason of
such declaration, and all interest on such overdue principal and Make-Whole
Amount, if any, and (to the extent permitted by applicable law) any overdue
interest in respect of the Notes, at the Default Rate, (b) all Events of Default
and Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
Section 17, and (c) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the Notes. No rescission and annulment
under this Section 12.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.
12.4 No Waivers or Election of Remedies, Expenses, etc.
No course of dealing and no delay on the part of any holder of any Note
in exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any holder thereof shall
be exclusive of any other right, power or remedy referred to herein or therein
or now or hereafter available at law, in equity, by statute or otherwise.
Without limiting the obligations of the Company under Section 15, the Company
will pay to the holder of each Note on demand such further amount as shall be
sufficient to cover all costs and expenses of such holder incurred in any
enforcement or collection under this Section 12, including, without limitation,
reasonable attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1 Registration of Notes.
The Company shall keep at its principal executive office a register for
the registration and registration of transfers of Notes. The name and address of
each holder of one or more Notes, each transfer thereof and the name and address
of each transferee of one or more Notes shall be registered in such register.
Prior to due presentment for registration of transfer, the Person in whose name
any Note shall be registered shall be deemed and treated as the owner and holder
thereof for all purposes hereof, and the Company shall not be affected by any
notice or knowledge to the contrary. The Company shall give to any holder of a
Note that is an Institutional Investor promptly upon request therefor, a
complete and correct copy of the names and addresses of all registered holders
of Notes.
13.2 Transfer and Exchange of Notes.
Upon surrender of any Note at the principal executive office of the
Company for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered holder of such Note or
his attorney duly authorized in writing and accompanied by the address for
notices of each transferee of such Note or part thereof), the Company shall
execute and deliver, at the Company's expense (except as provided below), one or
more new Notes (as requested by the holder thereof) in exchange therefor, in an
aggregate principal amount equal to the unpaid principal amount of the
surrendered Note. Each such new Note shall be payable to such Person as such
holder may request
75
<PAGE>
and shall be substantially in the form of Exhibit 1-A or Exhibit 1-B, as the
case may be. Each such new Note shall be dated and bear interest from the date
to which interest shall have been paid on the surrendered Note or dated the date
of the surrendered Note if no interest shall have been paid thereon. The Company
may require payment of a sum sufficient to cover any stamp tax or governmental
charge imposed in respect of any such transfer of Notes. Notes shall not be
transferred in denominations of less than $100,000, provided that if necessary
to enable the registration of transfer by a holder of its entire holding of
Notes, one Note may be in a denomination of less than $100,000. Any transferee,
by its acceptance of a Note registered in its name (or the name of its nominee),
shall be deemed to have made the representations set forth in Section 6.2 and in
the second sentence of Section 6.1.
13.3 Replacement of Notes.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such loss, theft, destruction
or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the holder of such Note is, or is a
nominee for, an original purchaser or a Qualified Institutional Buyer, such
Person's own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof,
the Company at its own expense shall execute and deliver, in lieu thereof, a new
Note, dated and bearing interest from the date to which interest shall have been
paid on such lost, stolen, destroyed or mutilated Note or dated the date of such
lost, stolen, destroyed or mutilated Note if no interest shall have been paid
thereon.
14. PAYMENTS ON NOTES.
14.1 Place of Payment.
Subject to Section 14.2, payments of principal, Make-Whole Amount, if
any, and interest becoming due and payable on the Notes shall be made in
Greenwich, Connecticut at the principal office of the Company in such
jurisdiction. The Company may at any time, by notice to each holder of a Note,
change the place of payment of the Notes so long as such place of payment shall
be either the principal office of the Company in such jurisdiction or the
principal office of a bank or trust company in such jurisdiction.
14.2 Home Office Payment.
So long as you or your nominee shall be the holder of any Note, and
notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
Make-Whole Amount, if any, and interest by the method and at the address
specified for such purpose below your name in Schedule A, or by such other
method or at such other address as you shall have from time to time specified to
the Company in
76
<PAGE>
writing for such purpose, without the presentation or surrender of such Note or
the making of any notation thereon, except that upon written request of the
Company made concurrently with or reasonably promptly after payment or
prepayment in full of any Note, you shall surrender such Note for cancellation,
reasonably promptly after any such request, to the Company at its principal
executive office or at the place of payment most recently designated by the
Company pursuant to Section 14.1. Prior to any sale or other disposition of any
Note held by you or your nominee you will, at your election, either endorse
thereon the amount of principal paid thereon and the last date to which interest
has been paid thereon or surrender such Note to the Company in exchange for a
new Note or Notes pursuant to Section 13.2. The Company will afford the benefits
of this Section 14.2 to any Institutional Investor that is the direct or
indirect transferee of any Note purchased by you under this Agreement and that
has made the same agreement relating to such Note as you have made in this
Section 14.2.
15. EXPENSES, ETC.
15.1 Transaction Expenses.
The Company will pay all costs and expenses (including any judgment or
settlement approved by the Company, reasonable attorneys' fees of a special
counsel and, if reasonably required, local or other counsel) incurred by you and
the Other Purchaser or holder of a Note in connection with (a) the negotiation,
execution and documentation of the transactions contemplated hereby, (b) any
amendments, waivers or consents under or in respect of this Agreement or the
Notes (whether or not such amendment, waiver or consent becomes effective), and
(c) any actual or threatened proceeding relating to any action the Company has
taken, or will take, as to which the Company has made a representation and
warranty hereunder, including, without limitation: (x) the costs and expenses
incurred in enforcing or defending (or determining whether or how to enforce or
defend) any rights under this Agreement or the Notes or in responding to any
subpoena or other legal process or informal investigative demand issued in
connection with this Agreement or the Notes, or by reason of being a holder of
any Note, and (y) the costs and expenses, including financial advisors' fees,
incurred in connection with the insolvency or bankruptcy of the Company or any
Subsidiary or in connection with any work-out or restructuring of the
transactions contemplated hereby and by the Notes. The Company will pay, and
will save you and each other holder of a Note harmless from, all claims in
respect of any fees, costs or expenses if any, of brokers and finders (other
than those retained by you).
15.2 Survival.
The obligations of the Company under this Section 15 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement or the Notes, and the termination of this Agreement.
16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
77
<PAGE>
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by you of any Note or portion thereof or interest therein and the payment of any
Note, and may be relied upon by any subsequent holder of a Note, regardless of
any investigation made at any time by or on behalf of you or any other holder of
a Note. All statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement shall be
deemed representations and warranties of the Company under this Agreement.
Subject to the preceding sentence, this Agreement and the Notes embody the
entire agreement and understanding between you and the Company and supersede all
prior agreements and understandings relating to the subject matter hereof.
17. AMENDMENT AND WAIVER.
17.1 Requirements.
This Agreement and the Notes may be amended, and the observance of any
term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Required Holders, except that (a) no amendment or waiver of any of the
provisions of any of Sections 1, 2, 3, 4, 5, 6 and 21, or any defined term (as
it is used therein), will be effective as to you unless consented to by you in
writing, and (b) no such amendment or waiver may, without the written consent of
the holder of each Note at the time outstanding affected thereby, (i) subject to
the provisions of Section 12 relating to acceleration or rescission, change the
amount or time of any payment or prepayment of principal of, or reduce the rate
or change the time of payment or method of computation of interest or of the
Make-Whole Amount on, the Notes, (ii) change the percentage of the principal
amount of the Notes the holders of which are required to consent to any such
amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 and
20.
Notwithstanding the provisions of the immediately preceding paragraph,
you and the Other Purchaser agree, and each other holder of Notes by its
acceptance of any Note shall be deemed to have agreed, to grant its written
consent, promptly following the receipt of a written request by the Company for
such consent, to any amendment of, or waiver with respect to (prospectively
only), clause (ii) of Section 10.14(b), Section 10.15 or Section 10.16 in a
manner consistent with any one or more amendments of, or waivers with respect
to, the covenants in the Fleet/Chase Debt Facility that correspond to clause
(ii) of Section 10.14(b), Section 10.15 or Section 10.16, as the case may be
(the "Fleet/Chase Equivalent Provisions"); provided that (A) the Company shall
have delivered to each holder of Notes a copy of such amendment or waiver
relating to the Fleet/Chase Debt Facility, together with a certificate of a
Responsible Officer of the Company to the effect that such copy is true and
complete and that such amendment or waiver relating to the Fleet/Chase Debt
Facility has become effective in accordance with the terms of the Fleet/Chase
Debt Facility and (B) the effect of the requested amendment or waiver relating
to clause (ii) of Section 10,14(b), Section 10.15 or Section 10.16, as the case
may be, shall be no less favorable (and no more onerous) to the holders of Notes
than the corresponding amendment or waiver relating to the Fleet/Chase Debt
Facility is to the banks that are parties thereto. In addition, if any or all of
the Fleet/Chase Equivalent Provisions are deleted from the Fleet/Chase Debt
Facility, or such facility is terminated and not replaced by a substantially
similar facility containing provisions equivalent to the Fleet/Chase Equivalent
Provisions, then one or more of clause (ii) of Section 10.14(b), Section 10.15
and Section 10.16, whichever shall correspond to the provisions eliminated from
the Fleet/Chase Debt Facility (or all such Sections if the Fleet/Chase Debt
Facility shall be terminated and not replaced, as stated above), shall be deemed
78
<PAGE>
to have been automatically deleted from this Agreement without the need for any
action by the Company or the holders of the Notes.
17.2 Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the
Notes (irrespective of the amount of Notes then owned by it) with
sufficient information, sufficiently far in advance of the date a
decision is required, to enable such holder to make an informed and
considered decision with respect to any proposed amendment, waiver or
consent in respect of any of the provisions hereof or of the Notes. The
Company will deliver executed or true and correct copies of each
amendment, waiver or consent effected pursuant to the provisions of
this Section 17 to each holder of outstanding Notes promptly following
the date on which it is executed and delivered by, or receives the
consent or approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay
or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any
holder of Notes as consideration for or as an inducement to the
entering into by any holder of Notes of any waiver or amendment of any
of the terms and provisions hereof unless such remuneration is
concurrently paid, or security is concurrently granted, on the same
terms, ratably to each holder of Notes then outstanding even if such
holder did not consent to such waiver or amendment.
17.3 Binding Effect, etc.
Any amendment or waiver consented to as provided in this Section 17
applies equally to all holders of Notes and is binding upon them and upon each
future holder of any Note and upon the Company without regard to whether such
Note has been marked to indicate such amendment or waiver. No such amendment or
waiver will extend to or affect any obligation, covenant, agreement, Default or
Event of Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between the Company and the holder of any Note nor
any delay in exercising any rights hereunder or under any Note shall operate as
a waiver of any rights of any holder of such Note. As used herein, the term
"this Agreement" and references thereto shall mean this Agreement as it may from
time to time be amended or supplemented.
17.4 Notes held by Company, etc.
Solely for the purpose of determining whether the holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Company or any of its
Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized
79
<PAGE>
overnight delivery service (charges prepaid), or (b) by registered or certified
mail with return receipt requested (postage prepaid), or (c) by a recognized
overnight delivery service (with charges prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the
address specified for such communications in Schedule A, or at
such other address as you or it shall have specified to the
Company in writing,
(ii) if to any other holder of any Note, to such
holder at such address as such other holder shall have
specified to the Company in writing, or
(iii) if to the Company, to the Company at its
address set forth at the beginning hereof to the attention of
Patrick G. Healy, Executive Vice President, Finance & Chief
Financial Officer, telecopier: 203-629-8883, or at such other
address as the Company shall have specified to the holder of
each Note in writing.
Notices under this Section 18 will be deemed given on the earlier of the date of
actual receipt thereof or the third Business Day after such notice shall have
been sent in the manner provided above.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating hereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 19
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "Confidential Information" means
information delivered to you by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was clearly marked or labeled
or otherwise adequately identified when received by you as being confidential
information of the Company or such Subsidiary, provided that such term does not
include information that
(a) was publicly known or otherwise known to you prior to the time of
such disclosure,
80
<PAGE>
(b) subsequently becomes publicly known through no act or omission by
you or any person acting on your behalf,
(c) otherwise becomes known to you other than through disclosure by
the Company or any Subsidiary or by any other holder of a Note if the
disclosure of such Confidential Information to such other holder was made
subject to this Section 20, or
(d) constitutes financial statements delivered to you under Section
7.1 that are otherwise publicly available.
You will maintain the confidentiality of such Confidential Information in
accordance with procedures adopted by you in good faith to protect confidential
information of third parties delivered to you, provided that you may deliver or
disclose Confidential Information to
(i) your directors, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure reasonably relates to the
administration of the investment represented by your Notes),
(ii) your financial advisors and other professional advisors who
agree to hold confidential the Confidential Information substantially
in accordance with the terms of this Section 20,
(iii) any other holder of any Note,
(iv) any Institutional Investor to which you sell or offer to
sell such Note or any part thereof or any participation therein (if
such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section
20),
(v) any Person from which you offer to purchase any Security of
the Company (if such Person has agreed in writing prior to its receipt
of such Confidential Information to be bound by the provisions of this
Section 20),
(vi) any federal or state regulatory authority having
jurisdiction over you,
(vii) the National Association of Insurance Commissioners or any
similar organization, or any nationally recognized rating agency that
requires access to information about your investment portfolio, or
(viii) any other Person to which such delivery or disclosure may
be necessary or appropriate (w) to effect compliance with any law,
rule, regulation or order applicable to you, (x) in response to any
subpoena or other legal process, (y) in connection with any litigation
to which you are a party or (z) if an Event of Default has occurred
and is continuing, to the extent you may reasonably determine such
delivery and disclosure to be necessary or appropriate in the
enforcement or for the protection of the rights and remedies under
your Notes and this Agreement.
81
<PAGE>
Each holder of a Note, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 20 as
though it were a party to this Agreement. On reasonable request by the Company
in connection with the delivery to any holder of a Note of information required
to be delivered to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement or its nominee), such
holder will enter into an agreement with the Company embodying the provisions of
this Section 20.
21. SUBSTITUTION OF PURCHASER.
You shall have the right to substitute any one of your Affiliates as
the purchaser of the Notes that you have agreed to purchase hereunder, by
written notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 21), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this Section
21), such word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder of the
Notes under this Agreement.
82
<PAGE>
22. MISCELLANEOUS.
22.1 Successors and Assigns.
All covenants and other agreements contained in this Agreement by or on
behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any subsequent
holder of a Note) whether so expressed or not.
22.2 Payments Due on Non-Business Days; When Payments Deemed
Received.
(a) Payments Due on Non-Business Days. Anything in this
Agreement or the Notes to the contrary notwithstanding, any payment of
principal of or Make-Whole Amount or interest on any Note that is due
on a date other than a Business Day shall be made on the next
succeeding Business Day without including the additional days elapsed
in the computation of the interest payable on such next succeeding
Business Day.
(b) Payments, When Received. Any payment to be made to the
holders of Notes hereunder or under the Notes shall be deemed to have
been made on the Business Day such payment actually becomes available
to such holder at such holder's bank prior to 12:00 noon (local time of
such bank).
22.3 Severability.
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
22.4 Construction.
Each covenant contained herein shall be construed (absent express
provision to the contrary or where the context clearly would indicate otherwise)
as being independent of each other covenant contained herein, so that compliance
with any one covenant shall not (absent such an express contrary provision or
where the context clearly would indicate otherwise) be deemed to excuse
compliance with any other covenant. Where any provision herein refers to action
to be taken by any Person, or which such Person is prohibited from taking, such
provision shall be applicable whether such action is taken directly or
indirectly by such Person.
22.5 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
22.6 Governing Law.
83
<PAGE>
THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND
THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK
EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE
THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE.
[Remainder of page intentionally blank. Next page is signature page.]
84
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
NFO Worldwide, Inc.
By:_________________________
Name:
Title:
The foregoing is hereby
agreed to as of the
date thereof.
[Purchaser]
By:_________________________
Name:
Title:
85
EXHIBIT 10.44
NFO Worldwide, Inc.
-------------------------------
Note Purchase Agreement
-------------------------------
Dated as of March 15, 1999
$8,000,000 9.84% Senior Subordinated Notes Due November 15, 2008
86
<PAGE>
NFO Worldwide, Inc.
2 Pickwick Plaza
Greenwich, CT 06830
9.84% Senior Subordinated Notes Due November 15, 2008
Dated as of March 15, 1999
To the Purchasers Named on
the Signature Page Hereto
Ladies and Gentlemen:
NFO Worldwide, Inc., a Delaware corporation (together with its
successors and assigns, the "Company"), agrees with you as follows:
Section 1.
Authorization of Notes.
The Company will authorize the issue and sale of $8,000,000 aggregate
principal amount of its 9.84% Senior Subordinated Notes due November 15,
2008 (the "Notes," such term to include any such notes issued in substitution
therefor pursuant to Section 13 of this Agreement or the Other Agreement (as
hereinafter defined)). The Notes shall be substantially in the form set out in
Exhibit 1, with such changes therefrom, if any, as may be approved by you and
the Company. Certain capitalized terms used in this Agreement are defined in
Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise
specified, to a Schedule or an Exhibit attached to this Agreement.
Section 2.
Sale and Purchase of Notes.
Subject to the terms and conditions of this Agreement, the Company will
issue and sell to you and you will purchase from the Company, at the Closing
provided for in Section 3, Notes in the principal amount specified below your
name in Schedule A at the purchase price of 100% of the principal amount
thereof. Contemporaneously with entering into this Agreement, the Company is
entering into a separate Note Purchase Agreement (the "Other Agreement")
identical with this Agreement with the other purchaser named in Schedule A (the
"Other Purchaser"), providing for the sale at such Closing to the Other
Purchaser of Notes in the principal amount specified below such Other
Purchaser's name in Schedule A. Your obligation hereunder and the obligations of
the Other Purchaser under the Other Agreement are several and not joint
obligations and you shall have no obligation under the Other Agreement and no
liability to any Person for the performance or nonperformance by any Other
Purchaser thereunder.
Section 3.
The Closing.
87
<PAGE>
The closing of the sale and purchase of $8,000,000 in aggregate
principal amount of the Notes (the "Closing") to be purchased by you and the
Other Purchaser shall occur at the offices of Paul, Weiss, Rifkind, Wharton &
Garrison, 1285 Avenue of the Americas, New York, New York 10019-6064, on March
___, 1999 (the "Closing Date"). At the Closing, the Company will deliver to you
the Notes to be purchased by you in the form of a single Note (or such greater
number of Notes in denominations of at least $100,000 as you may request), dated
the Closing Date and registered in your name (or in the name of your nominee),
as indicated in Schedule A, against payment by federal funds wire transfer in
immediately available funds of the amount of the purchase price therefor as
directed by the Company in Schedule C. If at the Closing the Company shall fail
to tender such Notes to you as provided above in this Section 3, or any of the
conditions specified in Section 4 shall not have been fulfilled to your
satisfaction, you shall, at your election, be relieved of all further
obligations under this Agreement, without thereby waiving any rights you may
have by reason of such failure or such nonfulfillment.
Section 4. Conditions to Closing.
Your obligation to purchase and pay for the Notes to be sold to you at
the Closing is subject to the fulfillment to your satisfaction, prior to or at
the Closing, of the following conditions:
Section 4.1. Representations and Warranties. The representations and
warranties of the Company in this Agreement shall be correct when made and at
the time of the Closing.
Section 4.2. Performance; No Default. The Company shall have performed
and complied with all agreements and conditions contained in this Agreement
required to be performed or complied with by it prior to or at the Closing and
after giving effect to the issue and sale of the Notes (and the application of
the proceeds thereof as contemplated by Schedule 5.14) no Default or Event of
Default shall have occurred and be continuing. Neither the Company nor any
Subsidiary shall have entered into any transaction since the date of the
Memorandum that would have been prohibited by any of Sections 10.1, 10.2, 10.3,
10.5, 10.8, 10.9 or 10.11 had such Sections applied since such date.
Section 4.3. Compliance Certificates.
(a) Officer's Certificate. The Company shall have delivered to you an
Officer's Certificate, dated the Closing Date, certifying that the conditions
specified in Sections 4.1, 4.2 and 4.9 have been fulfilled.
(b) Secretary's Certificate. The Company shall have delivered to you a
certificate of its Secretary or one of its Assistant Secretaries, dated the
Closing Date, certifying as to the resolutions attached thereto and other
corporate proceedings relating to the authorization, execution and delivery of
the Notes, this Agreement and the Other Agreement.
(c) Initial Guarantor Secretary's Certificates. Each of the Initial
Guarantors shall have delivered to you a certificate of its Secretary or one of
its Assistant Secretaries, dated the Closing Date, certifying as to the
resolutions attached thereto and other corporate proceedings relating to the
authorization, execution and delivery of the Guaranty Agreement to which such
Initial Guarantor
88
<PAGE>
is a party.
Section 4.4. Opinions of Counsel. You shall have received opinions in form
and substance satisfactory to you, each dated the Closing Date, from
(a) Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the
Company and the Initial Guarantors, substantially in the form set out
in Exhibit 4.4(a) and covering such other matters incident to the
transactions contemplated hereby as you or your counsel may reasonably
request (and the Company hereby instructs such counsel to deliver such
opinion to you), and
(b) Chapman and Cutler, your special counsel in connection
with such transactions, substantially in the form set out in Exhibit
4.4(b) and covering such other matters incident to such transactions as
you may reasonably request.
Section 4.5. Purchase Permitted by Applicable Law, Etc. On the Closing Date
your purchase of Notes shall (a) be permitted by the laws and regulations of
each jurisdiction to which you are subject, without recourse to provisions (such
as section 1405(a)(8) of the New York Insurance Law) permitting limited
investments by insurance companies without restriction as to the character of
the particular investment, (b) not violate any applicable law or regulation
(including, without limitation, Regulation T, U or X of the Board of Governors
of the Federal Reserve System) and (c) not subject you to any tax, penalty or
liability under or pursuant to any applicable law or regulation. If requested by
you, you shall have received an Officer's Certificate certifying as to such
matters of fact as you may reasonably specify to enable you to determine whether
such purchase is so permitted.
Section 4.6. Sale of Other Notes. Contemporaneously with the Closing the
Company shall sell to the Other Purchaser and the Other Purchaser shall purchase
the Notes to be purchased by it at the Closing as specified in Schedule A.
Section 4.7. Payment of Special Counsel Fees. Without limiting the
provisions of Section 16.1, the Company shall have paid on or before the Closing
the fees, charges and disbursements of your special counsel referred to in
Section 4.4(b) to the extent reflected in a statement of such counsel rendered
to the Company at least one Business Day prior to the date of such Closing.
Section 4.8. Private Placement Number. A Private Placement Number issued by
Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities
Valuation Office of the National Association of Insurance Commissioners) shall
have been obtained for the Notes.
Section 4.9. Changes in Corporate Structure. Except as specified in
Schedule 4.9, the Company shall not have changed its jurisdiction of
incorporation or been a party to any merger or consolidation and shall not have
succeeded to all or any substantial part of the liabilities of any other entity,
at any time following the date of the most recent interim financial statements
referred to in Schedule 5.5.
Section 4.10. Senior Notes. Contemporaneously with the Closing the Company
shall sell to
89
<PAGE>
the Senior Note Purchasers, and the Senior Note Purchasers shall purchase, the
Senior Notes to be purchased by them at the Closing under the Senior Note
Purchase Agreements.
Section 4.11. Guaranty Agreements. You shall have received a counterpart of
each of the Guaranty Agreements, duly executed and delivered by each of the
Initial Guarantors, substantially in the form of Exhibit 4.11, and such Guaranty
Agreements shall be in full force and effect.
Section 4.12. Amendments to Existing Agreements. The Company shall have
entered into amendments to each of the Existing Senior Note Purchase Agreements,
the Existing Subordinated Note Purchase Agreements and the Fleet/Chase Debt
Facility, and such amendments shall be satisfactory to you in all respects.
Section 4.13. Proceedings and Documents. All corporate and other
proceedings in connection with the transactions contemplated by this Agreement
and all documents and instruments incident to such transactions shall be
satisfactory to you and your special counsel, and you and your special counsel
shall have received all such counterpart originals or certified or other copies
of such documents as you or they may reasonably request.
Section 5. Representations and Warranties of the Company.
The Company represents and warrants to you, as of the date of the Closing
Date, that:
Section 5.1. Organization; Power and Authority. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of Delaware, and is duly qualified as a foreign corporation and is in good
standing in each jurisdiction in which such qualification is required by law,
other than those jurisdictions as to which the failure to be so qualified or in
good standing could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect. The Company has the corporate power
and authority to own or hold under lease the properties it purports to own or
hold under lease, to transact the business it transacts and proposes to
transact, to execute and deliver this Agreement and the Other Agreement and the
Notes and to perform the provisions hereof and thereof.
Section 5.2. Authorization, Etc. This Agreement, the Other Agreement and
the Notes have been duly authorized by all necessary corporate action on the
part of the Company, and this Agreement constitutes, and upon execution and
delivery thereof each Note will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by (a) applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and (b) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
Section 5.3. Disclosure. The Company, through its agent, William Blair &
Company, has delivered to you and the Other Purchaser a copy of a Private
Placement Memorandum, dated February 10, 1999 (the "Memorandum"), relating to
the transactions contemplated hereby. The Memorandum fairly describes, in all
material respects, the general nature of the business and principal properties
of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3, this
90
<PAGE>
Agreement, the Memorandum, the documents, certificates or other writings
delivered to you by or on behalf of the Company in connection with the
transactions contemplated hereby and the financial statements listed in Schedule
5.5, taken as a whole, do not contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made. Except as
disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one
of the documents, certificates or other writings identified therein, or in the
financial statements listed in Schedule 5.5, since December 31, 1997, there has
been no change in the financial condition, operations, business, properties or
prospects of the Company or any Subsidiary except changes that individually or
in the aggregate could not reasonably be expected to have a Material Adverse
Effect. There is no fact known to the Company that could reasonably be expected
to have a Material Adverse Effect that has not been set forth herein or in the
Memorandum or in the other documents, certificates and other writings delivered
to you by or on behalf of the Company specifically for use in connection with
the transactions contemplated hereby.
Section 5.4. Organization and Ownership of Shares of Subsidiaries;
Affiliates.
(a) Schedule 5.4 contains (except as noted therein) complete and correct
lists of (i) the Company's Subsidiaries, showing, as to each Subsidiary, the
correct name thereof, the jurisdiction of its organization, and the percentage
of shares of each class of its Capital Stock or similar equity interests
outstanding owned by the Company and each other Subsidiary and (ii) the
Company's Affiliates, other than Subsidiaries.
(b) All of the outstanding shares of Capital Stock or similar equity
interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company
and its Subsidiaries have been validly issued, are fully paid and nonassessable
and are owned by the Company or another Subsidiary free and clear of any Lien
(except as otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a corporation or other
legal entity duly organized, validly existing and in good standing under the
laws of its jurisdiction of organization, and is duly qualified as a foreign
corporation or other legal entity and is in good standing in each jurisdiction
in which such qualification is required by law, other than those jurisdictions
as to which the failure to be so qualified or in good standing could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect. Each such Subsidiary has the corporate or other power and
authority to own or hold under lease the properties it purports to own or hold
under lease and to transact the business it transacts and proposes to transact.
(d) No Subsidiary is a party to, or otherwise subject to any legal
restriction or any agreement (other than this Agreement, the agreements listed
in Schedule 5.4 and customary limitations imposed by corporate law statutes)
restricting the ability of such Subsidiary to pay dividends out of profits or
make any other similar distributions of profits to the Company or any of its
Subsidiaries that owns outstanding shares of Capital Stock or similar equity
interests of such
91
<PAGE>
Subsidiary, except for any such restrictions and agreements that are applicable
to Subsidiaries which, taken together, are not Material.
(e) There are no Unrestricted Subsidiaries.
(f) No Subsidiary other than the Initial Guarantors is a guarantor of the
Fleet/Chase Debt Facility.
Section 5.5. Financial Statements. The Company has delivered to you and the
Other Purchaser copies of the financial statements of the Company and its
Subsidiaries listed in Schedule 5.5. All of said financial statements (including
in each case the related schedules and notes) fairly present in all material
respects the consolidated financial position of the Company and its Subsidiaries
as of the respective dates specified in such Schedule and the consolidated
results of their operations and cash flows for the respective periods so
specified and have been prepared in accordance with GAAP consistently applied
throughout the periods involved except as set forth in the notes thereto
(subject, in the case of any interim financial statements, to normal year-end
adjustments).
Section 5.6. Compliance with Laws, Other Instruments, Etc. The execution,
delivery and performance by the Company of this Agreement and the Notes will not
(a) except for any contravention, breach or default that would not have a
Material Adverse Effect, contravene, result in any breach of, or constitute a
default under, or result in the creation of any Lien in respect of any property
of the Company or any Subsidiary under, any indenture, mortgage, deed of trust,
loan, purchase or credit agreement, lease, corporate charter or by-laws, or any
other agreement or instrument to which the Company or any Subsidiary is bound or
by which the Company or any Subsidiary or any of their respective properties may
be bound or affected,
(b) conflict with or result in a breach of any of the terms, conditions or
provisions of any order, judgment, decree, or ruling of any court, arbitrator or
Governmental Authority applicable to the Company or any Subsidiary, or
(c) violate any provision of any statute or other rule or regulation of any
Governmental Authority applicable to the Company or any Subsidiary.
Section 5.7. Governmental Authorizations, Etc. No consent, approval or
authorization of, or registration, filing or declaration with, any Governmental
Authority is required in connection with the execution, delivery or performance
by the Company of this Agreement or the Notes.
Section 5.8. Litigation; Observance of Agreements, Statutes and Orders. (a)
There are no actions, suits or proceedings pending or, to the knowledge of the
Company, threatened against or affecting the Company or any Subsidiary or any
property of the Company or any Subsidiary in any court or before any arbitrator
of any kind or before or by any Governmental Authority that, individually or in
the aggregate, could reasonably be expected to have a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default under any term of
any agreement or instrument to which it is a party or by which it is bound, or
any order, judgment, decree or ruling
92
<PAGE>
of any court, arbitrator or Governmental Authority or is in violation of any
applicable law, ordinance, rule or regulation (including, without limitation,
Environmental Laws) of any Governmental Authority, which default or violation,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
Section 5.9. Taxes. The Company and its Subsidiaries have filed all tax
returns that are required to have been filed in any jurisdiction, and have paid
all taxes shown to be due and payable on such returns and all other taxes and
assessments levied upon them or their properties, assets, income or franchises,
to the extent such taxes and assessments have become due and payable and before
they have become delinquent, except for any taxes and assessments (a) the amount
of which is not individually or in the aggregate Material or (b) the amount,
applicability or validity of which is currently being contested in good faith by
appropriate proceedings and with respect to which the Company or a Subsidiary,
as the case may be, has established adequate reserves in accordance with GAAP.
The Company knows of no basis for any other tax or assessment that could
reasonably be expected to have a Material Adverse Effect. The charges, accruals
and reserves on the books of the Company and its Subsidiaries in respect of
Federal, state or other taxes for all fiscal periods are adequate. The Federal
income tax liabilities of the Company and its Subsidiaries have been determined
by the Internal Revenue Service and paid for all fiscal years up to and
including the fiscal year ended December 31, 1992.
Section 5.10. Title to Property, Leases. The Company and its Subsidiaries
have good and sufficient title to their respective properties that individually
or in the aggregate are Material, including all such properties reflected in the
most recent audited balance sheet referred to in Section 5.5 or purported to
have been acquired by the Company or any Subsidiary after said date (except as
sold or otherwise disposed of in the ordinary course of business), in each case
free and clear of Liens prohibited by this Agreement. All leases that
individually or in the aggregate are Material are valid and subsisting and are
in full force and effect in all material respects.
Section 5.11. Licenses, Permits, Etc. Except as disclosed in Schedule 5.11,
(a) the Company and its Subsidiaries own or possess all licenses,
permits, franchises, authorizations, patents, copyrights, service
marks, trademarks and trade names, or rights thereto, that
individually or in the aggregate are Material, without known conflict
with the rights of others;
(b) to the best knowledge of the Company, no product or practice
of the Company or any Subsidiary infringes in any material respect any
license, permit, franchise, authorization, patent, copyright, service
mark, trademark, trade name or other right owned by any other Person;
and
(c) to the best knowledge of the Company, there is no Material
violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any patent, copyright, service mark,
trademark, trade name or other right owned or used by the
93
<PAGE>
Company or any of its Subsidiaries.
Section 5.12. Compliance with ERISA. (a) The Company and each ERISA
Affiliate have operated and administered each Plan in compliance with all
applicable laws except for such instances of noncompliance as have not resulted
in and could not reasonably be expected to result in a Material Adverse Effect.
Neither the Company nor any ERISA Affiliate has incurred any liability pursuant
to Title I or IV of ERISA or the penalty or excise tax provisions of the Code
relating to employee benefit plans (as defined in section 3 of ERISA), and no
event, transaction or condition has occurred or exists that could reasonably be
expected to result in the incurrence of any such liability by the Company or any
ERISA Affiliate, or in the imposition of any Lien on any of the rights,
properties or assets of the Company or any ERISA Affiliate, in either case
pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions
or to section 401(a)(29) or 412 of the Code, other than such liabilities or
Liens as would not be individually or in the aggregate Material.
(b) The present value of the aggregate benefit liabilities under each of
the Plans (other than Multiemployer Plans), determined as of the end of such
Plan's most recently ended plan year on the basis of the actuarial assumptions
specified for funding purposes in such Plan's most recent actuarial valuation
report, did not exceed the aggregate current value of the assets of such Plan
allocable to such benefit liabilities by more than $1,500,000. The term "benefit
liabilities" has the meaning specified in section 4001 of ERISA and the terms
"current value" and "present value" have the meaning specified in section 3 of
ERISA.
(c) The Company and the ERISA Affiliates have not incurred withdrawal
liabilities (and are not subject to contingent withdrawal liabilities) under
section 4201 or 4204 of ERISA in respect of Multiemployer Plans that
individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation (determined as of the
last day of the Company's most recently ended fiscal year in accordance with
Financial Accounting Standards Board Statement No. 106, without regard to
liabilities attributable to continuation coverage mandated by section 4980B of
the Code) of the Company and its Subsidiaries is not Material.
(e) The execution and delivery of this Agreement and the issuance and sale
of the Notes hereunder will not involve any transaction that is subject to the
prohibitions of section 406 of ERISA or in connection with which a tax could be
imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by
the Company in the first sentence of this Section 5.12(e) is made in reliance
upon and subject to the accuracy of your representation in Section 6.2 as to the
sources of the funds used to pay the purchase price of the Notes to be purchased
by you.
(f) Schedule 5.12 sets forth all ERISA Affiliates and all "employee benefit
plans" maintained by the Company (or any "affiliate" thereof) or in respect of
which the Notes could constitute an "employer security" ("employee benefit plan"
has the meaning specified in section 3 of ERISA, "affiliate" has the meaning
specified in section 407(d) of ERISA and section V of the Department of Labor
Prohibited Transaction Exemption 95-60 (60 FR 35925, July 12, 1995) and
94
<PAGE>
"employer security" has the meaning specified in section 407(d) of ERISA).
Section 5.13. Private Offering by the Company. Neither the Company nor
anyone acting on its behalf has offered the Notes or any similar securities for
sale to, or solicited any offer to buy any of the same from, or otherwise
approached or negotiated in respect thereof with, any Person other than 31
Institutional Investors (including you and the Other Purchaser), each of which
has been offered the Notes at a private sale for investment. Neither the Company
nor anyone acting on its behalf has taken, or will take, any action that would
subject the issuance or sale of the Notes to the registration requirements of
section 5 of the Securities Act.
Section 5.14. Use of Proceeds; Margin Regulations. The Company will apply
the proceeds of the sale of the Notes as set forth in Schedule 5.14. No part of
the proceeds from the sale of the Notes hereunder will be used, directly or
indirectly, for the purpose, whether immediate, incidental or ultimate, of
buying or carrying any margin stock within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System (12 CFR 221), or for the
purpose of buying or carrying or trading in any securities under such
circumstances as to involve the Company in a violation of Regulation X of said
Board (12 CFR 224) or to involve any broker or dealer in a violation of
Regulation T of said Board (12 CFR 220). Margin stock does not constitute more
than 1% of the value of the consolidated assets of the Company and its
Subsidiaries and the Company does not have any present intention that margin
stock will constitute more than 1% of the value of such assets. As used in this
Section, the term "margin stock" shall have the meaning assigned to it in said
Regulation U.
Section 5.15. Existing Debt; Future Liens. (a) Except as described therein,
Schedule 5.15 sets forth a complete and correct list of each issue of
outstanding Debt of the Company and its Subsidiaries with an outstanding
principal amount of at least $1,000,000 as of the Closing Date (and specifying,
as to each such Debt, the collateral, if any, securing such Debt). The aggregate
amount of all Debt of the Company and its Subsidiaries not listed on Schedule
5.15 is less than $2,000,000. Neither the Company nor any Subsidiary is in
default and no waiver of default is currently in effect, in the payment of any
principal of or interest on any Debt of the Company or such Subsidiary and no
event or condition exists with respect to any Debt of the Company or any
Subsidiary that would permit (or that with notice or the lapse of time, or both,
would permit) one or more Persons to cause such Debt to become due and payable
before its stated maturity or before its regularly scheduled dates of payment.
(b) Except as disclosed in Schedule 5.15, neither the Company nor any
Subsidiary has agreed or consented to cause or permit in the future (upon the
happening of a contingency or otherwise) any of its property, whether now owned
or hereafter acquired, to be subject to a Lien not permitted by Section 10.5.
Section 5.16. Foreign Assets Control Regulations, Etc. Neither the sale of
the Notes by the Company hereunder nor its use of the proceeds thereof will
violate the Trading with the Enemy Act,
95
<PAGE>
as amended, or any of the foreign assets control regulations of the United
States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any
enabling legislation or executive order relating thereto.
Section 5.17. Status under Certain Statutes. Neither the Company nor any
Subsidiary is subject to regulation under the Investment Company Act of 1940, as
amended, the Public Utility Holding Company Act of 1935, as amended, the
Transportation Acts (49 U.S.C.), as amended, or the Federal Power Act, as
amended.
Section 5.18. Environmental Matters. Neither the Company nor any Subsidiary
has knowledge of any claim or has received any notice of any claim, and no
proceeding has been instituted raising any claim against the Company or any of
its Subsidiaries or any of their respective real properties now or formerly
owned, leased or operated by any of them or other assets, alleging any damage to
the environment or violation of any Environmental Laws, except, in each case,
such as could not reasonably be expected to result in a Material Adverse Effect.
Except as otherwise disclosed to you in writing,
(a) neither the Company nor any Subsidiary has knowledge of
any facts which would give rise to any claim, public or private, of
violation of Environmental Laws or damage to the environment emanating
from, occurring on or in any way related to real properties now or
formerly owned, leased or operated by any of them or to other assets or
their use, except, in each case, such as could not reasonably be
expected to result in a Material Adverse Effect;
(b) neither the Company nor any of its Subsidiaries has
stored any Hazardous Materials on real properties now or formerly
owned, leased or operated by any of them and has not disposed of any
Hazardous Materials in a manner contrary to any Environmental Laws in
each case in any manner that could reasonably be expected to result in
a Material Adverse Effect; and
(c) all buildings on all real properties now owned, leased or
operated by the Company or any of its Subsidiaries are in compliance
with applicable Environmental Laws, except where failure to comply
could not reasonably be expected to result in a Material Adverse
Effect.
Section 5.19. Year 2000 Matters. The Company has reasonable grounds for
believing that it will be Year 2000 Compliant and Ready on or before December 1,
1999. "Year 2000 Compliant and Ready" means that
(a) the Company's and its Subsidiaries' hardware and software
systems, with respect to the operation of their business, will (i)
handle satisfactorily date information involving any and all dates
before, during and/or after January 1, 2000, including accepting
input, providing output and performing date calculations in whole or in
part and (ii) operate accurately, without Material interruption,
on and in respect of any and all dates before, during and/or after
January 1, 2000 and without any Material change in performance;
and
96
<PAGE>
(b) the Company has developed alternative plans to ensure
business continuity in all Material respects in the event of the
failure of the items identified in clauses (i) and (ii) in the
foregoing clause (a).
Section 6. Representations of the Purchaser.
Section 6.1. Purchase for Investment. You represent that you are purchasing
the Notes for your own account or for one or more separate accounts maintained
by you or for the account of one or more pension or trust funds and not with a
view to the distribution thereof, provided that the disposition of your or their
property shall at all times be within your or their control. You understand that
the Notes have not been registered under the Securities Act and may be resold
only if registered pursuant to the provisions of the Securities Act or if an
exemption from registration is available, except under circumstances where
neither such registration nor such an exemption is required by law, and that the
Company is not required to register the Notes.
Section 6.2. Source of Funds. You represent that at least one of the
following statements is an accurate representation as to each source of funds (a
"Source") to be used by you to pay the purchase price of the Notes to be
purchased by you hereunder:
(a) the Source is an "insurance company general account" as
defined in United States Department of Labor Prohibited Transaction
Exemption ("PTE") 95-60 (60 FR 35925, July 12, 1995) and in respect
thereof you represent that there is no "employee benefit plan" (as
defined in section 3(3) of ERISA and section 4975(e)(1) of the Code,
treating as a single plan all plans maintained by the same employer or
employee organization or affiliate thereof) with respect to which the
amount of the general account reserves and liabilities of all contracts
held by or on behalf of such plan exceeds 10% of the total reserves and
liabilities of such general account (exclusive of separate account
liabilities) plus surplus, as set forth in the National Association of
Insurance Commissioners' Annual Statement filed with your state of
domicile and that such acquisition is eligible for and satisfies the
other requirements of such exemption; or
(b) if you are an insurance company, the Source does not
include assets allocated to any separate account maintained by you in
which any employee benefit plan (or its related trust) has any
interest, other than a separate account that is maintained solely in
connection with your fixed contractual obligations under which the
amounts payable, or credited, to such plan and to any participant or
beneficiary of such plan (including any annuitant) are not affected in
any manner by the investment performance of the separate account; or
(c) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29,
1990), or (ii) a bank collective investment fund, within the meaning of
the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed
to the Company in writing pursuant to this paragraph (c), no employee
benefit plan or group of plans maintained by the same employer or
employee organization beneficially
97
<PAGE>
owns more than 10% of all assets allocated to such pooled separate
account or collective investment fund; or
(d) the Source constitutes assets of an "investment fund" (within
the meaning of part V of PTE 84-14 (the "QPAM Exemption")) managed by
a "qualified professional asset manager" or "QPAM" (within the meaning
of part V of the QPAM Exemption), no employee benefit plan's assets
that are included in such investment fund, when combined with the
assets of all other employee benefit plans established or maintained
by the same employer or by an affiliate (within the meaning of section
V(c)(1) of the QPAM Exemption) of such employer or by the same
employee organization and managed by such QPAM, exceed 20% of the
total client assets managed by such QPAM, the conditions of part I(c)
and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a
person controlling or controlled by the QPAM (applying the definition
of "control" in section V(e) of the QPAM Exemption) owns a 5% or more
interest in the Company and
(i) the identity of such QPAM and
(ii) the names of all employee benefit plans whose
assets are included in such investment fund have been
disclosed to the Company in writing pursuant to this
paragraph (d); or
(e) the Source is a governmental plan; or
(f) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee
benefit plans, each of which has been identified to the Company in
writing pursuant to this paragraph (f); or
(g) the Source does not include assets of any employee benefit
plan described in section 4975(e) of the Code, other than a plan
exempt from the coverage of ERISA and the provisions of section 4975
of the Code.
As used in this Section 6.2, the terms "employee benefit plan", "governmental
plan" and "separate account" shall have the respective meanings assigned to such
terms in Section 3 of ERISA.
Section 7. Information as to Company.
Section 7.1. Financial and Business Information. The Company shall deliver
to each holder of Notes that is an Institutional Investor:
(a) Quarterly Statements -- within 60 days after the end of each
quarterly fiscal period in each fiscal year of the Company (other than
the last quarterly fiscal period of each such fiscal year), duplicate
copies of,
(i) consolidated balance sheets of the Company and its
Subsidiaries, and of the Company and the Restricted Subsidiaries,
as at the end of such quarter, and
(ii) consolidated statements of income, shareholders' equity
and cash flows of the Company and its Subsidiaries, and of the
Company and the Restricted Subsidiaries, for such quarter and (in
the case of the second and third quarters) for the portion of the
fiscal year ending with such quarter,
98
<PAGE>
setting forth in each case in comparative form the figures for
the corresponding periods in the previous fiscal year, all in
reasonable detail, prepared in accordance with GAAP applicable to
quarterly financial statements generally, and certified by a
Senior Financial Officer as fairly presenting, in all material
respects, the consolidated financial position of the companies
being reported on and their consolidated results of operations
and cash flows, subject to changes resulting from year-end
adjustments, provided that, so long as no Unrestricted
Subsidiaries existed at any time during the periods covered by
such financial statements, delivery within the time period
specified above of copies of the Company's Quarterly Report on
Form 10-Q prepared in compliance with the requirements therefor
and filed with the Securities and Exchange Commission shall be
deemed to satisfy the requirements of this Section 7.1(a);
(b) Annual Statements -- within 120 days after the end of each
fiscal year of the Company, duplicate copies of,
(i) consolidated balance sheets of the Company and its
Subsidiaries, and of the Company and the Restricted Subsidiaries,
as at the end of such year, and
(ii) consolidated statements of income, shareholders' equity
and cash flows of the Company and its Subsidiaries, and of the
Company and the Restricted Subsidiaries, for such year, setting
forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP, and accompanied by
(A) an opinion thereon of independent certified public
accountants of recognized national standing, which opinion shall
state that such financial statements present fairly, in all
material respects, the consolidated financial position of the
companies being reported upon and their consolidated results of
operations and cash flows and have been prepared in conformity
with GAAP, and that the examination of such accountants in
connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that
such audit provides a reasonable basis for such opinion in the
circumstances, and
(B) a certificate of such accountants stating that they have
reviewed this Agreement and stating further whether, in making
their audit, they have become aware of any condition or event
that then constitutes a Default or an Event of Default, and, if
they are aware that any such condition or event then exists,
specifying the nature and period of the existence thereof (it
being understood that such accountants shall not be liable,
directly or indirectly, for any failure to obtain knowledge of
any Default or Event of Default unless such accountants should
have obtained knowledge thereof in making an audit in accordance
with generally accepted auditing standards or did not make such
an audit),
99
<PAGE>
provided that, so long as no Unrestricted Subsidiaries existed at
any time during the periods covered by such financial statements,
the delivery within the time period specified above of the
Company's Annual Report on Form 10-K for such fiscal year
prepared in accordance with the requirements therefor and filed
with the Securities and Exchange Commission, together with the
accountant's certificate described in clause (B) above, shall be
deemed to satisfy the requirements of this Section 7.1(b);
(c) SEC and Other Reports -- promptly upon their becoming available,
one copy of (i) each financial statement, report (including, without
limitation, the Company's annual report to shareholders, if any, prepared
pursuant to Rule 14a3 under the Exchange Act), notice or proxy statement
sent by the Company or any Subsidiary to public securities holders
generally, and (ii) each regular or periodic report, each registration
statement (without exhibits except as expressly requested by such holder),
and each prospectus and all amendments thereto filed by the Company or any
Subsidiary with the Securities and Exchange Commission and of all press
releases and other statements made available generally by the Company or
any Subsidiary to the public concerning developments that are Material;
(d) Notice of Default or Event of Default -- promptly, and in any
event within five days after a Responsible Officer becoming aware of the
existence of any Default or Event of Default or that any Person has given
any notice or taken any action with respect to a claimed default hereunder
or that any Person has given any notice or taken any action with respect to
a claimed default of the type referred to in Section 11(f), a written
notice specifying the nature and period of existence thereof and what
action the Company is taking or proposes to take with respect thereto;
(e) ERISA Matters -- promptly, and in any event within five days after
a Responsible Officer becoming aware of any of the following, a written
notice setting forth the nature thereof and the action, if any, that the
Company or an ERISA Affiliate proposes to take with respect thereto:
(i) with respect to any Plan, any reportable event, as defined in
section 4043(c) of ERISA and the regulations thereunder, for which
notice thereof has not been waived pursuant to such regulations as in
effect on the Closing Date; or
(ii) the taking by the PBGC of steps to institute, or the
threatening by the PBGC of the institution of, proceedings under
section 4042 of ERISA for the termination of, or the appointment of a
trustee to administer, any Plan, or the receipt by the Company or any
ERISA Affiliate of a notice from a Multiemployer Plan that such action
has been taken by the PBGC with respect to such Multiemployer Plan; or
(iii) any event, transaction or condition that could result in
the incurrence
100
<PAGE>
of any liability by the Company or any ERISA Affiliate pursuant to
Title I or IV of ERISA or the penalty or excise tax provisions of the
Code relating to employee benefit plans, or in the imposition of any
Lien on any of the rights, properties or assets of the Company or any
ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or
excise tax provisions, if such liability or Lien, taken together with
any other such liabilities or Liens then existing, could reasonably be
expected to have a Material Adverse Effect;
(f) Notices from Governmental Authority -- promptly, and in any event
within 30 days of receipt thereof, copies of any notice to the Company or
any Subsidiary from any Federal or state Governmental Authority relating to
any order, ruling, statute or other law or regulation that could reasonably
be expected to have a Material Adverse Effect;
(g) Actions, Proceedings -- promptly after a Responsible Officer
becomes aware of the commencement thereof, notice of any action or
proceeding relating to the Company or any Subsidiary in any court or before
any Governmental Authority or arbitration board or tribunal as to which
there is a reasonable possibility of an adverse determination and that, if
adversely determined, could reasonably be expected to have a Material
Adverse Effect; and
(h) Requested Information -- with reasonable promptness, such other
data and information relating to the business, operations, affairs,
financial condition, assets or properties of the Company or any of its
Subsidiaries (including, without limitation, information regarding the
impact of the occurrence of the year 2000 on the Company and its
Subsidiaries and plans of the Company to address any such impact) or
relating to the ability of the Company to perform its obligations hereunder
and under the Notes as from time to time may be reasonably requested by any
such holder of Notes, or such information regarding the Company required to
satisfy the requirements of 17 C.F.R. ss.230.144A, as amended from time to
time, in connection with any contemplated transfer of the Notes.
Section 7.2. Officer's Certificate. Each set of financial statements
delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b)
hereof shall be accompanied by a certificate of a Senior Financial Officer
setting forth:
(a) Covenant Compliance -- the information (including detailed
calculations) required in order to establish whether the Company was in
compliance with the requirements of Sections 10.1 through 10.12, inclusive
and Section 10.14 through Section 10.16, inclusive, during the quarterly or
annual period covered by the statements then being furnished (including
with respect to each such Section, where applicable, the calculations of
the maximum or minimum amount, ratio or percentage, as the case may be,
permissible under the terms of such Sections, and the calculation of the
amount, ratio or percentage then in existence); and
101
<PAGE>
(b) Event of Default -- a statement that such officer has reviewed the
relevant terms hereof and has made, or caused to be made, under his or her
supervision, a review of the transactions and conditions of the Company and
its Subsidiaries from the beginning of the quarterly or annual period
covered by the statements then being furnished to the date of the
certificate and that such review has not disclosed the existence during
such period of any condition or event that constitutes a Default or an
Event of Default or, if any such condition or event existed or exists
(including, without limitation, any such event or condition resulting from
the failure of the Company or any Subsidiary to comply with any
Environmental Law), specifying the nature and period of existence thereof
and what action the Company shall have taken or proposes to take with
respect thereto.
Section 7.3. Inspection. The Company shall permit the representatives of
each holder of Notes that is an Institutional Investor:
(a) No Default -- if no Default or Event of Default then exists, at
the expense of such holder and upon reasonable prior notice to the Company,
to visit the principal executive office of the Company, to discuss the
affairs, finances and accounts of the Company and its Subsidiaries with the
Company's officers, and (with the consent of the Company, which consent
will not be unreasonably withheld) its independent public accountants, and
(with the consent of the Company, which consent will not be unreasonably
withheld) to visit the other offices and properties of the Company and each
Subsidiary, all at such reasonable times and as often as may be reasonably
requested in writing; and
(b) Default -- if a Default or Event of Default then exists, at the
expense of the Company, to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their
respective books of account, records, reports and other papers, to make
copies and extracts therefrom, and to discuss their respective affairs,
finances and accounts with their respective officers and independent public
accountants (and by this provision the Company authorizes said accountants
to discuss the affairs, finances and accounts of the Company and its
Subsidiaries), all at such times and as often as may be requested.
Section 8. Payment of the Notes.
Section 8.1. Required Prepayments; Payment at Maturity. The Company will
prepay $2,666,666 principal amount of the Notes on November 15, 2006 and
November 15, 2007, all such prepayments to be made at par and without payment of
any MakeWhole Amount. The Company will pay all of the principal amount of the
Notes remaining outstanding, if any, on November 15, 2008. Each partial
prepayment of the Notes pursuant to Section 8.2 will be applied first, to the
amount due on the maturity date of the Notes and second, to the mandatory
prepayments applicable to the Notes, as set forth in this Section 8.1, in the
inverse order of the maturity thereof.
Section 8.2. Optional Prepayments with Make-Whole Amount. The Company may,
at its option, upon notice as provided below, prepay at any time all, or from
time to time any part of, the
102
<PAGE>
Notes (but if in part, in an amount not less than $1,000,000 or such lesser
amount as shall then be outstanding), at 100% of the principal amount so
prepaid, plus the MakeWhole Amount determined for the prepayment date with
respect to such principal amount. The Company will give each holder of Notes
written notice of each optional prepayment under this Section 8.2 not less than
30 days and not more than 60 days prior to the date fixed for such prepayment.
Each such notice shall specify such prepayment date, the aggregate principal
amount of the Notes to be prepaid on such date, the principal amount of each
Note held by such holder to be prepaid (determined in accordance with Section
8.3), and the interest to be paid on the prepayment date with respect to such
principal amount being prepaid, and shall be accompanied by a certificate of a
Senior Financial Officer as to the estimated Make-Whole Amount due in connection
with such prepayment (calculated as if the date of such notice were the date of
the prepayment), setting forth the details of such computation. Two Business
Days prior to such prepayment, the Company shall deliver to each holder of Notes
a certificate of a Senior Financial Officer specifying the calculation of such
MakeWhole Amount as of the specified prepayment date.
Section 8.3. Allocation of Partial Prepayments. In the case of each partial
prepayment of the Notes, the principal amount of the Notes to be prepaid shall
be allocated among all of the Notes at the time outstanding in proportion, as
nearly as practicable, to the respective unpaid principal amounts thereof not
theretofore called for prepayment.
Section 8.4. Maturity; Surrender, Etc. In the case of each prepayment of
Notes pursuant to this Section 8, the principal amount of each Note to be
prepaid shall mature and become due and payable on the date fixed for such
prepayment, together with interest on such principal amount accrued to such date
and the applicable MakeWhole Amount, if any. From and after such date, unless
the Company shall fail to pay such principal amount when so due and payable,
together with the interest and Make-Whole Amount, if any, as aforesaid, interest
on such principal amount shall cease to accrue. Any Note paid or prepaid in full
shall be surrendered to the Company and cancelled and shall not be reissued, and
no Note shall be issued in lieu of any prepaid principal amount of any Note.
Section 8.5. No Other Optional Prepayments or Purchase of Notes. The
Company will not prepay (whether directly or indirectly by purchase, redemption
or other acquisition) any of the outstanding Notes except (a) upon the payment
or prepayment of the Notes in accordance with the terms of this Section 8 or
upon an acceleration of the maturity of the Notes pursuant to Section 12 or (b)
pursuant to an offer to purchase made by the Company pro rata to the holders of
all Notes at the time outstanding upon the same terms and conditions. Any such
offer (i) need not comply with the other provisions of this Section 8
(including, without limitation, the requirement to pay any Make-Whole Amount),
(ii) shall provide each holder with sufficient information to enable it to make
an informed decision with respect to such offer, and (iii) shall remain open for
at least 10 Business Days. The Company will promptly cancel all Notes acquired
by it or any Affiliate pursuant
103
<PAGE>
to any payment, prepayment or purchase of Notes pursuant to any provision of
this Section 8 and no Notes may be issued in substitution or exchange for any
such Notes.
Section 8.6. MakeWhole Amount. The term "Make-Whole Amount" means, with
respect to any Note, an amount equal to the excess, if any, of the Discounted
Value of the Remaining Scheduled Payments with respect to the Called Principal
of such Note over the amount of such Called Principal, provided that the
MakeWhole Amount may in no event be less than zero. For the purposes of
determining the MakeWhole Amount, the following terms have the following
meanings:
"Called Principal" means, with respect to any Note, the principal of
such Note that is to be prepaid pursuant to Section 8.2 or has become or is
declared to be immediately due and payable pursuant to Section 12.1, as the
context requires.
"Discounted Value" means, with respect to the Called Principal of any
Note, the amount obtained by discounting all Remaining Scheduled Payments
with respect to such Called Principal from their respective scheduled due
dates to the Settlement Date with respect to such Called Principal, in
accordance with accepted financial practice and at a discount factor
(applied on the same periodic basis as that on which interest on the Notes
is payable) equal to the Reinvestment Yield with respect to such Called
Principal.
"Reinvestment Yield" means, with respect to the Called Principal of
any Note, 1.25% (1.50% (the "Adjusted Spread") in the case of a prepayment
of the Notes on or prior to May 20, 2000, from the net proceeds of a public
offering of common stock by the Company (a "Public Offering") as herein
after provided) over the yield to maturity implied by (a) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business Day
preceding the Settlement Date with respect to such Called Principal, on the
display designated as "Page UST" on the Bloomberg Financial Market Service
(or such other display as may replace Page UST on the Bloomberg Financial
Market Service) for actively traded U.S. Treasury securities having a
maturity equal to the Remaining Average Life of such Called Principal as of
such Settlement Date, or (b) if such yields are not reported as of such
time or the yields reported as of such time are not ascertainable, the
Treasury Constant Maturity Series Yields reported, for the latest day for
which such yields have been so reported as of the second Business Day
preceding the Settlement Date with respect to such Called Principal, in
Federal Reserve Statistical Release H.15 (519) (or any comparable successor
publication) for actively traded U.S. Treasury securities having a constant
maturity equal to the Remaining Average Life of such Called Principal as of
such Settlement Date. Such implied yield will be determined, if necessary,
by (i) converting U.S. Treasury bill quotations to bondequivalent yields in
accordance with accepted financial practice and (ii) interpolating linearly
between (1) the actively traded U.S. Treasury security with the duration
closest to and greater than the Remaining Average Life and (2) the actively
traded U.S. Treasury security with the duration closest to and less than
the Remaining Average
104
<PAGE>
Life. In the case of any prepayment of the Notes using the Adjusted Spread
in calculating the Make-Whole Amount, the principal amount of the Notes
prepaid using the Adjusted Spread shall not exceed the net proceeds from
the Public Offering. No prepayment of Notes shall be made using the
Adjusted Spread unless concurrently therewith the entire principal amount
of the Notes and the Existing Subordinated Notes then outstanding shall be
prepaid at the applicable Make-Whole Amount. In the case of any concurrent
or substantially concurrent prepayment of the Notes using the Adjusted
Spread and the unadjusted spread, for purposes of calculating the
Make-Whole Amount, the Remaining Average Life shall be the same in each
case.
"Remaining Average Life" means, with respect to any Called Principal,
the number of years (calculated to the nearest onetwelfth year) obtained by
dividing (a) such Called Principal into (b) the sum of the products
obtained by multiplying (i) the principal component of each Remaining
Scheduled Payment with respect to such Called Principal by (ii) the number
of years (calculated to the nearest onetwelfth year) that will elapse
between the Settlement Date with respect to such Called Principal and the
scheduled due date of such Remaining Scheduled Payment.
"Remaining Scheduled Payments" means, with respect to the Called
Principal of any Note, all payments of such Called Principal and interest
thereon that would be due after the Settlement Date with respect to such
Called Principal if no payment of such Called Principal were made prior to
its scheduled due date, provided that if such Settlement Date is not a date
on which interest payments are due to be made under the terms of the Notes,
then the amount of the next succeeding scheduled interest payment will be
reduced by the amount of interest accrued to such Settlement Date and
required to be paid on such Settlement Date pursuant to Section 8.2 or
12.1.
"Settlement Date" means, with respect to the Called Principal of any
Note, the date on which such Called Principal is to be prepaid pursuant to
Section 8.2 or has become or is declared to be immediately due and payable
pursuant to Section 12.1, as the context requires.
Section 9. Affirmative Covenants.
The Company covenants that so long as any of the Notes are outstanding:
Section 9.1. Compliance with Law. The Company will and will cause each of
its Restricted Subsidiaries to comply with all laws, ordinances or governmental
rules or regulations to which each of them is subject, and will obtain and
maintain in effect all licenses, certificates, permits, franchises and other
governmental authorizations necessary to the ownership of their respective
properties or to the conduct of their respective businesses, in each case to the
extent necessary to ensure that noncompliance with such laws, ordinances or
governmental rules or regulations or failures to obtain or maintain in effect
such licenses, certificates, permits, franchises and other governmental
authorizations could not, individually or in the aggregate, reasonably be
expected to have a Material Adverse Effect.
105
<PAGE>
Section 9.2. Insurance. The Company will and will cause each of the
Restricted Subsidiaries to maintain, with financially sound and reputable
insurers, insurance with respect to their respective properties and businesses
against such casualties and contingencies, of such types, on such terms and in
such amounts (including deductibles, coinsurance and selfinsurance, if adequate
reserves are maintained with respect thereto) as is customary in the case of
entities of established reputations engaged in the same or a similar business
and similarly situated.
Section 9.3. Maintenance of Properties. The Company will and will cause
each of the Restricted Subsidiaries to maintain and keep, or cause to be
maintained and kept, their respective properties in good repair, working order
and condition (other than ordinary wear and tear), so that the business carried
on in connection therewith may be properly conducted at all times, provided that
this Section shall not prevent the Company or any Restricted Subsidiary from
discontinuing the operation and the maintenance of any of its properties if such
discontinuance is desirable in the conduct of its business and the Company has
concluded that such discontinuance could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
Section 9.4. Payment of Taxes and Claims. The Company will and will cause
each of the Restricted Subsidiaries to file all tax returns required to be filed
in any jurisdiction and to pay and discharge all taxes shown to be due and
payable on such returns and all other taxes, assessments, governmental charges,
or levies imposed on them or any of their properties, assets, income or
franchises, to the extent such taxes, assessments, charges or levies have become
due and payable and before they have become delinquent and all claims for which
sums have become due and payable that have or might become a Lien on properties
or assets of the Company or any Restricted Subsidiary, provided that neither the
Company nor any Restricted Subsidiary need pay any such tax or assessment or
claims if (a) the amount, applicability or validity thereof is contested by the
Company or such Restricted Subsidiary on a timely basis in good faith and in
appropriate proceedings, and the Company or a Restricted Subsidiary has
established adequate reserves therefor in accordance with GAAP on the books of
the Company or such Restricted Subsidiary or (b) the nonpayment of all such
taxes, assessments, charges and levies in the aggregate could not reasonably be
expected to have a Material Adverse Effect.
Section 9.5. Corporate Existence, Etc.. The Company will at all times
preserve and keep in full force and effect its corporate existence. Subject to
Sections 10.10 and 10.11, the Company will at all times preserve and keep in
full force and effect the corporate existence of each of the Restricted
Subsidiaries (unless merged into the Company or a Restricted Subsidiary) and all
rights and franchises of the Company and the Restricted Subsidiaries unless, in
the good faith judgment of the Company, the termination of or failure to
preserve and keep in full force and effect such corporate existence, right or
franchise could not, individually or in the aggregate, have a Material Adverse
Effect.
Section 9.6. Line of Business. The Company will not, and will not permit
any of its
106
<PAGE>
Restricted Subsidiaries to, engage in any business other than the businesses
described in the Memorandum and businesses reasonably related thereto.
Section 9.7. Additional Guaranty Agreements; Release of Guaranty
Agreements.
(a) Additional Guaranties. The Company will cause each Subsidiary that at
any time becomes liable in respect of any Guaranty of the Company's obligations
under the Fleet/Chase Debt Facility after the Closing Date to become
(simultaneously or prior to becoming liable in respect of such Guaranty of any
of the obligations under the Fleet/Chase Debt Facility) a Guarantor in respect
of this Agreement, the Other Agreement and the Notes by executing and delivering
to each holder of Notes a Guaranty Agreement in the form set out in Exhibit
4.11.
(b) Release of Guaranties. Simultaneously with the release of any
Subsidiary's Guaranty of the Company's obligations under the Fleet/Chase Debt
Facility, such Subsidiary's Guaranty of the Notes shall be deemed to have been
released, it being understood that such Subsidiary's Guaranty of the Company's
obligations under the Senior Notes, the Existing Senior Notes and the Existing
Subordinated Notes shall be released at the same time. The holders of the Notes
shall take such action as shall be reasonably requested by the Company to effect
such release. The Company shall give prompt written notice to all holders of the
Notes upon any Subsidiary's being released from any Guaranty of the Fleet/Chase
Debt Facility.
Section 10. Negative Covenants.
The Company covenants that, on and after the Closing Date and so long as
any of the Notes are outstanding:
Section 10.1. Senior Funded Debt. The Company will not, and will not permit
any Restricted Subsidiary to, directly or indirectly, create, incur, assume,
guarantee, or otherwise become directly or indirectly liable with respect to,
any Senior Funded Debt (including, without limitation, Senior Funded Debt
incurred under the Fleet/Chase Debt Facility), other than Existing Senior Funded
Debt, the Senior Notes, Inter-Company Debt and Swaps, unless, immediately after
giving effect thereto and to the application of the proceeds thereof (and
without duplication),
(a) no Default or Event of Default exists, and
(b) (i) the sum of
(A) Consolidated Senior Funded Debt plus
(B) the greater of
(1) zero, if there shall have been a period of 30
consecutive days during the period of four consecutive fiscal
quarters of the Company then most recently ended when
Consolidated Current Debt was zero, or
(2) the lowest average daily amount of Consolidated Current
Debt outstanding during any period of 30 consecutive days during
the period of four consecutive fiscal quarters of the Company
then most recently ended,
107
<PAGE>
if Consolidated Current Debt was not zero during any such period
of 30 consecutive days
to
(ii) Pro Forma EBITDA for such period of four consecutive fiscal
quarters, does not exceed 3.45 to 1.0.
Any Person becoming a Restricted Subsidiary at any time shall be deemed to
have incurred at such time all of its Debt outstanding at such time.
Section 10.2. Subordinated Funded Debt. The Company will not, and will not
permit any Restricted Subsidiary to, directly or indirectly, create, incur,
assume, guarantee, or otherwise become directly or indirectly liable with
respect to, any Subordinated Funded Debt, other than Existing Subordinated
Funded Debt, the Notes, Inter-Company Debt and Swaps, unless, immediately after
giving effect thereto and to the application of the proceeds thereof (and
without duplication),
(a) no Default or Event of Default exists, and
(b) (i) the sum of
(A) Consolidated Funded Debt plus
(B) the greater of
(1) zero, if there shall have been a period of 30
consecutive days during the period of four consecutive fiscal
quarters of the Company then most recently ended when
Consolidated Current Debt was zero, or
(2) the lowest average daily amount of Consolidated Current
Debt outstanding during any period of 30 consecutive days during
the period of four consecutive fiscal quarters of the Company
then most recently ended, if Consolidated Current Debt was not
zero during any such period of 30 consecutive days
to
(ii) Pro Forma EBITDA for such period of four consecutive fiscal
quarters does not exceed 4.0 to 1.0.
Any Person becoming a Restricted Subsidiary at any time shall be deemed to
have incurred at such time all of its Debt outstanding at such time.
Section 10.3. Current Debt. The Company will not, and will not permit any
Restricted Subsidiary to, directly or indirectly, create, incur, assume,
guarantee, or otherwise become directly or indirectly liable with respect to,
any Current Debt, other than Existing Current Debt, InterCompany Debt and Swaps,
unless, immediately after giving effect thereto and to the application of the
proceeds thereof,
(a) no Default or Event of Default exists, and
(b) there shall have been a period of 30 consecutive days during the
period of 12 consecutive months then most recently ended on each day of
which either
108
<PAGE>
(i) no Consolidated Current Debt was outstanding, or
(ii) the Company or such Restricted Subsidiary could have incurred
(but did not incur) Senior Funded Debt pursuant to Section 10. 1 in an
amount not less than the amount of Consolidated Current Debt outstanding on
such day.
Any Person becoming a Restricted Subsidiary at any time shall be deemed to
have incurred at such time all of its Debt outstanding at such time.
Section 10.4. Interest Coverage Ratio. The Company will not permit the
ratio of (x) Pro Forma EBITDA for any period of four consecutive fiscal quarters
of the Company to (y) Pro Forma Consolidated Interest Expense for such period to
be less than 2.13 to 1.0.
Section 10.5. Liens. The Company will not, and will not permit any of the
Restricted Subsidiaries to, directly or indirectly create, incur, assume or
permit to exist (upon the happening of a contingency or otherwise) any Lien on
or with respect to any property or asset (including, without limitation, any
document or instrument in respect of goods or accounts receivable) of the
Company or any such Restricted Subsidiary, whether now owned or held or
hereafter acquired, or any income or profits therefrom (whether or not provision
is made for the equal and ratable securing of the Notes in accordance with the
last paragraph of this Section 10.5), or assign or otherwise convey any right to
receive income or profits, except:
(a) Liens existing on the date of this Agreement which secure
Debt of the Company and the Restricted Subsidiaries outstanding on the
Closing Date, which Liens, to the extent not described on Schedule
5.15, secure an aggregate amount of such Debt not in excess of
$2,000,000;
(b) Liens renewing or replacing Liens then in existence and
permitted by paragraph (a) of this Section 10.5 to the extent that the
underlying obligations secured by such existing Liens are being
extended, renewed or refunded, provided that
(i) no such renewal or replacement Lien shall extend to any
property of the Company or any Restricted Subsidiary other than
property already encumbered by the existing Lien being so renewed
or replaced,
(ii) the principal amount of the underlying obligation
secured by such existing Lien which could have been outstanding
at the time of such renewal or replacement shall not be increased
in connection with such renewal or replacement, and
(iii) immediately prior to, and immediately after giving
effect to, such renewal or replacement, no Default or Event of
Default exists or would exist;
(c) Liens (other than any Lien imposed by ERISA) incurred or
deposits made in the ordinary course of business
(i) in connection with workers' compensation, unemployment
insurance and other types of social security or retirement
benefits, or
109
<PAGE>
(ii) to secure (or to obtain letters of credit that secure)
the performance of tenders, statutory obligations, surety bonds,
bids, leases (other than Capital Leases), performance bonds,
purchase, construction or sales contracts and other similar
obligations, in each case not incurred or made in connection with
the borrowing of money, the obtaining of advances or credit or
the payment of the deferred purchase price of property;
(d) (i) statutoryLiens of landlords and Liens of carriers,
warehousemen, mechanics, materialmen and other similar Liens, in each case
incurred in the ordinary course of business for sums not yet due and
payable or the payment of which is not at the time required by Section 9.4,
and
(ii) Liens arising solely by virtue of any statutory or
common law provisions or, in the case of Infratest or any of its
subsidiaries, Liens arising by virtue of any deposit agreement,
in each case relating to bankers' Liens, rights of set-off or
similar rights and remedies as to deposit accounts or other funds
maintained with a creditor depository institution, provided that
such deposit account is not a dedicated cash collateral account
and is not subject to restrictions against access by the Company
or any Restricted Subsidiary in excess of those set forth by
regulations promulgated by the Federal Reserve Board (or, in the
case of Infratest, applicable German statutes or regulations);
(e) Liens arising from judicial attachments or judgments, or securing
appeal bonds, and other similar Liens, provided that
(i) the execution or other enforcement of such Liens is
effectively stayed, and
(ii) the claims secured thereby are being actively contested
in good faith and adequate reserves in respect thereof have been
established by the Company or such Restricted Subsidiary in
accordance with GAAP;
(f) leases or subleases granted to others, easements, rights-of-way,
restrictions and other similar charges or encumbrances, in each case
incidental to, and not interfering with, the ordinary conduct of the
business of the Company or any of the Restricted Subsidiaries, provided
that such Liens do not, in the aggregate, materially impair the use of such
property by the Company or such Restricted Subsidiary;
(g) Liens for taxes, assessments or other governmental charges which
are not yet due and payable or the payment of which is not at the time
required by Section 9.4;
(h) any Lien existing on property of a Person immediately prior to its
being consolidated with or merged into the Company or a Restricted
Subsidiary, or immediately prior to its becoming a Restricted Subsidiary,
or any Lien existing on any property acquired by the Company or any
Restricted Subsidiary at the time such property is so acquired (whether or
not the Debt secured thereby shall have been assumed), provided that (i) no
such
110
<PAGE>
Lien shall have been created or assumed in contemplation of such
consolidation or merger or such acquisition of property, and (ii) each such
Lien shall extend solely to the item or items of property so acquired;
(i) Liens on property of a Restricted Subsidiary, provided that such
Liens secure only Debt owing to the Company or a Restricted Subsidiary; and
(j) other Liens not otherwise permitted by paragraphs (a) through (i)
of this Section 10.5, so long as the sum, without duplication, of
(i) the aggregate amount of Indebtedness secured by such Liens,
plus
(ii) the aggregate amount of unsecured Debt of all Restricted
Subsidiaries, including, without limitation, the IBH Debt, outstanding
at such time (other than any such Debt owing to the Company or other
Restricted Subsidiaries), shall not exceed 17.25% of Consolidated
Total Capitalization.
If, notwithstanding the prohibition contained herein, the Company shall, or
shall permit any of the Restricted Subsidiaries to, directly or indirectly
create, incur, assume or permit to exist any Lien, other than those Liens
permitted by the provisions of paragraphs (a) through (j) of this Section 10.5,
it will make or cause to be made effective provision whereby the Notes will be
secured equally and ratably with any and all other obligations thereby secured,
such security to be pursuant to agreements reasonably satisfactory to the
Required Holders and, in any such case, the Notes shall have the benefit, to the
fullest extent that, and with such priority as, the holders of the Notes may be
entitled under applicable law, of an equitable Lien on such property. Such
violation of this Section 10.5 will constitute an Event of Default, whether or
not provision is made for an equal and ratable Lien pursuant to this Section
10.5. The filing of a financing statement to evidence for information purposes a
lessor's interest in property leased to the Company or a Restricted Subsidiary
shall be deemed not to constitute the creation of a Lien.
Section 10.6. Restricted Subsidiary Debt. The Company will not at any time
permit any Restricted Subsidiary to, directly or indirectly, create, incur,
assume, guarantee, or otherwise be or become directly or indirectly liable with
respect to, any Debt, other than (x) Debt owing to any other Restricted
Subsidiary or to the Company (including any Guaranty of any Debt of any
Restricted Subsidiary) and (y) the Excluded Guaranties, unless (without
duplication)
(a) the aggregate amount of unsecured Debt of all Restricted
Subsidiaries, including, without limitation, the IBH Debt, outstanding at
such time (other than (i) any such Debt owing to the Company or Restricted
Subsidiaries and (ii) the Excluded Guaranties), plus
(b) the aggregate amount of obligations secured by Liens permitted
pursuant to Section 10.5(j) outstanding at such time, does not exceed
17.25% of Consolidated Total Capitalization determined at such time.
Section 10.7. Consolidated Net Worth. The Company will not, at any time,
permit
111
<PAGE>
Consolidated Net Worth to be less than the sum of (a) $80,750,000 plus (b) an
aggregate amount equal to 50% of Consolidated Net Income (but only if a positive
number) for each completed fiscal quarter as of such time beginning with the
fiscal quarter ending December 31, 1998.
Section 10.8. SaleandLeaseback Transactions. The Company will not, and will
not permit any Restricted Subsidiary to, enter into any SaleandLeaseback
Transaction unless, immediately after giving effect thereto, the aggregate
amount of all Attributable Debt of the Company and the Restricted Subsidiaries,
determined on a consolidated basis, would not exceed $5,750,000.
Section 10.9. Restricted Investments. The Company will not, and will not
permit any of the Restricted Subsidiaries to, declare, make or authorize any
Restricted Investment unless immediately after giving effect to such action:
(a) the aggregate value of all Restricted Investments of the Company
and the Restricted Subsidiaries (valued immediately after such action)
would not exceed 10% of Consolidated Total Capitalization; and
(b) no Default or Event of Default would exist.
Any designation of a Restricted Subsidiary as an Unrestricted Subsidiary
shall be deemed to be the making of a Restricted Investment by the owner of the
Capital Stock of such newly designated Unrestricted Subsidiary in an amount
equal to all the share capital and other Investments in such Unrestricted
Subsidiary held by the Company and each other Restricted Subsidiary. For the
avoidance of doubt, it is understood that any Restricted Investments outstanding
prior to the Closing Date shall be deemed not to have been declared, made or
authorized at a time when this covenant was effective.
Section 10.10. Merger, Consolidation, Etc.. The Company will not, and will
not permit any Restricted Subsidiary to, consolidate with or merge with any
other corporation or convey, transfer or lease substantially all of its assets
in a single transaction or series of transactions to any Person except that:
(a) the Company may consolidate with or merge with another corporation
or convey or transfer (except by lease) all or substantially all of its
assets in a single transaction or series of transactions to another Person
if:
(i) the successor formed by such consolidation or the survivor of
such merger or the Person that acquires by conveyance or transfer all
or substantially all of the assets of the Company as an entirety, as
the case may be (the "Successor Corporation"), shall be a solvent
corporation organized and existing under the laws of the United States
of America, any State thereof or the District of Columbia;
(ii) if the Company is not the Successor Corporation, such
corporation shall have executed and delivered to each holder of Notes
its assumption of the due and punctual performance and observance of
each covenant and condition of this Agreement and the Notes (pursuant
to such agreements and instruments as shall be reasonably satisfactory
to the Required Holders), and the Company shall have caused
112
<PAGE>
to be delivered to each holder of Notes an opinion of nationally
recognized independent counsel, or other independent counsel
reasonably satisfactory to the Required Holders, to the effect that
all agreements or instruments effecting such assumption are
enforceable in accordance with their terms and comply with the terms
hereof; and
(iii) immediately after giving effect to such transaction:
(A) no Default or Event of Default would exist, and
(B) the Successor Corporation would be able to incur $1 of
Funded Debt pursuant to both Section 10.1 and Section 10.2;
(b) a Restricted Subsidiary may consolidate with or merge with the
Company (so long as the Company is the surviving corporation) or another
Restricted Subsidiary or convey, transfer or lease all or substantially all
of its assets in a single transaction or series of transactions to the
Company or another Restricted Subsidiary; and
(c) a Restricted Subsidiary may consolidate with or merge with another
corporation or convey, transfer or lease all or substantially all of its
assets in a single transaction or series of transactions to another Person
if:
(i) such transaction is in compliance with Section 10.11 hereof;
or
(ii) immediately after giving effect to such transaction:
(A) no Default or Event of Default would exist, and
(B) the Company would be able to incur $1 of Funded Debt
pursuant to both Section 10.1 and Section 10.2.
No such conveyance or transfer of all or substantially all of the assets of the
Company shall have the effect of releasing the Company or any Successor
Corporation from its liability under this Agreement or the Notes.
Section 10.11. Sale of Assets, Etc.
(a) Sale of Assets. The Company will not, and will not permit any
Restricted Subsidiary to, make any Asset Disposition unless:
(i) in the good faith opinion of the Company, the Asset
Disposition is in exchange for consideration having a Fair Market
Value at least equal to that of the property exchanged and is in the
best interest of the Company or such Restricted Subsidiary;
(ii) immediately after giving effect to the Asset Disposition, no
Default or Event of Default would exist; and
(iii) immediately after giving effect to the Asset Disposition,
the sum of the Net Proceeds Amounts in respect of all property that
was the subject of any Asset Disposition occurring in the period of
365 days ending with and including the date of such Asset Disposition,
minus the aggregate cost of Capital Assets acquired by the Company and
the Restricted Subsidiaries during such period, would not exceed
17.25% of Consolidated Total
113
<PAGE>
Assets as of the end of the then most recently ended fiscal year of the
Company.
(b) Disposal of Ownership of a Restricted Subsidiary. The Company will not,
and will not permit any of the Restricted Subsidiaries to, sell or otherwise
dispose of any shares of Restricted Subsidiary Stock (including, without
limitation, pursuant to any merger, consolidation or other transaction specified
in Section 10.10(c) hereof but excluding any transaction permitted by Section
10.10(b)), nor will the Company permit any such Restricted Subsidiary to issue,
sell or otherwise dispose of any shares of its own Restricted Subsidiary Stock,
provided that the foregoing restrictions do not apply to:
(i) the issue of directors' qualifying shares by any such Subsidiary;
(ii) any such Transfer of Restricted Subsidiary Stock constituting a
Transfer described in clause (a) of the definition of "Asset Disposition";
and
(iii) the Transfer of all of the Restricted Subsidiary Stock of a
Restricted Subsidiary owned by the Company and the other Restricted
Subsidiaries if:
(A) such Transfer satisfies the requirements of Section 10.11(a)
hereof,
(B) in connection with such Transfer the entire Investment
(whether represented by stock, Debt, claims or otherwise) of the
Company and the other Restricted Subsidiaries in such Restricted
Subsidiary is sold, transferred or otherwise disposed of to a Person
other than (1) the Company, (2) another Restricted Subsidiary not
being simultaneously disposed of, or (3) an Affiliate, and
(C) the Restricted Subsidiary being disposed of has no continuing
Investment in any other Restricted Subsidiary not being simultaneously
disposed of or in the Company.
Any designation of a Restricted Subsidiary as an Unrestricted Subsidiary
shall be deemed to be an Asset Disposition of all of the Restricted Subsidiary
Stock of such newly designated Unrestricted Subsidiary.
(c) Release of Guarantees of Subsidiaries. If, with respect to any
Subsidiary that is a Guarantor,
(i) all of the Company's and any Restricted Subsidiary's Capital Stock
or other equity ownership interests in such Guarantor is Transferred
(including by way of a merger) to a Person other than the Company or a
Restricted Subsidiary in accordance with the requirements of this Section
10.11,
(ii) such Guarantor engages in a transaction permitted by Section
10.10(c) with any such Person and the surviving Person or transferee is not
a Subsidiary, or
(iii) such Guarantor sells all or substantially all of its assets to
another Subsidiary or the Company and, in the case of a sale to another
Subsidiary, such other Subsidiary becomes a Guarantor by executing a
Guaranty Agreement, then the Company may elect to cause the withdrawal of
the Guaranty Agreement of such Guarantor. Such election may be exercised if
(A) no Default or Event of Default exists and (B) such Guarantor
114
<PAGE>
has no guaranty obligation in respect of any Debt under the Fleet/Chase Debt
Facility, the Existing Senior Notes, the Senior Notes, or the Existing
Subordinated Notes (except any such obligation which is being released
simultaneously with the release of such Guaranty Agreement), and if a Senior
Financial Officer of the Company certifies in writing to each holder of the
Notes that the conditions specified in clauses (A) and (B) have been satisfied.
Thereafter, the Guaranty Agreement of such Guarantor shall be terminated, null
and void and without effect and, upon request of the Company, and in reliance on
the accuracy of the Company's written certification, each holder of Notes shall
acknowledge such termination.
Section 10.12. Limitation on Contribution to Company Financial Performance
by Unrestricted Subsidiaries. (a) The Company will not at any time permit
Consolidated Total Assets to be less than 80% of consolidated total assets of
the Company and its Subsidiaries as reflected on a consolidated balance sheet of
such Persons prepared in accordance with GAAP.
(b) The Company will not permit Pro Forma EBITDA for any period of four
consecutive fiscal quarters of the Company to be less than 80% of Pro Forma
EBITDA (determined as if each reference in such definition to "Restricted
Subsidiaries" were to "Subsidiaries") for such period.
Section 10.13. Transactions with Affiliates. Except as set forth in
Schedule 10.13, the Company will not, and will not permit any Restricted
Subsidiary to, enter into directly or indirectly any transaction or group of
related transactions (including, without limitation, the purchase, lease, sale
or exchange of properties of any kind or the rendering of any service) with any
Affiliate (other than the Company or another Restricted Subsidiary), except in
the ordinary course and pursuant to the reasonable requirements of the Company's
or such Restricted Subsidiary's business and upon fair and reasonable terms no
less favorable to the Company or such Restricted Subsidiary than would be
obtainable in a comparable arm's-length transaction with a Person not an
Affiliate.
Section 10.14. Leverage Ratios. (a) Senior Leverage Ratio. The Company will
not permit the ratio of (x) Consolidated Senior Funded Debt, determined at the
end of any fiscal quarter of the Company, to (y) Pro Forma EBITDA for the period
of four consecutive fiscal quarters of the Company ending with, and including,
such fiscal quarter to be greater than 3.74 to 1.0.
(b) Total Leverage Ratio. The Company will not permit the ratio of (x)
Consolidated Funded Debt, determined at the end of any fiscal quarter of the
Company, to (y) Pro Forma EBITDA for the period of four consecutive fiscal
quarters of the Company ending with, and including, such fiscal quarter to be
greater than (i) 4.25 to 1.0 at any time on or before December 31, 1999 and (ii)
3.50 to 1.0 at any time thereafter.
Section 10.15. Limit on Acquisitions. The Company will not, and will not
permit any Restricted Subsidiary to, make any Acquisition, unless:
(a) no Default or Event of Default exists or would result from such
Acquisition;
(b) the Person or assets acquired, as the case may be, involve
substantially the same or similar line of business engaged in by the
Company and its Restricted Subsidiaries;
115
<PAGE>
(c) the Company demonstrates that, on a consolidated basis with the
Person and/or assets to be acquired, in accordance with GAAP, the Company
would have been in compliance with Sections 10.4, 10.7, 10.14(a) and
10.14(b) on a trailing four quarters pro forma basis as of the last day of
the then most recently completed fiscal quarter of the Company; and
(d) the aggregate amount expended by the Company and its Restricted
Subsidiaries, whether in cash, Securities or other property, for all
Acquisitions permitted hereunder within any one calendar year exceeds
$20,000,000 or its equivalent in other currencies.
Section 10.16. IBH Debt. The Company will not permit the IBH Debt to be
renewed, replaced, extended or refinanced and shall not permit the maximum
aggregate principal amount thereof which may be outstanding at any time to
exceed the sum of (x) 68,000,000 Deutsche Marks and (y) $10,000,000 (or the
equivalent thereof in other currencies).
Section 10.17. Additional Subordinated Funded Debt . The Company will not
issue any additional Funded Debt which is subordinate or junior in right of
payment to any other Funded Debt of the Company other than Subordinated Funded
Debt.
Section 11. Events of Default.
An "Event of Default" shall exist if any of the following conditions or
events shall occur and be continuing:
(a) the Company defaults in the payment of any principal or Make-Whole
Amount, if any, on any Note when the same becomes due and payable, whether
at maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) the Company defaults in the payment of any interest on any Note
for more than five Business Days after the same becomes due and payable; or
(c) the Company defaults in the performance of or compliance with any
term contained in any of Sections 10.1 through 10.12, inclusive, Section
10.14 through Section 10.17, inclusive, or Section 7.1 (d); or
(d) the Company defaults in the performance of or compliance with any
term contained herein (other than those referred to in paragraphs (a), (b)
and (c) of this Section 11) and such default is not remedied within 30 days
after the earlier of (i) a Responsible Officer obtaining actual knowledge
of such default and (ii) the Company receiving written notice of such
default from any holder of a Note; or
(e) any representation or warranty made in writing by or on behalf of
the Company or by any officer of the Company in this Agreement or in any
writing furnished in connection with the transactions contemplated hereby
proves to have been false or incorrect in any material respect on the date
as of which made; or
(f) (i) the Company or any Restricted Subsidiary is in default (as
principal or as guarantor or other surety) in the payment of any principal
of or premium or make-whole
116
<PAGE>
amount or interest on any Indebtedness (other than Indebtedness under this
Agreement and the Notes) beyond any period of grace provided with respect
thereto (after giving effect to any consents or waivers in respect
thereof), that individually or together with such other Indebtedness as to
which any such failure exists has an aggregate outstanding principal amount
of at least $2,000,000, or
(ii) the Company or any Restricted Subsidiary is in default in
the performance of or compliance with any term of any evidence of any
Indebtedness (other than Indebtedness under this Agreement and the
Notes), that individually or together with such other Indebtedness as
to which any such failure exists has an aggregate outstanding
principal amount of at least $2,000,000, or of any mortgage, indenture
or other agreement relating thereto or any other condition exists, and
as a consequence of such default or condition such Indebtedness has
become, or has been declared (or, after giving effect to any consents
or waivers in respect thereof, one or more Persons are entitled to
declare such Indebtedness to be), due and payable before its stated
maturity or before its regularly scheduled dates of payment, or
(iii) as a consequence of the occurrence or continuation of any
event or condition (other than the passage of time or the right of the
holder of Indebtedness to convert such Indebtedness into equity
interests),
(A) the Company or any Subsidiary has become obligated to
purchase or repay Indebtedness before its regular maturity or
before its regularly scheduled dates of payment in an aggregate
outstanding principal amount of at least $2,000,000, or
(B) one or more Persons have the right to require the
Company or any Subsidiary so to purchase or repay such
Indebtedness; or
(g) the Company or any Restricted Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they become
due, (ii) files, or consents by answer or otherwise to the filing against
it of, a petition for relief or reorganization or arrangement or any other
petition in bankruptcy, for liquidation or to take advantage of any
bankruptcy, insolvency, reorganization, moratorium or other similar law of
any jurisdiction, (iii) makes an assignment for the benefit of its
creditors, (iv) consents to the appointment of a custodian, receiver,
trustee or other officer with similar powers with respect to it or with
respect to any substantial part of its property, (v) is adjudicated as
insolvent or to be liquidated, or (vi) takes corporate action for the
purpose of any of the foregoing; or
(h) a court or governmental authority of competent jurisdiction enters
an order appointing, without consent by the Company or any Restricted
Subsidiary, a custodian, receiver, trustee or other officer with similar
powers with respect to the Company or any Restricted Subsidiary or with
respect to any substantial part of the property of the Company
117
<PAGE>
or any Restricted Subsidiary, or constituting an order for relief or
approving a petition for relief or reorganization or any other petition in
bankruptcy or for liquidation or to take advantage of any bankruptcy or
insolvency law of any jurisdiction, or ordering the dissolution, winding-up
or liquidation of the Company or any Restricted Subsidiary, or any such
petition shall be filed against the Company or any Restricted Subsidiary
and such petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money aggregating
in excess of $1,000,000 above the level of coverage provided by any
applicable insurance policy are rendered against one or more of the Company
and the Restricted Subsidiaries and which judgments are not, within 30 days
after entry thereof, bonded, discharged or stayed pending appeal, or are
not discharged within 30 days after the expiration of such stay; or
(j) except as otherwise specifically permitted by this Agreement
(including without limitation, Section 9.7(c) and 10.11 (c)), or the
Guaranty Agreement,
(i) any of the Guaranty Agreements shall cease to be in full
force and effect or shall be declared by a court or Government
Authority of competent jurisdiction to be void or unenforceable
against the Guarantor thereunder,
(ii) the validity or enforceability of any of the Guaranty
Agreements against the Guarantor thereunder shall be contested by such
Guarantor, the Company or any Person owning, directly or indirectly, a
majority of the common stock of the Company, or
(iii) any Guarantor, the Company or any such Person identified in
clause (ii) of this clause 11(j) shall deny that such Guarantor has
any further liability or obligation under such Guarantor's Guaranty
Agreement; or
(k) if (i) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a
waiver of such standards or extension of any amortization period is sought
or granted under section 412 of the Code,
(ii) a notice of intent to terminate any Plan shall have been or
is reasonably expected to be filed with the PBGC or the PBGC shall
have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have
notified the Company or any ERISA Affiliate that a Plan may become a
subject of any such proceedings,
(iii) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans,
determined in accordance with Title IV of ERISA, shall exceed
$6,000,000,
(iv) the Company or any ERISA Affiliate shall have incurred or is
reasonably expected to incur any liability pursuant to Title I or IV
of ERISA or the penalty or excise tax provisions of the Code relating
to employee benefit plans,
118
<PAGE>
(v) the Company or any ERISA Affiliate withdraws from any
Multiemployer Plan, or
(vi) the Company or any Subsidiary establishes or amends any
employee welfare benefit plan that provides post-employment welfare
benefits in a manner that would increase the liability of the Company
or any Subsidiary thereunder; and any such event or events described
in clauses (i) through (vi) above, either individually or together
with any other such event or events, could reasonably be expected to
have a Material Adverse Effect.
As used in Section 11(k), the terms "employee benefit plan" and "employee
welfare benefit plan" shall have the respective meanings assigned to such terms
in section 3 of ERISA.
Section 12. Remedies on Default, Etc.
Section 12.1. Acceleration. (a) If an Event of Default with respect to the
Company described in paragraph (g) or paragraph (h) of Section 11 (other than an
Event of Default described in clause (i) of paragraph (g) or described in clause
(vi) of paragraph (g) by virtue of the fact that such clause encompasses clause
(i) of paragraph (g)) has occurred, all the Notes then outstanding shall
automatically become immediately due and payable.
(b) If any other Event of Default has occurred and is continuing, any
holder or holders of more than 66-2/3% in principal amount of the Notes at the
time outstanding may, subject to any limitations imposed pursuant to Section 13,
at any time at its or their option, by notice or notices to the Company, declare
all the Notes then outstanding to be immediately due and payable.
(c) If any Event of Default described in paragraph (a) or (b) of Section 11
has occurred and is continuing, any holder or holders of Notes at the time
outstanding affected by such Event of Default may, subject to any limitations
imposed pursuant to Section 13, at any time, at its or their option, by notice
or notices to the Company, declare all the Notes held by it or them to be
immediately due and payable.
Upon any Notes becoming due and payable under this Section 12.1, whether
automatically or by declaration, such Notes will forthwith mature and the entire
unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest
thereon and (y) the Make-Whole Amount determined in respect of such principal
amount (to the full extent permitted by applicable law), shall all be
immediately due and payable, in each and every case without presentment, demand,
protest or further notice, all of which are hereby waived. The Company
acknowledges, and the parties hereto agree, that each holder of a Note has the
right to maintain its investment in the Notes free from repayment by the Company
(except as herein specifically provided for) and that the provision for payment
of a Make-Whole Amount by the Company in the event that the Notes are prepaid or
are accelerated as a result of an Event of Default, is intended to provide
compensation for the deprivation of such right under such circumstances.
119
<PAGE>
Section 12.2. Other Remedies. If any Default or Event of Default has
occurred and is continuing, and irrespective of whether any Notes have become or
have been declared immediately due and payable under Section 12.1, the holder of
any Note at the time outstanding may, subject to any limitations imposed
pursuant to Section 13, proceed to protect and enforce the rights of such holder
by an action at law, suit in equity or other appropriate proceeding, whether for
the specific performance of any agreement contained herein or in any Note, or
for an injunction against a violation of any of the terms hereof or thereof, or
in aid of the exercise of any power granted hereby or thereby or by law or
otherwise.
Section 12.3. Rescission. At any time after any Notes have been declared
due and payable pursuant to clause (b) or clause (c) of Section 12.1, the
holders of not less than 66-2/3% in principal amount of the Notes then
outstanding, by written notice to the Company, may rescind and annul any such
declaration and its consequences if (a) the Company has paid all overdue
interest on the Notes, all principal of and Make-Whole Amount, if any, due and
payable on any Notes other than by reason of such declaration, and all interest
on such overdue principal and Make-Whole Amount, if any, and (to the extent
permitted by applicable law) any overdue interest in respect of the Notes, at
the Default Rate, (b) all Events of Default and Defaults, other than non-payment
of amounts that have become due solely by reason of such declaration, have been
cured or have been waived pursuant to Section 18, and (c) no judgment or decree
has been entered for the payment of any monies due pursuant hereto or to the
Notes. No rescission and annulment under this Section 12.3 will extend to or
affect any subsequent Event of Default or Default or impair any right consequent
thereon.
Section 12.4. No Waivers or Election of Remedies, Expenses, Etc. No course
of dealing and no delay on the part of any holder of any Note in exercising any
right, power or remedy shall operate as a waiver thereof or otherwise prejudice
such holder's rights, powers or remedies. No right, power or remedy conferred by
this Agreement or by any Note upon any holder thereof shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise. Without limiting the
obligations of the Company under Section 16, the Company will pay to the holder
of each Note on demand such further amount as shall be sufficient to cover all
costs and expenses of such holder incurred in any enforcement or collection
under this Section 12, including, without limitation, reasonable attorneys'
fees, expenses and disbursements.
Section 13. Subordination.
The Indebtedness evidenced by the Notes shall at all times be subordinate
and junior in right of payment to all Senior Debt, whether now or hereafter
outstanding, all in the manner and with the force and effect hereinafter set
forth:
(a) In the event of any liquidation, dissolution or winding up of the
Company, or of any execution, sale, receivership, insolvency, bankruptcy,
liquidation, readjustment, reorganization, or other similar proceeding
relative to the Company or its property, all Senior Debt shall first be
paid in full before any payment is made upon the debt evidenced by the
120
<PAGE>
Notes; and in any such event any payment or distribution of any kind or
character, whether in cash, property or Securities (other than in
Securities, including equity securities, or other evidences of debt, the
payment of which is subordinated to the payment of all Senior Debt which
may at the time be outstanding to the same extent as the Notes) which shall
be made upon or in respect of any Note shall be paid over to the holders of
such Senior Debt, pro rata, for application in payment thereof unless and
until such Senior Debt shall have been paid or satisfied in full;
(b) In the event that the Notes are declared or become due and payable
because of the occurrence of any Event of Default hereunder (under
circumstances when clauses (a), (c), (d) or (e) of this Section 13 shall
not be applicable), the holders of the Notes shall be entitled to payments
only after there shall first have been paid in full all Senior Debt
outstanding at the time the Notes are declared or become due and payable
because of any such Event of Default, or payment shall have been provided
for in a manner satisfactory to the holders of such Senior Debt;
(c) In the event that any Specified Senior Debt is declared due and
payable because of the occurrence of any event of default applicable to any
Specified Senior Debt, then no payment shall be made on any Note from the
date that such declaration has been given in writing to the Company by any
Required Senior Debt Holders until there shall first have been paid in full
all Specified Senior Debt outstanding at such time, or payment shall have
been provided for in a manner satisfactory to the holders of such Specified
Senior Debt;
(d) During the continuance of any default in the payment of either
principal or interest on any Specified Senior Debt (under circumstances
when clause (c) of this Section 13 shall not be applicable), no payment
shall be made on any Note during a period of 180 consecutive days (unless
such event of default is cured or waived in writing by the requisite
holders of such Specified Senior Debt) from the date that written notice of
such default has been given to the Company by the Required Senior Debt
Holders and such notice shall specify that it constitutes a "blockage
notice" pursuant to this Section 13;
(e) If any event of default shall have occurred as a result of a
breach of Section 10 of the Senior Note Purchase Agreements or the Existing
Senior Note Purchase Agreements (other than Sections 10.8, 10.12 and 10.13)
or any comparable covenants from time to time applicable to the Fleet/Chase
Debt Facility (under circumstances when neither clause (c) nor clause (d)
of this Section 13 shall be applicable) and the Required Senior Debt
Holders have given notice of such event to the Company, then no payment
shall be made on any Note during a period of 180 consecutive days (unless
such event of default is cured or waived in writing by the requisite
holders of such Specified Senior Debt) from the date that written notice of
such default has been given to the Company by the Required Senior Debt
Holders and such notice shall specify that it constitutes a "blockage
notice"
121
<PAGE>
pursuant to this Section 13;
(f) Notwithstanding the foregoing, (i) payment on the Notes shall not
be blocked pursuant to clauses (d) and (e) of this Section 13 on more than
one occasion in any period of 360 consecutive days, and (ii) the holders of
Specified Senior Debt shall not be entitled to give notice pursuant to
clauses (d) and (e) of this Section 13 more than once with respect to any
event of default which was specified in such a blockage notice and which
has continued without interruption since the date such notice was given (it
being understood that each failure to make a scheduled payment of principal
or interest on Senior Debt shall be deemed to constitute a new event of
default), nor shall such holders be entitled to give a separate blockage
notice with respect to any event of default not so specified which was
known by such holders to exist on the date the blockage notice shall have
been given pursuant to clause (d) or (e) and which has continued without
interruption from the date such notice was given. No more than three
blockage notices can be given pursuant to clauses (d) and (e) of this
Section 13. Upon receipt of any notice pursuant to clause (c) of this
Section 13 or any blockage notice from the Required Senior Debt Holders
pursuant to clause (d) or (e) of this Section 13, the Company shall
forthwith send a copy thereof to each holder of the Notes at the time
outstanding; and
(g) During the Standstill Period (as hereinafter defined), the holders
of the Notes shall be prohibited from exercising any remedies under this
Agreement, including accelerating the Notes or filing or participating in
the filing of an involuntary bankruptcy petition against the Company. Upon
the termination of any Standstill Period and subject to the provisions of
clauses (a), (b), (c), (d) and (e) of this Section 13, the holders of the
Notes may, at their sole election, exercise any and all remedies (including
the acceleration of the maturity of the Notes) available to them under this
Agreement or applicable law. As used in this Section 13, "Standstill
Period" means in the case of the receipt by the Company of a blockage
notice pursuant to clauses (d) or (e) of this Section 13 (a "Blockage
Notice"), the 180 day period from and after the date of receipt of such
notice. In addition to the passage of time, the Standstill Period shall
expire on the first to occur of (i) the date on which the Required Senior
Debt Holders which shall have delivered a Blockage Notice shall have
expressly withdrawn such Blockage Notice in writing, (ii) the date on which
there is commenced, either by or against the Company, any proceeding
described in clause (a) of this Section 13, (iii) the date on which the
holders of Senior Debt shall have accelerated such Senior Debt, and (iv)
the date on which the holders of Senior Debt shall have instituted
foreclosure or other proceedings relating to the liquidation of collateral
which secures such Senior Debt.
If any payment or distribution shall be paid to or collected or received by
any holders of the Notes in contravention of any of the terms of this Section
13, the last paragraph of Section 10.2 of the Senior Note Purchase Agreement or
of the Existing Senior Note Purchase Agreements or any
122
<PAGE>
similar provision under the Fleet/Chase Debt Facility, then such holders of the
Notes will deliver such payment or distribution, to the extent necessary to pay
all such Senior Debt in full, in cash, to the holders of the Senior Debt,
ratably in accordance with the respective amounts owing to them, and, until so
delivered, the same shall be held in trust by such holders of the Notes as the
property of the holders of such Senior Debt. If any amount is delivered to the
holders of the Senior Debt pursuant to this Section 13, whether or not such
amounts have been applied to the payment of Senior Debt, and the outstanding
Senior Debt shall thereafter be paid in full, in cash, by the Company or
otherwise other than pursuant to this Section 13, the holders of Senior Debt
shall return to such holders of the Notes an amount equal to the amount
delivered to such holders of Senior Debt pursuant to this Section 13, so long as
after the return of such amounts the Senior Debt shall remain indefeasibly paid
in full, in cash.
Upon the payment in full of the Senior Debt as in this Section 13 provided,
the holders of the Notes will be subrogated to the rights of the holders of
Senior Debt to receive payments or distributions of assets of the Company
applicable to the Senior Debt until the principal of, premium, if any, and
interest on the Notes shall be paid in full; and no payments or distributions
(direct or indirect) to the holders of the Senior Debt of cash, property or
Securities to which the holders of the Notes would be entitled except for the
provisions of this Section 13 shall, as between the Company, its creditors
(other than the holders of Senior Debt) and the holders of the Notes, be deemed
to be a payment by the Company to or on account of the Senior Debt.
Each and every holder of the Notes by its acceptance thereof undertakes and
agrees for the benefit of each holder of Senior Debt to execute, verify, deliver
and file any proofs of claim which any holder of Senior Debt may at any time
require in order to prove and realize upon any rights or claims pertaining to
the Notes and to effectuate the full benefit of the subordination contained
herein; and upon failure of any holder of the Notes so to do, any such holder of
Senior Debt shall be deemed to be irrevocably appointed the agent and
attorney-in-fact of the holder of the Notes to execute, verify, deliver and file
any such proofs of claim.
The Company agrees, for the benefit of the holders of Senior Debt, that in
the event that any Note is declared due and payable before its expressed
maturity because of the occurrence of an Event of Default hereunder, (i) the
Company will give prompt notice in writing of such happening to the holders of
Senior Debt and (ii) upon demand made at the option of the holders of the Senior
Debt, such Senior Debt shall forthwith become immediately due and payable
regardless of the expressed maturity thereof.
No right of any holder of any Senior Debt to enforce subordination as
herein provided shall at any time or in any way be affected or impaired by any
failure to act on the part of the Company or the holders of Senior Debt, or by
any noncompliance by the Company with any of the terms, provisions and covenants
of the Notes or this Agreement, regardless of any knowledge thereof that any
such holder of Senior Debt may have or be otherwise charged with.
123
<PAGE>
Each holder of the Notes waives any and all notices of the acceptance of
the provisions of this Section 13 or of the creation, renewal, extension or
accrual, now or at any time in the future, of any Senior Debt.
The obligations of each holder of the Notes under the provisions set forth
in this Section 13 shall continue to be effective, or be reinstated, as the case
may be, as to any payment in respect of any Senior Debt that is rescinded or
must otherwise be returned by the holder of such Senior Debt upon the occurrence
or as a result of any bankruptcy or judicial proceeding, all as though such
payment had not been made.
Each holder of the Notes by its acceptance thereof shall be deemed to
acknowledge and agree that the foregoing subordination provisions are, and are
intended to be, an inducement to and a consideration of each holder of any
Senior Debt, whether such Senior Debt was created or acquired before or after
the creation of the Notes, to acquire and hold, or to continue to hold, such
Senior Debt, and such holder of Senior Debt shall be deemed conclusively to have
relied on such subordination provisions in acquiring and holding, or in
continuing to hold, such Senior Debt. Each such holder of Senior Debt is
intended to be, and is, a third party beneficiary of this Section 13. Each
holder of the Notes acknowledges and agrees that the provisions set forth in
this Section 13 shall be enforceable against such Persons by the holders of
Senior Debt. Notwithstanding anything contained in this Agreement to the
contrary, none of the provisions of this Section 13 or the definitions of
"Required Senior Debt Holders" and "Requisite Senior Debt" may, directly or
indirectly, be amended, modified, supplemented or waived without the prior
written consent of the holders of the Senior Debt.
The foregoing provisions are solely for the purpose of defining the
relative rights of the holders of Senior Debt on the one hand, and the holders
of the Notes on the other hand, and nothing herein shall impair, as between the
Company and the holders of the Notes, the obligation of the Company which is
unconditional and absolute, to pay the principal, premium, if any, and interest
on the Notes in accordance with their terms, nor shall anything herein prevent
the holders from exercising all remedies otherwise permitted by applicable law
or hereunder upon default hereunder, subject to the rights of the holders of
Senior Debt as herein provided for.
Section 14. Registration; Exchange; Substitution of Notes.
Section 14.1. Registration of Notes. The Company shall keep at its
principal executive office a register for the registration and registration of
transfers of Notes. The name and address of each holder of one or more Notes,
each transfer thereof and the name and address of each transferee of one or more
Notes shall be registered in such register. Prior to due presentment for
registration of transfer, the Person in whose name any Note shall be registered
shall be deemed and treated as the owner and holder thereof for all purposes
hereof, and the Company shall not be affected by any notice or knowledge to the
contrary. The Company shall give to any holder of a Note that is an
Institutional Investor promptly upon request therefor, a complete and correct
copy of the names and addresses of all registered holders of Notes.
124
<PAGE>
Section 14.2. Transfer and Exchange of Notes. Upon surrender of any Note at
the principal executive office of the Company for registration of transfer or
exchange (and in the case of a surrender for registration of transfer, duly
endorsed or accompanied by a written instrument of transfer duly executed by the
registered holder of such Note or his attorney duly authorized in writing and
accompanied by the address for notices of each transferee of such Note or part
thereof), the Company shall execute and deliver, at the Company's expense
(except as provided below), one or more new Notes (as requested by the holder
thereof) in exchange therefor, in an aggregate principal amount equal to the
unpaid principal amount of the surrendered Note. Each such new Note shall be
payable to such Person as such holder may request and shall be substantially in
the form of Exhibit 1. Each such new Note shall be dated and bear interest from
the date to which interest shall have been paid on the surrendered Note or dated
the date of the surrendered Note if no interest shall have been paid thereon.
The Company may require payment of a sum sufficient to cover any stamp tax or
governmental charge imposed in respect of any such transfer of Notes. Notes
shall not be transferred in denominations of less than $100,000, provided that
if necessary to enable the registration of transfer by a holder of its entire
holding of Notes, one Note may be in a denomination of less than $100,000. Any
transferee, by its acceptance of a Note registered in its name (or the name of
its nominee), shall be deemed to have made the representations set forth in
Section 6.2 and in the second sentence of Section 6.1.
Section 14.3. Replacement of Notes. Upon receipt by the Company of evidence
reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of any Note (which evidence shall be, in the case of
an Institutional Investor, notice from such Institutional Investor of such
ownership and such loss, theft, destruction or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity reasonably
satisfactory to it (provided that if the holder of such Note is, or is a
nominee for, an original purchaser or a Qualified Institutional Buyer, such
Person's own unsecured agreement of indemnity shall be deemed to be
satisfactory), or
(b) in the case of mutilation, upon surrender and cancellation
thereof, the Company at its own expense shall execute and deliver, in lieu
thereof, a new Note, dated and bearing interest from the date to which
interest shall have been paid on such lost, stolen, destroyed or mutilated
Note or dated the date of such lost, stolen, destroyed or mutilated Note if
no interest shall have been paid thereon.
Section 15. Payments on Notes.
Section 15.1. Place of Payment. Subject to Section 15.2, payments of
principal, Make-Whole Amount, if any, and interest becoming due and payable on
the Notes shall be made in Greenwich, Connecticut at the principal office of the
Company in such jurisdiction. The Company may at any time, by notice to each
holder of a Note, change the place of payment of the Notes so long as such place
of payment shall be either the principal office of the Company in such
jurisdiction
125
<PAGE>
or the principal office of a bank or trust company in such jurisdiction.
Section 15.2. Home Office Payment. So long as you or your nominee shall be
the holder of any Note, and notwithstanding anything contained in Section 15.1
or in such Note to the contrary, the Company will pay all sums becoming due on
such Note for principal, Make-Whole Amount, if any, and interest by the method
and at the address specified for such purpose below your name in Schedule A, or
by such other method or at such other address as you shall have from time to
time specified to the Company in writing for such purpose, without the
presentation or surrender of such Note or the making of any notation thereon,
except that upon written request of the Company made concurrently with or
reasonably promptly after payment or prepayment in full of any Note, you shall
surrender such Note for cancellation, reasonably promptly after any such
request, to the Company at its principal executive office or at the place of
payment most recently designated by the Company pursuant to Section 15.1. Prior
to any sale or other disposition of any Note held by you or your nominee you
will, at your election, either endorse thereon the amount of principal paid
thereon and the last date to which interest has been paid thereon or surrender
such Note to the Company in exchange for a new Note or Notes pursuant to Section
14.2. The Company will afford the benefits of this Section 15.2 to any
Institutional Investor that is the direct or indirect transferee of any Note
purchased by you under this Agreement and that has made the same agreement
relating to such Note as you have made in this Section 15.2.
Section 16. Expenses, Etc.
Section 16.1 Transaction Expenses. The Company will pay all costs and
expenses (including any judgment or settlement approved by the Company,
reasonable attorneys' fees of a special counsel and, if reasonably required,
local or other counsel) incurred by you and the Other Purchaser or holder of a
Note in connection with (a) the negotiation, execution and documentation of the
transactions contemplated hereby, (b) any amendments, waivers or consents under
or in respect of this Agreement or the Notes (whether or not such amendment,
waiver or consent becomes effective), and (c) any actual or threatened
proceeding relating to any action the Company has taken, or will take, as to
which the Company has made a representation and warranty hereunder, including,
without limitation: (x) the costs and expenses incurred in enforcing or
defending (or determining whether or how to enforce or defend) any rights under
this Agreement or the Notes or in responding to any subpoena or other legal
process or informal investigative demand issued in connection with this
Agreement or the Notes, or by reason of being a holder of any Note, and (y) the
costs and expenses, including financial advisors' fees, incurred in connection
with the insolvency or bankruptcy of the Company or any Subsidiary or in
connection with any work-out or restructuring of the transactions contemplated
hereby and by the Notes. The Company will pay, and will save you and each other
holder of a Note harmless from, all claims in respect of any fees, costs or
expenses if any, of brokers and finders (other than those retained by you).
Section 16.2. Survival. The obligations of the Company under this Section
16 will survive the payment or transfer of any Note, the enforcement, amendment
or waiver of any provision of this
126
<PAGE>
Agreement or the Notes, and the termination of this Agreement.
Section 17. Survival of Representations and Warranties; Entire Agreement.
All representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the Notes, the purchase or transfer
by you of any Note or portion thereof or interest therein and the payment of any
Note, and may be relied upon by any subsequent holder of a Note, regardless of
any investigation made at any time by or on behalf of you or any other holder of
a Note. All statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement shall be
deemed representations and warranties of the Company under this Agreement.
Subject to the preceding sentence, this Agreement and the Notes embody the
entire agreement and understanding between you and the Company and supersede all
prior agreements and understandings relating to the subject matter hereof.
Section 18. Amendment and Waiver.
Section 18.1. Requirements. This Agreement and the Notes may be amended,
and the observance of any term hereof or of the Notes may be waived (either
retroactively or prospectively), with (and only with) the written consent of the
Company and the Required Holders, except that (a) no amendment or waiver of any
of the provisions of any of Sections 1, 2, 3, 4, 5, 6 and 22, or any defined
term (as it is used therein), will be effective as to you unless consented to by
you in writing, and (b) no such amendment or waiver may, without the written
consent of the holder of each Note at the time outstanding affected thereby, (i)
subject to the provisions of Section 12 relating to acceleration or rescission,
change the amount or time of any payment or prepayment of principal of, or
reduce the rate or change the time of payment or method of computation of
interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage
of the principal amount of the Notes the holders of which are required to
consent to any such amendment or waiver, or (iii) amend any of Sections 8,
11(a), 11(b), 12, 18 and 21.
Notwithstanding the provisions of the immediately preceding paragraph, you
and the Other Purchaser agree, and each other holder of Notes by its acceptance
of any Note shall be deemed to have agreed, to grant its written consent,
promptly following the receipt of written request by the Company for such
consent, to any amendment of, or waiver with respect to (prospectively only),
clause (ii) of Section 10.14(b), Section 10.15 or Section 10.16 in a manner
consistent with any one or more amendments of, or waivers with respect to, the
covenants in the Fleet/Chase Debt Facility that correspond to clause (ii) of
Section 10.14(b), Section 10.15 or Section 10.16, as the case may be (the
"Fleet/Chase Equivalent Provisions"); provided that (A) the Company shall have
delivered to each holder of Notes a copy of such amendment or waiver relating to
the Fleet/Chase Debt Facility, together with a certificate of a Responsible
Officer of the Company to the effect that such copy is true and complete and
that such amendment or waiver relating to the Fleet/Chase Debt Facility has
become effective in accordance with the terms of the Fleet/Chase Debt Facility
and (B) the effect of the requested amendment or waiver relating to clause (ii)
of Section 10.14(b),
127
<PAGE>
Section 10.15 or Section 10.16, as the case may be, shall be no less favorable
(and no more onerous) to the holders of Notes than the corresponding amendment
or waiver relating to the Fleet/Chase Debt Facility is to the banks that are
parties thereto. In addition, if any or all of the Fleet/Chase Equivalent
Provisions are deleted from the Fleet/Chase Debt Facility, or such facility is
terminated and not replaced by a substantially similar facility containing
provisions equivalent to the Fleet/Chase Equivalent Provisions, then one or more
of clause (ii) of Section 10.14(b), Section 10.15 and Section 10.16, whichever
shall correspond to the provisions eliminated from the Fleet/Chase Debt Facility
(or all such Sections if the Fleet/Chase Debt Facility shall be terminated and
not replaced, as stated above), shall be deemed to have been automatically
deleted from this Agreement without the need for any action by the Company or
the holders of the Notes.
Section 18.2. Solicitation of Holders of Notes.
(a) Solicitation. The Company will provide each holder of the Notes
(irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes. The Company will deliver executed or true and correct
copies of each amendment, waiver or consent effected pursuant to the provisions
of this Section 18 to each holder of outstanding Notes promptly following the
date on which it is executed and delivered by, or receives the consent or
approval of, the requisite holders of Notes.
(b) Payment. The Company will not directly or indirectly pay or cause to be
paid any remuneration, whether by way of supplemental or additional interest,
fee or otherwise, or grant any security, to any holder of Notes as consideration
for or as an inducement to the entering into by any holder of Notes of any
waiver or amendment of any of the terms and provisions hereof unless such
remuneration is concurrently paid, or security is concurrently granted, on the
same terms, ratably to each holder of Notes then outstanding even if such holder
did not consent to such waiver or amendment.
Section 18.3. Binding Effect, Etc. Any amendment or waiver consented to as
provided in this Section 18 applies equally to all holders of Notes and is
binding upon them and upon each future holder of any Note and upon the Company
without regard to whether such Note has been marked to indicate such amendment
or waiver. No such amendment or waiver will extend to or affect any obligation,
covenant, agreement, Default or Event of Default not expressly amended or waived
or impair any right consequent thereon. No course of dealing between the Company
and the holder of any Note nor any delay in exercising any rights hereunder or
under any Note shall operate as a waiver of any rights of any holder of such
Note. As used herein, the term "this Agreement" and references thereto shall
mean this Agreement as it may from time to time be amended or supplemented.
Section 18.4. Notes Held by Company, Etc. Solely for the purpose of
determining whether the holders of the requisite percentage of the aggregate
principal amount of Notes then outstanding
128
<PAGE>
approved or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Company or any of its
Affiliates shall be deemed not to be outstanding.
Section 19. Notices.
All notices and communications provided for hereunder shall be in writing
and sent (a) by telecopy if the sender on the same day sends a confirming copy
of such notice by a recognized overnight delivery service (charges prepaid), or
(b) by registered or certified mail with return receipt requested (postage
prepaid), or (c) by a recognized overnight delivery service (with charges
prepaid). Any such notice must be sent:
(i) if to you or your nominee, to you or it at the address specified
for such communications in Schedule A, or at such other address as you or
it shall have specified to the Company in writing,
(ii) if to any other holder of any Note, to such holder at such
address as such other holder shall have specified to the Company in
writing, or
(iii) if to the Company, to the Company at its address set forth at
the beginning hereof to the attention of Patrick G. Healy, Executive Vice
President, Finance & Chief Financial Officer, telecopier: 2036298883, or at
such other address as the Company shall have specified to the holder of
each Note in writing.
Notices under this Section 19 will be deemed given on the earlier of the date of
actual receipt thereof or the third Business Day after such notice shall have
been sent in the manner provided above.
Section 20. Reproduction of Documents.
This Agreement and all documents relating hereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by you at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to you, may be reproduced by you by any
photographic, photostatic, microfilm, microcard, miniature photographic or other
similar process and you may destroy any original document so reproduced. The
Company agrees and stipulates that, to the extent permitted by applicable law,
any such reproduction shall be admissible in evidence as the original itself in
any judicial or administrative proceeding (whether or not the original is in
existence and whether or not such reproduction was made by you in the regular
course of business) and any enlargement, facsimile or further reproduction of
such reproduction shall likewise be admissible in evidence. This Section 20
shall not prohibit the Company or any other holder of Notes from contesting any
such reproduction to the same extent that it could contest the original, or from
introducing evidence to demonstrate the inaccuracy of any such reproduction.
Section 21. Confidential Information.
129
<PAGE>
For the purposes of this Section 21, "Confidential Information" means
information delivered to you by or on behalf of the Company or any Subsidiary in
connection with the transactions contemplated by or otherwise pursuant to this
Agreement that is proprietary in nature and that was clearly marked or labeled
or otherwise adequately identified when received by you as being confidential
information of the Company or such Subsidiary, provided that such term does not
include information that
(a) was publicly known or otherwise known to you prior to the time of
such disclosure,
(b) subsequently becomes publicly known through no act or omission by
you or any person acting on your behalf,
(c) otherwise becomes known to you other than through disclosure by
the Company or any Subsidiary or by any other holder of a Note if the
disclosure of such Confidential Information to such other holder was made
subject to this Section 21, or
(d) constitutes financial statements delivered to you under Section
7.1 that are otherwise publicly available.
You will maintain the confidentiality of such Confidential Information in
accordance with procedures adopted by you in good faith to protect confidential
information of third parties delivered to you, provided that you may deliver or
disclose Confidential Information to
(i) your directors, officers, employees, agents, attorneys and
affiliates (to the extent such disclosure reasonably relates to the
administration of the investment represented by your Notes),
(ii) your financial advisors and other professional advisors who agree
to hold confidential the Confidential Information substantially in
accordance with the terms of this Section 20,
(iii) any other holder of any Note,
(iv) any Institutional Investor to which you sell or offer to sell
such Note or any part thereof or any participation therein (if such Person
has agreed in writing prior to its receipt of such Confidential Information
to be bound by the provisions of this Section 21),
(v) any Person from which you offer to purchase any Security of the
Company (if such Person has agreed in writing prior to its receipt of such
Confidential Information to be bound by the provisions of this Section 21),
(vi) any federal or state regulatory authority having jurisdiction
over you, (vii) the National Association of Insurance Commissioners or any
similar organization, or any nationally recognized rating agency that
requires access to information about your investment portfolio or
(viii) any other Person to which such delivery or disclosure may be
necessary or appropriate (w) to effect compliance with any law, rule,
regulation or order applicable to you, (x) in response to any subpoena or
other legal process, (y) in connection with any
130
<PAGE>
litigation to which you are a party or (z) it an Event of Default has
occurred and is continuing, to the extent you may reasonably determine such
delivery and disclosure to be necessary or appropriate in the enforcement
or for the protection of the rights and remedies under your Notes and this
Agreement.
Each holder of a Note, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 21 as
though it were a party to this Agreement. On reasonable request by the Company
in connection with the delivery to any holder of a Note of information required
to be delivered to such holder under this Agreement or requested by such holder
(other than a holder that is a party to this Agreement or its nominee), such
holder will enter into an agreement with the Company embodying the provisions of
this Section 21.
Section 22. Substitution of Purchaser.
You shall have the right to substitute any one of your Affiliates as the
purchaser of the Notes that you have agreed to purchase hereunder, by written
notice to the Company, which notice shall be signed by both you and such
Affiliate, shall contain such Affiliate's agreement to be bound by this
Agreement and shall contain a confirmation by such Affiliate of the accuracy
with respect to it of the representations set forth in Section 6. Upon receipt
of such notice, wherever the word "you" is used in this Agreement (other than in
this Section 22), such word shall be deemed to refer to such Affiliate in lieu
of you. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to you all of the Notes then
held by such Affiliate, upon receipt by the Company of notice of such transfer,
wherever the word "you" is used in this Agreement (other than in this Section
22), such word shall no longer be deemed to refer to such Affiliate, but shall
refer to you, and you shall have all the rights of an original holder of the
Notes under this Agreement.
Section 23. Miscellaneous.
Section 23.1. Successors and Assigns. All covenants and other agreements
contained in this Agreement by or on behalf of any of the parties hereto bind
and inure to the benefit of their respective successors and assigns (including,
without limitation, any subsequent holder of a Note) whether so expressed or
not.
Section 23.2. Payments Due on NonBusiness Days; When Payments Deemed
Received. (a) Payments Due on NonBusiness Days. Anything in this Agreement or
the Notes to the contrary notwithstanding, any payment of principal of or
MakeWhole Amount or interest on any Note that is due on a date other than a
Business Day shall be made on the next succeeding Business Day without including
the additional days elapsed in the computation of the interest payable on such
next succeeding Business Day.
(b) Payments, When Received. Any payment to be made to the holders of Notes
hereunder or under the Notes shall be deemed to have been made on the Business
Day such payment actually becomes available to such holder at such holder's bank
prior to 12:00 noon (local time of such bank).
131
<PAGE>
Section 23.3. Severability. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall (to the full extent permitted by law)
not invalidate or render unenforceable such provision in any other jurisdiction.
Section 23.4. Construction. Each covenant contained herein shall be
construed (absent express provision to the contrary or where the context clearly
would indicate otherwise) as being independent of each other covenant contained
herein, so that compliance with any one covenant shall not (absent such an
express contrary provision or where the context clearly would indicate
otherwise) be deemed to excuse compliance with any other covenant. Where any
provision herein refers to action to be taken by any Person, or which such
Person is prohibited from taking, such provision shall be applicable whether
such action is taken directly or indirectly by such Person.
Section 23.5. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one instrument. Each counterpart may consist of a number of copies
hereof, each signed by less than all, but together signed by all, of the parties
hereto.
Section 23.6. Governing Law. This Agreement shall be construed and enforced
in accordance with, and the rights of the parties shall be governed by, the law
of the State of New York excluding choiceoflaw principles of the law of such
state that would require the application of the laws of a jurisdiction other
than such state.
[Remainder of page intentionally blank. Next page is signature page.]
132
<PAGE>
If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
NFO Worldwide, Inc.
By
Name:
Title:
Allstate Life Insurance Company
By
Name:
By
Name:
Authorized Signatories
Allstate Life Insurance Company of New
York
By
Name:
By
Name:
Authorized Signatories
133
<PAGE>
Defined Terms
As used herein, the following terms have the respective meanings set forth
below or set forth in the Section hereof following such term:
"Acquisition" means any transaction (including any merger or consolidation,
but not including the formation of new Subsidiaries after the Closing Date)
pursuant to which the Company or any of its Restricted Subsidiaries (a) acquires
equity Securities (or warrants, options or other rights to acquire such
Securities) of any Person, other than the Company or any Person which is then a
Subsidiary, pursuant to a solicitation of tenders therefor, or in one or more
negotiated block, market or other transactions not involving a tender offer, or
a combination of any of the foregoing, or (b) makes any Person (other than a
Subsidiary of the Company) a Restricted Subsidiary, or causes any such Person to
be merged into or consolidated with the Company or any of its Restricted
Subsidiaries, in any case pursuant to a merger, a purchase of assets or any
reorganization providing for the delivery or issuance to the holders of such
Person's then outstanding Securities, in exchange for such Securities, of cash
or Securities of the Company or any of its Restricted Subsidiaries, or a
combination thereof, or (c) purchases all or substantially all of the business
or assets of any Person (other than a Subsidiary of the Company).
"Affiliate" means at any time, and with respect to any Person,
(a) any other Person that at such time directly or indirectly through
one or more intermediaries Controls, or is Controlled by, or is under
common Control with, such first Person, and
(b) any Person beneficially owning or holding, directly or indirectly,
10% or more of any class of voting or equity interests of the Company or
any Subsidiary or any corporation of which the Company and its Subsidiaries
beneficially own or hold, in the aggregate, directly or indirectly, 10% or
more of any class of voting or equity interests.
As used in this definition, "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of a Person, whether through the ownership of voting securities, by
contract or otherwise. Unless the context otherwise clearly requires, any
reference to an "Affiliate" is a reference to an Affiliate of the Company.
"Agreement, this" is defined in Section 18.3.
"Asset Disposition" means any Transfer except:
(a) any
(i) Transfer from a Restricted Subsidiary to the Company or
another Restricted Subsidiary, and
(ii) Transfer from the Company to a Restricted Subsidiary, so
long as immediately before and immediately after the consummation of
any such Transfer and after giving effect thereto, no Default or Event
of Default exists; and
(b) any Transfer made in the ordinary course of business and involving
only
134
<PAGE>
property that is either (i) inventory held for sale or (ii) equipment,
fixtures, supplies or materials no longer required in the operation of the
business of the Company or any of the Restricted Subsidiaries or that is
obsolete. "Attributable Debt" means, as to any particular lease relating to
a Sale-and-Leaseback
Transaction, the present value of all Long Term Lease Rentals required to be
paid by the Company or any Subsidiary under such lease during the remaining term
thereof (determined in accordance with generally accepted financial practice
using a discount factor equal to the interest rate implicit in such lease if
known or, if not known, of 7% per annum).
"Business Day" means (a) for the purposes of Section 8.6 only, any day
other than a Saturday, a Sunday or a day on which commercial banks in New York
City are required or authorized to be closed, and (b) for the purposes of any
other provision of this Agreement, any day other than a Saturday, a Sunday or a
day on which commercial banks in New York, Connecticut, Illinois or
Massachusetts are required or authorized to be closed.
"Capital Assets" means all property and equipment of the Company and the
Restricted Subsidiaries (after deducting any reserves applicable thereto) which
would be shown as such on a consolidated balance sheet of such Persons prepared
in accordance with GAAP.
"Capital Lease" means, at any time, a lease with respect to which the
lessee is required concurrently to recognize the acquisition of an asset and the
incurrence of a liability in accordance with GAAP.
"Capital Lease Obligation" means, with respect to any Person and a Capital
Lease, the amount of the obligation of such Person as the lessee under such
Capital Lease which would, in accordance with GAAP, appear as a liability on a
balance sheet of such Person.
"Capital Stock" means any class of capital stock, share capital or similar
equity interest of a Person.
"Closing" is defined in Section 3.
"Closing Date" is defined in Section 3.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"Company" is defined in the introductory sentence of this Agreement.
"Confidential Information" is defined in Section 21.
"Consolidated Current Debt" means all Current Debt of the Company and the
Restricted Subsidiaries, determined on a consolidated basis in accordance with
GAAP.
"Consolidated Funded Debt" means the sum of Consolidated Senior Funded Debt
plus Consolidated Subordinated Funded Debt.
"Consolidated Net Income" means, with reference to any period, the net
income (or loss) of the Company and the Restricted Subsidiaries for such period
(taken as a cumulative whole), as determined in accordance with GAAP, after
eliminating all offsetting debits and credits between the Company and the
Restricted Subsidiaries and all other items required to be eliminated in the
course
135
<PAGE>
of the preparation of consolidated financial statements of the Company and the
Restricted Subsidiaries in accordance with GAAP, provided that there shall be
excluded:
(a) the income (or loss) of any Person accrued prior to the date it
becomes a Restricted Subsidiary or is merged into or consolidated with the
Company or a Restricted Subsidiary, and the income (or loss) of any Person,
substantially all of the assets of which have been acquired in any manner,
realized by such other Person prior to the date of acquisition,
(b) the income (or loss) of any Person (other than a Restricted
Subsidiary) in which the Company or any Restricted Subsidiary has an
ownership interest, except to the extent that any such income has been
actually received by the Company or such Restricted Subsidiary in the form
of cash dividends or similar cash distributions,
(c) the undistributed earnings of any Restricted Subsidiary to the
extent that the declaration or payment of dividends or similar
distributions by such Restricted Subsidiary is not at the time permitted by
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to such
Restricted Subsidiary,
(d) any restoration to income of any contingency reserve, except to
the extent that provision for such reserve was made out of income accrued
during such period,
(e) any aggregate net gain, or any aggregate net loss, during such
period arising from the sale, conversion, exchange or other disposition of
Capital Assets,
(f) any gains resulting from any writeup of any assets, or any loss
resulting from any writedown of any assets,
(g) any net gain from the collection of the proceeds of life insurance
policies,
(h) any gain arising from the acquisition of any Security, or the
extinguishment, under GAAP, of any Debt, of the Company or any Restricted
Subsidiary,
(i) any net income or gain, or any net loss, during such period from
(i) any change in accounting principles in accordance with GAAP, (ii) any
prior period adjustments resulting from any change in accounting principles
in accordance with GAAP, (iii) any extraordinary items, or (iv) any
discontinued operations or the disposition thereof,
(j) in the case of a successor to the Company by consolidation or
merger or as a transferee of its assets, any earnings of the successor
corporation prior to such consolidation, merger or transfer of assets, and
(k) any portion of such net income that cannot be freely converted
into United States Dollars. "Consolidated Net Worth" means, at any time,
(a) Consolidated Total Assets minus
(b) the total liabilities of the Company and the Restricted
Subsidiaries which
136
<PAGE>
would be shown as liabilities on a consolidated balance sheet of the
Company and the Restricted Subsidiaries as of such time prepared in
accordance with GAAP.
"Consolidated Senior Funded Debt" means all Senior Funded Debt of the
Company and the Restricted Subsidiaries, determined on a consolidated basis in
accordance with GAAP.
"Consolidated Subordinated Funded Debt" means all Subordinated Funded Debt
of the Company and the Restricted Subsidiaries, determined on a consolidated
basis in accordance with GAAP.
"Consolidated Total Assets" means the total assets of the Company and the
Restricted Subsidiaries that would appear on a consolidated balance sheet of
such Persons prepared in accordance with GAAP.
"Consolidated Total Capitalization" means, at any time, the sum, without
duplication, of:
(a) Consolidated Funded Debt;
(b) the amount of all deferred income tax liabilities of the Company
and the RestrictedSubsidiaries, determined on a consolidated basis in
accordance with GAAP;
(c) all amounts properly attributable to minority interests, if any,
in the stock and surplus of Restricted Subsidiaries; and
(d) Consolidated Net Worth.
"Current Debt" means, with respect to any Person, all Debt of such Person
which by its terms or by the terms of any instrument or agreement relating
thereto matures on demand or within one year from the date of the creation
thereof and is not directly or indirectly renewable or extendible at the option
of the obligor in respect thereof to a date one year or more from such date,
provided that (a) Debt outstanding under a revolving credit or similar agreement
which obligates the lender or lenders to extend credit over a period of one year
or more and (b) Current Maturities of Funded Debt shall constitute Funded Debt
and not Current Debt, even though such Debt by its terms matures on demand or
within one year from such date.
"Current Maturities of Funded Debt" means, at any time and with respect to
any item of Funded Debt, the portion of such Funded Debt outstanding at such
time which by the terms of such Funded Debt or the terms of any instrument or
agreement relating thereto is due on demand or within one year from such time
(whether by sinking fund, other required prepayment or final payment at
maturity) and is not directly or indirectly renewable, extendible or refundable
at the option of the obligor under an agreement or firm commitment in effect at
such time to a date one year or more from such time.
"Debt" means, with respect to any Person, without duplication,
(a) its liabilities for borrowed money;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business but including, without limitation, all liabilities
created or arising under any conditional sale or other title retention
agreement with respect to any such property);
137
<PAGE>
(c) all liabilities appearing on its balance sheet in accordance with
GAAP in respect of Capital Leases; and
(d) any Guaranty of such Person with respect to liabilities of a type
described in clauses (a) to (c), inclusive, hereof.
Without limitation of the foregoing, Debt of any Person shall include all
obligations of such Person of the character described in clauses (a) through (c)
to the extent such Person remains legally liable in respect thereof
notwithstanding that any such obligation is deemed to be extinguished under
GAAP. Any Person extending, renewing or refunding any Debt (other than Existing
Debt) shall be deemed to have incurred such Debt at the time of such extension,
renewal or refunding.
"Debt Facility" means any agreement pursuant to which the Company or a
Restricted Subsidiary may incur Debt, as such agreement may be amended,
modified, restated or replaced by another agreement providing for the incurrence
of Debt by any such Person, except for any such amendment, modification,
restatement or replacement that provides for an increase in the amount of Debt
to an amount greater than that which could have been outstanding on the Closing
Date.
"Default" means an event or condition the occurrence or existence of which
would, with the lapse of time or the giving of notice or both, become an Event
of Default.
"Default Rate" means that rate of interest that is the greater of (i) 2%
per annum above the rate of interest stated in clause (a) of the first paragraph
of the Notes or (ii) 2% over the rate of interest publicly announced from time
to time by The Chase Manhattan Bank in New York, New York (or its successor) as
its "base" or "prime" rate.
"Dollars" or "$" means lawful currency of the United States of America.
"Environmental Laws" means any and all Federal, state, local, and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or governmental
restrictions relating to pollution and the protection of the environment or the
release of any materials into the environment, including but not limited to
those related to hazardous substances or wastes, air emissions and discharges to
waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA Affiliate" means any trade or business (whether or not incorporated)
that is treated as a single employer together with the Company under section 414
of the Code.
"Event of Default" is defined in Section 11.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Excluded Guaranties" means (i) the Guaranties of the Restricted
Subsidiaries issued on the Closing Date in respect of the Notes and the Senior
Notes, (ii) the Guaranties of the Restricted Subsidiaries issued on November 20,
1998 in respect of the Existing Senior Notes, the Existing Subordinated Notes
and the Debt under the Fleet/Chase Debt Facility, (iii) any other Guaranties of
Subsidiaries issued thereafter in respect of the Debt identified in the
foregoing clauses (i) and (ii),
138
<PAGE>
(iv) Guaranties of any refinancing, replacement or renewal of such Debt so long
as the aggregate principal amount of such Debt is not in excess of that
outstanding or, in the case of the Fleet/Chase Debt Facility, available to be
borrowed, immediately after giving effect to the sale of the Notes and the
Senior Notes on the Closing Date and the holders of such Debt (other than any
holders of Subordinated Funded Debt) are parties to the Sharing Agreement, and
(v) any Guaranties of Subsidiaries of the Existing Senior Notes, the Existing
Subordinated Notes, the Senior Notes, the Notes or the obligations of the
Company under the Fleet/Chase Debt Facility if Guaranties of such Subsidiaries
shall also have been issued in respect of the Notes pursuant to Section 9.7(a).
"Existing Current Debt" means Existing Debt which is Current Debt.
"Existing Debt" means
(a) Debt of the Company or any Restricted Subsidiary outstanding on
the Closing Date and identified on Schedule 5.15 (or included in the
aggregate amount set forth in Section 5.15), and any renewal, refinancing
or replacement thereof so long as there shall be no increase in the
principal amount of such Debt outstanding at the time of such renewal,
refinancing or replacement; and
(b) Debt incurred pursuant to a Debt Facility identified in Schedule
5.15 to which the Company or any Restricted Subsidiary is a party on the
Closing Date (regardless of whether any Debt is outstanding thereunder on
thc Closing Date), so long as the aggregate amount of Debt so incurred at
any time is not in excess of the maximum amount of Debt permitted to be
incurred thereunder on the Closing Date (assuming satisfaction of all
funding conditions on such date); and
(c) the Excluded Guaranties.
"Existing Senior Funded Debt" means Existing Debt which is Senior Funded
Debt.
"Existing Senior Note Purchase Agreements" means the March 1998 Senior Note
Purchase Agreements and the November 1998 Senior Note Purchase Agreements.
"Existing Senior Notes" means the March 1998 Senior Notes and the November
1998 Senior Notes.
"Existing Subordinated Funded Debt" means Existing Debt which is
Subordinated Funded Debt.
"Existing Subordinated Note Purchase Agreements" means the separate Note
Purchase Agreements dated as of November 20, 1998, among the Company and the
purchasers of the Existing Subordinated Notes, as amended, supplemented or
restated from time to time.
"Existing Subordinated Notes" means the Senior Subordinated Notes issued
under the Existing Subordinated Note Purchase Agreements, as such notes may be
amended, supplemented or restated from time to time other than any amendment
that would increase the principal amount thereof above the principal amount
outstanding as of the date of any such amendment.
"Fair Market Value" means, at any time and with respect to any property,
the sale value of such property that would be realized in an arm's-length sale
at such time between an informed and
139
<PAGE>
willing buyer and an informed and willing seller (neither being under a
compulsion to buy or sell).
"Fleet/Chase Debt Facility" means the Debt Facility evidenced by that
certain Credit Agreement dated as of March 9, 1998 among the Company, Fleet
National Bank and The Chase Manhattan Bank, as coagents, Fleet National Bank, as
administrative agent, and the other banks party thereto, providing for a
borrowing availability of up to $75 million.
"Funded Debt" means, with respect to any Person, all Debt of such Person
which by its terms or by the terms of any instrument or agreement relating
thereto matures, or which is otherwise payable or unpaid, one year or more from,
or is directly or indirectly renewable or extendible at the option of the
obligor in respect thereof to a date one year or more (including, without
limitation, an option of such obligor under a revolving credit or similar
agreement obligating the lender or lenders to extend credit over a period of one
year or more) from, the date of the creation thereof. The amount of Funded Debt
outstanding under any such revolving credit or similar agreement (including the
Fleet/Chase Debt Facility) on any date shall be deemed to be the average daily
amount outstanding under such facility during the period of 365 consecutive days
ending on and including such date, and not the actual amount outstanding on such
date; provided, however, that, (i) as used in the definitions of "Consolidated
Senior Funded Debt" and "Consolidated Funded Debt," but only as such terms are
used in Section 10.14, the amount of Funded Debt outstanding under any such
revolving credit or similar agreement (including the Fleet/Chase Debt Facility)
on any date shall be the actual amount outstanding on such date, and (ii) for
purposes of Sections 10.1, 10.2, 10.3 and 10.10 from and after the Closing Date,
the amount of Funded Debt outstanding under the Fleet/Chase Debt Facility during
the period beginning on November 20, 1998 and ending on the Closing Date, shall
not include an amount equal to the March 1999 Retired Funded Debt Amount.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"Governmental Authority" means
(a) the government of
(i) the United States of America or any state or other political
subdivision thereof, or
(ii) any jurisdiction in which the Company or any Subsidiary
conducts all or any part of its business, or that asserts jurisdiction
over any properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial, regulatory
or administrative functions of, or pertaining to, any such government.
"Guarantor" means, at any time, each Person (including, without limitation,
each of the Initial Guarantors) that at such time is a Guarantor under a
Guaranty Agreement.
"Guaranty" means, with respect to any Person, any obligation (except the
endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person
140
<PAGE>
guaranteeing or in effect guaranteeing any indebtedness, dividend or other
obligation of any other Person in any manner, whether directly or indirectly,
including, without limitation, obligations incurred through an agreement,
contingent or otherwise, by such Person:
(a) to purchase such indebtedness or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or payment of such
indebtedness or obligation, or (ii) to maintain any working capital or
other balance sheet condition or any income statement condition of any
other Person or otherwise to advance or make available funds for the
purchase or payment of such indebtedness or obligation;
(c) to lease properties or to purchase properties or services
primarily for the purpose of assuring the owner of such indebtedness or
obligation of the ability of any other Person to make payment of the
indebtedness or obligation; or
(d) otherwise to assure the owner of such indebtedness or obligation
against loss in respect thereof. In any computation of the indebtedness or
other liabilities of the obligor under any Guaranty, the indebtedness or
other obligations that are the subject of such Guaranty shall be assumed to
be direct obligations of such obligor.
"Guaranty Agreements" shall mean each of the Guaranty Agreements executed
by the Initial Guarantors pursuant to Section 4.14 and each of the other
Guaranty Agreements executed and delivered from time to time pursuant to Section
9.7, in each case as amended or supplemented from time to time.
"Hazardous Material" means any and all pollutants, toxic or hazardous
wastes or any other substances that might pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
or shall be restricted, prohibited or penalized by any applicable law
(including, without limitation, asbestos, urea formaldehyde foam insulation and
polychlorinated biphenyls).
"holder" means, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to Section
14.1.
"IBH Debt" means the Debt of Infratest and its subsidiaries in the
aggregate principal amount that could have been incurred under the credit
facilities to which Infratest is a party as of November 20, 1998.
"Indebtedness" means, with respect to any Person, without duplication,
(a) its liabilities for borrowed money and its redemption obligations
in respect of mandatorily redeemable Preferred Stock;
(b) its liabilities for the deferred purchase price of property
acquired by such Person (excluding accounts payable arising in the ordinary
course of business but including all liabilities created or arising under
any conditional sale or other title retention agreement
141
<PAGE>
with respect to any such property);
(c) all liabilities appearing on its balance sheet in accordance with
GAAP in respect of Capital Leases;
(d) all liabilities for borrowed money secured by any Lien with
respect to any property owned by such Person (whether or not it has assumed
or otherwise become liable for such liabilities);
(e) all its liabilities in respect of letters of credit or instruments
serving a similar function issued or accepted for its account by banks and
other financial institutions (whether or not representing obligations for
borrowed money);
(f) Swaps of such Person; and
(g) any Guaranty of such Person with respect to liabilities of a type
described in any of clauses (a) through (f) hereof.
Without limitation of the foregoing, Indebtedness of any Person shall include
all obligations of such Person of the character described in clauses (a) through
(g) to the extent such Person remains legally liable in respect thereof
notwithstanding that any such obligation is deemed to be extinguished under
GAAP.
"Infratest" means Infratest Burke Aktiengesellschaft Holding, a German
Aktiengesellschaft (stock corporation).
"Initial Guarantor" means each of Migliara/Kaplan Associates, Inc., a
Delaware corporation, NFO Research, Inc., a Delaware corporation, Plog Research
Inc., a Delaware corporation, Prognostics Corp., a Delaware corporation, PSI
Holding Corp., a Delaware corporation, and Ross-Cooper-Lund, Inc., a Delaware
corporation.
"Institutional Investor" means (a) any original purchaser of a Note, (b)
any holder of a Note holding more than 5% of the aggregate principal amount of
the Notes then outstanding, and (c) any bank, trust company, savings and loan
association or other financial institution, any pension plan, any investment
company, any insurance company, any broker or dealer, or any other similar
financial institution or entity, regardless of legal form.
"InterCompany Debt" means Debt of the Company owing to any WhollyOwned
Restricted Subsidiary or Debt of any Restricted Subsidiary owing to the Company
or one or more WhollyOwned Restricted Subsidiaries.
"Investment" means any investment, made in cash or by delivery of property,
by the Company or any of the Restricted Subsidiaries in any Person, whether by
acquisition of stock, Debt or other obligation or Security, or by loan,
Guaranty, advance, capital contribution or otherwise.
"Lien" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, lender or other secured party to or of such Person under any
conditional sale or other title retention agreement or Capital Lease, upon or
with respect to any property or asset of such Person (including in the case of
stock,
142
<PAGE>
stockholder agreements, voting trust agreements and all similar arrangements to
the extent that such arrangements affect control of the issuer of such stock or
the payment of dividends by such issuer).
"Long Term Lease Rentals" means, for a lease (other than a Capital Lease)
arising from a Sale-and-Leaseback Transaction having a term (including terms of
renewal or extension at the option of the lessor or the lessee, whether or not
such option has been exercised) expiring more than two (2) years after the
commencement of the initial term thereof, the sum of the minimum amount of
rental and other obligations required to be paid during such period by the
Company or any Subsidiary as lessee, excluding any amounts required to be paid
by the lessee (whether or not therein designated as rent or additional rent) (a)
which are on account of maintenance and repairs, insurance, taxes, assessments,
water rates and similar charges, or (b) which are based on profits, revenues or
sales realized by the lessee from the leased property or otherwise based on the
performance of the lessee.
"MakeWhole Amount" is defined in Section 8.6.
"March 1998 Senior Note Purchase Agreements" means the separate Note
Purchase Agreements dated as of March 9, 1998, among the Company and the
purchasers of the March 1998 Senior Notes, as amended November 20, 1998, as
amended, supplemented or restated from time to time.
"March 1998 Senior Notes" means the Senior Notes issued under the March
1998 Senior Note Purchase Agreements, as such notes may be amended, supplemented
or restated from time to time other than any amendment that would increase the
principal amount thereof above the principal amount outstanding as of the date
of any such amendment.
"March 1999 Retired Funded Debt Amount" means the aggregate principal
amount of Funded Debt outstanding under the Fleet/Chase Debt Facility which
shall be repaid on the Closing Date from the proceeds of the issuance and sale
of the Notes and the Senior Notes.
"Material" means material in relation to the business, operations, affairs,
financial condition, assets, properties, or prospects of the Company and its
Subsidiaries taken as a whole.
"Material Adverse Effect" means a material adverse effect on (a) the
business, operations, affairs, financial condition, assets or properties of the
Company and its Subsidiaries taken as a whole, or (b) the ability of the Company
to perform its obligations under this Agreement and the Notes, or (c) the
validity or enforceability of this Agreement or the Notes.
"Memorandum" is defined in Section 5.3.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such
term is defined in section 4001 (a)(3) of ERISA).
"Net Proceeds Amount" means, with respect to any Transfer of any Property
by any Person, an amount equal to the difference of:
(a) the aggregate amount of the consideration (valued at the Fair
Market Value of such consideration at the time of the consummation of such
Transfer) received by such Person in respect of such Transfer, minus
143
<PAGE>
(b) all ordinary and reasonable outofpocket costs and expenses
actually incurred by such Person in connection with such Transfer, and all
taxes arising on account of any gains in respect of such Transfer which are
actually payable by such Person.
"Notes" is defined in Section 1.
"November 1998 Senior Note Purchase Agreements" means the separate Note
Purchase Agreements dated as of November 20, 1998, among the Company and the
purchasers of the November 1998 Senior Notes, as amended, supplemented or
restated from time to time.
"November 1998 Senior Notes" means the Senior Notes issued under the
November 1998 Senior Note Purchase Agreements, as such notes may be amended,
supplemented or restated from time to time other than any amendment that would
increase the principal amount thereof above the principal amount outstanding as
of the date of any such amendment.
"Officer's Certificate" means a certificate of a Senior Financial Officer
or of any other officer of the Company whose responsibilities extend to the
subject matter of such certificate.
"Other Agreement" is defined in Section 2.
"Other Purchaser" is defined in Section 2.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Person" means an individual, a partnership, a corporation, a limited
liability company, an association, a trust, an unincorporated organization, or a
government or agency or political subdivision thereof.
"Plan" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) or other plan that is or, within the preceding five years, has been
established or maintained, or to which contributions are or, within the
preceding five years, have been made or required to be made, by the Company or
any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate
may have any liability which is covered by Title IV of ERISA.
"Preferred Stock" means any class of Capital Stock of a Person that is
preferred over any other class of Capital Stock of such Person as to the payment
of dividends or other equity distributions or the payment of any amount upon
liquidation or dissolution of such Person.
"Pro Forma Consolidated Interest Expense" means, in respect of any period,
all interest in respect of Debt of the Company and the Restricted Subsidiaries
(including imputed interest on Capital Lease Obligations) deducted in
determining Consolidated Net Income for such period, determined as if
(a) all Persons which became or ceased to be Restricted Subsidiaries
during such period had become or ceased to be Restricted Subsidiaries on
the first day of such period, and
(b) all acquisitions or dispositions of all or substantially all of
the assets of any Person or Restricted Subsidiary which occurred during
such period had occurred on the first
144
<PAGE>
day of such period (and all incurrences or retirements of Debt in
connection with any such acquisition or disposition had occurred on such
first day).
For purposes of this definition, in determining the interest that would have
accrued during any period on Debt which bears a floating rate of interest, the
interest rate in effect for all of such period shall be deemed to be the
interest rate that would have been in effect on the first day of such period had
such Debt been outstanding on such day.
"Pro Forma EBITDA" means, in respect of any period, Consolidated Net Income
for such period plus, to the extent deducted in the determination thereof for
such period, each of the following:
(a) Pro Forma Consolidated Interest Expense;
(b) all depreciation and amortization allowances and other noncash
expenses of the Company and the Restricted Subsidiaries; and
(c) all taxes imposed on or measured by income or excess profits; in
each case determined as if (i) all Persons which became or ceased to be
Restricted Subsidiaries during such period had become or ceased to be
Restricted Subsidiaries on the first day of such period, (ii) all
acquisitions or dispositions of all or substantially all of the assets of
any Person or Restricted Subsidiary which occurred during such period had
occurred on the first day of such period (and all incurrences or
retirements of Debt in connection with any such acquisition or disposition
had occurred on such first day), and (iii) all planned future reductions in
the compensation paid during such period to the owners of the equity
interests in any Person referred to in the foregoing clauses (i) and (ii)
had been in effect on the first day of such period. For purposes of the
immediately preceding clause (iii), a planned future reduction in the
compensation of any such owner shall be deemed to mean the amount by which
the salary and bonus payable to such owner in respect of the period for
which Pro Forma EBITDA is to be determined (the "Reference Period") exceeds
the salary and bonus the Company intends to pay such owner for the
equivalent period immediately following the Reference Period, as evidenced
by the written agreement of such owner.
"property or properties" means, unless otherwise specifically limited, real
or personal property of any kind, tangible or intangible, choate or inchoate.
"PTE" is defined in Section 6.2(a).
"QPAM Exemption" is defined in Section 6.2(d).
"Qualified Institutional Buyer" means any Person who is a "qualified
institutional buyer" within the meaning of such term as set forth in Rule
144A(a)(1) under the Securities Act.
"Required Holders" means, at any time, the holder or holders of at least
51% in principal amount of the Notes at the time outstanding (exclusive of Notes
then owned by the Company or any of its Affiliates).
"Required Senior Debt Holders" means as of the date of any determination
under this Agreement, (a) in the case of any notice pursuant to Section 13(c) or
(d), either (x) the holders of 35% in aggregate principal amount of the Senior
Notes and the Existing Senior Notes voting as a
145
<PAGE>
single class, or (y) the Administrative Agent under the Fleet/Chase Debt
Facility (including any successor to Fleet National Bank, as Administrative
Agent), and (b) in the case of any notice pursuant to Section 13(e) a
notice from the holders of the Requisite Senior Debt,
No notice shall be effective:
(i) pursuant to Section 13(c) unless, in the case of any notice from
the holders of the Senior Notes and the Existing Senior Notes, the
aggregate unpaid principal amount of such Senior Debt then outstanding
shall be more than $10,000,000 and in the case of any notice from the
Administrative Agent under the Fleet/Chase Debt Facility, the aggregate
unpaid principal amount of Senior Debt outstanding under the Fleet/Chase
Debt Facility shall be more than $10,000,000, provided that if neither
group of holders of Senior Debt shall hold an amount in excess of the
required minimum set forth in this clause (i), then the minimum outstanding
principal amount for each group shall be reduced to $5,000,000, and
(ii) pursuant to Section 13(d) unless, in the case of any notice from
the holders of the Senior Notes and the Existing Senior Notes, the
aggregate unpaid principal amount of such Senior Debt then outstanding
shall be more than $15,000,000 and in the case of any notice from the
Administrative Agent under the Fleet/Chase Debt Facility, the aggregate
unpaid principal amount of Senior Debt outstanding under the Fleet/Chase
Debt Facility shall be more than $15,000,000, provided that if neither
group of holders of Senior Debt shall hold an amount in excess of the
required minimum set forth in this clause (ii), then the minimum
outstanding principal amount for each group shall be reduced to $5,000,000.
"Requisite Senior Debt" shall mean (x) in the case of the Senior Notes and
the Existing Senior Notes, the holders of 51% in aggregate unpaid principal
amount of such Senior Debt voting as a single class, and (y) in the case of the
Fleet/Chase Debt Facility, the vote of the Administrative Agent and in each case
voting in accordance with the following:
(i) a vote from both classes of Senior Debt if, (x) the Senior Notes
and the Existing Senior Notes shall be outstanding in the aggregate unpaid
principal amount equal to or more than $15,000,000, and the aggregate
unpaid principal amount of Senior Debt outstanding under the Fleet/Chase
Debt Facility shall be equal to or more than $15,000,000; or (y) the Senior
Notes and the Existing Senior Notes shall be outstanding in an aggregate
unpaid principal amount less than $15,000,000 but more than $5,000,000 and
the aggregate unpaid principal amount of Senior Debt outstanding under the
Fleet/Chase Debt Facility shall be less than $15,000,000 but more than
$5,000,000;
(ii) a vote from only the Senior Notes and the Existing Senior Notes
if the Senior Notes and the Existing Senior Notes shall be outstanding in
the aggregate unpaid principal amount equal to or more than $15,000,000,
and the aggregate unpaid principal amount of Senior Debt outstanding under
the Fleet/Chase Debt Facility shall be less than $15,000,000;
(iii) a vote from only the Administrative Agent if the Senior Debt
outstanding
146
<PAGE>
under the Fleet/Chase Debt Facility shall be outstanding in an aggregate
unpaid principal amount equal to or more than $15,000,000 and the aggregate
unpaid principal amount of Senior Notes and the Existing Senior Notes shall
be less than $15,000,000;
(iv) a vote from only the Senior Notes and the Existing Senior Notes
if the Senior Notes and the Existing Senior Notes shall be outstanding in
the aggregate unpaid principal amount less than $15,000,000 but equal to or
more than $5,000,000, and the aggregate unpaid principal amount of Senior
Debt outstanding under the Fleet/Chase Debt Facility shall be less than
$5,000,000;
(v) a vote from only the Administrative Agent if the Senior Debt
outstanding under the Fleet/Chase Debt Facility shall be outstanding in the
aggregate unpaid principal amount less than $15,000,000 but equal to or
more than $5,000,000, and the aggregate unpaid principal amount of Senior
Notes and the Existing Senior Notes shall be less than $5,000,000; and
(vi) a vote of a majority in aggregate principal amount of both
classes of Senior Debt (voting as a single class) if the aggregate unpaid
principal amount of the Senior Notes and the Existing Senior Notes is less
than $5,000,000 and the unpaid principal amount of Senior Debt outstanding
under the Fleet/Chase Debt Facility is less than $5,000,000.
"Responsible Officer" means any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this Agreement.
"Restricted Investments" means all Investments except the following:
(a) current assets arising from the sale of goods and services in the
ordinary course of business of the Company and the Restricted Subsidiaries;
(b) Investments in the Company or one or more Restricted Subsidiaries
in the ordinary course of business;
(c) Investments in any Person which, after giving effect to such
transaction, would be a Restricted Subsidiary;
(d) advances to officers, directors and employees of the Company or
any of the Restricted Subsidiaries for expenses incurred in the ordinary
course of business of the Company or such Restricted Subsidiary;
(e) Investments in United States Governmental Securities;
(f) Investments in certificates of deposit or banker's acceptances
issued by an Acceptable Bank;
(g) Investments in debt obligations of issuers organized under the
laws of the United States of America, any state thereof or the District of
Columbia and rated "A" or better by S&P, "A2" or better by Moody's, or an
equivalent rating by any other credit rating agency of recognized national
standing;
(h) Investments in preferred stock of issuers organized under the laws
of the United States of America, any state thereof or the District of
Columbia and rated "A" or
147
<PAGE>
better by S&P, "A2" or better by Moody's or an equivalent rating by any
other credit rating agency of recognized national standing;
(i) Investments in obligations of any state of the United States of
America, or any governmental subdivision of any such state, in each case
rated "A" or better by S&P, "A2" or better by Moody's or an equivalent
rating by any other credit rating agency of recognized national standing;
(j) Investments which are incurred in connection with transactions
permitted by Section 10.10; and
(k) to the extent not included in the foregoing clauses (a) to (j),
inclusive, cash and cash equivalents.
As of any date of determination, each Restricted Investment shall be valued
at the greater of:
(x) the amount at which such Restricted Investment is shown on the
books of the Company or any of the Restricted Subsidiaries (or zero if such
Restricted Investment is not shown on any such books); and
(y) either
(i) in the case of any Guaranty of the obligation of any Person,
the amount which the Company or any of the Restricted Subsidiaries has
paid on account of such obligation less any recoupment by the Company
or such Restricted Subsidiary of any such payments, or
(ii) in the case of any other Restricted Investment, the excess
of (x) the greater of (A) the amount originally entered on the books
of the Company or any of the Restricted Subsidiaries with respect
thereto and (B) the cost thereof to the Company or the Restricted
Subsidiary over (y) any return of capital (after income taxes
applicable thereto) upon such Restricted Investment through the sale
or other liquidation thereof or part thereof or otherwise.
As used in this definition of "Restricted Investments":
"Acceptable Bank" means any bank or trust company (i) which is organized
under the laws of the United States of America or any State thereof, (ii) which
has capital, surplus and undivided profits aggregating at least $50,000,000, and
(iii) which has outstanding senior unsecured Debt rated "A" or better by S&P,
"A2" or better by Moody's or an equivalent rating by any other credit rating
agency of recognized national standing.
"Moody's" means Moody's Investors Service, Inc.
"S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill,
Inc.
"United States Governmental Security" means any direct obligation of, or
obligation guaranteed by, the United States of America, or any agency controlled
or supervised by or acting as an instrumentality of the United States of America
pursuant to authority granted
148
<PAGE>
by the Congress of the United States of America, so long as such obligation or
guarantee shall have the benefit of the full faith and credit of the United
States of America which shall have been pledged pursuant to authority granted by
the Congress of the United States of America.
"Restricted Subsidiary" means any Subsidiary of the Company other than an
Unrestricted Subsidiary.
"Restricted Subsidiary Stock" means, with respect to any Person, the
Capital Stock (or any options or warrants to purchase stock or other Securities
exchangeable for or convertible into stock) of any Restricted Subsidiary owned
by such Person.
"SaleandLeaseback Transaction" means a transaction or series of
transactions pursuant to which the Company or any Restricted Subsidiary shall
sell or transfer to any Person (other than the Company or a Restricted
Subsidiary) any property, whether now owned or hereafter acquired, and, as part
of the same transaction or series of transactions, the Company or any Restricted
Subsidiary shall rent or lease as lessee (other than pursuant to a Capital
Lease), or similarly acquire the right to possession or use of, such property or
one or more properties which it intends to use for the same purpose or purposes
as such property.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Security" has the meaning set forth in section 2(1) of the Securities Act.
"Senior Debt" shall mean all Indebtedness for borrowed money of the Company
other than Subordinated Funded Debt. For purposes of the subordination
provisions set forth in Section 13, all trade or accounts payable of the Company
shall be specifically excluded from the definition of Senior Debt.
"Senior Financial Officer" means the chief financial officer, principal
accounting officer, treasurer or controller of the Company.
"Senior Funded Debt" means (a) any Funded Debt of the Company (other than
Subordinated Funded Debt) and (b) any Funded Debt of any Restricted Subsidiary.
"Senior Note Purchase Agreement" means the separate Note Purchase
Agreements, dated as of March 15, 1999, among the Company and the purchasers of
the Senior Notes issued thereunder as amended, supplemented or restated from
time to time.
"Senior Note Purchasers" means the purchasers of the Senior Notes.
"Senior Notes" means the senior promissory notes issued under the Senior
Note Purchase Agreement, as such notes may be amended, supplemented or restated
from time to time other than any amendment that would increase the principal
amount thereof above the principal amount outstanding as of the date of any such
amendment.
"Sharing Agreement" means that certain Amended and Restated Sharing
Agreement, dated as of March 15, 1999, among the holders of the Existing Senior
Notes, the Senior Notes and the banks party to the Fleet/Chase Credit Facility,
as further amended, supplemented or restated from time to time, including
without limitation, amendments which add additional parties thereto.
149
<PAGE>
"Source" is defined in Section 6.2.
"Specified Senior Debt" means the Existing Senior Notes, the Senior Notes,
and the loans outstanding under the Fleet/Chase Debt Facility.
"Subordinated Funded Debt" means the Notes, the Existing Subordinated Notes
and any other unsecured Funded Debt that is subordinated in right of payment or
security to the Debt of the Company substantially in the manner set forth in
Section 13 or in such other manner as shall be satisfactory to the Required
Holders.
"Subsidiary" means, as to any Person, any corporation, association or other
business entity in which such Person or one or more of its Subsidiaries or such
Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership or joint venture can and does ordinarily
take major business actions without the prior approval of such Person or one or
more of its Subsidiaries). Unless the context otherwise clearly requires, any
reference to a "Subsidiary" is a reference to a Subsidiary of the Company.
"Successor Corporation" is defined in Section 10.10.
"Swaps" means, with respect to any Person, payment obligations with respect
to interest rate swaps, currency swaps and similar obligations obligating such
Person to make payments, whether periodically or upon the happening of a
contingency. For the purposes of this Agreement, the amount of the obligation
under any Swap shall be the amount determined in respect thereof as of the end
of the then most recently ended fiscal quarter of such Person, based on the
assumption that such Swap had terminated at the end of such fiscal quarter, and
in making such determination, if any agreement relating to such Swap provides
for the netting of amounts payable by and to such Person thereunder or if any
such agreement provides for the simultaneous payment of amounts by and to such
Person, then in each such case, the amount of such obligation shall be the net
amount so determined.
"Transfer" means, with respect to any Person, any transaction in which such
Person sells, conveys, transfers or leases (as lessor) any of its property,
including, without limitation, Restricted Subsidiary Stock.
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such by the Company by written notice to the holders of the Notes given within 5
Business Days of such designation, provided that, at the time of such
designation,
(a) such Subsidiary does not own any Funded Debt or Capital Stock
of the Company or any Restricted Subsidiary,
(b) no Default or Event of Default would exist, and
150
<PAGE>
(c) the Company would be able to incur $1 of Funded Debt pursuant
to both Section 10.1 and Section 10.2;
provided further that such notice shall contain a statement to the effect that
all conditions to such designation have been satisfied and shall set forth the
calculations reasonably necessary to show satisfaction of the condition set
forth in the foregoing clause (c). Any Subsidiary of the Company designated as
an Unrestricted Subsidiary may not thereafter be a Restricted Subsidiary.
"WhollyOwned Restricted Subsidiary" means, at any time, any Restricted
Subsidiary 100% of all of the equity interests (except directors' qualifying
shares) and voting interests of which are owned by any one or more of the
Company and the Company's other WhollyOwned Restricted Subsidiaries at such
time.
151
<TABLE>
<CAPTION>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Jurisdiction Directly Held By
Subsidiary of Incorporation and Wholly Owned By
---------- ---------------- -------------------
<S> <C> <C>
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.
Prognostics Corp. Delaware NFO Worldwide, Inc.
Migliara/Kaplan Associates,
Inc. Delaware NFO Worldwide, Inc.
NFO USA, Inc. Delaware NFO Worldwide, Inc.
NFO International, Inc. Delaware NFO Worldwide, Inc.
Chesapeake Surveys, Inc. Delaware Migliara/Kaplan
Associates, Inc.
Stochastic International Delaware NFO Research, Inc.
Ross-Cooper-Lund Delaware NFO USA, Inc.
MarketMind Inc. Delaware NFO USA, Inc.
NFO Europe, Inc. Delaware NFO International, Inc.
NFO APIM, Inc. Delaware NFO International, Inc.
NFO APLT, Inc. Delaware NFO Europe, Inc.
NFO Germany, Inc. Delaware NFO Europe, Inc.
NFO France, Inc. Delaware NFO Europe, Inc.
NFO Italy, Inc. Delaware NFO Europe, Inc.
NFO U.K., Inc. Delaware NFO Europe, Inc.
NFO Asia-Pacific, Inc. Delaware NFO APIM, Inc.
152
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Jurisdiction Directly Held By
Subsidiary of Incorporation and Wholly Owned By
---------- ---------------- -------------------
The MBL Group, Inc. Delaware NFO UK, Inc.
Access Research, Inc. Delaware Payment Systems, Inc.
NFO Canada, Inc. Ontario, Canada NFO Worldwide, Inc.
CF Group, Inc. Ontario, Canada NFO Canada, Inc.
Payment Systems
International Limited United Kingdom The MBL Group Plc
BJM Research and
Consulting Ltd. United Kingdom The MBL Group Plc
Marketing Blueprint Ltd. United Kingdom The MBL Group Plc
Market Behaviour Ltd. United Kingdom The MBL Group Plc
City Research Group Plc United Kingdom Payment Systems, Inc.
City Research Associate, Ltd. United Kingdom City Research Group Plc
Applied Research and
Communications, Ltd. United Kingdom City Research Group Plc
Strategic Marketing Consultancy
Limited United Kingdom City Research Group Plc
NFO Europe (Deutschland)
Holding GmbH United Kingdom NFO Europe, Inc.
NFO Europe (Deutschland) NFO Europe (Deutsch-
Verwaltungs GmbH United Kingdom land) Holding GmbH
NFO Europe (Deutschland) NFO Europe (Deutsch-
GmbH & Co. KG United Kingdom land) Holding GmbH
Infratest Burke Aktiengesellschaft NFO Europe (Deutsch-
Holding, Inc. ("Infratest Burke") Germany land GmbH & Co. KG
Infratest Burke Verwaltungs GmbH Germany Infratest Burke
Infratest Burke GmbH & Co. Germany Infratest Burke
Infratest Burke InCom
Beteiligungs GmbH Germany Infratest Burke
153
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Jurisdiction Directly Held By
Subsidiary of Incorporation and Wholly Owned By
---------- ---------------- -------------------
Infratest Burke InCom GmbH Germany Infratest Burke
Infratest dimap Gesellschaft fur
Trendund Wahlforschung GmbH Germany Infratest Burke
Infratest Burke Sozialforschung
Beteiligungs GmbH Germany Infratest Burke
Infratest Burke Sozialforschung
GmbH & Co. Germany Infratest Burke
Infratest Burke Wirtschaftsforschung
Beteiligungs GmbH Germany Infratest Burke
Infratest Burke Wirtschaftsforschung
GmbH & Co. Germany Infratest Burke
Infratest Burke GmbH & Co. -
Marketingforschung Germany Infratest Burke
Testpanel-Martkforschungsinsttut Germany Infratest Burke
GmbH
TPI-Beteiligungs GmbH Germany Infratest Burke
Nexxus Kommunikationsanlagen
GmbH Germany Infratest Burke
Infratest Burke Beteiligungs GmbH Germany Infratest Burke
Infratest Forschung GmbH Germany Infratest Burke
Infratest Gesundheitsforschung GmbH Germany Infratest Burke
Infratest Gesundheitsforschung
GmbH & Co. Germany Infratest Burke
KFM Klinische Forschung GmbH Germany Infratest Burke
Infratest Burke International GmbH
Holding Germany Infratest Burke
Infratest Burke Group Ltd. United Kingdom Infratest Burke
Infratest Burke Ltd. United Kingdom Infratest Burke
154
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Jurisdiction Directly Held By
Subsidiary of Incorporation and Wholly Owned By
---------- ---------------- -------------------
Public Attitude Surveys Holding Ltd. United Kingdom Infratest Burke
Public Attitude Surveys Limited United Kingdom Infratest Burke
System Three (Scotland) Ltd. United Kingdom Infratest Burke
Consumer Insights Limited United Kingdom Infratest Burke
Infratest Burke InterNational
Services Ltd. United Kingdom Infratest Burke
Infratest Burke Asia Pacific Ltd. United Kingdom Infratest Burke
Infratest Burke Core Company Ltd. United Kingdom Infratest Burke
Infratest Burke S.a.r.l. France Infratest Burke
InfraForces S.a.r.l. France Infratest Burke
T.E.S.T. S.A. France Infratest Burke
Infratest Burke S.p.A. Italy Infratest Burke
Infratest Burke AB Sweden Infratest Burke
Infratest Burke Core Company AB Sweden Infratest Burke
Nomina Telemarketing AB Sweden Infratest Burke
Infratest Burke ApS Denmark Infratest Burke
Trendbox B.V. Netherlands Infratest Burke
Plus Remark Research for
Marketing Turkey Infratest Burke
Infratest U.S. Inc. USA Infratest Burke
NFO Donovan Research Pty, Ltd. Australia NFO Asia-Pacific, Inc.
CM Research New Zealand NFO Asia-Pacific, Inc.
MERAC WLL Ltd. Bahrain The MBL Group Plc
155
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Jurisdiction Directly Held By
Subsidiary of Incorporation and Wholly Owned By
---------- ---------------- -------------------
MERAC EGYPT Ltd. Egypt MERAC WLL Ltd.
MERAC Arabia Company Ltd. Saudi Arabia MERAC WLL Ltd.
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.
Market Behaviour
(Thailand) Ltd. Thailand MBL Asia-Pacific Ltd.
Market Behaviour
(Malaysia) Ltd. Malaysia MBL Asia-Pacific 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
(Vietnam) Ltd. Hong Kong MBL Asia-Pacific Ltd.
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) Market Behaviour (Inter-
Ltd. Taiwan Branch Hong Kong national) Ltd. Taiwan
Market Behaviour
(International) Ltd. Hong Kong MBL Asia-Pacific Ltd.
International Research
Associates (Hong Kong) Ltd. Hong Kong MBL Asia-Pacific Ltd.
156
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE COMPANY
Jurisdiction Directly Held By
Subsidiary of Incorporation and Wholly Owned By
---------- ---------------- -------------------
Consensus-MB Ltd.:Indonesia Hong Kong MBL Asia-Pacific Ltd.
PT Continental Seraratama
Surveys Indonesia Consensus-MB Ltd:
Indonesia
Market Behaviour (Singapore)
Plc Ltd: Singapore MBL Asia-Pacific Ltd.
PSI Singapore LC Singapore NFO APIM, Inc.
Trends-MBL Inc. Philippines MBL Asia-Pacific Ltd.
</TABLE>
157
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 26, 1999, except for Note 21, as to which
the date is March 23, 1999, included in NFO Worldwide, Inc.'s annual report on
Form 10-K for the year ended December 31, 1998, into the Company's previously
filed Registration Statements, File Nos. 33-73516, 33-83002, 33-91936,
333-24297, 333-24299, 333-38497, 333-51929, and 333-58067.
/s/ ARTHUR ANDERSEN LLP
- -----------------------
New York, New York,
March 29, 1999.
158
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 for each
of the years in the two year period ended December 31, 1997, included in NFO
Worldwide, Inc.'s annual report on Form 10-K for the year ended December 31,
1998, into NFO Worldwide, Inc.'s previously filed Registration Statements, File
Nos. 33-73516, 33-83002, 33-91936, 333-24297, 333-24299, 333-38497, 333-51929,
and 333-58067.
/s/ Soteriou Banerji
- --------------------
London, England,
March 29, 1999.
159
<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, 1998, 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-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 17,739
<SECURITIES> 0
<RECEIVABLES> 121,741
<ALLOWANCES> 967
<INVENTORY> 0
<CURRENT-ASSETS> 154,037
<PP&E> 61,029
<DEPRECIATION> 16,557
<TOTAL-ASSETS> 451,798
<CURRENT-LIABILITIES> 122,122
<BONDS> 190,657
<COMMON> 214
0
0
<OTHER-SE> 121,549
<TOTAL-LIABILITY-AND-EQUITY> 451,798
<SALES> 275,351
<TOTAL-REVENUES> 275,351
<CGS> 127,006
<TOTAL-COSTS> 246,023
<OTHER-EXPENSES> (367)
<LOSS-PROVISION> 2,287
<INTEREST-EXPENSE> 4,338
<INCOME-PRETAX> 25,357
<INCOME-TAX> 10,489
<INCOME-CONTINUING> 14,490
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,490
<EPS-PRIMARY> .68
<EPS-DILUTED> .67
<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.
160
</FN>
</TABLE>
<TABLE>
<CAPTION>
NFO Worldwide, Inc.
SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Years Ended December 31,
1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------
Income Statement Data(2)
<S> <C> <C> <C> <C> <C>
Revenues $275,351 $ 190,229 $ 154,943 $ 113,095 $90,435
Operating Income 29,328 23,275 21,377 16,469 13,123
Net Income 14,490 12,505 10,616 9,159 7,671
Basic Earnings per Share(1) $ .68 $ .62 $ .53 $ .49 $ .41
Diluted Earnings per Share(1) $ .67 $ .60 $ .51 $ .48 $ .41
Balance Sheet Data(2)
Working Capital $ 31,915 $ 28,464 $ 19,650 $ 15,681 $ 7,918
Total Assets 451,798 170,274 125,443 86,781 75,465
Total Debt 191,053 25,169 5,300 2,664 4,656
Stockholders' Equity 121,763 96,724 74,397 51,226 41,180
</TABLE>
(1) FOR COMPARABILITY, THE BASIC AND DILUTED EARNINGS PER SHARE REFLECT THE
3-FOR-2 STOCK SPLITS EFFECTED ON OCTOBER 15, 1997, FEBRUARY 5, 1996, AND
APRIL 5, 1994.
(2) 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, WHICH WERE ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD.
FOR DISCUSSION OF ACQUISITIONS, SEE NOTE 18 TO THE CONSOLIDATED FINANCIAL
STATEMENTS.
161
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 research-based marketing
information and counsel to the worldwide business community, including over
3,000 clients globally. The Company combines in-depth knowledge of key market
sectors - consumer packaged goods and foods, healthcare, financial services,
information technology, automotive, travel and leisure and business-to-business
- - with innovative data collection methodologies and value added products. Key
products and services include continuous brand tracking, online research,
consumer panels, and multi-country research, as well as market evaluation,
product development, customer satisfaction, pricing, distribution and
advertising awareness.
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 1998 1997
Years Ended December 31, Over Over
1998 1997 1996 1997 1996
---- ---- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Revenues $275,351 $190,229 $154,943 44.7% 22.8%
Cost of Revenues 127,006 83,357 66,693 52.4 25.0
Selling, General & Administrative
Expenses 109,023 76,705 61,591 42.1 24.5
Amortization Expense 5,080 4,094 2,926 24.1 39.9
Depreciation Expense 4,914 2,798 2,356 75.6 18.8
-------------------------------------------------------------------------
Operating Income 29,328 23,275 21,377 26.0 8.9
Interest Expense, Net 3,750 669 38 460.5 1,660.5
Equity Interest in Net Loss
of Affiliated Companies and Other 221 200 318 10.5 (37.1)
-------------------------------------------------------------------------
Income Before Income Taxes and
Minority Interest 25,357 22,406 21,021 13.2 6.6
Provision for Income Taxes 10,489 8,895 8,983 17.9 (1.0)
-------------------------------------------------------------------------
Net Income Before Minority Interest 14,868 13,511 12,038 10.0 12.2
Minority Interest 378 1,006 1,422 (62.4) (29.3)
-------------------------------------------------------------------------
Net Income $ 14,490 $ 12,505 $ 10,616 15.9% 17.8%
=========================================================================
Basic Shares Outstanding(1) 21,154 20,265 19,911 4.4% 1.8%
=========================================================================
Basic Earnings per Share(1) $ .68 $ .62 $ .53 9.7% 17.0%
=========================================================================
Diluted Shares Outstanding(1) 21,704 20,832 20,746 4.2% .4%
=========================================================================
Diluted Earnings per Share(1) $ .67 $ .60 $ .51 11.7% 17.6%
=========================================================================
</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.
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
162
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
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 marketing research techniques, the effect of foreign exchange
rate fluctuations 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 November 20, 1998, the Company acquired all of the outstanding shares of
capital stock of Infratest Burke Aktiengesellschaft Holding ("Infratest Burke").
Founded in 1947, Infratest Burke is headquartered in Munich and ranks as one of
the top four custom marketing research firms in Europe with 35 offices in 15
countries. The company believes the combination of NFO and Infratest Burke
created the sixth largest marketing research firm in the world, and one of the
top three custom marketing research companies globally.
On October 23, 1998, the Company acquired all the outstanding stock of City
Research Group Plc ("City Research"). City Research, founded in 1978 and
headquartered in London, England, is a leading U.K. marketing research firm
specializing in commercial banking.
On October 1, 1998, the Company acquired substantially all the net assets of
Donovan Research Pty. Ltd. ("Donovan"). Donovan, founded in 1974 and
headquartered in Perth, Australia, is a full service custom research agency with
a leading position in fast-moving consumer goods, public policy, tourism,
customer satisfaction and continuous tracking research. In addition to its own
branded products, AdTest and Packtest, Donovan is also the exclusive regional
licensee of MarketMind(TM), a global brand tracking system acquired by NFO in
March 1998.
On August 31, 1998, the Company acquired substantially all the net assets of
Stochastic International Pty. Ltd. ("Stochastic"). Stochastic is the developer
of the Stochastic Reaction Monitor continuous brand tracking system, which
provides guidance on brand positioning to more than 60 companies in 33
countries. Stochastic was founded in 1981 and is headquartered in London.
On April 3, 1998, the Company acquired 100 percent of the outstanding stock of
CF Group, Inc. ("CF Group"). Founded in 1932, CF Group operates three companies
in Canada: Canadian Facts, the largest custom marketing research organization in
Canada, Applied Research Consultants ("ARC"), and Burke International. CF Group
is headquartered in Toronto and has client service offices in Montreal, Ottawa
and Vancouver.
On March 4, 1998, the Company acquired, in separate transactions, substantially
all the net assets of MarketMind Technologies ("MarketMind") and
Ross-Cooper-Lund ("RCL"). MarketMind owns and licenses the MarketMind(TM)
system, which uses proprietary software that combines a set of key diagnostic
measures together with the integration, interactive analysis and display of
multiple streams of longitudinal data. RCL is a research-based consulting firm
focused on brand-building strategies and is the exclusive licensee of the
MarketMind(TM) system in the United States.
The 1998 acquisitions have been accounted for as purchases. Accordingly, the
Company's financial statements include the results of operations from the
effective date of the respective acquisitions.
On December 12, 1997, the Company acquired 100 percent of the outstanding stock
of CM Research Group, Ltd., headquartered in Auckland, New Zealand. CM is the
leading provider of custom marketing research in New Zealand and one of the
larger marketing research organizations in Australia. This acquisition was
accounted for using the purchase method.
On July 11, 1997, the Company acquired The MBL Group plc ("MBL"), headquartered
in London, England, a leading international marketing 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.
163
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
On May 28, 1997, the Company acquired Access Research, Inc., Windsor, CT, a
research-based financial services consulting firm specializing in the retirement
market. This acquisition was accounted for using the purchase method.
On April 1, 1997, the Company acquired 100 percent of the outstanding 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.
As a result of the 1997 pooling of interests transactions, the accompanying
financial statements reflect the combined results of NFO, Prognostics, and MBL
for all periods presented.
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. 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. These
acquisitions were accounted for using the purchase method.
1998 COMPARED TO 1997
The Company's revenues increased 45 percent to $275.4 million from $190.2
million the previous year. Strong revenue growth occurred in each of the
Company's operating segments: North America increased 32 percent to $189.6
million, Europe increased 103 percent to $50.3 million, and Australasia and the
Middle East increased 61 percent to $40.1 million. Within North America, the
Company's technologies group experienced very strong performance, and its
healthcare and travel & leisure sectors registered double-digit growth. Revenues
within the Company's North American financial services sector decreased by 16
percent for the year due to the softness within PSI Global, the Company's lead
financial services unit. The increases in Europe and Australasia and the Middle
East were principally the result of acquisitions, with combined organic revenue
growth of 13 percent. Currency translation effects negatively impacted organic
international revenues for the year by $3.2 million, or 6 percent. The Company's
consolidated organic revenues grew by 13 percent, excluding the effects of PSI
Global and currency translations.
Cost of revenues increased 52 percent to $127 million from $83.4 million in the
prior year. The increase in cost of revenues was primarily the result of
increased revenues in each of the Company's three operating segments and the
addition of the newly acquired companies in 1998 ($40.1 million). The remainder
of the increase in cost of revenues was the result of the Company's continued
investment in its North American high technology/telecommunications sector.
Selling, general, and administrative expenses increased 42 percent to $109
million from $76.7 million a year ago. Increases were predominately the result
of the newly acquired companies ($25.1 million) and increased staffing expenses
($4.5 million). The Company's selling, general and administrative expenses were
also influenced by inflationary factors.
Depreciation and amortization expenses increased 45 percent to $10 million from
$6.9 million in the previous year. The increase was due to the acquisition
activity as well as increased capital investment.
As a result of the items discussed above, operating income in 1998 increased 26
percent to $29.3 million from $23.3 million in the prior year. Operating income
margins were 10.7 percent in 1998 as compared to 12.2 percent in 1997. This
decrease was due almost entirely to the decreased financial performance of PSI
Global, which was partially offset by the positive margin contributions from the
newly acquired companies as well as reduced losses within the Company's
Interactive Division. Excluding the effects of (a) acquisitions and negative
currency translation effects in 1998, (b) pooling transaction expenses in 1997,
and (c) the operating results of PSI Global in both years, the Company's organic
operating income increased by 15 percent. In 1998. Also, contributing to the
increase was organic growth, offset by lower operating results in the Company's
financial services sector.
164
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
Interest expense increased to $3.8 million from $.7 million in the prior year.
The increase was primarily the result of increased borrowings to fund
acquisitions and capital expenditures.
Income tax expense increased $1.6 million to $10.5 million from $8.9 million a
year ago. The expense reflects the Company's combined U.S. Federal and State tax
rate of approximately 40 percent, plus the effects of non-deductible expenses,
primarily goodwill amortization. The increase in the effective tax rate from 40
percent to 41 percent was largely due to an increase in the non-U.S. effective
tax rate.
Minority interests decreased by 62 percent to $.4 million from $1 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, as well as
decreased profitability within this group.
The result of items discussed above is that net income increased 16 percent to
$14.5 million from $12.5 million a year ago. The 12 percent increase in diluted
earnings per share to $.67 from $.60 is the direct result of the increase in net
income.
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 each of the
Company's operating segments: North America increased 21 percent to $143.8
million, Europe increased 22 percent to $24.8 million, and Australasia and the
Middle East increased 41 percent to $24.9 million.
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 in each of the Company's three operating segments. The
remainder of the increase in cost of revenues was the result of the newly
consolidated Middle Eastern and Indian operations having higher than average
cost of revenues, along with the Company's continued investment in its
Interactive initiatives.
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 for the
increase include the first time consolidation of the Company's Middle Eastern
and Indian operations ($2.3 million). Additionally, North American selling,
general and administrative expenses increased as a result of increased staffing
expenses ($3.9 million), the increase associated with the acquisitions of
Spectrem in August 1996 and Access research in May 1997 ($1.9 million) and the
Company's Interactive activities ($1.2 million). The Company's selling, general
and administrative expenses were also influenced by 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 ($1.0 million) and
the negative effect of foreign currency translation ($.3 million), operating
income increased 21 percent. Total 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).
165
<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.
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.
LIQUIDITY AND CAPITAL RESOURCES
Working capital as of December 31, 1998, was $31.9 million, an increase of $3.5
million from December 31, 1997. The primary reasons for the change in working
capital were increases in cash of $9.7 million, accounts receivable of $51.2
million, unbilled receivables of $13.8 million, and prepaids of $8.5 million,
partially offset by an increase of $67.2 million in accounts payable and accrued
liabilities and an increase of $12.5 million in customer billings in excess of
revenues earned. The increases were predominately attributed to the 1998
acquisitions.
On November 20, 1998, the Company privately placed an aggregate principal amount
of $72 million of Senior and Subordinated Notes. The private placement consisted
of $17 million of Series A Notes due November 15, 2005, $38 million of Series B
Notes due November 15, 2008, and $17 million of 9.84 percent Subordinated Notes
due November 15, 2008. The Series A Notes and the Series B Notes bear interest
at fixed annual rates of 7.48 percent and 7.82 percent, respectively, and
contain provisions whereby these annual rates will be reduced to 7.18 percent
and 7.52 percent, respectively, provided the Company satisfies certain
conditions prior to September 30, 1999. In March 1999, the Company satisfied
these conditions with the issuance of an aggregate $15 million of Senior and
Subordinated Notes. See Note 21 to the consolidated financial statements. The
Notes are guaranteed by certain subsidiaries of the Company and were used to
finance a portion of the acquisition of Infratest Burke and to pay related fees
and expenses.
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 were used to pay off the
Company's then-existing debt of approximately $32 million, finance acquisitions,
capital expenditures and working capital. The revolving credit facility replaced
the Company's then-existing $35 million revolving credit facility.
The $40 million in Senior Notes, due March 1, 2008, bear interest at the fixed
rate of 6.83 percent and are to be 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.
In conjunction with the Infratest Burke acquisition and the financing thereof,
the Company amended its $75 million revolving credit facility and its $40
million Senior Notes, each originally dated March 9, 1998. The amendments
provide, among other things, that the Company's obligations will be guaranteed
by certain subsidiaries of the Company. In addition, the amendments increased
the rates at which interest annually accrues under the obligations.
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.
166
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
INFLATION
Inflation has historically had only a minor effect on the Company's results of
operations and its internal and external sources of liquidity and working
capital because the Company has generally been able to increase prices to
reflect cost increases resulting from inflation.
SEASONALITY
The Company's business activity has traditionally reflected a modest seasonality
factor with slightly higher revenues in the Company's fourth quarter. This
seasonality reflects increased research spending in the fourth quarter by
clients seeking to complete research studies prior to the holiday season and the
close of their fiscal year. Also, the Company generally initiates several
large-scale annual projects and tracking programs during the fourth quarter of
each year.
Over the past three years, the fourth quarter has represented between 27.3
percent and 34.4 percent of the Company's annual revenues. Each of the remaining
three quarters ranged between 18.2 percent and 25.9 percent of the annual total.
FUTURE REQUIRED ACCOUNTING CHANGES
On April 3, 1998, the Accounting Standards Executive Committee of the AICPA
issued Statement of Position 98-5, "Reporting on the Costs of Start-Up
Activities." This Statement of Position (SOP) provides guidance on the financial
reporting of start-up costs and organization costs. It requires costs of
start-up activities and organization costs to be expensed as incurred. This SOP
is effective for financial statements for fiscal years beginning after December
15, 1998. The adoption of this SOP will not have a material effect on the
Company's financial condition or results of operations.
YEAR 2000 ISSUES
The Company is currently working to resolve the Year 2000 issue. In early 1997,
the Company completed an impact analysis across all proprietary custom software
programs and systems. As a result of this analysis, affected programs are being
modified by the Company's programming departments to ensure future compliance.
Any new programs being developed are being made Year 2000 compliant from the
outset, while certain existing systems are being made Year 2000 compliant as
they are reengineered.
The Company operates subsidiaries and divisions worldwide. While many of these
operations are already Year 2000 compliant in hardware, software and embedded
systems, other operations are still in the process of upgrading their systems
for Year 2000 compliance. The Company is in the process of testing its mission
critical and non-critical systems and software for Year 2000 compliance by using
a test date of January 1, 2000. In instances where the Year 2000 date is not
properly processed, the systems and software are upgraded and re-tested as
necessary for Year 2000 compliance. Mission critical applications and systems
have been prioritized for Year 2000 compliance, and the majority of those
systems are already compliant.
The Company believes the most likely worst case scenario would be for a
non-critical application or system to not be Year 2000 compliant on January 1,
2000. The Company's contingency plan includes manually addressing non-critical
applications and systems compliance problems. Additionally, the Company has the
ability to readily outsource many of its data collection and processing
processes should the need arise.
The Company 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. During 1998, the Company sent surveys to these
outside parties inquiring as to their status in addressing the Year 2000 issue
within their respective organizations. Although the results of those surveys are
still being gathered and analyzed, the Company does not believe the effect of
non-compliance with Year 2000 on the part of any individual or group of outside
parties would have a material negative impact on the Company's day-to-day
operations.
167
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
The Company originally targeted January 1, 1999, to complete Year 2000
compliance of mission critical systems, including third-party and supply chain
vendors. Although the majority of the Company's subsidiaries have met this
target, certain newly acquired entities are still being analyzed for compliance.
The Company estimates that total Year 2000 compliance costs incurred from 1997
through December 31, 1998, approximate $300,000, and the estimated future cost
to complete Year 2000 compliance is approximately $600,000, including capital
expenditures of approximately $300,000.
THE EURO CONVERSION
On January 1, 1999, certain member countries of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency, the Euro. The Company conducts business in member
countries. The transition period for the Euro is from January 1, 1999, to June
30, 2002. The Company is addressing the issues involved with the introduction of
the Euro. The more important issues include converting information technology
systems, reassessing currency risk, and processing accounting and tax records.
Based upon progress to date, the Company believes that use of the Euro will not
have a significant impact on the manner in which the Company conducts its
business and processes its accounting records. Accordingly, conversion to the
Euro is not expected to have a material effect on the Company's financial
condition or results of operations.
MARKET RISK MANAGEMENT
The Company is exposed to market risk, including changes in interest rates and
foreign currency exchange rates. The Company currently does not have any
derivative financial instruments. However, the Company may consider utilizing
derivatives in the future in an attempt to mitigate foreign currency exchange
rate risk. The Company conducts business in 31 countries throughout the world
and has a significant presence in North America, Europe, Australasia and the
Middle East. Accordingly, the Company is subject to foreign currency exchange
rate risk in those countries.
The table below provides information on the Company's debt instruments as of
December 31, 1998 (dollars in thousands):
Long-Term Debt - Long-Term Debt -
---------------- ----------------
Fixed Rate Variable Rate
Principal Average Principal Average
Amount Interest Rate Amount Interest Rate
------ ------------- ------ -------------
1999 $ 220 8.57% $ 176 5.00%
2000 241 8.59 5,057 4.76
2001 3,625 7.54 87 5.00
2002 14,716 7.36 10,518 5.20
2003 14,540 7.35 59,013 4.75
Thereafter 82,860 7.82 -- --
-----------------------------------------------------
Total $ 116,202 7.69% $ 74,851 4.82%
=======================================================
168
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (CONTINUED)
STOCK INFORMATION
The Company's common stock has traded on the New York Stock Exchange since
December 29, 1997. Prior to that date, the Company's Common Stock was traded on
the Nasdaq National Market tier of the Nasdaq Stock Market 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.
The Company did not declare or pay any cash dividends during 1998, 1997 or 1996.
The following table sets forth, for the periods indicated, its high and low
sales prices per share as reported on the NYSE and Nasdaq.
The stock prices have been adjusted to give retroactive effect to a 3-for-2
stock split effected on October 15, 1997.
Sales Price
High Low
---- ---
Calendar Year 1998
First Quarter $21.375 $16.750
Second Quarter 22.000 15.625
Third Quarter 18.750 9.000
Fourth Quarter 14.750 5.550
Calendar Year 1997
First Quarter $15.500 $11.170
Second Quarter 17.500 11.330
Third Quarter 18.500 14.500
Fourth Quarter 21.630 15.500
169
NFO WORLDWIDE, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
NUMBER
------
Consolidated Financial Statements for the years ended December 31, 1998, 1997
and 1996:
Reports of Independent Public Accountants.......................... F2 & F3
Consolidated Balance Sheets........................................ F4
Consolidated Income Statements..................................... F5
Consolidated Statements of Stockholders' Equity.................... F6
Consolidated Statements of Cash Flows.............................. F7
Notes to Consolidated Financial Statements......................... F8
170
<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, 1998 and 1997,
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,
1998. 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 1997 and 1996 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, and total
revenues of 25 percent in 1996, 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, 1998 and 1997, and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1998, 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 26, 1999, except for Note 21, as to which the date is March 26, 1999
171
<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 for each of the years ended December 31, 1997 and 1996, 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 group as of December 31, 1997, and of the group's profit and
cash flows for each of the years ended December 31, 1997 and 1996, 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
172
<PAGE>
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
1998 1997
---- ----
<S> <C> <C>
Assets
Current Assets
Cash and Cash Equivalents $ 17,739 $ 8,055
Receivables:
Trade, Less Allowance for Doubtful Accounts
of $967 and $471 in 1998 and 1997, respectively 98,250 47,044
Unbilled Receivables 22,524 8,698
Prepaid Expenses and Other Current Assets 15,524 7,035
----------------------------
Total Current Assets 154,037 70,832
Property and Equipment, Net (Note 3) 44,472 19,917
Customer Lists, Goodwill and Other Intangible Assets (Note 4) 231,225 74,409
Other Assets 22,064 5,116
----------------------------
Total Assets $ 451,798 $ 170,274
============================
Liabilities and Stockholders' Equity
Current Liabilities
Current Maturities of Long-Term Debt (Note 5) $ 396 $ 346
Accounts Payable 31,945 9,139
Accrued Liabilities (Note 6) 63,122 18,757
Customer Billings in Excess of Revenues Earned 26,659 14,126
----------------------------
Total Current Liabilities 122,122 42,368
----------------------------
Long-Term Liabilities
Long-Term Debt, Less Current Portion (Note 5) 190,657 24,823
Accrued Pension, Postretirement Benefits and Other (Notes 9 and 10) 14,092 4,123
----------------------------
Total Long-Term Liabilities 204,749 28,946
----------------------------
Total Liabilities 326,871 71,314
----------------------------
Commitments and Contingencies (Notes 7 and 16)
Minority Interest 3,164 2,236
Stockholders' Equity (Note 11)
Common Stock, Par Value $.01 per Share; 60,000 Shares
Authorized; 21,401 and 20,730 Shares Issued and
Outstanding at December 31, 1998 and 1997, respectively 214 208
Additional Paid-In Capital 63,723 51,766
Retained Earnings 60,535 46,045
Accumulated Other Comprehensive Loss:
Minimum Pension Liability, Net of Income Taxes (Note 9) (631) (346)
Foreign Currency Translation Adjustment (2,078) (949)
------------------------------
Total Stockholders' Equity 121,763 96,724
-----------------------------
Total Liabilities and Stockholders' Equity $ 451,798 $ 170,274
============================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
173
<PAGE>
CONSOLIDATED INCOME STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (IN THOUSANDS, EXCEPT PER
SHARE DATA)
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues $275,351 $190,229 $154,943
Costs and Expenses
Cost of Revenues 127,006 83,357 66,693
Selling, General and Administrative 109,023 76,705 61,591
Amortization (Note 4) 5,080 4,094 2,926
Depreciation (Note 3) 4,914 2,798 2,356
-------- -------- --------
Operating Income 29,328 23,275 21,377
Interest Expense, Net (Note 12) 3,750 669 38
Equity Interest in Net Loss of Affiliated
Companies and Other (Note 19) 221 200 318
-------- -------- --------
Income Before Income Taxes and Minority Interest 25,357 22,406 21,021
Provision for Income Taxes (Note 8) 10,489 8,895 8,983
-------- -------- --------
Net Income Before Minority Interest 14,868 13,511 12,038
Minority Interest 378 1,006 1,422
-------- -------- --------
Net Income $ 14,490 $ 12,505 $ 10,616
======== ======== ========
Earnings per Share (Note 13):
Basic $ .68 $ .62 $ .53
======== ======== ========
Diluted $ .67 $ .60 $ .51
======== ======== ========
Weighted Average Number of Common Shares
Outstanding and Common Equivalent Shares
During the Period:
Basic 21,154 20,265 19,911
======== ======== ========
Diluted 21,704 20,832 20,746
======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
174
<PAGE>
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (IN THOUSANDS)
<TABLE>
<CAPTION>
Accumulated
Additional Other Total
Common Common Paid-In Retained Comprehensive Stockholders Comprehensive
Shares Stock Capital Earnings Income (Loss) Equity Income
------ ----- ------- -------- ------------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1995 18,777 $ 94 $ 27,343 $ 24,374 $ (585) $ 51,226
Net Income 10,616 10,616 $ 10,616
Reduction of Minimum Pension Liability,
Net of Income Taxes of $240 (Note 9) 346 346 346
Translation Adjustments 300 300 300
--------
Comprehensive Income $ 11,262
========
Acquisitions (Note 18) 1,128 8 12,077 12,085
Stock Split (Note 11) 31 (31) -
Conversion of Note Payable 33 141 141
Dividends to Former Stockholders of the MBL
Group Prior to Merger (Note 11) (1,450) (1,450)
Other Issuances 117 1 1,132 1,133
------------------------------------------------------------------
Balance at December 31, 1996 20,055 134 40,662 33,540 61 74,397
Net Income 12,505 12,505 $ 12,505
Accrual of Minimum Pension Liability,
Net of Income Taxes of ($6) (Note 9) (23) (23) (23)
Translation Adjustments (1,333) (1,333) (1,333)
-------
Comprehensive Income $ 11,149
========
Acquisitions (Note 18) 497 4 7,713 7,717
Stock Split (Note 11) 68 (68) -
Conversion of Note Payable 17 1 83 84
Tax Benefit on Exercised Options (Note 11) 2,439 2,439
Payment of Non-Recourse Notes (Note 11) 11 11
Other Issuances 161 1 926 927
------------------------------------------------------------------
Balance at December 31, 1997 20,730 208 51,766 46,045 (1,295) 96,724
Net Income 14,490 14,490 $ 14,490
Accrual of Minimum Pension Liability,
Net of Income Taxes of ($227)(Note 9) (285) (285) (285)
Translation Adjustments (1,129) (1,129) (1,129)
--------
Comprehensive Income $ 13,076
========
Acquisitions (Note 18) 468 4 8,655 8,659
Tax Benefit on Exercised Options (Note 11) 1,778 1,778
Payment of Non-Recourse Notes (Note 11) 7 7
Other Issuances 203 2 1,517 1,519
------------------------------------------------------------------
Balance at December 31, 1998 21,401 $ 214 $ 63,723 $ 60,535 $(2,709) $ 121,763
==================================================================
</TABLE>
The shares presented reflect 3-for-2 stock splits effected on October 15, 1997,
and February 5, 1996 (Note 11).
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
175
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (IN THOUSANDS)
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net Income $ 14,490 $ 12,505 $ 10,616
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities:
Minority Interest 378 1,006 1,422
Amortization 5,080 4,094 2,926
Depreciation 4,914 2,798 2,356
Deferred Income Taxes 712 (440) 430
Equity Interest in Net Loss of Affiliated Companies 57 200 318
Dividends Paid to Minority Interest (175) (369) (695)
Other (687) 103 82
----------------------------------------------
Subtotal 24,769 19,897 17,455
Change in Assets and Liabilities that Provided (Used) Cash,
Net of Effects of Acquisitions:
Trade Receivables (8,035) (7,926) (7,044)
Unbilled Receivables (5,211) (4,735) (478)
Prepaid Expenses and Other Current Assets 332 (398) (1,645)
Accounts Payable and Accrued Liabilities 3,800 3,347 2,435
Customer Billings in Excess of Revenues Earned 4,636 776 (684)
Other, Net (889) (104) (514)
----------------------------------------------
Net Cash Provided by Operating Activities 19,402 10,857 9,525
----------------------------------------------
Cash Flows From Investing Activities
Acquisitions (Net of Cash Acquired) (134,244) (20,020) (7,258)
Capital Expenditures (Net of Minor Disposals) (13,793) (9,030) (4,460)
Purchase of Intangible Assets (509) (640) (70)
Investments in Affiliated Companies (65) (820) (872)
----------------------------------------------
Net Cash Used in Investing Activities (148,611) (30,510) (12,660)
-----------------------------------------------
Cash Flows From Financing Activities
Issuance of Common Stock, Net of Expenses 1,519 938 769
Payments on Long-Term Debt (69,142) (4,938) (12,251)
Dividends Paid to Subsidiary Shareholders (Note 11) -- (988) (472)
Proceeds from Line of Credit and Other Long-Term Debt 208,241 24,464 14,000
Debt Issuance Costs (1,115) -- --
----------------------------------------------
Net Cash Provided by Financing Activities 139,503 19,476 2,046
----------------------------------------------
Effect of Exchange Rate Changes on Cash (610) (1,347) 138
----------------------------------------------
Increase (Decrease) In Cash and Cash Equivalents 9,684 (1,524) (951)
Cash and Cash Equivalents, Beginning of Period 8,055 9,579 10,530
----------------------------------------------
Cash and Cash Equivalents, End of Period $ 17,739 $ 8,055 $ 9,579
==============================================
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
176
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
1. BUSINESS
NFO Worldwide, Inc., together with its subsidiaries (the "Company"), is a
leading provider of research-based marketing information and counsel to the
worldwide business community, including over 3,000 clients globally. The Company
combines in-depth knowledge of key market sectors - consumer packaged goods and
foods, healthcare, financial services, information technology, automotive,
travel and leisure, and business-to-business - with innovative data collection
methodologies and value added products. Key products and services include
continuous brand tracking, online research, consumer panels, and multi-country
research, as well as market evaluation, product development, customer
satisfaction, pricing, distribution and advertising awareness.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 7-20
Goodwill 20-40
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.
SYNDICATED PROGRAMS - The Company capitalizes costs associated with certain
syndicated programs that have on-going value in excess of one year. Such costs
are amortized in proportion to anticipated revenues over the expected useful
lives of the programs.
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
$1,649,000, $1,164,000, and $1,347,000 on Panel enhancing and rebuilding in
1998, 1997 and 1996, 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.
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.
177
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
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
approximated the carrying amount at December 31, 1998 and 1997.
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 earnings per share amounts
have been restated in accordance with Statement of Financial Accounting
Standards No. 128.
3.PROPERTY AND EQUIPMENT
Property and equipment, at cost, consists of the following at December 31 (in
thousands):
<TABLE>
<CAPTION>
Estimated
Useful Lives 1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Land $ 1,703 $ 1,703
Buildings and Leasehold Improvements 10-40 years 22,435 5,888
Data Processing and Communications Equipment 3-5 years 14,205 11,711
Furniture and Other Equipment 4-8 years 21,777 8,372
Construction in Progress 909 3,421
---------------------
Total 61,029 31,095
Less Accumulated Depreciation and Amortization (16,557) (11,178)
---------------------
Total $ 44,472 $ 19,917
=====================
</TABLE>
The Construction in Progress in 1998 and 1997 relates to the expansion of the
Company's facilities in Greenwich, Connecticut, and Toledo, Ohio, respectively.
Certain items in the prior year have been reclassified for consistency with the
current year presentation.
4. INTANGIBLE ASSETS
Intangible assets consist of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Goodwill, Net of Amortization of $8,617 and
$5,440 in 1998 and 1997, respectively $215,952 $ 59,976
Customer Lists, Net of Amortization of
$7,700 and $6,284 in 1998 and 1997, respectively 13,105 13,615
Other, Net of Amortization of $2,931 and
$2,262 in 1998 and 1997, respectively 2,168 818
---------------------
Total $231,225 $74,409
=====================
</TABLE>
178
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
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 on the accompanying consolidated income
statements. Certain items in the prior year have been reclassified for
consistency with the current year presentation.
5. LONG-TERM DEBT
Long-term debt consists of the following at December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Note Payable to Banks under a Revolving Credit Agreement Due
March 2003, with Interest Ranging Between 4.3 Percent and 6.9 Percent $ 53,045 $ 23,500
Series A Senior Notes 17,000 --
Series B Senior Notes 38,000 --
Subordinated Notes 17,000 --
March 1998 Senior Notes 40,000 --
Term Loans 16,484 --
Capitalized Leases 4,371 --
Industrial Development Revenue Bonds -- 772
Other 5,153 897
--------------------------
Total 191,053 25,169
--------------------------
Less Current Maturities (396) (346)
--------------------------
Total $ 190,657 $ 24,823
==========================
</TABLE>
On November 20, 1998, the Company privately placed an aggregate principal amount
of $72 million of Senior and Subordinated Notes. The private placement consisted
of $17 million of Series A Senior Notes due November 15, 2005, $38 million of
Series B Senior Notes due November 15, 2008, and $17 million of 9.84 percent
Subordinated Notes due November 15, 2008. The Series A Senior Notes and the
Series B Senior Notes bear interest at fixed annual rates of 7.48 percent and
7.82 percent, respectively, and contain provisions whereby these annual rates
will be reduced to 7.18 percent and 7.52 percent, respectively, provided the
Company satisfies certain conditions prior to September 30, 1999 (see Note 21).
The Notes are guaranteed by certain subsidiaries of the Company and were used to
finance a portion of the acquisition of Infratest Burke (see Note 18) and to pay
related fees and expenses.
On March 9, 1998, the Company 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
are unsecured, the proceeds of which were used to refinance the Company's
then-existing debt of approximately $32 million and to finance acquisitions,
capital expenditures, and working capital. The $75 million revolving credit
facility has an ultimate maturity date of March 2003 and enables 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 6.83 percent and are to be repaid in equal
annual installments of approximately $5.7 million starting in the year 2002.
In conjunction with the Infratest Burke acquisition and the financing thereof,
the Company amended its $75 million revolving credit facility and its $40
million Senior Notes, each originally dated March 9, 1998. The amendments
provide, among other things, that the Company's obligations will be guaranteed
by certain subsidiaries of the Company. In addition, the amendments increased
the rates at which interest annually accrues under the obligations from 6.43
percent to 6.83 percent.
Infratest Burke has three separate term loans: $5 million, DM 9 million, and DM
10 million. The $5 million and DM 9 million term loans have maturity dates of
September 2002 and bear interest at the three-month LIBOR rate (as defined in
the respective agreements) plus .75 percent (6.03 percent and 4.40 percent at
December 31, 1998, respectively). The DM 10 million term loan matures October
2003 and bears interest at the Euro market rate plus .5 percent (3.875 percent
at December 31, 1998).
Certain of the Company's subsidiaries have capitalized lease obligations. The
leases mature between 2002 and 2005 and bear interest at rates ranging between
6.6 percent and 10.26 percent. The leases were collateralized by real estate and
equipment having a net book value of $4.7 million at December 31, 1998.
179
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
The Industrial Development Revenue Bonds were due in monthly installments of
$10,000 plus interest at 80 percent of the prime rate (effective rate of 6.8
percent at December 31, 1997) and were repaid in 1998. The Bonds were
collateralized by real estate with a net book value of $1,296 at December 31,
1997.
The Company's financing arrangements contain certain financial and non-financial
restrictive covenants that, among other things, require the Company to maintain
certain leverage and cash flow ratios. A material adverse change in the
Company's financial condition or results of operations may constitute default
under the agreements.
Required principal payments on long-term debt and other obligations are as
follows at December 31, 1998 (in thousands):
1999 $ 396
2000 5,298
2001 3,712
2002 25,234
2003 73,553
Thereafter 82,860
--------
Total $191,053
=========
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31 (in thousands):
1998 1997
------------------------------
Accrued Compensation and Payroll Taxes $ 19,092 $ 5,031
Income Taxes Payable (Note 8) 8,901 1,075
Accrued Vacation 4,110 1,089
Purchase Price Payable (Note 18) 4,566 4,229
Accrued Pension (Note 9) 192 350
Accrued Profit Sharing (Note 9) 4,522 812
Other Accrued Liabilities 21,739 6,171
------------------------------
Total $ 63,122 $ 18,757
============================
7. OPERATING LEASES
The Company leases office space and equipment under noncancelable operating
leases that expire at various dates through 2011. Certain of these leases are
subject to rent review and contain escalation clauses. Future minimum annual
payments required under the noncancelable leases are as follows at December 31,
1998 (in thousands):
1999 $18,204
2000 13,884
2001 11,136
2002 8,770
2003 6,077
Thereafter 24,913
-------
Total $82,984
=======
Rental expense for the years ended December 31, 1998, 1997 and 1996, including
leases on a month-to-month basis, was approximately $9,485,000, $6,306,000, and
$4,189,000, respectively.
Certain of the Company's subsidiaries rent space in office buildings owned or
partially owned by officers of the subsidiaries. Such rents, which were
approximately $.8 million and $.5 million in 1998 and 1997, respectively, are
believed to be consistent with arms length transactions.
180
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
8. INCOME TAXES
Income Before Income Taxes and Minority Interest is as follows for the years
ended December 31 (in thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income Before Income Taxes and Minority Interest:
U.S. $ 19,971 $ 18,066 $ 17,115
Foreign 5,386 4,340 3,906
----------------------------------------------
Total $ 25,357 $ 22,406 $ 21,021
==============================================
The provision for income taxes is as follows for the years ended December 31 (in
thousands):
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
Current Provision:
Federal $ 5,052 $ 6,650 $ 6,193
State and Local 1,759 1,553 1,150
Foreign 2,966 1,118 1,210
----------------------------------------------
Total 9,777 9,321 8,553
----------------------------------------------
Deferred Provision (Credit):
Federal 661 (621) 256
State and Local 76 (106) 46
Foreign (25) 301 128
----------------------------------------------
Total 712 (426) 430
----------------------------------------------
Total Provision $ 10,489 $ 8,895 $ 8,983
==============================================
Temporary differences giving rise to the recorded deferred income tax asset and
liability are as follows at December 31 (in thousands):
1998 1997
- ----------------------------------------------------------------------------------------------------------------
Asset:
Pension, Postretirement Benefits and Deferred Compensation $ 1,481 $ 1,228
Vacation 516 389
State and Local Taxes 611 355
Other 571 729
----------------------------
Total Asset $ 3,179 $ 2,701
============================
Liability:
Depreciation and Amortization $ 4,280 $ (337)
Undistributed Earnings 549 399
Other 3,041 38
----------------------------
Total Liability $ 7,870 $ 100
============================
A reconciliation between the Company's effective tax rate and the U.S. statutory
rate is as follows at December 31:
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
Statutory Rate 35.0% 35.0% 35.0%
Nondeductible Expenses 1.6 2.3 2.2
Nondeductible Pooling Expenses - 2.0 -
State and Local Income Taxes,
Net of Federal Benefit 5.3 4.0 3.8
Effect of Foreign Tax Rates
Different than U.S. Tax Rate (.2) (1.8) (.3)
Other (.3) (1.8) 2.0
-----------------------------------------
Effective Tax Rate 41.4% 39.7% 42.7%
=========================================
</TABLE>
181
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
As of December 31, 1998, the Company has not provided for withholding or
applicable foreign income taxes on approximately $8.3 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 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
approximately one-half of the Company's U.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. Plan assets are principally invested in equity securities and guaranteed
fixed income insurance contracts.
In 1998, the Company adopted the provisions of Financial Accounting Standards
Board Statement No. 132, Employer's Disclosures about Pensions and Other
Postretirement Benefits ("SFAS 132"), which prescribes new disclosure
requirements. Accordingly, the Company's disclosures have been restated to
reflect the requirements of SFAS 132. The following table sets forth the plan's
funded status and amounts recognized in the Company's balance sheets at December
31 (in thousands):
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated Benefit Obligation at December 31 $ 7,497 $ 6,678
============================
Change in Projected Benefit Obligation:
Projected Benefit Obligation at Beginning of Year $ 7,029 $ 6,000
Service Cost 611 547
Interest Cost 526 465
Actuarial Loss 704 361
Benefits Paid (655) (344)
-----------------------------
Projected Benefit Obligation at End of Year 8,215 7,029
Change in Plan Assets:
----------------------------
Fair Value of Plan Assets at Beginning of Year 6,214 5,026
Actual Return on Plan Assets 360 804
Company Contributions 567 728
Benefits Paid (655) (344)
----------------------------
Fair Value of Plan Assets at End of Year 6,486 6,214
----------------------------
Funded Status 1,729 815
Unrecognized Net Loss (1,827) (954)
Unrecognized Prior Service Cost 20 27
----------------------------
Accrued Pension Cost (78) (112)
Adjustment Required to Recognize
Additional Minimum Pension Liability before Income Taxes 1,088 576
----------------------------
Adjusted Accrued Pension Cost $ 1,010 $ 464
============================
Adjustment Required to Recognize
Additional Minimum Pension Liability before Income Taxes $ 1,088 $ 576
Reversal of Prior Year Minimum Liability Adjustment (576) (547)
----------------------------
Other Comprehensive Income Before Income Taxes $ 512 $ 29
============================
</TABLE>
The Company's required minimum funding amount of $350,000 for 1997, which is
included in the above accrued pension cost, is included in current liabilities
as of December 31, 1997.
182
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
Pension expense consists of the following for the years ended December 31 (in
thousands):
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service Cost $ 611 $ 547 $ 502
Interest Cost 526 465 411
Expected Return on Plan Assets (558) (452) (320)
Net Amortization and Deferral 22 36 65
----------------------------------------------
Net Periodic Pension Cost $ 601 $ 596 $ 658
==============================================
Assumptions used in determining pension plan amounts were as follows:
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
Discount Rate 7.0% 7.5% 7.75%
Rate of Increase in Compensation Levels 4.5 4.75 4.75
Expected Long-Term Rate of Return on Assets 9.0 9.0 9.0
</TABLE>
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 $1.2 million, $.9 million, and $.9
million for the years ended December 31, 1998, 1997, and 1996, 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
$1.1 million and $.9 million at December 31, 1998 and 1997, 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 $822,000,
$420,000, and $400,000 for the years ended December 31, 1998, 1997, and 1996,
respectively.
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.
183
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
In 1998, the Company adopted the provisions of SFAS 132 and, accordingly, has
retroactively adjusted its disclosures for compliance with the requirements of
SFAS 132. The following sets forth the programs' status reconciled with the
amount shown in the Company's balance sheets at December 31 (IN THOUSANDS):
<TABLE>
<CAPTION>
1998 1997
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Change in Projected Benefit Obligation:
Projected Benefit Obligation at Beginning of Year $ 1,226 $ 1,044
Service Cost 103 96
Interest Cost 72 77
Plan Amendments (68) --
Actuarial (Gain)/Loss (106) 37
Benefits Paid (27) (28)
----------------------------
Projected Benefit Obligation at End of Year 1,200 1,226
----------------------------
Change in Plan Assets:
Company Contributions 27 28
Benefits Paid (27) (28)
----------------------------
Plan Assets at End of Year -- --
----------------------------
Reconciliation of Projected Benefit Obligation and
Total Amount Accrued:
Funded Status 1,200 1,226
Unrecognized Net Gain/(Loss) 39 (64)
Unrecognized Prior Service Cost 64 --
----------------------------
Accrued Benefit Cost Included in Long-Term
Liabilities in the Accompanying Balance Sheet $ 1,303 $ 1,162
============================
Net periodic postretirement benefit cost includes the following components (in
thousands):
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
Benefits Attributed to Service During the Period $ 103 $ 96 $ 72
Interest Cost on Accumulated
Postretirement Benefit Obligation 72 77 76
Net Amortization and Deferral (7) (3) 4
----------------------------------------------
Net Periodic Postretirement Benefit Cost $ 168 $ 170 $ 152
==============================================
</TABLE>
The assumed discount rate used to measure the postretirement benefit obligation
is 6.75 percent, 7.25 percent, and 7.5 percent in 1998, 1997, and 1996.
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 in 2001 and
thereafter.
The effect of a 1 percent increase in the assumed healthcare trend rates would
be to increase the obligation at December 31, 1998, by approximately $121,000,
and the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by approximately $29,000.
The effect of a 1 percent decrease in the assumed healthcare trend rates would
be to decrease the obligation at December 31, 1998, by approximately $101,000,
and the aggregate of the service and interest cost components of net periodic
postretirement benefit cost for the year then ended by approximately $23,000.
11. CAPITAL STOCK
COMMON STOCK - In September 1996, the Company's Certificate of Incorporation was
amended to increase the number of authorized shares of Common Stock to 60
million shares from 15 million shares.
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.
184
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
DIVIDENDS - The Company did not declare or pay dividends to common shareholders
of NFO Worldwide, Inc. during 1998, 1997, or 1996. 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.
STOCKHOLDER RIGHTS PLAN - On October 5, 1998, the Company's Board of Directors
adopted a Stockholder Rights Plan (the "SR Plan") by declaring a dividend
distribution of one preferred share purchase right (a "Right") for each share of
the Company's common stock. The SR Plan is intended to give the Company's Board
of Directors sufficient time to respond to an unsolicited tender offer or other
attempted acquisition. Under the SR Plan, Rights were issued to stockholders of
record as of October 15, 1998, and will expire after ten years, unless earlier
redeemed or exchanged by the Company. The Rights distribution is not taxable to
stockholders.
The Rights will be exercisable only if a person or group acquires 15% or more of
the Company's common stock or announces a tender offer upon the consummation of
which would result in 15% ownership. Each Right will entitle stockholders to buy
one one-hundredth of a share of a new series of preferred stock at an exercise
price of $50. If, however, a person or group acquires 15% or more of the
Company's outstanding common stock, each Right will entitle its holder, other
than such person or members of such group, to purchase, at the Right's
then-current exercise price, a number of the Company's common shares having a
market value of twice the Right's exercise price. If the Company is acquired in
a merger or other business combination transaction after a person or group has
acquired 15% or more of the Company's outstanding common stock, each Right will
entitle its holder to purchase, at the Right's then-current exercise price, a
number of the acquiring company's common shares having a market value of twice
such exercise price.
Under certain circumstances, the Company's Board of Directors may exchange the
Right, in whole or in part, at an exchange ratio of one share of common stock
(or one-hundredth of a share of the new series of preferred stock) per Right.
Prior to the acquisition by a person or group of beneficial owners of 15% or
more of the Company's common stock, the Rights are redeemable for one cent per
Right at the option of the Board of Directors. Prior to such time, the terms of
the Rights may be amended by the Board.
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, see Note 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 2000.
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 $7,000 and $11,000 of the above notes were repaid in 1998 and
1997, respectively, resulting in a tax benefit of approximately $1 million in
1998 and $1.75 million in 1997 reflected as an addition to additional paid-in
capital. 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.
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
185
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
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 4,677,250, 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,
Accounting for Stock-Based Compensation, ("SFAS 123") in accounting for its
stock-based compensation plans. In accordance with SFAS 123, the Company applies
Accounting Principles Board Opinion No. 25 and related Interpretations for
expense recognition. All stock options issued by the Company are exercisable at
a price equal to the market price at the date of grant. Accordingly, no
compensation cost has been recognized for any of the options granted under the
Plans.
A summary of the status of the Company's plans that issue options as of December
31 and changes during the years then ending is presented below:
<TABLE>
<CAPTION>
Number Weighted
of Shares Average Price
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
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
Granted 683,125 15.46
Exercised (184,487) 6.88
Cancelled/Expired (27,084) 14.65
----------------------------
Outstanding at December 31, 1998 2,861,190 $ 12.44
============================
Exercisable at: December 31, 1996 1,014,671 $ 6.67
December 31, 1997 1,372,832 $ 8.37
December 31, 1998 1,743,590 $ 10.51
Weighted-average fair-value of options granted during: 1996 $ 8.03
1997 $ 9.25
1998 $ 8.75
Available for Grant at December 31, 1998 1,805,977
</TABLE>
186
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
The following table summarizes information about options outstanding at December
31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------- -------------------
Number Weighted-Average Number Weighted-
Range of Outstanding Remaining Exercise Exercisable Average
Exercise Prices at 12/31/98 Contractual Life Price at 12/31/98 Exercise Prices
- --------------- ----------- ---------------- ----- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
$ 4.44 - $ 8.50 700,125 2.1 $ 5.80 646,500 $ 5.68
8.51 - 12.50 514,981 5.9 10.49 475,981 10.36
12.51 - 16.50 857,000 7.8 13.99 400,470 14.47
16.51 - 21.07 789,084 8.7 17.93 220,639 17.75
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions by year:
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Risk-Free Interest Rate 5.0% 6.0% 6.1%
Expected Life 6.8 years 6.8 years 6.8 years
Expected Volatility 53.7% 46% 46%
</TABLE>
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, 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):
<TABLE>
<CAPTION>
1998 1997 1996
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Income:
As Reported $ 14,490 $ 12,505 $ 10,616
Pro Forma $ 11,513 $ 9,380 $ 8,937
Basic Earnings Per Share:
As Reported $ .68 $ .62 $ .53
Pro Forma $ .54 $ .46 $ .45
Diluted Earnings Per Share:
As Reported $ .67 $ .60 $ .51
Pro Forma $ .53 $ .45 $ .43
The Company cautions that because the SFAS 123 method of accounting is only
applied to options granted in 1995 and thereafter, the resulting proforma
results may not be representative of results to be expected in future years.
12. INTEREST EXPENSE, NET
Interest expense, net, consists of the following for the
years ended December 31 (IN THOUSANDS):
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
Interest Income $ (588) $ (259) $ (420)
Interest Expense 4,338 928 458
----------------------------------------------
Total $ 3,750 $ 669 $ 38
==============================================
</TABLE>
187
<PAGE>
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):
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income Used for Basic and Diluted Earnings Per Share $ 14,490 $ 12,505 $ 10,616
==============================================
Weighted Average Number of Shares Outstanding
Used for Basic Earnings Per Share 21,154 20,265 19,911
Dilutive Stock Options 397 460 741
Contingently Issuable Common Shares 153 107 94
----------------------------------------------
Weighted Average Number of Shares Outstanding
and Common Share Equivalents Used for
Diluted Earnings Per Share 21,704 20,832 20,746
==============================================
14. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information consists of the following for the years ended
December 31 (IN THOUSANDS):
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
Cash Paid During the Period for:
Interest $ 2,806 $ 786 $ 462
==============================================
Income Taxes $ 6,263 $ 6,844 $ 7,813
==============================================
Noncash Investing and Financing
Activities:
Increase in Goodwill Resulting
from Contingent Purchase
Price Earned (Note 18) $ 4,631 $ 4,797 $ 3,733
==============================================
Liabilities Assumed
in Acquisitions (Note 18) $ 135,489 $ 617 $ 1,018
==============================================
</TABLE>
15. MAJOR CUSTOMERS
No single customer accounted for more than 10 percent of net revenues during
1998, 1997, or 1996.
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
("Earnout") payments, provided the acquired companies achieve certain
pre-defined earnings targets.
188
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
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>
1998:
Revenues $ 50,243 $ 65,003 $ 65,486 $ 94,619
Earnings before Taxes and Minority Interest 4,323 7,654 4,744 8,636
Net Income 2,481 4,366 2,561 5,082
Basic Earnings per Share .12 .21 .12 .24
Diluted Earnings per Share .12 .20 .12 .23
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
</TABLE>
Earnings per share is computed independently for the quarters reported,
therefore the sum of the quarterly earnings per share may not equal the per
share total for the year. The second and third quarter results of 1997 include
charges associated with the pooling transaction expenses incurred as the result
of the Prognostics and MBL acquisitions.
18. ACQUISITIONS AND JOINT VENTURES
On November 20, 1998, the Company acquired all of the outstanding shares of
capital stock of Infratest Burke Aktiengesellschaft Holding ("Infratest Burke").
Founded in 1947, Infratest Burke is headquartered in Munich and ranks as one of
the top four custom marketing research firms in Europe with 35 offices in 15
countries. The Company believes the combination of NFO and Infratest Burke
created the sixth largest marketing research firm in the world, and one of the
top three custom marketing research companies globally. The total acquisition
cost of DM 248 million (US $149 million) includes the stock purchase of DM 205
million (US $123 million) and the assumption of approximately DM 43 million (US
$26 million) of pre-existing debt. The purchase price of DM 205 million (US $123
million) was paid DM 200 million (US $120 million) in cash at closing, with the
remaining DM 5 million (US $3 million) payable in cash over the next two and
one-half years.
On October 23, 1998, the Company acquired City Research Group Plc ("City
Research"). City Research, founded in 1978 and headquartered in London, England,
is a leading U.K. marketing research firm specializing in commercial banking.
The Company acquired all the outstanding stock of City Research for total
consideration of approximately $2.4 million, $1.5 million paid in cash at
closing and the remainder payable over the next two years in cash and stock
based on City Research achieving certain earnings targets.
On October 1, 1998, the Company acquired Donovan Research Pty. Ltd. ("Donovan").
Donovan, founded in 1974 and headquartered in Perth, Australia, is a full
service custom research agency with a leading position in fast-moving consumer
goods, public policy, tourism, customer satisfaction and continuous tracking
research. In addition to its own branded products, AdTest and Packtest, Donovan
is also the exclusive regional licensee of MarketMind(TM), a global brand
tracking system acquired by NFO in March 1998. The Company acquired
substantially all the net assets of Donovan for cash consideration of
approximately $1.6 million, $1.3 million paid at closing and the remainder
payable over the next two years based on Donovan's achievement of certain
earnings targets.
On August 31, 1998, the Company acquired Stochastic International Pty. Ltd.
("Stochastic"). Stochastic is the developer of the Stochastic Reaction Monitor
continuous brand tracking system, which provides guidance on brand positioning
to more than 60 companies in 33 countries. Stochastic was founded in 1981 and is
headquartered in London. The Company acquired substantially all the net assets
of Stochastic for a total purchase price of approximately $2.5 million, $2
million payable at closing in equal amounts of cash and newly issued shares of
NFO common stock and the balance payable at the end of the next two years. A
further amount is payable in cash at the end of three years, providing that
Stochastic achieves certain revenue targets during the third year.
189
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
On April 3, 1998, the Company acquired CF Group, Inc. ("CF Group"). Founded in
1932, CF Group operates three companies in Canada: Canadian Facts, the largest
custom marketing research organization in Canada, Applied Research Consultants
("ARC"), and Burke International. CF Group is headquartered in Toronto and has
client service offices in Montreal, Ottawa and Vancouver. The Company acquired
100 percent of the outstanding stock of CF Group for a total purchase price of
approximately CDN $20 million, 70 percent payable at closing, with 75 percent in
cash and 25 percent in newly issued shares of NFO common stock. The remaining 30
percent of the purchase price will be payable in cash and stock over the next
two years based on CF Group achieving certain earnings targets.
On March 4, 1998, the Company acquired MarketMind Technologies ("MarketMind")
and Ross-Cooper-Lund ("RCL"). MarketMind owns and licenses the MarketMind(TM)
system, which uses proprietary software that combines a set of key diagnostic
measures together with the integration, interactive analysis and display of
multiple streams of longitudinal data. RCL is a research-based consulting firm
focused on brand-building strategies and is the exclusive licensee of the
MarketMind(TM) system in the United States. In separate transactions, the
Company acquired substantially all the net assets of each company for the
combined consideration of $16.6 million. Of the total purchase price, $12.45
million or 75 percent was paid at closing, while the remaining 25 percent will
be payable in cash based upon each company achieving certain earnings targets
over the next two years. Approximately 85 percent of the closing consideration
was paid in cash, and the remainder in newly issued shares of NFO common stock.
The 1998 acquisitions have been accounted for as purchases. Accordingly, the
Company's financial statements include the results of operations from the
effective date of the respective acquisitions. The initial purchase price
allocations were based on preliminary estimates of fair market value and are
subject to revision. The above 1998 acquisitions include allocations to goodwill
of $126.6 million.
The following unaudited pro forma summary presents the condensed consolidated
results of operations as if the 1998 acquisitions had occurred on January 1,
1997, and do not purport to be indicative of what would have occurred had the
acquisitions been made at that date or of the results which may occur in the
future. The pro forma effects of MarketMind, Stochastic, City Research, and
Donovan are not material and therefore are not included in the following amounts
for the year ended December 31 (in thousands, except per share data):
1998 1997
---- ----
Revenues $ 444,592 $ 379,250
Net Income 10,905 8,963
Basic Earnings Per Share .51 .44
Diluted Earnings Per Share .50 .43
On December 12, 1997, the Company acquired CM Research Group Limited.
Headquartered in Auckland, New Zealand, CM Research Group is the leading
provider of custom marketing research in New Zealand, and one of the larger
marketing 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 during the two years following the date of acquisition.
All amounts are payable 75 percent in cash and 25 percent in newly issued shares
of NFO Common Stock.
On May 28, 1997, the Company acquired Access Research, Inc. Access is 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.
The 1997 acquisitions have been accounted for as purchases. Accordingly, the
Company's financial statements include the results of operations from the
effective date of the respective acquisitions. The above 1997 acquisitions
include allocations to goodwill of $9.3 million. The pro forma effects of these
acquisitions were not material to the 1997 results.
190
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
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 in cash based on Spectrem's earnings, as defined, during the three years
following the date of acquisition. For the two years ended August 31, 1998, the
amount of additional purchase price actually earned was approximately $1.2
million.
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 were 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 three years ended
December 31, 1998, the amount of additional purchase price earned was
approximately $11.9 million, including $3.6 million in cash and $8.3 million in
shares of the Company's common stock.
On January 3, 1996, the Company acquired Plog Research, Inc. ("Plog"). Plog
supplies syndicated marketing 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 were 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 three years ended December 31, 1998, the
amount of additional purchase price earned was approximately $.1 million.
The 1996 acquisitions include allocations to goodwill and customer lists of
$24.9 and $5.6 million, respectively. The 1996 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 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 ("MBL"), a leading
international marketing research firm with 27 offices in 17 countries throughout
the UK, the Middle East, and Asia.
On April 1, 1997, the Company issued 2,589,720 shares of NFO Common Stock to
acquire 100% of the outstanding stock of Prognostics, a leading provider of
survey-based quantitative customer satisfaction research to information
technology companies worldwide. Founded in 1981, Prognostics is headquartered in
Palo Alto, California and has additional offices in Boston and London, as well
as an affiliate relationship in Japan.
The acquisitions of MBL and Prognostics 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.
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 July 2000 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 pro forma
effects of these minority interest purchases are not material.
191
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (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, through Infratest Burke, has investments in various affiliates. The
largest of these affiliates, Burke, Inc., is a Cincinnati-based marketing
research firm in which Infratest Burke has a 50 percent interest. NFO's interest
in the activities of these affiliates resulted in income of approximately
$154,000 in 1998, which is reflected in equity interest in net loss of
affiliated companies on the consolidated income statements.
The Company entered into agreements in 1995 with IPSOS, S.A. ("IPSOS"), a major
European marketing research firm, and LT Participations ("LT"), an IPSOS
affiliate, to launch access panel activities in Europe. Under the terms of the
agreements, the Company, IPSOS, and LT have agreed to launch joint venture
companies in five western European countries, of which 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 1998 and 1997, the Company invested approximately $65,000 and $820,000
respectively, in these joint ventures. NFO's portion of the IPSOS joint
ventures' activities resulted in a loss of $210,000, $291,000, and $453,000
during 1998, 1997, and 1996, respectively, which is reflected in equity interest
in net loss 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 has three operating segments as defined by the provisions of
Financial Accounting Standards Board Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information ("SFAS 131"), North America,
Europe and Australasia and the Middle East. Intersegment sales are generally
recorded at market or equivalent value. Operating income by geographic segment
consists of net sales less related costs and expenses.
192
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
Operating segment and geographic disclosures as required by SFAS 131 are as
follows as of and for the years ended December 31 (IN THOUSANDS):
<TABLE>
<CAPTION>
1998 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
North America $ 189,626 $ 143,760 $ 118,638
Europe 50,349 24,838 20,420
Australasia and the Middle East 40,141 24,893 17,622
----------------------------------------------
Total Operating Segments 280,116 193,491 156,680
Intersegment Revenues (4,765) (3,262) (1,737)
----------------------------------------------
Total Revenues $ 275,351 $ 190,229 $ 154,943
==============================================
United States (country of domicile) $ 170,083 $ 143,760 $ 118,638
All Foreign Countries Combined 110,033 49,731 38,042
Intersegment Revenues (4,765) (3,262) (1,737)
----------------------------------------------
Total Revenues $ 275,351 $ 190,229 $ 154,943
==============================================
Depreciation and Amortization:
North America $ 6,978 $ 5,786 $ 4,602
Europe 1,426 347 274
Australasia and the Middle East 1,487 689 360
----------------------------------------------
Total Operating Segments 9,891 6,822 5,236
Unallocated Corporate Expenses 103 70 46
----------------------------------------------
Total Depreciation and Amortization $ 9,994 $ 6,892 $ 5,282
==============================================
Operating Income:
North America $ 29,620 $ 25,666 $ 23,227
Europe 5,583 2,055 1,173
Australasia and the Middle East 950 2,114 2,579
----------------------------------------------
Total Operating Segments 36,153 29,835 26,979
Unallocated Corporate Expenses (6,825) (6,560) (5,602)
----------------------------------------------
Total Operating Income $ 29,328 $ 23,275 $ 21,377
==============================================
Total Assets:
North America $ 449,524 $ 224,784 $ 140,956
Europe 234,612 11,751 8,496
Australasia and the Middle East 30,573 32,207 10,814
----------------------------------------------
Total Operating Segments 714,709 268,742 160,266
Elimination of Investment in Subsidiaries (75,839) (43,752) (26,672)
Elimination of Intersegment Receivables (188,051) (55,027) (8,387)
Unallocated Corporate Assets 979 311 236
----------------------------------------------
Total Assets $ 451,798 $ 170,274 $ 125,443
==============================================
Long-Lived Assets:
North America $ 26,681 $ 16,616 $ 10,886
Europe 14,999 1,049 1,078
Australasia and the Middle East 2,458 1,941 766
----------------------------------------------
Total Operating Segments 44,138 19,606 12,730
Unallocated Corporate Assets 334 311 236
----------------------------------------------
Total Long-Lived Assets $ 44,472 $ 19,917 $ 12,966
==============================================
United States (country of domicile) $ 25,138 $ 16,616 $ 10,886
All Foreign Countries Combined 19,000 2,990 1,844
Unallocated Corporate Assets 334 311 236
----------------------------------------------
Total Long-Lived Assets $ 44,472 $ 19,917 $ 12,966
==============================================
</TABLE>
193
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued)
21. SUBSEQUENT EVENT
On March 26, 1999, the Company successfully completed the private placement of
$7 million in Senior Notes and $8 million in Senior Subordinated Notes, the
proceeds of which will be used to reduce existing debt. The Senior and
Subordinated Notes bear interest at the fixed rates of 7.52 percent and 9.84
percent, respectively, and are due November 15, 2008. The Senior and
Subordinated Notes are to be repaid in equal annual installments of $1 million
and $2.67 million beginning in 2002 and 2006, respectively. With the placement
of these Notes, the Company satisfied certain provisions contained in its Series
A and Series B Senior Notes dated November 20, 1998, thereby reducing the annual
interest rates on those Notes.
194
NFO WORLDWIDE, INC.
INDEX TO FINANCIAL INFORMATION AND SCHEDULES
PAGE
NUMBER
Schedule II - Valuation and Qualifying Accounts.......................... S-2
195
<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 accounts:
January 1 -
December 31, 1998 $ 471 $ 2,287 (c) $ 1,791 $ 967
January 1 -
December 31, 1997 $ 447 $ 151 $ 127 $ 471
January 1 -
December 31, 1996 $ 247 $ 243 $ 43 $ 447
</TABLE>
Notes:
(a) Column "C(2)" has been omitted as it did not contain any amounts.
(b) Write off of uncollectible accounts.
(c) Includes $228 of acquired beginning balance due to 1998 acquisitions.
196
