<PAGE>
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WASHINGTON, D.C. 20549
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
The Securities Exchange Act of 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
NFO WORLDWIDE, INC.
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(Name of registrant as specified in its charter)
Payment of filing fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock of The Interpublic Group of Companies, Inc., par value $0.10 per
share ("IPG Stock"), will be issued in exchange for the outstanding
Common Stock of NFO Worldwide, Inc., par value $0.01 per share ("NFO
Stock").
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(2) Aggregate number of securities to which transaction applies: 26,625,000
shares of NFO Stock are expected to be exchanged for IPG Stock.
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(3) Per unit price or other underlying value of transaction computed pur-
suant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined): $21.125 (the
average of high and low trading prices per share of NFO Stock on The
New York Stock Exchange, Inc. as of January 12, 2000).
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Fee: $112,490.63 = 26,625,000 (the number of shares of NFO Stock
expected to be exchanged for IPG Stock) X $21.125 (the per share value
of NFO Stock determined pursuant to Rule 0-11(a)(4)) X .01/50
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(4) Proposed maximum aggregate value of transaction: N/A
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(5) Total fee paid: $112,490.63
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/X/ Fee paid previously with preliminary materials:
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11 (a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, Schedule or Registration Statement no.:
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(3) Filing Party:
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(4) Date Filed:
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<PAGE>
[LOGO]
PROXY STATEMENT/PROSPECTUS
MERGER PROPOSED--YOUR VOTE IS VERY IMPORTANT
Dear NFO Stockholder:
NFO Worldwide, Inc. has agreed to merge with a subsidiary of The Interpublic
Group of Companies, Inc. Following the merger, NFO will be a wholly owned
subsidiary of Interpublic.
If the merger is completed, you will have the right to receive, for each of
your shares of NFO common stock, a fraction of a share of Interpublic common
stock, ranging from 0.3898 to 0.5274, with a value of $26.00 based on the
average trading price during a prescribed period ending shortly before the
merger. However, if the average trading price per share of Interpublic common
stock during that period is below $49.30, then the fraction of a share of
Interpublic common stock you will have the right to receive for each of your
shares of NFO common stock may have a value of less than $26.00 based on the
average trading price. If the average trading price per share of Interpublic
common stock exceeds $66.70, then you will have the right to receive 0.3898 of a
share of Interpublic common stock for each of your shares of NFO common stock,
which would have a value in excess of $26.00 based on the average trading price.
On March 2, 2000, the date of this letter, the closing price of Interpublic
common stock was $41.38 per share and the closing price of NFO common stock was
$18.94 per share. Interpublic's shares are traded on the New York Stock Exchange
under the symbol "IPG." NFO shares are traded on the New York Stock Exchange
under the symbol "NFO."
If the average trading price during the prescribed period ending shortly
before the merger is less than $46.40, then NFO will have the right to call off
the merger, unless Interpublic elects to adjust the exchange ratio to assure
that you will receive a fraction of a share of Interpublic common stock with a
value, based on the average trading price, of $26.00. If $41.38, the closing
price per share of Interpublic common stock on March 2, 2000, were the
applicable average trading price and NFO elected not to exercise its right to
call off the merger, then you would receive a fraction of a share of Interpublic
common stock with a value, based on the average trading price, of $21.82 for
each of your shares of NFO common stock.
OUR BOARD OF DIRECTORS HAS APPROVED THE MERGER AND RECOMMENDS THAT YOU VOTE
IN FAVOR OF THE ADOPTION OF THE MERGER AGREEMENT. I refer you to the discussion
beginning on page 23 of the proxy statement/prospectus, which describes the
factors considered by our board in determining to recommend the merger.
We cannot complete the merger without the approval of NFO stockholders who
hold a majority of the NFO common stock.
We have scheduled a special meeting to vote on the merger. If you were a
stockholder of record on March 2, 2000, you may vote at the meeting. Whether or
not you plan to attend, please take the time to complete and mail the enclosed
proxy form to us.
The date, time and place of the special meeting are as follows:
April 5, 2000
10:00 A.M. local time
Hyatt Regency Greenwich
1800 East Putnam Avenue
Old Greenwich, Connecticut
The attached proxy statement/prospectus provides you with detailed
information about the merger. This document is also the prospectus of
Interpublic for the Interpublic common stock that will be issued to you in the
merger. We encourage you to read this entire document carefully.
Very truly yours,
/s/ WILLIAM E. LIPNER
--------------------------------------
William E. Lipner
Chairman of the Board, Chief Executive
Officer and President
SEE "RISK FACTORS" BEGINNING ON PAGE 14 FOR A DISCUSSION OF RISKS THAT SHOULD
BE CONSIDERED BY STOCKHOLDERS. NEITHER THE SECURITIES AND EXCHANGE COMMISSION
NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED THE
INTERPUBLIC COMMON STOCK TO BE ISSUED IN THE MERGER OR DETERMINED THAT THIS
DOCUMENT IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
The proxy statement/prospectus is dated March 2, 2000 and is first being mailed
to stockholders on or about March 3, 2000.
<PAGE>
NFO WORLDWIDE, INC.
2 Pickwick Plaza
Greenwich, Connecticut 06830
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Notice of Special Meeting of Stockholders
To Be Held on April 5, 2000
March 2, 2000
To the Stockholders of NFO Worldwide, Inc.:
NFO Worldwide, Inc. will hold a special meeting of its stockholders on
April 5, 2000 at 10:00 a.m., local time, at the Hyatt Regency Greenwich, 1800
East Putnam Avenue, Old Greenwich, Connecticut, for the following purposes:
1. To consider and vote upon a proposal to adopt the Agreement and Plan of
Merger, dated as of December 20, 1999, by and between NFO
Worldwide, Inc. and The Interpublic Group of Companies, Inc. pursuant to
which, among other things:
- NFO will merge with and become a wholly owned subsidiary of
Interpublic; and
- each outstanding share of NFO common stock will be converted into the
right to receive a fraction of a share of Interpublic common stock.
2. To transact such other business as may properly come before the special
meeting or any adjournment or adjournments of the special meeting.
We fixed the close of business on March 2, 2000 as the record date for
stockholders entitled to vote at the special meeting or any adjournment of the
special meeting. A list of stockholders entitled to vote will be available for
inspection during normal business hours for ten days prior to the special
meeting at NFO's principal office located at 2 Pickwick Plaza, Greenwich,
Connecticut 06830.
By order of the Board of Directors,
Patrick G. Healy, Secretary
Date: March 2, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
QUESTIONS AND ANSWERS ABOUT THE
MERGER................................ 1
WHO CAN HELP ANSWER YOUR QUESTIONS...... 3
SUMMARY................................. 4
The Companies........................... 4
The Merger.............................. 4
What NFO Stockholders Will Receive in
the Merger............................ 4
Recommendation to Stockholders.......... 5
Opinion of Financial Advisor to NFO..... 5
Material Federal Income Tax
Consequences.......................... 5
Anticipated Accounting Treatment........ 5
No Appraisal Rights..................... 5
Treatment of NFO Stock Options.......... 6
The Special Meeting..................... 6
Markets and Market Prices............... 6
Interests of NFO's Directors and
Executive Officers in the Merger...... 6
Conditions to the Merger................ 6
Regulatory Approvals.................... 6
Termination of the Merger Agreement..... 7
Termination Fee......................... 8
Stock Option Agreement.................. 8
SELECTED FINANCIAL DATA................. 9
Selected Historical Financial Data of
Interpublic........................... 9
Selected Historical Financial Data of
NFO................................... 10
Selected Unaudited Pro Forma Combined
Condensed Financial Data.............. 11
UNAUDITED COMPARATIVE PER SHARE DATA.... 12
RISK FACTORS............................ 14
You cannot be certain of the market
value or the average trading price of
the Interpublic common stock you will
receive for each of your shares of NFO
common stock.......................... 14
The termination fee and the stock option
agreement may discourage other
companies from trying to acquire
NFO................................... 15
Shares of Interpublic common stock are
subject to different market risks than
shares of NFO common stock............ 15
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Interpublic and NFO may not realize
expected synergies.................... 15
The receipt of required regulatory
approvals may jeopardize or delay
completion of the merger or may reduce
the anticipated benefits of the
merger................................ 15
Directors and executive officers of NFO
have conflicts of interest that may
have influenced their decision to
approve the merger.................... 16
Forward-looking statements may prove
inaccurate............................ 16
THE SPECIAL MEETING..................... 18
Special Meeting for NFO Stockholders.... 18
Vote Required........................... 18
Record Date............................. 18
Quorum.................................. 18
Proxies................................. 18
THE MERGER.............................. 19
Background of the Merger................ 19
NFO's Reasons for the Merger............ 23
Recommendation of the NFO Board......... 24
Opinion of NFO's Financial Advisor...... 24
Interests of NFO's Directors and
Management in the Merger.............. 33
Anticipated Accounting Treatment........ 35
Regulatory Approvals.................... 35
Resale of Shares of Interpublic Common
Stock................................. 36
No Appraisal Rights..................... 36
U.S. Federal Income Tax Consequences of
the Merger............................ 36
New York Stock Exchange Listing of
Interpublic Common Stock; De-listing
and De-registration of NFO Common
Stock................................. 37
THE MERGER AGREEMENT.................... 38
Effective Time of the Merger............ 38
What NFO Stockholders Will Receive in
the Merger............................ 38
NFO Stock Options....................... 38
Exchange of NFO Common Stock............ 39
Representations and Warranties.......... 39
Covenants and Other Agreements.......... 41
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Conditions to the Merger................ 44
Termination............................. 45
Amendments.............................. 46
STOCK OPTION AGREEMENT.................. 47
MARKET PRICES AND DIVIDENDS............. 51
Interpublic............................. 51
NFO..................................... 51
BUSINESS OF INTERPUBLIC................. 52
BUSINESS OF NFO......................... 53
Organization............................ 53
Services................................ 54
Custom Research and Syndicated
Services--NFO Research................ 55
Europe.................................. 60
Australasia and the Middle East......... 62
Clients................................. 63
The Marketing Research Industry......... 64
Competition............................. 65
Trademarks, Patents, Service Marks and
Proprietary Software.................. 65
Employees............................... 66
Properties.............................. 66
Legal Proceedings....................... 66
Changes in or Disagreements with
Accountants........................... 66
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS OF NFO..................... 67
Three and Nine Months Ended September
30, 1998 and 1999..................... 67
Recent Developments..................... 70
Years Ended 1998, 1997 and 1996......... 72
</TABLE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
OWNERSHIP OF NFO COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT...... 80
UNAUDITED PRO FORMA COMBINED CONDENSED
FINANCIAL INFORMATION................. 83
DESCRIPTION OF INTERPUBLIC SHARE
CAPITAL............................... 90
General................................. 90
Common Stock............................ 90
Preferred Stock......................... 91
COMPARATIVE RIGHTS OF HOLDERS OF NFO
COMMON STOCK AND INTERPUBLIC COMMON
STOCK................................. 91
Annual Meetings of Stockholders......... 91
Special Meetings of Stockholders........ 91
Action by Consent in Writing of
Stockholders.......................... 91
Advance Notification of Proposals at
Stockholders' Meetings................ 92
Number of Directors..................... 92
Removal of Directors.................... 92
Rights Plan............................. 92
LEGAL OPINIONS.......................... 93
EXPERTS................................. 93
WHERE YOU CAN FIND MORE INFORMATION..... 94
</TABLE>
<TABLE>
<S> <C> <C>
ANNEX A Agreement and Plan of
Merger....................... A-1
ANNEX B Stock Option Agreement....... B-1
ANNEX C Opinion of Greenhill & Co.,
LLC.......................... C-1
ANNEX D Financial Statements of
NFO.......................... D-1
ANNEX E Financial Statements of
Infratest Burke.............. E-1
</TABLE>
ii
<PAGE>
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHAT IS THE PROPOSED MERGER?
A: NFO and Interpublic have agreed to a merger in which NFO will merge with and
become a wholly owned subsidiary of Interpublic.
Q: WHAT WILL I RECEIVE IN THE MERGER FOR MY NFO COMMON STOCK?
A: If the average trading price of shares of Interpublic common stock during a
specified period ending shortly before the merger is $49.30 or more, up to
$66.70, for each share of your NFO common stock you will receive a fraction
of a share of Interpublic common stock, ranging from 0.3898 to 0.5274, and
having a value, based on the average trading price, of $26.00. The merger
agreement defines the average trading price as the average of the closing
prices for a share of Interpublic common stock on the New York Stock
Exchange for the ten consecutive trading days ending on the sixth trading
day before the merger. Within this range of average trading prices from
$49.30 up to $66.70, the actual fraction of a share of Interpublic common
stock you receive will be calculated by dividing $26.00 by the average
trading price per share of Interpublic common stock. This formula will
adjust the fraction of a share you receive to maintain its value at $26.00.
If the average trading price is above $66.70, then you will receive 0.3898
of a share of Interpublic common stock, which would have a value, based on
the average trading price, of more than $26.00, for each share of your NFO
common stock.
If the average trading price is below $49.30, but at or above $46.40, then
you will receive 0.5274 of a share of Interpublic common stock, which would
have a value, based on the average trading price, of less than $26.00, for
each share of your NFO common stock.
If the average trading price of shares of Interpublic common stock is below
$46.40, NFO will have the right to call off the merger, unless Interpublic
elects to adjust the exchange ratio to assure that you will receive
Interpublic common stock with a value, based on the average trading price,
of $26.00 for each of your shares of NFO common stock. However, NFO may
elect not to exercise this right to call off the merger, in which case you
will receive 0.5274 of a share of Interpublic common stock.
On March 2, 2000, the last trading day prior to the printing of this
document, the closing price per share of Interpublic common stock on the New
York Stock Exchange was $41.38. If that closing price were the applicable
average trading price and NFO elected not to exercise its right to call off
the merger, then you would receive a fraction of a share of Interpublic
common stock with a value, based on the average trading price, of $21.82 for
each of your shares of NFO common stock.
Q: ARE SHARES OF INTERPUBLIC COMMON STOCK TRADED ON ANY STOCK EXCHANGE?
A: Yes. Shares of Interpublic common stock are traded under the symbol "IPG" on
the New York Stock Exchange.
Q: WHAT DO I NEED TO DO NOW?
A: After carefully reading and considering the information contained in this
document, just vote your shares as described in this document and the proxy
card included with it, so that your shares may be represented at the special
meeting. If you do not vote your shares in connection with the merger
proposal, it will have the same effect as voting against the merger
proposal.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. You will receive instructions for exchanging your stock certificates
after the merger is completed.
Q: IF MY SHARES ARE HELD IN STREET NAME BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: No. Your broker can vote your shares only if you provide instructions on how
to vote.
1
<PAGE>
You should instruct your broker to vote your shares, following the
directions provided by your broker. Your failure to instruct your broker on
how to vote your shares will be the equivalent of voting against the merger.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY PROXY CARD OR PROVIDED
INSTRUCTIONS TO MY BROKER?
A: Yes. You can change your vote at any time before your proxy is voted at the
special meeting. This document contains instructions on how to change your
vote. If you have instructed your broker to vote your shares, you must
follow directions received from your broker to change those instructions.
Q: DO I NEED TO ATTEND THE NFO SPECIAL MEETING IN PERSON?
A: No. It is not necessary for you to attend the special meeting to vote your
shares, although you are welcome to attend.
Q: WHEN AND WHERE IS THE SPECIAL MEETING?
A: The special meeting will take place on April 5, 2000 at 10:00 a.m. local time
at the Hyatt Regency Greenwich, 1800 Putnam Avenue, Old Greenwich,
Connecticut.
Q: WHEN WILL THE MERGER BE COMPLETED?
A: Interpublic and NFO are working toward completing the merger as soon as
possible, and expect to complete it shortly after the NFO special meeting if
stockholders approve the merger proposal. However, it is possible that
delays in obtaining regulatory approvals could delay completion of the
merger.
Q: WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER?
A: The merger will be tax-free to holders of NFO common stock for U.S. federal
income tax purposes, except for cash received in lieu of fractional shares
of Interpublic common stock. You should consult your own tax advisor to be
certain about the federal income tax consequences to you.
Q: DO I HAVE DISSENTERS' OR APPRAISAL RIGHTS?
A: No. Holders of NFO common stock do not have dissenters' or appraisal rights
under Delaware law as a result of the merger.
2
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger after reading this document, you
should contact:
<TABLE>
<S> <C> <C>
NFO Worldwide, Inc. or D.F. King & Co., Inc.
2 Pickwick Plaza 77 Water Street
Greenwich, CT 06830 New York, NY 10005
Attn: Investor Relations Banks and Brokers call collect:
Telephone: (203) 618-8505 (212) 269-5550
E-mail: [email protected] All others call toll fee:
(800) 829-6554
</TABLE>
3
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS KEY ASPECTS OF THE MERGER WHICH ARE DESCRIBED IN
GREATER DETAIL ELSEWHERE IN THIS DOCUMENT. IT DOES NOT CONTAIN ALL OF THE
INFORMATION THAT MAY BE IMPORTANT TO YOU. TO BETTER UNDERSTAND THE MERGER, AND
FOR A MORE COMPLETE DESCRIPTION OF THE LEGAL TERMS OF THE MERGER, YOU SHOULD
READ THIS ENTIRE DOCUMENT CAREFULLY, INCLUDING THE ANNEXES, AND THE ADDITIONAL
DOCUMENTS TO WHICH WE REFER YOU. YOU CAN FIND INFORMATION WITH RESPECT TO THESE
ADDITIONAL DOCUMENTS IN "WHERE YOU CAN FIND MORE INFORMATION" ON PAGE 94.
THE COMPANIES (SEE PAGES 52 AND 53)
THE INTERPUBLIC GROUP OF COMPANIES, INC.
1271 Avenue of the Americas
New York, NY 10020
Telephone: (212) 399-8000
Interpublic is one of the world's largest organizations of advertising
agencies and communications-services companies. Interpublic has more than 35,000
employees and offices in 127 countries. Interpublic had gross income of
approximately $4.6 billion in 1999.
NFO WORLDWIDE, INC.
2 Pickwick Plaza
Greenwich, CT 06830
Telephone: (203) 629-8888
Founded in 1946 in the United States, NFO is one of the largest custom
marketing research firms in North America and the third largest in the world.
NFO is a leading provider of research-based marketing information and counsel to
the worldwide business community. NFO employs over 13,000 full and part-time
employees operating in 35 countries. NFO delivers custom and syndicated
information and counsel to over 3,000 clients in key market sectors. NFO is also
the world's largest provider of internet-based custom marketing research. NFO
had revenues of $457.2 million in calendar year 1999.
THE MERGER
THE MERGER AGREEMENT, WHICH IS THE PRIMARY LEGAL DOCUMENT THAT GOVERNS THE
MERGER, IS ATTACHED AS ANNEX A. YOU ARE ENCOURAGED TO READ THE MERGER AGREEMENT
CAREFULLY.
WHAT NFO STOCKHOLDERS WILL RECEIVE IN THE MERGER (SEE PAGE 38)
If the average trading price of shares of Interpublic common stock during a
specified period ending shortly before the merger is $49.30 or more, up to
$66.70, for each share of your NFO common stock you will receive a fraction of a
share of Interpublic common stock, ranging from 0.3898 to 0.5274, and having a
value, based on the average trading price, of $26.00. The average trading price
is the average of the closing prices for a share of Interpublic common stock on
the New York Stock Exchange for the ten consecutive trading days ending on the
sixth trading day before the merger. Within this range of average trading prices
from $49.30 up to $66.70, the actual fraction of a share of Interpublic common
stock you receive will be calculated by dividing $26.00 by the average trading
price per share of Interpublic common stock. This formula will adjust the
fraction of a share you receive to maintain its value at $26.00.
If the average trading price of shares of Interpublic common stock is below
$49.30, but at or above $46.40, then you will receive 0.5274 of a share of
Interpublic common stock, which would have a value, based on the average trading
price, of less than $26.00, for each share of your NFO common stock.
If the average trading price of shares of Interpublic common stock is above
$66.70, then you will receive 0.3898 of a share of Interpublic common stock,
which would have a value, based on the average trading price, of more than
$26.00, for each share of your NFO common stock.
4
<PAGE>
This information is summarized in the table below:
<TABLE>
<CAPTION>
VALUE, BASED ON AVERAGE TRADING PRICE, OF
FRACTION OF A SHARE OF INTERPUBLIC SHARES OF INTERPUBLIC COMMON STOCK YOU
AVERAGE TRADING PRICE OF COMMON STOCK YOU RECEIVE FOR EACH RECEIVE FOR EACH SHARE OF NFO COMMON
SHARES OF INTERPUBLIC COMMON STOCK SHARE OF NFO COMMON STOCK STOCK
- ---------------------------------- ---------------------------------- -----------------------------------------
<S> <C> <C>
more than $66.70 0.3898 more than $26.00
$49.30 to $66.70 $26.00 divided by the average $26.00
trading price
less than $49.30, but at or 0.5274 less than $26.00
above $46.40
less than $46.40 0.5274* less than $26.00*
</TABLE>
- ------------------------
* If the average trading price is less than $46.40, then NFO will have the
right to call off the merger, unless Interpublic elects to adjust the
exchange ratio to assure that you will receive a fraction of a share of
Interpublic common stock with a value, based on the average trading price,
of $26.00 for each of your shares of NFO common stock. If NFO elects not to
exercise this right, then you will receive 0.5274 of a share of Interpublic
common stock for each share of your NFO common stock. If $41.38, the closing
price per share of Interpublic common stock on March 2, 2000, were the
applicable average trading price and NFO elected not to exercise this right,
then you would receive a fraction of a share of Interpublic common stock
with a value, based on the average trading price, of $21.82 for each of your
shares of NFO common stock.
Interpublic will not issue fractional shares in the merger. As a result, the
total number of shares of Interpublic common stock that you receive in the
merger will be rounded down to the nearest whole number. You will receive a cash
payment for the value, based on the closing price on the day of the merger, of
the remaining fraction of a share of Interpublic common stock that you would
otherwise receive.
RECOMMENDATION TO STOCKHOLDERS (SEE PAGE 24)
THE NFO BOARD HAS APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT YOU VOTE
"FOR" THE MERGER PROPOSAL.
OPINION OF FINANCIAL ADVISOR TO NFO (SEE PAGE 24)
On December 19, 1999, the NFO Board received an oral opinion (later
confirmed in writing) from its financial advisor, Greenhill & Co., LLC, that, as
of that date, the exchange ratio in the merger agreement was fair to NFO
stockholders from a financial point of view. The full text of the opinion is
attached as Annex C. We urge you to read the entire opinion carefully for the
assumptions made, procedures followed, matters considered and limits of the
scope of Greenhill's review in rendering its opinion. Greenhill's opinion was
addressed to the NFO Board for the purpose of the Board's evaluation of the
merger and does not constitute a recommendation to any NFO stockholder as to how
to vote with respect to the merger proposal.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES (SEE PAGE 36)
The receipt of shares of Interpublic common stock in the merger generally
will be tax-free to NFO stockholders for United States income tax purposes,
except for tax on cash received for fractional shares. Tax matters are very
complicated, and the tax consequences of the merger to you will depend on the
facts of your particular situation. We urge you to consult your tax advisor for
a full understanding of the tax consequences of the merger to you.
ANTICIPATED ACCOUNTING TREATMENT (SEE PAGE 35)
It is expected that the merger will qualify as a pooling of interests for
accounting purposes. This means that Interpublic and NFO will be treated for
accounting purposes as if they had always been combined.
NO APPRAISAL RIGHTS (SEE PAGE 36)
You will have no appraisal rights in connection with the merger.
5
<PAGE>
TREATMENT OF NFO STOCK OPTIONS (SEE PAGE 38)
Interpublic will assume all NFO stock options outstanding at the time of the
merger. After the merger, Interpublic will treat these stock options as options
to acquire, on the terms and conditions of the NFO stock option plans under
which they were issued, a number of shares of Interpublic common stock equal to
what the holder would have received in the merger if the options had been
exercised in full immediately before the merger. The exercise prices of the
options will be adjusted accordingly.
THE SPECIAL MEETING (SEE PAGE 18)
The special meeting of NFO stockholders will be held on April 5, 2000. The
record date for determining NFO stockholders entitled to receive notice of and
to vote at the meeting was the close of business on March 2, 2000. On that date,
there were 22,405,342 outstanding shares of NFO common stock.
The affirmative vote of the holders of a majority of the outstanding shares
of NFO common stock is necessary to adopt the merger agreement. No other vote of
the stockholders of NFO is required for the merger to occur.
MARKETS AND MARKET PRICES (SEE PAGE 51)
Interpublic common stock is traded under the symbol "IPG" on the New York
Stock Exchange. NFO common stock is traded under the symbol "NFO" on the New
York Stock Exchange. On December 17, 1999, the last trading day before the
public announcement of the proposed merger, the closing price per share of
Interpublic common stock was $58.06 and the closing price per share of NFO
common stock was $14.00. On March 2, 2000, the most recent trading day for which
prices were available prior to the printing of this document, the closing price
per share of Interpublic common stock was $41.38 and the closing price per share
of NFO common stock was $18.94. You will find additional historical share price
information for both Interpublic and NFO on page 51.
INTERESTS OF NFO'S DIRECTORS AND MANAGEMENT IN THE MERGER (SEE PAGE 33)
You should be aware of conflicts of interest, and of the benefits available
to directors and executive officers of NFO, when considering the NFO Board's
recommendation of the merger. The directors and executive officers of NFO have
interests in the merger that are in addition to, or different from, their
interests as NFO stockholders. The NFO Board was aware of these conflicts of
interest when it approved the merger. These interests relate to:
- - rights to accelerated or increased benefits under employment agreements,
severance agreements and stock option agreements; and
- - rights to directors' and officers' insurance coverage and to indemnification
with respect to acts and omissions in their capacities as directors and
officers of NFO.
CONDITIONS TO THE MERGER (SEE PAGE 44)
Interpublic and NFO will not complete the merger unless a number of
conditions are satisfied or waived, including:
- - adoption of the merger agreement by NFO stockholders;
- - receipt of regulatory approvals and the absence of legal restraints;
- - effectiveness of the registration statement, which includes this document, and
lack of any stop order;
- - issuance of opinions by attorneys for Interpublic and NFO as to the tax-free
nature of the merger, except with respect to cash payments for fractional
shares; and
- - receipt of approval for listing on the New York Stock Exchange of the shares
of Interpublic common stock to be issued in the merger.
REGULATORY APPROVALS (SEE PAGE 35)
We were required to satisfy applicable requirements of U.S. antitrust law
known as the Hart-Scott-Rodino Act, which required us to furnish materials and
information to the Antitrust Division of the Department of Justice
6
<PAGE>
and to the Federal Trade Commission and to wait until a specified waiting period
had ended. The waiting period for the merger ended on January 27, 2000.
The transaction is subject to antitrust clearance by non-U.S. authorities,
including those in Germany, Sweden and Finland. Interpublic and NFO expect these
clearances to be obtained by a date that is prior to or shortly after the
special meeting of the NFO stockholders.
The merger agreement provides that Interpublic may elect to refrain from
proceeding with the merger rather than agree to specified burdensome
requirements that governmental authorities may demand as a condition to granting
regulatory approvals.
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 45)
Interpublic and NFO can jointly agree to terminate the merger agreement at
any time before completing the merger. In addition, either company can terminate
the merger agreement if:
- - the merger has not been completed by June 30, 2000, if all governmental
approvals required for the completion of the merger have then been obtained;
- - the merger has not been completed by September 30, 2000;
- - NFO stockholders fail to approve the merger;
- - any legal prohibition against the completion of the merger becomes permanent
and final; or
- - the other party breaches any representations, warranties, covenants or
agreements contained in the merger agreement and the breach:
- gives rise to the failure to satisfy a condition to the merger and
- is not or cannot be cured within ten business days after notice is given.
Interpublic can also terminate the merger agreement if:
- - the NFO Board withdraws or adversely modifies its approval or recommendation
of the merger agreement or the merger; or
- - the NFO Board fails to comply with its obligations to refrain from soliciting
or taking other specified actions in connection with acquisition proposals to
NFO by third parties.
NFO can also terminate the merger agreement if:
- - the average trading price of Interpublic common stock used to compute the
exchange ratio is less than $46.40, unless Interpublic elects to adjust the
exchange ratio to assure that you will receive Interpublic common stock with a
value, based on the average trading price, of $26.00 for each of your shares
of NFO common stock; or
- - the NFO Board, at any time prior to the approval of the merger by the NFO
stockholders, elects to terminate the merger agreement in order to recommend a
merger or similar transaction that is a superior proposal, so long as, among
other conditions:
- NFO has notified Interpublic in writing that it intends to approve or
recommend a superior proposal,
- after taking into account any modifications to the transactions
contemplated by the merger agreement that Interpublic has then proposed in
writing and not withdrawn, the NFO Board has determined that the
third-party proposal is and continues to be a superior proposal, and
- NFO pays Interpublic the termination fee described below on the
termination date.
The merger agreement defines a superior proposal as any bona fide acquisition
proposal made by a third party that, among other criteria:
- - was not solicited in violation of the merger agreement;
- - the NFO Board considers in compliance with the merger agreement; and
- - the NFO Board determines to be more favorable to the stockholders of NFO than
the transactions contemplated by the merger agreement.
7
<PAGE>
TERMINATION FEE (SEE PAGE 46)
NFO could be required to pay Interpublic a termination fee of $25,000,000 if
the merger agreement is terminated under specified circumstances.
STOCK OPTION AGREEMENT (SEE PAGE 47)
NFO has granted Interpublic an option to purchase a number of shares of NFO
common stock equal to 19.9% of those outstanding at a price of $26.00 per share,
exercisable under specified circumstances. Interpublic's potential profit on the
option is capped at $27,500,000. The option is no longer exercisable after
completion of the merger or if Interpublic receives the $25,000,000 termination
fee. In addition, the termination fee is no longer payable after any exercise of
the option.
8
<PAGE>
SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA OF INTERPUBLIC
The following selected consolidated financial data as at and for the nine
months ended September 30, 1999 and 1998 have been derived from Interpublic's
unaudited interim financial statements and contain all normal, recurring entries
necessary for fair presentation, and are not indicative of the results for the
entire year. The selected consolidated financial data as at and for each of the
five fiscal years in the period ended December 31, 1998 have been derived from
the audited consolidated financial statements of Interpublic. The report of
PricewaterhouseCoopers LLP, independent accountants, on the financial
statements, as of December 31, 1998 and 1997, and for each of the three years in
the period ended December 31, 1998, is included in Interpublic's Annual Report
on Form 10-K for the year ended December 31, 1998, incorporated in this document
by reference. The PricewaterhouseCoopers LLP report on the financial statements
is based in part on the report of other independent accountants. You should read
the selected consolidated financial data in conjunction with the financial
statements and the notes to the financial statements for Interpublic included in
its Annual Report on Form 10-K for the year ended December 31, 1998 and in its
Quarterly Report on Form 10-Q for the period ended September 30, 1999. See
"Where You Can Find More Information" on page 94 to learn how you can obtain
these reports. We have adjusted all per share amounts to reflect Interpublic's
two-for-one stock split on July 15, 1999 effected in the form of a stock
dividend. In addition, we have restated all periods before 1998 to reflect the
effect of acquisitions accounted for as poolings of interests.
<TABLE>
<CAPTION>
AS AT AND FOR THE
NINE MONTHS ENDED
AS AT AND FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE FIGURES)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data
Gross Income....................... $2,350,809 $2,606,467 $2,983,899 $3,482,384 $3,968,728 $2,773,955 $3,103,516
Operating Expenses................. 2,059,233 2,257,138 2,558,336 2,988,532 3,347,158 2,365,428 2,618,122
Restructuring charge............... 48,715 -- -- -- -- -- --
Write-down of goodwill and other
related assets................... -- 38,687 -- -- -- -- --
Special compensation charge........ -- -- -- 32,229 -- -- --
Provision for income taxes......... 92,311 126,537 156,783 186,246 232,005 150,767 180,192
Income before effect of accounting
change........................... 108,767 134,311 214,619 200,378 309,905 203,237 243,238
Effect of accounting change........ (34,325)(1) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income......................... $ 74,442 $ 134,311 $ 214,619 $ 200,378 $ 309,905 203,237 243,238
Per Share Data
Basic Income before effect of
accounting change................ $ 0.43 $ 0.53 $ 0.82 $ 0.77 $ 1.14 $ 0.75 $ 0.89
Effect of accounting change........ (0.13)(1) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income......................... $ 0.30 $ 0.53 $ 0.82 $ 0.77 $ 1.14 $ 0.75 $ 0.89
Weighted-average shares............ 251,127 255,605 260,595 260,500 270,970 270,908 273,566
Diluted Income before effect of
accounting change................ $ 0.42 $ 0.51 $ 0.80 $ 0.75 $ 1.11 $ 0.72 $ 0.86
Effect of accounting change........ (0.13) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income......................... $ 0.29 $ 0.51 $ 0.80 $ 0.75 $ 1.11 $ 0.72 $ 0.86
Weighted-average shares............ 257,918 263,609 277,178 277,619 281,051 281,068 284,086
Financial Position
Working capital.................... $ 56,748 $ 101,833 $ 128,808 $ 216,367 $ 118,593 188,034 335,943
Total assets....................... 4,090,906 4,631,912 5,119,927 5,983,443 6,942,823 6,309,527 7,657,675
Long-term debt..................... 320,902 361,945 418,618 519,036 506,618 518,114 339,543
</TABLE>
- ------------------------------
(1) Reflects the cumulative effect of adopting SFAS 112, "Employers' Accounting
for Postemployment Benefits."
9
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF NFO
The following selected consolidated financial data as at and for the nine
months ended September 30, 1999 and 1998 have been derived from NFO's unaudited
interim financial statements and contain all normal, recurring entries necessary
for fair presentation, and are not indicative of results for the entire year.
The selected consolidated financial data as at and for each of the five fiscal
years in the period ended December 31, 1998 have been derived from the audited
consolidated financial statements of NFO. The report of Arthur Andersen LLP,
independent public accountants, as of December 31, 1998 and 1997 and for each of
the three years in the period ended December 31, 1998 is included in the audited
consolidated financial statements of NFO contained in this document in Annex D.
You should read the selected consolidated financial data in conjunction with the
audited and unaudited consolidated financial statements and the notes to these
financial statements included in this document in Annexes D and E.
INCOME STATEMENT DATA(2)(3)
(THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999(3)
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues............................................ $90,435 $113,095 $154,943 $190,229 $275,351 $180,732 $337,019
Operating Income.................................... 13,123 16,469 21,377 23,275 29,328 18,903 30,245
Income before provisions for income taxes and
Minority Interest................................. 12,952 16,797 21,021 22,406 25,357 16,721 21,580
Net Income.......................................... $ 7,671 $ 9,159 $ 10,616 $ 12,505 $ 14,490 $ 9,408 $ 11,587
Basic and diluted earnings per share(1)
Basic earnings per share............................ $ 0.41 $ 0.49 $ 0.53 $ 0.62 $ 0.68 $ 0.45 $ 0.53
Diluted earnings per share.......................... 0.41 0.48 0.51 0.60 0.67 0.44 0.52
Weighted average basic shares....................... 18,559 18,716 19,911 20,265 21,154 21,093 21,899
Weighted average diluted shares..................... 18,963 19,193 20,746 20,832 21,704 21,621 22,374
</TABLE>
BALANCE SHEET DATA(2)(3)
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
AS AT
AS AT DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- -------------
<S> <C> <C> <C> <C> <C> <C>
Working capital............................................ $ 7,918 $15,681 $19,650 $28,464 $31,915 $52,031
Total assets............................................... 75,465 86,781 125,443 170,274 451,798 450,560
Total debt................................................. 4,656 2,664 5,300 25,169 191,053 194,452
Stockholders' equity....................................... 41,180 51,226 74,397 96,724 121,763 138,167
</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, both of which were accounted for using the pooling of
interests method.
(3) On December 20, 1999, NFO announced that it expected its fourth quarter 1999
operating results to be below then-existing analyst estimates as well as the
level of the prior year. On March 1, 2000, NFO announced its fourth quarter
1999 operating results, which were consistent with the revised estimates
provided on December 20, 1999. For additional information, see "Management's
Discussion and Analysis of Financial Condition and Results of Operations of
NFO--Recent Developments" on page 70.
10
<PAGE>
SELECTED UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL DATA
The following selected unaudited pro forma combined condensed financial data
gives effect to the merger as if it had occurred at the dates and at the
commencement of the periods indicated using the pooling of interests method of
accounting for business combinations and assuming an exchange ratio of 0.5274.
This presentation is based on the assumption that either the applicable
average trading price will be between $46.40 and $49.30 or it will be below the
$46.40 price, at which NFO can deliver a notice to call off the merger, and NFO
will not have delivered that notice. On March 2, 2000, the closing price per
share of Interpublic common stock on the New York Stock Exchange was $41.38. If
that closing price were the applicable average trading price and NFO elected not
to deliver a notice to call off the merger, then you would receive a fraction of
a share of Interpublic common stock with a value, based on the average trading
price, of $21.82 for each of your shares of NFO common stock.
The following data does not give pro forma effect to the acquisition by NFO
of Infratest Burke in November 1998.
You should read the information presented below in conjunction with the
financial statements and the notes to the financial statements for Interpublic
included in Interpublic's Annual Report on Form 10-K for the year ended
December 31, 1998 and Quarterly Report on Form 10-Q for the period ended
September 30, 1999, which we have incorporated into this document by reference,
and the financial statements and the notes to the financial statements for NFO
and Infratest Burke that we have included in this document in Annexes D and E.
See "Where You Can Find More Information" on page 94 to learn how to obtain
these reports of Interpublic. In addition, you should read the information
presented below in conjunction with the unaudited pro forma combined condensed
financial information and the notes to that information included in this
document beginning on page 83.
The pro forma information below, while helpful in illustrating the financial
characteristics of the combination of Interpublic and NFO under one set of
assumptions, does not attempt to predict or suggest future results. Moreover,
the pro forma information below does not attempt to show what the financial
condition or the results of operations of the combined company would have been
if the merger had occurred at the dates indicated below or at the commencement
of the periods indicated below.
<TABLE>
<CAPTION>
AS AT AND FOR THE
NINE MONTHS ENDED
AS AT AND FOR THE YEAR ENDED DECEMBER 31, SEPTEMBER 30,
-------------------------------------------------------------- -----------------------
1994 1995 1996 1997 1998 1998 1999
---------- ---------- ---------- ---------- ---------- ---------- ----------
(THOUSANDS OF U.S. DOLLARS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Data
Gross Income....................... $2,441,244 $2,719,562 $3,138,842 $3,672,613 $4,244,079 $2,954,687 $3,440,535
Operating Expenses................. 2,136,545 2,353,764 2,691,902 3,155,486 3,593,181 2,527,257 2,924,896
Restructuring charge............... 48,715 -- -- -- -- -- --
Write-down of goodwill and related
assets........................... -- 38,687 -- -- -- -- --
Special compensation charge........ -- -- -- 32,229 -- -- --
Provision for income taxes......... 97,763 132,709 165,766 195,141 242,494 157,652 189,626
Income before effect of accounting
change........................... 116,438 143,470 225,235 212,883 324,395 212,645 254,825
Effect of accounting change........ (34,325) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income......................... $ 82,113 $ 143,470 $ 225,235 $ 212,883 $ 324,395 $ 212,645 $ 254,825
Per Share Data
Basic Income before effect of
accounting change................ $ 0.45 $ 0.54 $ 0.83 $ 0.79 $ 1.15 $ 0.75 $ 0.89
Effect of accounting change........ (0.13) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income......................... $ 0.31 $ 0.54 $ 0.83 $ 0.79 $ 1.15 $ 0.75 $ 0.89
Weighted-average shares............ 261,074 265,476 271,096 271,188 282,128 282,033 285,116
Diluted Income before effect of
accounting change................ $ 0.43 $ 0.52 $ 0.78 $ 0.74 $ 1.11 $ 0.73 $ 0.86
Effect of accounting change........ (0.13) -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income......................... $ 0.31 $ 0.52 $ 0.78 $ 0.74 $ 1.11 $ 0.73 $ 0.86
Weighted-average shares............ 267,919 273,731 288,122 288,606 292,498 292,471 295,888
Financial Position
Working capital.................... $ 64,666 $ 117,514 $ 148,458 $ 244,831 $ 150,508 231,794 377,974
Total assets....................... 4,166,371 4,718,693 5,245,370 6,153,717 7,394,621 6,520,958 8,108,235
Long-term debt..................... 325,558 364,609 423,918 543,859 697,275 567,983 532,927
</TABLE>
11
<PAGE>
UNAUDITED COMPARATIVE PER SHARE DATA
The following table sets forth unaudited historical per share financial
information as at and for the nine months ended September 30, 1999, and as at
and for each of the three fiscal years in the period ended December 31, 1998,
relating to the outstanding shares of Interpublic common stock and outstanding
shares of NFO common stock. The following table also sets forth unaudited pro
forma per share data for Interpublic that gives effect to the merger as if it
had occurred at the dates and at the commencement of the periods indicated using
the pooling of interests method of accounting for business combinations and
assuming an exchange ratio of 0.5274.
This presentation is based on the assumption that either the applicable
average trading price will be between $46.40 and $49.30 or it will be below the
$46.40 price, at which NFO can deliver a notice to call off the merger, and NFO
will not have delivered that notice. On March 2, 2000, the closing price per
share of Interpublic common stock on the New York Stock Exchange was $41.38. If
that closing price were the applicable average trading price and NFO elected not
to exercise its right to call off the merger, then you would receive a fraction
of a share of Interpublic common stock with a value, based on the average
trading price, of $21.82 for each of your shares of NFO common stock.
The following pro forma per share data for Interpublic does not give pro
forma effect to the acquisition by NFO of Infratest Burke in November 1998. The
NFO pro forma equivalent per share information gives effect to the merger from
the perspective of the owner of NFO common stock by multiplying the pro forma
per share information of the combined company by the assumed exchange ratio.
You should read the information presented below in conjunction with the
financial statements and the notes to the financial statements for Interpublic
included in Interpublic's Annual Report on Form 10-K for the year ended
December 31, 1998 and Quarterly Report on Form 10-Q for the period ended
September 30, 1999, which we have incorporated into this document by reference,
and the financial statements and the notes to the financial statements for NFO
and Infratest Burke that we have included in this document in Annexes D and E.
See "Where You Can Find More Information" on page 94 to learn how to obtain
these reports of Interpublic. In addition, you should read the information
presented below in conjunction with the unaudited pro forma combined condensed
financial information and the notes to that information included in this
document beginning on page 83.
The pro forma information below, while helpful in illustrating the financial
characteristics of the combination of Interpublic and NFO under one set of
assumptions, does not attempt to predict or suggest future results. Moreover,
the pro forma information below does not attempt to show what the financial
condition or the results of operations of the combined company would have been
if the merger had occurred at the dates indicated below or at the commencement
of the periods indicated below.
We have adjusted Interpublic's per share amounts to reflect Interpublic's
two-for-one stock split on July 15, 1999 effected in the form of a stock
dividend. In addition, for Interpublic, we have restated all periods before 1998
to reflect the effect of acquisitions by Interpublic accounted for as poolings
of interests. We have adjusted NFO's per share amounts to reflect the 3-for-2
stock splits effected on October 15, 1997 and February 5, 1996. In addition, for
NFO, we have restated all periods before 1998
12
<PAGE>
to give effect to the mergers with Prognostics on April 1, 1997 and MBL Group
Plc. on July 11, 1997, both of which were accounted for as poolings of
interests.
<TABLE>
<CAPTION>
AS AT AND FOR
THE NINE
AS AT AND FOR THE YEAR MONTHS ENDED
ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------
1996 1997 1998 1999
-------- -------- -------- -------------
<S> <C> <C> <C> <C>
INTERPUBLIC COMMON STOCK--HISTORICAL
Net earnings per share, basic............................ $0.82 $0.77 $1.15 $ 0.89
Net earnings per share, diluted.......................... 0.80 0.75 1.11 0.86
Cash dividends per share................................. 0.22 0.25 0.29 0.245
Book value per share at period end....................... 3.07 3.70 4.54 4.65
NFO COMMON STOCK--HISTORICAL
Net earnings per share, basic............................ $0.53 $0.62 $0.68 $ 0.53
Net earnings per share, diluted.......................... 0.51 0.60 0.67 0.52
Cash dividends per share................................. 0.00 0.00 0.00 0.00
Book value per share at period end....................... 3.71 4.67 5.69 6.21
INTERPUBLIC COMMON STOCK--PRO FORMA
Net earnings per share, basic............................ $0.83 $0.79 $1.15 $ 0.89
Net earnings per share, diluted.......................... 0.78 0.74 1.11 0.86
Cash dividends per share................................. 0.22 0.25 0.29 0.245
Book value per share at period end....................... 3.22 3.90 4.78 4.92
NFO COMMON STOCK--PRO FORMA EQUIVALENT
Net earnings per share, basic............................ 0.44 0.42 0.61 0.47
Net earnings per share, diluted.......................... 0.41 0.39 0.59 0.45
Cash dividends per share................................. 0.12 0.13 0.15 0.13
Book value per share at period end....................... 1.70 2.06 2.52 2.59
</TABLE>
13
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER THE FOLLOWING MATTERS IN CONJUNCTION WITH THE OTHER
INFORMATION INCLUDED OR INCORPORATED BY REFERENCE IN THIS DOCUMENT IN DECIDING
WHETHER TO VOTE IN FAVOR OF THE MERGER PROPOSAL.
YOU CANNOT BE CERTAIN OF THE MARKET VALUE OR THE AVERAGE TRADING PRICE OF THE
INTERPUBLIC COMMON STOCK YOU WILL RECEIVE FOR EACH OF YOUR SHARES OF NFO COMMON
STOCK.
If the average trading price of shares of Interpublic common stock during
the measurement period shortly before the merger is $49.30 or more, up to
$66.70, then, for each of your shares of NFO common stock, you will receive a
fraction of a share of Interpublic common stock, ranging from 0.3898 to 0.5274,
and having a value, based on the average trading price, of $26.00. The merger
agreement defines the average trading price as the average of the closing prices
for a share of Interpublic common stock on the New York Stock Exchange for the
ten consecutive trading days ending on the sixth trading day before the merger.
Within this range of average trading prices, the actual fraction of a share of
Interpublic common stock you receive will be calculated by dividing $26.00 by
the average trading price per share of Interpublic common stock. However,
because the actual trading price of shares of Interpublic common stock at the
time of the merger may be either lower or higher than the average trading price,
the market value of the shares of Interpublic common stock you receive in the
merger may be either lower or higher than $26.00 for each of your shares of NFO
common stock. The market value of shares of Interpublic common stock is likely
to fluctuate based on general market and economic conditions, Interpublic's
business and prospects and other factors.
If the average trading price of shares of Interpublic common stock is below
$49.30, but at or above $46.40, then you will receive 0.5274 of a share of
Interpublic common stock, which would have a value, based on the average trading
price, of less than $26.00, for each share of your NFO common stock. If the
average trading price of shares of Interpublic common stock is above $66.70, you
will receive 0.3898 of a share of Interpublic common stock, which would have a
value, based on the average trading price, of more than $26.00, for each share
of your NFO common stock. Furthermore, in either case, because the actual
trading price of shares of Interpublic common stock at the time of the merger
may be either lower or higher than the average trading price, the market value
of the shares of Interpublic common stock you receive in the merger may be
either lower or higher than the value of those shares based on the average
trading price.
If the average trading price of shares of Interpublic common stock is below
$46.40, NFO will have the right to call off the merger, unless Interpublic
elects to adjust the exchange ratio to assure that you will receive Interpublic
common stock with a value, based on the average trading price, of $26.00 for
each of your shares of NFO common stock. However, NFO may elect not to exercise
this right to call off the merger. If NFO elects not to exercise this right to
call off the merger, then the value, based on the average trading price, of the
shares of Interpublic common stock you receive in the merger would be less than
$26.00 for each share of your NFO common stock. If $41.38, the closing price per
share of Interpublic common stock on March 2, 2000, were the applicable average
trading price and NFO elected not to exercise this right, then you would receive
a fraction of a share of Interpublic common stock with a value, based on the
average trading price, of $21.82 for each of your shares of NFO common stock.
In addition, the exchange of certificates representing your shares of NFO
common stock for certificates representing shares of Interpublic common stock
will not take place immediately upon completion of the merger. You will thus be
unable to sell or otherwise transfer these shares of Interpublic common stock
for a period following completion of the merger. The market value of the shares
of Interpublic common stock you receive in the merger may be either lower or
higher at the time you receive your certificates representing shares of
Interpublic common stock, and so become able to sell those shares, than at the
time of the merger.
14
<PAGE>
THE TERMINATION FEE AND THE STOCK OPTION AGREEMENT MAY DISCOURAGE OTHER
COMPANIES FROM TRYING TO ACQUIRE NFO.
In the merger agreement, NFO agreed to pay a termination fee to Interpublic
in specified circumstances, including circumstances where a third party acquires
or seeks to acquire NFO. In the stock option agreement, NFO granted Interpublic
an option to purchase a number of shares of NFO common stock equal to 19.9% of
the NFO common stock outstanding at the time of exercise, exercisable under
similar circumstances. These agreements could discourage other companies from
trying to acquire NFO even though those other companies might be willing to
offer greater value to NFO stockholders than Interpublic has offered in the
merger agreement. In addition, payment of the termination fee would have a
material adverse effect on NFO's financial condition.
SHARES OF INTERPUBLIC COMMON STOCK ARE SUBJECT TO DIFFERENT MARKET RISKS THAN
SHARES OF NFO COMMON STOCK.
Upon completion of the merger, holders of shares of common stock of NFO will
become holders of shares of common stock of Interpublic. The business, strategy,
financial condition, results of operations and common stock of Interpublic
differ in material respects from those of NFO. Accordingly, holders of shares of
common stock of Interpublic are subject to different market risks than holders
of shares of NFO common stock. For a description of and other information about
the common stock of Interpublic and the differences between the common stock of
Interpublic and the common stock of NFO, see "Unaudited Comparative Per Share
Data" on page 12, "Market Prices and Dividends" on page 51 below, "Description
of Interpublic Share Capital" on page 90 below, "Comparative Rights of Holders
of NFO Common Stock and Interpublic Common Stock" on page 91 below and the
registration statement of Interpublic on Form 8-A that we have incorporated by
reference and described under "Where You Can Find More Information" on page 94
below. For a description of the business, strategy, financial condition and
results of operations of Interpublic, see "Business of Interpublic" on page 52
below and the discussions in the reports on Forms 10-K, 10-Q and 8-K that we
have incorporated by reference and described under "Where You Can Find More
Information" on page 94 below.
INTERPUBLIC AND NFO MAY NOT REALIZE EXPECTED SYNERGIES.
While we expect that the merger will allow both companies to increase the
scope of the services they each provide to their respective client bases and
give rise to other synergies as described in "NFO's Reasons for the Merger"
beginning on page 23, these benefits may not be realized. Interpublic and NFO
are developing, but have not yet finalized, plans for obtaining operating
synergies after the merger. The implementation of these plans will present
challenges involving the coordination of the operations, technologies and
personnel of the two companies and may give rise to the diversion of the
attention of management and unanticipated liabilities and costs. The
geographically dispersed operations of the two companies may compound these
challenges.
THE RECEIPT OF REQUIRED REGULATORY APPROVALS MAY JEOPARDIZE OR DELAY COMPLETION
OF THE MERGER OR MAY REDUCE THE ANTICIPATED BENEFITS OF THE MERGER.
Certain non-U.S. regulators require, or provide for voluntary, notifications
of the merger. The satisfaction of these regulatory conditions may jeopardize or
delay completion of the merger or may reduce the anticipated benefits of the
merger because governmental authorities may subject the completion of the merger
to compliance with conditions. The merger agreement provides that Interpublic
may elect to refrain from proceeding with the merger rather than agree to
specified burdensome requirements that governmental authorities may demand as a
condition to granting regulatory approvals.
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Even though the waiting period under the Hart-Scott-Rodino Act has
terminated, the Department of Justice or the Federal Trade Commission could take
action under the U.S. antitrust laws that could adversely affect the merger. The
transaction is also subject to antitrust clearance by non-U.S. authorities,
including those in Germany, Sweden and Finland.
DIRECTORS AND EXECUTIVE OFFICERS OF NFO HAVE CONFLICTS OF INTEREST THAT MAY HAVE
INFLUENCED THEIR DECISION TO APPROVE THE MERGER.
You should be aware of conflicts of interest, and of the benefits available
to directors and executive officers of NFO, when considering the NFO Board's
recommendation of the merger. The directors and executive officers of NFO have
interests in the merger that are in addition to, or different from, their
interests as NFO stockholders. The NFO Board was aware of these conflicts of
interest when it approved the merger. These interests relate to:
- rights to accelerated or increased benefits under employment agreements,
severance agreements and stock option agreements; and
- rights to directors' and officers' insurance coverage and to
indemnification with respect to acts and omissions in their capacities as
directors and officers of NFO.
See "Interests of NFO's Directors and Management in the Merger" on page 33.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE.
This document and the documents that are incorporated by reference contain
forward-looking statements about NFO, Interpublic and the combined company after
the merger which NFO and Interpublic believe are covered by the Private
Securities Litigation Reform Act of 1995. Statements in this document that are
not historical facts are "forward-looking statements" for the purpose of the
safe harbor provided by Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended.
Forward-looking statements include:
- financial projections and estimates;
- statements regarding plans, objectives and expectations of Interpublic,
NFO or their Boards with respect to future operations, products and
services;
- statements regarding future economic performance;
- statements relating to the assumptions underlying projections, estimates
and performance; and
- statements relating to the estimated size and growth of relevant markets.
When used in this document, the words "anticipates," "believes," "expects,"
"intends," "estimates," "plans," and similar expressions as they relate to NFO,
Interpublic or the combined company after the merger or the management of any of
these companies are intended to identify these forward-looking statements.
In making any of these statements, the expectations are believed to be based
on reasonable assumptions. However, there are numerous risks, uncertainties and
important factors, most of which are difficult to predict and are generally
beyond the control of Interpublic or NFO, that could cause actual results to
differ materially from those in forward-looking statements. These include:
- those discussed or identified from time to time in Interpublic's public
filings with the Securities and Exchange Commission, which is referred to
throughout this document as the Commission;
- specific risks or uncertainties associated with NFO's or Interpublic's
expectations with respect to:
- the timing, completion or tax status of the merger;
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- the accounting treatment of the merger;
- the value of the merger consideration;
- growth prospects;
- market positions;
- distribution channels;
- the impact of technological change on business;
- risks of international operations;
- premiums;
- earnings per share;
- cost savings;
- revenue enhancements;
- profitability resulting from the merger;
- clients' timing of new product introductions and reformulations;
- clients' budgets for services offered by Interpublic or NFO;
- changes in management or ownership of clients;
- strategic decisions of management;
- the success of NFO in developing and marketing its interactive marketing
research techniques;
- the effect of foreign exchange rate fluctuations;
- the successful application of NFO's methodologies to different business
and customer environments; and
- restructuring; and
- general economic conditions such as:
- changes in interest rates and the performance of the markets;
- changes in domestic and foreign laws, regulations and taxes;
- changes in competition and pricing environments;
- regional or general changes in asset valuations;
- the occurrence of significant natural disasters;
- the development of liabilities related to date-related data or systems;
- general market conditions;
- competition; and
- pricing.
The actual results, performance or achievement by NFO, Interpublic or the
combined company following the merger could differ materially from those
expressed in, or implied by, these forward-looking statements. Accordingly, we
cannot assure that any of the events anticipated by the forward-looking
statements will occur, or if they do, what impact they will have on the results
of operations and financial condition of NFO, Interpublic or the combined
company following the merger.
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THE SPECIAL MEETING
SPECIAL MEETING FOR NFO STOCKHOLDERS
NFO will hold a special meeting for purposes of voting on the merger.
<TABLE>
<S> <C>
Date of the Meeting.................... April 5, 2000
Time of the Meeting.................... 10:00 a.m. local time
Place of the Meeting................... Hyatt Regency Greenwich
1800 East Putnam Avenue
Old Greenwich, Connecticut
</TABLE>
VOTE REQUIRED
- Holders of a majority of the shares of NFO common stock outstanding as of
the record date must approve the merger, either in person or by proxy,
before we can consummate the merger.
- An abstention from voting on the merger or a broker non-vote will have the
effect of a vote against the merger because it is one less vote in favor.
RECORD DATE
NFO fixed the close of business on March 2, 2000 as the record date. Only
holders of record of shares of NFO common stock on that date are entitled to
notice of and to vote at the special meeting. On the record date, there were
22,405,342 shares of NFO common stock outstanding and entitled to vote at the
special meeting, held by 292 stockholders of record.
QUORUM
A majority of the outstanding shares entitled to vote represented in person
or by proxy will constitute a quorum at the special meeting. Abstentions and
broker non-votes will be considered present at the special meeting for the
purpose of calculating a quorum.
PROXIES
- COMPLETED PROXIES. If you sign, complete and return your proxy card and we
receive the proxy card prior to or at the special meeting, your proxy will
be voted as you instructed.
- PROXIES WITHOUT INSTRUCTIONS. If you sign and return a proxy card but do
not provide instructions as to your vote, your proxy will be voted for the
merger proposal.
- BROKER INSTRUCTIONS. Under New York Stock Exchange rules, brokers who hold
NFO common stock in street name for customers who are the beneficial
owners of those shares may not give a proxy to vote those shares on the
merger proposal without specific instructions from those customers. If you
are the beneficial owner of shares held in street name by a broker, please
give instructions to your broker on how to vote your shares or it will
have the same effect as a vote against the proposal.
- OTHER MATTERS. NFO does not expect that any matter other than the merger
proposal will be raised at the special meeting. If, however, other matters
are properly raised at the meeting, the persons named as proxies will vote
in accordance with the recommendation of the NFO Board.
- REVOCABILITY OF PROXIES. If you sign and return a proxy card, you may
revoke your proxy at any time prior to its use. In order to revoke your
proxy, you must deliver a signed notice of revocation to NFO's Secretary
or you must deliver a later dated proxy changing your vote. Alternatively,
you may choose to attend the special meeting and vote in person. However,
simply attending the meeting will not in itself constitute the revocation
of your proxy if you do not cast a vote at that time.
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- COSTS OF SOLICITATION. NFO and Interpublic will each pay one-half of the
expense of printing and mailing this document. Proxies will be solicited
through the mail and directly by officers, directors and regular employees
of NFO not specifically employed for such purpose, without additional
compensation. NFO will reimburse banks, brokerage houses and other
custodians, nominees and fiduciaries for their reasonable expenses in
forwarding these proxy materials to their principals. NFO has engaged D.F.
King to represent it in connection with the solicitations of proxies and
will pay D.F. King a customary fee for its services and reimburse its
expenses.
* Please DO NOT SEND your stock certificates with your proxy card. We will
mail you a separate transmittal form with instructions for the surrender
of your certificates as soon as practicable after the consummation of the
merger.
THE MERGER
BACKGROUND OF THE MERGER
AUGUST, 1999. Representatives of a potential transaction partner for NFO
other than Interpublic contacted both John Sculley and Walter A. Forbes,
independent members of the NFO Board, to express their company's interest in a
business combination with NFO.
AUGUST 20, 1999. Following a meeting of the NFO Board, NFO retained
Greenhill & Co., LLC to provide general advisory services for a retainer at a
fixed annual amount.
SEPTEMBER 13, 1999. At the request of the other potential transaction
partner for NFO who previously expressed interest in a business combination with
NFO, representatives of Greenhill & Co., LLC met with representatives of that
company to discuss its interest in NFO.
SEPTEMBER 23, 1999. NFO retained Greenhill & Co., LLC specifically to act
as its financial advisor in connection with evaluating and recommending
financial and strategic alternatives to NFO.
OCTOBER 13, 1999. William E. Lipner, Chairman of the NFO Board and Chief
Executive Officer and President of NFO, met with representatives of a second
potential transaction partner other than Interpublic to discuss several business
matters, including a possible business combination between the parties.
OCTOBER 25, 1999. A representative of Greenhill & Co., LLC spoke with a
senior executive of Interpublic regarding a possible strategic transaction
between Interpublic and NFO.
OCTOBER 29, 1999. William E. Lipner met with a representative of the second
alternative potential transaction partner to further discuss a potential
business combination between the parties.
NOVEMBER 3, 1999. A representative of Greenhill & Co., LLC spoke with a
senior executive of Interpublic regarding a possible business combination
between Interpublic and NFO.
NOVEMBER 4, 5, 10, 18, 22, 23 AND 29, 1999. Representatives of Greenhill &
Co., LLC and/or William E. Lipner and/or Patrick G. Healy, Chief Financial
Officer of NFO, spoke and/or met with representatives of several third parties
who either declined to pursue discussions regarding a business combination with
NFO or who initially expressed interest but did not subsequently pursue the
matter.
NOVEMBER 4 AND 5, 1999. A representative of Greenhill & Co., LLC spoke with
the financial advisor to the second alternative potential transaction partner
other than Interpublic regarding valuation of NFO and process for moving forward
to discuss a transaction.
NOVEMBER 12, 1999. William E. Lipner met with representatives of the second
alternative potential transaction partner to discuss a potential business
combination.
NOVEMBER 15, 1999. Representatives of Greenhill & Co., LLC met with several
senior executives of Interpublic to discuss a possible business combination
between NFO and Interpublic.
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NOVEMBER 22, 1999. NFO received a letter from the second alternative
potential transaction partner proposing the structure of the board and
management of the combined company and proposing a price per NFO share in a
range, the high end of which was below the value agreed to in the Interpublic
merger agreement.
NOVEMBER 22, 1999. Executive officers of Interpublic, William E. Lipner,
Patrick G. Healy, Joseph Migliara, President-North American Operations for NFO,
and a representative of Greenhill & Co., LLC met at NFO's headquarters in
Greenwich, Connecticut to present NFO to Interpublic. Interpublic also presented
itself to NFO. At the conclusion of the meeting, an executive officer of
Interpublic agreed to set up a meeting for NFO's senior management to present
NFO to the senior management team at Interpublic.
NOVEMBER 23, 1999. Mr. Robert F. Greenhill of Greenhill & Co., LLC received
a letter from the first alternative potential transaction partner indicating
continued interest in pursuing a business combination with NFO.
NOVEMBER 24, 1999. An executive officer of Interpublic contacted William E.
Lipner to confirm a meeting with a senior executive of Interpublic at
Interpublic's offices in New York, New York on December 14, 1999.
NOVEMBER 24, 1999. William E. Lipner contacted a representative of the
second alternative potential transaction partner to continue discussions and to
indicate that the range of values that had been proposed was inadequate.
NOVEMBER 29, 1999 AND DECEMBER 6, 1999. A representative of Greenhill &
Co., LLC spoke again with the financial advisor to the second alternative
potential transaction partner for NFO regarding valuation and process.
NOVEMBER 30, 1999. A representative of the first alternative potential
transaction partner contacted Walter A. Forbes, one of NFO's independent
directors, regarding his company's continued interest in pursuing a transaction
with NFO.
NOVEMBER 30, 1999. A representative of the first alternative potential
transaction partner contacted William E. Lipner to discuss a business
combination with NFO, including the proposed management structure of the
combined entity.
DECEMBER 8, 1999. Patrick G. Healy and a representative of Greenhill & Co.,
LLC had separate conference calls with representatives of each of the first and
second alternative potential transaction partners to provide due diligence
information.
DECEMBER 9, 1999. NFO received a second letter from the second alternative
potential transaction partner confirming recent discussions about NFO's current
and expected financial performance and indicating a proposed price per NFO share
at the high end of the range previously communicated to NFO, which price was
below the value agreed to in the Interpublic merger agreement. The letter also
proposed a process in which NFO would grant this company a period of exclusivity
to conduct due diligence and contract negotiations and to arrange financing,
with the stated goal of announcing a transaction in late January, 2000.
DECEMBER 9, 1999. William E. Lipner and Walter A. Forbes, on the one hand,
and a representative of Greenhill & Co., LLC, on the other hand, had discussions
with the first alternative potential transaction partner regarding that
company's continued interest in a business combination with NFO.
DECEMBER 9, 1999. Patrick G. Healy and a representative of Greenhill & Co.,
LLC had a conference call with an officer of Interpublic to provide due
diligence information.
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DECEMBER 10, 1999. The NFO Board met. A representative of Greenhill & Co.,
LLC reviewed with the board available strategic alternatives and a list of
potential transaction partners, including Interpublic, as well as each company's
level of interest. The board discussed in detail the alternatives available to
NFO as well as the matters raised by the Greenhill & Co., LLC presentation.
DECEMBER 10, 1999. A representative of the financial advisor to the first
alternative potential transaction partner contacted Steven J. Gilbert, one of
NFO's independent directors, to inquire whether NFO was engaged in a serious
process regarding the evaluation of potential transaction partners. Mr. Gilbert
responded that NFO was considering all of its strategic alternatives, including
the evaluation of strategic partners.
DECEMBER 14, 1999. William E. Lipner, Patrick G. Healy, Joseph Migliara and
a representative of Greenhill & Co., LLC met with representatives of Interpublic
to discuss a potential transaction and to provide Interpublic with due diligence
information about NFO.
DECEMBER 15, 1999. William E. Lipner, Patrick G. Healy, Hartmut Kiock,
President-European Operations for NFO, Joseph Migliara and representatives of
Greenhill & Co., LLC and Paul, Weiss, Rifkind, Wharton & Garrison, legal counsel
to NFO, met with representatives of the second alternative transaction partner,
including its financial advisors, to provide due diligence information and to
continue discussions regarding a possible business combination.
DECEMBER 15, 1999. Representatives of Greenhill & Co., LLC met with the
first alternative potential transaction partner to discuss their valuation of
NFO. Prior to the close of business on December 15, 1999, Greenhill & Co., LLC
received a letter from that company proposing a valuation, subject to further
due diligence, of NFO below the level agreed to in the Interpublic merger
agreement. The company reserved the right to increase its offer following
completion of its due diligence review of NFO.
DECEMBER 16, 1999. William E. Lipner, Patrick G. Healy and Joseph Migliara
met again with representatives of the second alternative transaction partner,
including its financial advisors, to continue providing due diligence
information and to continue discussions regarding a possible business
combination. During the course of these meetings, the company made several price
proposals, all of which were below the price agreed to in the Interpublic merger
agreement.
DECEMBER 16, 1999. Patrick G. Healy and Joseph Migliara, together with a
representative of Greenhill & Co., LLC, met with management of the first
alternative potential transaction partner and its financial advisors after
business hours to provide due diligence information. At the conclusion of the
meeting, the company was requested to confirm its per share valuation of NFO and
provide additional details regarding its proposed timetable for executing
definitive documentation in respect of a transaction with NFO.
DECEMBER 16, 1999. William E. Lipner and a senior executive of Interpublic
met at NFO's headquarters in Greenwich, Connecticut, and the senior executive of
Interpublic proposed an all stock transaction to be accounted for as a pooling
of interests that valued NFO at $26 per share.
DECEMBER 17, 1999. The Interpublic Board met and approved the merger with
NFO at a price of $26 per share.
DECEMBER 17, 1999. William E. Lipner and representatives of Greenhill &
Co., LLC and Paul, Weiss, Rifkind, Wharton & Garrison met with representatives
of the second alternative potential transaction partner to inform them that NFO
was not in a position to grant exclusivity because their valuation of NFO was
inadequate and that their proposed transaction process was not satisfactory in
light of the numerous contingencies contained in their offer and their inability
to move quickly to conclude a definitive agreement.
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DECEMBER 17, 1999. A representative of the financial advisor to the first
alternative potential transaction partner contacted a representative of
Greenhill & Co., LLC in response to NFO's request the previous evening for an
update as to valuation and process if the parties were to move forward.
Greenhill & Co., LLC was informed that the company would not increase its
valuation of NFO at that time and that a due diligence request would be
forthcoming. That company's legal counsel provided NFO's advisors with an
extensive due diligence request letter and a draft merger agreement, which did
not contain specific information relating to valuation.
DECEMBER 17, 1999. The NFO Board met via teleconference. Mr. Lipner
reviewed the offer received from Interpublic, including price, terms and
timetable for execution of definitive documentation. Following a discussion of
strategic alternatives and of the other indications of interest received to
date, representatives of Greenhill & Co., LLC and Paul, Weiss, Rifkind,
Wharton & Garrison presented their analyses of the Interpublic offer and the
other indications of interest received by NFO. The NFO Board discussed the
foregoing and then authorized NFO's management and representatives to continue
to pursue the Interpublic transaction.
DECEMBER 17, 1999. NFO, Interpublic and their respective financial and
legal advisors commenced negotiations of the terms of the proposed transaction.
Cleary, Gottlieb, Steen & Hamilton, legal counsel to Interpublic, also commenced
preparation of a definitive merger agreement and a stock option agreement.
DECEMBER 17, 1999. Representatives of Interpublic commenced due diligence
of NFO at the offices of Paul, Weiss, Rifkind, Wharton & Garrison.
DECEMBER 18, 1999. Interpublic commenced on-site due diligence of NFO in
Greenwich, Connecticut and continued due diligence of NFO at the offices of
Paul, Weiss, Rifkind, Wharton & Garrison. The parties commenced negotiations of
the merger agreement and related stock option agreement. Representatives of NFO
and Interpublic met in Toledo, Ohio in connection with financial due diligence.
DECEMBER 19, 1999. Interpublic commenced on-site due diligence on NFO in
Northwood, Ohio and continued due diligence of NFO at the offices of Paul,
Weiss, Rifkind, Wharton & Garrison. Negotiations of definitive documentation
continued.
DECEMBER 19, 1999. The NFO Board met via teleconference. Both Mr. Lipner
and a representative of Paul, Weiss, Rifkind, Wharton & Garrison updated the NFO
Board on the material terms of the Interpublic transaction. A representative of
Paul, Weiss, Rifkind, Wharton & Garrison summarized the proposed terms of the
merger agreement and other transaction documents and advised the NFO Board on
its fiduciary obligations. A representative of Greenhill & Co., LLC reviewed its
financial analysis of the merger, including the economic terms of the
Interpublic transaction, the results of its valuation analysis of NFO and
Interpublic and the stock price and trading history of Interpublic. Greenhill &
Co., LLC delivered its opinion that the exchange ratio is fair to the NFO
stockholders from a financial standpoint. The NFO Board approved and adopted the
merger agreement and approved the other transaction documents.
DECEMBER 20, 1999. NFO and Interpublic executed and delivered the merger
agreement and the stock option agreement and the transaction was announced
publicly. NFO also announced publicly that it was reducing expectations in
respect of its financial performance for the fourth quarter of 1999 and for
fiscal year 2000.
DECEMBER 21, 1999. NFO received a letter from the first alternative
potential transaction partner expressing its disappointment that NFO announced
the merger agreement with Interpublic and indicating that it might be willing to
increase its offer in cash and stock to an amount exceeding $26.00 per NFO share
but did not specify the amount and stated that the timing of NFO's announcement
of a
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definitive agreement with Interpublic was not consistent with the guidance it
received regarding process and timing.
DECEMBER 23, 1999. Paul, Weiss, Rifkind, Wharton & Garrison, on behalf of
NFO, responded to the December 21 letter by indicating that NFO's recollection
of the events described in the December 21 letter differed materially from those
described in the letter and stating that the terms of the merger agreement with
Interpublic prohibit NFO, except in circumstances described in the merger
agreement, from engaging in discussions regarding alternative potential
transactions.
JANUARY, 2000. Representatives of the first alternative potential
transaction partner contacted Walter A. Forbes on January 3 and John Sculley on
January 7 to restate that the timing of NFO's announcement of a definitive
agreement with Interpublic was not consistent with the guidance it received
regarding process and timing.
JANUARY 10, 2000. Paul, Weiss, Rifkind, Wharton & Garrison, on behalf of
NFO, responded by letter to the phone calls received by Messrs. Forbes and
Sculley by reiterating that the terms of the merger agreement with Interpublic
prohibit NFO from engaging in discussions regarding alternative potential
transactions except in circumstances described in the merger agreement.
Accordingly, the letter stated that no director, officer or employee of NFO
could presently engage in discussions and that any attempts to contact them
should immediately cease.
To date there have been no further contacts from the first alternative
potential transaction partner or anyone else.
NFO'S REASONS FOR THE MERGER
The NFO Board determined that the terms of the merger are advisable and fair
to NFO and the NFO stockholders and in the best interest of NFO and its
stockholders. In determining to approve the merger agreement and related
transactions, the NFO Board consulted with management and other outside
consultants including Greenhill & Co., LLC, its financial advisor, and Paul,
Weiss, Rifkind, Wharton & Garrison, its legal advisor, and considered a number
of factors, including:
- the good fit between NFO and Interpublic, which adds NFO's marketing
research services to Interpublic's existing advertising, promotion and
direct marketing services, thereby allowing NFO and Interpublic to offer
customers a comprehensive array of marketing services;
- the fact that the NFO brand and personnel are complementary to and not
redundant with Interpublic's current business, thus enabling NFO to become
the marketing research arm of Interpublic;
- the strength and depth of the combined management team;
- the anticipated enhanced liquidity of the Interpublic common stock that
NFO stockholders would receive in the merger;
- NFO's ability to continue to operate as a stand-alone company and meet its
long-term objectives;
- the increased growth potential that may result from a combination of NFO
and Interpublic, including the greater financial stability and strength of
the combined company;
- the terms and conditions of the merger agreement, including:
- the nature of the parties' representations, warranties, covenants and
agreements, which the NFO Board believed would provide a reasonable
degree of certainty that the merger would be completed; and
- the provisions that permit NFO, subject to the conditions and
procedures described in the merger agreement, (1) to consider
additional bona fide third-party offers to acquire NFO, (2) to provide
information and negotiate with third parties in response to those
offers and
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(3) to terminate the merger agreement with Interpublic to accept a
superior proposal subject to the payment to Interpublic of a
termination fee or, in the alternative, exercise of a 19.9% stock
option on NFO common stock held by Interpublic;
- the opinion of Greenhill & Co., LLC that the exchange ratio is fair from a
financial point of view to the NFO stockholders;
- the structure of the merger, which generally will result in no gain or
loss recognized by NFO stockholders for federal income tax purposes on the
shares of NFO exchanged in the merger;
- the regulatory approvals required to complete the merger and the prospects
for receiving those approvals; and
- the potential adverse effects on NFO's business, operations and financial
condition if the merger were not completed following public announcement
of the merger agreement.
As a result of the foregoing considerations, the NFO Board determined that
the potential advantages of the merger outweighed the benefits of remaining as a
stand-alone company. The NFO Board believes the combined company will provide
many benefits, including potential cost savings of combining administrative
functions and increased access to sales and marketing resources.
In view of the variety of factors considered in connection with its
evaluation of the merger, the NFO Board did not find it practicable to and did
not quantify or otherwise assign relative weights to the specific factors
considered in reaching its determination. In addition, individual members of the
NFO Board may have given different weights to different factors and may have
viewed the different factors as affecting the determination of fairness and
advisability differently.
RECOMMENDATION OF THE NFO BOARD
THE NFO BOARD OF DIRECTORS HAS DETERMINED THAT THE TERMS OF THE MERGER ARE
ADVISABLE AND FAIR TO, AND IN THE BEST INTEREST OF, NFO AND ITS STOCKHOLDERS.
THE NFO BOARD UNCONDITIONALLY RECOMMENDS THAT THE NFO STOCKHOLDERS VOTE FOR
APPROVAL OF THE MERGER PROPOSAL.
OPINION OF NFO'S FINANCIAL ADVISOR
Greenhill & Co., LLC, as part of its engagement as financial advisor to NFO,
was asked to render an opinion to the NFO Board with respect to the fairness of
the exchange ratio, from a financial point of view, to the NFO stockholders.
The following is a summary of the report by Greenhill to the NFO Board in
connection with the rendering of its oral opinion presented to the NFO Board on
December 19, 1999, subsequently confirmed by a written opinion addressed to the
NFO Board, dated December 19, 1999.
The full text of the written opinion of Greenhill with respect to the
exchange ratio, setting forth the assumptions made, matters considered and the
limits on the review undertaken, is attached as Annex C to this document and is
incorporated in this document by reference. NFO stockholders are urged to read
the opinion in its entirety. Greenhill's written opinion is addressed to the NFO
Board, is directed only to the exchange ratio, and does not constitute a
recommendation to any NFO stockholder as to how the stockholder should vote at
the special meeting nor does it constitute a recommendation to the NFO Board as
to whether it should approve the merger. The summary of the opinion of Greenhill
set forth in this document is qualified in its entirety by reference to the full
text of the opinion.
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In arriving at its opinion, Greenhill, among other things:
- reviewed the drafts, dated December 19, 1999, of the merger agreement and
of the stock option agreement;
- reviewed the structure of the merger;
- reviewed Forms 10-K and related financial information for the three fiscal
years ended December 31, 1996, 1997 and 1998 for NFO;
- reviewed Forms 10-K and related financial information for the three fiscal
years ended December 31, 1996, 1997 and 1998 for Interpublic;
- reviewed certain filings with the Commission made by NFO and Interpublic,
respectively, and other publicly available business and financial
information relating to NFO and Interpublic, respectively, that Greenhill
deemed relevant;
- reviewed certain information, including financial forecasts and other
financial and operating data concerning NFO, prepared by the management of
NFO;
- discussed the past and current operations, as well as the financial
condition and prospects of NFO with senior executives of NFO;
- discussed the past and current operations, as well as the financial
condition and prospects, of Interpublic with senior executives of
Interpublic;
- reviewed the historical market prices and trading activity for the NFO
common stock and the Interpublic common stock, as well as related
comparable companies and stock market indices that Greenhill deemed
relevant;
- analyzed the exchange ratio using the trading values of certain comparable
companies that Greenhill deemed relevant;
- reviewed the financial terms, to the extent publicly available, of certain
other comparable transactions that Greenhill deemed relevant;
- analyzed the pro forma effect of the merger on the earnings, cash flow and
certain financial ratios of the combined company;
- discussed with the senior management of NFO and Interpublic, respectively,
the strategic rationale of the merger;
- participated in discussions and negotiations among representatives of NFO
and Interpublic and their legal advisors; and
- reviewed other financial studies and analyses and performed other
investigations and took into account other matters as Greenhill deemed
necessary or appropriate for purposes of its opinion.
In preparing its opinion, Greenhill assumed and relied upon, without
independent verification, the accuracy and completeness of the information
supplied or otherwise made available to it by representatives of NFO and
Interpublic for purposes of its opinion. With respect to the financial forecasts
of NFO, Greenhill assumed that such forecasts had been reasonably prepared on a
basis reflecting the best currently available estimates and good faith judgments
of the management of NFO as to the future financial performance of NFO.
Greenhill relied upon such forecasts in arriving at its opinion. Greenhill
requested but was not provided with financial forecasts for Interpublic, but was
directed by management of Interpublic to certain publicly available research
reports that contained financial forecasts for Interpublic. Greenhill assumed
that management of Interpublic directed Greenhill to such financial forecasts
based upon their good faith judgment that such forecasts reflect the best
currently available estimates as to the future financial performance of
Interpublic. Greenhill
25
<PAGE>
relied upon such forecasts in arriving at its opinion. In arriving at its
opinion, Greenhill did not conduct a physical inspection of NFO or Interpublic,
nor did it undertake an independent appraisal of the assets of NFO or of the
assets of Interpublic. In addition, Greenhill assumed that the merger will be
accounted for as a "pooling of interests" business combination in accordance
with U.S. generally accepted accounting principles and will be completed in
accordance with the terms and conditions set forth in the merger agreement.
Greenhill's opinion is necessarily based on the economic, market, financial
and other conditions as in effect on, and the information made available to
Greenhill as of, the date of the opinion. Subsequent developments may affect the
conclusions contained in the written opinion dated December 19, 1999, and
Greenhill does not have any obligation to update, revise or reaffirm its
opinion. Greenhill expressed no opinion as to the price at which the Interpublic
common stock to be issued in the merger to the NFO stockholders may trade at any
time.
In accordance with customary investment banking practice, Greenhill employed
generally accepted valuation methods in reaching its opinion. The following
summarizes the material analyses performed by Greenhill in connection with the
rendering of its oral opinion of December 19, 1999, subsequently confirmed by a
written opinion dated December 19, 1999. In the summaries below, references to
forecasted financial information for Interpublic were derived from recent
representative Wall Street research to which Interpublic management guided
Greenhill and which Greenhill assumed reflected the best currently available
estimates as to the financial performance of Interpublic. Some of the summaries
below include information in tabular format. The tables alone do not constitute
a complete description of the financial analyses and should be read together
with the text of each summary.
VALUATION OF NFO
HISTORICAL STOCK PRICE PERFORMANCE. Greenhill reviewed the historical
trading prices of NFO common stock from December 17, 1998 to December 17, 1999.
In addition, Greenhill compared the historical stock prices of NFO common stock
on the basis of the average stock prices for the prior 30 days, 90 days,
180 days and one year as set forth in the table below:
<TABLE>
<CAPTION>
TIME PERIOD AVG. STOCK PRICE
- ----------- ----------------
<S> <C>
30 day $12.86
90 day $12.45
180 day $13.29
1 year $12.37
</TABLE>
Greenhill also noted that the high closing price per share of NFO common
stock during the one-year period ended December 17, 1999 was $15.63 on July 15,
1999 and the all-time high closing price of the NFO common stock was $21.75 on
April 3, 1998. Assuming that Interpublic common stock is trading within the
collar range (approximately $49.30 - $66.70 per share of Interpublic common
stock), Greenhill also observed that the offer price of $26.00 of value of
Interpublic common stock for each outstanding share of NFO common stock would be
in excess of NFO's recent trading history set forth above and would be
approximately 20% greater than the all time high closing price of the NFO common
stock on April 3, 1998.
SELECTED COMPARABLE PUBLICLY TRADED COMPANY ANALYSIS. As part of its
analysis, Greenhill compared selected financial information of NFO with that of
a group of publicly traded marketing services/direct marketing companies, which
we refer to as the Direct Marketing Companies, and a group of publicly traded
market research companies, which we refer to as the Market Research
26
<PAGE>
Companies. The following table sets forth the list of companies selected for
inclusion in the group of Direct Marketing Companies and Market Research
Companies, respectively.
<TABLE>
<CAPTION>
DIRECT MARKETING COMPANIES MARKET RESEARCH COMPANIES
- -------------------------- -------------------------
<S> <C>
Catalina Marketing Corp. WPP Group PLC
Harte Hanks, Inc. Taylor Nelson Sofres
ACNielsen Corp. GfK
Snyder Communications, Inc. Ipsos
</TABLE>
Greenhill reviewed, among other information, the multiples of the Direct
Marketing Companies' and the Market Research Companies':
- price to forecasted 1999 and forecasted 2000 earnings (this ratio is also
known as P/E);
- enterprise value to forecasted 1999 earnings before interest expense and
tax expense (also known as EBIT), forecasted 2000 EBIT, forecasted 1999
earnings before interest expense and tax expense, plus depreciation and
amortization (also known as EBITDA) and forecasted 2000 EBITDA; and
- forecasted 2000 P/E to forecasted five-year earning per share (also known
as EPS) growth rates.
The forecasted information for the Direct Marketing Companies and Market
Research Companies was based on estimates published by I/B/E/S International, an
industry provider of earnings estimates based on an average of earnings
estimates published by various investment banking firms, as of December 1999.
The analysis of the Direct Marketing Companies and the Market Research
Companies resulted in the following range, mean and median multiples as of
December 17, 1999:
<TABLE>
<CAPTION>
ENTERPRISE VALUE TO
------------------------------------------ 2000E P/E
PRICE TO EARNINGS EBIT EBIT EBITDA EBITDA TO 5 YEAR
------------------- -------- -------- -------- --------- EPS GROWTH
1999E 2000E 1999E 2000E 1999E 2000E RATE
-------- -------- -------- -------- -------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
DIRECT MARKETING Range.......... 18.2x- 16.0x- 6.2x- 4.7x- 5.3x- 4.0x- 0.78x-1.36x
COMPANIES 41.6x 32.8x 27.2x 21.3x 19.2x 14.9x
Mean........... 24.8x 20.7x 14.0x 11.6x 10.0x 8.3x 0.98x
Median......... 19.7x 17.0x 11.4x 10.3x 7.8x 7.1x 0.88x
MARKET RESEARCH Range.......... 42.3x- 37.1x- 26.0x- 22.8x- 17.4x- 14.8x- 0.78x-2.65x
COMPANIES 64.0x 42.4x 32.9x 26.9x 23.6x 20.2x
Mean........... 52.3x 40.4x 29.1x 24.4x 21.3x 18.3x 1.72x
Median......... 50.7x 41.7x 28.6x 23.5x 22.9x 19.9x 1.72x
</TABLE>
Greenhill calculated the implied equity values per share of NFO common stock
by applying multiple ranges that it deemed relevant from the comparable
companies analysis described above to NFO's forecasted 1999 EBITDA and
forecasted 2000 EBITDA, forecasted 1999 EBIT and forecasted 2000 EBIT, and price
to forecasted 1999 and forecasted 2000 earnings, which were based on forecasts
prepared by NFO's management. For purposes of this analysis, Greenhill gave more
weight to the multiple ranges for the Direct Marketing Companies, since it
believes that the trading ranges of the Direct Marketing Companies are more
representative of NFO's market valuation than the Market
27
<PAGE>
Research Companies. This analysis implied the following ranges of equity values
per share of NFO common stock as set forth below:
<TABLE>
<CAPTION>
IMPLIED EQUITY
MULTIPLE RANGES VALUE PER SHARE
--------------- ---------------
<S> <C> <C>
1999E EBITDA.................................... 8.0x-10.0x $11.83-$16.79
2000E EBITDA.................................... 7.0x-9.0x $12.19-$17.96
1999E EBIT...................................... 12.0x-14.0x $11.53-$14.79
2000E EBIT...................................... 10.0x-12.0x $11.70-$15.65
1999E Earnings.................................. 20.0x-25.0x $10.63-$13.29
2000E Earnings.................................. 16.0x-22.0x $11.26-$15.48
</TABLE>
Based upon this analysis, Greenhill determined an unaffected market
valuation range for NFO, as of December 17, 1999, of approximately $11.52 to
$15.66 per share and a valuation range for NFO, as of December 17, 1999, of
approximately $14.98 to $20.36 per share, assuming a change of control premium
of 30% which Greenhill believes approximates a typical acquisition premium over
unaffected market trading levels.
No company utilized in Greenhill's comparable company analysis is identical
to NFO. In evaluating the Direct Marketing Companies and the Market Research
Companies, Greenhill made judgments and assumptions concerning industry
performance, general business, economic, market and financial conditions and
other matters. Greenhill also made judgments as to the relative comparability of
each group to NFO and judgments as to the relative applicability to NFO of the
various valuation parameters with respect to each group. Mathematical analysis
(such as determining the mean or median) is not, in itself, a meaningful method
of using publicly traded comparable company data.
PRECEDENT TRANSACTION ANALYSIS. Using publicly available information,
Greenhill examined selected transactions with respect to industry
characteristics, growth prospects and other traits deemed relevant. Greenhill
noted that there are a limited number of recent precedent transactions that are
comparable to the merger. Specifically, Greenhill reviewed the following
transactions which were announced or took place from January 1999 to
November 1999, listed in reverse chronological order beginning with the most
recent transaction:
- Omnicom Group, Inc.'s acquisition of M/A/R/C Inc.
- VNU NV's acquisition of Nielsen Media Research, Inc.
- Aegis Group's acquisition of Market Facts, Inc.
- United Information Group's acquisition of Audits & Surveys
Worldwide, Inc.
Greenhill reviewed, among other information, the multiples of the precedent
transactions':
- enterprise value to forecasted 1999 and forecasted 2000 EBITDA and
forecasted 1999 and forecasted 2000 EBIT; and
- equity value to forecasted 1999 and forecasted 2000 earnings.
Greenhill also reviewed the premium paid in these precedent transactions to
the stock price of the target company one day and four weeks prior to the
announcement of the transaction.
28
<PAGE>
Greenhill's analysis of the Precedent Transactions resulted in the following
range, mean and median multiples as of December 17, 1999:
<TABLE>
<CAPTION>
ENTERPRISE VALUE TO
------------------------------------------------------------ EQUITY VALUE TO
EBITDA EBIT EARNINGS
---------------------------- ----------------------------- -----------------------------
1999E 2000E 1999E 2000E 1999E 2000E
------------- ------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
PRECEDENT Range............. 11.7x- 9.2x- 15.4x- 12.6x- 26.3x- 21.6x-
TRANSACTIONS 18.6x 15.2x 25.8x 21.7x 45.9x 38.7x
Mean.............. 14.1x 11.3x 22.2x 17.0x 37.7x 28.7x
Median............ 12.1x 9.4x 25.3x 16.7x 41.0x 25.9x
<CAPTION>
PREMIUM PAID
-------------------------------
1 DAY 4 WEEKS
PRIOR PRIOR
-------------- --------------
<S> <C> <C>
PRECEDENT 15.0%- 21.3%-
TRANSACTIONS 41.6% 40.4%
27.3% 32.3%
26.4% 33.7%
</TABLE>
Greenhill then calculated the implied equity values per share of NFO common
stock by applying the relevant multiple ranges derived from the precedent
transactions analysis described above to NFO's forecasted 1999 EBITDA and
forecasted 2000 EBITDA, forecasted 1999 EBIT and forecasted 2000 EBIT, price to
forecasted 1999 and forecasted 2000 earnings and the premium paid in the
precedent transactions to the stock price of the target company one day and four
weeks prior to the announcement of the transaction. This analysis implied the
following ranges of equity values per share of NFO common stock as set forth
below:
<TABLE>
<CAPTION>
IMPLIED EQUITY
MULTIPLE RANGES VALUE PER SHARE
--------------- ---------------
<S> <C> <C>
1999E EBITDA................................................ 11.5x-12.5x $20.52-$23.00
2000E EBITDA................................................ 9.0x-10.0x $17.96-$20.85
1999E EBIT.................................................. 17.0x-22.0x $19.68-$27.84
2000E EBIT.................................................. 15.0x-17.0x $21.58-$25.52
1999E Earnings.............................................. 35.0x-45.0x $18.60-$23.91
2000E Earnings.............................................. 23.0x-28.0x $16.19-$19.71
Premium paid one day prior.................................. 27.0%-42.0% $17.78-$19.88
Premium paid four weeks prior............................... 32.0%-40.0% $18.48-$19.60
</TABLE>
Based on this analysis and the closing price of $14.00 per share of NFO
common stock on December 17, 1999, Greenhill calculated per share values for NFO
common stock ranging from $18.85 to $22.54.
No company utilized in the selected precedent transaction analysis is
identical to either NFO or Interpublic nor is any transaction identical to the
contemplated transaction between NFO and Interpublic. An analysis of the results
therefore requires complex considerations and judgments regarding the financial
and operating characteristics of NFO and Interpublic and the companies involved
in the comparable transactions, as well as other factors that could affect their
publicly traded and/or transaction value. The numerical results are not in
themselves meaningful in analyzing the merger as compared to comparable
transactions.
DISCOUNTED CASH FLOW ANALYSIS. Greenhill performed a discounted cash flow
analysis of NFO based on financial forecasts prepared by NFO's management. In
the discounted cash flow analysis, Greenhill determined the present value of the
after-tax unlevered free cash flows generated over the forecast period plus a
terminal value, by using terminal EBITDA multiples ranging from 8.0x to 10.0x
and discount rates ranging from 9.0% to 11.0% based on the weighted average cost
of capital. Net debt was then subtracted from the aggregate values to derive the
equity values. Based on this analysis, Greenhill calculated per share values for
NFO ranging from $17.56 to $22.78.
29
<PAGE>
VALUATION OF INTERPUBLIC
HISTORICAL STOCK PRICE PERFORMANCE. Greenhill reviewed the historical
trading prices and volume of Interpublic common stock. During the three-year
period ended December 17, 1999, Greenhill observed that the high and low closing
prices for shares of the Interpublic common stock were $58.06 on December 17,
1999 and $15.42 on December 17, 1996, respectively. Greenhill also noted that
the all-time high closing price of the Interpublic common stock was $58.06 on
December 17, 1999.
SELECTED COMPARABLE PUBLICLY TRADED COMPANY ANALYSIS. As part of its
analysis, Greenhill compared selected financial information of Interpublic with
that of a group of comparable publicly traded advertising companies, which we
refer to as the Advertising Companies, consisting of the following:
- Omnicom Group, Inc.;
- WPP Group PLC;
- Young & Rubicam Inc.; and
- True North Communications Inc.
Greenhill reviewed, among other information, the multiples of the
Advertising Companies':
- price to forecasted 1999 and forecasted 2000 earnings;
- enterprise value to forecasted 1999 EBIT, forecasted 2000 EBIT, forecasted
1999 EBITDA and forecasted 2000 EBITDA; and
- forecasted 2000 P/E to forecasted five-year EPS growth rates.
The forecasted information for the Advertising Companies was based on
I/B/E/S estimates as of December 1999.
Greenhill's analysis of the Advertising Companies resulted in the following
range, mean, and median multiples as of December 17, 1999:
<TABLE>
<CAPTION>
ENTERPRISE VALUE TO
PRICE TO EARNINGS -----------------------------
----------------------------- EBIT EBIT
1999E 2000E 1999E 2000E
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
ADVERTISING Range.................. 24.9x- 20.6x- 14.4x- 12.2x-
COMPANIES 54.3x 47.4x 27.9x 23.9x
Mean................... 40.9x 35.1x 24.0x 20.5x
Median................. 42.3x 36.2x 26.8x 23.0x
<CAPTION>
ENTERPRISE VALUE TO
----------------------------- 2000E P/E TO
EBITDA EBITDA 5 YEAR EPS
1999E 2000E GROWTH RATE
------------- ------------- -------------
<S> <C> <C> <C>
ADVERTISING 10.9x- 9.4x- 1.47x-
COMPANIES 22.9x 20.2x 3.16x
19.0x 16.5x 2.26x
21.0x 18.1x 2.21x
</TABLE>
Greenhill compared the multiples that it observed for the Advertising
Companies to the following multiples for Interpublic (calculated on the same
basis as the Advertising Companies' multiples and based on the selected recent
representative Wall Street research referenced above):
<TABLE>
<CAPTION>
ENTERPRISE VALUE TO
PRICE TO -----------------------------------------
EARNINGS 2000E P/E TO
------------------- EBIT EBIT EBITDA EBITDA 5 YEAR EPS
1999E 2000E 1999E 2000E 1999E 2000E GROWTH RATE
-------- -------- -------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTERPUBLIC.................................. 45.1x 39.1x 30.1x 25.3x 22.3x 19.2x 2.68x
</TABLE>
Greenhill then calculated the implied equity values per share of Interpublic
common stock by applying the multiple ranges that it deemed relevant from the
comparable companies analysis described above to Interpublic's forecasted 1999
EBITDA and forecasted 2000 EBITDA, forecasted 1999 EBIT and forecasted 2000
EBIT, and price to forecasted 1999 and forecasted 2000 earnings, which were
30
<PAGE>
based on recent representative Wall Street research referenced above. This
analysis implied the following ranges of equity values per share of Interpublic
common stock as set forth below:
<TABLE>
<CAPTION>
IMPLIED EQUITY VALUE PER
MULTIPLE RANGES SHARE
------------------ ------------------------
<S> <C> <C>
1999E EBITDA.............................. 20.0x-23.0x $52.08-$60.03
2000E EBITDA.............................. 17.0x-20.0x $51.37-$60.59
1999E EBIT................................ 26.0x-28.0x $49.97-$53.88
2000E EBIT................................ 22.0x-24.0x $50.29-$54.94
1999E Earnings............................ 42.0x-50.0x $50.70-$60.36
2000E Earnings............................ 35.0x-45.0x $49.53-$63.69
</TABLE>
Based upon this analysis, Greenhill determined a valuation range for
Interpublic, as of December 17, 1999, of approximately $50.66 to $58.91 per
share.
No company utilized in Greenhill's comparable company analysis is identical
to Interpublic. In evaluating the Advertising Companies, Greenhill made
judgments and assumptions concerning industry performance, general business,
economic, market and financial conditions and other matters. Greenhill also made
judgments as to the relative comparability of the Advertising Companies to
Interpublic and judgments as to the relative applicability to Interpublic of the
various valuation parameters with respect to the Advertising Companies.
Mathematical analysis (such as determining the mean or median) is not, in
itself, a meaningful method of using publicly traded comparable company data.
DISCOUNTED CASH FLOW ANALYSIS. Greenhill performed a discounted cash flow
analysis of Interpublic based on the selected recent representative Wall Street
research referenced above. In the discounted cash flow analysis, Greenhill
determined the present value of the after-tax unlevered free cash flows
generated over the forecast period plus a terminal value, by using terminal
EBITDA multiples ranging from 20.0x to 22.0x and discount rates ranging from
11.5% to 12.5% based on the weighted average cost of capital. Net debt was then
subtracted from the aggregate values to derive the equity values. Based on this
analysis, Greenhill calculated per share values for Interpublic ranging from
$63.94 to $69.60 per share.
COMPARATIVE STOCK PRICE PERFORMANCE. Greenhill also reviewed the historical
performance of daily closing prices of Interpublic common stock from
December 17, 1996 to December 17, 1999 and from December 17, 1998 to
December 17, 1999, and compared its performance during these periods with that
of the S&P 500 Index and an index of the Advertising Companies. Greenhill
observed that the stock price of Interpublic, the Advertising Companies and the
S&P 500 increased by the percentages set forth in the following table, on a
stock price appreciation basis, over the three-year period from December 17,
1996 to December 17, 1999 and the one-year period from December 17, 1998 to
December 17, 1999, respectively.
<TABLE>
<CAPTION>
THREE-YEAR
PERIOD ONE-YEAR PERIOD
12/17/96-12/17/99 12/17/98-12/17/99
----------------- -----------------
<S> <C> <C>
INTERPUBLIC.................................... 276.5% 61.8%
ADVERTISING COMPANIES.......................... 330.5% 61.3%
S&P 500........................................ 95.7% 20.4%
</TABLE>
In addition, to determine the relative stock performance of Interpublic
common stock for the year to date and since October 13, 1999, a recent low of
the Interpublic common stock, Greenhill also compared the closing stock price of
each of the Advertising Companies to that of Interpublic as of January 1, 1999,
October 13, 1999 and December 17, 1999. The following table depicts the
percentage increases in the closing stock price of each of the Advertising
Companies and Interpublic for the period
31
<PAGE>
from January 1, 1999 to October 13, 1999, October 13, 1999 to December 17, 1999
and January 1, 1999 to December 17, 1999, respectively.
<TABLE>
<CAPTION>
STOCK PRICE AS OF STOCK PRICE AS OF
------------------- ------------------- YTD
01/01/99 10/13/99 % CHANGE 10/13/99 12/17/99 % CHANGE % CHANGE
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
OMNICOM GROUP................. $58.00 $74.75 28.9% $74.75 $107.44 43.7% 85.2%
WPP GROUP..................... 6.07 10.17 67.4 10.17 14.82 45.7 144.0
YOUNG & RUBICAM............... 32.38 45.50 40.5 45.50 59.25 30.2 83.0
TRUE NORTH COMMUNICATIONS..... 26.88 38.13 41.9 38.13 42.50 11.5 58.1
MEAN........................ 44.7 32.8 92.6
MEDIAN...................... 41.2 37.0 84.1
INTERPUBLIC................... $39.88 $35.75 -10.3% $35.75 $ 58.06 62.4% 45.6%
</TABLE>
PRO FORMA MERGER ANALYSIS
Greenhill performed an analysis of the potential pro forma effect of the
merger on Interpublic's forecasted earnings per share. Using the forecasted
earnings of NFO and Interpublic for years 1999 through 2001, Greenhill compared
the projected earnings per share of Interpublic, on a stand-alone basis (without
the merger), to the projected pro forma earnings per share of the combined
company, before the effect of any synergies.
For purposes of this analysis, Greenhill used earnings forecasts for NFO
prepared by NFO management and forecasts for Interpublic based on the selected
recent representative Wall Street research referenced above. Greenhill observed
that, based on a number of scenarios involving the number of shares to be issued
under different prices within the collar range, the impact of the merger in
years 2000 and 2001 would be accretive to Interpublic's stockholders at the
mid-point of the collar range ($58 per share of Interpublic common stock) and
dilutive to Interpublic's stockholders at the low end of the collar range
(approximately $49.30 per share of Interpublic common stock). Greenhill noted
however, that even at the low end of the collar range, the impact of the merger
in year 2000 would be break even on an earnings per share basis to Interpublic's
stockholders assuming approximately $2.7 million of pre-tax synergies.
RELATIVE CONTRIBUTION ANALYSIS
Greenhill analyzed the pro forma contribution of each of NFO and Interpublic
to the pro forma combined company. The analysis showed that, among other things,
Interpublic and NFO, respectively, would have contributed the portion of the
combined company's revenue, EBITDA, EBIT and net income for the pro forma
projected fiscal years ended December 31, 1999 and December 31, 2000 set forth
in the following table:
<TABLE>
<CAPTION>
FISCAL 1999 FISCAL 2000
---------------------- ----------------------
INTERPUBLIC NFO INTERPUBLIC NFO
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
REVENUE..................................... 90.5% 9.5% 90.6% 9.4%
EBITDA...................................... 93.4% 6.6% 93.4% 6.6%
EBIT........................................ 94.1% 5.9% 94.0% 6.0%
NET INCOME.................................. 96.7% 3.3% 96.3% 3.7%
</TABLE>
Assuming that Interpublic common stock is valued at the mid-point of the
collar range ($58 per share of Interpublic common stock), Greenhill observed
that a $26.00 per share value of Interpublic common stock for each share of NFO
common stock implies pro forma ownership of the combined company 96.6% by
Interpublic common stockholders and 3.4% by NFO common stockholders (after
taking into account the exercise of outstanding stock options and other
outstanding securities that are convertible into or exchangeable for the common
stock of Interpublic or NFO).
32
<PAGE>
In performing the comparison, Greenhill relied upon forecasts of fiscal year
1999 and 2000 revenue, EBITDA, EBIT and net income estimates and forecasts for
NFO and Interpublic prepared by the management of NFO and the selected recent
representative Wall Street research referenced above.
The summary set forth above does not purport to be a complete description of
the analyses or data presented by Greenhill. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Greenhill believes that selecting any portion
of its analyses, without considering all analyses, would create an incomplete
view of the process underlying its opinion. In arriving at its opinion,
Greenhill may have given various analyses and factors more or less weight than
other analyses and factors and may have deemed various assumptions more or less
probable than other assumptions, so that the ranges of valuations resulting from
any particular analysis described above should not be taken to be Greenhill's
view of the actual value of NFO or Interpublic.
In performing its analyses, Greenhill made numerous assumptions with respect
to industry performance, general business and economic conditions and other
matters, many of which are beyond the control of NFO, Interpublic or Greenhill.
Any estimates contained in these analyses are not necessarily indicative of
future results or actual values, which may be significantly more or less
favorable than those suggested by these estimates. Because this analysis is
inherently subject to uncertainty, being based upon numerous factors or events
beyond the control of NFO or Interpublic, none of Greenhill, NFO or Interpublic
assumes responsibility if future results or actual values are materially
different from these forecasts or assumptions. The analyses do not purport to be
appraisals or to reflect the prices at which NFO or Interpublic might actually
be sold.
The NFO Board selected Greenhill to be its financial advisor in connection
with the merger because Greenhill is a prominent investment banking and
financial advisory firm with relevant qualifications, experience and expertise.
For services rendered in connection with the merger and the delivery of its
opinion, NFO has agreed to pay Greenhill a customary fee if the merger is
completed and will indemnify Greenhill against certain liabilities in connection
with its engagement. In addition, NFO has agreed to reimburse Greenhill for its
reasonable out-of-pocket expenses incurred in connection with rendering
financial advisory services, including fees and disbursements of its legal
counsel. In the past, Greenhill has provided investment-banking services to NFO
and has received a customary fee for rendering these services.
INTERESTS OF NFO'S DIRECTORS AND MANAGEMENT IN THE MERGER
OPTIONS
Under the terms of merger agreement, from and after the effective time of
the merger, each outstanding NFO stock option will be assumed by Interpublic and
become an option to purchase that number of Interpublic shares determined by
multiplying
- the number of shares subject to the NFO option immediately prior to the
effective time of the merger, by
- the exchange ratio,
at an exercise price per Interpublic share equal to the exercise price per NFO
share immediately prior to the effective time of the merger divided by the
exchange ratio. As of the effective time, each NFO option converted into an
Interpublic option will be subject to the same terms and conditions as were
applicable immediately prior to the effective time under the related option
agreement and stock option plan under which it was originally granted.
Under the terms of employment agreements and/or stock option agreements
between NFO and the executive officers (other than Dr. Kiock) of NFO, the
vesting and exercisability of the executive
33
<PAGE>
officers' outstanding stock options will accelerate as a result of the merger.
In the case of Dr. Kiock, the vesting and exercisability of his outstanding
stock options will accelerate in the event he elects to terminate his employment
upon three months' prior notice following the merger. The following table
discloses for each NFO executive officer the number of options that will be
subject to (or, in the case of Dr. Kiock, eligible for) accelerated vesting upon
the merger.
<TABLE>
<CAPTION>
NUMBER OF NON-VESTED
NAME AND TITLE OPTIONS EXERCISE PRICE
- -------------- -------------------- --------------
<S> <C> <C>
Charles B. Hamlin(1)........................................ 25,000 $13.00
Patrick G. Healy............................................ 41,667 $13.00
President-Australasia and the Middle East and 100,000 $11.81
Chief Financial Officer
Dr. Hartmut Kiock........................................... 9,833 $ 7.25
President-European Operations 100,000 $11.81
William E. Lipner........................................... 41,667 $17.56
Chairman, Chief Executive Officer and President 33,333 $21.07
75,000 $11.38
150,000 $21.50
Joseph Migliara............................................. 25,000 $13.00
President-North American Operations 100,000 $11.81
</TABLE>
- ------------------------
(1) Mr. Hamlin was NFO's President-Interactive/High Technology and
Telecommunications until October 18, 1999, at which time he become the
President and Chief Operating Officer of InsightExpress, LLC, NFO's newly
formed automated internet based market research business. Mr. Hamlin remains
a member of NFO's Executive Committee.
CHANGE IN CONTROL SEVERANCE AGREEMENTS
NFO has entered into Change in Control Severance Agreements with
Messrs. William E. Lipner, Patrick G. Healy and Joseph M. Migliara, effective
November 9, 1999, and Dr. Hartmut Kiock, effective November 20, 1999, to provide
severance benefits in the event their employment is terminated under certain
circumstances following the merger.
Under the terms of these agreements, in the event of a termination of
employment by NFO, other than for "Cause" (as defined), or by an executive with
"Good Reason" (as defined) or due to the executive's death or disability, the
executive is entitled to receive:
- a lump sum payment equal to the sum of 2.25 times (three times in the case
of Mr. Lipner) the sum of
- his highest annual salary during the 12 month period preceding the date
of termination and
- the highest annual bonus earned by the executive during the preceding
five fiscal years of the Company, and
- up to two years of benefit continuation (three in the case of
Mr. Lipner).
In addition, the executives (with the exception of Dr. Kiock) are entitled
to a gross up payment in the event any amounts paid to them in connection with
the merger are subject to an excise tax under Section 4999 of the Internal
Revenue Code. Also, Mr. Lipner's agreement requires that upon a change of
control, such as the merger, NFO must fund a "rabbi trust" with an amount equal
to the present value of all unpaid premiums for his split dollar life insurance
policy to secure the payment of premiums on the policy.
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In addition to the rights granted to Dr. Kiock under his Change in Control
Severance Agreement, the terms of his employment agreement, dated as of
November 20, 1998, entitle him to elect to terminate his employment upon three
months' prior notice following the merger. In such event, he will be paid
severance for a period of 24 months equal to his average base salary and bonus
for the two preceding years.
INDEMNIFICATION AND INSURANCE
Interpublic has agreed in the merger agreement that all rights under any
organizational documents of NFO or any agreement of current and former directors
and officers of NFO to exculpation and indemnification for acts and omissions
before the merger will survive the merger for six years.
The merger agreement also provides that, for six years following the merger,
Interpublic will maintain directors' and officers' liability insurance coverage
for the directors and officers of NFO to the extent currently maintained by NFO
or, if less, to the extent available at a cost not to exceed 175 percent of the
current annual premiums.
ANTICIPATED ACCOUNTING TREATMENT
The merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting:
- the recorded assets and liabilities of Interpublic and NFO will be carried
forward to the combined company at their recorded amounts, subject to any
adjustments required to conform the accounting policies of the companies;
and
- income of the combined company will include income of Interpublic and NFO
for the entire fiscal year in which the merger occurs.
Each of Interpublic and NFO has agreed that it will do the best it
reasonably can to cause its independent accountants to deliver a letter to the
other that the merger qualifies as a pooling of interests for accounting
purposes. In addition, each of Interpublic and NFO has agreed not to take any
action that would prevent or impede the merger from qualifying as a pooling of
interests for accounting and financial reporting purposes. Neither receipt of
the accountants' letters nor qualification of the merger as a pooling of
interests is, however, a condition to the merger.
REGULATORY APPROVALS
We set forth below a summary of the regulatory approvals required to
complete the merger. While we believe that we will obtain those requisite
regulatory approvals for the merger that we have not already obtained, we cannot
assure you that we will obtain these approvals on satisfactory terms or
otherwise.
UNITED STATES. The merger is subject to the requirements of the
Hart-Scott-Rodino Antitrust Improvements Act and the rules and regulations
thereunder, which provide that particular transactions may not be completed
until required information and materials are furnished to the Antitrust Division
of the Department of Justice and the Federal Trade Commission and the requisite
waiting period has expired or is terminated. The required information and
materials were filed with the Antitrust Division and the FTC on January 7, 1999
and the waiting period ended on January 27, 2000.
OUTSIDE THE UNITED STATES. The transaction is subject to antitrust
clearance by non-U.S. authorities, including those in Germany, Sweden and
Finland. Interpublic and NFO expect these clearances to be obtained by a date
that is prior to or shortly after the special meeting of the NFO stockholders.
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GENERAL. We are not aware of any governmental approvals or actions that may
be required for completion of the merger other than as described above. Should
any other approval or action be required, we currently contemplate that the
approval would be sought or action taken.
The merger agreement provides that each of Interpublic and NFO is obligated
to complete the merger only if the waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act has terminated or expired. This waiting period
expired on January 27, 2000.
The merger agreement provides further that Interpublic is obligated to
complete the merger only if all regulatory approvals are received without
conditions that have or would be reasonably expected to have a material adverse
effect as described in the agreement.
RESALE OF SHARES OF INTERPUBLIC COMMON STOCK
Shares of Interpublic common stock issuable to NFO stockholders upon
completion of the merger have been registered under the Securities Act. These
securities may be traded freely in the United States without restriction by
those stockholders who are not deemed to be affiliates of Interpublic or NFO for
purposes of the rules promulgated under the Securities Act.
If you are an affiliate of Interpublic or NFO as that term is used in the
Securities Act, you may not use this document in connection with any resale by
you of shares of Interpublic common stock that you receive as a result of the
merger.
NFO has agreed in the merger agreement to use its reasonable best efforts to
cause each person who may be deemed to be an affiliate of NFO to execute and
deliver to Interpublic a letter in which the person agrees, among other things,
not to sell, transfer, or otherwise dispose of any of the shares of Interpublic
common stock distributed to them in connection with the merger, including upon
exercise of the NFO stock options to be assumed by Interpublic by reason of the
merger, except in compliance with Rule 145 under the Securities Act, in a
transaction that is otherwise exempt from the registration requirements of the
Securities Act or in an offering registered under the Securities Act. The letter
agreement provides further that the person may not sell or otherwise reduce his
or her risk relative to shares of Interpublic common stock until Interpublic
publishes consolidated financial results covering at least 30 days of
post-merger combined operations of NFO and Interpublic. In addition, the letter
agreement prohibits sales, pledges, transfers or other dispositions of shares of
NFO common stock during the 30 days preceding the merger.
NO APPRAISAL RIGHTS
Under applicable Delaware law, you will have no appraisal rights in
connection with the merger.
U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER
NFO and Interpublic will not be obligated to complete the merger unless NFO
receives the opinion of Paul, Weiss, Rifkind, Wharton & Garrison, its counsel,
and Interpublic receives the opinion of Cleary, Gottlieb, Steen & Hamilton, its
counsel, that the merger will qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code. Accordingly, assuming the
correctness of counsels' opinions, the following material U.S. federal income
tax consequences will result from the merger:
- no gain or loss will be recognized by NFO, Interpublic's merger subsidiary
or Interpublic as a result of the merger;
- no gain or loss will be recognized by you when you receive Interpublic
common stock in exchange for NFO common stock in the merger, except with
respect to cash received in lieu of a fractional share of Interpublic
common stock;
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- the tax basis of the Interpublic common stock received by you in the
merger will be the same as the tax basis of your NFO common stock
surrendered in the merger reduced by the tax basis allocable to fractional
shares for which cash is received; and
- the holding period for Interpublic common stock that you receive in the
merger will include the holding period of your shares of NFO common stock
if you held the NFO common stock as a capital asset at the time of the
merger.
The Internal Revenue Service, which we refer to in this document as the
Service, will not be asked to rule on the tax consequences of the merger.
Instead, NFO and Interpublic will rely on the opinions of counsel mentioned
above. These opinions will be based on customary assumptions and on
representations made by NFO and Interpublic. The opinions will be based on the
Internal Revenue Code, U.S. Treasury regulations, current administrative rulings
and practice and judicial authority, all of which are subject to change,
possibly with retroactive effect. An opinion of counsel is not binding on the
Service and the Service could take a position different from what is reflected
in the opinions. We cannot assure you that the opinions will be upheld by the
courts if challenged by the Service. We urge you to consult your own tax and
financial advisors regarding the U.S. federal income tax consequences of the
merger for you based on your own particular facts and circumstances as well as
any state, local, foreign or other tax consequences of the merger.
If you receive cash for any fractional share interest in a share of
Interpublic common stock in the merger, you will be treated as though
Interpublic distributed an actual fractional share interest to you and then
redeemed the fractional share interest for cash. The difference between the cash
amount you will receive for the fractional share interest and the amount of your
tax basis in the NFO common stock allocable to that fractional share interest
will generally be capital gain or loss if you hold your NFO common stock as a
capital asset at the time of the merger. Capital gains recognized by an
individual holder on capital assets held for more than one year generally are
treated as long-term capital gains, which are subject to a maximum rate of 20%.
NFO stockholders will be required to retain records and file a statement
setting forth facts relating to the merger with their U.S. federal income tax
returns.
The discussion above is only a summary description of some of the
anticipated U.S. federal income tax consequences of the merger, and may not
address the particular facts and circumstances of your situation. It does not
discuss all of the consequences that may be relevant to you if:
- you are entitled to special treatment under the Internal Revenue Code (as
are insurance companies, dealers in securities or currencies, traders in
securities electing to mark to market, exempt organizations or foreign
persons); or
- you acquired your NFO common stock pursuant to the exercise of NFO stock
options or otherwise as compensation.
The summary set forth above is not a complete analysis of all potential tax
effects of the transactions contemplated by the merger agreement or the merger
itself. No information is provided in this document regarding the tax
consequences, if any, of the merger or the exchange of shares in the merger
under state, local, foreign or other tax laws or under proposed changes in
applicable tax laws.
NEW YORK STOCK EXCHANGE LISTING OF INTERPUBLIC COMMON STOCK; DE-LISTING AND
DE-REGISTRATION OF NFO COMMON STOCK
The listing on the New York Stock Exchange of the shares of Interpublic
common stock to be issued in the merger is a condition to the merger.
Following the merger, NFO common stock will be de-listed from the New York
Stock Exchange and will be de-registered under the Securities Exchange Act.
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THE MERGER AGREEMENT
The following is a summary of the material provisions of the merger
agreement. This description is qualified in its entirety by reference to the
merger agreement itself, a copy of which is attached as Annex A to this
document. YOU SHOULD READ THE MERGER AGREEMENT IN ITS ENTIRETY BECAUSE IT IS THE
PRIMARY LEGAL DOCUMENT THAT GOVERNS THE MERGER.
EFFECTIVE TIME OF THE MERGER
Promptly after the satisfaction or waiver of the conditions to the merger
set forth in the merger agreement, we will file a certificate of merger with the
Secretary of State of Delaware. When these filings have been made, a newly
formed wholly owned merger subsidiary of Interpublic will be merged with and
into NFO, and the separate corporate existence of this merger subsidiary will
cease. NFO will survive the merger and exist as a wholly owned subsidiary of
Interpublic. Immediately following the merger, the officers of NFO immediately
prior to the merger will continue as the officers of NFO. The directors of NFO
immediately following the merger will be those designated by Interpublic to be
directors of its merger subsidiary and William E. Lipner will be added and
continue as a director of NFO.
WHAT NFO STOCKHOLDERS WILL RECEIVE IN THE MERGER
Each share of NFO common stock will be converted into the right to receive a
fraction of a share of Interpublic common stock based on an exchange ratio
calculated as follows:
If the average trading price per share of Interpublic common stock during
the ten consecutive trading days ending on the sixth trading day prior to the
merger is:
- greater than $66.70, the exchange ratio will be fixed at 0.3898;
- equal to or greater than $49.30 but less than or equal to $66.70, the
exchange ratio will be $26.00 divided by the average trading price per
share of Interpublic common stock; or
- less than $49.30, but at or above $46.40, the exchange ratio will be fixed
at 0.5274.
The average trading price per share of Interpublic common stock will be computed
by taking the average of the per share closing prices of Interpublic common
stock on the New York Stock Exchange over the ten consecutive trading days
ending on the sixth trading day prior to the merger.
If the average trading price per share of Interpublic common stock during
this period is less than $46.40, NFO will have the right to call off the merger,
unless Interpublic elects to increase the exchange ratio so that the product of
the exchange ratio and the average trading price per share of Interpublic common
stock will equal $26.00. NFO has made no decision as to whether it would
exercise this right to call off the merger and Interpublic has made no decision
as to whether it would elect to increase the exchange ratio. If $41.38, the
closing price per share of Interpublic common stock on March 2, 2000, were the
applicable average trading price and NFO elected not to exercise this right,
then you would receive a fraction of a share of Interpublic common stock with a
value, based on the average trading price, of $21.82 for each of your shares of
NFO common stock. Should the average trading price per share of Interpublic
common stock be less than $46.40, the NFO Board would consult with NFO's
management and financial and legal advisors and, consistent with its fiduciary
duties, consider whether the proposed merger continues to be in the best
interests of NFO and its stockholders. In its consideration, the NFO Board would
take into account the relevant facts and circumstances that exist at that time,
including general and specific market, economic and business conditions and
other opportunities available to NFO.
NFO STOCK OPTIONS
Each outstanding NFO stock option will become an option to acquire a number
of shares of Interpublic common stock equal to the number of shares subject to
the option multiplied by the exchange ratio, with the exercise price being
adjusted by dividing the exercise price immediately prior to the merger by the
exchange ratio.
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EXCHANGE OF NFO COMMON STOCK
Interpublic will appoint an exchange agent to handle the exchange of NFO
common stock certificates in the merger. Soon after the closing of the merger,
the exchange agent will send to each holder of NFO common stock a letter of
transmittal for use in the exchange and instructions explaining how to surrender
certificates to the exchange agent. Holders who surrender their certificates to
the exchange agent, together with a properly completed letter of transmittal,
will receive the appropriate merger consideration. Holders of unexchanged stock
certificates will receive any dividends payable by Interpublic after the merger
only after their certificates are surrendered. NFO STOCKHOLDERS SHOULD NOT
RETURN STOCK CERTIFICATES WITH THE ENCLOSED PROXY CARD.
No fractional shares of Interpublic common stock will be issued in the
merger. For each fractional share of Interpublic common stock that would
otherwise be issued to any holder of shares of NFO common stock, the exchange
agent will pay that holder an amount equal to the product obtained by
multiplying:
- the fractional share interest to which that holder would otherwise have
been entitled, by
- the closing price for a share of Interpublic common stock as reported in
the New York City edition of the Wall Street Journal on the date of the
merger.
If your NFO stock certificates have been lost, stolen or destroyed, you will
only be entitled to obtain Interpublic common stock or other merger
consideration by providing an affidavit of loss and, if required by Interpublic,
posting a bond in an amount sufficient to protect Interpublic against claims
related to your NFO certificates.
REPRESENTATIONS AND WARRANTIES
REPRESENTATIONS AND WARRANTIES BY NFO.
The merger agreement contains representations and warranties by NFO, almost
all of which are qualified by a materiality threshold specified in the
agreement, with respect to the following:
- its corporate organization and existence;
- its capitalization;
- disclosure of its subsidiaries and their corporate organization and
existence;
- its corporate power and authority to execute, deliver and perform its
obligations under the merger agreement and the stock option agreement;
- its Board's:
- approval of the merger;
- determination that the merger is in the best interests of NFO and its
stockholders and
- recommendation that NFO's stockholders approve and adopt the merger
agreement;
- its financial statements and filings with the Commission;
- the absence of undisclosed liabilities or obligations;
- its conduct of business in the ordinary course and the absence of
undisclosed changes since December 31, 1998;
- the accuracy of information about NFO in this document;
- required governmental and regulatory approvals;
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- the compliance of the merger agreement, the option agreement and the
transactions under these agreements with NFO's organizational documents
and contracts and with applicable law;
- its compliance with its organizational documents and loan agreements and
with applicable law;
- its owned and leased real property;
- the absence of undisclosed litigation, claims or other proceedings;
- its employee benefit plans and related matters;
- labor matters;
- environmental matters;
- tax matters;
- absence of questionable payments;
- its contracts;
- insurance matters;
- intellectual property matters;
- year 2000 readiness;
- its receipt of an opinion of Greenhill & Co., LLC that, as of
December 20, 1999, the exchange ratio was fair, from a financial point of
view, to the NFO stockholders;
- brokers' and finders' fees with respect to the merger;
- the absence of any action or knowledge of any fact or circumstance that
would prevent the qualification of the merger as a "pooling of interests"
for accounting and financial reporting purposes and as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code;
- the inapplicability of state anti-takeover statutes to the merger
agreement and the stock option agreement;
- the exemption of the merger agreement, the stock option agreement and the
transactions under these agreements from triggering any rights under the
Stockholder Rights Plan of NFO, which is described in "Comparative Rights
of Holders of NFO Common Stock and Interpublic Common Stock--Rights Plan"
on page 91; and
- NFO's ownership interest in InsightExpress, L.L.C. in the event of
specified future events.
REPRESENTATIONS AND WARRANTIES BY INTERPUBLIC.
The merger agreement contains representations and warranties by Interpublic,
almost all of which are qualified by a materiality threshold specified in the
agreement, with respect to the following:
- its corporate organization and existence;
- its capitalization;
- its corporate power and authority to execute, deliver and perform its
obligations under the merger agreement and the stock option agreement;
- its financial statements and filings with the Commission;
- the absence of undisclosed liabilities or obligations;
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- its conduct of business in the ordinary course and the absence of
undisclosed changes;
- the accuracy of information about Interpublic in this document;
- required governmental and regulatory approvals;
- the compliance of the merger agreement, the option agreement and the
transactions under these agreements with Interpublic's organizational
documents and contracts and with applicable law;
- its compliance with applicable law;
- brokers' and finders' fees with respect to the merger;
- the absence of any action or knowledge of any fact or circumstance that
would prevent the qualification of the merger as a "pooling of interests"
for accounting and financial reporting purposes and as a reorganization
within the meaning of Section 368(a) of the Internal Revenue Code;
- the absence of undisclosed litigation, claims or other proceedings; and
- its contracts.
COVENANTS AND OTHER AGREEMENTS
CONDUCT OF BUSINESS BY NFO.
NFO has agreed that until the merger it will:
- conduct its business in the ordinary course consistent with past practice,
- seek to preserve its business organizations,
- seek to keep available the services of its present officers and employees,
- seek to preserve its relationships with customers, suppliers and others
with whom it has business relations,
- not amend its organizational documents,
- not pay dividends, make distributions or engage in other specified
transactions relating to its capital stock,
- not liquidate or dissolve itself,
- not take any action that would limit the ability of the merger to qualify
for the desired accounting and tax treatment and
- not take any other actions that would result in its inability to satisfy
conditions to the merger.
In addition, NFO has agreed that until the merger it will not to engage in any
of a number of material transactions specified in the agreement.
CONDUCT OF BUSINESS BY INTERPUBLIC.
Interpublic has agreed that until the merger it will not:
- amend its organizational documents,
- pay dividends or make distributions other than regular quarterly dividends
in amounts consistent with past practice,
- liquidate or dissolve itself,
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- take any action that would limit the ability of the merger to qualify for
the desired accounting and tax treatment or
- take any other actions that would result in its inability to satisfy
conditions to the merger.
NO SOLICITATION.
NFO has agreed in the merger agreement that it will not, and will cause its
subsidiaries and its officers, directors, agents and advisors and those of its
subsidiaries not to, initiate, solicit or encourage inquiries or proposals with
respect to, or engage in any negotiations concerning, or provide any
confidential information to, or have any discussions with, any person other than
Interpublic relating to any acquisition proposal. Under the merger agreement, an
acquisition proposal is any inquiry, offer or proposal regarding any of the
following:
- a merger, consolidation or similar transaction involving NFO or any of its
subsidiaries;
- a sale or other disposition of all or substantially all of the assets of
NFO and its subsidiaries, taken as a whole;
- a tender offer or exchange offer for 20% or more of the outstanding shares
of NFO common stock; or
- any public announcement or agreement to do any of the foregoing.
However, NFO may enter into discussions or negotiations with, or furnish
confidential information to, a third party that makes an unsolicited, bona fide
written acquisition proposal if:
- after consultation with, and based upon the advice of, independent legal
counsel, the NFO Board determines in good faith that these actions are
necessary for the Board to act in a manner consistent with its fiduciary
duties;
- the acquisition proposal is not subject to any financing contingencies, or
copies of bona fide customary commitments from reputable financial
institutions for all necessary financing have been furnished to NFO;
- the NFO Board determines in good faith that the acquisition proposal is
reasonably likely to be consummated; and
- the NFO Board, after consultation with and based upon the written opinion
of an independent, nationally recognized financial advisor, determines
that the acquisition proposal would be more favorable from a financial
point of view to its stockholders than the merger.
The merger agreement defines an acquisition proposal that satisfies the
foregoing criteria as a superior proposal and requires that before the NFO Board
takes any action with respect to a superior proposal that it:
- deliver prior written notice to Interpublic of the proposal; and
- require the party making the proposal to enter into a customary
confidentiality agreement.
NFO has agreed to notify Interpublic within 24 hours of its receipt of any
acquisition proposals and to advise Interpublic promptly of any material
developments.
NFO also agreed to cease any activities, discussions or negotiations with
any parties other than Interpublic with respect to any acquisition proposal that
was ongoing at the time of the merger agreement.
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OBLIGATION TO RECOMMEND.
The NFO Board has agreed to recommend to its stockholders the adoption of
the merger agreement. The NFO Board is not permitted by the merger agreement to
withdraw or modify its recommendation unless:
- NFO has complied with the restrictions on solicitation described above;
- there is a pending superior proposal;
- the NFO Board determines in good faith that this action is necessary to
comply with its fiduciary duties; and
- NFO delivers prior notice to Interpublic that it intends to take this
action.
CONSENTS AND APPROVALS.
Interpublic and NFO have agreed to make all filings, including those under
U.S. and non-U.S. antitrust laws, and to use their reasonable best efforts to
obtain all consents and approvals required in connection with the closing of the
transactions contemplated by the merger agreement. However, Interpublic is not
required to take any actions in connection with obtaining regulatory approvals
that would result in the imposition of burdensome restrictions specified in the
merger agreement.
INDEMNIFICATION AND INSURANCE.
See "Interests of NFO's Directors and Management in the
Merger--Indemnification and Insurance" on page 35.
EMPLOYEE MATTERS.
For a period of one year after the merger, Interpublic will provide
benefits, other than equity-based benefits, to the employees of NFO that are
substantially comparable to those provided before the merger.
Interpublic will assume the obligations of NFO under the change in control
severance agreements entered into with William E. Lipner, Patrick G. Healy,
Hartmut Kiock and Joseph M. Migliara. Interpublic will treat the transactions
contemplated by the merger as a change in control for the purposes of the
employment agreements, severance agreements, and stock option agreements entered
into with William E. Lipner, Patrick G. Healy, Hartmut Kiock, Joseph M.
Migliara, Charles Hamlin and Werner Hampf. See "Interests of NFO's Directors and
Management in the Merger" on page 33.
EXPENSES.
Whether or not the merger is completed, all expenses incurred in connection
with the merger agreement and the transactions contemplated by the merger
agreement will be paid by the party incurring the expenses, except that the
costs of filing, printing and mailing this document will be shared equally by
Interpublic and NFO and except as described below under "Termination Fees" on
page 46.
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CONDITIONS TO THE MERGER
CONDITIONS TO OBLIGATION OF EACH PARTY TO COMPLETE THE MERGER.
Each of Interpublic's and NFO's respective obligations to complete the
merger are subject to the satisfaction of the following conditions:
- EFFECTIVENESS OF THE REGISTRATION STATEMENT. The registration statement of
which this document is a part shall have been declared effective and the
Commission has not issued any stop order suspending its effectiveness, nor
has it started or threatened any proceedings for that purpose;
- STOCKHOLDER APPROVAL. The NFO stockholders shall have approved and adopted
the merger agreement;
- LISTING. The Interpublic common stock to be issued in connection with the
merger shall have been approved for listing on the New York Stock
Exchange;
- GOVERNMENT ACTIONS. No law, court order or rule of a governmental entity
prohibits the closing of the merger and no governmental entity shall have
instituted any proceeding to seek such a law, order or rule; and
- HSR ACT. The waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act shall have expired or terminated.
ADDITIONAL CONDITIONS TO THE OBLIGATION OF INTERPUBLIC TO COMPLETE THE
MERGER.
The obligation of Interpublic to complete the merger is also subject to the
following conditions:
- REPRESENTATIONS AND WARRANTIES. The representations and warranties of NFO
in the merger agreement shall be true and correct as of the closing of the
merger in all material respects;
- COVENANTS. NFO shall have complied in all material respects with all its
covenants under the merger agreement;
- TAX OPINION. Interpublic shall have received the written opinion of its
counsel, Cleary, Gottlieb, Steen & Hamilton, with respect to the tax-free
nature of the merger; and
- GOVERNMENTAL AUTHORIZATIONS, CONSENTS OR APPROVALS. All governmental
authorizations, consents or approvals required in connection with the
merger agreement shall have been obtained without any limitations or
restrictions that would have a material adverse effect as specified in the
merger agreement.
ADDITIONAL CONDITIONS TO OBLIGATION OF NFO TO COMPLETE THE MERGER.
The obligation of NFO to complete the merger is also subject to the
following conditions:
- REPRESENTATIONS AND WARRANTIES. The representations and warranties of
Interpublic in the merger agreement shall be true and correct as of the
closing of the merger in all material respects;
- COVENANTS. Interpublic shall have complied in all material respects with
all its covenants under the merger agreement; and
- TAX OPINION. NFO shall have received the written opinion of its counsel,
Paul, Weiss, Rifkind, Wharton & Garrison, with respect to the tax-free
nature of the merger.
Other than the conditions pertaining to stockholder approvals and the
legality of the transaction, NFO could elect to waive conditions and complete
the merger. However, if NFO determines to waive the receipt of a tax opinion
from its counsel, it will either resolicit proxies or seek a new stockholder
approval of the merger. In addition, if NFO determines to waive any other
material condition, it will
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consider whether to resolicit proxies or seek a new stockholder approval, and
will do so if, in the opinion of its counsel, this is required under applicable
law.
TERMINATION
The merger agreement may be terminated at any time prior to the closing of
the merger:
- by mutual written consent of NFO and Interpublic;
- by either of Interpublic or NFO if:
- the merger has not been completed by:
- June 30, 2000, if all governmental approvals required for the
merger have then been obtained; or
- September 30, 2000;
- the NFO stockholders do not approve and adopt the merger agreement at
the special meeting;
- any legal prohibition against the merger shall come into effect and
become permanent and final;
- the other party breaches any representation, warranty, covenant or
agreement contained in the merger agreement and the breach:
- gives rise to the failure to satisfy a condition to the merger; and
- is not or cannot be cured within ten business days after notice is
given;
- by the NFO Board, prior to adoption of the merger agreement by the NFO
stockholders, in order to recommend a superior proposal if, among other
conditions:
- NFO has notified Interpublic in writing that it intends to approve or
recommend a superior proposal;
- after taking into account any modifications to the transactions
contemplated by the merger agreement that Interpublic has then proposed
in writing and not withdrawn, the NFO Board has determined that the
proposal is and continues to be a superior proposal; and
- NFO pays Interpublic the termination fee on the termination date.
- by NFO if the average trading price per share of Interpublic common stock
used to compute the exchange ratio is less than $46.40, unless Interpublic
elects to adjust the exchange ratio to assure that you will receive
Interpublic common stock with a value, based on the average trading price,
of $26.00 for each of your shares of NFO common stock; or
- by Interpublic if the NFO Board:
- withdraws or adversely modifies its approval or recommendation of the
merger; or
- fails to comply with its obligations to refrain from soliciting or
taking other actions specified in the merger agreement in connection
with acquisition proposals by third parties to NFO.
Except for a termination by the NFO Board in order to recommend a superior
proposal or a termination by either company as a result of the failure of the
NFO stockholders to adopt the merger agreement at the special meeting, any of
the foregoing termination events may occur even if the NFO stockholders approve
the merger at the special meeting.
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TERMINATION FEES.
The merger agreement requires NFO to pay Interpublic a termination fee of
$25,000,000 in cash if:
- the merger agreement is terminated by the NFO Board in order to recommend
a superior proposal; or
- a third party makes, or publicly announces its intention to make, an
acquisition proposal, and any acquisition proposal closes within one year
after any of the following termination events:
- termination by either party following the failure to complete the
merger by the dates specified above;
- termination by either party following the failure of the NFO
stockholders to adopt the merger agreement at the special meeting;
- termination by Interpublic following a withdrawal or adverse
modification by the NFO Board of its approval or recommendation of the
merger;
- termination by Interpublic following the failure by NFO to comply with
its obligation to refrain from soliciting or taking other actions in
connection with acquisition proposals; or
- termination by Interpublic following a willful breach by NFO of a
covenant or agreement contained in the merger agreement.
The termination fee is not payable if Interpublic exercises the option
described below under "Stock Option Agreement" on page 47.
AMENDMENTS
Interpublic and NFO may amend the merger agreement at any time prior to the
adoption of the merger agreement at the NFO special meeting. However, after
adoption of the merger agreement by the NFO stockholders, the merger agreement
may not be amended without stockholder approval unless permitted by applicable
law.
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STOCK OPTION AGREEMENT
The following is a summary of the material provisions of the stock option
agreement. This description is qualified in its entirety by reference to the
stock option agreement itself, a copy of which is attached as Annex B to this
document. YOU SHOULD READ THE STOCK OPTION AGREEMENT IN ITS ENTIRETY.
As a condition to Interpublic's execution of the merger agreement, NFO
entered into the stock option agreement. In this agreement, NFO granted
Interpublic an option that under specified circumstances would permit
Interpublic to purchase 4,448,684 shares of NFO common stock, subject to
adjustment for the issuance of new shares. The maximum number of shares that
Interpublic could purchase under the option is 19.9% of the number of shares of
NFO common stock outstanding at the time of exercise. The exercise price of the
option is $26.00 per share, subject to adjustment under specified circumstances.
If Interpublic were to exercise the option in full, it would hold approximately
16.6% of the then outstanding shares of NFO common stock.
WHEN INTERPUBLIC MAY EXERCISE THE OPTION. Interpublic may exercise the
option in whole or in part if both an initial triggering event and a subsequent
triggering event, together referred to as a triggering event, occur before an
exercise termination event, as these terms are defined below.
Initial triggering event means any of the following:
- NFO or any of its subsidiaries, without Interpublic's prior written
consent, enters into an agreement to engage in an acquisition transaction,
as defined below, with any person other than Interpublic or any of its
subsidiaries;
- The NFO Board recommends that the stockholders of NFO approve or accept
any acquisition transaction other than the merger;
- NFO or any of its subsidiaries, without Interpublic's prior written
consent, authorizes, recommends, proposes or publicly announces its
intention to authorize, engage in, recommend or propose an acquisition
transaction with any person other than Interpublic or any of its
subsidiaries;
- The NFO Board fails to recommend that the stockholders of NFO approve the
merger;
- The NFO Board publicly withdraws or modifies, or publicly announces its
intention to withdraw or modify, in any manner adverse to Interpublic, its
recommendation that the stockholders of NFO approve the merger;
- any person other than Interpublic or any of its subsidiaries makes a
proposal to NFO or its stockholders by public announcement or written
communication that is or becomes the subject of public disclosure to
engage in an acquisition transaction and subsequently:
- the stockholders of NFO vote and fail to approve the merger at the NFO
special meeting; or
- the NFO special meeting is not held or is canceled;
- any person, other than Interpublic or any of its subsidiaries, acquires
beneficial ownership or the right to acquire beneficial ownership of 20%
or more of the outstanding shares of NFO common stock;
- any group, as defined by the Securities Exchange Act, other than a group
of which Interpublic or any of its subsidiaries is a member, is formed
that beneficially owns 20% or more of the outstanding shares of NFO common
stock;
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- any person other than Interpublic or any of its subsidiaries makes a bona
fide proposal to NFO or its stockholders to engage in an acquisition
transaction and the proposal becomes publicly known;
- NFO breaches any covenant or obligation contained in the merger agreement
in anticipation of engaging in an acquisition transaction and the breach:
- would entitle Interpublic to terminate the merger agreement and
- remains uncured; or
- any person other than Interpublic or any of its subsidiaries files with
any governmental authority an application for approval or notice of
intention to engage in an acquisition transaction, except in connection
with a transaction to which Interpublic has given its prior written
consent.
Acquisition transaction means:
- a merger or consolidation, or any similar transaction, involving NFO;
- a purchase, lease or other acquisition or assumption of all or more than
20% of the consolidated assets of NFO;
- a purchase or other acquisition of beneficial ownership of securities
representing 20% or more of the voting power of NFO; or
- any substantially similar transaction.
Subsequent triggering event means:
- the acquisition of beneficial ownership of 50% or more of the outstanding
NFO common stock by:
- any person other than Interpublic or any of its subsidiaries, or
- any group not including Interpublic; or
- NFO or any of its subsidiaries, without Interpublic's prior written
consent, enters into an agreement to engage in an acquisition transaction
with any person other than Interpublic or any of its subsidiaries that
would be an acquisition transaction if the references to 20% in the
definition of acquisition transaction were changed to 40%.
Exercise termination event means any of the following:
- the completion of the merger;
- termination of the merger agreement:
- by mutual agreement of NFO and Interpublic;
- by either NFO or Interpublic if any legal prohibition against the
merger becomes permanent and final;
- by NFO if Interpublic breaches any representation, warranty, covenant
or agreement contained in the merger agreement and the breach:
- gives rise to the failure to satisfy a condition to the merger and
- is not or cannot be cured within ten business days after notice is
given;
- by NFO if the average trading price of Interpublic common stock used to
compute the exchange ratio is less than $46.40 and Interpublic does not
elect to adjust the exchange ratio
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to assure that you will receive Interpublic common stock with a value,
based on the average trading price, of $26.00 for each of your shares
of NFO common stock;
- termination of the merger agreement prior to an initial triggering event:
- as a result of the delay of the merger beyond the dates provided in the
merger agreement; or
- as a result of the failure of the NFO stockholders to approve and adopt
the merger agreement at the special meeting;
- one year after termination of the merger agreement if the termination:
- follows or occurs at the same time as an initial triggering event;
- is by Interpublic following NFO's breach of its obligations not to
solicit or take other actions in connection with acquisition proposals
by third parties; or
- is by Interpublic following NFO's breach of a covenant that:
- gives rise to the failure to satisfy a condition to the merger and
- is not or cannot be cured within ten business days after notice is
given; and
- the receipt by Interpublic, at its request, of the sum of $25,000,000 as
the termination fee in accordance with the merger agreement.
The period within which Interpublic may exercise the option and other
specified rights under the stock option agreement will be extended as necessary
to obtain required regulatory approvals and comply with applicable regulatory
waiting periods. The option price and the number of shares issuable under the
option are subject to adjustment in the event of specified changes in the
capital stock of NFO.
REGISTRATION RIGHTS. If any subsequent triggering event occurs before an
exercise termination event, Interpublic will have the right for 12 months to
require NFO to register under the Securities Act the option and the NFO common
stock issued or issuable pursuant to the option. This right is subject to
specified conditions and limitations.
REPURCHASE. At any time after the occurrence of a subsequent triggering
event, NFO will repurchase at Interpublic's request the option and all or any
part of the shares of NFO common stock issued upon the full or partial exercise
of the option. NFO will repurchase the option at a price equal to:
- the amount by which the market/offer price, as defined below, exceeds the
option price, as adjusted, multiplied by
- the number of shares for which the option may then be exercised.
NFO will repurchase shares issued upon exercise of the option at a price equal
to:
- the market/offer price, multiplied by
- the number of shares to be repurchased.
The term market/offer price means the highest of:
- the price per share of NFO common stock at which a tender or exchange
offer has been made and completed or remains outstanding;
- the price per share of NFO common stock to be paid by any third party
pursuant to an agreement with NFO;
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- the highest average closing price for NFO common stock for any 20 trading
day period within the three-month period immediately before Interpublic,
or any other option holder or owner of NFO shares issued upon exercise of
the option, gives notice of the required repurchase; or
- in the event of a sale of all or a majority of the consolidated assets of
NFO, the sum of the net price paid in the sale for the assets and the
current market value of the remaining net assets of NFO, divided by the
number of shares of NFO common stock outstanding at the time of sale.
SUBSTITUTE OPTION. If, prior to an exercise termination event, NFO:
- enters into specified transactions in which NFO is not the surviving
corporation;
- permits specified fundamental changes in its capital stock; or
- sells all or substantially all of its assets,
the option will be converted into a substitute option, with terms similar to
those of the option, to purchase capital stock of the entity that is the
effective successor to NFO. At the election of the successor entity to NFO or
the holder of the substitute option or the shares issued upon exercise of the
substitute option, the successor entity shall repurchase the option or the
shares at a price based on the highest average closing price for shares of the
successor during a specified period.
LIMITATION ON TOTAL PROFIT. The stock option agreement caps Interpublic's
potential profit on the option at $27,500,000.
ASSIGNMENT. Neither party may assign its rights or obligations under the
stock option agreement without the express written consent of the other party,
except that if a subsequent triggering event occurs prior to an exercise
termination event, Interpublic may assign its rights and obligations in whole or
in part within 12 months following the subsequent triggering event.
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MARKET PRICES AND DIVIDENDS
INTERPUBLIC
Shares of Interpublic common stock are traded on the New York Stock Exchange
under the symbol "IPG." The following table sets forth the range of high and low
sales prices as reported on the New York Stock Exchange Composite Tape, together
with the dividends per share of common stock declared by Interpublic, during the
periods indicated. We have adjusted the information in the table to reflect
Interpublic's two-for-one stock split on July 15, 1999 effected in the form of a
stock dividend.
<TABLE>
<CAPTION>
PRICE RANGE
------------------- PER SHARE
1999 HIGH LOW DIVIDENDS
- ---- -------- -------- ---------
<S> <C> <C> <C>
Quarter ended March 31...................................... $40.25 $36.88 $0.075
Quarter ended June 30....................................... 43.31 37.63 0.085
Quarter ended September 30.................................. 44.31 39.00 0.085
Quarter ended December 31................................... 58.00 39.25 0.085
<CAPTION>
1998 HIGH HIGH
- ---- -------- --------
Quarter ended March 31. $ 31.31 $ 23.84 $ 0.065
<S> <C> <C> <C>
Quarter ended June 30....................................... 32.25 27.66 0.075
Quarter ended September 30.................................. 32.44 26.09 0.075
Quarter ended December 31................................... 39.88 23.50 0.075
<CAPTION>
1997 HIGH HIGH
- ---- -------- --------
Quarter ended March 31. $ 18.31 $ 16.13 $ 0.065
<S> <C> <C> <C>
Quarter ended June 30....................................... 20.69 17.50 0.065
Quarter ended September 30.................................. 25.69 20.75 0.065
Quarter ended December 31................................... 26.25 22.63 0.065
</TABLE>
On December 17, 1999, the last trading day before Interpublic and NFO
announced the merger, the closing price per share of Interpublic common stock
was $58.06. On March 2, 2000, the most recent trading day for which prices were
available prior to the printing of this document, this price was $41.38. Past
price performance is not necessarily indicative of future price performance. You
should obtain current market quotations for Interpublic common stock.
Holders of shares of Interpublic are entitled to receive dividends from
legally available funds when, as and if declared by the Interpublic Board.
Although Interpublic currently intends to continue paying quarterly cash
dividends on the Interpublic common stock, Interpublic cannot assure you that
its dividend policy will remain unchanged after completion of the merger. The
declaration and payment of dividends after the merger will depend upon business
conditions, operating results, capital and reserve requirements and the
Interpublic Board's consideration of other relevant factors.
NFO
Shares of NFO common stock have traded on the New York Stock Exchange since
December 29, 1997 under the symbol "NFO." From the completion of NFO's initial
public offering in April 1993 until December 29, 1997, shares of NFO common
stock traded on the Nasdaq National Market tier of the Nasdaq Stock Market under
the symbol "NFOR."
NFO did not declare or pay any cash dividends during 1999, 1998 or 1997. The
following table sets forth, for the periods indicated, its high and low sales
prices per share as reported on the New York Stock Exchange and Nasdaq.
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We have adjusted the stock prices to give retroactive effect to a 3-for-2
stock split effected on October 15, 1997.
<TABLE>
<CAPTION>
PRICE RANGE
-------------------
1999 HIGH LOW
- ---- -------- --------
<S> <C> <C> <C>
Quarter ended March 31...................................... $12.50 $ 8.50
Quarter ended June 30....................................... 14.88 9.50
Quarter ended September 30.................................. 15.88 10.75
Quarter ended December 31................................... 22.88 10.00
<CAPTION>
1998 HIGH LOW
- ---- -------- --------
Quarter ended March 31. $ 21.38 $ 16.75
<S> <C> <C> <C>
Quarter ended June 30....................................... 22.00 15.63
Quarter ended September 30.................................. 18.75 9.00
Quarter ended December 31................................... 14.75 5.55
<CAPTION>
1997 HIGH LOW
- ---- -------- --------
Quarter ended March 31. $ 15.50 $ 11.17
<S> <C> <C> <C>
Quarter ended June 30....................................... 17.50 11.33
Quarter ended September 30.................................. 18.50 14.50
Quarter ended December 31................................... 21.63 15.50
</TABLE>
On December 17, 1999, the last trading day before Interpublic and NFO
publicly announced the merger, the closing price per share of NFO common stock
was $14.00. On March 2, 2000, the most recent trading day for which prices were
available prior to the printing of this document, this price was $18.94. Past
price performance is not necessarily indicative of future price performance. You
should obtain current market quotations for shares of NFO common stock.
The pro forma equivalent price per share of NFO common stock on March 2,
2000 was $21.82, based on the exchange ratio that would apply if the average
trading price per share of Interpublic common stock for the ten consecutive
trading days ending six trading days before the merger were equal to $41.38, the
closing price per share of Interpublic common stock on the New York Stock
Exchange on March 2, 2000. If that closing price were the average trading price,
then NFO would have the right to call off the merger, because the average
trading price was below $46.40, unless Interpublic elected to adjust the
exchange ratio. Thus, this pro forma equivalent price assumes that NFO will not
have exercised this right.
BUSINESS OF INTERPUBLIC
The following is a brief description of the business of Interpublic.
Additional information regarding Interpublic is contained in its filings with
the Commission referred to in "Where You Can Find More Information" on page 94.
Interpublic is one of the world's largest organizations of advertising
agencies and communications-services companies, with more than 35,000 employees
and offices in 127 countries. Its principal operating companies include:
- McCann-Erickson WorldGroup,
- The Lowe Group,
- DraftWorldwide,
- Initiative Media Worldwide,
- International Public Relations,
- Zentropy Partners,
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- Octagon,
- The Allied Communications Group and
- other related companies.
The advertising agency business is the primary business of Interpublic.
Interpublic also carries on:
- a media-buying business,
- a direct and promotional marketing business,
- a global public relations business,
- a multinational sports and entertainment marketing business and
- an internet-services business.
Other activities conducted by Interpublic within the area of "marketing
communications" include:
- brand equity and corporate identity services,
- graphic design and interactive services,
- management consulting and market research,
- sales meetings and events,
- sales promotion and
- other related specialized marketing and communications services.
Interpublic is a corporation organized under Delaware law.
BUSINESS OF NFO
ORGANIZATION
NFO Worldwide, Inc., together with its subsidiaries, is a leading provider
of research-based marketing information and counsel to the worldwide business
community. It has over 3,000 clients globally. NFO combines in-depth knowledge
of key market sectors with innovative data collection methodologies and value
added products. These market sectors include:
- consumer packaged goods and foods
- health care
- financial services
- automotive, travel and leisure and
- information technology.
Some key products and services of NFO include:
- continuous brand tracking
- online research
- consumer access panels
- multi-country research
- market evaluation
- product development
- customer satisfaction
- pricing and distribution and
- advertising effectiveness.
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Through its proprietary pre-recruited consumer panel and other specialized
databases, NFO offers access to over 600,000 North American households, to over
1.5 million people, and to over 100,000 European households. NFO offers its
clients a wide variety of marketing research services that identify and measure
consumer beliefs, attitudes and behavior regarding specific products and
services. NFO believes its products and services enable clients to develop
better products, build more powerful brands, and design and implement more
effective marketing and advertising strategies. NFO provides its services in 35
countries and has over 13,000 full and part-time employees.
NFO, through its U.S. subsidiary NFO Research, 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. NFO 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. NFO 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, NFO changed its name from NFO Research, Inc. to NFO
Worldwide, Inc. This change was aimed at 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. NFO 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. In 1998, NFO was named by INSIDE RESEARCH magazine as the fastest growing
marketing research firm in the world for the previous five years.
SERVICES
NFO has three operating segments: North America, Europe, and Australasia and
the Middle East. Within each of these operating segments, NFO has subsidiaries
specializing in various market sectors and types of marketing research services.
These market sectors and types of services include:
- consumer packaged goods and foods
- health care
- financial services
- automotive, travel and leisure
- high tech/telecommunications
- continuous brand tracking
- on-line research
- consumer access panels
- multi-country research
- product development
- customer satisfaction
- pricing and distribution and
- advertising effectiveness.
For the nine months ended September 30, 1999, NFO's North American revenues
were $150.8 million, or nearly 44%, of NFO's consolidated total of
$340.1 million before elimination of
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intercompany revenues of $3.1 million. European revenues were $156.0 million, or
46% of the consolidated total. Revenues for Australasia and the Middle East
represented the remaining 10%. NFO 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. NFO
believes it is the third largest custom marketing research firm in the world.
CUSTOM RESEARCH AND SYNDICATED SERVICES--NFO RESEARCH
Approximately one-fifth of NFO's revenues are derived from custom panel
research, and NFO Research is the largest of NFO's North American subsidiaries.
NFO Research 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. NFO
Research 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.
NFO Research 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, NFO Research can identify on a timely and
cost-effective basis a significant sample of consumer households who have the
specific characteristics targeted, based on study design, and who are likely to
respond to NFO Research's surveys. In many cases, NFO Research can easily select
households with the desired targeted characteristics from data maintained by NFO
Research concerning the NFO panel. In other cases involving the need to locate
households with targeted characteristics not previously identified, NFO Research
can efficiently locate such households by screening a segment of its panel
members based on their profiles through a short interview or as part of NFO
Research's "MultiCard Survey" program. This capability is particularly efficient
when seeking households or consumers with "low incidence" characteristics,
characteristics exhibited by a relatively small segment of the general
population. After locating a sufficient sample of targeted households, NFO
Research can quickly perform the marketing research project by surveying those
sample households.
NFO Research believes that in recent years there has been a trend among its
clients to focus on smaller market segments for product or service introductions
and marketing programs rather than on broad, mass markets and to focus on
segmenting existing product lines to provide products developed for targeted
consumers. The size of the NFO panel and NFO Research's extensive demographic
and geographical profiles of the NFO panel households facilitate the ability of
NFO Research to assist its clients with such "target" or "micro-marketing." NFO
Research has capitalized on its expertise in locating and researching households
within specific geographic areas, with specific user characteristics or with
unusual profiles. NFO accomplishes this 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, which was
created in 1992 to service the health care industry. The Chronic Ailment Panel
was developed by screening the NFO panel for individuals with any of over sixty
ailments and chronic conditions, eight disabling conditions and users of several
diagnostic testing kits. This specialized sub-panel enables NFO Research's
clients to quickly identify and obtain information regarding very low incidence
conditions and ailments.
NFO Research has operations facilities located in Toledo, Ohio and
Greensboro, North Carolina. NFO Research maintains large mailing and
telecommunication facilities in its main operations center in Toledo for the
purpose of distributing and administering questionnaires or other materials, and
packaging and distributing product samples or other materials to survey
participants. NFO Research maintains a sales and marketing staff in nine
locations throughout the U.S. The research executives
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work primarily with the marketing research departments and product brand
management departments of its clients. For many of its larger clients, NFO
Research emphasizes continuing research programs, including continuous
screenings, customer satisfaction programs and annual tracking studies in which
the consistency of study design and execution over time is important. The
stability of the NFO panel makes such ongoing studies possible, and often
results in additional follow-up projects being commissioned by the client.
The services provided by NFO Research, as well as by some of NFO'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 NFO Research;
PURCHASE/OWNER PROFILES--which determine demographic or other
characteristics of consumers owning or purchasing a particular product or
service so that a client may improve the effectiveness of marketing or
advertising programs by properly positioning them to appropriate consumers;
PURCHASE OR CONSUMPTION DIARIES--where panelists record on diaries their
actual purchase or usage of particular products over an extended period to
allow for evaluation of brand share and consumer shifts and trends;
SCREENINGS--which are used to identify demographic characteristics or the
use or purchase of or intention to purchase a product or service,
particularly in connection with low-incidence characteristics and products;
and
CONCEPT TESTS--in which consumers are asked to give their reaction to a
concept for a new product, service or advertising campaign before it is
developed or introduced into the marketplace.
NFO Research has an arrangement with IPSOS-ASI, one of the country's leading
advertising copy testing companies, that provides advertising concept tests for
in-home viewing by NFO panel members. NFO Research utilizes its Screen Test
product that provides a patented system by which a client's concept, product or
advertising message may be presented in an in-home setting for test material
that needs to be seen and heard by panelists rather than being described to them
in writing or over the telephone. The Screen Test product is a self-erasing
videotape that provides the security needed for handling marketing research of
confidential materials.
NFO and BASES jointly offer Volumetric Concept Screening by mail 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 stage product ideas and choose the most promising concepts.
Volumetric 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 NFO and BASES. The two companies also
offer a cost saving approach to simulated test marketing, utilizing the NFO
panel and BASES' expertise in volumetric forecasting.
HEALTH CARE--MIGLIARA/KAPLAN. M/K is the nation's largest custom
full-service health care marketing research company with offices in Baltimore,
Maryland, Princeton, New Jersey and London, England. 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
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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. In addition, M/K
has a high rate of repeat business with existing clients. M/K has historically
attracted clients from all corners of the health care 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 proprietary
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.
FINANCIAL SERVICES--SPECTREM GROUP. Spectrem provides niche consulting and
acquisition and divestiture advisory services in the trust and investment
products sectors. Additionally, Spectrem is a source of quantitative and
qualitative research, consulting and communications services to the retirement
market addressing pension sales, operations and marketing issues, especially in
the 401(k) market. Founded in 1990, Spectrem has offices in San Francisco and
Los Angeles, California, New York City, Chicago, Illinois, and Windsor,
Connecticut. 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--CITY RESEARCH. City Research, founded in 1978 and
headquartered in London, is a UK marketing research firm specializing in the
financial services sector. City Research's products are complementary to PSI's,
and City Research works in conjunction with PSI to sell to the financial
services industry throughout the UK. City Research provides syndicated products
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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 provider of
survey-based quantitative customer satisfaction research to information
technology companies worldwide. Prognostics is headquartered in Palo Alto,
California, and has additional offices in Boston, Massachusetts 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, NFO established its NFO Interactive
division for the purpose of developing an interactive methodology for performing
marketing research. NFO 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. With response rates in excess of 50% 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 a matter of days.
- 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.
- NFO//net.query is an interactive weekly e-mail survey providing responses
from more than 2000 households. It is 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 complementary 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.
- NFO//net.discussion is a new cost-effective, qualitative research service
that recruits a target audience group using either NFO//net.source or the
client's customer list. Respondents are then invited to participate in a
password-protected, on-line discussion, allowing clients to interact in
real time with the consumer. This tool enables clients to learn first hand
how consumers might react to new brand, product or service ideas, line
extensions, new packaging, new marketing strategies, naming ideas,
advertising, and pricing changes.
NFO 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
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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--INSIGHTEXPRESS LLC. In October 1999, NFO, together with other
investors, launched InsightExpress, a new internet company formed to provide
real-time consumer input to the desktops of decision-makers in companies of all
sizes worldwide. InsightExpress is a fully automated web-enabled survey system
that will allow its customers to test new ideas, screen new concepts, gauge
customer satisfaction, survey employees, test advertising, and gather insight
into the needs, attitudes, and behaviors of consumers. InsightExpress is
designed to provide these capabilities at a fraction of the time and the cost of
existing marketing research methods. Management believes that InsightExpress
will be able to leverage the worldwide client experience and panel expertise of
NFO.
TECHNOLOGIES--NFO AD:IMPACT. Formerly known as National Yellow Pages
Monitor, NFO Ad:Impact now augments the company's Yellow Pages service offerings
with several unique, web-based audience measurement applications. Launched in
1987, NFO Ad:Impact is a 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, 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 NFO'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.
CONTINUOUS BRAND TRACKING--NFO MARKETMIND. MarketMind, founded in 1987 and
located in Teaneck, New Jersey and Melbourne, Australia, owns and licenses the
NFO 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 NFO 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
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- 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 NFO 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,
California 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, 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 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 headquartered in Munich, 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, Infratest
Burke 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
computer-assisted telephone interviewing and 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. Infratest Burke conducts both quantitative and qualitative research
for a wide range of client management projects and provides multi-client
research regarding
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consumer business statistics. Other services include omnibus surveys, hall/mall
tests and retail analysis. Among its major offerings are:
- TRI:M, a customer retention model;
- 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;
- PRICER, a pricing strategy analysis model;
- AD-VISOR/A.C.E. (Advertising Campaign Evaluation), an on-air copy testing
service; and
- COSMOS, a concept, product and pricing optimization model.
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
manufacturers, marketers and retailers of consumer goods and durables,
including those involved with food, soft drinks, dairy 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.
Infratest Burke 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.
- AUTOMOTIVE/TRANSPORTATION--For 25 years, Infratest Burke has conducted an
ongoing public opinion survey for its automotive clients structured to
determine and evaluate consumer attitudes on automotive-related products
and services. Infratest Burke also conducts comprehensive new car and used
car buyer surveys, which attempt to uncover market patterns, buyer
motivation, brand loyalty, and consumer satisfaction. Infratest Burke 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 land line 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
Infratest Burke 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.
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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.
- HEALTH CARE/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.
Infratest Burke's products are designed to help clients across the
complete marketing function. This ranges 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. Infratest
Burke developed its Financial Market Data Service 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 LIMITED/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.
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. MBL provides research-based
consultancy--answers to problems--not just answers to questions.
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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. It also operates 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, 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 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 NFO
MarketMind(TM), the global brand tracking system acquired by NFO in March 1998.
CLIENTS
Including its subsidiaries, NFO conducts over 11,000 research projects
annually for more than 3,000 clients in 35 countries. NFO's clients include 59
of the largest 100 companies on the FORTUNE 500 list, and 37 of the world's 50
largest pharmaceutical firms. NFO's roster of clients is further characterized
by the longevity of many of these relationships. A number of NFO's core business
clients have had ongoing business relationships with NFO for between 30 and
50 years. The longevity of these relationships is enhanced by data comparability
with information in the normative databases that NFO has helped its clients
build over the years. NFO's data is also used by its clients beyond the research
function. For example, some clients have incorporated NFO's data into their
internal performance evaluation systems.
NFO's client list includes over 3,000 companies. No single client
represented more than 10% of its total revenues in 1998 or 1997. NFO's ten
largest clients, which collectively represented approximately 21% of its total
1998 revenues, are as follows:
- Bristol Myers Squibb
- British American Tobacco
- Citibank
- Coca-Cola
- Gillette
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- Pfizer, Inc.
- The Procter & Gamble Company
- Searle
- Telecom NZ Ltd. and
- Unilever.
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
$13.4 billion in 1998 according to the latest data from ESOMAR, the European
Society for Opinion and Marketing Research. Spending is estimated at
$5.8 billion in Europe (43%), $5.2 billion in North America (39%), $1.6 billion
in Asia-Pacific (12%) and $0.8 billion elsewhere (6%). In the aggregate,
marketing research spending outside North America represented $8.2 billion, or
approximately 61%, of worldwide spending.
The worldwide marketing research industry is comprised of thousands of
marketing, advertising and public opinion research organizations that measure
consumer attitudes and behavior. The industry is comprised primarily 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. alone, with
no firm holding a dominant share of that market. NFO believes it is one of the
largest U.S.-based custom marketing research firms.
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. NFO 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.
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NFO believes it is currently one of the largest custom panel research firms
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., NFO believes it is
ranked number one in the following niche markets: custom health care research;
syndicated financial services research; panel-based packaged goods and services
research; high tech customer satisfaction research; and travel/leisure research.
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. NFO 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.
COMPETITION
NFO's primary worldwide competitors include the following:
- Taylor Nelson Sofres, based in London
- The Kantar Group Ltd., based in London (part of The WPP Group Plc)
- Gfk AG of Nuremberg, Germany
- IPSOS Group, S.A. of Paris
- NPD Group of Port Washington, NY
- Market Facts, Inc. of Arlington Heights, IL (part of the Aegis Group)
- M/A/R/C Inc. of Irving, TX (part of the Omnicom Group)
- United Information Group of London and
- Opinion Research Corp. of Princeton, NJ.
In terms of total research revenues, in 1998 NFO was ranked sixth in the
"Top 25 Global Research Organizations" list published by MARKETING NEWS in
August 1999. Of the top six companies, three primarily provide syndicated
marketing information while three, including NFO, primarily provide custom
marketing research.
TRADEMARKS, PATENTS, SERVICE MARKS AND PROPRIETARY SOFTWARE
NFO 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. Some of NFO's non-domestic
subsidiaries also maintain various trademarks and patents in the countries in
which they operate. In addition, NFO has a process patent pending relating to
InsightExpress.
NFO considers these trademarks and service marks to be material to its
business. NFO vigorously defends its trademarks and service marks against
infringement and other unauthorized use. NFO
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protects its proprietary software and information systems by limiting access to
key personnel through the use of password systems.
EMPLOYEES
As of September 30, 1999, NFO had approximately 13,600 employees (3,300
full-time and 10,300 part-time). Approximately 1,400 of the 13,600 reside in the
United States. NFO emphasizes the comprehensive training of its personnel. In
addition to training in an employee's primary area of responsibility, NFO 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. NFO 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 NFO's domestic employees is subject to a collective bargaining
agreement. CF has agreements with two separate unions covering some of its
employees in Canada: United Steelworkers of America covers 137 employees, and Le
Syndicat des Travailleuses et Travailleurs covers 45 employees. NFO has not
experienced any work stoppages and believes its relations with its employees are
good.
PROPERTIES
NFO's primary U.S. operations facility is located in an approximately
148,000 square foot complex located on approximately 77 acres owned by NFO in
Toledo, Ohio. Operated from this facility are NFO's data entry, computer,
mailing and product storage and handling facilities, a regional sales office and
the largest of NFO's three telephone interviewing facilities. The facility was
built in 1975 and first expanded in 1982. NFO recently completed an expansion
project which added approximately 50,000 square feet of office space to the
facility and renovated the existing space. NFO's remaining facilities are all
leased.
LEGAL PROCEEDINGS
NFO is not a party to any litigation that is expected to have a significant
effect on the operations or business of NFO.
CHANGES IN OR DISAGREEMENTS WITH ACCOUNTANTS
NFO has not had any disagreements on accounting or financial disclosures
with, or any changes in, its independent public accountants.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF NFO
This discussion analyzes our operations for the three- and nine-month
periods ended September 30, 1999 and September 30, 1998, and the fiscal years
ended 1998, 1997 and 1996. The following information should be read together
with the consolidated financial statements and the accompanying notes included
in this document as Annex D and Annex E.
THREE AND NINE MONTHS ENDED SEPTEMBER 30, 1998 AND 1999
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, operating
statement data for NFO.
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------------------- ---------------------------------
PERCENTAGE OF PERCENTAGE OF
REVENUES PERCENTAGE REVENUES PERCENTAGE
------------------- CHANGE FROM ------------------- CHANGE FROM
1999 1998 PRIOR YEAR 1999 1998 PRIOR YEAR
-------- -------- ----------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................ 100.0% 100.0% 69.8% 100.0% 100.0% 86.5%
Costs and Expenses:
Cost of Revenues...................... 51.4 46.2 88.9 51.6 45.6 111.0
Selling, General & Administrative..... 35.5 42.3 42.6 35.1 40.5 62.0
Amortization.......................... 2.2 1.6 132.2 2.1 1.8 119.0
Depreciation.......................... 2.3 1.4 182.7 2.2 1.6 141.4
----- ----- ------ ----- ----- ------
Operating Income.................... 8.6 8.5 70.8 9.0 10.5 60.0
Interest Expense, Net................... 3.4 1.1 430.4 3.1 1.0 490.4
Equity Interest in Net (Income) Loss of
Affiliated Companies and Other
Expenses.............................. (.9) 0.2 (962.4) (.5) 0.2 (580.2)
----- ----- ------ ----- ----- ------
Income Before Income Taxes and
Minority Interests.................. 6.1 7.2 42.0 6.4 9.3 29.1
Provision for Income Taxes.............. 2.6 3.3 32.8 2.8 3.9 37.0
----- ----- ------ ----- ----- ------
Net Income Before Minority
Interests........................... 3.5 3.9 49.6 3.6 5.4 23.5
Minority Interests...................... .3 0.0 1128.0 .2 0.2 30.6
----- ----- ------ ----- ----- ------
Net Income........................ 3.2% 3.9% 39.1% 3.4% 5.2% 23.2%
===== ===== ====== ===== ===== ======
</TABLE>
OPERATIONS
The majority of the increases in the various components of NFO's results of
operations for the three and nine month periods ended September 30, 1999,
compared with the same periods in 1998, are the result of NFO's 1998
acquisitions, principally Infratest Burke. These acquisitions are discussed in
this document at page 72.
NFO's revenues for the three months ended September 30, 1999, increased
$45.7 million, or 70%, to $111.2 million. This was an increase from
$65.5 million for the same period last year. For the nine months ended
September 30, 1999, revenues increased 87% to $337.0 million. This was an
increase from $180.7 million in the prior year.
The third quarter's 70% revenue increase was marked by growth in all three
of NFO's business sectors, particularly in Europe. In total, organic revenue
growth was 3.4% for the quarter, lead by strong double-digit organic growth in
Europe. Revenues within NFO's North American sector increased 4% for the third
quarter, led by strong growth within NFO's Healthcare Group. In addition to
strong double-digit organic growth, NFO Europe's performance was bolstered by
the addition of Infratest
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Burke. Revenues within Australasia and the Middle East, meanwhile, increased 11%
for the quarter. This increase resulted from the inclusion of acquisitions,
positive organic growth and favorable currency effects. Consolidated currency
translation effects were not material for the three and the nine-month periods.
For the nine months ended September 30, 1999, North American revenues
increased 14%. Of that growth, 5% resulted from organic growth and 9% was driven
by acquisitions. The Healthcare, Financial Services, and Continuous Tracking
Groups all registered strong double-digit revenue growth, with the Panel Group
also showing a strong increase. Revenues within Europe increased dramatically.
This was primarily due to organic growth of 9% and the first time inclusion of
Infratest Burke. Revenue growth in Australasia and the Middle East was 12%, of
which 5% was through organic growth and 6% was related to acquisitions.
Cost of revenues increased $26.9 million, or 89%, in the third quarter to
$57.2 million. This was an increase from $30.3 million a year ago. For the nine
month period, cost of revenues increased $91.4 million, or 111%, to
$173.8 million from $82.4 million in the prior year. The majority of these
increases were the result of inclusion of the newly acquired companies.
Selling, general and administrative expenses increased $11.8 million, or
43%, in the third quarter to $39.5 million. This was an increase from
$27.7 million in the same period last year. Year-to-date selling, general and
administrative expenses increased $45.3 million, or 62%, to $118.4 million from
$73.1 million in the prior year. These increases were predominately the result
of the inclusion of the newly acquired companies, as well as increased staffing
expenses, offset slightly by declines in various other costs. Increases were
also affected by inflationary factors.
As a result of the items above, operating income for the quarter ended
September 30, 1999, increased $3.9 million, or 71%, to $9.5 million. This was an
increase from $5.6 million in the same quarter a year ago. Year-to-date
operating income increased $11.3 million, or 60%, to $30.2 million from
$18.9 million in the prior year. The third quarter operating margin was 8.6%
compared with 8.5% for the same period last year.
Year-to-date operating margins decreased to 9.0% from 10.5% in the prior
year. The overwhelming majority of the year-to-date decline in margins from 1998
to 1999 is attributed to the inclusion of the operating results of the newly
acquired international companies.
As compared to the prior year, net interest expense increased to
$3.8 million from $0.7 million for the third quarter and increased to
$10.6 million from $1.8 million for the nine months ended September 30, 1999.
The increases were due to additional borrowings in late 1998 to fund
acquisitions, primarily the Infratest Burke acquisition in November 1998.
The effective tax rate for the third quarter declined to 42.6% compared with
45.5% for the same period last year. For the nine months ended September 30,
1999, NFO's effective tax rate increased to 43.7% from 41.2% in the prior year.
The year-to-date increase is principally the result of NFO's recent acquisitions
being located in higher tax jurisdictions as well as the effect of
non-deductible goodwill associated with these acquisitions. The year-to-date
effective rate of 43.7% reasonably approximates what NFO believes the effective
tax rate will be for the full year 1999.
Net income for the third quarter of 1999 increased 39% to $3.6 million from
$2.6 million for the same period in 1998. For the nine months ended
September 30, 1999, net income increased 23% to $11.6 million from $9.4 million
in the prior year. Third quarter diluted earnings per share were $0.16 compared
to last year's $0.12 per share, an increase of 33%. Year-to-date diluted
earnings per share increased 18% to $0.52 from $0.44 for the same period in
1998.
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LIQUIDITY AND CAPITAL RESOURCES
Working capital as of September 30, 1999, was $52.0 million compared to
$31.9 million at December 31, 1998. The $20.1 million increase resulted
primarily from a $30.2 million decline in accounts payable and accrued
liabilities and $3.2 million increase in receivables. These amounts were
partially offset by a decrease in cash and cash equivalents of $4.1 million, an
increase in advance billings of $5.7 million, and a decrease in other net
current assets of $3.5 million.
The decreases in accounts payable and accrued liabilities were attributed to
payment in 1999 of earnouts accrued as of year end totaling $4.6 million,
payment of accrued bonuses totaling $4.0 million and normal fluctuations in the
timing of the payment of invoices. The decrease in cash was attributed to
routine fluctuations as well as the cash portion of the 1999 earnout payments
totaling $5.3 million. The fluctuations in receivables and advance billings are
attributed to routine fluctuations in the timing of client projects and related
billings.
As of September 30, 1999, NFO had $45.9 million outstanding on its
$75.0 million credit facility, $127.0 million outstanding in Senior Notes
payable, and $19.4 million of debt outstanding outside the United States. Total
stockholders' equity as of September 30, 1999 was $138.2 million.
Capital expenditures for the quarter ended September 30, 1999, were
$3.9 million. This compared to $2.4 million for the same period last year.
Capital expenditures for the nine months ended September 30, 1999, were
$12.0 million compared to $10.5 million in the prior year. Capital expenditures
for all of 1999 are anticipated to be approximately $14 million.
NFO anticipates that existing cash, together with internally generated funds
and its credit and stock availabilities, will provide NFO with the resources
that are needed to satisfy potential acquisitions, capital expenditures and
NFO's growing working capital requirements. The timing and magnitude of future
acquisitions will be the single most important factor in determining NFO's
long-term capital needs.
YEAR 2000 ISSUES
As of September 30, 1999, NFO was working to resolve the Year 2000 issue. In
early 1997, NFO completed an impact analysis across all proprietary custom
software programs and systems. As a result of this analysis, affected programs
were being modified by NFO's programming departments to ensure future
compliance. Any new programs being developed were being made Year 2000 compliant
from the outset, while certain existing systems were being made Year 2000
compliant as they were reengineered.
NFO operates subsidiaries and divisions worldwide. While many of these
operations were already Year 2000 compliant in hardware, software and embedded
systems, as of September 30, 1999, other operations were still in the process of
upgrading their systems for Year 2000 compliance. NFO was in the process of
testing its mission critical and non-critical systems and software for Year 2000
compliance by using a series of Year 2000 test dates. In instances where the
Year 2000 dates were not properly processed, the systems and software were
upgraded and re-tested as necessary for Year 2000 compliance. Mission critical
applications and systems were prioritized for Year 2000 compliance, and the
majority of those systems were already compliant.
As of September 30, 1999, NFO believed 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. NFO's contingency plan included manually addressing
non-critical applications and systems compliance problems. Additionally, NFO had
the ability to readily outsource many of its data collection and processing
processes should the need arise.
NFO was also coordinating with clients, vendors, affiliates and other
outside parties who may have affected, or been affected by, NFO's plans to
address the Year 2000 issue. NFO sent surveys to these
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outside parties inquiring as to their status in addressing the Year 2000 issue
within their respective organizations. NFO gathered and analyzed the results of
those surveys, and although NFO did not foresee any Year 2000 issues associated
with these outside parties, NFO did 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 NFO's day-to-day operations.
NFO 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 NFO's subsidiaries met this target, NFO continued to
perform testing, analysis and remediation as necessary for Year 2000 compliance.
While management believed, as of September 30, 1999, that NFO's Year 2000
compliance process would resolve any remaining Year 2000 issues in a timely
manner, NFO was also developing contingency plans as discussed above as it was
not possible to anticipate all possible future outcomes. Although NFO took the
steps outlined above to address the Year 2000 issue, management could not, as of
September 30, 1999, fully assure Year 2000 compliance due to the unprecedented
nature of the Year 2000 issue.
As of September 30, 1999, NFO estimated that total Year 2000 compliance
costs incurred from 1997 through September 30, 1999 were approximately $930,000,
and the estimated future cost to complete Year 2000 compliance was approximately
$260,000, including capital expenditures of approximately $165,000.
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. NFO conducts business in member
countries. The transition period for the Euro is from January 1, 1999, to
June 30, 2002. NFO 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, NFO believes that use of the Euro will not have
a significant impact on the manner in which NFO conducts its business and
processes its accounting records. Accordingly, conversion to the Euro is not
expected to have a material effect on NFO's financial condition or results of
operations.
RECENT DEVELOPMENTS
EPS FOR FOURTH QUARTER AND FULL YEAR 1999, AND REDUCED EXPECTATIONS FOR YEAR
2000
On December 20, 1999 NFO issued a press release stating that it expected its
earnings per share, before special charges, for the fourth quarter ending
December 31, 1999 to be below the then current estimates. The First Call
consensus earnings per share estimate at the time was $0.28 for the 1999 fourth
quarter, and the actual EPS for the fourth quarter of 1998 was $0.23. NFO also
reported at that time that it planned to record special after-tax charges during
the fourth quarter, the majority of which were non-cash in nature, primarily to
reduce the intangible assets associated with NFO's financial services business
to their estimated net realizable values. Finally, NFO also stated that earnings
per share estimates for the year 2000 should be revised downwards, to reflect
the 1999 fourth quarter EPS performance and to reflect certain strategic and
operational investments NFO planned to make in the year 2000.
On March 1, 2000 NFO issued a press release containing its actual results
for the fourth quarter and full year 1999, which were within the range of
estimates provided by NFO on December 20, 1999.
Actual revenues for the fourth quarter of 1999 increased by 27%, to
$120.2 million from $94.6 million for the same period last year. Of the total
revenue growth during the quarter, 8% was
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due to organic growth, while the remainder was due to the effects of
acquisitions and currency translation effects. During the quarter, NFO recorded
$21.7 million in pre-tax special charges, primarily to write off the intangible
assets associated with NFO's financial services businesses, which have been
deemed to be permanently impaired. These special charges, which are primarily
non-cash in nature, amounted to $17.8 million or $0.80 per diluted share on an
after-tax basis. As a result, NFO reported a net loss of ($17.8) million or
($0.80) per diluted share for the fourth quarter, compared with net income of
$5.1 million or $0.23 per diluted share in the year ago quarter. Earnings per
diluted share, before special charges, were $0.00 per share for the fourth
quarter of 1999.
NFO's fourth quarter 1999 earnings shortfall was due primarily to lower than
expected revenues in its domestic financial services and
high-tech/telecommunication businesses, and lower than planned revenues in
Europe due to a continued weakening Euro as well as slightly lower than planned
local currency growth. In addition, profitability within NFO's Asia Pacific
operations was adversely affected by a very competitive pricing environment,
despite the fact that revenues within this region increased during the fourth
quarter.
For the year ended December 31, 1999, revenues increased 66% to
$457.2 million from $275.4 million in the same period last year. Results for the
year ended December 31, 1999, include the results of Infratest Burke, which was
acquired on November 20, 1998. Of the total revenue growth for the year, 6% was
due to organic growth, while the remainder was due to the effects of
acquisitions and currency translation effects. As a result of the aforementioned
special charges, NFO reported a loss of ($6.2) million or ($0.28) per diluted
share for the year, compared with net income of $14.5 million or $0.67 per
diluted share for the 1998 year. Earnings per diluted share, before special
charges, were $0.52 per share for the full year 1999, as compared to $0.67 in
1998.
YEAR 2000 ISSUES
NFO remains comfortable with the disclosures, as of September 30, 1999,
regarding the Year 2000 issues that are included in this document on page 69.
Based on a survey of NFO's subsidiaries worldwide, only minor Year 2000 issues
were reported after the new year. None of the items reported, individually or in
the aggregate, had or are expected to have a material impact on NFO's results of
operations or financial condition. A discussion of NFO's contingency plans is
included in the third quarter disclosure on page 70 of this document.
While NFO is currently still in the process of accumulating the final cost
numbers for Year 2000 compliance, the estimates, as of September 30, 1999, as
discussed on page 70 of this document, are still considered reasonable.
Therefore, NFO expects that total costs for Year 2000 compliance will be in the
range of $1 million to $1.4 million dollars. Additionally, because NFO has not
encountered any significant issues relating to Year 2000 compliance, NFO
believes that any costs spent after December 31, 1999 on Year 2000 compliance
matters will be nominal.
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YEARS ENDED 1998, 1997 AND 1996
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated income statement
data for NFO.
<TABLE>
<CAPTION>
PERCENTAGE INCREASE
YEAR ENDED DECEMBER 31, ---------------------
--------------------------------------- 1998 OVER 1997 OVER
1998 1997 1996 1997 1996
----------- ----------- ----------- --------- ---------
(THOUSANDS OF U.S. DOLLARS, 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
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.
ACQUISITIONS
On November 20, 1998, NFO acquired all of the outstanding shares of capital
stock of Infratest Burke Aktiengesellschaft Holding. 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. NFO 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, NFO acquired all the outstanding stock of City Research
Group Plc. 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, NFO acquired substantially all the net assets of Donovan
Research Pty. Ltd. 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, a
global brand tracking system acquired by NFO in March 1998.
On August 31, 1998, NFO acquired substantially all the net assets of
Stochastic International Pty. Ltd. 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.
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On April 3, 1998, NFO acquired 100 percent of the outstanding stock of CF
Group, Inc. Founded in 1932, CF Group operates three companies in Canada:
Canadian Facts, the largest custom marketing research organization in Canada,
Applied Research Consultants, and Burke International. CF Group is headquartered
in Toronto and has client service offices in Montreal, Ottawa and Vancouver.
On March 4, 1998, NFO acquired, in separate transactions, substantially all
the net assets of MarketMind Technologies and Ross-Cooper-Lund. MarketMind owns
and licenses the MarketMind 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.
Ross-Cooper is a research-based consulting firm focused on brand-building
strategies and is the exclusive licensee of the MarketMind system in the United
States.
The 1998 acquisitions have been accounted for as purchases. Accordingly,
NFO's financial statements include the results of operations from the effective
date of the respective acquisitions.
On December 12, 1997, NFO 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, NFO acquired The MBL Group plc, headquartered in London,
England, a leading international marketing research firm with 27 offices in 17
countries throughout the UK, the Middle East, and Asia. NFO issued 2,046,363
shares, adjusted for the 3-for-2 stock split effective October 15, 1997, of NFO
common stock. The acquisition was accounted for as a pooling of interests. NFO
also entered into agreements with minority stockholder 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.
On May 28, 1997, NFO acquired Access Research, Inc., a Windsor, CT
research-based financial services consulting firm specializing in the retirement
market. This acquisition was accounted for using the purchase method.
On April 1, 1997, NFO acquired 100 percent of the outstanding stock of
Prognostics, a Palo Alto, CA, leading provider of survey-based quantitative
customer satisfaction research to information technology companies worldwide. In
connection with this acquisition, NFO issued 2,589,720 shares, adjusted for the
3-for-2 stock split effective October 15, 1997, 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, NFO acquired The SPECTREM Group, Inc. Spectrem provides
niche consulting and acquisition and divestiture advisory services in the trust
and investment products sectors.
On January 3, 1996, NFO acquired Migliara/Kaplan Associates, Inc.,
Chesapeake Surveys, Inc., and Plog Research, Inc. Migliara/Kaplan is one of the
nation's leading full-service health care marketing information companies with
offices in Baltimore, MD and Princeton, NJ. Chesapeake 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.
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<PAGE>
1998 COMPARED TO 1997
NFO's revenues increased 45% to $275.4 million from $190.2 million the
previous year. Strong revenue growth occurred in each of NFO's operating
segments:
- North America increased 32% to $189.6 million,
- Europe increased 103% to $50.3 million, and
- Australasia and the Middle East increased 61% to $40.1 million.
Within North America, NFO's technologies group experienced very strong
performance, and its healthcare and travel & leisure sectors registered
double-digit growth. Revenues within NFO's North American financial services
sector decreased by 16% for the year due to the softness within PSI Global,
NFO'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%. Currency translation effects negatively impacted
organic international revenues for the year by $3.2 million, or 6%. NFO's
consolidated organic revenues grew by 13%, excluding the effects of PSI Global
and currency translations.
Cost of revenues increased 52% to $127 million from $83.4 million in the
prior year. $40.1 million of the increase in cost of revenues was the result of
increased revenues in each of NFO's three operating segments and the addition of
the newly acquired companies in 1998. The remainder of the increase in cost of
revenues was the result of NFO's continued investment in its North American high
technology/telecommunications sector.
Selling, general, and administrative expenses increased 42% to $109 million
from $76.7 million a year ago. Of the increases, $25.1 million were the result
of the newly acquired companies and $4.5 million were the result of increased
staffing expenses. NFO's selling, general and administrative expenses were also
influenced by inflationary factors.
Depreciation and amortization expenses increased 45% to $10 million from
$6.9 million in the previous year. The increase was due to acquisition activity
as well as increased capital investment.
As a result of the items discussed above, operating income in 1998 increased
26% to $29.3 million from $23.3 million in the prior year. Operating income
margins were 10.7% in 1998 as compared to 12.2% 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 and reduced losses within NFO's Interactive Division. Excluding the
effects of
- acquisitions and negative currency translation effects in 1998,
- pooling transaction expenses in 1997, and
- the operating results of PSI Global in both years,
NFO's organic operating income increased by 15% in 1998. Also, contributing
to the increase was organic growth, offset by lower operating results in NFO's
financial services sector.
Interest expense increased to $3.8 million from $0.7 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 NFO's combined U.S. Federal and
State tax rate of approximately 40%. The expense also reflects the effects of
non-deductible expenses, primarily goodwill amortization. The increase in the
effective tax rate from 40% to 41% was largely due to an increase in the
non-U.S. effective tax rate.
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Minority interests decreased by 62% to $0.4 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% to
$14.5 million from $12.5 million a year ago. The 12% increase in diluted
earnings per share to $0.67 from $0.60 is the direct result of the increase in
net income.
1997 COMPARED TO 1996
NFO's revenues increased 23% to $190.2 million from $154.9 million the
previous year. Strong revenue growth occurred in each of NFO's operating
segments:
- North America increased 21% to $143.8 million,
- Europe increased 22% to $24.8 million, and
- Australasia and the Middle East increased 41% to $24.9 million.
Cost of revenues increased 25% 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 NFO'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 NFO's continued investment in its Interactive initiatives.
Selling, general, and administrative expenses increased 25% 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% over 1996. Other principal factors for
the increase include the first time consolidation of NFO'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
- NFO's Interactive activities ($1.2 million).
NFO's selling, general and administrative expenses were also influenced by
inflationary factors.
Amortization expense increased 40% to $4.1 million from $2.9 million in the
previous year. The primary cause of the increase was a $0.6 million special
write-down of the carrying value of intangible assets associated with AMS, NFO'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% to $23.3 million from $21.4 million in the prior year. Excluding the
$1.3 million of pooling transaction expenses described above, the $1.0 million
of increased investments in NFO's Interactive operations and the $0.3 million
negative effect of foreign currency translation, operating income increased 21%.
Total operating margins for 1997, excluding these items, were 13.6% compared to
13.8% in 1996.
Interest expense increased to $0.7 million from less than $0.1 million in
the prior year. The increase was primarily the result of increased borrowing to
fund acquisitions approximating $20 million and capital expenditures
approximating $9 million.
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Income tax expense decreased $0.1 million to $8.9 million from $9.0 million
a year ago. The expense reflects NFO's combined U.S. Federal and State tax rate
of approximately 39%, 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 NFO
has operations.
The decrease in the effective tax rate from 42.7% to 39.7% was largely due
to a reduction in the non-U.S. effective tax rate.
Minority interests decreased by 29% 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% to
$12.5 million from $10.6 million a year ago. The 18% increase in diluted
earnings per share to $0.60 from $0.51 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% and diluted earnings per share rose 29%.
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 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. These
amounts were 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 predominantly
attributable to the 1998 acquisitions.
On November 20, 1998, NFO 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% Subordinated Notes due November 15, 2008.
The Series A Notes and the Series B Notes initially bore interest at fixed
annual rates of 7.48% and 7.82%, respectively, and contained provisions calling
for these annual rates to be reduced to 7.18% and 7.52%, respectively, provided
NFO satisfied certain conditions prior to September 30, 1999. In March 1999, NFO
satisfied these conditions with the issuance of an aggregate $15 million of
Senior and Subordinated Notes. The Notes are guaranteed by certain subsidiaries
of NFO and were used to finance a portion of the acquisition of Infratest Burke
and to pay related fees and expenses.
On March 9, 1998, NFO 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 NFO's
then-existing debt of approximately $32 million, finance acquisitions, capital
expenditures and working capital. The revolving credit facility replaced NFO'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% 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 NFO's option.
76
<PAGE>
In conjunction with the Infratest Burke acquisition and the related
financing, NFO 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 NFO's obligations will be guaranteed by
certain subsidiaries of NFO. In addition, the amendments increased the rates at
which interest annually accrues under the obligations.
NFO anticipates that existing cash, together with internally generated funds
and its credit availabilities, will provide NFO with the resources needed to
satisfy potential acquisitions, capital expenditures, and NFO's growing working
capital requirements. The timing and magnitude of future acquisitions will be
the single most important factor in determining NFO's long-term capital needs.
INFLATION
Inflation has historically had only a minor effect on NFO's results of
operations and its internal and external sources of liquidity and working
capital. This is because NFO has generally been able to increase prices to
reflect cost increases resulting from inflation.
SEASONALITY
NFO's business activity has traditionally reflected a modest seasonality
factor with slightly higher revenues in NFO'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, NFO 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%
and 34.4% of NFO's annual revenues. Each of the remaining three quarters ranged
between 18.2% and 25.9% 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
NFO's financial condition or results of operations.
MARKET RISK MANAGEMENT
NFO is exposed to market risk, including changes in interest rates and
foreign currency exchange rates. NFO currently does not have any derivative
financial instruments. However, NFO may consider utilizing derivatives in the
future in an attempt to mitigate foreign currency exchange rate risk. NFO
conducts business in 31 countries throughout the world and has a significant
presence in North America, Europe, Australasia and the Middle East. Accordingly,
NFO is subject to foreign currency exchange rate risk in those countries.
77
<PAGE>
The table below provides information on NFO's debt instruments as of
December 31, 1998 (THOUSANDS OF U.S. DOLLARS):
<TABLE>
<CAPTION>
LONG-TERM DEBT-- LONG-TERM DEBT--
FIXED RATE VARIABLE RATE
------------------------- -------------------------
PRINCIPAL AVERAGE PRINCIPAL AVERAGE
AMOUNT INTEREST RATE AMOUNT INTEREST RATE
--------- ------------- --------- -------------
<S> <C> <C> <C> <C>
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%
-------- ----- ------- ----
</TABLE>
YEAR 2000 ISSUES
NFO is currently working to resolve the Year 2000 issue. In early 1997, NFO
completed an impact analysis across all proprietary custom software programs and
systems. As a result of this analysis, affected programs are being modified by
NFO'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. NFO 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. NFO 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. NFO 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. NFO's contingency plan includes manually addressing
non-critical applications and systems compliance problems. Additionally, NFO has
the ability to readily outsource many of its data collection and processing
processes should the need arise. NFO is also coordinating with clients, vendors,
affiliates and other outside parties who may affect, or be affected by, NFO's
plans to address the Year 2000 issue. During 1998, NFO 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, NFO 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 NFO's day-to-day operations.
NFO 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 NFO's subsidiaries have met this target, certain newly
acquired entities are still being analyzed for compliance. NFO estimates that
total Year 2000 compliance costs incurred from 1997 through December 31, 1998,
are approximately $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. NFO conducts business in member
countries. The transition period for the Euro is from January 1, 1999, to
78
<PAGE>
June 30, 2002. NFO 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, NFO believes that use of the Euro will not have
a significant impact on the manner in which NFO conducts its business and
processes its accounting records. Accordingly, conversion to the Euro is not
expected to have a material effect on NFO's financial condition or results of
operations.
79
<PAGE>
OWNERSHIP OF NFO COMMON STOCK BY
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth the beneficial ownership, both direct and
indirect, reported to NFO as of February 15, 2000, of common stock of NFO,
including shares as to which a right to acquire ownership exists (for example,
through the exercise of stock options). The information is presented for
beneficial owners of more than 5% of NFO common stock, for each director and the
chief executive officer and four other most highly compensated executive
officers of NFO and for the group comprised of all directors and executive
officers of NFO. NFO knows of no persons other than those identified below who
owned beneficially more than 5% of the outstanding shares of NFO common stock as
of February 15, 2000.
<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER
PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL
VOTING POWER OF VOTING POWER OF
NUMBER OF SHARES OF COMMON STOCK OF COMMON STOCK OF
COMMON STOCK NFO ON INTERPUBLIC ON
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED A FULLY DILUTED BASIS A FULLY DILUTED BASIS
- --------------------------------------- ------------------- --------------------- ---------------------
<S> <C> <C> <C>
William Blair & Company, L.L.C.(2)...... 2,949,195 12.5% *
222 W. Adams Street
Chicago, IL 60606
T. Rowe Price Associates, Inc.(3)....... 2,535,200 10.78% *
100 E. Pratt Street
Baltimore, MD 21202
The Chase Manhattan Corporation(4)...... 1,745,525 7.42% *
270 Park Avenue
New York, NY 10017
Lord, Abbett & Co.(5)................... 1,658,495 7.03% *
90 Hudson Street
Jersey City, NJ 07302
Walter A. Forbes(6)..................... 158,262 * *
FGII, 20 Dayton Avenue
Greenwich, CT 06830
Steven J. Gilbert(7).................... 135,666 * *
590 Madison Avenue, 40th Floor
New York, NY 10022
Edmund A. Hajim(8)...................... 199,250 * *
230 Park Avenue
New York, NY 10167
Charles B. Hamlin(9).................... 197,500 * *
2 Pickwick Plaza
Greenwich, CT 06830
Patrick G. Healy(10).................... 352,758 1.5% *
2 Pickwick Plaza
Greenwich, CT 06830
Hartmut Kiock(11)....................... 19,667 * *
2 Pickwick Plaza
Greenwich, CT 06830
</TABLE>
80
<PAGE>
<TABLE>
<CAPTION>
PRE-MERGER POST-MERGER
PERCENTAGE OF TOTAL PERCENTAGE OF TOTAL
VOTING POWER OF VOTING POWER OF
NUMBER OF SHARES OF COMMON STOCK OF COMMON STOCK OF
COMMON STOCK NFO ON INTERPUBLIC ON
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED A FULLY DILUTED BASIS A FULLY DILUTED BASIS
- --------------------------------------- ------------------- --------------------- ---------------------
<S> <C> <C> <C>
William E. Lipner(12)................... 1,328,747 5.7% *
2 Pickwick Plaza
Greenwich, CT 06830
Joseph M. Migliara(13).................. 667,507 2.8% *
4 Park Center Court
Owings Mills, MD 21117
John Sculley(14)........................ 172,500 * *
90 Park Avenue, 32nd Floor
New York, New York 10017
All executive officers and directors as
a group (9 persons)(15)............... 3,231,857 13.8% *
</TABLE>
- ------------------------
* Represents less than 1% of the outstanding shares of the common stock.
(1) Except as indicated in the notes to this table, the persons named in this
table have sole voting and investment power with respect to all shares of
NFO common stock shown as beneficially owned by them.
(2) According to a statement on Schedule 13G dated March 17, 1999 filed with the
Commission by William Blair & Co., William Blair & Co. is an investment
advisor that owns 2,949,195 shares of common stock of NFO on behalf of its
clients.
(3) These securities are owned by various individual and institutional
investors, including T. Rowe Price New Horizons Fund, Inc. (which owns
2,000,000 shares, representing 8.5% of the shares outstanding), for which
T. Rowe Price Associates, Inc. (Price Associates) serves as investment
adviser with power to direct investments and/or sole power to vote the
securities. Accordingly, for purposes of the reporting requirements of the
Securities Exchange Act of 1934, Price Associates may be deemed to be a
beneficial owner of these securities; however, Price Associates expressly
disclaims that it is, in fact, the beneficial owner of these securities.
(4) According to a statement on Schedule 13G dated February 10, 2000 filed with
the Commission by The Chase Manhattan Corporation, which holds the shares on
behalf of certain subsidiaries engaged in investment management activities.
(5) According to a statement on Schedule 13G dated January 27, 2000 filed with
the Commission by Lord, Abbett & Co., Lord, Abbett & Co. is an investment
advisor that owns the shares on behalf of its clients.
(6) Includes 6,750 shares held by his spouse in custodial accounts for his
children, for which Mr. Forbes may be deemed to share voting and investment
power and thus may be deemed to own beneficially. Also includes 93,750
shares issuable upon the exercise of options granted to Mr. Forbes pursuant
to the NFO Directors' Stock Option Plan.
(7) Includes 93,750 shares issuable upon exercise of options granted to
Mr. Gilbert pursuant to the NFO Directors' Stock Option Plan.
(8) Includes 93,750 shares issuable upon exercise of options granted to
Mr. Hajim pursuant to the NFO Directors' Stock Option Plan. Also includes
8,500 shares owned by his wife, Barbara Hajim,
81
<PAGE>
and 10,000 shares owned by The Hajim Family Foundation, of which Mr. Hajim
is trustee, as to which he may be deemed to have beneficial ownership.
(9) Includes 197,500 shares issuable upon exercise of options granted to
Mr. Hamlin pursuant to the NFO Employees' Stock Option Plan which have
already vested.
(10) Includes 352,083 shares issuable upon exercise of options granted to
Mr. Healy pursuant to the NFO Employees' Stock Option Plan which have
already vested.
(11) Includes 19,667 shares issuable upon exercise of options granted to
Mr. Kiock pursuant to the NFO Employees' Stock Option Plan which have
already vested.
(12) Includes 826,625 shares issuable upon exercise of options granted to
Mr. Lipner pursuant to the NFO Employees' Stock Option Plan which have
already vested. Also includes 236,548 shares indirectly owned by him,
151,500 of which are owned directly by his wife, Deborah Lipner, and 85,048
of which are held in custodial accounts and trusts for their sons Justin
Drew Lipner and Wesley Edwin Lipner. An additional trust hold 5,063 shares
of NFO common stock for the benefit of Deborah Lipner; however, since the
trustee of the trust has sole voting and investment power with respect to
the shares, Mr. Lipner does not beneficially own these shares.
(13) Includes 96,177 shares issuable upon the exercise of options granted to
Mr. Migliara pursuant to the NFO Employees' Stock Option Plan which have
already vested.
(14) Includes 93,750 shares issuable upon the exercise of options granted to
Mr. Sculley pursuant to the NFO Directors' Stock Option Plan.
(15) Includes 375,000 shares issuable upon exercise of options granted pursuant
to the NFO Directors' Stock Option Plan, and 1,492,052 shares issuable upon
exercise of options granted pursuant to the NFO Employees' Stock Option Plan
which have already vested.
82
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
The following unaudited pro forma combined condensed financial statements
assume a business combination between Interpublic and NFO accounted for as a
pooling of interests and are based on each company's historical audited and
unaudited consolidated financial statements and the notes to those statements.
The historical data for 1998 has been adjusted in the pro forma financial
statements to include the results of Infratest Burke as if NFO had acquired
Infratest Burke on January 1, 1998.
The following unaudited pro forma combined condensed balance sheet as of
September 30, 1999 is based on the historical financial statements of
Interpublic and NFO as at September 30, 1999 after giving effect to the merger
as if it had occurred on September 30, 1999.
The following unaudited pro forma combined condensed statements of income
for each of the years ended December 31, 1996, 1997, and 1998 and for the nine
months ended September 30, 1999 are based on the historical financial statements
of Interpublic and NFO for those periods after giving effect to the merger as if
it had occurred on January 1, 1996. The results of Infratest Burke for its
fiscal year ended September 30, 1998 are included in the unaudited pro forma
combined condensed statement of income for the year ended December 31, 1998. In
addition, an adjustment has been included to remove from the pro forma combined
condensed statement of income for the year ended December 31, 1998 the results
of Infratest Burke for the period from November 20, 1998 to December 31, 1998,
which are included in NFO's historical statement of income for the year ended
December 31, 1998.
You should read the information presented below in conjunction with the
financial statements and the notes to the financial statements for Interpublic
included in Interpublic's Annual Report on Form 10-K for the year ended
December 31, 1998 and Quarterly Report on Form 10-Q for the period ended
September 30, 1999, which we have incorporated into this document by reference,
and the financial statements and the notes to the financial statements for NFO
and Infratest Burke that we have included in this document in Annexes D and E.
See "Where You Can Find More Information" on page 94 to learn how to obtain
these reports of Interpublic. In addition, you should read the information
presented below in conjunction with the accompanying notes below.
The pro forma information below, while helpful in illustrating the financial
characteristics of the combination of Interpublic and NFO under one set of
assumptions, does not attempt to predict or suggest future results. Moreover,
the pro forma information below does not attempt to show what the financial
condition or the results of operations of the combined company would have been
if the merger had occurred at the dates indicated below or at the commencement
of the periods indicated below.
83
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
(THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INTERPUBLIC PRO FORMA
HISTORICAL NFO HISTORICAL ADJUSTMENTS(1) PRO FORMA COMBINED
----------- -------------- -------------- ------------------
<S> <C> <C> <C> <C>
Revenue............................. $2,874,417 $154,943 $ -- $3,029,360
Other income, net................... 109,482 -- -- 109,482
---------- -------- ---- ----------
Gross Income.................... 2,983,899 154,943 -- 3,138,842
---------- -------- ---- ----------
Costs and expenses:
Salaries and related expenses..... 1,619,619 66,693 -- 1,686,312
Office and general expenses....... 990,412 66,911 -- 1,057,323
---------- -------- ---- ----------
Total costs and expenses........ 2,610,031 133,604 -- 2,743,635
---------- -------- ---- ----------
Equity interest in net loss of
affiliated companies and other
expenses.......................... -- 318 (318) --
---------- -------- ---- ----------
Income before provision for income
taxes............................. 373,868 21,021 318 395,207
Provision for income taxes.......... 156,783 8,983 -- 165,766
---------- -------- ---- ----------
Income of consolidated companies.... 217,085 12,038 318 229,441
Income applicable to minority
interests......................... (14,914) (1,422) -- (16,336)
Equity in net income of
unconsolidated affiliates......... 12,448 -- (318) 12,130
---------- -------- ---- ----------
Net income.......................... $ 214,619 $ 10,616 $ -- $ 225,235
========== ======== ==== ==========
Weighted average shares
outstanding--basic................ 260,595 19,911 -- 271,096 (2)
Weighted average shares
outstanding--diluted.............. 277,178 20,746 -- 288,122
Earnings per share--basic........... 0.82 0.53 -- 0.83
Earnings per share--diluted......... 0.80 0.51 -- 0.78
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
84
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INTERPUBLIC NFO PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS(1) COMBINED
----------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Revenue....................................... $3,352,776 $190,229 $ -- $3,543,005
Other income, net............................. 129,608 -- -- 129,608
---------- -------- ----- ----------
Gross Income.............................. 3,482,384 190,229 -- 3,672,613
---------- -------- ----- ----------
Costs and expenses:
Salaries and related expenses............... 1,913,356 83,357 -- 1,996,713
Office and general expenses................. 1,132,969 84,266 -- 1,217,235
Special compensation charges................ 32,229 -- 32,229
---------- -------- ----- ----------
Total costs and expenses.................. 3,078,554 167,623 -- 3,246,177
---------- -------- ----- ----------
Equity interest in net loss of affiliated
companies and other expenses................ -- 200 (200) --
---------- -------- ----- ----------
Income before provision for income taxes...... 403,830 22,406 200 426,436
Provision for income taxes.................... 186,246 8,895 -- 195,141
---------- -------- ----- ----------
Income of consolidated companies.............. 217,584 13,511 200 231,295
Income applicable to minority interests....... (23,754) (1,006) (24,760)
Equity in net income of unconsolidated
affiliates.................................. 6,548 -- (200) 6,348
---------- -------- ----- ----------
Net income.................................... $ 200,378 $ 12,505 $ -- $ 212,883
========== ======== ===== ==========
Weighted average shares outstanding--basic.... 260,500 20,265 -- 271,188 (2)
Weighted average shares
outstanding--dilutive....................... 277,619 20,832 -- 288,606
Earnings per share--basic..................... 0.77 0.62 -- 0.79
Earnings per share--dilutive.................. 0.75 0.60 -- 0.74
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
85
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
(THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INFRATEST
BURKE RESULTS
NOVEMBER 20,
1998 TO
PRO FORMA INFRATEST DECEMBER 31,
COMBINED (NOT BURKE FISCAL 1998
INCLUDING YEAR ENDED INCLUDED PRO FORMA
INTERPUBLIC NFO PRO FORMA INFRATEST SEPTEMBER IN NFO ADJUST-
HISTORICAL HISTORICAL ADJUSTMENTS(1) BURKE) 30, 1998(3) RESULTS(3) MENTS(1)(3)
----------- ---------- -------------- -------------- ------------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue............... $3,844,340 $275,351 $ -- $4,119,691 $ 169,615 $(24,939) $ --
Other income, net..... 124,388 -- -- 124,388 -- -- --
---------- -------- ---------- ---------- ---------- -------- --------
Gross Income...... 3,968,728 275,351 -- 4,244,079 169,615 (24,939) --
---------- -------- ---------- ---------- ---------- -------- --------
Costs and expenses:
Salaries and related
expenses.......... 2,167,931 127,006 -- 2,294,937 103,360 (14,213) --
Office and general
expenses.......... 1,237,926 122,767 -- 1,360,693 59,765 (8,600) 13,296
---------- -------- ---------- ---------- ---------- -------- --------
Total costs and
expenses........ 3,405,857 249,773 -- 3,655,630 163,125 (22,813) 13,296
---------- -------- ---------- ---------- ---------- -------- --------
Equity interest in net
loss of affiliated
companies and other
expenses............ -- 221 (221) -- (1,670) 154 1,516
---------- -------- ---------- ---------- ---------- -------- --------
Income before
provision for income
taxes............... 562,871 25,357 221 588,449 8,160 (2,280) (14,812)
Provision for income
taxes............... 232,005 10,489 242,494 3,781 (1,079) (4,936)
---------- -------- ---------- ---------- ---------- -------- --------
Income of consolidated
companies........... 330,866 14,868 221 345,955 4,379 (1,201) (9,876)
Income applicable to
minority
interests........... (28,125) (378) -- (28,503) (353) -- --
Equity in net income
of unconsolidated
affiliates.......... 7,164 -- (221) 6,943 -- 119 1,516
---------- -------- ---------- ---------- ---------- -------- --------
Net income............ $ 309,905 $ 14,490 $ -- $ 324,395 $ 4,026 $ (1,082) $ (8,360)
========== ======== ========== ========== ========== ======== ========
Weighted average
shares outstanding--
basic............... 270,971 21,154 -- 282,128(2) -- -- --
Weighted average
shares outstanding--
diluted............. 281,051 21,704 -- 292,498 -- -- --
Earnings per share--
basic............... 1.15 0.68 -- 1.15 -- -- --
Earnings per share--
diluted............. 1.11 0.67 -- 1.11 -- -- --
<CAPTION>
PRO FORMA
COMBINED
(INCLUDING
INFRATEST
BURKE)
----------
<S> <C>
Revenue............... $4,264,367
Other income, net..... 124,388
----------
Gross Income...... 4,388,755
----------
Costs and expenses:
Salaries and related
expenses.......... 2,384,084
Office and general
expenses.......... 1,425,154
----------
Total costs and
expenses........ 3,809,238
----------
Equity interest in net
loss of affiliated
companies and other
expenses............ --
----------
Income before
provision for income
taxes............... 579,517
Provision for income
taxes............... 240,260
----------
Income of consolidated
companies........... 339,257
Income applicable to
minority
interests........... (28,856)
Equity in net income
of unconsolidated
affiliates.......... 8,578
----------
Net income............ $ 318,979
==========
Weighted average
shares outstanding--
basic............... 282,128
Weighted average
shares outstanding--
diluted............. 292,498
Earnings per share--
basic............... 1.13
Earnings per share--
diluted............. 1.09
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
86
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF INCOME
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 1999
(THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
INTERPUBLIC NFO PRO FORMA PRO FORMA
HISTORICAL HISTORICAL ADJUSTMENTS(1) COMBINED
----------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Revenue....................................... $3,026,058 $337,019 $ -- $3,363,077
Other income, net............................. 77,458 -- -- 77,458
---------- -------- ------- ----------
Gross Income.............................. 3,103,516 337,019 -- 3,440,535
---------- -------- ------- ----------
Costs and expenses:
Salaries and related expenses............... 1,713,849 173,814 -- 1,887,663
Office and general expenses................. 952,194 143,517 -- 1,095,711
---------- -------- ------- ----------
Total costs and expenses.................. 2,666,043 317,331 -- 2,983,374
---------- -------- ------- ----------
Equity interest in net (income) loss of
affiliated companies and other expenses..... -- (1,892) 1,892 --
---------- -------- ------- ----------
Income before provision for income taxes...... 437,473 21,580 (1,892) 457,161
Provision for income taxes.................... 180,192 9,434 -- 189,626
---------- -------- ------- ----------
Income of consolidated companies.............. 257,281 12,146 (1,892) 267,535
Income applicable to minority interests....... (18,485) (559) -- (19,044)
Equity in net income of unconsolidated
affiliates.................................. 4,442 -- 1,892 6,334
---------- -------- ------- ----------
Net income.................................... $ 243,238 $ 11,587 $ -- $ 254,825
========== ======== ======= ==========
Weighted average shares outstanding--basic.... 273,566 21,899 -- 285,116 (2)
Weighted average shares
outstanding--diluted........................ 284,086 22,374 -- 295,888
Earnings per share--basic..................... 0.89 0.53 -- 0.89
Earnings per share--diluted................... 0.86 0.52 -- 0.86
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
87
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
AT SEPTEMBER 30, 1999
(THOUSANDS OF U.S. DOLLARS)
<TABLE>
<CAPTION>
INTERPUBLIC NFO PRO FORMA PRO FORMA
HISTORICAL HISTORICAL(3) ADJUSTMENTS(1) COMBINED
----------- ------------- -------------- ----------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash and cash equivalents................. $ 763,245 $ 13,642 $ -- $ 776,887
Marketable Securities..................... 46,408 -- -- 46,408
Receivables............................... 3,903,323 90,212 -- 3,993,535
Expenditures billable to clients.......... 376,645 33,736 -- 410,381
Prepaid expenses and other current
assets.................................. 148,171 16,160 -- 164,331
---------- -------- ---------- ----------
Total current Assets.................... 5,237,792 153,750 -- 5,391,542
---------- -------- ---------- ----------
Property and Equipment, net................. 450,429 48,318 -- 498,747
Intangible assets........................... 1,455,380 225,988 -- 1,681,368
Other Assets................................ 514,074 22,504 -- 536,578
---------- -------- ---------- ----------
Total Assets............................ $7,657,675 $450,560 $ -- $8,108,235
========== ======== ========== ==========
Current Liabilities
Payable to banks.......................... $ 256,050 $ 1,068 $ -- $ 257,118
Accounts payable.......................... 3,897,163 16,896 -- 3,914,059
Accrued expenses and deferred income...... 505,769 78,784 10,000 594,553
Accrued income taxes...................... 242,867 4,971 -- 247,838
---------- -------- ---------- ----------
Total current liabilities............... $4,901,849 $101,719 $ 10,000 $5,013,568
---------- -------- ---------- ----------
Long term debt.............................. $ 339,543 $193,384 $ -- $ 532,927
Convertible subordinated debentures and
notes..................................... 514,940 -- -- 514,940
Deferred compensation and reserve for
termination liabilities................... 327,202 -- -- 327,202
Accrued post-retirement benefits............ 49,046 14,085 -- 63,131
Other noncurrent liabilities................ 84,829 -- -- 84,829
Minority interests in consolidated
subsidiaries.............................. 63,748 3,205 -- 66,953
---------- -------- ---------- ----------
Total noncurrent liabilities............ $1,379,308 $210,674 $ -- $1,589,982
---------- -------- ---------- ----------
Stockholders' equity
Common stock.............................. $ 29,628 $ 223 $ 1,177 $ 31,028
Additional paid in capital................ 794,725 71,449 (1,177) 864,997
Retained earnings......................... 1,276,061 72,122 (10,000) 1,338,183
Accumulated other comprehensive income.... (202,882) (5,627) -- (208,509)
Less:
Treasury stock at cost.................... 436,672 -- -- 436,672
Unamortized expense of restricted stock
grants.................................. 84,342 -- -- 84,342
---------- -------- ---------- ----------
Total stockholders' equity.............. 1,376,518 138,167 (10,000) 1,504,685
---------- -------- ---------- ----------
Total Liabilities and stockholders'
equity.................................... $7,657,675 $450,560 $ -- $8,108,235
========== ======== ========== ==========
</TABLE>
See accompanying notes to unaudited pro forma combined condensed financial
information.
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NOTES TO UNAUDITED PRO FORMA
COMBINED CONDENSED FINANCIAL INFORMATION
NOTE 1: PRO FORMA ADJUSTMENTS
- The stockholders' equity accounts of Interpublic and NFO have been
adjusted to reflect the issuance of approximately 14 million shares of
Interpublic common stock in the merger pursuant to an exchange ratio of
0.5274 shares of Interpublic common stock for each share of NFO common
stock. This presentation is based on the assumption that either the
applicable average trading price will be between $46.40 and $49.30 or it
will be below the $46.40 price, at which NFO can deliver a notice to call
off the merger, and NFO will not have delivered that notice. On March 2,
2000 the closing price per share of Interpublic common stock on the New
York Stock Exchange was $41.38. If that closing price were the applicable
average trading price and NFO elected not to deliver a notice to call off
the merger, then you would receive a fraction of a share of Interpublic
common stock with a value, based on the average trading price, of $21.82
for each of your shares of NFO common stock.
- The estimated direct costs of the merger will be approximately
$10 million. The pro forma balance sheet gives effect to these direct
costs as if they had been incurred as of September 30, 1999, but the pro
forma combined condensed statements of income do not give effect to these
expenses.
- For purposes of consistent classification, the caption "Equity interest in
net (income) loss of affiliated companies and other expenses" included in
NFO's statement of income has been reclassified on a basis consistent with
the classification used by Interpublic.
NOTE 2: PRO FORMA EARNINGS PER SHARE
- The pro forma earnings per share has been calculated based on the weighted
average number of shares of NFO common stock adjusted to reflect an
exchange ratio of 0.5274 shares of Interpublic common stock for each share
of NFO common stock. This presentation is based on the assumption that
either the applicable average trading price will be between $46.40 and
$49.30 or it will be below the $46.40 price, at which NFO can deliver a
notice to call off the merger, and NFO will not have delivered that
notice. On March 2, 2000 the closing price per share of Interpublic common
stock on the New York Stock Exchange was $41.38. If that closing price
were the applicable average trading price and NFO elected not to deliver a
notice to call off the merger, then you would receive a fraction of a
share of Interpublic common stock with a value, based on the average
trading price, of $21.82 for each of your shares of NFO common stock.
NOTE 3: INFRATEST BURKE AH
- Effective November 20, 1998, NFO acquired Infratest Burke in a transaction
accounted for as a purchase. The unaudited pro forma combined condensed
statement of income for the year ended December 31, 1998 reflects the
results of operations of Infratest Burke for a full fiscal year. No
adjustment has been made to the pro forma combined condensed balance sheet
as of September 30, 1999 because Infratest Burke is included in this
balance sheet.
- The unaudited combined condensed statement of income for the year ended
December 31, 1998 includes the statement of income of Infratest Burke in
full for Infratest Burke's fiscal year ended September 30, 1998. A pro
forma adjustment has been made to remove the Infratest Burke results
already reflected in the historical income statement of NFO for the period
from the date of the acquisition, November 20, 1998, to December 31, 1998.
89
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- The following pro forma adjustments were made to the unaudited combined
condensed statement of income for the year ended December 31, 1998:
- Record amortization expense on goodwill (assuming a 28-year useful
life).
- Record interest expense on debt incurred related to the acquisition by
NFO of Infratest Burke.
- Tax effect of pro forma adjustments.
DESCRIPTION OF INTERPUBLIC SHARE CAPITAL
GENERAL
Interpublic is incorporated in the State of Delaware. The rights of
Interpublic stockholders are generally governed by Delaware law and the
Interpublic certificate of incorporation and by-laws. This summary is not a
complete discussion of, and is qualified by reference to, Delaware law,
including the Delaware General Corporation Law and the common and constitutional
law of Delaware, and the full texts of the Interpublic certificate of
incorporation and by-laws.
The authorized capital of Interpublic includes 550 million shares of
Interpublic common stock with a par value of $0.10 per share and up to
20 million shares of Interpublic preferred stock without par value.
COMMON STOCK
GENERAL. As of October 30, 1999, 280,651,942 shares of Interpublic common
stock were outstanding. All outstanding shares of Interpublic common stock are
fully paid and non-assessable. Interpublic common stock is traded on the New
York Stock Exchange.
CERTIFICATES. Interpublic common stock is issued in registered form. Every
holder of Interpublic common stock is entitled to a share certificate.
DIVIDENDS. Subject to preferences applicable to any outstanding Interpublic
preferred stock, holders of Interpublic common stock are entitled to receive
ratably such dividends as may be declared by the board of directors of
Interpublic out of funds legally available for this purpose.
MEETINGS. Annual meetings of Interpublic stockholders are held each year on
the third Tuesday of May at 11:00 a.m. or on the next succeeding business day.
Written notice must be mailed to each stockholder entitled to vote not less than
ten nor more than 60 days before the date of the meeting. The presence in person
or by proxy of the holders of record of a majority of the issued and outstanding
shares of Interpublic entitled to vote at such meeting constitutes a quorum for
the transaction of business at meetings of the stockholders. Special meetings of
the stockholders may be called for any purpose by the board of directors and
shall be called by the chairman of the board or the secretary upon a written
request, stating the purpose of such meeting, submitted by a majority of the
board of directors or by the holders of a majority of the outstanding shares of
all classes of capital stock entitled to vote at the meeting.
VOTING RIGHTS. The holders of Interpublic common stock are entitled to one
vote for each share held of record. Holders of Interpublic common stock may vote
by proxy.
LIQUIDATION, DISSOLUTION OR WINDING-UP. In the event of a liquidation,
dissolution or winding-up of Interpublic, after payment shall have been made to
holders of any outstanding preferred stock of the full amounts to which they
shall be entitled, the holders of Interpublic common stock are entitled, to the
exclusion of the holders of preferred stock, to share ratably according to the
number of shares held by them in all remaining assets available for distribution
to the holders of Interpublic common stock.
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TRANSFERS. Interpublic's by-laws do not allow the board of directors to
refuse to register transfers of shares.
OTHER RIGHTS. Holders of Interpublic common stock have no preemption,
redemption, conversion or other subscription rights.
PREFERRED STOCK
The board of directors of Interpublic has the authority, without further
action by the Interpublic stockholders, to issue up to 20 million shares of
preferred stock, without par value, in one or more series and to fix the rights,
preferences, privileges and restrictions of such preferred stock, including
dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences, and the number of shares constituting any series or the
designation of such series. Issuance of Interpublic preferred stock while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes could make it more difficult for a third party to
acquire a majority of the outstanding voting stock of Interpublic. There are
currently no shares of preferred stock issued or outstanding.
COMPARATIVE RIGHTS OF HOLDERS OF NFO COMMON STOCK
AND INTERPUBLIC COMMON STOCK
NFO and Interpublic are both Delaware corporations. The rights of each
company's stockholders are generally governed by Delaware law and the company's
certificate of incorporation and by-laws. Upon completion of the merger,
stockholders of NFO will become stockholders of Interpublic. No changes to the
Interpublic certificate of incorporation or by-laws will be adopted in
connection with the merger.
The following is a summary comparison of some of the differences between the
rights of holders of Interpublic common stock and the rights of holders of NFO
common stock. This summary is not a complete discussion of, and is qualified by
reference to, Delaware law, including the Delaware General Corporation Law, the
common and constitutional law of Delaware, and the full texts of the
certificates of incorporation and by-laws of Interpublic and NFO.
ANNUAL MEETINGS OF STOCKHOLDERS
NFO. Annual meetings of NFO stockholders are held on a date in each year as
fixed by the board of directors. If no date is fixed, the annual meeting is to
be held on the second Tuesday of November at 11:00 a.m. or on the next
succeeding business day.
INTERPUBLIC. Annual meetings of Interpublic stockholders are held each year
on the third Tuesday of May at 11:00 a.m. or on the next succeeding business
day.
SPECIAL MEETINGS OF STOCKHOLDERS
NFO. Special meetings of NFO stockholders may be called by the president or
the chairman of the board, or by the secretary at the request of at least two
directors or stockholders holding 10% or more of the outstanding voting stock.
INTERPUBLIC. Special meetings of Interpublic stockholders may be called by
the board of directors. In addition, the holders of a majority of the
outstanding voting stock may require the chairman of the board or the secretary
to call a special meeting.
ACTION BY CONSENT IN WRITING OF STOCKHOLDERS
NFO. An action required or permitted to be taken by stockholders may not be
effected by a consent in writing of such holders.
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INTERPUBLIC. Interpublic does not limit action by consent in writing of its
stockholders and, as a result, holders of a majority of the outstanding shares
may act by consent in writing without a meeting of stockholders.
ADVANCE NOTIFICATION OF PROPOSALS AT STOCKHOLDERS' MEETINGS
NFO. A stockholder may only submit a proposal for consideration, or nominate
persons for election as directors, at an annual or special stockholders' meeting
upon submission and receipt by the secretary of written notice of such
stockholder's intent to make such proposal or nomination not later than 60 days
prior to the anniversary date of the immediately preceding annual meeting in the
case of annual meetings, or not later than the close of business on the tenth
day following the date on which notice of a special meeting is first sent or
given to stockholders in the case of special meetings. Such advance notification
must further set forth specific information regarding the proposal or
nomination, as described in the by-laws, including information required by
Regulation 14A under the Securities Exchange Act.
INTERPUBLIC. The Interpublic by-laws and articles of incorporation do not
contain limitations on the submission of proposals or nominations by
stockholders in connection with scheduled meetings.
NUMBER OF DIRECTORS
NFO. The NFO Board sets the number of directors, which may not be less than
three or more than 12. NFO currently has a five-member board.
INTERPUBLIC. The Interpublic stockholders or the Interpublic Board sets the
number of directors, which may not be less than three. Interpublic currently has
an 11-member board.
REMOVAL OF DIRECTORS
NFO. Any director may be removed, with or without cause, by the vote at a
stockholders' meeting of the holders of a majority of the shares then entitled
to vote on the election of directors.
INTERPUBLIC. The same provisions for removal apply to the Interpublic Board
except that any director may also be removed for proper cause by the affirmative
vote of at least two-thirds of the entire board of directors.
RIGHTS PLAN
NFO. On October 5, 1998, the NFO Board adopted a Stockholder Rights Plan by
declaring a dividend distribution of one Preferred Share Purchase Right for each
share of NFO common stock. The purpose of this Plan is to give the NFO board
sufficient time to respond, consistent with its fiduciary duties, to a takeover
attempt. Under the Plan, if a person or group acquires 15% or more of the
outstanding NFO common stock, each Right will entitle its holder, excluding the
person or group that acquired 15% or more of the outstanding NFO common stock,
to purchase, at the Right's then-current exercise price, a number of shares of
NFO common stock that have a market value of twice the Right's exercise price.
If NFO is acquired in a merger or other business combination transaction after a
person or group has acquired 15% or more of the outstanding NFO 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. The Rights are redeemable under
specified circumstances. On December 20, 1999, the NFO Board amended the Plan to
exempt the merger agreement, the stock option agreement and the transactions
under these agreements from triggering any Rights under the Plan.
INTERPUBLIC. Interpublic does not currently have any agreement or plan in
effect that is similar to the Plan.
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LEGAL OPINIONS
The validity of the shares of Interpublic common stock offered by this proxy
statement/prospectus will be passed upon for Interpublic by Nicholas J. Camera,
Esq., Senior Vice-President, General Counsel and Secretary of Interpublic.
EXPERTS
The consolidated financial statements of Interpublic and its subsidiaries
incorporated into this document by reference to Interpublic's Annual Report on
Form 10-K for the year ended December 31, 1998, except as they relate to Hill,
Holliday, Connors, Cosmopulos, Inc., as of and for the year ended December 31,
1997, and to International Public Relations plc, as of and for each of the years
ended December 31, 1997 and October 31, 1996, have been so incorporated in
reliance on the report of PricewaterhouseCoopers LLP, independent accountants,
given on the authority of said firm as experts in auditing and accounting.
The audited financial statements of Hill, Holliday, Connors,
Cosmopulos, Inc., as of and for the year ended December 31, 1997, and of
International Public Relations plc, as of and for each of the years ended
December 31, 1997 and October 31, 1996, each a wholly owned subsidiary of
Interpublic, not presented separately in Interpublic's Annual Report on
Form 10-K for the year ended December 31, 1998, have been audited by Ernst &
Young LLP and Ernst & Young, respectively, independent accountants. Such
financial statements, to the extent they have been included in the financial
statements of Interpublic, have been so incorporated in reliance on the report
of such independent accountants given on the authority of said firms as experts
in auditing and accounting.
The consolidated financial statements of NFO Worldwide, Inc. and
subsidiaries as of December 31, 1998 and 1997, and for each of the years in the
three year period ended December 31, 1998, included in this prospectus and
elsewhere in the registration statement, to the extent and for the periods
indicated in their report, have been audited by Arthur Andersen LLP, independent
public accountants. In their report, Arthur Andersen LLP states that with
respect to certain subsidiaries its opinion is based on the report of other
auditors, namely Soteriou Banerji. The consolidated financial statements
referred to above have been included herein in reliance upon the authority of
said firms as experts in accounting and auditing in giving said reports.
The consolidated financial statements of Infratest Burke Aktiengesellschaft
Holding and subsidiaries as of September 30, 1998, 1997 and 1996, and for each
of the years in the three year period ended September 30, 1998, included in
NFO's Current Report on Form 8-K/A dated February 3, 1999, included in this
prospectus and elsewhere in the registration statement, to the extent and for
the periods indicated in their report, have been audited by Haarmann,
Hemmelrath & Partner GmbH, independent public accountants, and have been
included herein in reliance upon the authority of said firm as experts in
accounting and auditing in giving said report.
Arthur Andersen LLP is NFO's independent public accountant. A representative
of Arthur Andersen is expected to be available to answer appropriate questions
at the special meeting.
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WHERE YOU CAN FIND MORE INFORMATION
Interpublic and NFO file annual, quarterly and special reports, proxy
statements and other information with the Commission. You may read and copy any
of the information on file with the Commission at the Commission's following
locations:
<TABLE>
<S> <C> <C>
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center Citicorp Center
Room 1024 Suite 1300 500 West Madison Street
Washington, D.C. 20549 New York, NY 10048 Chicago, IL 60661-2511
</TABLE>
Please call the Commission at 1-800-SEC-0330 for further information on the
public reference rooms. Interpublic's and NFO's Commission filings are also
available to the public from commercial document retrieval services, some of
their Commission filings are available at the Commission's World Wide Web site
located at http://www.sec.gov. and some of their filings are available at
http://www.interpublic.com and http://www.nfow.com.
Interpublic common stock and NFO common stock are listed on the New York
Stock Exchange. Reports and other information concerning Interpublic and NFO may
be inspected at the offices of the New York Stock Exchange, 20 Broad Street, New
York, New York 10005.
Interpublic filed a registration statement on Form S-4 to register with the
Commission the shares of Interpublic common stock offered by this proxy
statement/prospectus. This document is a part of that registration statement and
constitutes a prospectus of Interpublic in addition to being a proxy statement
of NFO for the NFO special meeting. As permitted by Commission rules, this
document does not contain all the information you can find in the registration
statement or exhibits to the registration statement.
The Commission allows Interpublic to "incorporate by reference" information
into this document, which means that Interpublic can disclose important
information to you by referring you to another document filed separately with
the Commission. The information incorporated by reference is deemed to be part
of this document, except for any information superseded by information in this
document. This document incorporates by reference the documents set forth below,
including the exhibits that these documents specifically incorporate by
reference, that Interpublic has previously filed with the Commission. These
documents contain important information about Interpublic and its financial
performance.
<TABLE>
<CAPTION>
INTERPUBLIC COMMISSION FILINGS PERIOD
- ------------------------------ ------
<S> <C>
Annual Report on Form 10-K Year ended December 31, 1998
Quarterly Reports on Form 10-Q Quarters ended March 31, 1999, June 30, 1999
and September 30, 1999
Current Reports on Form 8-K Dated December 20, 1999, January 24, 2000 and
February 25, 2000
Description of the Interpublic common stock Dated June 29, 1971 and October 8, 1975,
contained in Interpublic's Form 8-A respectively, as amended on Forms 8, dated
February 24, 1983, June 12, 1984, September
13, 1984, June 25, 1985, July 15, 1987 and
May 19, 1988
Definitive Proxy Statement 1999 Annual Meeting of Stockholders
</TABLE>
94
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Interpublic is also incorporating by reference any additional documents that
it files with the Commission between the date of this document and the date of
the NFO special meeting.
Interpublic has supplied all information contained or incorporated by
reference in this document relating to Interpublic. NFO has supplied all
information contained in this document relating to NFO.
You may already have been sent some of the documents incorporated by
reference, but you can obtain any of them, excluding all exhibits that have not
been specifically incorporated by reference, from Interpublic or the Commission.
Documents incorporated by reference are available from Interpublic without
charge.
NFO stockholders may obtain documents incorporated by reference in this
document by Interpublic by requesting them in writing or by telephone at the
following address:
The Interpublic Group of Companies, Inc.
1271 Avenue of the Americas
New York, New York 10020
Attn: Corporate Secretary
Telephone: (212) 399-8000
IF YOU WOULD LIKE TO REQUEST DOCUMENTS FROM INTERPUBLIC, PLEASE DO SO
PROMPTLY TO RECEIVE THEM BEFORE THE NFO SPECIAL MEETING. INTERPUBLIC WILL SEND
REQUESTED DOCUMENTS BY FIRST-CLASS MAIL WITHIN ONE BUSINESS DAY AFTER RECEIVING
THE REQUEST.
You should rely only on the information contained or incorporated by
reference in this document to vote on the merger agreement proposal. No one has
been authorized to provide you with information that is different from what is
contained in this document. This document is dated March 2, 2000. You should not
assume the information contained in this document is accurate as of any date
other than this date, and neither the mailing of this document to stockholders
nor the issuance of Interpublic common stock in the merger shall imply
information is accurate as of any other date.
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ANNEX A
AGREEMENT AND PLAN OF MERGER
DATED AS OF DECEMBER 20, 1999
BY AND BETWEEN
THE INTERPUBLIC GROUP OF COMPANIES, INC.
AND
NFO WORLDWIDE, INC.
A-1
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.1 The Merger.................................................. 1
SECTION 1.2 Effective Time.............................................. 1
SECTION 1.3 Closing of the Merger....................................... 2
SECTION 1.4 Effects of the Merger....................................... 2
SECTION 1.5 Certificate of Incorporation and Bylaws..................... 2
SECTION 1.6 Directors................................................... 2
SECTION 1.7 Officers.................................................... 2
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.1 Conversion of Securities.................................... 2
SECTION 2.2 Stock Options and Other Stock Plans......................... 4
SECTION 2.3 Exchange Fund............................................... 5
SECTION 2.4 Exchange Procedures......................................... 5
SECTION 2.5 Distributions with Respect to Unsurrendered Certificates.... 6
SECTION 2.6 No Further Ownership Rights................................. 6
SECTION 2.7 No Fractional Shares of Parent Common Stock................. 6
SECTION 2.8 Termination of Exchange Fund................................ 7
SECTION 2.9 No Liability................................................ 7
SECTION 2.10 Investment of the Exchange Fund............................. 7
SECTION 2.11 Lost Certificates........................................... 7
SECTION 2.12 Withholding Rights.......................................... 7
SECTION 2.13 Stock Transfer Books........................................ 8
SECTION 2.14 Affiliates.................................................. 8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
SECTION 3.1 Organization and Qualification; Subsidiaries................ 8
SECTION 3.2 Capitalization of the Company and Its Subsidiaries.......... 9
SECTION 3.3 Authority Relative to This Agreement........................ 10
SECTION 3.4 SEC Reports; Financial Statements........................... 11
SECTION 3.5 No Undisclosed Liabilities.................................. 11
SECTION 3.6 Absence of Changes.......................................... 11
SECTION 3.7 Information Supplied........................................ 13
SECTION 3.8 Consents and Approvals; No Violations....................... 13
SECTION 3.9 No Default.................................................. 14
SECTION 3.10 Real Property............................................... 14
SECTION 3.11 Litigation.................................................. 15
SECTION 3.12 Company Permits; Compliance with Applicable Laws............ 16
SECTION 3.13 Employee Benefit Plans; ERISA............................... 16
SECTION 3.14 Labor Matters............................................... 19
SECTION 3.15 Environmental Matters....................................... 20
SECTION 3.16 Taxes....................................................... 21
SECTION 3.17 Absence of Questionable Payments............................ 22
SECTION 3.18 Material Contracts.......................................... 23
SECTION 3.19 Insurance Matters........................................... 24
</TABLE>
A-2
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 3.20 Intellectual Property....................................... 24
SECTION 3.21 Year 2000................................................... 25
SECTION 3.22 Opinion of Financial Advisor................................ 26
SECTION 3.23 Brokers..................................................... 26
SECTION 3.24 Accounting Matters; Tax Treatment........................... 26
SECTION 3.25 Takeover Statutes, etc...................................... 26
SECTION 3.26 Amendment to the Company Rights Agreement................... 27
SECTION 3.27 InsightExpress, L.L.C....................................... 27
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
SECTION 4.1 Organization................................................ 27
SECTION 4.2 Capitalization of Parent.................................... 28
SECTION 4.3 Authority Relative to This Agreement........................ 28
SECTION 4.4 SEC Reports; Financial Statements........................... 29
SECTION 4.5 No Undisclosed Liabilities.................................. 29
SECTION 4.6 Absence of Certain Changes or Events........................ 30
SECTION 4.7 Information Supplied........................................ 30
SECTION 4.8 Consents and Approvals; No Violations....................... 30
SECTION 4.9 Compliance with Applicable Laws............................. 31
SECTION 4.10 Brokers..................................................... 31
SECTION 4.11 Accounting Matters; Tax Treatment........................... 31
SECTION 4.12 Litigation.................................................. 31
SECTION 4.13 Material Contracts.......................................... 32
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
SECTION 5.1 Conduct of Business of the Company.......................... 32
SECTION 5.2 Conduct of Business of Parent............................... 35
SECTION 5.3 Access to Information....................................... 35
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Preparation of S-4 and the Proxy Statement.................. 36
SECTION 6.2 Letter of Accountants....................................... 36
SECTION 6.3 Meeting..................................................... 37
SECTION 6.4 Reasonable Best Efforts..................................... 37
SECTION 6.5 Acquisition Proposals....................................... 38
SECTION 6.6 Public Announcements........................................ 40
SECTION 6.7 Indemnification; Directors' and Officers' Insurance......... 40
SECTION 6.8 Notification of Certain Matters............................. 40
SECTION 6.9 Pooling..................................................... 41
SECTION 6.10 Employee Matters............................................ 41
SECTION 6.11 Affiliate Letters........................................... 42
SECTION 6.12 SEC Filings................................................. 42
SECTION 6.13 Fees and Expenses........................................... 43
SECTION 6.14 Listing of Stock............................................ 43
SECTION 6.15 Antitakeover Statutes....................................... 43
</TABLE>
A-3
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 6.16 Rule 144 Reporting.......................................... 43
ARTICLE VII
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 Conditions to Each Party's Obligations to Effect the 44
Merger......................................................
SECTION 7.2 Conditions to the Obligations of Parent..................... 44
SECTION 7.3 Conditions to the Obligations of the Company................ 45
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 Termination by Mutual Agreement............................. 46
SECTION 8.2 Termination by Either Parent or the Company................. 46
SECTION 8.3 Termination by the Company.................................. 46
SECTION 8.4 Termination by Parent....................................... 47
SECTION 8.5 Effect of Termination and Abandonment....................... 47
SECTION 8.6 Amendment................................................... 48
SECTION 8.7 Extension; Waiver........................................... 48
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Nonsurvival of Representations and Warranties............... 49
SECTION 9.2 Entire Agreement; Assignment................................ 49
SECTION 9.3 Notices..................................................... 49
SECTION 9.4 Governing Law............................................... 50
SECTION 9.5 Descriptive Headings........................................ 50
SECTION 9.6 Parties in Interest......................................... 50
SECTION 9.7 Severability................................................ 50
SECTION 9.8 Enforcement; Jurisdiction................................... 51
SECTION 9.9 Counterparts................................................ 51
SECTION 9.10 Interpretation.............................................. 51
SECTION 9.11 Definitions................................................. 52
</TABLE>
A-4
<PAGE>
GLOSSARY OF DEFINED TERMS
SECTION TERMS
ACQUISITION PROPOSAL.................................................... 9.11(a)
ANTITRUST LAW............................................................ 6.4(b)
APB 16................................................................... 6.9(a)
ASSUMED STOCK OPTION..................................................... 2.2(a)
AUDIT DATE.................................................................. 3.6
AVERAGE PARENT STOCK PRICE............................................... 2.1(c)
BENEFICIAL OWNERSHIP.................................................... 9.11(b)
BENEFICIALLY OWN........................................................ 9.11(b)
CAPITALIZATION DATE...................................................... 3.2(a)
CERTIFICATE OF MERGER....................................................... 1.2
CERTIFICATES................................................................ 2.4
CLOSING..................................................................... 1.3
CLOSING DATE................................................................ 1.3
CODE................................................................... Recitals
COMPANY......................................... Preamble, Exhibit A, Exhibit B
COMPANY AGREEMENTS....................................................... 3.8(b)
COMPANY BENEFIT PLANS................................................... 3.13(a)
COMPANY BOARD............................................................ 3.3(a)
COMPANY COMMON STOCK..................................................... 2.1(c)
COMPANY DISCLOSURE SCHEDULE........................................ Article III
COMPANY FINANCIAL ADVISOR.................................................. 3.22
COMPANY OPTION PLANS..................................................... 2.2(a)
COMPANY PERMITS............................................................ 3.12
COMPANY REQUIRED APPROVALS............................................... 3.8(a)
COMPANY RIGHTS AGREEMENT................................................. 3.2(a)
COMPANY SEC REPORTS...................................................... 3.4(a)
COMPANY SHARES............................................ Exhibit A, Exhibit B
COMPANY STOCK OPTION..................................................... 2.2(a)
COMPANY STOCKHOLDER MEETING................................................. 6.3
COMPUTER PROGRAMS.......................................................... 3.21
DGCL........................................................................ 1.1
DOJ...................................................................... 6.4(b)
EFFECTIVE TIME.............................................................. 1.2
ENVIRONMENTAL LAW....................................................... 3.15(a)
ERISA................................................................... 3.13(a)
EXCHANGE ACT............................................................. 3.4(a)
EXCHANGE AGENT........................................................... 2.3(a)
EXCHANGE FUND............................................................ 2.3(b)
EXCHANGE RATIO........................................................... 2.1(c)
EXPENSES................................................................... 6.13
FTC...................................................................... 6.4(b)
GAAP..................................................................... 3.4(b)
GOVERNMENTAL ENTITY...................................................... 3.8(a)
HAZARDOUS MATERIAL...................................................... 3.15(a)
HSR ACT.................................................................. 3.8(a)
INDEMNIFIED PARTIES...................................................... 6.7(a)
INTELLECTUAL PROPERTY...................................................... 3.20
IX, LLC.................................................................... 3.27
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SECTION TERMS
KNOW.................................................................... 9.11(c)
KNOWLEDGE............................................................... 9.11(c)
LAW......................................................................... 3.9
LIEN..................................................................... 3.2(b)
MANAGER.................................................................. 3.6(i)
MASTER INVESTORS RIGHTS AGREEMENT.......................................... 3.27
MATERIAL ADVERSE EFFECT................................................. 9.11(d)
MATERIAL CONTRACTS...................................................... 3.18(a)
MEASUREMENT PERIOD....................................................... 2.1(c)
MERGER............................................... 1.1, Exhibit A, Exhibit B
MERGER AGREEMENT.......................................... Exhibit A, Exhibit B
MERGER CONSIDERATION..................................................... 2.1(c)
MERGER SUB.................................................................. 1.1
NYSE..................................................................... 2.1(c)
OPTION AGREEMENT....................................................... Recitals
PARENT.................................. 63, 65. Preamble, Exhibit A, Exhibit B
PARENT BOARD............................................................. 4.3(b)
PARENT COMMON STOCK...................................................... 2.1(c)
PARENT DISCLOSURE SCHEDULE.......................................... Article IV
PARENT PREFERRED STOCK................................................... 4.2(a)
PARENT REQUIRED APPROVALS................................................ 4.8(a)
PARENT SEC REPORTS....................................................... 4.4(a)
PARENT SHARES............................................. Exhibit A, Exhibit B
PBGC.................................................................... 3.13(d)
PERSON.................................................................. 9.11(e)
POOLING OF INTERESTS..................................................... 6.9(a)
PREFERRED STOCK.......................................................... 3.2(a)
PROXY STATEMENT............................................................. 3.7
REAL PROPERTY LEASES.................................................... 3.10(b)
RELEASE................................................................. 3.15(a)
REQUIRED COMPANY VOTE.................................................... 3.3(b)
RIGHTS..................................................................... 3.26
RULE 145............................................................ Exhibit A
S-4......................................................................... 3.7
SEC.................................................................... Recitals
SECURITIES ACT................................................. 2.14, Exhibit A
SHARE ISSUANCE.............................................................. 3.7
SHARES................................................................... 2.1(c)
SUBSIDIARY.............................................................. 9.11(f)
SUPERIOR PROPOSAL........................................................ 6.5(a)
SURVIVING CORPORATION....................................................... 1.1
TAKEOVER STATUTES.......................................................... 3.25
TAX RETURNS............................................................. 3.16(h)
TAXES................................................................... 3.16(h)
TERMINATION DATE......................................................... 8.2(a)
TERMINATION NOTICE....................................................... 2.1(c)
TOP-UP INTENT NOTICE..................................................... 2.1(c)
VOTING SHARES............................................................ 3.3(b)
WALK-AWAY PRICE.......................................................... 2.1(c)
YEAR 2000 PLAN.......................................................... 3.21(c)
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of December 20, 1999 is between
The Interpublic Group of Companies, Inc., a Delaware corporation ("PARENT"), and
NFO Worldwide, Inc., a Delaware corporation (the "COMPANY").
WHEREAS, the respective Boards of Directors of Parent and the Company have
each determined that this Agreement and the transactions contemplated hereby,
including the Merger (as defined in Section 1.1), are advisable and fair to, and
in the best interests of, their respective stockholders;
WHEREAS, for United States federal income tax purposes, it is intended that
the Merger shall qualify as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code of 1986, as amended (the "CODE");
WHEREAS, for accounting purposes, it is intended that the Merger be
accounted for as a "pooling of interests" under APB 16 (as defined in
Section 6.9(a)) and the applicable rules and regulations of the Securities and
Exchange Commission (the "SEC"); and
WHEREAS, in order to induce Parent to enter into this Agreement, and as a
condition to its doing so, the Company is simultaneously entering into a stock
option agreement (the "OPTION AGREEMENT") with Parent, pursuant to which the
Company is granting Parent an option to purchase shares of Company Common Stock
(as hereinafter defined) exercisable under certain circumstances.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties, covenants and agreements herein contained, and intending to be
legally bound hereby, the Company and Parent hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. At the Effective Time (as defined in
Section 1.2), upon the terms and subject to the conditions of this Agreement and
in accordance with the Delaware General Corporation Law (the "DGCL"), a newly
formed wholly owned subsidiary of Parent, to be incorporated in Delaware
("MERGER SUB"), shall be merged with and into the Company (the "MERGER").
Following the Merger, the Company shall continue as the surviving corporation
(the "SURVIVING CORPORATION") and shall continue its corporate existence under
the DGCL, and the separate corporate existence of Merger Sub shall cease. If
Parent so elects, and such election would not prevent satisfaction of the
conditions set forth in Section 7.2(d) or 7.3(d), the Merger shall instead be
structured so that the Company shall be merged with and into Merger Sub, with
Merger Sub continuing as the Surviving Corporation.
SECTION 1.2 EFFECTIVE TIME. Subject to the conditions of this Agreement,
Parent and the Company shall cause the Merger to be consummated by filing a
certificate of merger complying with the DGCL with the Secretary of State of the
State of Delaware (the "CERTIFICATE OF MERGER"), as soon as practicable on or
after the Closing Date (as defined in Section 1.3). The Merger shall become
effective upon such filing or at such time thereafter as the parties shall agree
and as shall be provided in the Certificate of Merger (the "EFFECTIVE TIME").
SECTION 1.3 CLOSING OF THE MERGER. The closing of the Merger (the
"CLOSING") will take place at a time and on a date (the "CLOSING DATE") to be
specified by Parent, which shall be no later than the tenth business day after
satisfaction or waiver of the conditions set forth in Article VII (other than
those conditions that by their nature are to be satisfied at the Closing, but
subject to the fulfillment or waiver of those conditions), at the offices of
Cleary, Gottlieb, Steen & Hamilton, One Liberty Plaza, New York, New York 10006,
unless another time, date or place is agreed to in writing by the parties
hereto.
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SECTION 1.4 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the DGCL. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the properties, rights, privileges,
immunities, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities, obligations and duties of
the Company and Merger Sub shall become the debts, liabilities, obligations and
duties of the Surviving Corporation.
SECTION 1.5 CERTIFICATE OF INCORPORATION AND BYLAWS. The Certificate of
Incorporation of the Company in effect immediately prior to the Effective Time
shall be the Certificate of Incorporation of the Surviving Corporation, until
amended in accordance with such Certificate of Incorporation and the DGCL. The
Bylaws of Merger Sub in effect immediately prior to the Effective Time shall be
the Bylaws of the Surviving Corporation, until amended in accordance with such
Bylaws, the Certificate of Incorporation and the DGCL.
SECTION 1.6 DIRECTORS. The directors of Merger Sub immediately prior to
the Effective Time shall be the directors of the Surviving Corporation and the
board of the Surviving Corporation shall be expanded by one member, which
position will be filled by William E. Lipner, each director to hold office in
accordance with the Certificate of Incorporation and Bylaws of the Surviving
Corporation until their respective death, resignation, or removal or until their
respective successors are duly elected and qualified.
SECTION 1.7 OFFICERS. The officers of the Company immediately prior to the
Effective Time shall be the officers of the Surviving Corporation, each to hold
office in accordance with the Certificate of Incorporation and Bylaws of the
Surviving Corporation until successors are duly elected or appointed and
qualified.
ARTICLE II
CONVERSION OF SECURITIES
SECTION 2.1 CONVERSION OF SECURITIES. At the Effective Time, by virtue of
the Merger and without any action on the part of any of the parties hereto or
any holder of any securities of the Company or Merger Sub:
(a) SECURITIES OF MERGER SUB. The issued and outstanding securities of
Merger Sub shall remain issued, outstanding and unchanged as validly issued,
fully paid and nonassessable securities of the Surviving Corporation.
(b) CANCELLATION OF TREASURY SHARES AND PARENT-OWNED SHARES. Each share of
Company Common Stock issued and outstanding immediately prior to the Effective
Time that is owned by the Company or Parent or any of their respective wholly
owned subsidiaries (other than shares in trust accounts, managed accounts,
custodial accounts and the like that are beneficially owned by third parties)
shall automatically be cancelled and shall cease to exist, and no consideration
shall be delivered or deliverable in exchange therefor.
(c) CONVERSION OF COMPANY COMMON STOCK. Each share of common stock, par
value $.01 per share, of the Company ("COMPANY COMMON STOCK") (including the
associated Rights (as defined in the Company Rights Agreement referred to in
Section 3.2(a)) issued and outstanding immediately prior to the Effective Time
(individually, a "SHARE" and collectively, the "SHARES") (other than Shares to
be cancelled in accordance with Section 2.1(b)), shall be converted into and be
exchangeable for the right to receive a fraction (rounded to the nearest ten
thousandth and rounded up in the case of five one-hundred thousandths) of a
fully paid and non-assessable share of common stock, par value $.01 per share,
of Parent ("PARENT COMMON STOCK"), such fraction to be in the ratio provided
below (the "EXCHANGE RATIO"). If the Average Parent Stock Price (as hereinafter
defined) is:
(i) greater than $66.70, the Exchange Ratio shall be fixed at .3898;
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(ii) equal to or greater than $49.30 but less than or equal to $66.70, the
Exchange Ratio shall be $26.00 divided by the Average Parent Stock
Price; or
(iii) less than $49.30, the Exchange Ratio shall be fixed at .5274;
PROVIDED THAT if the Average Parent Stock Price is less than $46.40 (the "WALK
AWAY PRICE"), the Company shall have the right to give telephonic notice to
Parent (a "TERMINATION NOTICE"), followed promptly by written notice, that the
Company elects to terminate this Agreement in accordance with Section 8.3(b)
hereof. Any Termination Notice shall be delivered to Parent no later than
5:00 p.m. New York City time on the second business day following the last day
of the Measurement Period (as hereinafter defined). If the Company delivers a
timely Termination Notice, Parent shall have the right to give telephonic notice
to the Company (the "TOP-UP INTENT NOTICE"), followed promptly by written
notice, that Parent elects to increase the Exchange Ratio to equal $26.00
divided by the Average Parent Stock Price. Any Top-Up Intent Notice shall be
delivered to the Company no later than 5:00 p.m. New York City time on the
fourth business day following the last day of the Measurement Period. As used
herein, the "AVERAGE PARENT STOCK PRICE" shall mean the average of the per share
closing prices of Parent Common Stock (rounded to the nearest ten thousandth and
rounded up in the case of five one-hundred thousandths) on The New York Stock
Exchange, Inc. ("NYSE") (as reported in the New York City Edition of The Wall
Street Journal or, if not reported thereby, another nationally recognized
source) during the ten consecutive trading day period (the "MEASUREMENT PERIOD")
ending on the sixth trading day prior to the Effective Time. All shares of
Parent Common Stock issued pursuant to this Section 2.1(c), together with any
cash in lieu of fractional shares of Parent Common Stock to be paid pursuant to
Section 2.7, are referred to herein as the "MERGER CONSIDERATION".
(d) CERTAIN ADJUSTMENTS. If between the date of this Agreement and the
Effective Time the outstanding shares of Parent Common Stock shall have been
changed into a different number of shares or a different class by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares or any similar event, the amount of shares of
Parent Common Stock constituting the Exchange Ratio and the Walk Away Price
shall be correspondingly adjusted to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares or
such similar event.
SECTION 2.2 STOCK OPTIONS AND OTHER STOCK PLANS. (a) As soon as
practicable following the date of this Agreement, Parent and the Company (or, if
appropriate, the Board of Directors of the Company or any committee of the Board
of Directors of the Company administering Company's Stock Option Plan,
Directors' Stock Option Plan and Consultant's Plan (collectively, the "COMPANY
OPTION PLANS")) shall take such action as may be required or desirable
(including the obtaining of all applicable consents) to effect the following
provisions of this Section 2.2(a). As of the Effective Time (or, in the case of
any person subject to Section 16 of the Exchange Act (as hereinafter defined) as
of the later of the Effective Time and the first day after which such person
would have no liability under Section 16(b)) each option to purchase Shares
pursuant to the Company Stock Plans (a "COMPANY STOCK OPTION") which is then
outstanding shall be converted into an option (or a new substitute option shall
be granted) (an "ASSUMED STOCK OPTION") to purchase the number of shares of
Parent Common Stock (rounded up to the nearest whole share) equal to (x) the
number of Shares subject to such option multiplied by (y) the Exchange Ratio, at
an exercise price per share of Parent Common Stock (rounded down to the nearest
penny) equal to (A) the former exercise price per share of Company Common Stock
under such option immediately prior to the Effective Time divided by (B) the
Exchange Ratio; PROVIDED, HOWEVER, that in the case of any Company Stock Option
to which Section 421 of the Code applies by reason of its qualification under
Section 422 of the Code, the conversion formula shall be adjusted, if necessary,
to comply with Section 424(a) of the Code. Except as provided above, the Assumed
Stock Option shall be subject to the same terms and conditions (including
expiration date, exercise, acceleration and vesting provisions) as were
applicable to the converted Company Stock Option immediately prior to the
Effective Time; provided, that the Parent Board (as
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hereinafter defined) or a committee thereof shall succeed to the authority and
responsibility of the Company Board (as hereinafter defined) or any committee
thereof. Parent shall use its reasonable best efforts to cause the grant of the
Assumed Stock Options to be exempt acquisitions for purposes of Section 16 of
the Exchange Act.
(b) As soon as practicable after the Effective Time, Parent shall deliver to
the holders of Company Stock Options appropriate notices setting forth such
holders' rights pursuant to the respective Company Option Plans and the
agreements evidencing the grants of such Company Stock Options and that such
Company Stock Options and agreements shall continue in effect on the same terms
and conditions (subject to the adjustments required by this Section 2.2). Parent
shall comply with the terms of the Company Option Plans and the agreements
evidencing the grants of such Company Stock Options.
(c) Parent shall take such actions as are reasonably necessary for the
conversion of the Company Option Plans or the Company Stock Options pursuant to
this Section 2.2, including the reservation, issuance and listing of Parent
Common Stock as is necessary to effectuate the transactions contemplated by this
Section 2.2. Parent shall prepare and file with the SEC a registration statement
on Form S-8, to become effective within seven days following the Closing, or
other appropriate form with respect to shares of Parent Common Stock subject to
the Assumed Stock Options and to maintain the effectiveness of such registration
statement or registration statements covering such Assumed Stock Options (and
maintain the current status of the prospectus or prospectuses contained therein)
for so long as such Assumed Stock Options remain outstanding.
SECTION 2.3 EXCHANGE FUND. (a) Prior to the Effective Time, Parent shall
appoint a commercial bank or trust company reasonably acceptable to the Company
to act as exchange agent hereunder for the purpose of exchanging Shares for the
Merger Consideration (the "EXCHANGE AGENT").
(b)At or prior to the Effective Time, Parent shall deposit, or cause to be
deposited, with the Exchange Agent, in trust for the benefit of holders of
Shares, certificates representing the Parent Common Stock issuable pursuant to
Section 2.1 in exchange for outstanding Shares. Parent agrees to make available
to the Exchange Agent, from time to time as needed, cash sufficient to pay cash
in lieu of fractional shares pursuant to Section 2.7 and any dividends and other
distributions pursuant to Section 2.5. Any cash and certificates of Parent
Common Stock deposited with the Exchange Agent pursuant to this Section 2.3(b)
shall hereinafter be referred to as the "EXCHANGE FUND."
SECTION 2.4 EXCHANGE PROCEDURES. As soon as reasonably practicable after
the Effective Time, the Surviving Corporation shall cause the Exchange Agent to
mail to each holder of a certificate or certificates which immediately prior to
the Effective Time represented outstanding Shares (the "CERTIFICATES") (i) a
form of letter of transmittal (which shall specify that delivery shall be
effective, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Exchange Agent, and which letter shall be in
customary form and have such other provisions as Parent may reasonably specify)
and (ii) instructions for effecting the surrender of such Certificates in
exchange for the applicable Merger Consideration. Upon surrender of a
Certificate to the Exchange Agent together with such letter of transmittal, duly
executed and completed in accordance with the instructions thereto, and such
other documents as may reasonably be required by the Exchange Agent, the holder
of such Certificate shall be entitled to receive in exchange therefor
(A) shares of Parent Common Stock representing, in the aggregate, the whole
number of shares that such holder has the right to receive pursuant to
Section 2.1 (after taking into account all Shares then held by such holder) and
(B) a check in the amount equal to the cash that such holder has the right to
receive pursuant to the provisions of this Article II, including cash in lieu of
any fractional shares of Parent Common Stock pursuant to Section 2.7 and any
dividends and other distributions pursuant to Section 2.5. No interest will be
paid or will accrue on any cash payable pursuant to this Article II. In the
event of a transfer of ownership of Company Common Stock which is not registered
in the transfer records of the Company, shares of Parent Common Stock
evidencing, in the aggregate, the proper number of shares of Parent
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Common Stock, a check in the proper amount of cash in lieu of any fractional
shares of Parent Common Stock pursuant to Section 2.7 and any dividends or other
distributions to which such holder is entitled pursuant to Section 2.5, may be
issued with respect to such Shares to such a transferee if the Certificate
representing such Shares is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to evidence that any
applicable stock transfer Taxes (as hereinafter defined) have been paid.
SECTION 2.5 DISTRIBUTIONS WITH RESPECT TO UNSURRENDERED CERTIFICATES. From
and after the Effective Time and until surrendered in accordance with the
provisions of this Article II, each Certificate (other than Certificates for
Shares to be cancelled pursuant to Section 2.1(b)) shall represent for all
purposes solely the right to receive, in accordance with the terms hereof, the
Merger Consideration. No dividends or other distributions declared or made with
respect to shares of Parent Common Stock with a record date after the Effective
Time shall be paid to the holder of any unsurrendered Certificate representing
Shares of Company Common Stock with respect to the shares of Parent Common Stock
that such holder would be entitled to receive upon surrender of such Certificate
and no cash payment in lieu of fractional shares of Parent Common Stock shall be
paid to any such holder pursuant to Section 2.7 until such holder shall
surrender such Certificate in accordance with Section 2.4. Subject to the effect
of applicable Laws (as defined in Section 3.9), following surrender of any such
Certificate, there shall be paid to such holder of shares of Parent Common Stock
issuable in exchange therefor, without interest, (a) the amount of any cash
payable in lieu of fractional shares of Parent Common Stock to which such holder
is entitled pursuant to Section 2.7, to be paid promptly after the time of such
surrender, and (b) with respect to any dividends or other distributions payable
with respect to such whole number of shares with a record date after the
Effective Time, the amount of such dividends or other distributions to be paid
promptly after the later of (x) the time of such surrender and (y) the payment
date for such dividends or other distributions.
SECTION 2.6 NO FURTHER OWNERSHIP RIGHTS. All shares of Parent Common Stock
issued and cash paid upon conversion of the Shares in accordance with the terms
of this Article II (including any cash paid pursuant to Sections 2.5 and 2.7)
shall be deemed to have been issued or paid in full satisfaction of all rights
pertaining to the Shares.
SECTION 2.7 NO FRACTIONAL SHARES OF PARENT COMMON STOCK. (a) No
certificates or scrip of shares of Parent Common Stock representing fractional
shares of Parent Common Stock or book-entry credit of the same shall be issued
upon the surrender for exchange of Certificates and such fractional share
interests will not entitle the owner thereof to vote or to have any rights of a
shareholder of Parent or a holder of shares of Parent Common Stock.
(b) Notwithstanding any other provision of this Agreement, each holder of
Shares exchanged pursuant to the Merger who would otherwise have been entitled
to receive a fraction of a share of Parent Common Stock (after taking into
account all Certificates delivered by such holder) shall receive, in lieu
thereof, cash (without interest) in an amount equal to the product of (i) such
fractional part of a share of Parent Common Stock multiplied by (ii) the closing
price (as reported in the New York City edition of The Wall Street Journal or,
if not reported thereby, another nationally recognized source) for a share of
Parent Common Stock on the date of the Effective Time. As promptly as
practicable after the determination of the aggregate amount of cash to be paid
to holders of fractional interests, the Exchange Agent shall notify Parent and
Parent shall deposit such amount with the Exchange Agent and shall cause the
Exchange Agent to forward payments to such holders of fractional interests
subject to and in accordance with the terms hereof.
SECTION 2.8 TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund
(including any income or proceeds thereof or of any investments thereof) which
remains undistributed to the holders of Certificates for one year after the
Effective Time shall be delivered to Parent or otherwise on the instruction of
Parent, and any holders of the Certificates who have not theretofore complied
with this
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Article II shall thereafter look only to the Surviving Corporation and Parent
(subject to abandoned property, escheat and similar laws) for the Merger
Consideration exchangeable for such Certificates to which such holders are
entitled, any cash in lieu of fractional shares of Parent Common Stock to which
such holders are entitled pursuant to Section 2.7 and any dividends or
distributions with respect to shares of Parent Common Stock to which such
holders are entitled pursuant to Section 2.5, without any interest on any
thereof. Any such portion of the Exchange Fund remaining unclaimed by holders of
Shares two years after the Effective Time (or such earlier date as shall be
immediately prior to such date as such securities or amounts would otherwise
escheat to or become property of any Governmental Entity (as defined in
Section 3.8)) shall, to the extent permitted by Law, become the property of
Parent, free and clear of any claims or interest of any person previously
entitled thereto.
SECTION 2.9 NO LIABILITY. None of Parent, Merger Sub, the Company, the
Surviving Corporation or the Exchange Agent shall be liable to any person in
respect of any Merger Consideration from the Exchange Fund delivered to a public
official pursuant to any applicable abandoned property, escheat or similar Law.
SECTION 2.10 INVESTMENT OF THE EXCHANGE FUND. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by Parent on a daily
basis. Any interest and other income resulting from such investments shall
promptly be paid to Parent.
SECTION 2.11 LOST CERTIFICATES. If any Certificate shall have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed and, if required by
the Surviving Corporation, the posting by such person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Exchange Agent will deliver in exchange for such lost, stolen or destroyed
Certificate the applicable Merger Consideration with respect to the Shares
formerly represented thereby, any cash in lieu of fractional shares of Parent
Common Stock and unpaid dividends and distributions on shares of Parent Common
Stock deliverable in respect thereof, pursuant to this Agreement.
SECTION 2.12 WITHHOLDING RIGHTS. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the Merger Consideration
otherwise payable pursuant to this Agreement to any holder of Shares of such
amounts as it is required to deduct and withhold with respect to the making of
such payment under the Code and the rules and regulations promulgated
thereunder, or any other Law. To the extent that amounts are so withheld by the
Surviving Corporation or Parent, as the case may be, such withheld amounts shall
be treated for all purposes of this Agreement as having been paid to the holder
of the Shares in respect to which such deduction and withholding was made by the
Surviving Corporation or Parent, as the case may be.
SECTION 2.13 STOCK TRANSFER BOOKS. The stock transfer books of the Company
shall be closed immediately upon the Effective Time and there shall be no
further registration of transfers of Shares thereafter on the records of the
Company. On or after the Effective Time, any Certificates presented to the
Exchange Agent or Parent for any reason shall be converted into the Merger
Consideration with respect to the Shares formerly represented thereby, any cash
in lieu of fractional shares of Parent Common Stock to which the holders thereof
are entitled pursuant to Section 2.7 and any dividends or other distributions to
which the holders thereof are entitled pursuant to Section 2.5.
SECTION 2.14 AFFILIATES. Notwithstanding anything to the contrary herein,
no shares of Parent Common Stock or cash shall be delivered to a person who may
be deemed an "affiliate" of the Company in accordance with Section 6.11 hereof
for purposes of Rule 145 under the Securities Act of 1933, as amended (the
"SECURITIES ACT"), or for purposes of qualifying the Merger for "pooling of
interests" under APB 16 and the applicable SEC rules and regulations, until such
person has executed and delivered to Parent the written agreement contemplated
by Section 6.11.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Except as set forth in the section of the disclosure schedule delivered by
the Company to Parent prior to the execution of this Agreement (the "COMPANY
DISCLOSURE SCHEDULE") that specifically relates to a specified section of this
Article III, the Company hereby represents and warrants to Parent as follows:
SECTION 3.1 ORGANIZATION AND QUALIFICATION; SUBSIDIARIES. (a) Each of the
Company and its subsidiaries is a corporation or legal entity duly organized,
validly existing and, if applicable, in good standing under the Laws of the
jurisdiction of its incorporation and has all requisite corporate, partnership
or similar power and authority to own, lease and operate its properties and to
carry on its businesses as now conducted and proposed by the Company to be
conducted, except when the failure to be duly organized, validly existing and in
good standing or to have such power and authority has not had, and should not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(b) Section 3.1 of the Company Disclosure Schedule sets forth a list of all
subsidiaries of the Company. Except as listed in Section 3.1 of the Company
Disclosure Schedule, the Company does not own, directly or indirectly,
beneficially or of record, any shares of capital stock or other security of any
other entity or any other investment in any other entity.
(c) Each of the Company and its subsidiaries is duly qualified or licensed
and in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except where the failure to be
so duly qualified or licensed and in good standing has not had, and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(d) The Company has heretofore made available to Parent accurate and
complete copies of the articles or certificate of incorporation and bylaws or
other similar organizational documents, as currently in effect, of each of the
Company and its U.S. subsidiaries.
SECTION 3.2 CAPITALIZATION OF THE COMPANY AND ITS SUBSIDIARIES. (a) The
authorized capital stock of the Company consists of (i) 60,000,000 shares of
Company Common Stock, and (ii) 5,000,000 shares of preferred stock, par value
$.01 per share (the "PREFERRED STOCK"), of which 500,000 shares have been
designated Series A Preferred Stock. As of December 17, 1999 (the
"CAPITALIZATION DATE"), (i) 22,355,201 shares of Company Common Stock were
issued and outstanding; (ii) 3,720,444 shares of Company Common Stock were
subject to outstanding options issued pursuant to the Company Option Plans (with
an average weighted exercise price of $12.76), options with respect to an
additional 539,384 shares of Company Common Stock were authorized, but not yet
issued and 4,259,828 shares, in the aggregate, were reserved for issuance upon
exercise of such outstanding options and such authorized, but not yet issued,
options; (iii) no shares of Company Common Stock were issued and held in the
treasury of the Company; and (iv) no shares of Preferred Stock were issued and
outstanding. All the outstanding Shares are, and the exercise of outstanding
options described in the second sentence of this Section 3.2 will be, when
issued in accordance with the terms thereof, duly authorized, validly issued,
fully paid and non-assessable. Except as set forth in Section 3.2 of the Company
Disclosure Schedule, since the Capitalization Date, there have been no issuances
of shares of the capital stock or other securities of the Company and of
options, warrants and rights with respect to shares of Company Common Stock or
other securities of the Company, other than issuances of shares of Company
Common Stock pursuant to options outstanding on the Capitalization Date as fully
reflected on Section 3.2 of the Company Disclosure Schedule. Except as set forth
in Section 3.2 of the Company Disclosure Schedule, and except as set forth above
and except for the Company's obligations under the Rights Agreement, dated as of
October 5, 1998 (the "COMPANY RIGHTS AGREEMENT"), between the
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Company and State Street Bank and Trust Company, as rights agent, and except for
the transactions contemplated by this Agreement and the Option Agreement,
(1) there are no shares of capital stock of the Company authorized, issued or
outstanding, (2) there are no authorized or outstanding options, warrants,
calls, preemptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character (whether or not conditional)
relating to the issued or unissued capital stock of the Company or any of its
subsidiaries, obligating the Company or any of its subsidiaries to issue,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or other equity interest in the Company or any of its subsidiaries
or securities convertible into or exchangeable for such shares or equity
interests, or obligating the Company or any of its subsidiaries to grant, extend
or enter into any such option, warrant, call, subscription or other right,
agreement, arrangement or commitment and (3) there are no outstanding
contractual obligations of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any shares or other capital stock of the Company or
any of its subsidiaries, or to make any payments based on the market price or
value of shares or other capital stock of the Company or any of its
subsidiaries, or to provide funds to make any investment (in the form of a loan,
capital contribution or otherwise) in any subsidiary or any other entity other
than loans to subsidiaries in the ordinary course of business.
(b) Except as set forth in Section 3.2 of the Company Disclosure Schedule,
all of the outstanding capital stock of the Company's subsidiaries is owned by
the Company, directly or indirectly, free and clear of any Lien (as hereinafter
defined) or any other limitation or restriction (including any restriction on
the right to vote or sell the same, except as may be provided as a matter of
Law), and there are no irrevocable proxies with respect to such capital stock,
in each case except for such failures to own and for such proxies that have not
had, and would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company. For purposes of this
Agreement, "LIEN" means, with respect to any asset (including, without
limitation, any security), any mortgage, lien, pledge, charge, security interest
or encumbrance of any kind in respect of such asset.
SECTION 3.3 AUTHORITY RELATIVE TO THIS AGREEMENT. (a) The Company has all
necessary corporate power and authority to execute and deliver this Agreement
and the Option Agreement and to consummate the transactions contemplated hereby
and thereby. The Board of Directors of the Company (the "COMPANY BOARD") by
unanimous vote of those present, has duly and validly authorized the execution,
delivery and performance of this Agreement and the Option Agreement and approved
the consummation of the transactions contemplated hereby and thereby, and taken
all corporate actions required to be taken by the Company Board for the
consummation of the transactions, including the Merger, contemplated hereby and
thereby and has (i) by resolution approved, and declared advisable, the
agreement of merger (within the meaning of Section 251 of the DGCL) contained
within this Agreement; (ii) determined that such transactions are advisable and
fair to, and in the best interests of, the Company and its stockholders; and
(iii) as of the date hereof, resolved to recommend that the stockholders of the
Company approve and adopt such agreement of merger. No other corporate
proceedings on the part of the Company are necessary to authorize this Agreement
and the Option Agreement or to consummate the transactions contemplated hereby
and thereby (other than, with respect to the Merger and the agreement of merger
(within the meaning of Section 251 of the DGCL) contained within this Agreement,
the Required Company Vote (as hereinafter defined)). This Agreement and the
Option Agreement have each been duly and validly executed and delivered by the
Company and each constitutes a valid, legal and binding agreement of the
Company, enforceable against the Company in accordance with its terms.
(b) The Company Board has directed that the agreement of merger contained
within this Agreement be submitted to the stockholders of the Company for their
approval at a meeting to be held for that purpose. The affirmative vote of the
holders of a majority of the outstanding voting stock of the Company (which is
comprised solely of the Company Common Stock (the "VOTING SHARES")) (voting as a
single class) as of the record date for the Company Stockholders Meeting (as
hereinafter
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defined) (the "REQUIRED COMPANY VOTE") is the only vote of the holders of any
class or series of capital stock of the Company necessary to adopt the agreement
of merger contained within this Agreement and approve the Merger. No other vote
of the stockholders of the Company is required by law, the articles of
incorporation or the by-laws of the Company or otherwise in order for the
Company to approve and adopt the agreement of merger contained within this
Agreement or to consummate the transactions contemplated hereby, and no vote of
stockholders is required to approve the Option Agreement or to consummate the
transactions contemplated thereby.
SECTION 3.4 SEC REPORTS; FINANCIAL STATEMENTS. (a) Except as set forth in
Section 3.4 of the Company Disclosure Schedule, the Company has timely filed all
required forms, reports and documents with the SEC since January 1, 1997, each
of which has complied as to form in all material respects with all applicable
requirements of the Securities Act and the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), each as in effect on the dates such forms, reports
and documents were filed. No subsidiary of the Company has filed, or is required
to file, any form, report or other document with the SEC. The Company has
heretofore made available to Parent, in the form filed with the SEC (including
any amendments thereto), (i) its Annual Reports on Form 10-K for each of the
fiscal years ended December 31, 1996, 1997 and 1998; (ii) all definitive proxy
statements relating to the Company's meetings of stockholders (whether annual or
special) held since January 1, 1996; and (iii) all other reports or registration
statements filed by the Company with the SEC since January 1, 1996 and prior to
the date hereof (the "COMPANY SEC REPORTS"). Except as set forth in Section 3.4
of the Company Disclosure Schedule, none of such forms, statements, reports or
documents, including, without limitation, any financial statements, exhibits or
schedules included or incorporated by reference therein, contained, when filed,
any untrue statement of a material fact or omitted to state a material fact
required to be stated or incorporated by reference therein or necessary in order
to make the statements therein, in light of the circumstances under which they
were made, not misleading.
(b) The audited and unaudited consolidated financial statements of the
Company included (or incorporated by reference) in the Company SEC Reports
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto and fairly present in all material respects, in conformity with U.S.
generally accepted accounting principles applied on a consistent basis ("GAAP")
(except as specifically indicated in the notes thereto), the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and their consolidated results of operations and changes in
financial position for the periods then ended (subject, in the case of the
unaudited interim financial statements, to normal year-end adjustments that have
not been, and will not be, material in amount).
SECTION 3.5 NO UNDISCLOSED LIABILITIES. Except as set forth in
Section 3.5 of the Company Disclosure Schedule or the Company SEC Reports and
except for such liabilities and obligations that have not had, and would not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company, neither the Company nor any of its subsidiaries
has any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, and whether or not required to be recorded or reflected
on a balance sheet under GAAP, and there is no existing condition, situation or
set of circumstances that could reasonably be expected to result in such a
liability or obligation.
SECTION 3.6 ABSENCE OF CHANGES. Except as and to the extent publicly
disclosed in the Company SEC Reports or as set forth in Section 3.6 of the
Company Disclosure Schedule, since December 31, 1998 (the "AUDIT DATE"), the
Company and its subsidiaries have conducted their business in the ordinary and
usual course consistent with past practice and there has not been:
(a) any event, occurrence or development which has had, or would reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on the Company;
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(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to any shares of capital stock of the Company, or any
repurchase, redemption or other acquisition by the Company or any subsidiary of
any securities of the Company or of any of its subsidiaries;
(c) any amendment of (or agreement to amend) any term of any outstanding
equity securities of the Company or any subsidiary or any of the securities of
the Company or any subsidiary or agreements relating to any of the following:
the Revolving Credit Agreement, the Series A Senior Notes, the Series B Senior
Notes, the Subordinated Notes or the March 1998 Senior Notes (in each case, as
defined and described in the notes to the financial statements included in the
Company SEC Reports);
(d) (i) any incurrence or assumption (or agreement to incur or assume) by
the Company or any subsidiary of any indebtedness for borrowed money (A) other
than in the ordinary and usual course of business consistent with past practice
or (B) in connection with any acquisition or capital expenditure permitted by
Section 5.1, or (ii) any guarantee, endorsement or other incurrence or
assumption of (or agreement to guarantee, endorse, incur or assume) any material
liability (whether directly, contingently or otherwise) by the Company or any
subsidiary for the obligations of any other person (other than any wholly owned
subsidiary of the Company), other than in the ordinary and usual course of
business consistent with past practice;
(e) any creation or assumption by the Company or any subsidiary of any Lien
on any material asset of the Company or any subsidiary other than in the
ordinary and usual course of business consistent with past practice;
(f) any making of any loan, advance or capital contribution to or investment
in any person by the Company or any subsidiary other than (i) any acquisition
permitted by Section 5.1, (ii) loans, advances or capital contributions to or
investments in wholly owned subsidiaries of the Company or (iii) loans or
advances to employees of the Company or any subsidiary made in the ordinary and
usual course of business consistent with past practice;
(g) (i) any contract or agreement entered into by the Company or any
subsidiary on or prior to the date hereof relating to any material acquisition
or disposition of any assets or business or (ii) any modification, amendment,
assignment, termination or relinquishment by the Company or any subsidiary of
any contract, license or other right (including any insurance policy naming it
as a beneficiary or a loss payable payee) that has had or could reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company, other than, in the case of (i) and (ii), transactions, commitments,
contracts or agreements in the ordinary and usual course of business consistent
with past practice and those contemplated by this Agreement;
(h) any material change in any method of accounting or accounting principles
or practice by the Company or any subsidiary, except for any such change
required by reason of a change in GAAP or applicable Law (as hereinafter
defined); or
(i) any (i) grant of any severance or termination pay to any director or
officer of the Company or any of its subsidiaries or any employee of the Company
or any of its subsidiaries whose position is, or is equivalent or senior to,
that of a president or managing director ("MANAGER"), other than in the ordinary
course of business consistent with past practice; (ii) entering into of any
written employment, deferred compensation, consulting or other similar agreement
(or any amendment to any such existing agreement) with any director or officer
of the Company or any of its subsidiaries or any Manager, other than in the
ordinary course of business consistent with past practice; (iii) increase in
benefits payable to any director or officer of the Company or any of its
subsidiaries or any Manager under any existing severance or termination pay
policies or employment agreements, other than in the ordinary course of business
consistent with past practice; or (iv) increase in compensation, bonus or other
benefits payable to any director or officer of the Company or any of its
subsidiaries or any Manager,
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other than in the ordinary course of business consistent with past practice or
merit increases in salaries at regularly scheduled times in customary amounts
consistent with past practices.
SECTION 3.7 INFORMATION SUPPLIED. None of the information supplied or to
be supplied by the Company for inclusion or incorporation by reference in
(i) the registration statement on Form S-4 to be filed with the SEC by Parent in
connection with the issuance of Parent Common Stock as required by the terms of
this Agreement (the "SHARE ISSUANCE") pursuant to the Merger (the "S-4"), at the
time the S-4 is filed with the SEC and at the time it becomes effective under
the Securities Act, will contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary to make
the statements therein not misleading or (ii) the proxy statement relating to
the Company Stockholder Meeting (as hereinafter defined) to be held in
connection with the Merger (including any amendments thereto, the "PROXY
STATEMENT") will, at the date mailed to stockholders and at the time of the
meeting of stockholders to be held in connection with the Merger, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not misleading. If at any
time prior to the Effective Time, any event with respect to the Company, its
officers and directors or any of its subsidiaries should occur which is required
to be described in an amendment of, or a supplement to, the S-4 or the Proxy
Statement, the Company shall promptly so advise Parent and such event shall be
so described, and such amendment or supplement (which Parent shall have a
reasonable opportunity to review) shall be promptly filed with the SEC and, to
the extent required by Law, disseminated to the stockholders of the Company. The
Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
Notwithstanding the foregoing, no representation is made in this Section 3.7 as
to information provided by Parent for inclusion in the S-4 or the Proxy
Statement.
SECTION 3.8 CONSENTS AND APPROVALS; NO VIOLATIONS. (a) Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the NYSE, the Securities Act, the Exchange
Act, state securities or "blue sky" Laws, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR ACT") and applicable non-U.S.
laws with respect to competition, the filing of the Certificate of Merger as
required by the DGCL and as otherwise set forth in Section 3.8 to the Company
Disclosure Schedule (collectively, the "COMPANY REQUIRED APPROVALS"), no filing
with or notice to, and no permit, authorization, consent or approval of, any
supranational, national, state, municipal or local court or tribunal or
administrative, governmental, quasi-governmental or regulatory body, agency or
authority (a "GOVERNMENTAL ENTITY") is necessary for the execution and delivery
by the Company of this Agreement or the Option Agreement or the consummation by
the Company of the transactions contemplated hereby or thereby, except where the
failure to obtain such permits, authorizations, consents or approvals or to make
such filings or give such notice does not have, and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company.
(b) Neither the execution, delivery and performance of this Agreement or the
Option Agreement by the Company nor the consummation by the Company of the
transactions contemplated hereby or thereby will (i) conflict with or result in
any breach of any provision of the respective articles or certificate of
incorporation or bylaws (or similar governing documents) of the Company or any
of its subsidiaries, (ii) result in a violation or breach of, or constitute
(with or without due notice or lapse of time or both) a default (or give rise to
any right of termination, amendment, cancellation or acceleration of any
obligation or the loss of any material benefit, or the creation of any Lien)
under, any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, lease, license, contract, agreement or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which any of
them or any of their respective properties or assets may be bound (collectively,
including all amendments, modifications, waivers, supplements and side letters,
the "COMPANY AGREEMENTS") or (iii) (assuming receipt of all Company Required
Approvals) violate any
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Law applicable to the Company or any of its subsidiaries or any of their
respective properties or assets, except, in the case of (ii), as set forth in
Section 3.8 of the Company Disclosure Schedule and except, in the case of
(ii) or (iii), for violations, breaches or defaults that have not had, and would
not reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
SECTION 3.9 NO DEFAULT. Neither the Company nor any of its subsidiaries is
in violation in any material respect of any term of (i) its articles or
certificate of incorporation, bylaws or other organizational documents,
(ii) any agreement or instrument related to indebtedness for borrowed money or
any other agreement to which it is a party or by which it is bound, or
(iii) any foreign or domestic law, order, writ, injunction, decree, ordinance,
award, stipulation, statute, judicial or administrative doctrine, rule or
regulation entered by a Governmental Entity ("LAW") applicable to the Company,
any of its subsidiaries or any of their respective properties or assets, except
in the case of (ii) or (iii), for violations that have not had and would not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
SECTION 3.10 REAL PROPERTY. (a) Each of the Company and its subsidiaries
has good and marketable title to each parcel of real property owned by it free
and clear of all Liens, except (i) Liens for Taxes and general and special
assessments not in default and payable without penalty and material interest,
(ii) other Liens which do not materially interfere with the Company's or any of
its subsidiaries' use and enjoyment of such real property or materially detract
from or diminish the value thereof and (iii) Liens that have not had, and would
not be reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(b) Each of the leases, subleases and other agreements (the "REAL PROPERTY
LEASES") under which the Company or any of its subsidiaries uses or occupies or
has the right to use or occupy, now or in the future, any real property
constitutes the valid and legally binding obligation of the Company or its
subsidiaries, enforceable in accordance with its terms (except as enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar Laws of general applicability relating to or
affecting creditors' rights or by general equity principles), and is in full
force and effect, except for such failures to be so constituted and in full
force and effect as have not had, and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company. All
rent and other sums and charges payable by the Company and its subsidiaries as
tenants under each Real Property Lease are current, except for such failures to
be current that have not had, and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company; and
no termination event or condition or uncured default on the part of the Company
or any such subsidiary or, to the Company's knowledge, the landlord, exists
under any Real Property Lease, in each case except as has not had, and would not
be reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. Each of the Company and its subsidiaries has a
good and valid leasehold interest in each parcel of material real property
leased by it free and clear of all Liens, except (i) Liens for Taxes and general
and special assessments not in default and payable without penalty and material
interest, (ii) other Liens which do not materially interfere with the Company's
or any of its subsidiaries' use and enjoyment of such real property or
materially detract from or diminish the value thereof and (iii) Liens that have
not had, and would not be reasonably expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
(c) No party to any such Real Property Leases has given notice to the
Company or any of its subsidiaries of or made a claim against the Company or any
of its subsidiaries with respect to any breach or default thereunder, in each
case except as has not had, and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
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SECTION 3.11 LITIGATION. Except as and to the extent disclosed in the
Company SEC Reports or as set forth in Section 3.11 of the Company Disclosure
Schedule, and except for any suit, claim, action, proceeding or investigation
instituted by a non-Governmental Entity that questions the validity of this
Agreement or the Option Agreement or any action to be taken by the Company in
connection with the consummation of the transactions contemplated hereby or
thereby or could otherwise prevent or delay the consummation of the transactions
contemplated by this Agreement or the Option Agreement, there is no suit, claim,
action, proceeding or investigation pending or, to the Company's knowledge,
threatened against the Company or any of its subsidiaries or any of their
respective properties or assets which (a) involves a claim in excess of
$1 million or (b) has had, or if decided adversely to the Company would
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company. Except as and to the extent disclosed in the
Company SEC Reports filed prior to the date hereof, none of the Company and its
subsidiaries is subject to any outstanding order, writ, injunction or decree
which has had, or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company.
SECTION 3.12 COMPANY PERMITS; COMPLIANCE WITH APPLICABLE LAWS. The Company
and its subsidiaries hold all permits, licenses, variances, exemptions, orders
and approvals of all Governmental Entities necessary for the lawful conduct of
their respective businesses (the "COMPANY PERMITS"), except for failures to hold
such permits, licenses, variances, exemptions, orders and approvals which have
not had, and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company. The Company and its
subsidiaries are in compliance with the terms of the Company Permits, except
where the failure to so comply has not had, and would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company. The businesses of the Company and its subsidiaries are not being
conducted in violation of any Law applicable to the Company or its subsidiaries,
except for violations which do not have, and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company. To the Company's knowledge, no investigation or review by any
Governmental Entity with respect to the Company or its subsidiaries is pending
or threatened, nor, to the Company's knowledge, has any Governmental Entity
indicated an intention to conduct the same except for such investigations and
reviews which have not had and would not be reasonably expected to have
individually or in the aggregate, a Material Adverse Effect on the Company.
SECTION 3.13 EMPLOYEE BENEFIT PLANS; ERISA. (a) The term "COMPANY BENEFIT
PLANS" shall mean each employment, consulting, severance pay, termination pay,
retirement, deferred compensation, retention or change in control plan, program,
arrangement, agreement or commitment, or an executive compensation, incentive
bonus or other bonus, pension, stock option, restricted stock or equity-based,
profit sharing, savings, life, health, disability, accident, medical, insurance,
vacation, or other employee benefit plan, program, arrangement, agreement, fund
or commitment, including any "employee benefit plan" as defined in Section 3(3)
of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"),
which the Company or any of its subsidiaries maintains or contributes to, or has
any obligation to contribute to, or with respect to which the Company or any of
its subsidiaries has any liability, direct or indirect, contingent or otherwise
(including, without limitation, a liability arising out of an indemnification,
guarantee, hold harmless or similar agreement). Except as disclosed in
Section 3.13(a) of the Company Disclosure Schedule or except as have not had,
and would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company, since the Audit Date (i) neither the
Company nor any of its subsidiaries has made any plan or commitment, whether
legally binding or not, to create any additional Company Benefit Plan or modify
or change any existing Company Benefit Plan that would materially increase the
benefits provided to any employee or former employee, consultant or director of
the Company or any subsidiary thereof and (ii) there has been no material
change, amendment, modification to, or adoption of, any Company Benefit Plan.
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(b) With respect to each Company Benefit Plan: (i) if intended to qualify
under Section 401(a), 401(k) or 403(a) of the Code or under any law or
regulation of any foreign jurisdiction or Regulatory Agency, such plan so
qualifies, its trust (if any) is exempt from taxation under Section 501(a) of
the Code and it has received a favorable determination letter from the Internal
Revenue Service with respect to such matters and neither the consummation of the
transaction contemplated hereby nor any other event or circumstance since the
date of such letter has adversely affected or will adversely affect such
qualification or exemption; (ii) it has been operated and administered in
compliance in all material respects with its terms and all applicable laws and
regulations (including but not limited to ERISA, the Code and any relevant
foreign laws and regulations), except for such non-compliance which has not had,
and would not reasonably be expected to have, individually or in the aggregate,
a Material Adverse Effect on the Company; (iii) there are no material pending or
threatened claims against, by or on behalf of any Company Benefit Plans (other
than routine claims for benefits) which could reasonably be expected to have a
Material Adverse Effect on the Company; (iv) to the knowledge of the Company no
breaches of fiduciary duty have occurred which could reasonably be expected to
have a Material Adverse Effect on the Company; (v) to the knowledge of the
Company no non-exempt prohibited transaction within the meaning of Section 406
of ERISA or Section 4975 of the Code has occurred which could reasonably be
expected to have a Material Adverse Effect on the Company; (vi) no Lien imposed
under the Code, ERISA or any foreign law exists which could reasonably be
expected to have a Material Adverse Effect on the Company; and (vii) all
contributions, premiums and expenses to or in respect of such Company Benefit
Plan have been timely paid in full or, to the extent not yet due, have been
adequately accrued on the financial statements included in the Company SEC
Reports, except to the extent that the failure to pay any such contributions,
premiums and expenses has not had, and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(c) Neither the Company nor any of its subsidiaries has incurred or
reasonably expects to incur, either directly or indirectly (including as a
result of an indemnification obligation), any liability under Title I or IV of
ERISA or the penalty, excise tax or joint and several liability provisions of
the Code or any foreign law or regulation relating to employee benefit plans
(including, without limitation, Section 406, 409, 502(i), 502(l), 4069 or
4212(c) of ERISA, or Section 4971, 4975 or 4976 of the Code, or under any
agreement, instrument, statute, rule or legal requirement pursuant to or under
which the Company or any Subsidiary or any Company Benefit Plan has agreed to
indemnify or is required to indemnify any person against liability incurred
under, or for a violation or failure to satisfy the requirements of, any such
legal requirement), except for any such liability which has not had, and would
not reasonably be expected to have, a Material Adverse Effect on the Company,
and to the knowledge of the Company, no event, transaction or condition has
occurred, exists or is expected to occur which could result in any such
liability to the Company, any of its subsidiaries or, after the Closing, to
Parent, except for any such liability which has not had, and would not
reasonably be expected to have, a Material Adverse Effect on the Company.
(d) With respect to each "employee pension benefit plan" (within the meaning
of Section 3(2) of ERISA) as to which either the Company or any subsidiary may
incur any liability under Section 302 or Title IV of ERISA or Section 412 of the
Code:
(i) no such plan is a "multiemployer plan" (within the meaning of
Section 3(37) of ERISA) or a "multiple employer plan" (within the meaning of
Section 413(c) of the Code);
(ii) no such plan has been terminated, other than in a standard
termination under Section 4041(b) of ERISA, so as to result, directly or
indirectly, in any material liability, contingent or otherwise, of either
the Company or any subsidiary under Title IV of ERISA;
(iii) no proceeding has been initiated by any Person (including the
Pension Benefit Guaranty Corporation (the "PBGC")) to terminate any such
plan or to appoint a trustee for any such plan;
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(iv) no condition or event currently exists or currently is expected to
occur that could result, directly or indirectly, in any liability of the
Company or any subsidiary under Title IV of ERISA, whether to the PBGC or
otherwise, which would reasonably be expected to have a Material Adverse
Effect on the Company, on account of the termination of any such plan;
(v) if any such plan were to be terminated as of the Closing Date or if
any Person were to withdraw from such plan, neither the Company nor any
subsidiary would incur, directly or indirectly, any liability under Title IV
of ERISA which would reasonably be expected to have a Material Adverse
Effect on the Company;
(vi) no "reportable event" (as defined in Section 4043 of ERISA other
than any such event with respect to which the notice requirement has been
waived by applicable regulations) has occurred with respect to any such
plan, nor has any notice of such event or similar notice to any foreign
Regulatory Agency been required to be filed for any Company Benefit Plan
within the past 12 months;
(vii) no such plan which is subject to Section 302 of ERISA or
Section 412 of the Code has incurred any "accumulated funding deficiency"
(as defined in Section 302 of ERISA and section 412 of the Code,
respectively), whether or not waived, and neither the Company nor any of its
Subsidiaries has provided, or is required to provide, security to any
Company Benefit Plan pursuant to Section 401(a)(29) of the Code; and
(viii) the transactions contemplated hereby will not result in any event
described in section 4062(e) of ERISA, except for any such event which would
not reasonably be expected to have a Material Adverse Effect on the Company.
(e) Except as set forth in Section 3.13 of the Company Disclosure Schedule,
or except as would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company, neither the execution and
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, either alone or in combination with another event (whether
contingent or otherwise) will (i) entitle any current or former employee,
consultant or director of the Company or any Subsidiary or any group of such
employees, consultants or directors to any payment; (ii) increase the amount of
compensation due to any such employee, consultant or director; (iii) accelerate
the vesting or funding of any compensation, stock incentive or other benefit;
(iv) result in any "parachute payment" under Section 280G of the Code (whether
or not such payment is considered to be reasonable compensation for services
rendered); or (v) cause any compensation to fail to be deductible under
Section 162(m), or any other provision of the Code or any similar foreign law or
regulation.
(f) Under each Company Benefit Plan which is a single-employer plan and any
foreign plan that is a defined benefit plan, as of the last day of the most
recent plan year ended prior to the date hereof, the actuarially determined
present value of all "benefit liabilities", within the meaning of
Section 4001(a)(16) of ERISA or, with respect to any foreign plan, as determined
under any equivalent law or practice (in each case as determined on the basis of
the actuarial assumptions contained in Company Benefit Plan's most recent
actuarial valuation), did not exceed the then current value of the assets of
such Company Benefit Plan by an amount which would reasonably be expected to
have a Material Adverse Effect on the Company, and there has been no adverse
change in the financial condition of such Company Benefit Plan (with respect to
either assets or benefits) since the last day of the most recent plan year,
except for such changes which have not had, and would not reasonably be expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company.
(g) No Company Benefit Plan, or Company or any Subsidiary with respect to
such Company Benefit Plan, is under audit or is the subject of an audit or
investigation by the Internal Revenue Service, the U.S. Department of Labor, the
PBGC or any other federal or state governmental agency,
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nor to the knowledge of the Company is any such audit or investigation pending
or threatened, in any case which could reasonably be expected to have a Material
Adverse Effect on the Company.
SECTION 3.14 LABOR MATTERS. (a) Except as set forth in Section 3.14 of the
Company Disclosure Schedule, neither the Company nor any of its subsidiaries is
a party to any labor or collective bargaining agreement, and there are no labor
or collective bargaining agreements which pertain to employees of the Company or
any of its subsidiaries. As of the date hereof, no labor organization or group
of employees of the Company or any of its subsidiaries has made a pending demand
against the Company or any of its subsidiaries for recognition, and there are no
representation proceedings or petitions seeking a representation proceeding
pending against the Company or any of its subsidiaries or, to the knowledge of
the Company, threatened to be brought or filed against the Company or any of its
subsidiaries with the National Labor Relations Board or any other labor
relations tribunal.
(b) There are no (i) strikes, work stoppages, slowdowns, lockouts or
arbitrations or (ii) material grievances or other labor disputes pending or, to
the knowledge of the Company, threatened against or involving the Company or any
of its subsidiaries, except as have not had, and would not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company. There are no unfair labor practice charges, grievances or
complaints pending or, to the knowledge of the Company, threatened by or on
behalf of any employee or group of employees of the Company or any of its
subsidiaries, in each case except as has not had, and would not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company.
(c) There are no complaints, charges or claims against the Company or any of
its subsidiaries or, to the knowledge of the Company, threatened to be brought
or filed with any Governmental Entity based on, arising out of, in connection
with or otherwise relating to the employment by the Company or any of its
subsidiaries of any individual, including any claim relating to employment
discrimination, equal pay, employee safety and health, wages and hours or
workers' compensation and neither the Company nor any of its subsidiaries has
violated any Law respecting such matter, in each case except as has not had, and
would not be reasonably expected to have, individually or in the aggregate, a
Material Adverse Effect on the Company.
SECTION 3.15 ENVIRONMENTAL MATTERS. (a) For purposes of this Agreement:
(i) "ENVIRONMENTAL LAW" means any applicable federal, state, local or
foreign Law (including common Law), statute, rule, regulation, ordinance,
decree or other legal requirement relating to the protection of natural
resources, the environment and public and employee health and safety or
pollution or the release or exposure to Hazardous Materials (as hereinafter
defined) and shall include, without limitation, the Comprehensive
Environmental Response, Compensation, and Liability Act 42 U.S.C.
Section9601 et seq.), the Hazardous Materials Transportation Act (49 U.S.C.
Section1801 et seq.), the Resource Conservation and Recovery Act (42 U.S.C.
Section6901 et seq.), the Clean Water Act (33 U.S.C. Section1251 et seq.),
the Clean Air Act (33 U.S.C. Section7401 et seq.), the Toxic Substances
Control Act (15 U.S.C. Section7401 et seq.), the Federal Insecticide,
Fungicide, and Rodenticide Act (7 U.S.C. Section136 et seq.), and the
Occupational Safety and Health Act (29 U.S.C. Section651 et seq.), and the
regulations promulgated pursuant thereto, and any such applicable state or
local statutes, and the regulations promulgated pursuant thereto, as such
Laws have been and may be amended or supplemented through the Closing Date;
(ii) "HAZARDOUS MATERIAL" means any substance, material or waste which
is regulated, classified or otherwise characterized as hazardous, toxic,
pollutant, contaminant or words of similar meaning or regulatory effect by
any Governmental Entity or the United States, and includes, without
limitation, petroleum, petroleum by-products and wastes, asbestos and
polychlorinated biphenyls; and
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(iii) "RELEASE" means any release, spill, effluent, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, leaching, or
migration into the indoor or outdoor environment, or into or out of any
property owned, operated or leased by the applicable party or its
subsidiaries.
(b) Except as set forth in Section 3.15 of the Company Disclosure Schedule:
(i) Each of the Company and its subsidiaries is in compliance with each
applicable Environmental Law, except for such non-compliance which has not
had, and would not reasonably be expected to have, a Material Adverse Effect
on the Company.
(ii) Each of the Company and its subsidiaries has obtained, and is in
compliance with the conditions of, all Company Permits required under any
applicable Environmental Law, except for such failures to obtain and
non-compliance which have not had, and would not reasonably be expected to
have, a Material Adverse Effect on the Company.
(iii) None of the Company or any of its subsidiaries has received any
notice, request for information, complaints or administrative or judicial
order, and there is no investigation, action, suit or proceeding pending, or
to the knowledge of the Company, threatened, alleging or asserting liability
or potential liability against the Company or any of its subsidiaries in
connection with any Environmental Law, except for such threats, allegations
and assertions which have not had, and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company.
(iv) To the knowledge of the Company, there are no past or present
conditions or circumstances at, or arising out of, the operations of the
Company and its Subsidiaries, including, but not limited to, on-site or
off-site disposal or Release of Hazardous Material, that are reasonably
likely to result in: (A) liabilities or obligations for any cleanup,
remediation, or corrective action under any Environmental Law, (B) claims
arising under any Environmental Law for personal injury, property damage or
damage to natural resources, or (C) fines or penalties arising under any
Environmental Law, except, in the case of clauses (A), (B) and (C), for
those which have not had, and are not reasonably likely to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
SECTION 3.16 TAXES.
(a) All Tax Returns required to be filed by the Company or its subsidiaries
on or prior to the Effective Time have been or will be prepared in good faith
and timely filed with the appropriate Governmental Entity on or prior to the
Effective Time or by the due date thereof including extensions and all such Tax
Returns are (or, as to Tax Returns not filed on the date hereof, will be)
complete and accurate, except where the failure to so file or for such returns
to be complete and accurate has not had, and would not reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company.
(b) All material Taxes that are required to be paid, either (i) have been
fully paid or (ii) are adequately reflected as a liability on the Company's or
its subsidiaries' books and records, except for where the failure to fully pay
such taxes or reflect them as a liability on the Company's or its subsidiaries'
books has not had, and would not reasonably be expected to have, individually or
in the aggregate, a Material Adverse Effect on the Company. All Taxes required
to be collected or withheld from third parties have been collected or withheld,
except where the failure to collect or withhold such Taxes from third parties
has not had, and would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
(c) With respect to any period for which Tax Returns have not yet been
filed, or for which Taxes are not yet due or owing, the Company and its
subsidiaries have made due and sufficient accruals for such Taxes in their
respective books and records and financial statements, except where the failure
to
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make such accruals has not had, and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(d) Except as set forth on Section 3.16 of the Company Disclosure Schedule,
neither the Company nor any of its subsidiaries has waived any statute of
limitations, or agreed to any extension of time, (i) with respect to U.S.
Federal income Taxes or (ii) where the payment of the relevant state or foreign
Taxes has had, or would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on the Company, with respect to state or
foreign Taxes.
(e) Except as set forth on Section 3.16 of the Company Disclosure Schedule,
as of this date, (i) there are no pending or, to the knowledge of the Company,
threatened audits, examinations, investigations or other proceedings in respect
of Taxes or Tax matters and (ii) there are not any unresolved questions or
claims concerning the Company's or any of its subsidiaries' Tax liability that
(x) were raised by any Taxing authority in a communication to the Company or any
subsidiary and (y) has had, or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company,
after taking into account any reserves for Taxes set forth on the most recent
balance sheet contained in the Company SEC Reports filed prior to the date
hereof.
(f) The Company has made available (or as soon as practicable from the date
hereof will make available) to Parent (i) correct and complete copies of the
United States Federal income and all material state income or franchise Tax
Returns filed by the Company and its subsidiaries for the preceding three
Taxable years, and (ii) all audit reports issued by any Taxing authorities
within the last three years (or otherwise with respect to any audit or
proceeding in progress) relating to material Taxes of the Company or any
subsidiary.
(g) Neither the Company nor any subsidiary has constituted either a
"distributing corporation" or a "controlled corporation" (within the meaning of
Section 355(a)(1)(A) of the Code) in a distribution of stock qualifying for
Tax-free treatment under Section 355 of the Code since the effective date of
Section 355(e) of the Code.
(h) For purposes of this Agreement:
"TAXES"(including, with correlative meaning, "TAXING"and "TAXABLE") includes
all forms of taxation, whenever created or imposed, and whether of the United
States or elsewhere, and whether imposed by a local, municipal, governmental,
state, foreign, Federal or other Governmental Entity, or in connection with any
agreement with respect to Taxes including all interest, penalties and additions
imposed with respect to such amounts.
"TAX RETURNS" means all Federal, state, local, provincial and foreign Tax
returns, declarations, statements, reports, schedules, forms and information
returns and any amended Tax return relating to Taxes.
SECTION 3.17 ABSENCE OF QUESTIONABLE PAYMENTS. Neither the Company or any
of its subsidiaries nor, to the Company's knowledge, any director, officer,
agent, employee or other person acting on behalf of the Company or any of its
subsidiaries, has used any corporate or other funds for unlawful contributions,
payments, gifts, or entertainment, or made any unlawful expenditures relating to
political activity to government officials or others or established or
maintained any unlawful or unrecorded funds in violation of Section 30A of the
Exchange Act, in each case except as has not had, and would not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company. Neither the Company or any of its subsidiaries nor, to the
Company's knowledge, any director, officer, agent, employee or other person
acting on behalf of the Company or any of its subsidiaries, has accepted or
received any unlawful contributions, payments, gifts, or expenditures, in each
case except as has not had, and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company. To
the Company's knowledge, the Company and each of its subsidiaries which is
required to file reports pursuant to
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Section 12 or 15(d) of the Exchange Act is in compliance with the provisions of
Section 13(b) of the Exchange Act, in each case except as has not had, and would
not be reasonably expected to have, a Material Adverse Effect on the Company.
SECTION 3.18 MATERIAL CONTRACTS. (a) As used herein "MATERIAL CONTRACTS"
means, with respect to any entity, each note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which such
entity or any of its subsidiaries is a party or by which any of them or any of
their respective properties or assets may be bound, including all amendments,
modifications, waivers, supplements and side letters thereto, that is material
to the business, properties or assets of such entity and its subsidiaries taken
as a whole, including, without limitation, to the extent any of the following
are, individually or in the aggregate, material to the business, properties or
assets of such entity and its subsidiaries taken as a whole, all:
(i) employment, severance, product design or development, personal services,
consulting, non-competition or indemnification contracts (including, without
limitation, any contract to which such entity or any of its subsidiaries is a
party involving employees of such entity); (ii) licensing, merchandising or
distribution agreements; (iii) contracts granting a right of first refusal or
first negotiation; (iv) partnership or joint venture agreements; (v) agreements
for the acquisition, sale or lease (including leases in connection with
financing transactions) of material properties or assets of such entity (by
merger, purchase or sale of assets or stock or otherwise) entered into since
January 1, 1996 or, if prior to that date, have representations, warranties or
indemnities that remain in effect or as to which claims are pending;
(vi) contracts or agreements with any Governmental Entity; (vii) loan or credit
agreements, mortgages, indentures or other agreements or instruments evidencing
indebtedness for borrowed money by such entity or any of its subsidiaries or any
such agreement pursuant to which indebtedness for borrowed money may be
incurred; (viii) agreements or arrangements, including but not limited to
hedges, options, swaps, caps and collars, designed to protect such entity or any
of its subsidiaries against fluctuations in interest rates, currency exchange
rates or the prices of certain commodities and raw materials; (ix) contracts or
agreements that would be required to be filed as an exhibit to a Form 10-K filed
by such entity with the SEC on the date hereof; and (x) commitments and
agreements to enter into any of the foregoing. The Material Contracts of the
Company also include all agreements that purport to limit, curtail or restrict
the ability of the Company or any of its subsidiaries or affiliates to compete
in any geographic area or line of business.
(b) Each of the Material Contracts of the Company constitutes a valid and
legally binding obligation of the Company or its subsidiaries, and to the
knowledge of the Company, a valid and legally binding obligation of each other
party thereto, enforceable in accordance with its terms (except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer and similar Laws of general
applicability relating to or affecting creditors' rights or by general equity
principles), and is in full force and effect, in each case except for such
failures that have not had, and would not be reasonably expected to have, a
Material Adverse Effect on the Company. There is no default under any Material
Contract of the Company either by the Company or, to the Company's knowledge, by
any other party thereto, and no event has occurred that with the lapse of time
or the giving of notice or both would constitute a default thereunder by the
Company or, to the Company's knowledge, any other party, in each case except as
has not had, and would not reasonably be expected to have, individually or in
the aggregate, a Material Adverse Effect on the Company.
(c) No party to any such Material Contract of the Company has given notice
to the Company of or made a claim against the Company with respect to any breach
or default thereunder, in each case except as has not had, and would not
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(d) None of the existing Material Contracts of the Company will restrict, in
any material respect, the ability of Parent or any of its subsidiaries, to
conduct, from and after the Closing, the advertising,
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public relations, media planning and media buying businesses of Parent and its
subsidiaries, as currently conducted.
SECTION 3.19 INSURANCE MATTERS. The insurance policies of the Company and
its subsidiaries have been issued by insurers, which, to the Company's
knowledge, are reputable and financially sound and provide coverage for the
operations conducted by the Company and its subsidiaries of a scope and coverage
consistent with customary industry practice.
SECTION 3.20 INTELLECTUAL PROPERTY. (a) The Company and its subsidiaries
own or possess, in all material respects, adequate licenses or other valid
rights to use (in each case, free and clear of any Liens), all Intellectual
Property used or held for use in connection with the business of the Company and
its subsidiaries as currently conducted or as contemplated to be conducted, in
each case except for such failures that have not had, and would not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(b) The use of any Intellectual Property by the Company and its subsidiaries
does not infringe on, or otherwise violate the rights of any person and is in
accordance with each applicable license pursuant to which the Company or any of
its subsidiaries acquired the right to use such Intellectual Property, in each
case except as has not had, and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(c) No person is challenging or, to the knowledge of the Company, infringing
on or otherwise violating any right of the Company or any of its subsidiaries
with respect to any Intellectual Property owned by or licensed to the Company or
any of its subsidiaries, in each case except as has not had, and would not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on the Company.
(d) Neither the Company nor any of its subsidiaries has received any notice
(written or otherwise) of any assertion or claim, pending or not, with respect
to any Intellectual Property used by the Company or any of its subsidiaries, in
each case except as has not had, and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
(e) No Intellectual Property owned or licensed by the Company or any of its
subsidiaries is being used or enforced in a manner that would result in the
abandonment, cancellation or unenforceability of such Intellectual Property,
other than as does not have, and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company.
For purposes of this Agreement, "INTELLECTUAL PROPERTY" means (i) all
trademarks, trademark rights, trade names, trade name rights, trade dress and
other indications of origin, corporate names, brand names, logos, certification
rights, service marks, applications for trademarks and for service marks,
know-how and other proprietary rights and information, the goodwill associated
with the foregoing and registration in any jurisdiction of, and applications in
any jurisdictions to register, the foregoing, including any extension,
modification or renewal of any such registration or application; (ii) all
inventions, discoveries and ideas (whether patentable or unpatentable and
whether or not reduced to practice), in any jurisdiction, all improvements
thereto, and all patents, patent rights, applications for patents (including,
without limitation, divisions, continuations, continuations in part and renewal
applications), and any renewals, extensions or reissues thereof, in any
jurisdiction; (iii) all licenses (whether the Company is licensor or licensee)
and other agreements relating to any Intellectual Property described in (i) or
(ii); (iv) nonpublic information, trade secrets and confidential information and
rights in any jurisdiction to limit the use or disclosure thereof by any person;
(v) writings and other works, whether copyrightable or not, in any jurisdiction,
and all registrations or applications for registration of copyrights in any
jurisdiction, and any renewals or extensions thereof; (vi) all mask works and
all applications, registrations and renewals in connection therewith, in any
jurisdiction; (vii) all computer software (including data and related
documentation); (viii) any similar intellectual property or proprietary rights;
and (ix) all copies and tangible documentation thereof and any claims or causes
of action arising out of or relating to any infringement or misappropriation of
any of the foregoing.
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SECTION 3.21 YEAR 2000. (a) All of the Computer Programs (as hereinafter
defined), computer firmware, computer hardware (whether general or special
purpose) and other similar or related items of automated, computerized and/or
software system(s) that are used or relied on by the Company or by any of its
subsidiaries in the conduct of their respective businesses will not malfunction,
cease to function, generate incorrect data, or provide incorrect results when
processing, providing or receiving (i) date-related data into and between the
twentieth and twenty-first centuries or (ii) date-related data in connection
with any valid date in the twentieth and twenty-first centuries, in each case
except for such failures that have not had, and would not be reasonably expected
to have, individually or in the aggregate, a Material Adverse Effect on the
Company.
(b) All of the products and services sold, licensed, rendered or otherwise
provided by the Company or by any of its subsidiaries in the conduct of their
respective businesses will not, in any material respect, malfunction, cease to
function, generate incorrect data or produce incorrect results when processing,
providing or receiving (i) date-related data into and between the twentieth and
twenty-first centuries or (ii) date-related data in connection with any valid
date in the twentieth and twenty-first centuries, in each case except for such
failures that have not had, and would not be reasonably expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company; and
neither the Company nor any of its subsidiaries is or will be subject to any
material claims or liabilities arising from their failure to do so, except for
such claims and liabilities that have not had, and would not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company.
(c) The Company and its subsidiaries have developed and are executing a plan
with respect to Year 2000 readiness (the "YEAR 2000 PLAN"). The Year 2000 Plan
addresses the Year 2000 issues, all internal information systems and process
control risks, embedded circuitry risks and third party risks, except for those
which, if not addressed, would not be reasonably likely to have, individually or
in the aggregate, a Material Adverse Effect on the Company.
For the purposes of this Agreement, "COMPUTER PROGRAMS" means (i) any and
all computer software programs, including all source and object code;
(ii) databases and compilations, including any and all data and collections of
data, whether machine readable or otherwise; (iii) billing, reporting, and other
management information systems; (iv) all descriptions, flow-charts and other
work product used to design, plan, organize and develop any of the foregoing;
(v) all content contained on Internet sites; and (vi) all documentation,
including user manuals and training materials, relating to any of the foregoing.
SECTION 3.22 OPINION OF FINANCIAL ADVISOR. Greenhill & Co., L.L.C. (the
"COMPANY FINANCIAL ADVISOR") has delivered to the Company Board its oral opinion
that, as of the date hereof, the Exchange Ratio is fair to the holders of Shares
from a financial point of view, which opinion will be confirmed in writing. A
true and correct copy of such written opinion will be furnished to Parent
promptly following its receipt by the Company.
SECTION 3.23 BROKERS. No broker, finder or investment banker (other than
the Company Financial Advisor, a true, correct and complete copy of whose
engagement agreement has been provided to Parent) is entitled to any brokerage,
finder's or other fee or commission or expense reimbursement in connection with
the transactions contemplated by this Agreement based upon arrangements made by
and on behalf of the Company or any of its affiliates.
SECTION 3.24 ACCOUNTING MATTERS; TAX TREATMENT. Neither the Company nor
any of its affiliates has taken or agreed to take any action, or after
consultation with Arthur Andersen LLP, its independent auditors, is aware of any
fact or circumstance relating to the Company or any of its subsidiaries, that
would (i) prevent the Merger from qualifying as a "pooling of interests" under
APB 16 and the applicable SEC rules and regulations or (ii) prevent the Merger
from qualifying as a reorganization within the meaning of Section 368 of the
Code. The Company has not failed to bring to the attention of Parent any
actions, agreements or understandings, whether written or oral, that could
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be asserted to prevent Parent from accounting for the Merger as a "pooling of
interests" under APB 16 and the applicable SEC rules and regulations.
SECTION 3.25 TAKEOVER STATUTES, ETC. The Company Board has approved, for
purposes of Section 203 of the DGCL, (i) the Option Agreement and the
transactions contemplated thereby, and (ii) the Merger. The Company has taken
all action required to be taken by it in order to exempt this Agreement and the
Option Agreement and the transactions contemplated hereby and thereby from the
requirements of any applicable "moratorium", "control share", "fair price",
"affiliate transaction", "business combination" or other antitakeover Laws and
regulations of any state (collectively, "TAKEOVER STATUTES").
SECTION 3.26 AMENDMENT TO THE COMPANY RIGHTS AGREEMENT. The Company Board
has taken all necessary action (including any amendment thereof) under the
Company Rights Agreement so that (a) none of the execution or delivery of this
Agreement and the Option Agreement, the exercise of the option contained in the
Option Agreement, the exchange of the shares of Parent Common Stock for the
Shares in accordance with Article II or any other transaction contemplated
hereby or thereby will cause (i) the rights (the "RIGHTS") issued pursuant to
the Company Rights Agreement to become exercisable under the Company Rights
Agreement, (ii) a Separation Date or Share Acquisition Date (each as defined on
the Company Rights Agreement) to occur, (iii) Parent or the Merger Sub to be
deemed an Acquiring Person (as defined in the Company Rights Agreement) or
(iv) a Triggering Event (as defined in the Company Rights Agreement) to occur
upon any such event; and (b) the execution and delivery of this Agreement and
the Option Agreement, the exercise of the option contained in the Option
Agreement and the other transactions contemplated hereby or thereby will be
exempt from the Company Rights Agreement. The Company has furnished Parent with
true and correct copies of all such actions of the Company Board.
SECTION 3.27 INSIGHTEXPRESS, L.L.C. As of the date hereof, if
InsightExpress, L.L.C. ("IX, LLC") were to cause (which action may be caused by
the three designees of IX, Inc. on the Board of Representatives of IX, LLC) the
occurrence of the mergers referred to in Section 8 of the Master Investors
Rights Agreement in connection with an initial public offering (specifically,
the merger of IX Holding Co., Inc. with and into IX, Inc., to be followed by the
merger of Greenhill 1999 Equity Holdings Corporation with and into the surviving
corporation of such initial merger), the pro forma fully diluted ownership
interest of the Company in the surviving corporation of the mergers referred to
above would be 50%. For purposes hereof, "MASTER INVESTORS RIGHTS AGREEMENT"
shall mean the Master Investors Rights Agreement, dated October 18, 1999, by and
among IX, Inc., IX Holding Co., Inc., IX, LLC and the other persons named
herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT
Except as set forth in the section of the disclosure schedule delivered by
Parent to the Company prior to the execution of this Agreement (the "PARENT
DISCLOSURE SCHEDULE") that specifically relates to a specified Section of this
Article IV, Parent hereby represents and warrants to the Company as follows:
SECTION 4.1 ORGANIZATION. (a) Each of Parent and its subsidiaries is a
corporation duly organized, validly existing and if applicable in good standing
under the Laws of the jurisdiction of its incorporation and has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its businesses as now conducted and proposed by Parent to be conducted,
except where the failure to be duly organized, existing and in good standing or
to have such power and authority has not had and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
Parent.
(b) Each of Parent and its subsidiaries is duly qualified or licensed and in
good standing to do business in each jurisdiction in which the property owned,
leased or operated by it or the nature of the
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business conducted by it makes such qualification or licensing necessary, except
where the failure to be so duly qualified or licensed and in good standing has
not had, and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent.
(c) Parent has heretofore delivered to the Company accurate and complete
copies of the articles of incorporation and bylaws of Parent as currently in
effect.
SECTION 4.2 CAPITALIZATION OF PARENT. (a) The authorized capital stock of
the Parent consists of 550,000,000 shares of Parent Common Stock, par value $.10
per share, and 20,000,000 shares of preferred stock, no par value ("PARENT
PREFERRED STOCK"). As of September 30, 1999, (i) 281,006,318 shares of Parent
Common Stock were issued and outstanding (as of October 30, 1999, 280,651,942
shares of Parent Common Stock were issued and outstanding); (ii) 21,011,801
shares of Parent Common Stock were subject to outstanding options issued
pursuant to Parent's 1986, 1988, 1996 and 1997 Stock Option Plans; and at least
a like number of shares of Parent Common Stock were reserved for issuance in
respect of such options; and (iii) 15,275,947 shares of Parent Common Stock were
issued and held in the treasury of the Parent. As of the date hereof, no shares
of Parent Preferred Stock are issued and outstanding. Since the Capitalization
Date, there have been no (A) issuances of shares of Parent Common Stock, other
than issuances pursuant to options outstanding on the Capitalization Date. All
the outstanding shares of Parent Common Stock are, and all shares to be issued
as part of the Merger Consideration will be, when issued in accordance with the
terms hereof, duly authorized, validly issued, fully paid and non-assessable.
Except as set forth above, and except as disclosed in the Parent SEC reports,
(1) there are no shares of capital stock of Parent authorized, issued or
outstanding, (2) there are no authorized or outstanding options, warrants,
calls, preemptive rights, subscriptions or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Parent, obligating Parent to issue, transfer or sell or
cause to be issued, transferred or sold any shares of capital stock or other
equity interest in Parent or securities convertible into or exchangeable for
such shares or equity interests, or obligating Parent to grant, extend or enter
into any such option, warrant, call, subscription or other right, agreement,
arrangement or commitment, and (3) there are no outstanding contractual
obligations of Parent to repurchase, redeem or otherwise acquire any capital
stock of Parent.
(b) Except as set forth in the Parent SEC Reports, all of the outstanding
capital stock of Parent's subsidiaries (including, as of the Closing Date,
Merger Sub) is owned by Parent, directly or indirectly, free and clear of any
Lien or any other limitation or restriction (including any restriction on the
right to vote or sell the same, except as may be provided as a matter of Law),
except for such failures to own that have not had, and would not be reasonably
expected to have, individually or in the aggregate, a Material Adverse Effect on
Parent.
SECTION 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. (a) Parent has all
necessary corporate power and authority to execute and deliver this Agreement
and the Option Agreement and to consummate the transactions contemplated hereby
and thereby. No other corporate proceedings on the part of Parent are necessary
to authorize this Agreement or to consummate the transactions contemplated
hereby and thereby. This Agreement and the Option Agreement have each has been
duly and validly executed and delivered by Parent and each constitutes a valid,
legal and binding agreement of Parent, enforceable against Parent in accordance
with its terms.
(b) The Boards of Directors of Parent (the "PARENT BOARD") has duly and
validly authorized the execution and delivery of this Agreement and the Option
Agreement and the consummation of the transactions contemplated hereby and
thereby, and taken all corporate actions required to be taken by the Parent
Board, for the consummation of the transactions contemplated hereby and thereby.
(c) As of the Closing Date, Merger Sub will have all necessary corporate
power and authority, and will be duly and validly authorized, to consummate the
Merger.
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SECTION 4.4 SEC REPORTS; FINANCIAL STATEMENTS. (a) Parent has timely filed
all required forms, reports and documents with the SEC since January 1, 1997,
each of which has complied as to form in all material respects with all
applicable requirements of the Securities Act and the Exchange Act, each as in
effect on the dates such forms, reports and documents were filed. Parent has
heretofore made available to the Company, in the form filed with the SEC
(including any amendments thereto); (i) its Annual Reports on Form 10-K for the
fiscal year ended December 31, 1996, 1997 and 1998, (ii) all definitive proxy
statements relating to Parent's meetings of stockholders (whether annual or
special) held since January 1, 1996; and (iii) all other reports or registration
statements filed by Parent with the SEC since January 1, 1996 and prior to the
date hereof (the "PARENT SEC REPORTS"). None of such forms, statements, reports
or documents, including, without limitation, any financial statements, exhibits
or schedules included or incorporated by reference therein, contained, when
filed, any untrue statement of a material fact or omitted to state a material
fact required to be stated or incorporated by reference therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading.
(b) The audited and unaudited consolidated financial statements of Parent
included (or incorporated by reference) in the Parent SEC Reports complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC with respect thereto and fairly
present in all material respects, in conformity with GAAP applied on a
consistent basis (except as specifically indicated in the notes thereto), the
consolidated financial position of Parent and its consolidated subsidiaries as
of the dates thereof and their consolidated results of operations and changes in
financial position for the periods then ended (subject, in the case of the
unaudited interim financial statements, to normal year-end adjustments that have
not been, and will not be, material in amount).
SECTION 4.5 NO UNDISCLOSED LIABILITIES. Except as set forth in
Section 4.5 of the Parent Disclosure or Schedule the Parent SEC Reports, and
except for such liabilities and obligations that have not had, and would not be
reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent, neither Parent nor any of its subsidiaries has any
liabilities or obligations of any nature, whether or not accrued, contingent or
otherwise, and whether or not required to be recorded or reflected on a balance
sheet under GAAP, and there is no existing condition, situation or set of
circumstances which could reasonably be expected to result in such a liability
or obligation.
SECTION 4.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as and to the
extent disclosed in the Parent SEC Reports or as set forth in Section 4.6 of the
Parent Disclosure Schedule, since the Audit Date (a) the businesses of the
Parent and its Subsidiaries have been conducted in the ordinary course
consistent with past practice, and (b) there has not been any event, occurrence,
development or state of circumstance or facts that has had, or would reasonably
be expected to have, individually or in the aggregate, a Material Adverse Effect
on the Parent.
SECTION 4.7 INFORMATION SUPPLIED. None of the information supplied or to
be supplied by Parent or Merger Sub for inclusion or incorporation by reference
in (i) the S-4 will, at the time the S-4 is filed with the SEC and at the time
it becomes effective under the Securities Act, will contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading or (ii) the
Proxy Statement will, at the date mailed to stockholders and at the time of the
Company Stockholder Meeting, contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. If, at any time prior to the Effective Time, any
event with respect to Parent, its officers and directors or any of its
subsidiaries should occur which is required to be described in an amendment of,
or a supplement to, the S-4 or the Proxy Statement, Parent shall promptly so
advise the Company and such event shall be so described, and such amendment or
supplement (which the
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Company shall have a reasonable opportunity to review) shall be promptly filed
with the SEC. The S-4 will comply as to form in all material respects with the
provisions of the Securities Act and the rules and regulations thereunder.
Notwithstanding the foregoing, no representation is made in this Section 4.7 as
to information provided by the Company for inclusion in the S-4 or the Proxy
Statement.
SECTION 4.8 CONSENTS AND APPROVALS; NO VIOLATIONS. (a) Except for filings,
permits, authorizations, consents and approvals as may be required under, and
other applicable requirements of, the Securities Act, the Exchange Act, state
securities or "blue sky" Laws, the HSR Act and applicable non-U.S. Laws with
respect to competition, the filing and recordation of a Certificate of Merger as
required by the DGCL and as otherwise set forth in Section 4.8 to the Parent
Disclosure Schedule (the "PARENT REQUIRED APPROVALS"), no filing with or notice
to, and no permit, authorization, consent or approval of, any Governmental
Entity is necessary for the execution and delivery by Parent of this Agreement
or the Option Agreement or the consummation by Parent of the transactions
contemplated hereby or thereby, except where the failure to obtain such permits,
authorizations, consents or approvals or to make such filings or give such
notice does not have, and would not reasonably be expected to have, individually
or in the aggregate, a Material Adverse Effect on Parent.
(b) Neither the execution, delivery and performance of this Agreement or the
Option Agreement, by Parent nor the consummation by Parent or Merger Sub of the
transactions contemplated hereby and thereby will (i) conflict with or result in
any breach of any provision of the respective certificates of incorporation or
bylaws (or similar governing documents) of Parent or any of Parent's
subsidiaries, (ii) result in a violation or breach of, or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration of an obligation
or the loss of any material benefit, or the creation of any Lien) under, any of
the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
Parent or any of Parent's subsidiaries is a party or by which any of them or any
of their respective properties or assets may be bound or (iii) (assuming receipt
of all Parent Required Approvals) violate any Law applicable to Parent or any of
Parent's subsidiaries or any of their respective properties or assets, except in
the case of (ii) or (iii) for violations, breaches or defaults that have not
had, and would not reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent.
SECTION 4.9 COMPLIANCE WITH APPLICABLE LAWS. Except as and to the extent
disclosed by Parent in the Parent SEC Reports, the businesses of Parent and its
subsidiaries are not being conducted in violation of any applicable Law except
for violations that have not had, and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent. To
Parent's knowledge, no investigation or review by any Governmental Entity with
respect to Parent or its subsidiaries is pending or threatened, nor, to Parent's
knowledge, has any Governmental Entity indicated an intention to conduct the
same except for such investigations and reviews which have not had and would not
be reasonably expected to have, individually or in the aggregate, a Material
Adverse Effect on Parent.
SECTION 4.10 BROKERS. No broker, finder or investment banker is entitled
to any brokerage, finder's or other fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by and
on behalf of Parent or any of its affiliates.
SECTION 4.11 ACCOUNTING MATTERS; TAX TREATMENT. Neither Parent nor any of
its affiliates, has taken or agreed to take any action or, after consultation
with PriceWaterhouseCoopers, its independent auditors, is aware of any fact or
circumstance relating to Parent or its subsidiaries that would (a) prevent the
Merger from qualifying as a "pooling of interests" under APB 16 and the
applicable SEC rules and regulations, or (b) prevent the Merger from qualifying
as a re-organization within the meaning of Section 368 of the Code. Parent has
not failed to bring to the attention of the Company any actions, agreements or
understandings, whether written or oral, that would be reasonably likely to
prevent Parent from accounting for the Merger as a "pooling of interests" under
APB 16 and the applicable SEC rules and regulations.
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SECTION 4.12 LITIGATION. Except as and to the extent disclosed in the
Parent SEC Reports or as set forth in Section 4.12 of the Company Disclosure
Schedule, there is no suit, claim, action, proceeding or investigation pending
or, to Parent's knowledge, threatened against Parent or any of its subsidiaries
or any of their respective properties or assets which has had, or if decided
adversely to Parent would reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect on Parent. Except as and to the extent
disclosed in the Parent SEC Reports filed prior to the date hereof, none of
Parent and its subsidiaries is subject to any outstanding order, writ,
injunction or decree which has had, or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent.
SECTION 4.13 MATERIAL CONTRACTS.
(a) Each of the Material Contracts of Parent constitutes a valid and legally
binding obligation of Parent or its subsidiaries, and to the knowledge of
Parent, a valid and legally binding obligation of each other party thereto,
enforceable in accordance with its terms (except as enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer and similar Laws of general applicability relating to or
affecting creditors' rights or by general equity principles), and is in full
force and effect, in each case except for such failures that have not had, and
would not be reasonably expected to have, a Material Adverse Effect on Parent.
There is no default under any Material Contract of Parent either by Parent or,
to Parent's knowledge, by any other party thereto, and no event has occurred
that with the lapse of time or the giving of notice or both would constitute a
default thereunder by Parent or, to Parent's knowledge, any other party, in each
case except as has not had, and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent.
(b) No party to any such Material Contract has given notice to Parent of or
made a claim against Parent with respect to any breach or default thereunder, in
each case except as has not had, and would not reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on Parent.
ARTICLE V
COVENANTS RELATED TO CONDUCT OF BUSINESS
SECTION 5.1 CONDUCT OF BUSINESS OF THE COMPANY. Except as contemplated by
this Agreement, during the period from the date hereof to the Effective Time,
the Company will, and will cause each of its subsidiaries to, conduct its
operations in the ordinary and usual course of business consistent with past
practice and, to the extent consistent therewith, with no less diligence and
effort than would be applied in the absence of this Agreement, seek to preserve
intact its current business organizations, seek to keep available the service of
its current officers and employees and seek to preserve its relationships with
customers, suppliers and others having business dealings with it to the end that
goodwill and ongoing businesses shall be unimpaired at the Effective Time.
Without limiting the generality of the foregoing, and except as otherwise
expressly provided in this Agreement, the Option Agreement or Section 5.1 of the
Company Disclosure Schedule, prior to the Effective Time, neither the Company
nor any of its subsidiaries will, without the prior written consent of Parent,
(a) amend its certificate of incorporation or bylaws (or other similar
governing instrument) or amend, modify, terminate or waive any application of
the Company Rights Agreement;
(b) authorize for issuance, issue, sell, deliver or agree or commit to
issue, sell or deliver (whether through the issuance or granting of options,
warrants, commitments, subscriptions, rights to purchase or otherwise) any stock
of any class or any other securities convertible into or exchangeable for any
stock or any equity equivalents (including, without limitation, any stock
options or stock appreciation rights),
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except for the issuance or sale of Shares pursuant to Company Stock Options
outstanding on the date of this Agreement;
(c) (i) split, combine or reclassify any shares of its capital stock;
(ii) declare, set aside or pay any dividend or other distribution (whether in
cash, stock or property or any combination thereof) in respect of its capital
stock; (iii) make any other actual, constructive or deemed distribution in
respect of any shares of its capital stock or otherwise make any payments to
stockholders in their capacity as such; or (iv) redeem, repurchase or otherwise
acquire any of its securities or any securities of any of its subsidiaries
(including redeeming any Rights);
(d) adopt a plan of, or alter through, complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries (other than the Merger
and other than a merger solely involving wholly owned Subsidiaries of the
Company that does not result in any restructuring costs);
(e)(i) incur or assume any long-term or short-term debt or issue any debt
securities, except for borrowings under existing lines of credit in the ordinary
and usual course of business consistent with past practice and in amounts not
material to the Company and its subsidiaries taken as a whole; (ii) assume,
guarantee, endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person, except in
the ordinary and usual course of business consistent with past practice and in
amounts not material to the Company and its subsidiaries, taken as a whole, and
except for guarantees of obligations of wholly owned subsidiaries of the
Company; (iii) except for loans to employees who are not Managers and advances
in the ordinary course of business consistent with past practice, make any
loans, advances or capital contributions to, or investments in, any other person
(other than to wholly owned subsidiaries of the Company); (iv) pledge or
otherwise encumber shares of capital stock of the Company or its subsidiaries;
or (v) mortgage or pledge any of its material assets, tangible or intangible, or
create or suffer to exist any material Lien thereupon;
(f) except as may be required by Law, enter into, adopt, amend, extend or
terminate any bonus, profit sharing, compensation, severance, termination, stock
option, stock appreciation right, restricted stock, performance unit, stock
equivalent, stock purchase agreement, pension, retirement, deferred
compensation, labor, collective bargaining, employment, severance or other
employee benefit agreement, trust, plan, fund, award or other arrangement for
the benefit or welfare of any director, officer or employee in any manner, or
(except as required under agreements existing on the date hereof) increase in
any manner the compensation or fringe benefits of any director, officer or
employee or pay any benefit not required by any plan and arrangement as in
effect as of the date hereof, including, without limitation, the granting of
stock appreciation rights or performance units, but excluding increases in
compensation, bonus or other benefits payable to employees of the Company or any
of its subsidiaries who are not members of the executive committee of the
Company in the ordinary and usual course of business consistent with past
practice or merit increases in salaries of such employees at regularly scheduled
times in customary amounts consistent with past practices;
(g) acquire, sell, lease or dispose of any assets outside the ordinary and
usual course of business consistent with past practice or any assets which in
the aggregate are material to the Company and its subsidiaries taken as a whole,
or enter into any commitment or transaction outside the ordinary and usual
course of business consistent with past practice;
(h) except as may be required as a result of a change in Law or in GAAP,
change any of the accounting principles or practices used by it;
(i) revalue in any material respect any of its assets, including, without
limitation, writing down the value of inventory or writing-off notes or accounts
receivable other than in the ordinary and usual course of business consistent
with past practice or as required by GAAP;
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(j) acquire (by merger, consolidation, or acquisition of stock or assets or
otherwise) any corporation, partnership or other business organization or
division thereof or any equity interest therein; (ii) enter into any contract or
agreement, other than in the ordinary and usual course of business consistent
with past practice or amend in any material respect any of the Material
Contracts or (iii) authorize any new capital expenditure or expenditures which,
individually or in the aggregate, are, or would reasonably be expected to be
material to the Company;
(k) make or revoke any material Tax election, or settle or compromise any
material Tax liability, or change (or make a request to any Taxing authority to
change) any material aspect of its method of accounting for Tax purposes;
(l) pay, discharge or satisfy any material claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
and usual course of business consistent with past practice of liabilities
reflected or reserved against in the Company's consolidated balance sheet as of
September 30, 1999 (or the notes thereto) as included in the Company SEC
Reports, or incurred subsequent to such date in the ordinary and usual course of
business consistent with past practice;
(m) waive the benefits of, agree to modify in any manner or refrain from
enforcing any confidentiality, standstill or similar agreement to which the
Company or any of its subsidiaries is a party;
(n) settle or compromise any pending or threatened suit, action or claim
relating to the transactions contemplated hereby;
(o) take any action (including any action otherwise permitted by this
Section 5.1) that would prevent or impede the Merger from qualifying as a
"pooling of interests" under APB 16 and the applicable SEC rules and regulations
or as a reorganization under Section 368(a) of the Code;
(p) enter into any agreement or arrangement that limits or otherwise
restricts the Company or any of its subsidiaries or any successor thereto or
that would, after the Effective Time, limit or restrict the Surviving
Corporation and its affiliates (including Parent) or any successor thereto, from
engaging or competing in any line of business or in any geographic area; or
(q) take, propose to take, or agree in writing or otherwise to take, any of
the actions described in Sections 5.1(a) through 5.1(p) or any action which
would (y) make any of the representations or warranties of the Company contained
in this Agreement (i) which are qualified as to materiality, untrue or incorrect
or (ii) which are not so qualified, untrue or incorrect in any material respect
or (z) would be reasonably likely to result in any of the conditions to the
Merger set forth in Article VII hereof not being satisfied.
SECTION 5.2 CONDUCT OF BUSINESS OF PARENT. Except as otherwise expressly
provided in this Agreement or as set forth in the Parent Disclosure Schedule,
prior to the Effective Time, neither Parent nor any of its subsidiaries will,
without the prior written consent of the Company:
(a) amend its certificate of incorporation (or other similar governing
instrument) in any manner that would be adverse in any material respect to the
holders of Parent Common Stock;
(b) declare, set aside or pay any dividend or other distribution in respect
of its capital stock except the declaration and payment of quarterly cash
dividends in amounts consistent with past practice;
(c) liquidate or dissolve Parent;
(d) take any action (including any action otherwise permitted by this
Section 5.2) that would prevent or impede the Merger from qualifying as a
"pooling of interests" under APB 16 and the applicable SEC rules and regulations
or as a reorganization under Section 368(a) of the Code; or
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(e) take, propose to take, or agree in writing or otherwise to take, any of
the actions described in Sections 5.2(a) through 5.2(d) or any action which
(y) would make the representations or warranties of Parent in this Agreement
(i) which are qualified as to materiality, untrue or incorrect or (ii) which are
not so qualified, untrue in any material respect or (z) would be reasonably
likely to result in any of the conditions to the Merger set forth in
Article VII hereof not being satisfied.
SECTION 5.3 ACCESS TO INFORMATION. (a) Between the date hereof and the
Effective Time, the Company will give Parent and its authorized representatives
(including counsel, financial advisors and auditors) reasonable access during
normal business hours to all employees, plants, offices, warehouses and other
facilities and to all books and records, including all Tax returns and audits,
of the Company and its subsidiaries, will permit Parent to make such inspections
as Parent may reasonably require and will cause the Company's officers and those
of its subsidiaries to furnish Parent with such financial and operating data and
other information with respect to the business, properties and personnel of the
Company and its subsidiaries as Parent may from time to time reasonably request,
provided that no investigation pursuant to this Section 5.3(a) shall affect or
be deemed to modify any of the representations or warranties made by the
Company.
(b) Between the date hereof and the Effective Time, the Company shall
furnish to Parent, (i) concurrently with the delivery thereof to management,
such monthly financial statements and data as are regularly prepared for
distribution to Company management and (ii) at the earliest time they are
available, such quarterly and annual financial statements as are prepared for
the Company's SEC filings, which (in the case of this clause (ii)) shall be in
accordance with the books and records of the Company.
(c) Between the date hereof and the Effective Time, in response to
reasonable requests from the Company, Parent will give the Company and its
authorized representatives (including counsel, financial advisors and auditors)
reasonable access during normal business hours to appropriate members of
management and books and records of Parent.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 PREPARATION OF S-4 AND THE PROXY STATEMENT. Parent and the
Company will, as promptly as practicable, jointly prepare and file with the SEC
the Proxy Statement in connection with the vote of the stockholders of the
Company with respect to the Merger. Promptly following receipt of notification
from the SEC that it has no further comments on the Proxy Statement, or at such
earlier time as Parent may elect, Parent shall prepare and file with the SEC the
S-4, containing a proxy statement/prospectus, and forms of proxy, in connection
with the registration under the Securities Act of the shares of Parent Common
Stock issuable upon conversion of the Shares and the other transactions
contemplated hereby. Parent and the Company will, and will cause their
accountants and lawyers to, use all reasonable best efforts to have or cause the
S-4 declared effective as promptly as practicable after filing with the SEC,
including, without limitation, causing their accountants to deliver necessary or
required instruments such as opinions, consents and certificates, and will take
any other action required or necessary to be taken under federal or state
securities Laws or otherwise in connection with the registration process (other
than qualifying to do business in any jurisdiction which it is not now so
qualified or to file a general consent to service of process in any
jurisdiction). The Company and Parent shall, as promptly as practicable after
the receipt thereof, provide to the other party copies of any written comments
and advise the other party of any oral comments, with respect to the Proxy
Statement or the S-4 received from the staff of the SEC. The Company will
provide Parent with a reasonable opportunity to review and comment on any
amendment or supplement to the Proxy Statement prior to filing with the SEC and
will provide Parent with a copy of all such filings with the SEC. The Company
will use its reasonable best efforts to cause the Proxy Statement to be mailed
to its stockholders at the earliest practicable date.
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SECTION 6.2 LETTER OF ACCOUNTANTS. (a) The Company shall use all
reasonable best efforts to cause to be delivered to Parent a letter of Arthur
Andersen LLP, the Company's independent auditors, dated a date within two
business days before the date on which the S-4 shall become effective and
addressed to Parent, in form and substance reasonably satisfactory to Parent and
customary in scope and substance for letters delivered by independent public
accountants in connection with registration statements similar to the S-4.
(b) Parent shall use all reasonable best efforts to cause to be delivered to
the Company a letter of PriceWaterhouseCoopers, Parent's independent auditors,
dated a date within two business days before the date on which the S-4 shall
become effective and addressed to the Company, in form and substance reasonably
satisfactory to the Company and customary in scope and substance for letters
delivered by independent public accountants in connection with registration
statements similar to the S-4.
SECTION 6.3 MEETING. The Company shall take all lawful action to
(a) cause a special meeting of its stockholders (the "COMPANY STOCKHOLDER
MEETING") to be duly called and held as soon as practicable after the date of
this Agreement for the purpose of voting on the approval and adoption of the
agreement of merger (within the meaning of Section 251 of the DGCL) contained in
this Agreement, and the Merger, and (b) solicit proxies from its stockholders to
obtain the Required Company Vote with respect to such approval and adoption. The
Company Board shall recommend approval and adoption of this Agreement and the
Merger by the Company's stockholders and, except as permitted by
Section 6.5(b), the Company Board shall not withdraw, amend or modify in a
manner adverse to Parent such recommendation (or announce publicly its intention
to do so). The Company Board shall comply with its obligations under clause (a)
above, notwithstanding (A) the making of any Acquisition Proposal (as
hereinafter defined), including any Superior Proposal (as hereinafter defined)
or (B) any determination by the Company Board, at any time subsequent to
declaring the advisability of the Agreement and of the Merger, that this
Agreement or the Merger is no longer advisable or any recommendation that the
shareholders of the Company reject this Agreement or the Merger.
SECTION 6.4 REASONABLE BEST EFFORTS. (a) Subject to the terms and
conditions of this Agreement, each party will use its reasonable best efforts to
take, or cause to be taken, all actions and to do, or cause to be done, all
things necessary, proper or advisable under applicable Laws promptly to
consummate the Merger and the other transactions contemplated by this Agreement.
In furtherance and not in limitation of the foregoing, each party hereto agrees
to make an appropriate filing of a Notification and Report Form pursuant to the
HSR Act with respect to the transactions contemplated hereby as promptly as
practicable and to supply as promptly as practicable any additional information
and documentary material that may be requested pursuant to the HSR Act and use
its reasonable best efforts to take, or cause to be taken, all other actions
consistent with this Section 6.4 necessary to cause the expiration or
termination of the applicable waiting periods under the HSR Act as soon as
practicable.
(b) Each of Parent and the Company shall, in connection with the efforts
referenced in Section 6.4(a) to obtain all requisite approvals and
authorizations for the transactions contemplated by this Agreement under the HSR
Act or any other Antitrust Law (as hereunder defined), use its reasonable best
efforts to (i) cooperate in all respects with each other in connection with any
filing or submission and in connection with any investigation or other inquiry,
including any proceeding initiated by a private party; and (ii) keep the other
party informed in all material respects of any material communication received
by such party from, or given by such party to, the Federal Trade Commission (the
"FTC"), the Antitrust Division of the Department of Justice (the "DOJ") or any
other Governmental Entity and of any material communication received or given in
connection with any proceeding by a private party, in each case regarding any of
the transactions contemplated hereby and (iii) permit the other party to review
any material communication given by it to, and consult with each other in
advance of any meeting or conference with, the FTC, the DOJ or any such other
Governmental Entity or, in connection with any proceeding by a private party,
with any other person,
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and to the extent permitted by the FTC, the DOJ or such other applicable
Governmental Entity or other person, give the other party the opportunity to
attend and participate in such meetings and conferences. For purposes of this
Agreement, "ANTITRUST LAW" means the Sherman Act, as amended, the Clayton Act,
as amended, the HSR Act, the Federal Trade Commission Act, as amended, the EC
Merger Regulation, and all other Laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade or lessening of competition through merger or acquisition.
(c) In furtherance and not in limitation of the covenants of the parties
contained in Sections 6.4(a) and 6.4(b), each of Parent and the Company shall
use its reasonable best efforts to resolve such objections if any, as may be
asserted a Governmental Entity or other person with respect to the transactions
contemplated hereby under any Antitrust Law. In connection with the foregoing,
if any administrative or judicial action or proceeding, including any proceeding
by a private party, is instituted (or threatened to be instituted) challenging
any transaction contemplated by this Agreement as violative of any Antitrust
Law, each of Parent and the Company shall cooperate in all respects with each
other and use its respective reasonable best efforts to contest and resist any
such action or proceeding and to have vacated, lifted, reversed or overturned
any decree, judgment, injunction or other order, whether temporary, preliminary
or permanent, that is in effect and that prohibits, prevents or restricts
consummation of the transactions contemplated by this Agreement. Notwithstanding
the foregoing or any other provision of this Agreement, nothing in this
Section 6.4 shall (i) limit a party's right to terminate this Agreement pursuant
to Section 8.2(a) or 8.2(c) so long as such party has theretofore complied in
all material respects with its obligations under this Section 6.4, or
(ii) require Parent to (x) enter into any "hold-separate" agreement or other
agreement with respect to the disposition of any assets or businesses of the
Parent or any of its subsidiaries or the Company or any of its subsidiaries in
order to obtain clearance from the Federal Trade Commission or the Antitrust
Division of the Department of Justice or any other antitrust or competition
authorities to proceed with the consummation of the transactions contemplated
hereby or (y) consummate the transactions contemplated hereby in the event that
any consent, approval or authorization of any Governmental Entity obtained or
sought to be obtained in connection with this Agreement is conditioned upon the
imposition of any other significant restrictions upon, or the making of any
material accommodation (financial or otherwise) in respect of the transactions
contemplated hereby or the conduct of the business of the Surviving Corporation
or the Parent (including any agreement not to compete in any geographic area or
line of business) or results, or would result in, the abrogation or diminishment
of any authority or license granted by any Governmental Entity.
SECTION 6.5 ACQUISITION PROPOSALS. (a) The Company will not, nor will it
permit any of its subsidiaries to, nor will it authorize or permit any officer,
director or employee of or any investment banker, attorney, accountant or other
advisor or representative of, the Company or any of its subsidiaries to,
directly or indirectly, (i) solicit, initiate or encourage the submission of any
Acquisition Proposal (as hereinafter defined), (ii) participate in any
discussions or negotiations regarding, or furnish to any person any non-public
information with respect to the Company or any of its subsidiaries, or take any
other action to facilitate, any Acquisition Proposal or any inquiries or the
making of any proposal that constitutes, or may reasonably be expected to lead
to, any Acquisition Proposal, (iii) (A) amend or grant any waiver or release
under any confidentiality, standstill or similar agreement with respect to the
Company or any class of equity securities of the Company, or (B) amend (except
as expressly contemplated by this Agreement) or grant any waiver or release or
approve any transaction or redeem rights under the Company Rights Agreement or
(iv) subject to Section 8.3(b), enter into any agreement with respect to an
Acquisition Proposal; PROVIDED, HOWEVER, that nothing contained in this
Section 6.5(a) shall prohibit the Company Board from furnishing information to,
or entering into discussions or negotiations with, any person that makes an
unsolicited bona fide written Acquisition Proposal if, and only to the extent
that (A) the Company Board, after consultation with and based upon the advice of
independent legal counsel, determines in good faith that such action is
necessary for
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the Company Board to act in a manner consistent with its fiduciary duties to the
Company's stockholders under applicable Law, (B) such Acquisition Proposal is
not subject to any financing contingencies, or copies of bona fide customary
commitments from reputable financial institutions for all necessary financing
shall have been furnished to the Company, (C) the Company Board determines in
good faith that such Acquisition Proposal, if accepted, is reasonably likely to
be consummated taking into account all legal, financial, regulatory and other
aspects of the proposal and the person making the proposal, and believes in good
faith, after consultation with and based upon the written opinion of an
independent, nationally recognized financial advisor and after taking into
account the strategic benefits to be derived from the Merger and the long-term
prospects of Parent and its subsidiaries and after consideration of other
matters it deems relevant, would, if consummated, result in a transaction more
favorable to the Company's stockholders from a financial point of view than the
Merger (any such more favorable Acquisition Proposal being referred to herein as
a "SUPERIOR PROPOSAL"), and (D) prior to taking such action, the Company
(x) provides prior written notice to Parent to the effect that it is proposing
to take such action and (y) receives from such person an executed
confidentiality agreement in reasonably customary form. The Company shall notify
Parent of any Acquisition Proposal (or request for nonpublic information by any
person who is considering making an Acquisition Proposal) (including, without
limitation, all material terms and conditions thereof and the identity of the
person making it) as promptly as practicable (but in no case later than
24 hours) after its receipt thereof, and shall provide Parent with a copy of any
written Acquisition Proposal or amendments or supplements thereto, and shall
thereafter inform Parent on a reasonably prompt basis of any material changes to
the terms and conditions of such Acquisition Proposal, and shall promptly give
Parent a copy of any information delivered to such person which has not
previously been reviewed by Parent. Immediately after the execution and delivery
of this Agreement, the Company will, and will cause its subsidiaries and
affiliates, and their respective officers, directors, employees, investment
bankers, attorneys, accountants and other agents to, cease and terminate any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any possible Acquisition Proposal.
(b) The Company Board will not withdraw or modify, or propose to withdraw or
modify, in a manner adverse to Parent, its recommendation that stockholders vote
in favor of the Merger unless (i) the Company has fully complied with the terms
of Section 6.5(a), (ii) a Superior Proposal is pending at the time the Company
Board determines to take any such action, (iii) the Company Board after
consultation with and based upon the advice of independent legal counsel,
determines in good faith that such action is necessary for the Company Board to
act in a manner consistent with the fiduciary duties to the Company's
stockholders under applicable Law and (iv) the Company shall have delivered to
Parent a prior written notice advising Parent that it intends to take such
action (such notice to be delivered not less than two business days prior to the
time such action is taken). Nothing contained in this Section 6.5(b) shall
prohibit the Company from taking and disclosing to its stockholders a position
contemplated by Rule 14e-2(a) promulgated under the Exchange Act.
(c) Nothing in this Section 6.5 shall (i) permit the Company to terminate
this Agreement (except as provided in Article VIII hereof) or (ii) affect any
other obligations of the Company under this Agreement.
SECTION 6.6 PUBLIC ANNOUNCEMENTS. Each of Parent and the Company will
consult with one another before issuing any press release or otherwise making
any public statements with respect to the transactions contemplated by this
Agreement, including, without limitation, the Merger, and shall not issue any
such press release or make any such public statement prior to such consultation,
except as may be required by applicable Law or by obligations pursuant to any
listing agreement with the NYSE, as determined by Parent or the Company, as the
case may be.
SECTION 6.7 INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. (a) The
Parent agrees that all rights to exculpation and indemnification for acts or
omissions occurring prior to the Effective Time now existing in favor of the
current or former directors or officers (the "INDEMNIFIED PARTIES") of the
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Company as provided in its certificate of incorporation or by-laws or in any
agreement in effect as of the date hereof between the Company and any of the
Indemnified Parties shall survive the Merger and shall continue in full force
and effect in accordance with their terms for a period of six years following
the Effective Time.
(b) For a period of six (6) years after the Effective Time, Parent shall
cause to be maintained in effect the policies of directors' and officers'
liability insurance maintained by the Company for the benefit of those persons
who are covered by such policies at the Effective Time (or Parent may substitute
therefor policies of at least the same coverage with respect to matters
occurring prior to the Effective Time), to the extent that such liability
insurance can be maintained at a cost to Parent not greater than 175 percent of
the annual premium for the current Company directors' and officers' liability
insurance as set forth in Section 6.7 of the Disclosure Schedule; PROVIDED THAT
if such insurance cannot be so maintained or obtained at such costs, Parent
shall maintain or obtain as much of such insurance as can be so maintained or
obtained at a cost equal to 175 percent of the current annual premiums of the
Company for such insurance.
SECTION 6.8 NOTIFICATION OF CERTAIN MATTERS. The Company shall, upon
obtaining knowledge of any of the following, give prompt notice to Parent, and
Parent shall, upon obtaining knowledge of any of the following, give prompt
notice to the Company, of (i) the occurrence or nonoccurrence of any event the
occurrence or nonoccurrence of which would be likely to cause any representation
or warranty of such party contained in this Agreement, which is qualified as to
materiality, to be untrue or inaccurate, or any representation or warranty of
such party not so qualified, to be untrue or inaccurate in any material respect,
at or prior to the Effective Time, (ii) any material failure of the Company or
Parent, as the case may be, to comply with or satisfy any covenant, condition or
agreement to be complied with or satisfied by it hereunder, (iii) the occurrence
or non-occurrence of any event the occurrence or non-occurrence of which would
be likely to cause any condition to the obligations of any party to the effect
of the transactions contemplated hereby not to be satisfied, (iv) any notice of,
or other communication relating to, a default or event which, with notice or
lapse of time or both, would become a default, received by it or any of its
subsidiaries subsequent to the date of this Agreement and prior to the Effective
Time, under any contract or agreement material to the financial condition,
properties, businesses, results of operations or prospects of it and its
subsidiaries taken as a whole to which it or any of its subsidiaries is a party
or is subject, (v) any notice or other communication from any Governmental
Entity in connection with the Merger, (vi) any actions, suits, claims,
investigations or other proceedings (or communications indicating that the same
may be contemplated) commenced or threatened against the Company or any of its
subsidiaries which, if pending on the date of this Agreement, would have been
required to have been disclosed pursuant to Section 3.11 or which relate to the
consummation of the Merger, (vii) any notice or other communication from any
third party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement, or
(viii) any event or occurrence that is, or would reasonably be likely to be, a
Material Adverse Effect with respect to it; PROVIDED, HOWEVER, that the delivery
of any notice pursuant to this Section 6.8 shall not cure such breach or
non-compliance or limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
SECTION 6.9 POOLING. (a) The Company shall use its reasonable best efforts
to cause to be delivered to Parent letters from its independent auditors, Arthur
Andersen LLP, dated as of the date the S-4 is declared effective and dated as of
the Closing Date, stating that the accounting of the Merger as a "POOLING OF
INTERESTS" under Opinion 16 of the Accounting Principles Board ("APB 16") and
the applicable SEC rules and regulations is appropriate if the Merger is
consummated as contemplated by this Agreement (it being understood and agreed
that the delivery of such letters shall not constitute a condition to the
parties' obligation to consummate the transaction contemplated by this
Agreement).
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(b) Parent shall use its reasonable best efforts to cause to be delivered to
the Company letters from its independent auditors, PriceWaterhouseCoopers, dated
as of the date the S-4 is declared effective and dated as of the Closing Date,
stating that the accounting of the Merger as a "pooling of interests" under APB
16 and the applicable SEC rules and regulations is appropriate if the Merger is
consummated as contemplated by this Agreement (it being understood and agreed
that the delivery of such letters shall not constitute a condition to the
parties' obligation to consummate the transaction contemplated by this
Agreement).
SECTION 6.10 EMPLOYEE MATTERS. (a) For a period of one year after the
Effective Time, the Surviving Company and its subsidiaries will provide benefits
(other than equity-based benefits) to those of its employees who were employed
by the Company and its subsidiaries immediately prior to the Effective Time
substantially comparable in the aggregate to those generally provided by the
Company and its subsidiaries to such employees immediately prior to the
Effective Time.
(b) Parent agrees to assume or to cause the Surviving Corporation to assume
the obligations of the Company under the Change in Control Severance Agreements
entered into on or prior to the date hereof with William E. Lipner, Patrick G.
Healy, Hartmut Kiock, and Joseph M. Migliara. Parent agrees to treat and to
cause the Surviving Corporation to treat the transactions contemplated hereby as
a change of control for purposes of the employment agreements, severance
agreements, and stock option agreements entered into on or prior to the date
hereof with William E. Lipner, Patrick G. Healy, Hartmut Kiock, Joseph M.
Migliara, Charles Hamlin and Werner Hampf.
SECTION 6.11 AFFILIATE LETTERS. Section 6.11 of the Company Disclosure
Schedule sets forth a list of all persons who are, and all persons who to the
Company's knowledge will be at the Closing Date, "affiliates" of the Company for
purposes of Rule 145 under the Securities Act or for purposes of qualifying the
Merger for "pooling of interests" accounting treatment under APB 16 and
applicable SEC rules, and Section 6.11 of the Parent Disclosure Schedule sets
forth a list of all persons who are, and all persons who to Parent's knowledge
will be at the Closing Date, "affiliates" of Parent for purposes of qualifying
the Merger for "pooling of interests" under APB 16 and the applicable SEC rules
and regulations. The Company and Parent will each respectively cause such lists
to be updated promptly through the Closing Date. Not later than the date of the
initial mailing of the Proxy Statement, the Company shall use its reasonable
best efforts to cause its "affiliates" to deliver to Parent a written agreement
substantially in the form attached as Exhibit A, and Parent shall use its
reasonable best efforts to cause its "affiliates" to deliver to the Company a
written agreement substantially in the form attached as Exhibit B.
SECTION 6.12 SEC FILINGS.
(a) The Company shall furnish to Parent copies of all reports, proxy
statements and prospectuses of the type referred to in Section 3.4 which it
files with the SEC on or after the date hereof, and the Company represents and
warrants that as of the respective dates thereof, such reports will not contain
any untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. The
audited consolidated financial statements and the unaudited consolidated interim
financial statements included in such reports (including any related notes and
schedules) will fairly present in all material respects the financial position
of the Company and its consolidated Subsidiaries as of the dates thereof and the
results of operations and cash flows or other information included therein for
the periods or as of the date then ended (subject, in the case of the interim
financial statements, to normal, recurring year-end adjustments which will not
be material in amount), in each case in accordance with past practice and GAAP
consistently applied during the periods involved (except as otherwise disclosed
in the notes thereto.)
(b) Parent shall furnish to the Company copies of all reports, proxy
statements and prospectuses of the type referred to in Section 4.4 which it
files with the SEC on or after the date hereof, and Parent
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represents and warrants that as of the respective dates thereof, such reports
will not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. The audited consolidated financial statements and the unaudited
consolidated interim financial statements included in such reports (including
any related notes and schedules) will fairly present in all material respects
the financial position of the Parent and its consolidated Subsidiaries as of the
dates thereof and the results of operations and cash flows or other information
included therein for the periods or as of the date then ended (subject, in the
case of the interim financial statements, to normal, recurring year-end
adjustments which will not be material in amount), in each case in accordance
with past practice and GAAP consistently applied during the periods involved
(except as otherwise disclosed in the notes thereto).
SECTION 6.13 FEES AND EXPENSES. Subject to Section 8.5, whether or not the
Merger is consummated, all Expenses (as hereinafter defined) incurred in
connection with this Agreement, and the transactions contemplated hereby shall
be paid by the party incurring such Expenses, except Expenses (including filing
fees) incurred in connection with the filing, printing and mailing of the Proxy
Statement and the S-4, which shall be shared equally by the Company and Parent.
As used in this Agreement, "EXPENSES" includes all out-of-pocket expenses
(including, without limitation, all fees and expenses of counsel, accountants,
investment bankers, experts and consultants to a party hereto and its
affiliates) incurred by a party or on its behalf in connection with, or related
to, the authorization, preparation, negotiation, execution and performance of
this Agreement and the transactions contemplated hereby, including the
preparation, filing, printing and mailing of the Proxy Statement and the S-4 and
the solicitation of stockholder approvals and all other matters related to the
transactions contemplated hereby.
SECTION 6.14 LISTING OF STOCK. Parent shall use its best efforts to cause
the shares of Parent Common Stock to be issued in connection with the Merger to
be approved for listing on the NYSE on or prior to the Closing Date, subject to
official notice of issuance.
SECTION 6.15 ANTITAKEOVER STATUTES. If any Takeover Statute is or may
become applicable to the Merger, each of Parent and Company shall take such
actions as are necessary so that the transactions contemplated by this Agreement
may be consummated as promptly as practicable on the terms contemplated hereby
and otherwise act to eliminate or minimize the effects of any Takeover Statute
on the Merger.
SECTION 6.16 RULE 144 REPORTING. From and after the Effective Time, unless
and until each "affiliate" of the Company (as such term is defined for purposes
of paragraphs (c) and (d) of Rule 145 under the Securities Act) has disposed of
all the shares of Parent Stock received by it as Merger Consideration, such
shares are permitted to be resold pursuant to Rule 145(d)(3) under the
Securities Act or such shares are covered by an effective registration statement
under Section 5 of the Securities Act, Parent shall use all reasonable best
efforts to make and keep "available adequate current public information" (as
those terms are understood and defined in Rule 144 under the Securities Act)
with respect to Parent and, upon any reasonable request by such an affiliate,
provide a statement as to such availability.
ARTICLE VII CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 7.1 CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
MERGER. The respective obligations of each party to consummate the transactions
contemplated by this Agreement are subject to the fulfillment at or prior to the
Effective Time of each of the following conditions, any or all of which may be
waived in whole or in part by the party being benefited thereby, to the extent
permitted by applicable Law:
(a) The agreement of merger (within the meaning of Section 251 of the DGCL)
contained within this Agreement shall have been approved and adopted by the
Required Company Vote;
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(b) Any waiting period applicable to the Merger under the HSR Act shall have
expired or early termination thereof shall have been granted;
(c) There shall not be in effect any Law of any Governmental Entity of
competent jurisdiction, restraining, enjoining or otherwise preventing
consummation of the transactions contemplated by this Agreement and no
Governmental Entity shall have instituted any judicial or administrative
proceeding which continues to be pending seeking any such Law;
(d) The S-4 shall have been declared effective by the SEC and shall be
effective at the Effective Time, and no stop order suspending effectiveness
shall have been issued, no action, suit, proceeding or investigation by the SEC
to suspend the effectiveness thereof shall have been initiated and be
continuing, and all necessary approvals under state securities Laws or the
Securities Act or Exchange Act relating to the issuance or trading of the Parent
Common Stock shall have been received; and
(e) The Parent Common Stock required to be issued hereunder shall have been
approved for listing on the NYSE, subject only to official notice of issuance.
SECTION 7.2 CONDITIONS TO THE OBLIGATIONS OF PARENT. The obligations of
Parent to consummate the transactions contemplated by this Agreement are subject
to the fulfillment at or prior to the Effective Time of each of the following
additional conditions, any or all of which may be waived in whole or part by
Parent to the extent permitted by applicable Law:
(a) The representations and warranties of the Company contained herein or
otherwise required to be made after the date hereof in a writing expressly
referred to herein by or on behalf of the Company pursuant to this Agreement, to
the extent qualified by materiality or Material Adverse Effect, shall have been
true and, to the extent not so qualified, shall have been true in all material
respects, in each case when made and on and as of the Closing Date as though
made on and as of the Closing Date (except for representations and warranties
made as of a specified date, which need be true, or true in all material
respects, as the case may be, only as of the specified date).
(b) The Company shall have performed or complied in all material respects
with all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the time of the Closing.
(c) The Company shall have delivered to Parent a certificate, dated the date
of the Closing, signed by the President or any Vice President of the Company,
certifying as to the fulfillment of the conditions specified in Sections 7.2(a)
and 7.2(b).
(d) Parent shall have received an opinion of its counsel, Cleary, Gottlieb,
Steen & Hamilton, dated as of the Closing Date, in form and substance reasonably
satisfactory to it, substantially to the effect that, on the basis of the facts
and assumptions described in the opinion, the Merger constitutes a tax-free
reorganization within the meaning of Section 368 of the Code. In rendering this
opinion, counsel may require and rely upon representations and covenants
including those contained herein and in certificates of officers of the Parent,
the Company and others.
(e) All authorizations, consents or approvals of a Governmental Entity
(other than those specified in Section 7.1(b) hereof) required in connection
with the execution and delivery of this Agreement and the performance of the
obligations hereunder shall have been made or obtained, without any limitation,
restriction or condition that has or would reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on the Company (or
an effect on Parent and its subsidiaries that, were such effect applied to the
Company and its subsidiaries, would have or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company), except for such authorizations, consents or approvals, the failure of
which to have been made or obtained does not and would not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect on
the Company (or an effect on Parent and its subsidiaries that, were such effect
applied to the
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Company and its subsidiaries, would have or would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect on the
Company).
SECTION 7.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations
of the Company to consummate the transactions contemplated by this Agreement are
subject to the fulfillment at or prior to the Effective Time of each of the
following conditions, any or all of which may be waived in whole or in part by
the Company to the extent permitted by applicable Law:
(a) The representations and warranties of Parent contained herein or
otherwise required to be made after the date hereof in a writing expressly
referred to herein by or on behalf of Parent pursuant to this Agreement, to the
extent qualified by a materiality or Material Adverse Effect, shall have been
true and, to the extent not so qualified, shall have been true in all material
respects, in each case when made and on and as of the Closing Date as though
made on and as of the Closing Date (except for representations and warranties
made as of a specified date, which need be true, or true in all material
respects, as the case may be, only as of the specified date).
(b) Parent shall have performed or complied in all material respects with
all agreements and conditions contained herein required to be performed or
complied with by it prior to or at the time of the Closing.
(c) Parent shall have delivered to the Company a certificate, dated the date
of the Closing, signed by the President or any Vice President of Parent,
certifying as to the fulfillment of the conditions specified in Section 7.3(a)
and 7.3(b).
(d) The Company shall have received an opinion of its counsel, Paul, Weiss,
Rifkind, Wharton and Garrison, dated as of the Closing Date, in form and
substance reasonably satisfactory to it, substantially to the effect that, on
the basis of the facts and assumptions described in the opinion, the Merger
constitutes a tax-free reorganization within the meaning of Section 368 of the
Code. In rendering this opinion, counsel may require and rely upon
representations and covenants including those contained herein and in
certificates of officers of the Parent, the Company and others.
ARTICLE VIII
TERMINATION; AMENDMENT; WAIVER
SECTION 8.1 TERMINATION BY MUTUAL AGREEMENT. This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time, whether before or after the approval of the Merger by the Required Company
Vote, by mutual written consent of the Company and Parent by action of their
respective Boards of Directors.
SECTION 8.2 TERMINATION BY EITHER PARENT OR THE COMPANY. This Agreement
may be terminated and the Merger may be abandoned at any time prior to the
Effective Time by action of the Board of Directors of either Parent or the
Company if:
(a) the Merger shall not have been consummated by June 30, 2000 (the
"TERMINATION DATE"); PROVIDED, HOWEVER, that if either Parent or the Company
determines that additional time is necessary in connection with obtaining any
consent, registration, approval, permit or authorization required to be obtained
from any Governmental Entity, the Termination Date may be extended by Parent or
the Company from time to time by written notice to the other party to a date not
beyond September 30, 2000 if it in good faith believes such consent,
registration, approval, permit or authorization can be obtained by such date;
(b) the Required Company Vote shall not have been obtained at the Company
Stockholder Meeting or at any adjournment or postponement thereof;
(c) any Law permanently restraining, enjoining or otherwise prohibiting
consummation of the Merger shall become final and non-appealable;
PROVIDED, that the right to terminate this Agreement pursuant to this
Section 8.2 shall not be available to any party that has breached in any
material respect its obligations under this Agreement in any manner that shall
have proximately contributed to the failure of the Merger to be consummated.
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SECTION 8.3 TERMINATION BY THE COMPANY. (a) This Agreement may be
terminated and the Merger may be abandoned at any time prior to the Effective
Time by action of the Company Board if (i) there is a breach by Parent of any
representation, warranty, covenant or agreement contained in this Agreement that
would give rise to a failure of a condition set forth in Section 7.3(a) or
7.3(b), which has not been cured (or is not capable of being cured) within 10
business days following receipt by Parent of written notice of such breach or
(ii) pursuant to Section 2.1(c) if, under the circumstances set forth in such
Section, the Company has delivered a timely Termination Notice, provided that
termination in accordance with this clause (ii) shall not be effective unless
and until Parent has failed to deliver a timely Top-Up Intent Notice in
accordance with Section 2.1(c).
(b) This Agreement may be terminated and the Merger may be abandoned by the
Company at any time before the Required Company Vote has been obtained if the
Company Board shall elect to terminate this Agreement in order to recommend or
approve a Superior Proposal; PROVIDED that (i) the Company has complied with all
the terms of Section 6.5(b) and notified Parent in writing that it intends to
terminate this Agreement in order to recommend or approve a Superior Proposal,
attaching the most current version of such proposal to such notice, (ii) at any
time after the third business day following written notification by the Company
to Parent of the Company's intention to enter into a binding agreement with
respect to such proposal, after taking into account any modifications to the
transactions contemplated by the Agreement that Parent has then proposed in
writing and not withdrawn, the Company Board has determined that such proposal
is and continues to be a Superior Proposal and (iii) concurrently with the
effectiveness of such termination, pays to Parent the termination fee due under
Section 8.5(b) (unless Parent has previously notified the Company of its
election to defer such payment pursuant to Section 8.5(b)), it being understood
that on the date of the effectiveness of such termination, whether or not prior
to such effectiveness, the Company may enter into an agreement with respect to
such Superior Proposal which agreement, if entered into prior to such
effectiveness, must be conditioned upon the payment of the termination fee on
the same date as provided herein. The termination under this Section 8.3(b)
shall not be effective unless and until the termination fee has been paid in
accordance with Section 8.5(b).
SECTION 8.4 TERMINATION BY PARENT. This Agreement may be terminated by
Parent and the Merger may be abandoned by Parent at any time prior to the
Effective Time if:
(a) the Company Board, whether or not permitted to do so by this Agreement,
shall have withdrawn or adversely modified its approval, or recommendation of
this Agreement or the Merger, or shall have failed to call the Company
Stockholders Meeting or to solicit proxies from its stockholders in connection
therewith; or
(b) there is a breach by the Company (i) of any of its obligations under
Section 6.5, or (ii) a breach by the Company of any representation, warranty,
covenant or agreement contained in this Agreement would give rise to a failure
of a condition set forth in Section 7.2(a) or 7.2(b), which (in the case of this
clause (ii)) has not been cured (or is not capable of being cured) within 10
business days following receipt by the Company of written notice of such breach.
SECTION 8.5 EFFECT OF TERMINATION AND ABANDONMENT. (a) In the event of
termination of this Agreement and the abandonment of the Merger pursuant to this
Article VIII, this Agreement (other than this Section 8.5 and Sections 5.3(c),
6.13 and Article IX) shall become void and of no effect with no liability on the
part of any party hereto (or of any of its directors, officers, employees,
agents, legal and financial advisors or other representatives); PROVIDED,
HOWEVER, no such termination shall relieve any party hereto of any liability or
damages resulting from any willful breach of any representation, warranty,
covenant or agreement contained in this Agreement.
(b) In the event that (i) this Agreement is terminated by the Company
pursuant to Section 8.3(b) or (ii) an Acquisition Proposal shall have been made
to the Company or any of its subsidiaries or any of its stockholders or any
person shall have publicly announced an intention (whether or not
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conditional) to make an Acquisition Proposal with respect to the Company or any
of its subsidiaries and thereafter this Agreement is terminated by either Parent
or the Company pursuant to Section 8.2(a), 8.2(b), 8.4(a), 8.4(b)(i) or, in the
case of a willful breach of covenant or agreement by the Company,
8.4(b)(ii) and within 12 months of such termination of this Agreement, any
Acquisition Proposal by a third party is consummated by the Company, then, in
the case of (i) or (ii), the Company shall pay Parent a termination fee of
$25,000,000 in same-day funds, together with interest accrued thereon at a rate
equal to the prime rate, as announced by Citibank, N.A. from time to time, plus
2% during the period commencing on the date the termination fee is first payable
hereunder. The termination fee required to be paid pursuant to subsection
(b)(i) shall be paid by the Company to Parent no later than (and as a condition
to the effectiveness of) such termination or such later date to which Parent
elects to defer payment hereunder. The termination fee required to be paid
pursuant to subsection (b)(ii) shall be paid by the Company to Parent not later
than concurrently with such consummation of such Acquisition Proposal and such
consummation shall be preceded by at least three business days advance notice by
the Company to Parent. Notwithstanding the foregoing, (A) Parent may elect, by
notice to the Company, to defer the payment of the termination fee from time to
time for a period or periods of up to an aggregate of twelve months after the
date such fee would otherwise be payable and (B) the termination fee shall cease
to be payable immediately following any exercise by Parent of the Option under
the Option Agreement.
(c) The Company acknowledges that the agreements contained in
Section 8.5(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent would not have entered
into this Agreement; accordingly, if the Company fails to promptly pay the
amount due pursuant to Section 8.5(b) and, in order to obtain such payment,
Parent commences a suit which results in a judgment against the Company for the
fee set forth in this Section 8.5, the Company shall pay to Parent its costs and
expenses (including attorneys' fees) in connection with such suit.
SECTION 8.6 AMENDMENT. This Agreement may be amended by action taken by
the Company and Parent at any time before or after approval of the Merger by the
Required Company Vote but, after any such approval, no amendment shall be made
which requires the approval of such stockholders under applicable Law without
such approval. This Agreement may not be amended except by an instrument in
writing signed on behalf of the parties hereto.
SECTION 8.7 EXTENSION; WAIVER. At any time prior to the Effective Time,
each party hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other party, (ii) waive any inaccuracies in the
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of either party hereto to any such extension
or waiver shall be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of either party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE IX MISCELLANEOUS
SECTION 9.1 NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations, warranties, covenants and agreements in this Agreement or in
any exhibit, schedule or instrument delivered pursuant to this Agreement shall
survive beyond the Effective Time. This Section 9.1 shall not limit any covenant
or agreement of the parties which by its terms contemplates performance after
the Effective Time.
SECTION 9.2 ENTIRE AGREEMENT; ASSIGNMENT. (a) This Agreement (including
the schedules) constitutes the entire agreement between the parties hereto with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof.
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(b) Neither this Agreement nor any of the rights, interests or obligations
hereunder shall be assigned by operation of Law (including, but not limited to,
by merger or consolidation) or otherwise; PROVIDED, HOWEVER, that Parent may
assign, in its sole discretion, any or all of its rights, interests and
obligations under this Agreement to Merger Sub or any direct wholly owned
subsidiary of Parent, but no such assignment shall relieve Parent of its
obligations hereunder if such assignee does not perform such obligations. Any
assignment in violation of the preceding sentence shall be void. Subject to the
preceding sentence, this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
SECTION 9.3 NOTICES. All notices, requests, instructions or other
documents to be given under this Agreement shall be in writing and shall be
deemed given, (i) five business days following sending by registered or
certified mail, postage prepaid, (ii) when sent if sent by facsimile; PROVIDED
that the fax is promptly confirmed by telephone confirmation thereof,
(iii) when delivered, if delivered personally to the intended recipient and
(iv) one business day following sending by overnight delivery via a national
courier service, and in each case, addressed to a party at the following address
for such party:
<TABLE>
<S> <C>
if to Parent to: The Interpublic Group of Companies, Inc.
1271 Avenue of the Americas
New York, New York 10020
Attention: Nicholas J. Camera
Facsimile: (212) 399-8119
with a copy to: Cleary, Gottlieb, Steen & Hamilton
One Liberty Plaza
New York, New York 10006
Attention: Barry M.Fox
Facsimile: (212) 225-3999
if to the Company, to: NFO Worldwide, Inc.
2 Pickwick Plaza
Greenwich,Connecticut 06840
Attention: Chief Financial Officer
Facsimile: (203) 629-8885
with a copy to: Paul, Weiss, Rifkind, Wharton & Garrison
1285 Avenue of the Americas
New York, New York 10019
Attention: James M.Dubin
Facsimile: (212) 373-2393
</TABLE>
or to such other address as the person to whom notice is given may have
previously furnished to the other in writing in the manner set forth above.
SECTION 9.4 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the Laws of the State of New York (except to the
extent that provisions of the DGCL are mandatorily applicable), without giving
effect to the choice of Law principles thereof.
SECTION 9.5 DESCRIPTIVE HEADINGS. The descriptive headings herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
SECTION 9.6 PARTIES IN INTEREST. This Agreement shall be binding upon and
inure solely to the benefit of each party hereto and its successors and
permitted assigns, and nothing in this Agreement,
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express or implied, is intended to or shall confer upon any other person any
rights, benefits or remedies of any nature whatsoever under or by reason of this
Agreement.
SECTION 9.7 SEVERABILITY. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof. If any
provision of this Agreement, or the application thereof to any person or any
circumstance, is invalid or unenforceable, (a) a suitable and equitable
provision shall be substituted therefor in order to carry out, so far as may be
valid and enforceable, the intent and purpose of such invalid or unenforceable
provision and (b) the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected by such
invalidity or unenforceability, nor shall such invalidity or unenforceability
affect the validity or enforceability of such provision, or the application
thereof, in any other jurisdiction.
SECTION 9.8 ENFORCEMENT; JURISDICTION. The parties agree that irreparable
damage would occur in the event that any of the provisions of this Agreement
were not performed in accordance with their specific terms or were otherwise
breached. It is accordingly agreed that the parties shall be entitled to an
injunction or injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any court of the
United States located in the State of New York or in New York state court, this
being in addition to any other remedy to which they are entitled at Law or in
equity. In addition, each of the parties hereto (a) consents to submit itself to
the personal jurisdiction of any federal court located in the State of New York
or any New York state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated hereby, (b) agrees that it
will not attempt to deny or defeat such personal jurisdiction by motion or other
request for leave from any such court and (c) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated hereby
in any court other than a federal or state court sitting in the State of New
York.
SECTION 9.9 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 9.10 INTERPRETATION. (a) The words "hereof," "herein" and
"herewith" and words of similar import shall, unless otherwise stated, be
construed to refer to this Agreement as a whole and not to any particular
provision of this Agreement, and article, section, paragraph, exhibit and
schedule references are to the articles, sections, paragraphs, exhibits and
schedules of this Agreement unless otherwise specified. Whenever the words
"include," "includes" or "including" are used in this Agreement, they shall be
deemed to be followed by the words "without limitation." All terms defined in
this Agreement shall have the defined meanings contained herein when used in any
certificate or other document made or delivered pursuant hereto unless otherwise
defined therein. The definitions contained in this Agreement are applicable to
the singular as well as the plural forms of such terms and to the masculine as
well as to the feminine and neuter genders of such terms. Any agreement,
instrument or statute defined or referred to herein or in any agreement or
instrument that is referred to herein means such agreement, instrument or
statute as from time to time, amended, qualified or supplemented, including (in
the case of agreements and instruments) by waiver or consent and (in the case of
statutes) by succession of comparable successor statutes and all attachments
thereto and instruments incorporated therein. References to a person are also to
its permitted successors and assigns.
(b) The phrase "made available" in this agreement shall mean that the
information referred to has been actually delivered to the party to whom such
information is to be made available.
(c) The parties have participated jointly in the negotiation and drafting of
this Agreement. In the event an ambiguity or question of intent or
interpretation arises, this Agreement shall be construed as
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if drafted jointly by the parties and no presumption or burden of proof shall
arise favoring or disfavoring any party by virtue of the authorship of any
provisions of this Agreement.
SECTION 9.11 DEFINITIONS. (a) "ACQUISITION PROPOSAL" means an inquiry,
offer or proposal regarding any of the following (other than the transactions
contemplated by this Agreement) involving the Company or any of its
subsidiaries: (i) any merger, consolidation, share exchange, recapitalization,
business combination or other similar transaction; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of all or
substantially all the assets of the Company and its subsidiaries, taken as a
whole, in a single transaction or series of related transactions; (iii) any
tender offer or exchange offer for 20 percent or more of the outstanding Shares
or the filing of a registration statement under the Securities Act in connection
therewith; or (iv) any public announcement of a proposal, plan or intention to
do any of the foregoing or any agreement to engage in any of the foregoing.
(b) "BENEFICIAL OWNERSHIP" or "BENEFICIALLY OWN" shall have the meaning
provided in Section 13(d) of the Exchange Act and the rules and regulations
thereunder.
(c) "KNOW" or "KNOWLEDGE" means, with respect to any party, the knowledge of
such party's executive officers after due inquiry, including inquiry of such
party's counsel and other officers or employees of such party responsible for
the relevant matter.
(d) "MATERIAL ADVERSE EFFECT" means with respect to any entity, any change,
circumstance or effect that, individually or in the aggregate with all other
changes, circumstances and effects, is or is reasonably likely to be materially
adverse to (i) the assets, properties, condition (financial or otherwise), or
results of operations of such entity and its subsidiaries taken as a whole or
(ii) the ability of such party to consummate the transactions contemplated by
this Agreement; PROVIDED THAT, with respect to the Company, the occurrence of
the events or circumstances referenced in Section 9.11(d) of the Company
Disclosure Schedule shall not constitute a Material Adverse Effect; and PROVIDED
FURTHER THAT any changes, circumstances or effects resulting solely from, and
consistent with, changes in the economy generally shall not constitute a
Material Adverse Effect. For the avoidance of doubt, a Material Adverse Effect
shall not include any action, suit or proceeding instituted by a
non-Governmental Entity that seeks to, but does not actually, restrain, enjoin
or otherwise prevent consummation of any transaction contemplated by this
Agreement.
(e) "PERSON" means an individual, corporation, limited liability company,
partnership, association, trust, unincorporated organization, other entity or
group (as defined in the Exchange Act).
(f) "SUBSIDIARY" means, when used with reference to any entity, any
corporation or other organization, whether incorporated or unincorporated,
(i) of which such party or any other subsidiary of such party is a general or
managing partner or (ii) the outstanding voting securities or interests of,
which having by their terms ordinary voting power to elect a majority of the
Board of Directors or others performing similar functions with respect to such
corporation or other organization, is directly or indirectly owned or controlled
by such party or by any one or more of its subsidiaries (for the avoidance of
doubt, the Company acknowledges and agrees that InsightExpress, L.L.C. is a
subsidiary of the Company for purposes of this Agreement).
[signature page follows]
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be duly
executed on its behalf as of the day and year first above written.
<TABLE>
<S> <C> <C>
THE INTERPUBLIC GROUP OF COMPANIES, INC.
By: /s/ NICHOLAS J. CAMERA
-----------------------------------------
Name: Nicholas J. Camera
Title: Vice President
NFO WORLDWIDE, INC.
By: /s/ PATRICK G. HEALY
-----------------------------------------
Name: Patrick G. Healy
Title: Chief Financial Officer
</TABLE>
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EXHIBIT A
[FORM OF COMPANY AFFILIATE LETTER TO PARENT]
[DATE]
[Parent]
[Address]
Dear Sir/Madam:
Reference is made to the provisions of the Agreement and Plan of Merger,
dated as of (together with any amendments thereto, the "MERGER
AGREEMENT"), between [insert name], a Delaware corporation (the "COMPANY"), and
[insert name], a Delaware corporation ("PARENT"), pursuant to which Merger Sub
will be merged with and into the Company, with the Company continuing as the
surviving corporation (the "MERGER"). This letter constitutes the undertakings
of the undersigned contemplated by the Merger Agreement, as is being furnished
pursuant to Section 6.12 thereto.
I understand that I may be deemed to be an "affiliate" of the Company, as
such term is defined for purposes of paragraphs (c) and (d) of Rule 145
("RULE 145") promulgated under the Securities Act of 1933, as amended (the
"SECURITIES ACT"). Execution of this letter shall not be construed as an
admission of "affiliate" status nor as a waiver of any rights that I may have to
object to any claim that I am an "affiliate" on or after the date of this
letter.
If in fact I were to be deemed an "affiliate" of the Company under
paragraphs (c) and (d) of Rule 145, my ability to sell, transfer or otherwise
dispose of any shares of the common stock, par value $0.01 per share, of Parent
(the "PARENT SHARES") received by me in exchange for any shares of common stock,
par value $0.01 per share, of the Company (the "COMPANY SHARES") pursuant to the
Merger may be restricted.
I hereby represent, warrant and covenant to Parent that:
I will not sell, pledge, transfer or otherwise dispose of any of the Parent
Shares except (i) pursuant to an effective registration statement under the
Securities Act, or (ii) as permitted by, and in accordance with, Rule 145 or
another applicable exemption under the Securities Act and the rules and
regulations promulgated thereunder;
I will not (i) sell, pledge, transfer or otherwise dispose of any Company
Shares during the 30-day period prior to the Effective Time (as defined in the
Merger Agreement) or (ii) sell or otherwise reduce my risk (within the meaning
of the Securities and Exchange Commission's Financial Reporting Release No. 1.,
"Codification of Financial Reporting Policies", Section 201.01 47 F.R. 21028
(April 15, 1982)) relative to any Parent Shares until after such time as
consolidated financial results (including combined sales and net income)
covering at least 30 days of post-merger combined operations of Parent and the
Company have been published by Parent, except as permitted by Staff Accounting
Bulletin No. 76 issued by the Securities and Exchange Commission; and
I have not knowingly taken and will not knowingly take or agree to take any
action that would prevent the Merger from qualifying, or being accounted for, as
a "pooling of interests."
I hereby acknowledge that Parent is under no obligation to register the
sale, transfer, pledge or other disposition of the Parent Shares or to take any
other action necessary for the purpose of making an exemption from registration
available.
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<PAGE>
I understand that Parent will issue stop transfer instructions to its
transfer agents with respect to the Parent Shares and that a restrictive legend
will be placed on certificates delivered to me evidencing the Parent Shares in
substantially the following form:
"This certificate and the shares represented hereby have been issued
pursuant to a transaction governed by Rule 145 ("RULE 145") promulgated
under the Securities Act of 1933, as amended (the "SECURITIES ACT"), and may
not be sold or otherwise disposed of unless registered under the Securities
Act pursuant to a Registration Statement in effect at the time or unless the
proposed sale or disposition can be made in compliance with Rule 145 or
without registration in reliance on another exemption therefrom. Reference
is made to that certain letter agreement, dated [Date], between the holder
of this certificate and the issuer of this security (a copy of which is on
file in the principal office of such issuer) which contains further
restrictions on the transferability of the shares represented hereby."
The term Parent Shares as used in this letter shall mean and include not
only the common stock of Parent as presently constituted, but also any other
stock which may be issued in exchange for, in lieu of, or in addition to, all or
any part of such Parent Shares.
I agree that, from time to time, at Parent's reasonable request and without
further consideration, I shall execute and deliver such additional documents and
shall use my reasonable best efforts to take all such further lawful action as
may be reasonably necessary or desirable to consummate and make effective, in
the most expeditious manner practicable, the transactions contemplated by the
Merger Agreement.
I hereby acknowledge that Parent and its independent public accountants will
be relying upon this letter in connection with the determination that the Merger
will qualify and be accounted for as a "pooling of interests", and that I
understand the requirements of this letter and the limitations imposed upon the
transfer, sale or other disposition of the Company Shares and the Parent Shares.
Very truly yours,
Name:
A-51
<PAGE>
EXHIBIT B
[FORM OF COMPANY AFFILIATE LETTER TO PARENT]
[DATE]
[Company]
[Address]
Dear Sir/Madam:
Reference is made to the provisions of the Agreement and Plan of Merger,
dated as of (together with any amendments thereto, the "MERGER
AGREEMENT"), between [insert name], a Delaware corporation (the "COMPANY"), and
[insert name], a Delaware corporation ("PARENT"), pursuant to which Merger Sub
will be merged with and into the Company, with the Company continuing as the
surviving corporation (the "MERGER"). This letter constitutes the undertakings
of the undersigned contemplated by the Merger Agreement, as is being furnished
pursuant to Section 6.12 thereto.
I hereby represent, warrant and covenant to the Company that:
I will not (i) sell, pledge, transfer or otherwise dispose of any shares of
common stock, par value $0.01 per share, of the Company ("COMPANY SHARES")
during the 30-day period prior to the Effective Time (as defined in the Merger
Agreement) or (ii) sell or otherwise reduce my risk (within the meaning of the
Securities and Exchange Commission's Financial Reporting Release No. 1.,
"Codification of Financial Reporting Policies", Section 201.01 47 F.R. 21028
(April 15, 1982)) relative to any shares of common stock, par value $0.01 per
share, of Parent ("PARENT SHARES") until after such time as consolidated
financial results (including combined sales and net income) covering at least
30 days of post-merger combined operations of Parent and the Company have been
published by Parent, except as permitted by Staff Accounting Bulletin No. 76
issued by the Securities and Exchange Commission; and
I have not knowingly taken and will not knowingly take or agree to take any
action that would prevent the Merger from qualifying, or being accounted for, as
a "pooling of interests".
The term Parent Shares as used in this letter shall mean and include not
only the common stock of Parent as presently constituted, but also any other
stock which may be issued in exchange for, in lieu of, or in addition to, all or
any part of such Parent Shares.
I agree that, from time to time, at Parent's reasonable request and without
further consideration, I shall execute and deliver such additional documents and
shall use my reasonable best efforts to take all such further lawful action as
may be reasonably necessary or desirable to consummate and make effective, in
the most expeditious manner practicable, the transactions contemplated by the
Merger Agreement.
I hereby acknowledge that the Company and its independent public accountants
will be relying upon this letter in connection with the determination that the
Merger will qualify and be accounted for as a "pooling of interests", and that I
understand the requirements of this letter and the limitations imposed upon the
transfer, sale or other disposition of Parent Shares.
Very truly yours,
Name:
A-52
<PAGE>
ANNEX B
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of December 20, 1999 (the "AGREEMENT"),
between The Interpublic Group of Companies, Inc., a Delaware corporation
("GRANTEE") and NFO Worldwide, Inc., a Delaware corporation ("ISSUER").
W I T N E S S E T H:
WHEREAS, concurrently herewith, the parties are entering into the Agreement
and Plan of Merger (the "MERGER AGREEMENT");
WHEREAS, as a condition and inducement to Grantee's execution of the Merger
Agreement and in furtherance of the transactions contemplated thereby and in
consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined); and
WHEREAS, the Board of Directors of Issuer has approved the grant of the
Option and the Merger Agreement prior to the execution hereof;
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. THE OPTION. (a) Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "OPTION") to purchase, subject to the terms hereof, up
to an aggregate of 4,448,684 fully paid and nonassessable shares of the common
stock, $0.01 par value per share, of Issuer ("COMMON STOCK") at a price per
share equal to $26.00 (such price, as adjusted if applicable, the "OPTION
PRICE"); PROVIDED, HOWEVER, that in the event Issuer issues or agrees to issue
any shares of Common Stock (other than as permitted under the Merger Agreement)
at a price less than the Option Price (as adjusted pursuant to Section 5), the
Option Price shall be equal to such lesser price; PROVIDED, FURTHER, that in no
event shall the number of shares for which this Option is exercisable exceed
19.9% of the issued and outstanding shares of Common Stock at the time of
exercise without giving effect to the shares of Common Stock issued or issuable
under the Option. The number of shares of Common Stock that may be received upon
the exercise of the Option and the Option Price are subject to adjustment as
herein set forth.
(b) In the event that any additional shares of Common Stock are issued or
otherwise become outstanding after the date of this Agreement (other than
pursuant to this Agreement and other than pursuant to an event described in
Section 5(a) hereof), the number of shares of Common Stock subject to the Option
shall be increased so that, after such issuance, such number together with any
shares of Common Stock previously issued pursuant hereto, equals 19.9% of the
number of shares of Common Stock then issued and outstanding without giving
effect to any shares subject or issued pursuant to the Option. Nothing contained
in this Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer to breach any provision of the Merger Agreement.
2. EXERCISE; CLOSING. (a) Grantee and/or any other person that shall
become a holder of all or part of the Option in accordance with the terms of
this Agreement (each such person being referred to herein as the "HOLDER") may
exercise the Option, in whole or part, if, but only if, both an Initial
Triggering Event (as defined below) and a Subsequent Triggering Event (as
defined below) shall have occurred prior to the occurrence of an Exercise
Termination Event (as defined below), PROVIDED that the Holder shall have sent
written notice of such exercise (as provided in subsection (f) of this
Section 2) within 180 days following such Subsequent Triggering Event (or such
later period as provided in Section 10).
B-1
<PAGE>
(b) Each of the following shall be an "EXERCISE TERMINATION EVENT":
(i) the Effective Time (as defined in the Merger Agreement);
(ii) termination of the Merger Agreement by mutual agreement of the
parties pursuant to Section 8.1 of the Merger Agreement, by either
Issuer or Grantee pursuant to Section 8.2(c) of the Merger
Agreement or by Issuer pursuant to Section 8.3(a) of the Merger
Agreement;
(iii) except as provided in clause (ii), termination of the Merger
Agreement in accordance with the provisions thereof if such
termination occurs prior to the occurrence of an Initial Triggering
Event, except a termination by Grantee pursuant to Section 8.4(b)
of the Merger Agreement as a result of a breach of a covenant by
Issuer or a breach of a representation by Issuer;
(iv) the passage of 12 months after termination of the Merger Agreement
(or such later period as provided in Section 10) if such
termination (A) follows or is concurrent with the occurrence of an
Initial Triggering Event or (B) is a termination by Grantee
pursuant to Section 8.4(b) of the Merger Agreement as a result of a
breach of a covenant by Issuer; or
(v) the receipt by Grantee (pursuant to its request) of the sum of
$25 million in respect of the termination fee under the Merger
Agreement.
(c) The term "INITIAL TRIGGERING EVENT" shall mean any of the following
events or transactions occurring after the date hereof:
(i) (A) Issuer or any of its Subsidiaries (as defined in Rule 1-02 of
Regulation S-X promulgated by the Securities and Exchange Commission
(the "SEC")) (each an "ISSUER SUBSIDIARY"), without having received
Grantee's prior written consent, shall have entered into an
agreement to engage in an Acquisition Transaction (as defined below)
with any person (the term "PERSON" for purposes of this Agreement
having the meaning assigned thereto in Sections 3(a)(9) and 13(d)(3)
of the Exchange Act) other than Grantee or any of its Subsidiaries
(each a "GRANTEE SUBSIDIARY") or (B) the Board of Directors of
Issuer shall have recommended that the stockholders of Issuer
approve or accept any Acquisition Transaction (other than the Merger
referred to in the Merger Agreement). For purposes of this
Agreement, "ACQUISITION TRANSACTION" shall mean (A) a merger or
consolidation, or any similar transaction, involving Issuer, (B) a
purchase, lease or other acquisition or assumption of all or more
than 20% of the consolidated assets of Issuer (including by way of
merger, consolidation, share exchange or otherwise involving any
Subsidiary of Issuer), (C) a purchase or other acquisition
(including by way of merger, consolidation, share exchange or
otherwise) of beneficial ownership (the term "BENEFICIAL OWNERSHIP"
for purposes of this Agreement having the meaning assigned thereto
in Section 13(d) of the Exchange Act, and the rules and regulations
thereunder) of securities representing 20% or more of the voting
power of Issuer, or (D) any substantially similar transaction;
PROVIDED, HOWEVER, that in no event shall any merger, consolidation,
purchase or similar transaction involving only the Issuer and one or
more of its wholly-owned Subsidiaries or involving only any two or
more of such wholly-owned Subsidiaries, be deemed to be an
Acquisition Transaction, if such transaction is not entered into in
violation of the terms of the Merger Agreement;
(ii) Issuer or any Issuer Subsidiary, without having received Grantee's
prior written consent, shall have authorized, recommended, proposed
or publicly announced its intention to authorize, recommend or
propose, to engage in an Acquisition Transaction with any person
other than Grantee or a Grantee Subsidiary or shall have authorized
or engaged
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in, or announced its intention to authorize or engage in, any
negotiations regarding an Acquisition Transaction with any person
other than the Grantee or a Grantee Subsidiary, or the Board of
Directors of Issuer shall have failed to recommend or shall have
publicly withdrawn or modified, or publicly announced its intention
to withdraw or modify, in any manner adverse to Grantee, its
recommendation that the stockholders of Issuer approve the Merger;
(iii) The shareholders of Issuer shall have voted and failed to approve
the Merger at a meeting which has been held for that purpose or any
adjournment or postponement thereof, or such meeting shall not have
been held in violation of the Merger Agreement or shall have been
canceled prior to termination of the Merger Agreement if, prior to
such meeting (or if such meeting shall not have been held or shall
have been canceled, prior to such termination), any person (other
than the Grantee or a Grantee Subsidiary) shall have made a
proposal to Issuer or its stockholders by public announcement or
written communication that is or becomes the subject of public
disclosure to engage in an Acquisition Transaction;
(iv) (a) Any person other than Grantee or any Grantee Subsidiary shall
have acquired beneficial ownership or the right to acquire
beneficial ownership of 20% or more of the then outstanding shares
of Common Stock or (b) any group (the term "GROUP" having the
meaning assigned in Section 13(d)(3) of the Exchange Act), other
than a group of which the Grantee or any Grantee Subsidiary is a
member, shall have been formed that beneficially owns 20% or more
of the shares of Common Stock then outstanding;
(v) Any person other than Grantee or any Grantee Subsidiary shall have
made a BONA FIDE proposal to Issuer or its stockholders to engage in
an Acquisition Transaction and such proposal shall have become
publicly known;
(vi) Issuer shall have breached any covenant or obligation contained in
the Merger Agreement in anticipation of engaging in an Acquisition
Transaction and such breach (A) would entitle Grantee to terminate
the Merger Agreement and (B) shall not have been cured prior to the
Notice Date (as defined below); or
(vii) Any person other than Grantee or any Grantee Subsidiary, other than
in connection with a transaction to which Grantee has given its
prior written consent, shall have filed with any federal, state or
foreign regulatory or governmental authority an application for
approval or notice of intention to engage in an Acquisition
Transaction.
(d) The term "SUBSEQUENT TRIGGERING EVENT" shall mean the occurrence, after
the date hereof, of either (i) the Initial Triggering Event described in
paragraph (i)(A) of subsection (c) of this Section 2, except that the references
to 20% in clause (B) and clause (C) of paragraph (i) shall each be deemed to be
a reference to 40% or (ii) the acquisition by any person other than Grantee or
any Grantee Subsidiary or by a group not including Grantee or any Grantee
Subsidiary of beneficial ownership of 50% or more of the then outstanding Common
Stock.
(e) Issuer shall notify Grantee promptly in writing of the occurrence of any
Initial Triggering Event or Subsequent Triggering Event (together, a "TRIGGERING
EVENT"), it being understood that the giving of such notice by Issuer shall not
be a condition to the right of the Holder to exercise the Option.
(f) In the event the Holder is entitled to and wishes to exercise the Option
(or any portion thereof), it shall send to Issuer a written notice (the date of
which being herein referred to as the "NOTICE DATE") specifying (i) the total
number of shares it will purchase pursuant to such exercise and (ii) a place and
date not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "CLOSING DATE"); PROVIDED,
that if the closing of such purchase cannot be consummated by reason of any
applicable judgment, injunction, decree, order, law
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or regulation, the period of time that would otherwise run pursuant to this
sentence shall run instead from the date on which such restriction on
consummation has expired or been terminated; and PROVIDED, further, that if
prior notification to or approval of any regulatory or antitrust agency is
required in connection with such purchase, the Holder shall promptly file the
required notice or application for approval and shall expeditiously process the
same and the period of time that otherwise would run pursuant to this sentence
shall run instead from the date on which any required notification periods have
expired or been terminated or such approvals have been obtained and any
requisite waiting period or periods shall have passed. Any exercise of the
Option shall be deemed to occur on the Notice Date relating thereto.
(g) At the closing referred to in subsection (f) of this Section 2, the
Holder shall pay to Issuer the aggregate purchase price for the shares of Common
Stock purchased pursuant to the exercise of the Option in immediately available
funds by wire transfer to a bank account designated by Issuer, PROVIDED that
failure or refusal of Issuer to designate such a bank account shall not preclude
the Holder from exercising the Option.
(h) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (g) of this Section 2, Issuer shall
deliver to the Holder a certificate or certificates representing the number of
shares of Common Stock purchased by the Holder and, if the Option should be
exercised in part only, a new Option evidencing the rights of the Holder thereof
to purchase the balance of the shares purchasable hereunder.
(i) Certificates for Common Stock delivered at a closing hereunder may be
endorsed with a restrictive legend that shall read substantially as follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof
and Issuer and to resale restrictions arising under applicable securities
laws (including the Securities Act of 1933, as amended). A copy of such
agreement is on file at the principal office of Issuer and will be
provided to the holder hereof without charge upon receipt by Issuer of a
written request therefor."
It is understood and agreed that: (i) the reference to the resale restrictions
arising under applicable securities laws, including the Securities Act of 1933,
as amended (the "SECURITIES ACT"), in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the Holder shall
have delivered to Issuer a copy of a letter from the staff of the SEC, or an
opinion of counsel, in form and substance reasonably satisfactory to Issuer, to
the effect that such legend is not required for purposes of the Securities Act
or other applicable securities laws; (ii) the reference to the provisions of
this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference in the opinion
of counsel to the Holder, in form and substance reasonably satisfactory to
Issuer; and (iii) the legend shall be removed in its entirety if the conditions
in the preceding clauses (i) and (ii) are both satisfied. In addition, such
certificates shall bear any other legend as may be required by law.
(j) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (f) of this Section 2 and
the tender of the applicable purchase price in immediately available funds, the
Holder shall be deemed to be the holder of record of the shares of Common Stock
issuable upon such exercise, notwithstanding that the stock transfer books of
Issuer shall then be closed or that certificates representing such shares of
Common Stock shall not then be actually delivered to the Holder. Issuer shall
pay all expenses, and any and all United States federal, state and local taxes
and other charges that may be payable in connection with the preparation, issue
and delivery of stock certificates under this Section 2 in the name of the
Holder or its assignee, transferee or designee.
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3. COVENANTS OF ISSUER. In addition to its other agreements and covenants
herein, Issuer agrees:
(a) that it shall at all times maintain, free from any subscriptive or
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights of third parties to purchase
Common Stock from Issuer or to cause Issuer to issue shares of Common Stock;
(b) that it will not, by charter amendment or through reorganization,
consolidation, merger, dissolution or sale of assets, or by any other voluntary
act, avoid or seek to avoid the observance or performance of any of the
covenants, stipulations or conditions to be observed or performed hereunder by
Issuer; and
(c) promptly to take all action (i) as may from time to time be required
(including complying with all applicable notification, filing reporting and
waiting period requirements under HSR or otherwise, and cooperating fully with
the Holder in preparing any applications or notices and providing such
information to any regulatory authority as it may require) in order to permit
the Holder to exercise the Option and Issuer duly and effectively to issue
shares of Common Stock pursuant hereto, and (ii) as may from time to time be
required to protect the rights of the Holder against dilution
4. EXCHANGE; REPLACEMENT. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of the Holder, upon
presentation and surrender of this Agreement at the principal office of Issuer,
for other Agreements providing for Options of different denominations entitling
the holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of shares
of Common Stock purchasable hereunder. The terms "AGREEMENT" and "OPTION" as
used herein include any Agreements and related Options for which this Agreement
(and the Option granted hereby) may be exchanged. Upon receipt by Issuer of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of this Agreement, and (in the case of loss, theft or destruction) of
reasonably satisfactory indemnification, and upon surrender and cancellation of
this Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered shall
constitute an additional contractual obligation on the part of Issuer, whether
or not the Agreement so lost, stolen, destroyed or mutilated shall at any time
be enforceable by any person other than the holder of the new Agreement.
5. ADJUSTMENTS. In addition to the adjustment in the number of shares of
Common Stock that are purchasable upon exercise of the Option pursuant to
Section 1 hereof, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment from
time to time as provided in this Section 5.
(a) In the event of any change in, or distributions in respect of, the
Common Stock by reason of stock dividends, split-ups, mergers,
recapitalizations, combinations, subdivisions, conversions, exchanges of shares
or the like, the type and number of shares of Common Stock purchasable upon
exercise hereof shall be appropriately adjusted and proper provision shall be
made so that, in the event that any additional shares of Common Stock are to be
issued or otherwise become outstanding as a result of any such change (other
than pursuant to an exercise of the Option), the number of shares of Common
Stock that remain subject to the Option shall be increased so that, after such
issuance and together with shares of Common Stock previously issued pursuant to
the exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it equals 19.9% of the number of shares of Common
Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon exercise
hereof is adjusted as provided in this Section 5, the Option Price shall be
adjusted by multiplying the Option Price by a fraction, the numerator of which
shall be equal to the number of shares of Common Stock
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purchasable prior to the adjustment and the denominator of which shall be equal
to the number of shares of Common Stock purchasable after the adjustment.
6. REGISTRATION. (a) Upon the occurrence of any Subsequent Triggering
Event that occurs prior to an Exercise Termination Event, Issuer shall, subject
to Section 6(d) hereof, at the request of Grantee delivered within twelve
(12) months (or such later period as provided in Section 10 hereof) of such
Subsequent Triggering Event (whether on its own behalf or on behalf of any
subsequent holder of this Option (or part thereof) or any of the shares of
Common Stock issued pursuant hereto), promptly prepare, file and keep current a
shelf registration statement under the Securities Act covering this Option and
any shares issued and issuable pursuant to this Option and shall use its
reasonable best efforts to cause such registration statement to become effective
and remain current in order to permit the sale or other disposition of this
Option and any shares of Common Stock issued upon total or partial exercise of
this Option ("OPTION SHARES") in accordance with any plan of disposition
requested by Grantee. Issuer will use its reasonable best efforts to cause such
registration statement promptly to become effective and then to remain effective
for a period not in excess of 180 days from the day such registration statement
first becomes effective or such shorter time as may be reasonably necessary, in
the judgment of the Grantee or the Holder, to effect such sales or other
dispositions. Grantee shall have the right to demand two such registrations. The
Issuer shall bear the costs of such registrations (including, but not limited
to, Issuer's attorneys' fees, printing costs and filing fees, except for
underwriting discounts or commissions, brokers' fees and the fees and
disbursements of Grantee's counsel related thereto). The foregoing
notwithstanding, if, at the time of any request by Grantee for registration of
the Option or Option Shares as provided above, Issuer is in registration with
respect to an underwritten public offering by Issuer of shares of Common Stock,
and if in the good faith judgment of the managing underwriter or managing
underwriters, or, if none, the sole underwriter or underwriters, of such
offering the inclusion of the Option or Option Shares would interfere with the
successful marketing of the shares of Common Stock offered by Issuer, the number
of Option Shares otherwise to be covered in the registration statement
contemplated hereby may be reduced to the extent necessary to eliminate such
condition; PROVIDED, HOWEVER, that if such reduction occurs (including a
reduction to zero), then Issuer shall file a registration statement for the
balance as promptly as practicable thereafter as to which no reduction pursuant
to this Section 6 shall be permitted to occur and the Holder shall be deemed not
to have made an additional registration demand and the twelve (12) month period
referred to in the first sentence of this section shall be increased to
twenty-four (24) months. Each such Holder shall provide all information
reasonably requested by Issuer for inclusion in any registration statement to be
filed hereunder. If requested by any such Holder in connection with such
registration, Issuer shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating itself in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements for Issuer. Upon receiving
any request under this Section 6 from any Holder, Issuer agrees to send a copy
thereof to any other person known to Issuer to be entitled to registration
rights under this Section 6, in each case by promptly mailing the same, postage
prepaid, to the address of record of the persons entitled to receive such
copies. Notwithstanding anything to the contrary contained herein, in no event
shall the number of registrations that Issuer is obligated to effect be
increased by reason of the fact that there shall be more than one Holder as a
result of any assignment or division of this Agreement.
(b) In the event that Grantee so requests, the closing of the sale or other
disposition of the Common Stock or other securities pursuant to a registration
statement filed pursuant to Section 6(a) hereof shall occur substantially
simultaneously with the exercise of the Option.
(c) If the Common Stock or the class of any other securities to be acquired
upon exercise of the Option are then listed on the New York Stock Exchange
("NYSE") or any national securities exchange, Issuer, upon the request of the
Holder, shall promptly file an application to list the Common Stock or
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other securities to be acquired upon exercise of the Option on NYSE or such
exchange and will use its reasonable best efforts to obtain approval of such
listing as soon as practicable.
(d) Issuer may delay any registration of the Option or Option Shares
required pursuant to Section 6(a) hereof for one period not in excess of 90
consecutive calendar days if, in the reasonable good faith judgment of Issuer,
such registration would materially and adversely affect a proposed merger,
consolidation or similar transaction (including through the premature disclosure
thereof) or offering or contemplated offering of other securities by Issuer.
(e) Issuer shall indemnify and hold harmless the Holder and its controlling
persons (as defined in Section 20 of the Exchange Act) in connection with any
material misstatement or omission in the registration statement for any such
registration under this Section 6 except to the extent arising from written
information provided by the Holder specifically for inclusion in such
registration statement. The Holder shall indemnify and hold harmless the Issuer
and its controlling persons in connection with any material misstatement or
omission in any such registration statement to the extent arising from written
information provided by the Holder specifically for inclusion in such
registration statement.
7. REPURCHASE OF OPTION AND/OR OPTION SHARES. (a) At any time commencing
upon the occurrence of a Repurchase Event (as defined in Section 7(d) hereof)
and ending twelve (12) months thereafter, (i) at the request of the Holder,
delivered in writing prior to an Exercise Termination Event (or such later
period as provided in Section 10), Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "OPTION REPURCHASE PRICE")
equal to the amount by which (A) the market/offer price (as defined below)
exceeds (B) the Option Price, multiplied by the number of shares for which this
Option may then be exercised, and (ii) at the request of the owner of Option
Shares from time to time (the "OWNER"), delivered in writing prior to an
Exercise Termination Event (or such later period as provided in Section 10),
Issuer (or any successor thereto) shall repurchase such number of Option Shares
from the Owner as the Owner shall designate at a price (the "OPTION SHARE
REPURCHASE PRICE") equal to the market/offer price multiplied by the number of
Option Shares so designated. The term "MARKET/OFFER PRICE" shall mean the
highest of (i) the price per share of Common Stock at which a tender or exchange
offer therefor has been made and has been consummated or remains outstanding,
(ii) the price per share of Common Stock to be paid by any third party pursuant
to an agreement with Issuer, (iii) the highest average closing price for shares
of Common Stock for any 20 trading day period within the three-month period
immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required repurchase
of Option Shares, as the case may be, or (iv) in the event of a sale of all or a
majority of the consolidated assets of Issuer, the sum of the net price paid in
such sale for such assets and the current market value of the remaining net
assets of Issuer as determined by a nationally recognized investment banking
firm selected by the Holder or the Owner, as the case may be, and reasonably
acceptable to Issuer, divided by the number of shares of Common Stock
outstanding at the time of such sale, which determination, absent manifest
error, shall be conclusive for all purposes of this Agreement. In determining
the market/offer price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by the
Holder or Owner, as the case may be, and reasonably acceptable to Issuer, which
determination, absent manifest error, shall be conclusive for all purposes of
this Agreement.
(b) The Holder and the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and any Option Shares pursuant to this
Section 7 by surrendering for such purpose to Issuer, at its principal office, a
copy of this Agreement or certificates for Option Shares, as applicable,
accompanied by a written notice or notices stating that the Holder or the Owner,
as the case may be, elects to require Issuer to repurchase this Option and/or
the Option Shares in accordance with the provisions of this Section 7. Prior to
the later of (i) the date that is five business days after the surrender of the
Option and/or certificates representing Option Shares and the receipt of such
notice or notices relating thereto and (ii) the day on which a Repurchase Event
occurs, Issuer shall deliver or
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cause to be delivered to the Holder the Option Repurchase Price and/or to the
Owner the Option Share Repurchase Price or the portion thereof that Issuer is
not then prohibited under applicable law and regulation from so delivering.
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full, Issuer
shall promptly so notify the Holder and/or the Owner and thereafter deliver or
cause to be delivered, from time to time, to the Holder and/or the Owner, as
appropriate, the portion of the Option Repurchase Price and the Option Share
Repurchase Price, respectively, that it is no longer prohibited from delivering,
within five business days after the date on which Issuer is no longer so
prohibited; PROVIDED, HOWEVER, that if Issuer at any time after delivery of a
notice of repurchase pursuant to paragraph (b) of this Section 7 is prohibited
under applicable law or regulation from delivering to the Holder and/or the
Owner, as appropriate, the Option Repurchase Price and the Option Share
Repurchase Price, respectively, in full (and Issuer hereby undertakes to use its
reasonable best efforts to obtain all required regulatory and legal approvals
and to file any required notices as promptly as practicable in order to
accomplish such repurchase), the Holder or Owner may revoke its notice of
repurchase of the Option and/or the Option Shares whether in whole or to the
extent of the prohibition, whereupon, in the latter case, Issuer shall promptly
(i) deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price and/or the Option Share Repurchase Price that Issuer is
not prohibited from delivering; and (ii) deliver, as appropriate, either (A) to
the Holder, a new Agreement evidencing the right of the Holder to purchase that
number of shares of Common Stock obtained by multiplying the number of shares of
Common Stock for which the surrendered Agreement was exercisable at the time of
delivery of the notice of repurchase by a fraction, the numerator of which is
the Option Repurchase Price less the portion thereof theretofore delivered to
the Holder and the denominator of which is the Option Repurchase Price, and/or
(B) to the Owner, a certificate for the Option Shares it is then so prohibited
from repurchasing. If an Exercise Termination Event shall have occurred less
than 30 days prior to the date of the notice by Issuer described in the first
sentence of this subsection (c), or shall be scheduled to occur at any time
before the expiration of a period ending on the thirtieth day after such date,
the Holder shall nonetheless have the right to exercise the Option until the
expiration of such 30-day period after the date of the Exercise Termination
Event or the notice date, respectively.
(d) For purposes of this Section 7, a Repurchase Event shall be deemed to
have occurred (i) upon the consummation of any merger, consolidation or similar
transaction involving Issuer or any purchase, lease or other acquisition of all
or a majority of the assets of Issuer on a consolidated basis, other than any
such transaction which would not constitute an Acquisition Transaction pursuant
to the proviso to Section 2(c)(i) hereof or (ii) upon the acquisition by any
person of beneficial ownership of 50% or more of the then outstanding shares of
Common Stock; PROVIDED that no such event shall constitute a Repurchase Event
unless a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event. The parties hereto agree that Issuer's obligations to
repurchase the Option or Option Shares under this Section 7 shall not terminate
upon the occurrence of an Exercise Termination Event unless no Subsequent
Triggering Event shall have occurred prior to the occurrence of an Exercise
Termination Event.
8. SUBSTITUTE OPTION. (a) In the event that prior to an Exercise
Termination Event, Issuer shall enter into an agreement (i) to consolidate with
or merge into any person, other than Grantee or any of its Subsidiaries
(collectively, "EXCLUDED PERSONS") and Issuer shall not be the continuing or
surviving corporation of such consolidation or merger, (ii) to permit any
person, other than an Excluded Person, to merge into Issuer and Issuer shall be
the continuing or surviving or acquiring corporation, but, in connection with
such merger, the then outstanding shares of Common Stock shall be changed into
or exchanged for stock or other securities of any other person or cash or any
other property or the then outstanding shares of Common Stock shall after such
merger represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged or acquiring company, or (iii) to
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sell or otherwise transfer all or substantially all of its assets to any person,
other than an Excluded Person, then, and in each such case, the agreement
governing such transaction shall make proper provision so that the Option shall,
upon the consummation of any such transaction and upon the terms and conditions
set forth herein, be converted into, or exchanged for, an option (the
"SUBSTITUTE OPTION"), at the election of the Holder, of either (A) the Acquiring
Corporation (as hereinafter defined) or (B) any person that controls the
Acquiring Corporation.
(b) The following terms have the meanings indicated:
(i) "ACQUIRING CORPORATION" shall mean (A) the continuing or surviving
person of a consolidation or merger with Issuer (if other than
Issuer), (B) Issuer in a merger in which Issuer is the continuing or
surviving or acquiring person, and (C) the transferee of all or
substantially all of Issuer's assets.
(ii) "SUBSTITUTE SHARES" shall mean the shares of capital stock (or
similar equity interest) with the greatest voting power in respect
of the election of directors (or other persons similarly
responsible for direction of the business and affairs) of the
issuer of the Substitute Option.
(iii) "ASSIGNED VALUE" shall mean the market/offer price as defined in
Section 7.
(iv) "AVERAGE PRICE" shall mean the average closing price per Substitute
Share, on the principal trading market on which such shares are
traded as reported by a recognized source, for the 20 trading day
period immediately preceding the consolidation, merger or sale in
question, but in no event higher than the closing price of the
Substitute Shares on such market on the day preceding such
consolidation, merger or sale; provided that if Issuer is the
issuer of the Substitute Option, the Average Price shall be
computed with respect to a share of common stock issued by the
person merging into Issuer or by any company which controls or is
controlled by such person, as the Holder may elect.
(c) The Substitute Option shall have the same terms as the Option, PROVIDED
that if the terms of the Substitute Option cannot, for legal reasons, be the
same as the Option, such terms shall be as similar as possible to the terms of
the Option and (to the extent permitted by applicable law) in no event less
advantageous to the Holder. The issuer of the Substitute Option shall also enter
into an agreement with the then Holder or Holders of the Substitute Option in
substantially the same form as this Agreement (after giving effect for such
purpose to the provisions of Section 9 hereof), which agreement shall be
applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of Substitute
Shares as is equal to the Assigned Value multiplied by the number of shares of
Common Stock for which the Option was exercisable immediately prior to the event
described in the first sentence of Section 8(a) hereof, divided by the Average
Price. The exercise price of the Substitute Option per Substitute Share shall
then be equal to the Option Price multiplied by a fraction, the numerator of
which shall be the number of shares of Common Stock for which the Option was
exercisable immediately prior to the event described in the first sentence of
Section 8(a) hereof and the denominator of which shall be the number of
Substitute Shares for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
number of shares purchasable upon exercise of the Substitute Option exceed 19.9%
of the Substitute Shares then issued and outstanding at the time of exercise
(without giving effect to Substitute Shares issued or issuable under the
Substitute Option). In the event that the Substitute Option would be exercisable
for more than 19.9% of the Substitute Shares then issued and outstanding prior
to exercise but for this clause (e), the issuer of the Substitute Option (the
"SUBSTITUTE OPTION ISSUER") shall make a cash payment to Holder equal to the
excess of (i) the value of the Substitute Option without giving effect to the
limitation in this clause (e) over (ii) the value of the Substitute Option after
giving effect to the
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limitation in this clause (e). This difference in value shall be determined by a
nationally recognized investment banking firm selected by Grantee (or, if
Grantee is not then the Holder owning Options with respect to the largest number
of Shares, the largest Holder) and reasonably acceptable to Issuer, which
determination, absent manifest error, shall be conclusive for all purposes of
this Agreement.
(f) In addition to any other restrictions or covenants, Issuer agrees that
it shall not enter or agree to enter into any transaction described in
Section 8(a) hereof unless (i) the Acquiring Corporation and any person that
controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder and (ii) the Substitute Option Issuer agrees to comply with
this Section 8 and agrees to take all action necessary to prevent the exercise
of any rights of any holder of Substitute Shares or shares of capital stock of
any successor to the Substitute Option Issuer that any holder of the Substitute
Option (each such person being referred to herein as a "SUBSTITUTE OPTION
HOLDER") or any holder of Substitute Shares (each such person being referred to
herein as a "SUBSTITUTE SHARE OWNER") purchased upon exercise of the Substitute
Option by a Substitute Option Holder would be prohibited or precluded from
exercising or the exercise of which would adversely affect the rights of any
Substitute Option Holder under the agreement for such Substitute Option or the
transactions contemplated by the Merger Agreement.
9. REPURCHASE OF SUBSTITUTE OPTION. (a) At the written request of a
Substitute Option Holder or upon written notice of election by the Substitute
Option Issuer, the Substitute Option Issuer shall repurchase the Substitute
Option from the Substitute Option Holder at a price (the "SUBSTITUTE OPTION
REPURCHASE PRICE") equal to the amount by which (i) the Highest Closing Price
(as hereinafter defined) exceeds (ii) the exercise price of the Substitute
Option multiplied by the number of Substitute Shares for which the Substitute
Option may then be exercised, and at the request of the Substitute Share Owner
or upon written notice of election by the Substitute Option Issuer, the
Substitute Option Issuer shall repurchase the Substitute Shares at a price (the
"SUBSTITUTE SHARE REPURCHASE PRICE") equal to the Highest Closing Price
multiplied by the number of Substitute Shares so designated. The term "HIGHEST
CLOSING PRICE" shall mean the highest average closing price for Substitute
Shares for any 20 trading day period within the three-month period immediately
preceding the date the Substitute Option Holder or the Substitute Option Issuer
gives notice of the required repurchase of the Substitute Option or the
Substitute Share Owner or the Substitute Option Issuer gives notice of the
required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as the case
may be, may exercise its respective rights to require the Substitute Option
Issuer to repurchase the Substitute Option and the Substitute Shares pursuant to
this Section 9 by surrendering for such purpose to the Substitute Option Issuer,
at its principal office, the agreement for such Substitute Option (or, in the
absence of such an agreement, a copy of this Agreement) and/or certificates for
Substitute Shares accompanied by a written notice or notices stating that the
Substitute Option Holder or the Substitute Share Owner, as the case may be,
elects to require the Substitute Option Issuer to repurchase the Substitute
Option and/or the Substitute Shares in accordance with the provisions of this
Section 9. As promptly as practicable and in any event within five business days
after the surrender of the Substitute Option and/or certificates representing
Substitute Shares and the receipt of such notice or notices relating thereto,
the Substitute Option Issuer shall deliver or cause to be delivered to the
Substitute Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or the
portion thereof which the Substitute Option Issuer is not then prohibited under
applicable law and regulation from so delivering. The Substitute Option Issuer
may exercise its right to require the Substitute Option Holder and/or the
Substitute Share Owner to sell the Substitute Options and/or the Substitute
Shares, as the case may be, pursuant to this Section 9 by delivering written
notice to the Substitute Option Holder and/or the Substitute Share Owner. Within
five business days after the receipt of such written notice, the Substitute
Option Holder and/or the Substitute Share Owner, as the case may be, shall
surrender to the Substitute Option Issuer, at its
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<PAGE>
principal office, the agreement for such Substitute Option (or, in the absence
of such an agreement, a copy of this Agreement) and/or the Substitute Shares, as
the case may be, against payment to the Substitute Option Holder and/or
Substitute Share Owner of the Substitute Option Repurchase Price and/or the
Substitute Share Repurchase Price, as the case may be.
(c) To the extent that the Substitute Option Issuer is prohibited under
applicable law or regulation from repurchasing the Substitute Option and/or the
Substitute Shares in part or in full, the Substitute Option Issuer shall
promptly so notify the Substitute Option Holder and/or the Substitute Share
Owner and thereafter deliver or cause to be delivered, from time to time, to the
Substitute Option Holder and/or the Substitute Share Owner, as appropriate, the
portion of the Substitute Option Repurchase Price and/or the Substitute Share
Repurchase Price, respectively, which it is no longer prohibited from
delivering, within five (5) business days after the date on which the Substitute
Option Issuer is no longer so prohibited; PROVIDED, HOWEVER, that if the
Substitute Option Issuer is, at any time after delivery by the Substitute Option
Holder, Substitute Share Owner or Substitute Option Issuer of a notice of
repurchase pursuant to subsection (b) of this Section 9, prohibited under
applicable law or regulation from delivering to the Substitute Option Holder
and/or the Substitute Share Owner, as appropriate, the Substitute Option
Repurchase Price and the Substitute Share Repurchase Price, respectively, in
full (and the Substitute Option Issuer shall use its best efforts to receive all
required regulatory and legal approvals as promptly as practicable in order to
accomplish such repurchase), the Substitute Option Holder, Substitute Share
Owner or the Substitute Option Issuer, as the case may be, may revoke its notice
of repurchase of the Substitute Option or the Substitute Shares either in whole
or to the extent of the prohibition, whereupon, in the latter case, the
Substitute Option Issuer shall promptly (i) deliver to the Substitute Option
Holder or Substitute Share Owner, as appropriate, that portion of the Substitute
Option Repurchase Price or the Substitute Share Repurchase Price that the
Substitute Option Issuer is not prohibited from delivering; and (ii) deliver, as
appropriate, either (A) to the Substitute Option Holder, a new Substitute Option
evidencing the right of the Substitute Option Holder to purchase that number of
Substitute Shares obtained by multiplying the number of Substitute Shares for
which the surrendered Substitute Option was exercisable at the time of delivery
of the notice of repurchase by a fraction, the numerator of which is the
Substitute Option Repurchase Price less the portion thereof theretofore
delivered to the Substitute Option Holder and the denominator of which is the
Substitute Option Repurchase Price, and/or (B) to the Substitute Share Owner, a
certificate for the Substitute Option Shares it is then so prohibited from
repurchasing. If an Exercise Termination Event shall have occurred less than
30 days prior to the date of the notice by the Substitute Option Issuer
described in the first sentence of this subsection (c), or shall be scheduled to
occur at any time before the expiration of a period ending on the thirtieth day
after such date, the Substitute Option Holder shall nevertheless have the right
to exercise the Substitute Option until the expiration of such 30-day period
after the date of the Exercise Termination Event or the notice date,
respectively.
10. EXTENSION. The period for exercise of certain rights under Sections 2,
6, 7, 9 and 12 hereof shall be extended: (a) to the extent necessary to obtain
all governmental and regulatory approvals for the exercise of such rights (for
so long as the Holder, Substitute Option Holder or Substitute Share Owner, as
the case may be, is using its reasonable best efforts to obtain such regulatory
approvals), and for the expiration of all statutory waiting periods; (b) during
any period for which an injunction or similar legal prohibition on exercise
shall be in effect; (c) to the extent necessary to avoid liability under
Section 16(b) of the Exchange Act by reason of such exercise; and (d) by the
number of days by which Issuer shall have delayed any registration pursuant to
Section 6(d) hereof.
11. REPRESENTATIONS AND WARRANTIES. (a) Issuer hereby represents and
warrants to Grantee as follows:
(i) Issuer has full corporate power and authority to execute and deliver
this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been
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<PAGE>
duly and validly authorized by the Board of Directors of Issuer and
no other corporate proceedings on the part of Issuer are necessary
to authorize this Agreement or to consummate the transactions so
contemplated. This Agreement has been duly and validly executed and
delivered by Issuer and constitutes a valid and legally binding
obligation of Issuer enforceable in accordance with its terms
(except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent
transfer and similar laws of general applicability relating to or
affecting creditors' rights or by general equity principles, whether
such principles are considered at law or in equity).
(ii) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date
hereof through the termination of this Agreement in accordance with
its terms will have reserved for issuance upon the exercise of the
Option, that number of shares of Common Stock equal to the maximum
number of shares of Common Stock at any time and from time to time
issuable hereunder, and all such shares, upon issuance pursuant to
the Option, will be duly authorized, validly issued, fully paid,
nonassessable, and will be delivered free and clear of all claims,
liens, encumbrances and security interests and not subject to any
preemptive rights.
(iii) The execution, delivery and performance of this Agreement does not
or will not, and the consummation by Issuer of any of the
transactions contemplated hereby will not, constitute or result in
(A) a breach or violation of or a default under, its articles or
certificate of incorporation or by-laws, or the comparable
governing instruments of any of its subsidiaries, or (B) a breach
or violation of or a default under, any agreement, lease, contract,
note, mortgage, indenture, arrangement or other obligation of it or
any of its subsidiaries (with or without the giving of notice, the
lapse of time or both) or under any law, rule, ordinance or
regulation or judgment, decree, order, award or governmental or
non-governmental permit or license to which it or any of its
subsidiaries is subject, except where such breach, violation or
default would not in the aggregate have a Material Adverse Effect
(as defined in the Merger Agreement) and would not materially
impair Issuer's ability to consummate the transactions contemplated
by this Agreement.
(b) Grantee hereby represents and warrants to Issuer that Grantee has full
corporate power and authority to enter into this Agreement and, subject to
obtaining the approvals referred to in this Agreement, to consummate the
transactions contemplated by this Agreement; the execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of Grantee; and
this Agreement has been duly executed and delivered by Grantee and constitutes a
valid and legally binding obligation of Grantee enforceable in accordance with
its terms (except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, fraudulent transfer and
similar laws of general applicability relating to or affecting creditors' rights
or by general equity principles, whether such principles are considered at law
or in equity).
12. ASSIGNMENT. Neither of the parties hereto may assign any of its rights
or obligations under this Agreement or the Option created hereunder to any other
person, without the express written consent of the other party, except that in
the event a Subsequent Triggering Event shall have occurred prior to an Exercise
Termination Event, Grantee may assign in whole or in part its rights and
obligations hereunder within twelve (12) months following such Subsequent
Triggering Event (or such later period as provided in Section 10 hereof)
provided that the assignee executes a supplement to this Agreement agreeing to
be bound by this Agreement's terms.
13. FILINGS; OTHER ACTIONS. Each of Grantee and Issuer will use its
reasonable best efforts to make all filings with, and to obtain consents of, all
third parties and regulatory and governmental
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authorities necessary to the consummation of the transactions contemplated by
this Agreement, including, without limitation, notices and filings under HSR.
14. BEST EFFORTS. Each of Grantee and Issuer will use its reasonable best
efforts to make all filings with, and to obtain consents of, all third parties
and governmental authorities necessary for the consummation of the transactions
contemplated by this Agreement, including, without limitation, making
application to list the shares of Common Stock issuable hereunder on NYSE upon
official notice of issuance.
15. SPECIFIC PERFORMANCE. The parties hereto acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either party
hereto and that the obligations of the parties hereto shall be enforceable by
either party hereto through injunctive or other equitable relief.
16. SEVERABILITY. If any term, provision, covenant or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void or unenforceable, the
remainder of the terms, provisions and covenants and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Holder is not permitted to acquire, or Issuer or
Substitute Option Issuer, as applicable, is not permitted to repurchase pursuant
to Section 7 or 9 hereof, as applicable, the full number of shares of Common
Stock provided in Section 1(a) hereof (as adjusted pursuant to Section 1(b) or
Section 5 hereof), it is the express intention of Issuer to allow the Holder to
acquire or to require Issuer to repurchase such lesser number of shares as may
be permissible, without any amendment or modification hereof.
17. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be deemed to have been duly given when delivered
in person, by fax, telecopy, or by registered or certified mail (postage
prepaid, return receipt requested) at the respective addresses of the parties
set forth in the Merger Agreement or such other address as shall be provided in
writing.
18. GOVERNING LAW. This Agreement shall be governed by, and interpreted in
accordance with, the laws of the State of New York.
19. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to constitute an original.
20. EXPENSES. Except as otherwise expressly provided herein, each of the
parties hereto shall bear and pay all costs and expenses incurred by it or on
its behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
21. ENTIRE AGREEMENT. Except as otherwise expressly provided herein or in
the Merger Agreement, this Agreement contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and supersedes
all prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and permitted
assignees. Nothing in this Agreement, expressed or implied, is intended to
confer upon any party, other than the parties hereto, and their respective
successors except as assignees, any rights, remedies, obligations or liabilities
under or by reason of this Agreement, except as expressly provided herein.
22. LIMITATION ON PROFIT. (a) Notwithstanding any other provision of this
Agreement, in no event shall the Grantee's Total Profit (as hereinafter defined)
exceed $27.5 million and, if it otherwise would exceed this amount, the Grantee,
at its sole election, shall either (i) reduce the number of shares of Common
Stock subject to this Option (or the number of shares of common stock of the
Substitute Option Issuer subject to this Substitute Option, as the case may be),
(ii) deliver to the Issuer (or Substitute Option Issuer) for cancellation Option
Shares (or Substitute Shares) previously purchased by
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<PAGE>
Grantee, (iii) pay cash to the Issuer (or Substitute Option Issuer), or
(iv) any combination thereof, so that Grantee's realized Total Profit shall not
exceed $27.5 million after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, this Option (or
Substitute Option) may not be exercised for a number of shares as would, as of
the date of exercise, result in a Notional Total Profit (as defined below) which
would exceed $27.5 million; provided, that nothing in this sentence shall
restrict any exercise of the Option (or Substitute Option) permitted hereby on
any subsequent date.
(c) As used in this Agreement, the term "TOTAL PROFIT" shall mean the
aggregate amount (before taxes) of the following: (i) (A) the amount received by
Grantee and each other Holder or Substitute Option Holder pursuant to Issuer's
repurchase of the Option (or any portion thereof) or any Option Shares in
accordance with Section 7, or pursuant to Substitute Option Issuer's repurchase
of the Substitute Option (or any portion thereof) or any Substitute Shares in
accordance with Section 9, less, in the case of any repurchase of Option Shares
or Substitute Shares, (B) the Grantee's and each other Holder's or Substitute
Option Holder's purchase price for such Option Shares or Substitute Shares, as
the case may be, (ii) (A) the net cash amounts (and the fair market value of any
other consideration) received by Grantee and each other Holder or Substitute
Option Holder pursuant to the sale of Option Shares or Substitute Shares (or any
other securities into which such Option Shares or Substitute Shares are
converted or exchanged) to any unaffiliated party, less (B) the Grantee's and
each other Holder's or Substitute Option Holder's purchase price of the Option
Shares or Substitute Shares, and (iii) the net cash amounts (and the fair market
value of any other consideration) received by Grantee and each other Holder or
Substitute Option Holder on the transfer of the Option or Substitute Option (or
any portion thereof) to any unaffiliated party. In the case of clauses
(ii) (A) and (iii) above, the Grantee and each Holder or Substitute Option
Holder agree to furnish as promptly as reasonably practicable after any
disposition of all or a portion of the Option or Option Shares or of the
Substitute Option or Substitute Shares a complete and correct statement,
certified by a responsible executive officer or partner of the Grantee or Holder
or Substitute Option Holder, as the case may be, of the net cash amounts (and
the fair market value of any other consideration) received in connection with
any sale or transfer of the Option or Option Shares or of the Substitute Option
or Substitute Shares.
(d) As used in this Agreement, the term "NOTIONAL TOTAL PROFIT" with respect
to any number of shares as to which Grantee and each other Holder or Substitute
Option Holder may propose to exercise this Option or Substitute Option shall be
the Total Profit determined as of the date of this proposal assuming that this
Option or Substitute Option were exercised on such date for this number of
shares and assuming that such shares, together with all other Option Shares or
Substitute Shares held by Grantee and each other Holder or Substitute Option
Holder and their respective affiliates as of such date, were sold for cash at
the closing market price for the Common Stock (or the common stock of the
Substitute Option Issuer, as the case may be) as of the close of business on the
preceding trading day (less customary brokerage commissions).
23. CAPTIONS; CAPITALIZED TERMS. The section and paragraph captions herein
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions
hereof. Capitalized terms used in this Agreement and not defined herein shall
have the meanings assigned thereto in the Merger Agreement.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
<TABLE>
<S> <C> <C>
THE INTERPUBLIC GROUP OF COMPANIES, INC.
By: /s/ NICHOLAS J. CAMERA
-----------------------------------------
Name: Nicholas J. Camera
Title: Vice President
NFO WORLDWIDE, INC.
By: /s/ PATRICK G. HEALY
-----------------------------------------
Name: Patrick G. Healy
Title: Chief Financial Officer
</TABLE>
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<PAGE>
ANNEX C
[LOGO]
December 19, 1999
Board of Directors
NFO Worldwide, Inc.
2 Pickwick Plaza
Greenwich, CT 06830
Members of the Board:
We understand that NFO Worldwide, Inc. ("NFO") and The Interpublic Group of
Companies, Inc. ("Interpublic") propose to enter into an Agreement and Plan of
Merger (the "Merger Agreement"), which provides, among other things, for the
merger (the "Merger") of a newly formed wholly owned subsidiary of Interpublic
("Merger Sub") with and into NFO, with NFO as the surviving corporation.
Pursuant to the Merger, each issued and outstanding share of common stock, $0.01
par value per share, of NFO (the "NFO Common Stock"), other than shares of NFO
Common Stock owned by NFO or Interpublic or any of their respective wholly owned
subsidiaries, shall be converted into the right to receive a certain number of
shares of common stock, $0.10 par value per share, of Interpublic (the
"Interpublic Common Stock"), based on an exchange ratio determined pursuant to a
certain formula set forth in the Merger Agreement (the "Exchange Ratio"). The
terms and conditions of the Merger are more fully set forth in the Merger
Agreement. Capitalized terms used in this letter without definition have the
respective meanings assigned to them in the Merger Agreement.
You have asked us to render an opinion as to whether, as of the date hereof,
the Exchange Ratio is fair, from a financial point of view, to the holders of
NFO Common Stock. We have not been requested to opine as to, and our opinion
does not in any manner address, the underlying business decision to proceed with
or effect the Merger.
For purposes of the opinion set forth herein, we have, among other things:
1. reviewed the draft Merger Agreement dated December 19, 1999 (and certain
related ancillary agreements referred to in the Merger Agreement);
2. reviewed the structure of the Merger;
3. reviewed Forms 10-K and related financial information for the three
fiscal years ended December 31, 1996, 1997 and 1998 for NFO;
4. reviewed Forms 10-K and related financial information for the three
fiscal years ended December 31, 1996, 1997 and 1998 for Interpublic;
5. reviewed certain other filings with the Securities and Exchange
Commission made by NFO and Interpublic, respectively, and certain other
publicly available business and financial information relating to NFO and
Interpublic, respectively, that we deemed relevant;
6. reviewed certain information, including financial forecasts and other
financial and operating data concerning NFO, prepared by the management
of NFO;
7. discussed the past and current operations, as well as the financial
condition and prospects of NFO with senior executives of NFO;
8. discussed the past and current operations, as well as the financial
condition and prospects of Interpublic with senior executives of
Interpublic;
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<PAGE>
9. reviewed the historical market prices and trading activity for the NFO
Common Stock and the Interpublic Common Stock, as well as related
comparable companies and stock market indices that we deemed relevant;
10. analyzed the Exchange Ratio using the trading values of certain
comparable companies that we deemed relevant;
11. reviewed the financial terms, to the extent publicly available, of
certain other comparable transactions that we deemed relevant;
12. analyzed the pro forma effect of the Merger on the earnings, cash flow
and certain financial ratios of the combined company;
13. discussed with the senior management of NFO and Interpublic,
respectively, the strategic rationale of the Merger;
14. participated in discussions and negotiations among representatives of
NFO and Interpublic and their legal advisors; and
15. reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary or appropriate for purposes of this opinion.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information supplied or otherwise made
available to us by representatives of NFO and Interpublic for purposes of this
opinion. With respect to the financial forecasts of NFO that have been furnished
to us, we have assumed such forecasts have been reasonably prepared on a basis
reflecting the best currently available estimates and good faith judgements of
the management of NFO as to the future financial performance of NFO, and we
relied upon such forecasts in arriving at our opinion. We requested, but were
not provided with financial forecasts for Interpublic, but were directed by
management of Interpublic to certain publicly available research reports that
contained financial forecasts for Interpublic. We have assumed that management
of Interpublic directed us to such financial forecasts based upon their good
faith judgment that such forecasts reflect the best currently available
estimates as to the future financial performance of Interpublic, and we relied
upon such forecasts in arriving at our opinion. In arriving at our opinion, we
have not conducted a physical inspection of NFO or Interpublic, nor have we
undertaken an independent appraisal of the assets of NFO or of the assets of
Interpublic nor are we expressing an opinion as to any aspect of the Merger
other than the fairness to the holders of NFO Common Stock of the Exchange Ratio
from a financial point of view. In addition, we have assumed that the Merger
will be accounted for as a "pooling of interests" business combination in
accordance with U.S. Generally Accepted Accounting Principles and will be
consummated in accordance with the terms and conditions set forth in the Merger
Agreement. No opinion is expressed herein as to the price at which the
Interpublic Common Stock to be issued in the Merger to the holders of NFO Common
Stock may trade at any time.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof.
We have acted as financial advisor to NFO in connection with the Merger and
will receive a fee from NFO for our services, a significant portion of which is
contingent upon the consummation of the Merger or a similar transaction. In the
past, we have provided investment banking services to NFO for which we have
received a fee customary for such services.
It is understood that this letter is for the information of the Board of
Directors of NFO and is rendered to the Board of Directors in connection with
its consideration of the Merger and may not be used for any purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing made by NFO with the Securities and Exchange Commission. This
opinion is not
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<PAGE>
intended to be and does not constitute a recommendation to the Board of
Directors of NFO as to whether it should approve the Merger.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that the Exchange Ratio is fair, from a financial point of view, to
the holders of NFO Common Stock.
Very truly yours,
GREENHILL & CO., LLC
By: /s/ Robert F. Greenhill
-----------------------------------
Name: Robert F. Greenhill
Title: Chairman
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ANNEX D
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 the 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.
ARTHUR ANDERSEN LLP
New York, New York
February 26, 1999, except for Note 21, as to which the date is March 26, 1999.
D-1
<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 judgments 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.
SOTERIOU BANERJI
Registered Auditors and Chartered Accountants
253 Gray's Inn Road
London, WC1X 8QT
Date February 23, 1998
D-2
<PAGE>
NFO WORLDWIDE, INC.
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.
D-3
<PAGE>
NFO WORLDWIDE, INC.
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.
D-4
<PAGE>
NFO WORLDWIDE, INC.
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.
D-5
<PAGE>
NFO WORLDWIDE, INC.
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.
D-6
<PAGE>
NFO WORLDWIDE, INC.
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:
<TABLE>
<CAPTION>
YEARS
--------
<S> <C>
Customer Lists.............................................. 7-20
Goodwill.................................................... 20-40
</TABLE>
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
D-7
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
income as earned and dividends are credited against the investment in affiliated
companies when received.
FAIR VALUE OF FINANCIAL INSTRUMENTS--The following methods and assumptions
were used to estimate the fair value of each category of the Company's financial
instruments:
CASH AND SHORT-TERM FINANCIAL INSTRUMENTS--The carrying amount
approximates fair value due to the short maturity of these instruments.
LONG-TERM FINANCIAL INSTRUMENTS--The fair value has been estimated using
the expected future cash flows discounted at market interest rates as
adjusted for conversion privileges. Fair value of long-term debt
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.
D-8
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
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>
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
D-9
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
5. LONG-TERM DEBT (CONTINUED)
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.
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.
D-10
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
5. LONG-TERM DEBT (CONTINUED)
Required principal payments on long-term debt and other obligations are as
follows at December 31, 1998 (IN THOUSANDS):
<TABLE>
<S> <C>
1999........................................................ $ 396
2000........................................................ 5,298
2001........................................................ 3,712
2002........................................................ 25,234
2003........................................................ 73,553
Thereafter.................................................. 82,860
--------
Total..................................................... $191,053
========
</TABLE>
6. ACCRUED LIABILITIES
Accrued liabilities consist of the following at December 31 (IN THOUSANDS):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
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
======= =======
</TABLE>
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):
<TABLE>
<S> <C>
1999........................................................ $18,204
2000........................................................ 13,884
2001........................................................ 11,136
2002........................................................ 8,770
2003........................................................ 6,077
Thereafter.................................................. 24,913
-------
Total..................................................... $82,984
=======
</TABLE>
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.
D-11
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
7. OPERATING LEASES (CONTINUED)
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.
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):
</TABLE>
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
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
======= ====== ======
</TABLE>
D-12
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
8. INCOME TAXES (CONTINUED)
Temporary differences giving rise to the recorded deferred income tax asset
and liability are as follows at December 31 (IN THOUSANDS):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
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
====== ======
</TABLE>
A reconciliation between the Company's effective tax rate and the U.S.
statutory rate is as follows at December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
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>
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.
D-13
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
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.
D-14
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
9. EMPLOYEE BENEFIT PLANS (CONTINUED)
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
===== ===== =====
</TABLE>
Assumptions used in determining pension plan amounts were as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
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.
D-15
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
10. POSTRETIREMENT BENEFIT PROGRAMS (CONTINUED)
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.
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
====== ======
</TABLE>
Net periodic postretirement benefit cost includes the following components
(IN THOUSANDS):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
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.
D-16
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
10. POSTRETIREMENT BENEFIT PROGRAMS (CONTINUED)
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.
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
D-17
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
11. CAPITAL STOCK (CONTINUED)
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
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.
D-18
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
11. CAPITAL STOCK (CONTINUED)
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>
D-19
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
11. CAPITAL STOCK (CONTINUED)
The following table summarizes information about options outstanding at
December 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING
----------------------------------------- OPTIONS EXERCISABLE
WEIGHTED-AVERAGE -----------------------------
NUMBER --------------------------- 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>
$ 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
</TABLE>
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.
D-20
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
12. INTEREST EXPENSE, NET
Interest expense, net, consists of the following for the years ended
December 31 (IN THOUSANDS):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Interest Income...................................... $ (588) $(259) $(420)
Interest Expense..................................... 4,338 928 458
------ ----- -----
Total............................................ $3,750 $ 669 $ 38
====== ===== =====
</TABLE>
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
======= ======= =======
</TABLE>
14. SUPPLEMENTAL CASH FLOW INFORMATION
Supplemental cash flow information consists of the following for the years
ended December 31 (IN THOUSANDS):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
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.
D-21
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 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.
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.
D-22
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
18. ACQUISITIONS AND JOINT VENTURES (CONTINUED)
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, 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.
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 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 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
D-23
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
18. ACQUISITIONS AND JOINT VENTURES (CONTINUED)
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):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Revenues.................................................... $444,592 $379,250
Net Income.................................................. 10,905 8,963
Basic Earnings Per Share.................................... .51 .44
Diluted Earnings Per Share.................................. .50 .43
</TABLE>
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.
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.
D-24
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
18. ACQUISITIONS AND JOINT VENTURES (CONTINUED)
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
D-25
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
18. ACQUISITIONS AND JOINT VENTURES (CONTINUED)
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.
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.
D-26
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
20. SEGMENT DATA (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
========= ======== ========
</TABLE>
D-27
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
20. SEGMENT DATA (CONTINUED)
<TABLE>
<CAPTION>
1998 1997 1996
--------- -------- --------
<S> <C> <C> <C>
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>
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.
D-28
<PAGE>
NFO WORLDWIDE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1999 DECEMBER 31, 1998
------------- -----------------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash and Cash Equivalents................................. $ 13,642 $ 17,739
-------- --------
Receivables:
Trade, Less Allowance for Doubtful Accounts............. 90,212 98,250
Unbilled Receivables.................................... 33,736 22,524
Prepaid Expenses and Other Current Assets................. 16,160 15,524
-------- --------
Total Current Assets.................................. 153,750 154,037
Property and Equipment, Net............................... 48,318 44,472
Customer List, Goodwill and Other Intangible Assets....... 225,988 231,225
Other Assets.............................................. 22,504 22,064
-------- --------
Total Assets.......................................... $450,560 $451,798
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current Maturities of Long-Term Debt...................... $ 1,068 $ 396
Accounts Payable.......................................... 16,896 31,945
Accrued Liabilities....................................... 47,963 63,122
Customer Billings in Excess of Revenues Earned............ 35,792 26,659
-------- --------
Total Current Liabilities............................. 101,719 122,122
-------- --------
Long-Term Debt, Less Current Portion........................ 193,384 190,657
Accrued Pension, Postretirement Benefits and Other.......... 14,085 14,092
-------- --------
Total Long-Term Liabilities........................... 207,469 204,749
-------- --------
Total Liabilities..................................... 309,188 326,871
-------- --------
Minority Interests.......................................... 3,205 3,164
-------- --------
Stockholders' Equity:
Common Stock, Par Value $.01 Per Share; 60,000 Shares
Authorized; 22,265 and 21,401 Issued and Outstanding in
1999 and 1998, respectively............................. 223 214
Additional Paid-In Capital................................ 71,449 63,723
Retained Earnings......................................... 72,122 60,535
Accumulated Other Comprehensive Loss:
Minimum Pension Liability, Net of Income Taxes.......... (631) (631)
Foreign Currency Translation Adjustment................. (4,996) (2,078)
-------- --------
Total Stockholders' Equity............................ 138,167 121,763
-------- --------
Total Liabilities and Stockholders' Equity............ $450,560 $451,798
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
D-29
<PAGE>
NFO WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues............................................. $111,172 $65,486 $337,019 $180,732
Costs and Expenses:
Cost of Revenues................................... 57,187 30,276 173,814 82,393
Selling, General and Administrative................ 39,499 27,690 118,424 73,107
Amortization....................................... 2,443 1,052 7,266 3,318
Depreciation....................................... 2,519 891 7,270 3,011
-------- ------- -------- --------
Operating Income................................. 9,524 5,577 30,245 18,903
Interest Expense, Net.............................. 3,798 716 10,557 1,788
Equity Interest in Net (Income) Loss of Affiliated
Companies and Other Expenses..................... (1,009) 117 (1,892) 394
-------- ------- -------- --------
Income Before Income Taxes and Minority
Interests........................................ 6,735 4,744 21,580 16,721
Provision for Income Taxes......................... 2,866 2,158 9,434 6,885
-------- ------- -------- --------
Net Income Before Minority Interests............... 3,869 2,586 12,146 9,836
Minority Interests................................... 307 25 559 428
-------- ------- -------- --------
Net Income......................................... $ 3,562 $ 2,561 $ 11,587 $ 9,408
======== ======= ======== ========
Earnings Per Share:
Basic.............................................. $ .16 $ .12 $ .53 $ .45
======== ======= ======== ========
Diluted............................................ $ .16 $ .12 $ .52 $ .44
======== ======= ======== ========
Weighted Average Number of Shares Outstanding:
Basic.............................................. 22,252 21,273 21,899 21,093
======== ======= ======== ========
Diluted............................................ 22,557 21,605 22,374 21,621
======== ======= ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
D-30
<PAGE>
NFO WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Cash Flow From Operating Activities:
Net Income............................................ $ 3,562 $ 2,561 $ 11,587 $ 9,408
Adjustments to Reconcile to Net Cash Provided By
Operating Activities:
Minority Interests.................................. 307 25 559 428
Amortization Expense................................ 2,443 1,052 7,266 3,318
Depreciation Expense................................ 2,519 891 7,270 3,011
Equity Interest in Net (Income) Loss of Affiliated
Companies......................................... (1,056) 79 (1,986) 251
Other............................................... 686 -- 830 --
------- ------- -------- -------
Subtotal.......................................... 8,461 4,608 25,526 16,416
Change in Assets and Liabilities that Provided (Used)
Cash, Net of Effects of Acquisitions:
Trade Receivables..................................... 9,098 2,638 5,037 875
Unbilled Receivables.................................. (5,997) 4,948 (11,425) (2,212)
Prepaid Expenses & Other Current Assets............... 624 (2,476) (2,110) (4,568)
Accounts Payable & Accrued Liabilities................ (289) 1,106 (20,758) (2,915)
Customer Billings in Excess of Revenues Earned........ 3,157 (4,108) 6,176 (5,646)
------- ------- -------- -------
Net Cash Provided By Operating Activities........... 15,054 6,716 2,446 1,950
------- ------- -------- -------
Cash Flow From Investing Activities:
Acquisitions (Net of Cash Acquired)................... (331) (990) (2,965) (18,148)
Capital Expenditures (Net of Minor Disposals)......... (3,905) (2,386) (11,999) (10,519)
------- ------- -------- -------
Net Cash Used By Investing Activities............... (4,236) (3,376) (14,964) (28,667)
------- ------- -------- -------
Cash Flow From Financing Activities:
Issuance of Common Stock, Net of Expenses............. 351 -- 2,608 1,057
Payments on Long-Term Debt............................ (5,739) (3,552) (35,894) (61,307)
Proceeds from Line of Credit and Other Long-Term
Debt................................................ 1,977 3,000 43,251 85,641
------- ------- -------- -------
Net Cash (Used) Provided By Financing Activities.... (3,411) (552) 9,965 25,391
------- ------- -------- -------
Effect of Exchange Rate Changes on Cash................. (1,068) (125) (1,544) (244)
------- ------- -------- -------
Change in Cash.......................................... 6,339 2,663 (4,097) (1,570)
Cash and Cash Equivalents, Beg. of Period............... 7,303 3,822 17,739 8,055
------- ------- -------- -------
Cash and Cash Equivalents, End of Period................ $13,642 $ 6,485 $ 13,642 $ 6,485
======= ======= ======== =======
Supplemental Disclosure of Cash Flow Information:
Cash Paid During the Period for:
Interest.............................................. $ 2,679 $ 1,385 $ 8,964 $ 2,048
Income Taxes.......................................... $ 2,874 $ 1,756 $ 11,017 $ 4,142
</TABLE>
The accompanying notes are an integral part of these statements.
D-31
<PAGE>
NFO WORLDWIDE, INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(UNAUDITED, IN THOUSANDS)
<TABLE>
<CAPTION>
ACCUMULATED
OTHER TOTAL STOCK
COMMON COMMON ADDITIONAL RETAINED COMPREHENSIVE HOLDERS' COMPREHENSIVE
SHARES STOCK PAID-IN CAPITAL EARNINGS (LOSS) EQUITY INCOME
-------- -------- --------------- -------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998..... 21,401 $214 $63,723 $60,535 $(2,709) $121,763
Net Income....................... 11,587 11,587 $11,587
Translation Adjustments.......... (2,918) (2,918) (2,918)
-------
Comprehensive Income............. $ 8,669
=======
Other Issuances.................. 864 9 7,726 7,735
------ ---- ------- ------- ------- --------
Balance at September 30, 1999.... 22,265 $223 $71,449 $72,122 $(5,627) $138,167
====== ==== ======= ======= ======= ========
</TABLE>
The accompanying notes are an integral part of this statement.
D-32
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1. FINANCIAL STATEMENTS:
These condensed consolidated financial statements include the accounts of
NFO Worldwide, Inc., and its subsidiaries (the Company). All significant
intercompany amounts have been eliminated. In the opinion of management, the
accompanying unaudited condensed consolidated financial statements reflect all
adjustments (consisting only of normal recurring adjustments) necessary to
present fairly the financial position of the Company as of September 30, 1999,
and the results of its operations for the three and nine month periods ended
September 30, 1999, and September 30, 1998.
These financial statements are presented in accordance with the requirements
of Form 10-Q. Accordingly, the financial statements and related notes in the
Company's Audited Financial Statements for the fiscal year ended December 31,
1998, included in the Company's Form 10-K filed with the SEC on March 31, 1999,
should be read in conjunction with the accompanying condensed consolidated
financial statements. The information included herein may not be indicative of
the results to be expected for a full year.
NOTE 2. EARNINGS PER SHARE:
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>
THREE MONTHS
ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income Used for Basic and Diluted Earnings Per
Share................................................... $3,562 $2,561 $11,587 $9,408
====== ====== ======= ======
Weighted Average Number of Shares Outstanding Used for
Basic Earnings Per Share................................ 22,252 21,273 21,899 21,093
Dilutive Stock Options.................................. 305 328 256 478
Contingently Issuable Common Shares..................... -- 4 219 50
------ ------ ------- ------
Weighted Average Number of Shares Outstanding and Common
Share Equivalents Used for Diluted Earnings Per Share... 22,557 21,605 22,374 21,621
====== ====== ======= ======
</TABLE>
NOTE 3. CREDIT FACILITIES:
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 were used to reduce then-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 from 7.48 percent and 7.82 percent,
respectively, to 7.18 percent and 7.52 percent, respectively.
D-33
<PAGE>
NFO WORLDWIDE, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
NOTE 4. 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 segment consists of
net sales less related costs and expenses.
Operating segment disclosures as required by SFAS 131 are as follows (in
thousands):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -------------------
1999 1998 1999 1998
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
North America...................................... $ 51,229 $49,092 $150,768 $131,772
Europe............................................. 51,283 6,920 156,039 19,336
Australasia and the Middle East.................... 10,646 9,605 33,272 29,755
-------- ------- -------- --------
Total Operating Segments........................... 113,158 65,617 340,079 180,863
Intersegment Revenues.............................. (1,986) (131) (3,060) (131)
-------- ------- -------- --------
Total Revenues..................................... $111,172 $65,486 $337,019 $180,732
======== ======= ======== ========
Operating Income:
North America...................................... $ 5,573 $ 6,874 $ 20,017 $ 19,324
Europe............................................. 5,264 191 13,606 1,320
Australasia and the Middle East.................... 643 6 2,186 2,457
-------- ------- -------- --------
Total Operating Segments........................... 11,480 7,071 35,809 23,101
Unallocated Corporate Expenses..................... (1,956) (1,494) (5,564) (4,198)
-------- ------- -------- --------
Total Operating Income............................. $ 9,524 $ 5,577 $ 30,245 $ 18,903
======== ======= ======== ========
</TABLE>
NOTE 5. SUBSEQUENT EVENT:
On October 19, 1999, the Company announced the formation of InsightExpress
LLC, a new Internet company formed to provide real-time consumer input to the
desktops of decision-makers in companies of all sizes worldwide. InsightExpress
is a fully automated web-enabled survey system that will allow its customers to
test new ideas, screen new concepts, gauge customer satisfaction, survey
employees, test advertising, and gather insight into the needs, attitudes, and
behaviors of consumers. InsightExpress is designed to provide these capabilities
at a fraction of the time and the cost of existing market research methods. The
new company will leverage the worldwide client experience and panel expertise of
NFO. To fund its development and growth, InsightExpress has raised a total of
$25 million in new venture capital from General Atlantic Partners and Engage.
Assuming certain put/call rights are exercised, NFO Worldwide will maintain a
50% equity interest in the consolidated venture.
D-34
<PAGE>
ANNEX E
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Infratest Burke Aktiengesellschaft Holding
We have audited the accompanying consolidated balance sheets of Infratest
Burke Aktiengesellschaft Holding and subsidiaries ("IB") as of September 30,
1998, 1997 and 1996 and the related consolidated statements of operations for
each of the years in the three year period ended September 30, 1998. These
consolidated financial statements are the responsibility of IB's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Germany which are similar to US generally accepted auditing
standards in all material respects. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion based on our audits, the consolidated financial statements
referred to above present fairly, in all material respects, the financial
position of IB as of September 30, 1998, 1997 and 1996 and the results of their
operations for each of the years in the three year period ended September 30,
1998 in conformity with generally accepted accounting principles in Germany.
Further, in our opinion, the reconciliation of consolidated net income and
shareholders' equity for the years ended September 30, 1998 and 1997 presented
in Note 6 and 7 to the accompanying consolidated financial statements, presents
fairly in all material respects, the reconciliation of net income and
shareholders` equity, as shown in the consolidated financial statements, to net
income and shareholders' equity as determined in accordance with accounting
principles generally accepted in the United States of America.
Munich, Germany
January 15, 1999
/s/ Haarmann, Hemmelrath & Partner Gmbh
------------------------------------
Haarmann, Hemmelrath & Partner GmbH
Wirtschaftsprufungsgesellschaft
Steuerberatungsgesellschaft
<TABLE>
<S> <C>
Zelger ppa.Pilenghi
Wirtschaftsprufer Wirtschaftsprufer
</TABLE>
E-1
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1998
E-2
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
ASSETS
1998 1997
DM DM
-------------- --------------
<S> <C> <C> <C> <C> <C>
A. FIXED ASSETS
I. Intangible assets
1. Franchise, trademarks,
patents, licences and similar rights.............. 11,150,627.83 16,297,565.38
2. Goodwill.......................................... 39,065,569.29 42,063,252.14
-------------- --------------
50,216,197.12 58,360,817.52
II. Property, plant and equipment
1. Land, leasehold rights and buildings,
including buildings on non-owned land............. 9,364,268.69 10,108,100.18
2. Other equipment, fixtures, fittings and
equipment......................................... 15,956,366.84 16,048,743.47
-------------- --------------
25,320,635.53 26,156,843.65
III. Financial assets
1. Shares in affiliated companies.................... 2,843,350.76 624,468.00
2. Shares in associated companies.................... 350,079.77 301,804.92
3. Investments....................................... 192,260.30 532,681.94
4. Loans due from other group companies.............. 321,530.00 271,530.00
5. Securitiy investments............................. 0.00 40,766.25
6. Other loans....................................... 363,777.43 349,693.92
-------------- --------------
4,070,998.26 2,120,945.03
-------------- --------------
79,607,830.91 86,638,606.20
-------------- --------------
B. CURRENT ASSETS
I. Inventories
1. Raw material and supplies......................... 319,258.14 365,497.24
2. Work in process and finished goods................ 51,612,031.32 44,442,315.88
3. minus: advance payments received on accounts
orders............................................ (51,612,031.32) (44,442,315.88)
4. Advance payments.................................. 10,380.00 120,695.00
-------------- --------------
329,638.14 486,192.24
II. Accounts receivable and other assets
1. Accounts receivable trade......................... 59,871,699.84 51,213,594.89
2. Accounts due from affiliated companies............ 181,135.33 230.00
3. Accounts due from joint ventures.................. 676,702.59 173.90
4. Accounts due from other group companies........... 527,865.84 524,209.16
5. Other assets...................................... 6,766,373.35 5,796,290.47
-------------- --------------
68,023,776.95 57,534,498.42
III. Marketable securities
Other marketable securities....................... 186,764.03 205,156.18
IV. Checks, cash on hand and in Federal Bank and in postal
giro accounts and cash in banks........................ 12,881,001.82 15,134,051.05
-------------- --------------
81,421,180.94 73,359,897.89
-------------- --------------
C. DEFERRED TAX ASSETS......................................... 845,679.25 799,475.25
-------------- --------------
D. PREPAID EXPENSES AND DEFERRED CHARGES....................... 4,762,617.01 2,481,096.07
-------------- --------------
166,637,308.11 163,279,075.41
============== ==============
</TABLE>
E-3
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
1998 1997
DM DM
-------------- --------------
<S> <C> <C> <C> <C> <C>
A. SHAREHOLDERS' EQUITY
I. Capital subscribed..................................... 100,000.00 100,000.00
II. Capital surplus........................................ 29,180,000.00 29,180,000.00
III. Consolidated accumulated deficit, brought forward...... (12,710,228.79) (15,726,626.48)
IV. Consolidated net income/(loss)......................... 6,902,903.42 3,630,799.65
V. Minority interest...................................... 1,435,961.32 1,025,228.16
VI. Accumulated translation difference..................... 174,652.61 620,197.16
-------------- --------------
25,083,288.56 18,829,598.49
B. PROVISIONS AND ACCRUED LIABILITIES
1. Provisions for pensions and similar obligations........ 73,114.84 112,633.95
2. Accrued taxes.......................................... 4,671,729.62 4,992,685.33
3. Deferred taxes......................................... 417,932.51 0.00
4. Other provisions and accrued liabilities............... 40,594,752.41 31,265,849.52
-------------- --------------
45,757,529.38 36,371,168.80
-------------- --------------
C. LIABILITIES
1. Liabilities due to banks............................... 43,830,322.94 55,203,766.17
2. Advance payments received on account of orders......... 894,653.49 1,241,319.09
3. Trade accounts payable................................. 18,007,818.41 15,884,769.80
4. Accounts due to affiliated companies................... 2,703,659.29 3,208,642.29
5. Accounts payable due to joint ventures................. 1,028,782.05 73,437.02
6. Accounts due to other group companies.................. 1,389,280.34 575,360.64
7. Other liabilities...................................... 27,625,362.19 31,623,276.57
-------------- --------------
95,479,878.71 107,810,571.58
-------------- --------------
D. DEFERRED CHARGES............................................ 316,611.46 267,736.54
-------------- --------------
166,637,308.11 163,279,075.41
============== ==============
</TABLE>
E-4
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR 1997/98
<TABLE>
<CAPTION>
1998 1997
DM DM
--------------- ---------------
<C> <S> <C> <C>
1. Sales.................................................. 362,586,890.62 289,983,801.85
2. Increase of work in process and finished goods......... 7,169,715.44 5,066,942.11
3. Other operating income................................. 5,361,415.57 7,809,006.16
4. Expenses of services received.......................... (129,870,733.28) (94,238,723.43)
5. Personnel expenses
a) Wages and salaries.................................. (119,219,244.92) (92,622,345.66)
b) Social security, pension and other benefit costs.... (23,259,376.11) (20,515,468.02)
6. Depreciation expenses.................................. (16,769,891.19) (14,193,453.60)
7. Other operating expenses............................... (68,974,279.36) (69,986,307.74)
8. Income from investments and associated companies....... 630,440.28 786,867.05
9. Other interest and similar income...................... 492,317.31 431,865.97
Write-offs of financial assets and marketable
10. securities........................................... (865,218.31) (63,163.18)
11. Interest and similar expenses.......................... (4,031,523.43) (3,766,351.93)
--------------- ---------------
12. Result from ordinary operation......................... 13,250,512.62 8,692,669.58
--------------- ---------------
13. Taxes on income........................................ (3,765,533.74) (3,292,888.40)
14. Other taxes............................................ (1,692,428.29) (1,389,626.43)
--------------- ---------------
Consolidated profit / (loss) before
15. minority-interest.................................... 7,792,550.59 4,010,154.75
--------------- ---------------
16. Minority-interest...................................... (889,647.17) (379,355.10)
--------------- ---------------
17. Consolidated profit / (loss)........................... 6,902,903.42 3,630,799.65
=============== ===============
</TABLE>
E-5
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR 1997/98
1. INFORMATION ON INVESTMENT HOLDINGS
For the following notes, the ultimate participating interest of Infratest
Burke AG Holding in the capital of the individual companies has been calculated
as a percentage.
1.1 CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PARTICI- NET OPERATING RESULT
PATING WORTH FOR THE FISCAL YEAR
INTEREST NOMINAL 09/30/98 1997/98
NAME AND PRINCIPAL PLACE OF BUSINESS AS % CAPITAL TDM TDM
- ------------------------------------ -------- ------------- -------- -------------------
<S> <C> <C> <C> <C>
Infratest Burke International GmbH Holding,
Munich...................................... 100 TDM 30,000 39,840 7,461
Infratest Burke GmbH & Co, Forschung fur
Entscheidungen in Wirtschaft und
Gesellschaft, Munich (1).................... 100 TDM 2,000 2,000 7,421
Infratest Burke Wirtschaftsforschung GmbH &
Co, Munich (1).............................. 100 TDM 50 50 4,181
Infratest Burke Sozialforschung GmbH & Co,
Munich (1).................................. 100 TDM 50 50 2,086
Infratest Burke S.p.A., Mailand, Italien...... 100 MioLIR 1,000 2,557 1,116
Infratest Burke S.a.r.l., Paris, France....... 100 TFF 270 1,027 556
Infratest Burke Group Ltd., London, UK........ 100 TGBP 2,000 7,136 490
PAS Group Ltd., London, UK.................... 100 TGBP 342 2,712 427
Infratest Burke InCom GmbH & Co, Forschung und
Beratung fur die Informations- und
Kommunikationsmarkte, Munich (1)............ 100 TDM 100 100 2,087
Infratest Burke International Services Ltd.,
London, UK.................................. 100 TGBP 60 (122) 95
Infratest dimap Gesellschaft fur Trend- und
Wahlforschung mbH, Berlin................... 74 TDM 50 (78) 49
NEXXUS Kommunikationsanlagen GmbH, Betrieb und
Vermietung, Munich.......................... 100 TDM 50 37 21
Infratest Burke AB, Goteborg, Sweden.......... 75.2 TSEK 100 262 (27)
Infratest Burke Asia Pacific Ltd., London,
UK.......................................... 100 TGBP 50 (37) 254
Infratest Burke GmbH & Co. Marketingforschung,
Frankfurt am Main........................... 100 TDM 100 100 26
Trendbox B.V., Amsterdam, Netherlands......... 75 THFL 250 (1,447) (436)
Infratest Gesundheitsforschung GmbH & Co.,
Munich (1).................................. 80 TDM 20 20 2,030
KFM Klinische Forschung GmbH, Munich.......... 72 TDM 50 443 291
Testpanel-Marktforschungsinstitut GmbH,
Wetzlar..................................... 100 TDM 60 737 440
</TABLE>
- ------------------------
(1) The presentation of the nominal capital and net worth relates to the capital
account of the limited-liability partner of the respective partnership.
E-6
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
1. INFORMATION ON INVESTMENT HOLDINGS (CONTINUED)
1.2 NON-CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PARTICI- NET OPERATING RESULT
PATING WORTH FOR THE FISCAL YEAR
INTEREST NOMINAL 09/30/98 1997/98
NAME AND PRINCIPAL PLACE OF BUSINESS AS % CAPITAL TDM TDM
- ------------------------------------ -------- ---------- -------- -------------------
<S> <C> <C> <C> <C>
Infratest Burke Core Company Ltd., London,
England........................................ 100 TGBP 150 386 0
Infratest U.S. Inc. Wilmington (USA) (1)......... 100 TUSD 1 -- --
Infratest Burke Beteiligungs GmbH, Munich........ 100 TDM 50 57 3
Infratest Burke Verwaltungs-GmbH, Munich......... 100 TDM 50 58 3
Infratest Burke Wirtschaftsforschung
Beteiligungs-GmbH, Munich...................... 100 TDM 50 58 3
Infratest Burke Sozialforschung
Beteiligungs-GmbH, Munich...................... 100 TDM 50 15 5
Infratest Burke InCom Beteiligungs GmbH,
Munich......................................... 100 TDM 50 58 3
InfraForces S.a.r.l., Paris, France.............. 100 TFF 100 (270) (328)
Infratest Gesundheitsforschung GmbH,
Geretsried..................................... 80 TDM 50 58 2
Plus Remark Research for Marketing, Istanbul,
Turkei (2)..................................... 55 TRK 7,500 1,096 473
</TABLE>
- ------------------------
(1) No data on the year-end closing were available by the date of preparation of
the annual financial statements
(2) Data as of December 31, 1997
These firms were not included in the consolidated financial statements in
view of their minimal business activity during the fiscal year 1997/98 or their
secondary importance with respect to the consolidated financial statements
pursuant to Section 296 of the Commercial Code.
Additional participating interests are held in companies that are currently
inactive or are in liquidation.
E-7
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
1. INFORMATION ON INVESTMENT HOLDINGS (CONTINUED)
1.3 JOINT VENTURES IN THE SENSE OF SECTION 310 OF THE COMMERCIAL CODE
<TABLE>
<CAPTION>
PARTICI- NET OPERATING RESULT
PATING WORTH FOR THE FISCAL YEAR
INTEREST NOMINAL 09/30/98 1997/98
NAME AND PRINCIPAL PLACE OF BUSINESS AS % CAPITAL TDM TDM
- ------------------------------------ -------- ----------- -------- -------------------
<S> <C> <C> <C> <C>
Burke Inc., Cincinnati, USA..................... 50 TUSD 3750 3,023 2,080
Infratest + GFK Gesundheitsforschung GmbH & Co.,
Berlin (1).................................... 40 TDM 70 70 2,496
Infratest Gesundheitsforschung (Suisse) GmbH,... 34 TSFR 200 166 777
ZEG Zentrum fur Epidemiologie und Gesundheits-
forschung GmbH, Zepernick..................... 22 TDM 150 580 359
GPI Kommunikationsforschung Gesellschaft fur
Pharma-Informationssysteme mbH, Nurnberg...... 32 TDM 50 1,343 1,247
I + G Infratest und GFK Medical Research
International Inc., Rhode Island, USA......... 26 TUSD 100 1,136 378
I + G Nordic Medical Research A/S, Copenhagen
Denmark....................................... 28 TDKK 500 187 57
IMePa Institut fur Medizin- und
Patientenforschung GmbH, Munich............... 20 TDM 100 399 188
I + G Gesundheitsforschung GmbH & Co, Nurnberg.. 40 TDM 50 50 2,450
</TABLE>
- ------------------------
(1) The presentation of the nominal capital and net worth relates to the capital
accounts of the limited and unlimited partner of the respective partnership.
1.4 ASSOCIATED COMPANIES IN THE SENSE OF SECTION 311 OF THE COMMERCIAL CODE
<TABLE>
<CAPTION>
PARTICI- NET OPERATING RESULT
PATING WORTH FOR THE FISCAL YEAR
INTEREST NOMINAL 09/30/98 1997/98
NAME AND PRINCIPAL PLACE OF BUSINESS AS % CAPITAL TDM TDM
- ------------------------------------ -------- ---------- -------- -------------------
<S> <C> <C> <C> <C>
Infratel GmbH Telefonische Datenerhebung und
Datenverarbeitung, Bielefeld (1)................ 29 TDM 50 233 49
P & P Software und Consulting Gesellschaft mbH,
Bad Homburg (1)................................. 20 TDM 56.5 755 613
MedVantage GmbH Integriertes Datenmanagement im
Healthcare Markt, Frankfurt..................... 18 TDM 100 (1,693) 9
GPI Gesellschaft fur Pharma-Informations-systeme
mbH, Frankfurt (2).............................. 12 TDM 100 1,687 1,537
MAP I + G S.A., Lyon, France (3).................. 20 TFF 350 1,106 12
</TABLE>
- ------------------------
(1) The data pertain to the unaudited annual financial statements as of
December 31, 1997.
(2) The data pertain to the annual financial statements as of November 30, 1997.
(3) The data pertain to the annual financial statements as of September 30,
1997.
E-8
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR 1997/98
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION
2.1 INDIVIDUAL ANNUAL FINANCIAL STATEMENTS INCLUDED
The provisions of the Commercial Code and the Stock Corporation Law relating
to balance-sheet preparation, valuation and recognition are complied with in
preparing the annual accounts included in the consolidated financial statements.
In cases where tax provisions relating to balance-sheet preparation mandate the
preparation of a corresponding balance-sheet as part of the annual financial
statements, compliance with these tax provisions is maintained.
2.1.1 ASSETS
Intangible and tangible fixed assets are recorded at acquisition cost less
scheduled depreciation. Depreciation is calculated by the straight-line method,
at the rates permitted by tax law. Low-cost economic goods are depreciated in
full during the year of acquisition and are shown in the development of the
assets as additions and disposals and as depreciation for the current fiscal
year.
The rates of depreciation are:
<TABLE>
<S> <C>
Goodwill.................................................... 6.7 - 25%p.a.
Software.................................................... 25%p.a.
Vehicle fleet............................................... 20 - 25%p.a.
Other factory and office equipment.......................... 10 - 33%p.a.
</TABLE>
E-9
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.1.1 ASSETS (CONTINUED)
Fixed assets developed as follows (from 10-01-1997 to 09-30-1998):
<TABLE>
<CAPTION>
COST
---------------------------------------------------------------------------------------------
10-01-1997 10-01-1997
AT CLOSING DATE EXCHANGE AT CLOSING DATE
RATE RATE RATE
09-30-97 DIFFERENCES 09-30-98 ADDITIONS TRANSFERS DISPOSALS
DM DM DM DM DM DM
--------------- ----------- --------------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Intangible assets
1. Franchises, trademarks,
patents, licences and
similar rights.............. 27,621,348.56 (126,999.85) 27,494,348.71 378,891.75 8,566.24 258,335.17
2. Goodwill................... 45,268,543.73 0.00 45,268,543.73 10,077.79 0.00 0.00
-------------- ----------- -------------- ------------- ------------ ------------
72,889,892.29 (126,999.85) 72,762,892.44 388,969.54 8,566.24 258,335.17
Property, plant and equipment
1. Land, leasehold rights and
buildings, including
buildings einschlielslich
der Bauten on non-owned
land........................ 10,253,673.18 (159,571.42) 10,094,101.76 38,333.83 (217,487.72) 5,510.10
2. Technical equipment, plant
and machinery............... 5,295,124.69 (212,064.60) 5,083,060.09 1,507,564.80 1,088,829.92 761,629.98
3. Other equipment, fixtures,
fittings and equipment...... 34,279,492.76 (350,912.83) 33,928,579.93 6,484,380.85 (713,230.96) 3,156,929.22
4. Advance payments........... 168,812.23 (649.63) 168,162.60 366,625.04 (166,677.47) 1,485.12
49,997,102.86 (723,198.48) 49,273,904.38 8,396,904.52 (8,566.23) 3,925,554.42
Financial assets
1. Shares in affiliated
companies................... 624,468.00 0.00 624,468.00 2,130,747.12 88,135.64 0.00
2. Loans due from affiliated
companies................... 0.00 0.00 0.00 1,769,714.31 0.00 0.00
3. Shares in associated
companies................... 1,233,244.30 0.00 1,233,244.30 74,500.00 0.00 26,225.15
4. Investments................ 696,554.74 0.00 696,554.74 0.00 (88,135.64) 252,286.00
5. Loans due from other group
companies................... 271,530.00 0.00 271,530.00 50,000.00 0.00 0.00
6. Security investments....... 40,766.25 0.00 40,766.25 0.00 0.00 40,766.25
7. Other loans................ 349,693.92 (1,103.77) 348,590.15 76,862.17 0.00 61,674.90
-------------- ----------- -------------- ------------- ------------ ------------
3,216,257.21 (1,103.77) 3,215,153.44 4,101,823.60 0.00 380,952.30
-------------- ----------- -------------- ------------- ------------ ------------
126,103,252.36 (851,302.10) 125,251,950.26 12,887,697.66 0.00 4,564,841.89
============== =========== ============== ============= ============ ============
<CAPTION>
COST
--------------
09-30-98
DM
--------------
<S> <C>
Intangible assets
1. Franchises, trademarks,
patents, licences and
similar rights.............. 27,623,471.53
2. Goodwill................... 45,278,621.52
--------------
72,902,093.05
Property, plant and equipment
1. Land, leasehold rights and
buildings, including
buildings einschlielslich
der Bauten on non-owned
land........................ 9,909,437.77
2. Technical equipment, plant
and machinery............... 6,917,824.83
3. Other equipment, fixtures,
fittings and equipment...... 36,542,800.60
4. Advance payments........... 366,625.05
53,736,688.25
Financial assets
1. Shares in affiliated
companies................... 2,843,350.76
2. Loans due from affiliated
companies................... 1,769,714.31
3. Shares in associated
companies................... 1,281,519.15
4. Investments................ 356,133.10
5. Loans due from other group
companies................... 321,530.00
6. Security investments....... 0.00
7. Other loans................ 363,777.42
--------------
6,936,024.74
--------------
133,574,806.04
==============
</TABLE>
E-10
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.1.1 ASSETS (CONTINUED)
<TABLE>
<CAPTION>
DEPRECIATION
-----------------------------------------------------------------------------
10-01-1997 10-01-1997
AT CLOSING DATE EXCHANGE AT CLOSING DATE ADDITIONS EXCHANGE
RATE RATE RATE AVERAGE RATE
09-30-97 DIFFERENCES 09-30-98 RATE DIFFERENCES
DM DM DM DM DM
--------------- ----------- --------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Intangible assets
1. Franchises, trademarks,
patents, licences and
similar rights............. 11,323,783.18 (107,245.31) 11,216,537.87 5,417,504.37 (2,920.16)
2. Goodwill.................. 3,205,291.59 0.00 3,205,291.59 3,007,760.64 0.00
------------- ----------- ------------- ------------- -----------
14,529,074.77 (107,245.31) 14,421,829.46 8,425,265.01 (2,920.16)
Property, plant and equipment
1. Land, leasehold rights and
buildings, including
buildings einschlielslich
der Bauten on non-owned
land....................... 145,573.00 (11,652.20) 133,920.80 473,749.83 (1,402.16)
2. Technical equipment, plant
and machinery.............. 2,968,746.61 (129,604.05) 2,839,142.56 1,541,107.15 (71,927.30)
3. Other equipment, fixtures,
fittings and equipment..... 20,725,939.60 (189,299.09) 20,536,640.51 6,362,402.04 (45,265.06)
4. Advance payments.......... 0.00 0.00 0.00 0.00 0.00
------------- ----------- ------------- ------------- -----------
23,840,259.21 (330,555.34) 23,509,703.87 8,377,259.02 (118,594.52)
============= =========== ============= ============= ===========
Financial assets
1. Shares in affiliated
companies.................. 0.00 0.00 0.00 0.00 0.00
2. Loans due from affiliated
companies.................. 0.00 0.00 0.00 1,769,714.31 0.00
3. Shares in associated
companies.................. 931,439.38 0.00 931,439.38 0.00 0.00
4. Investments............... 163,872.80 0.00 163,872.80 0.00 0.00
5. Loans due from other group
companies.................. 0.00 0.00 0.00 0.00 0.00
6. Security investments...... 0.00 0.00 0.00 0.00 0.00
7. Other loans............... 0.00 0.00 0.00 0.00 0.00
------------- ----------- ------------- ------------- -----------
1,095,312.18 0.00 1,095,312.18 1,769,714.31 0.00
------------- ----------- ------------- ------------- -----------
39,464,646.16 (437,800.65) 39,026,845.51 18,572,238.34 (121,514.68)
============= =========== ============= ============= ===========
<CAPTION>
DEPRECIATION
-----------------------------
ADDITIONAL
AT CLOSING DATE
RATE TRANSFERS
DM DM
--------------- -----------
<S> <C> <C>
Intangible assets
1. Franchises, trademarks,
patents, licences and
similar rights............. 5,414,584.21 8,563.25
2. Goodwill.................. 3,007,760.64 0.00
------------- -----------
8,422,344.85 8,563.25
Property, plant and equipment
1. Land, leasehold rights and
buildings, including
buildings einschlielslich
der Bauten on non-owned
land....................... 472,347.67 (55,589.29)
2. Technical equipment, plant
and machinery.............. 1,469,179.85 596,635.29
3. Other equipment, fixtures,
fittings and equipment..... 6,317,136.98 (549,609.25)
4. Advance payments.......... 0.00 0.00
------------- -----------
8,258,664.50 (8,563.25)
============= ===========
Financial assets
1. Shares in affiliated
companies.................. 0.00 0.00
2. Loans due from affiliated
companies.................. 1,769,714.31 0.00
3. Shares in associated
companies.................. 0.00 0.00
4. Investments............... 0.00 0.00
5. Loans due from other group
companies.................. 0.00 0.00
6. Security investments...... 0.00 0.00
7. Other loans............... 0.00 0.00
------------- -----------
1,769,714.31 0.00
------------- -----------
18,450,723.66 0.00
============= ===========
</TABLE>
E-11
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.1.1 ASSETS (CONTINUED)
<TABLE>
<CAPTION>
DEPRECIATION (CONT.) NET BOOK VALUE
---------------------------- -----------------------------
DISPOSALS 09-30-1998 09-30-1998 09-30-1997
DM DM DM DM
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Intangible assets
1. Franchises, trademarks, patents, licences and similar
rights.................................................... 166,841.63 16,472,843.70 11,150,627.83 16,297,565.38
2. Goodwill................................................. 0.00 6,213,052.23 39,065,569.29 42,063,252.14
------------ ------------- ------------- -------------
166,841.63 22,685,895.93 50,216,197.12 58,360,817.52
Property, plant and equipment
1. Land, leasehold rights and buildings, including buildings
einschlielslich der Bauten on non-owned land............ 5,510.10 545,169,08 9,364,268.69 10,108,100.18
2. Technical equipment, plant and machinery................. 753,080.41 4,151,877.29 2,765,947.54 2,326,378.08
3. Other equipment, fixtures, fittings and equipment........ 2,585,161.90 23,719,006.34 12,823,794.26 13,553,553.16
4. Advance payments......................................... 0.00 0.00 366,625.05 168,812.23
3,343,752.41 28,416,052.71 25,320,635.54 26,156,843.65
Financial assets
1. Shares in affiliated companies........................... 0.00 0.00 2,843,350.76 624,468.00
2. Loans due from affiliated companies...................... 0.00 1,769,714.31 0.00 0.00
3. Shares in associated companies........................... 0.00 931,439.38 350,079.77 301,804.92
4. Investments.............................................. 0.00 163,872.80 192,260.30 532,681.94
5. Loans due from other group companies..................... 0.00 0.00 321,530.00 271,530.00
6. Security investments..................................... 0.00 0.00 0.00 40,766.25
7. Other loans.............................................. 0.00 0.00 363,777.42 349,693.92
------------ ------------- ------------- -------------
0.00 2,865,026.49 4,070,998.25 2,120,945.03
------------ ------------- ------------- -------------
3,510,594.04 53,966,975.13 79,607,830.91 86,638,606.20
============ ============= ============= =============
</TABLE>
The additions to depreciation include DM 32,632.82 resulting from the
initial consolidation of ImePa GmbH on quota-basis (26.5%) and DM 904,496.00
resulting from the consolidation of InfraForces.
A loan in the amount of TDM 1,769 to InfraForces has been partially (50%) in
fiscal year 1996/1997 reserved, which has been eliminated in the consolidation
process. The remaining book value in the amount of TDM 865 has been reserved in
fiscal year 1997/98 with the result that a reserve has been provided for the
total amount of the loan as of September 30, 1998.
2.1.2 INVENTORIES
Work in process is valued at production cost. Completed but uninvoiced
services are recorded as finished goods under "Inventories" and are valued at
net sale price.
Production cost includes all components that must be carried as assets
according to tax law.
In case the expected total production cost of work in process exceed total
expected net sales revenues adequate inventory reserves are provided.
Furthermore provisions are established for follow-up services yet to be
performed in connection with finished or invoiced services.
Advance payments from customers are deducted from inventory as such and are
posted as liabilities to the extent they exceed inventory.
E-12
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.1.3 RECEIVABLES AND OTHER FIXED ASSETS
Trade accounts receivables are recorded at nominal value. For doubtful
accounts receivables and those carrying discernible risks, direct adjustments
are made; uncollectable debts are written off. General interest and credit risk
is covered by a lump-sum value adjustment of 2%.
Other receivables and other assets are recorded at the nominal amount or at
a lower value assigned at the closing date.
2.1.4 PROVISIONS
Provisions are created for as dictated by sound business judgement to cover
uncertain liabilieties, anticipated losses related to incomplete contracts, and
deferred maintenance.
2.1.5 PAYABLES
Payables are recorded at the amount repayable.
2.2 CONSOLIDATION METHODS
2.2.1 CAPITAL CONSOLIDATION
Capital consolidation is performed by the book value method (Section 301
Para. 1 Sentence 2 No. 1 of the Commercial Code). According to this method,
participating interests that must be consolidated are offset against their
allotted share of the net worth of the subsidiaries. This net worth represents
the book value at date of acquisition of the assets, debts, accrued and deferred
items and special items to be reported on in the consolidated financial
statements.
Consolidation surpluses from capital consolidation at the date of
acquisition of the participating interests are offset against reserves (in the
year under review: TDM 614; previous year: TDM 0)--possibly after allocation to
hidden reserves in the assets of the acquired undertaking--or are allocated to
goodwill and amortized over the 15 years following the year of acquisition of
the interest (amortization during the year under review: TDM 3,008; previous
year: TDM 2,110).
2.2.2 EQUITY CONSOLIDATION
The associated companies
- MedVantage GmbH Integriertes Datenmanagement im Healthcare Markt,
Frankfurt
- GPI Gesellschaft fur Pharma-Informationssysteme mbH, Frankfurt
- P & P Software und Consulting GmbH, Bad Homburg
were included in the consolidated financial statements by the equity/book value
method.
For reasons of materiality, the other associated companies continued to be
carried at the book values recorded in the stockholder's individual financial
statements.
E-13
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.2.3 PRO-RATA CONSOLIDATION
The joint ventures
- IMePa Institut fur Medizin- und Patientenforschung GmbH, Munich
- I + G Infratest and GFK Medical Research International Inc., Rhode Island,
USA
- Infratest Gesundheitsforschung (Suisse) GmbH
- I + G Nordic Medical Research A/S, Copenhagen, Denmark
- Infratest + GFK Gesundheitsforschung GmbH & Co., Berlin
- ZEG Zentrum fur Epidemiologie und Gesundheitsforschung GmbH, Berlin
- GPI Kommunikationsforschung Gesellschaft fur Pharma-Informationssysteme
mbH, Nuremberg
- I + G Gesundheitsforschung GmbH & Co, Nuremberg
- Burke Inc., Cincinnati, USA
were included in the consolidated financial statements on a pro-rata basis,
according to the percentage of the interest in the firm.
2.2.4 ELIMINATION OF INTER-COMPANY PROFITS
Assets to be included in the consolidated financial statements and deriving
wholly or in part from transactions among the companies included in the
consolidated financial statements are reported on the consolidated balance sheet
at acquisition or production cost of the group.
3. BASIS OF FOREIGN CURRENCY TRANSLATION
3.1 TRANSLATION OF INDIVIDUAL FINANCIAL-STATEMENT ITEMS STATED IN FOREIGN
CURRENCY
For annual financial statements containing items based on sums that are or
originally were stated in foreign currency, the conversion to German marks is
performed at the rate in effect at the transaction date. Balance-sheet items are
valued at the exchange rate in effect on the closing date, no exchange gains
being realized.
3.2 TRANSLATION OF FINANCIAL STATEMENTS IN FOREIGN CURRENCIES
The translation of financial statements recorded in foreign currencies was
performed by the current rate method: balance-sheet items were translated at the
rate in effect on the closing date of September 30, 1998, and income-statement
items were translated at the average rate for the fiscal year 1997/98.
Exchange-rate differences resulting from the translation of net worth at
different current rates and differences resulting from the translation of
balance-sheet items at current rates and income statement items at average rates
are recognized separately as a equity item on the balance sheet.
E-14
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
4. NOTES TO CONSOLIDATED BALANCE SHEET ITEMS
4.1 ITEMS OF ACCRUAL AND DEFERRAL FOR DEFERRED TAXES
The deferred tax asset relates to a discrepancy between the goodwill
reported on the individual financial statements of Infratest Burke
Wirtschaftsforschung GmbH & Co, Munich, and that recorded by the Group, and to
the translation of the percentage-of-completion method into the completed-
contact method used within the Group for the tax consequences incurred by the
joint venture Burke Inc., which is included on a pro-rata basis.
4.2 OTHER PROVISIONS AND ACCRUED LIABILITIES
"Other provisions and accrued liabilities" basically recognizes provisions
for
Profit-sharing
Follow-up services
Unpaid invoices
Restructuring
Vacations and overtime
Statuary social security benefits (Italy)
Year-end costs
Employee anniversaries.
5. OTHER MANDATORY INFORMATION
5.1 REMAINING TERM
The remaining term on receivables is less than one year. The remaining terms
on payables are shown in the following presentation of accounts payable:
<TABLE>
<CAPTION>
DUE WITHIN AFTER
TOTAL 1 YEAR 1-5 YEARS 5 YEARS
DM DM DM DM
------------- ------------- ---------- ----------
<S> <C> <C> <C> <C>
Liabilities due to banks................. 43,830,322.94 43,426,997.04 359,043.40 44,282.50
Advance payments received on account of
orders................................. 894,653.49 894,653.49 0.00 0.00
Trade accounts payable................... 18,007,818.41 17,659,988.83 347,829.58 0.00
Accounts due to affiliated companies..... 2,703,659.29 2,703,659.29 0.00 0.00
Accounts due to joint ventures........... 1,028,782.05 1,028,782.05 0.00 0.00
Accounts due to other group companies.... 1,389,280.34 1,389,280.34 0.00 0.00
Other liabilities........................ 27,625,362.19 27,339,115.00 131,258.44 154,988.75
============= ============= ========== ==========
95,479,878.71 94,442,476.04 838,131.42 199,271.25
============= ============= ========== ==========
</TABLE>
5.2 COLLATERALIZATION OF ACCOUNTS PAYABLE
Payables are not collateralized.
E-15
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
5. OTHER MANDATORY INFORMATION (CONTINUED)
5.3 ANALYSIS OF SALES REVENUES
Sales revenues--broken down according to country of realization--are
distributed as follows:
<TABLE>
<CAPTION>
1997/98 1996/97
TDM TDM
-------- --------
<S> <C> <C>
Domestic.................................................. 173,759 154,407
Foreign................................................... 188,828 135,577
------- -------
362,587 289,984
======= =======
</TABLE>
5.4 OTHER FINANCIAL OBLIGATIONS
Other financial obligations total TDM 37,851 (previous year: TDM 42,345).
5.5 EMPLOYEES
The average number of employees in the Group--that is, in the fully
consolidated companies--is distributed as follows (itemized by country):
<TABLE>
<CAPTION>
1997/98 1996/97
-------- --------
<S> <C> <C>
England..................................................... 174 163
Germany..................................................... 418 419
Sweden...................................................... 90 63
Holland..................................................... 54 63
Italy....................................................... 75 72
France...................................................... 91 91
--- ---
902 871
=== ===
</TABLE>
The average number of employees of companies included in the consolidated
financial statements on a pro-rata basis only is distributed as follows:
<TABLE>
<CAPTION>
1997/98 1996/97
-------- --------
<S> <C> <C>
Germany..................................................... 110 123
Switzerland................................................. 12 9
U.S......................................................... 346 247
Denmark..................................................... 3 3
--- ---
471 382
=== ===
</TABLE>
5.6 REMUNERATION OF OFFICERS
Remuneration paid to the Board of Directors of the parent company, I.B. AG
Holding, during the fiscal year 1997/98 totaled TDM 4,304 (previous year: TDM
2,750).
E-16
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
5. OTHER MANDATORY INFORMATION (CONTINUED)
5.6 REMUNERATION OF OFFICERS (CONTINUED)
Total remuneration for the Supervisory Board totaled TDM 75 for the fiscal
year 1997/98.
6. SUMMARY OF DIFFERENCES BETWEEN GERMAN AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The following is a summary of the estimated adjustments to consolidated
profit and to consolidated stockholders' equity that would have been required if
US GAAP would have been applied instead of German GAAP.
6.1. APPROXIMATE EFFECTS ON CONSOLIDATED PROFIT OF DIFFERENCES BETWEEN GERMAN
AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
<TABLE>
<CAPTION>
TDM TDM
-------- --------
<S> <C> <C>
Net Profit/(Loss) as reported under German GAAP............. 6,903
------
US GAAP adjustments:
Amortization of goodwill.................................. 5,736
Profit recognition by application of percentage of
completion method....................................... (180)
Lumpsum reserve on accounts receivable trade.............. (121)
Reversal of accrual for future expenses................... (517)
Other..................................................... (25) 4,893
------
Tax effects:
Deferred taxation......................................... (3,684)
Provision for tax risks................................... (950) (4,634)
------ ------
Approximate Net Profit/(Loss) as adjusted for US GAAP....... 7,162
======
</TABLE>
E-17
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
6. SUMMARY OF DIFFERENCES BETWEEN GERMAN AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
6.2. APPROXIMATE CUMULATIVE EFFECT ON SHAREHOLDERS' EQUITY OF DIFFERENCES
BETWEEN GERMAN AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
<TABLE>
<CAPTION>
TDM
--------
<S> <C>
Shareholders' equity per German GAAP (1).................... 23,647
------
US GAAP adjustments:
Goodwill.................................................. 14,692
Profit recognition by application of percentage of
completion method....................................... 21,744
Lumpsum reserve on account sreceivable trade.............. 243
Provision for future expenses............................. 2,026
Provision for tax risks................................... (2,925)
Deferred taxation......................................... (2,064)
Effect on minorities...................................... 430
Other..................................................... 53
------
Approximate Shareholders' equity as adjusted for US
GAAP.................................................... 57,846
======
</TABLE>
- ------------------------
(1) excluding minority interest
6.3. DISCUSSION OF MATERIAL VARIATIONS BETWEEN GERMAN AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The material variations between German and US GAAP relate to the following
items:
6.3.1 GOODWILL / AMORTIZATION OF GOODWILL
Goodwill resulting from the consolidation process is amortized over a period
of 30 years applying the straight line method for US GAAP purposes. The
treatment in the local consolidated financial statements follows the treatment
in the tax filing where the amounts of purchase prices exceeding the net equity
of acquired subsidiaries is amortized over a shorter period of time (between 1
and 15 years, depending on the allocation applied). Due to the amortization
opportunity for local taxation deferred taxes / tax assets have been considered
(see Sect. 6.3.6 below).
6.3.2 PERCENTAGE OF COMPLETION METHOD
Profit recognition relating to services rendered to customers follows the
"percentage of completion"-method for US GAAP purposes whereas for local
purposes the "completed contract"-method must be applied. According to the
"completed contract"-method profit may not be recognized until the contractually
agreed services have been accepted by the customers. Compared to the "percentage
of completion"-method the application of the "completed contract"-method leads
to a delay in profit recognition.
E-18
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
6. SUMMARY OF DIFFERENCES BETWEEN GERMAN AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
6.3.3 LUMPSUM RESERVE ON ACCOUNTS RECEIVABLE TRADE
The difference relates to the application of varying rates for the
calculation of lumpsum bond debt reserves:
<TABLE>
<S> <C>
US GAAP.......................................... 1% for German companies
0% for Non-German
companies
German GAAP...................................... 2%
</TABLE>
6.3.4 PROVISION FOR FUTURE EXPENSES
Local books contain provisions for expenses which cannot be related to the
current or prior years but shall cover potential expenses which are related to
the future. Those provisions are not allowed by US GAAP and accordingly were
eliminated in consolidated shareholders' equity adjusted for US GAAP.
6.3.5 PROVISION FOR TAX RISKS
The accounting of German trade tax on income in the local consolidated
financial statements followed the treatment in the tax filings. Since, however,
a probable risk exists that those taxes will be payable a respective provision
was established in the consolidated financial statements adjusted for US GAAP.
6.3.6 DEFERRED TAXATION
Deferred taxes relate to temporary differences between the tax bases of
assets or liabilities and the reported amounts according to US GAAP as well as
to tax loss carryforwards. If evidence indicates that it is more likely than not
that deferred tax assets relating to tax loss carryforwards will not be realized
adequate allowances were provided. Deferred taxes have primarily been provided
for temporary differences relating to explanations in Sect. 6.3.1, 6.3.2 and
6.3.3 and to tax loss carryforwards in Germany.
The tax rate applied amounts to 35%.
6.3.7 EQUITY METHOD
Joint venture companies (reference is made to Sect. 2.2.3) were included in
the consolidated financial statements under German GAAP on a pro-rata basis
whereas under US GAAP the Equity method was applied. The impact on consolidated
stockholders' equity and on consolidated income was not material.
E-19
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
7. CASH FLOW STATEMENT
<TABLE>
<CAPTION>
1997/98 1996/97
TDM TDM
-------- --------
<S> <C> <C>
Cash flow from operating activities:
Consolidated profit (loss) of the year.................... 7,162 6,880
Adjustments to reconcile consolidated profit (loss) to net
cash:
Depreciation and amortization........................... 10,610 8,253
Change in provisions for pensions....................... (36) 109
Change in inventories................................... (1,208) (6,827)
Change in accounts receivables.......................... (6,668) (10,408)
Change in deferred tax assets........................... 3,902 3,025
Change in accounts due from group companies............. (1,182) 2,459
Change in other operating assets and prepaid expenses... (2,986) 12,831
Change in deferred income taxes......................... 3,280 3,953
Change in tax provisions................................ (2,078) (2,329)
Change in provisions.................................... 6,234 1,331
Change in advance payments received..................... 4,761 6,105
Change in amounts owed to group companies............... 1,905 (1,541)
Change in accounts payables............................. (1,751) 3,395
Change in other operating liabilities and deferred
charges............................................... (3,386) 3,330
------- -------
Net cash provided from operating activities............... 18,559 30,566
------- -------
Cash flow from investing activities:
Net investment intangible assets........................ (340) (16,362)
Net investment tangible assets.......................... (7,022) (7,896)
Net investment financial assets......................... (2,632) (19,013)
------- -------
Net cash provided from investing activities............... (9,994) (43,271)
------- -------
Cash flow from financing activities
Change in debts to banks................................ (11,388) 17,671
Change in retained earnings............................. (614)
Change in minority interest............................. (89) 297
------- -------
Net cash provided from financing activities............... (12,091) 17,968
------- -------
Effect of Exchange Rate Differences in Equity............. (146) 408
------- -------
Change in Cash and Cash Equivalents....................... (3,672) 5,671
======= =======
Cash and Cash equivalents at the beginning of the year.... 14,544 8,873
======= =======
Cash and Cash Equivalents at the end of the year.......... 10,872 14,544
======= =======
</TABLE>
RECONCILIATION OF CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
1997/98 1996/97
TDM TDM
-------- --------
<S> <C> <C>
Cash and cash equivalents according to German GAAP as of
September 30, 1998........................................ 12,881 15,134
Elimination of per quota consolidated entities.............. (2,009) (590)
------ ------
10,872 14,544
====== ======
</TABLE>
Munich, January 15, 1999
The Board of Directors
E-20
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1997
E-21
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
ASSETS
1997 1996
DM DM
-------------- --------------
<S> <C> <C> <C> <C> <C>
A. FIXED ASSETS
I. Intangible assets
1. Franchise, trademarks, patents, licences and
similar rights.................................... 16,297,565.38 19,643,319.06
2. Goodwill.......................................... 42,063,252.14 12,783,680.00
-------------- --------------
58,360,817.52 32,426,999.06
II. Property, plant and equipment
1. Land, leasehold rights and buildings, including
buildings on non-owned land....................... 10,108,100.18 8,202,729.70
2. Other equipment, fixtures, fittings and equipment
including advance payments........................ 16,048,743.47 14,826,966.22
-------------- --------------
26,156,843.65 23,029,695.92
III. Financial assets
1. Shares in affiliated companies.................... 624,468.00 366,592.24
2. Loans due from affiliated companies............... 0.00 271,530.00
3. Shares in associated companies.................... 301,804.92 1,002,131.88
4. Investments....................................... 532,681.94 256,784.00
5. Loans due from other group companies.............. 271,530.00 0.00
6. Securitiy investments............................. 40,766.25 34,572.00
7. Other loans....................................... 349,693.92 496,200.85
-------------- --------------
2,120,945.03 2,427,810.97
-------------- --------------
86,638,606.20 57,884,505.95
-------------- --------------
B. CURRENT ASSETS
I. Inventories............................................
1. Raw material and supplies......................... 365,497.24 415,873.38
2. Work in progress and finished goods............... 44,442,315.88 40,063,683.17
3. minus: advance payments received on accounts of
orders............................................ (44,442,315.88) (38,375,444.81)
4. Advance payments.................................. 120,695.00 600,149.62
-------------- --------------
486,192.24 2,704,261.36
II. Accounts receivable and other assets
1. Accounts receivable trade......................... 51,213,594.89 39,116,792.72
2. Accounts due from affiliated companies............ 230.00 0.00
3. Accounts due from joint ventures.................. 173.90 671,534.13
4. Accounts due from other group companies........... 524,209.16 441,024.44
5. Other assets...................................... 5,796,290.47 17,511,658.39
-------------- --------------
57,534,498.42 57,741,009.68
III. Marketable securities
Other marketable securities....................... 205,156.18 91,532.50
IV. Checks, cash on hand and in Federal Bank and in postal
giro accounts and cash in banks........................ 15,134,051.05 9,442,685.23
-------------- --------------
73,359,897.89 69,979,488.77
-------------- --------------
C. DEFERRED TAX ASSETS......................................... 799,475.25 250,000.00
-------------- --------------
D. PREPAID EXPENSES AND DEFERRED CHARGES....................... 2,481,096.07 2,836,401.17
-------------- --------------
163,279,075.41 130,950,395.89
============== ==============
</TABLE>
E-22
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
1997 1996
DM DM
--------------- ---------------
<S> <C> <C> <C> <C> <C>
A. SHAREHOLDERS'S EQUITY
I. Capital subscribed.................................... 100,000.00 100,000.00
II. Capital surplus....................................... 29,180,000.00 29,180,000.00
III. Consolidated accumulated deficit, brought forward..... (15,726,626.48) 0.00
IV. Consolidated net income/(loss)........................ 3,630,799.65 (15,726,626.48)
V. Minority interest..................................... 1,025,228.16 659,035.21
VI. Accumulated translation differences................... 620,197.16 276,838.26
--------------- ---------------
18,829,598.49 14,489,246.99
--------------- ---------------
B. PROVISION AND ACCRUED LIABILITIES
1. Provisions for pensions and similar obligations....... 112,633.95 73,984.61
2. Accrued taxes......................................... 4,992,685.33 5,948,130.42
3. Other provisions and accrued liabilities.............. 31,265,849.52 27,806,548.89
--------------- ---------------
36,371,168.80 33,828,663.92
--------------- ---------------
C. LIABILITIES
1. Liabilities due to banks.............................. 55,203,766.17 37,541,445.86
2. Advance payments received on account of orders........ 1,241,319.09 0.00
3. Trade accounts payable................................ 15,884,769.80 13,722,357.31
4. Notes payable......................................... 0.00 14,707.52
5. Accounts due to affiliated companies.................. 3,208,642.29 3,046,209.72
6. Accounts payable due to joint ventures................ 73,437.02 0.00
7. Accounts due to other group companies................. 575,360.64 749,012.87
8. Other liabilities..................................... 31,623,276.57 26,018,092.56
--------------- ---------------
107,810,571.58 81,091,825.84
--------------- ---------------
D. DEFERRED CHARGES........................................... 267,736.54 1,540,659.14
--------------- ---------------
163,279,075.41 130,950,395.89
=============== ===============
</TABLE>
E-23
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR 1996/97
<TABLE>
<CAPTION>
1997 1996
DM DM
--------------- ---------------
<C> <S> <C> <C>
1. Sales.................................................... 289,983,801.85 241,910,735.00
2. Increase of work in process and finished goods........... 5,066,942.11 6,138,616.90
3. Other operating income................................... 7,809,006.16 5,358,316.49
4. Expenses of services received............................ (94,238,723.43) (108,394,054.70)
5. Personnel expenses.......................................
(a) Wages and salaries................................... (92,622,345.66) (72,690,712.91)
(b) Social security, pension and other benefit costs..... (20,515,468.02) (16,275,091.83)
6. Depreciation expenses.................................... (14,193,453.60) (11,850,164.97)
7. Other operating expenses................................. (69,986,307.74) (52,960,177.30)
8. Income from investments and associated companies......... 786,867.05 712,380.43
9. Other interest and similar income........................ 431,865.97 989,331.80
Write-offs of financial assets and marketable
10. securities............................................. (63,163.18) (56,986.67)
11. Interest and similar expenses............................ (3,766,351.93) (3,773,417.87)
--------------- ---------------
12. Result from ordinary operation........................... 8,692,669.58 (10,891,225.63)
--------------- ---------------
13. Taxes on income.......................................... (3,292,888.40) (2,494,655.33)
14. Other taxes.............................................. (1,389,626.43) (1,930,219.33)
--------------- ---------------
15. Consolidated profit/(loss) before minority-interest...... 4,010,154.75 (15,316,100.29)
16. Minority-interest........................................ (379,355.10) (410,526.19)
--------------- ---------------
17. Consolidated profit/(loss)............................... 3,630,799.65 (15,726,626.48)
=============== ===============
</TABLE>
E-24
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR 1996/97
1. INFORMATION ON INVESTMENT HOLDINGS
For the following notes, the ultimate participating interest of Infratest
Burke AG Holding in the capital of the individual companies has been calculated
as a percentage.
1.1 CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PARTICI- NET OPERATING RESULT
PATING WORTH FOR THE FISCAL YEAR
INTEREST NOMINAL 09/30/97 1996/97
NAME AND PRINCIPAL PLACE OF BUSINESS AS % AS CAPITAL TDM
- ------------------------------------ -------- ----------- -------- -------------------
<S> <C> <C> <C> <C>
Infratest Burke International GmbH Holding, Munich... 100 TDM 50 32,379 2,379
Infratest Burke GmbH & Co, Forschung fur
Entscheidungen in Wirtschaft und Gesellschaft,
Munich (1)......................................... 100 TDM 2,000 2,000 11,021
Infratest Burke Wirtschaftsforschung GmbH & Co,
Munich (1)......................................... 100 TDM 50 50 4,524
Infratest Burke Sozialforschung GmbH & Co, Munich
(1)................................................ 100 TDM 50 50 244
Infratest Burke S.r.l., Milan, Italy................. 100 TLIR 50000 1,765 954
Infratest Burke S.a.r.l., Paris, France.............. 100 TFF 270 1,216 626
Infratest Burke Group Ltd., London, England.......... 100 TGBP 2,000 7,535 1,394
Public Attitude Surveys Holding Ltd., London,
England............................................ 100 TGBP 315 588 598
Infratest Burke InCom GmbH & Co, Munich (1) (formerly
Infratest InCom GmbH).............................. 100 TDM 100 100 2,763
InfraForces S.a.r.l., Paris, France.................. 100 TFF 100 57 12
Infratest Burke International Services Ltd., London
(formerly Infratest Burke InCom Ltd., London,
England)........................................... 100 TGBP 60 (214) 180
Infratest dimap Gesellschaft fur Trend- und
Wahlforschung mbH, Berlin (formerly IBB Infratest
Burke GmbH, Berlin)................................ 74 TDM 50 (127) (231)
NEXXUS GmbH, Gesellschaft fur Kommunikationstechnik,
Munich............................................. 100 TDM 50 16 (23)
Infratest Burke AB, Goteborg, Sweden................. 15.2 TSEK 100 308 (30)
Infratest Burke Asia Pacific Ltd., London, England... 100 TGBP 50 (283) (131)
Infratest Burke GmbH & Co. Marketingforschung,
Frankfurt.......................................... 100 TDM 100 100 867
Trendbox B.V., Amsterdam, Netherlands................ 75 THFL 250 (1,013) (850)
Infratest Gesundheitsforschung GmbH & Co., Munich
(1)................................................ 80 TDM 20 20 1,664
KFM Klinische Forschung GmbH, Munich................. 72 TDM 50 152 68
Testpanel-Marktforschungsinstitut GmbH, Wetzlar...... 100 TDM 60 485 70
TEST S.A., Paris, France............................. 60 TFF 300 1,398 86
</TABLE>
- ------------------------
(1) The presentation of the nominal capital and net worth relates to the capital
account of the limited-liability partner of the respective partnership.
E-25
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
1. INFORMATION ON INVESTMENT HOLDINGS (CONTINUED)
1.2 NON-CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PARTICI- NET OPERATING RESULT
PATING WORTH FOR THE FISCAL YEAR
INTEREST NOMINAL 09/30/97 1996/97
NAME AND PRINCIPAL PLACE OF BUSINESS AS % CAPITAL TDM TDM
- ------------------------------------ -------- ---------- -------- -------------------
<S> <C> <C> <C> <C>
Infratest Burke Core Company Ltd.,London,
England......................................... 100 TGBP 300 388 --
Infratest U.S. Inc. Wilmington (USA) (1).......... 100 TUSD 1 -- --
Infratest Burke Beteiligungs GmbH, Munich......... 100 TDM 50 55 3
Infratest Burke Verwaltungs-GmbH, Munich.......... 100 TDM 50 53 2
Infratest Burke Wirtschaftsforschung Beteiligungs-
GmbH, Munich.................................... 100 TDM 50 55 2
Infratest Burke Sozialforschung Beteiligungs-GmbH,
Munich.......................................... 100 TDM 50 3 7
Infratest Burke InCom Beteiligungs GmbH, Munich... 100 TDM 50 53 2
Infratest Gesundheitsforschung GmbH, Geretsried... 80 TDM 50 56 2
EFB Epidemiologische Forschung GmbH, Berlin (2)... 40 TDM 50 (1,134) (1,078)
--- -------- ------ ------
</TABLE>
- ------------------------
(1) No data on the year-end closing were available by the date of preparation of
the annual financial statements.
(2) The deficit posted by EFB Epidemiologische Forschung GmbH, Berlin, was
accounted for in the consolidated financial statements by appropriate
provisioning for risks in the equity capital and operating results of the
company's stockholder, Infratest Epidemiologie und Gesundheitsforschung GmbH
& Co., Munich.
These firms were not included in the consolidated financial statements in
view of their minimal business activity during the fiscal year 1996/97 or their
secondary importance with respect to the consolidated financial statements
pursuant to Section 296 of the Commercial Code.
Additional participating interests are held in companies that are currently
inactive or are in liquidation.
E-26
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
1. INFORMATION ON INVESTMENT HOLDINGS (CONTINUED)
1.3 JOINT VENTURES IN THE SENSE OF SECTION 310 OF THE COMMERCIAL CODE
<TABLE>
<CAPTION>
PARTICI- NET OPERATING RESULT
PATING WORTH FOR THE FISCAL YEAR
INTEREST NOMINAL 09/30/97 1996/97
NAME AND PRINCIPAL PLACE OF BUSINESS AS % CAPITAL TDM TDM
- ------------------------------------ -------- ----------- -------- -------------------
<S> <C> <C> <C> <C>
Burke Inc., Cincinnati, USA..................... 50 TUSD 3,750 6,798 770(2)
Infratest + GFK Gesundheitsforschung GmbH & Co.,
Berlin (1).................................... 40 TDM 70 70 3,927
Infratest Gesundheitsforschung (Suisse) GmbH,
Basel, Switzerland............................ 34 TSFR 200 (110) 777
ZEG Zentrum fur Epidemiologie und Gesundheits-
forschung GmbH, Zepernick..................... 22 TDM 150 320 122
GPI Kommunikationsforschung Gesellschaft fur
Pharma-Informationssysteme mbH, Nurnberg...... 32 TDM 50 1,458 1,337
I + G Infratest und GFK Medical Research
International Inc., Rhode Island, USA......... 26 TUSD 100 825 441
I + G Nordic Medical Research A/S, Copenhagen
Denmark....................................... 28 TDKK 500 129 98
IMePa Institut fur Medizin- und
Patientenforschung GmbH, Munich............... 20 TDM 100 251 101
Infratest Epidemiologie und Gesundheitsforschung
GmbH & Co., Munich (1) (prospectively I+G
Gesundheitsforschung)......................... 40 TDM 50 50 3,393
</TABLE>
- ------------------------
(1) The presentation of the nominal capital and net worth relates to the capital
accounts of the limited and unlimited partner of the respective partnership.
(2) For the period from April 1 to September 27, 1997.
E-27
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
1. INFORMATION ON INVESTMENT HOLDINGS (CONTINUED)
1.4 ASSOCIATED COMPANIES IN THE SENSE OF SECTION 311 OF THE COMMERCIAL CODE
<TABLE>
<CAPTION>
PARTICI- NET OPERATING RESULT
PATING WORTH FOR THE FISCAL YEAR
INTEREST NOMINAL 09/30/97 1996/97
NAME AND PRINCIPAL PLACE OF BUSINESS AS % CAPITAL TDM TDM
- ------------------------------------ -------- ---------- -------- -------------------
<S> <C> <C> <C> <C>
Infratel GmbH Telefonische Datenerhebung und
Datenverarbeitung, Bielefeld (1).............. 29 TDM 50 184 10
P & P Software und Consulting Gesellschaft mbH,
Bad Homburg (1)............................... 20 TDM 56.5 749 798
MHIG Limited, London, England (2)............... 20 TGBP 2 -- --
MedVantage GmbH Integriertes Datenmanagement im
Healthcare Markt, Frankfurt................... 18 TDM 100 (1,702) (502)
GPI Gesellschaft fur Pharma-Informations-systeme
mbH, Frankfurt (2)............................ 12 TDM 100 1,367 1,267
MAP I + G S.A., Lyon, France.................... 20 TFF 350 1,106 12
</TABLE>
- ------------------------
(1) The data pertain to the unaudited annual financial statements as of
December 31,1996.
(2) No data on the year-end closing for September 30, 1997 were available by the
date of preparation of the annual financial statements.
(3) The data pertain to the annual financial statements as of November 30, 1997.
E-28
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION
2.1 INDIVIDUAL ANNUAL FINANCIAL STATEMENTS INCLUDED
The provisions of the Commercial Code and the Stock Corporation Law relating
to balance-sheet preparation, valuation and recognition are complied with in
preparing the annual accounts included in the consolidated financial statements.
In cases where tax provisions relating to balance-sheet preparation mandate the
preparation of a corresponding balance-sheet as part of the annual financial
statements, compliance with these tax provisions is maintained.
2.1.1 ASSETS
Intangible and tangible fixed assets are recorded at acquisition cost less
scheduled depreciation. Depreciation is calculated by the straight-line method,
at the rates permitted by tax law. Low-cost economic goods are depreciated in
full during the year of acquisition and are shown in the development of the
assets as additions and disposals and as depreciation for the current fiscal
year.
The rates of depreciation are:
<TABLE>
<S> <C>
Goodwill.................................................... 6.7 - 25%p.a.
Software.................................................... 25%p.a.
Vehicle fleet............................................... 20 - 25%p.a.
Other factory and office equipment.......................... 10 - 33%p.a.
</TABLE>
E-29
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.1.1 ASSETS (CONTINUED)
Fixed assets developed as follows (from 10-01-1996 to 09-30-1997):
<TABLE>
<CAPTION>
COST
--------------------------------------------------------------------------------------------
10-01-1996 10-01-1996
AT CLOSING DATE EXCHANGE AT CLOSING DATE
RATE RATE RATE
09-30-96 DIFFERENCES 09-30-97 ADDITIONS TRANSFERS DISPOSALS
DM DM DM DM DM DM
--------------- ----------- --------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
INTANGIBLE ASSETS
1. Franchises, trademarks,
patents, licences and
similar rights.............. 26,312,821.99 (10,137.02) 26,302,684.97 1,491,326.53 0.00 172,662.94
2. Goodwill................. 13,696,808.84 0.00 13,696,808.84 31,571,734.89 0.00 0.00
3. Advances paid on
intangible assets........... 0.00 0.00 0.00 0.00 0.00 0.00
------------- ---------- ------------- ------------- ----------- ------------
40,009,630.83 (10,137.02) 39,999,493.81 33,063,061.42 0.00 172,662.94
------------- ---------- ------------- ------------- ----------- ------------
PROPERTY, PLANT AND
EQUIPMENT
1. Land, leasehold rights
and buildings, including
buildings on non-owned
land........................ 8,317,631.70 92,437.11 8,410,068.81 1,938,305.63 0.00 94,701.26
2. Technical equipment,
plant and machinery......... 2,803,936.09 114,517.46 2,918,453.55 2,672,382.14 0.00 295,711.00
3. Other equipment,
fixtures, fittings and
equipment................... 30,579,648.07 59,257.72 30,638,905.79 6,248,327.96 0.00 2,607,740.99
4. Advance payments......... 739,628.83 0.00 739,628.83 167,326.86 0.00 738,143.46
------------- ---------- ------------- ------------- ----------- ------------
42,440,844.69 266,212.29 42,707,056.98 11,026,342.59 0.00 3,736,296.71
------------- ---------- ------------- ------------- ----------- ------------
FINANCIAL ASSETS
1. Shares in affiliated
companies................... 518,686.13 0.00 518,686.13 290,001.00 (32,125.24) 152,093.89
2. Loans due from affiliated
companies................... 451,417.21 0.00 451,417.21 0.00 (271,530.00) 179,887.21
3. Shares in associated
companies................... 2,126,976.88 0.00 2,126,976.88 101,579.77 (185,849.00) 809,463.35
4. Investments.............. 286,784.00 0.00 286,784.00 191,796.50 217,974.24 0.00
5. Loans due from other
group companies............. 0.00 0.00 0.00 0.00 271,530.00 0.00
6. Security investments..... 34,572.00 0.00 34,572.00 40,766.25 0.00 34,572.00
7. Other loans.............. 522,271.67 0.00 522,271.67 349,693.92 0.00 522,271.67
------------- ---------- ------------- ------------- ----------- ------------
3,940,707.89 0.00 3,940,707.89 973,837.44 0.00 1,698,288.12
------------- ---------- ------------- ------------- ----------- ------------
86,391,183.41 256,075.27 86,647,258.68 45,063,241.45 0.00 5,607,247.77
============= ========== ============= ============= =========== ============
<CAPTION>
COST
--------------
09-30-97
DM
--------------
<S> <C>
INTANGIBLE ASSETS
1. Franchises, trademarks,
patents, licences and
similar rights.............. 27,621,348.56
2. Goodwill................. 45,268,543.73
3. Advances paid on
intangible assets........... 0.00
--------------
72,889,892.29
--------------
PROPERTY, PLANT AND
EQUIPMENT
1. Land, leasehold rights
and buildings, including
buildings on non-owned
land........................ 10,253,673.18
2. Technical equipment,
plant and machinery......... 5,295,124.69
3. Other equipment,
fixtures, fittings and
equipment................... 34,279,492.76
4. Advance payments......... 168,812.23
--------------
49,997,102.86
--------------
FINANCIAL ASSETS
1. Shares in affiliated
companies................... 624,468.00
2. Loans due from affiliated
companies................... 0.00
3. Shares in associated
companies................... 1,233,244.30
4. Investments.............. 696,554.74
5. Loans due from other
group companies............. 271,530.00
6. Security investments..... 40,766.25
7. Other loans.............. 349,693.92
--------------
3,216,257.21
--------------
126,103,252.36
==============
</TABLE>
E-30
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.1.1 ASSETS (CONTINUED)
<TABLE>
<CAPTION>
DEPRECIATION
-----------------------------------------------------------------------------------------
10-01-1996 10-01-1996
AT CLOSING EXCHANGE AT CLOSING ADDITIONS EXCHANGE ADDITIONS
DATE RATE RATE DATE RATE AVERAGE RATE AT CLOSING
09-30-96 DIFFERENCES 09-30-97 RATE DIFFERENCES DATE RATE
DM DM DM DM DM DM
------------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
INTANGIBLE ASSETS
1. Franchises, trademarks,
patents, licences and
similar rights............ 6,669,502.93 (5,515.36) 6,663,987.57 4,824,589.68 503.87 4,825,093.55
2. Goodwill............... 913,128.84 82,616.51 995,745.35 2,209,317.49 228.75 2,209,546.24
3. Advances paid on
intangible assets......... 0.00 0.00 0.00 0.00 0.00 0.00
------------- ---------- ------------- ------------- --------- -------------
7,582,631.77 77,101.15 7,659,732.92 7,033,907.17 732.62 7,034,639.79
------------- ---------- ------------- ------------- --------- -------------
PROPERTY, PLANT AND
EQUIPMENT
1. Land, leasehold rights
and buildings, including
buildings on non-owned
land...................... 114,902.00 16,846.52 131,748.52 229,245.89 8,520.71 237,766.60
2. Technical equipment,
plant and machinery....... 1,194,456.41 19,668.10 1,214,124.51 1,187,268.82 17,011.59 1,204,280.41
3. Other equipment,
fixtures, fittings and
equipment................. 18,101,790.36 (6,763.99) 18,095,026.37 5,743,031.72 24,096.54 5,767,128.26
4. Advance payments....... 0.00 0.00 0.00 0.00 0.00 0.00
------------- ---------- ------------- ------------- --------- -------------
19,411,148.77 29,750.63 19,440,899.40 7,159,546.43 49,628.84 7,209,175.27
------------- ---------- ------------- ------------- --------- -------------
FINANCIAL ASSETS
1. Shares in affiliated
companies................. 152,093.89 0.00 152,093.89 0.00 0.00 0.00
2. Loans due from
affiliated companies...... 179,887.21 0.00 179,887.21 0.00 0.00 0.00
3. Shares in associated
companies................. 1,124,845.00 0.00 1,124,845.00 25,939.38 0.00 25,939.38
4. Investments............ 30,000.00 0.00 30,000.00 37,223.80 0.00 37,223.80
5. Loans due from other
group companies........... 0.00 0.00 0.00 0.00 0.00 0.00
6. Security investments... 0.00 0.00 0.00 0.00 0.00 0.00
7. Other loans............ 26,070.82 0.00 26,070.82 0.00 0.00 0.00
------------- ---------- ------------- ------------- --------- -------------
1,512,896.92 0.00 1,512,896.92 63,163.18 0.00 63,163.18
------------- ---------- ------------- ------------- --------- -------------
28,506,677.46 106,851.78 28,613,529.24 14,256,616.78 50,361.46 14,306,978.24
============= ========== ============= ============= ========= =============
<CAPTION>
DEPRECIATION
-----------------------
WRITE-UPS TRANSFERS
DM DM
--------- -----------
<S> <C> <C>
INTANGIBLE ASSETS
1. Franchises, trademarks,
patents, licences and
similar rights............ 0.00 0.00
2. Goodwill............... 0.00 0.00
3. Advances paid on
intangible assets......... 0.00 0.00
---- -----------
0.00 0.00
---- -----------
PROPERTY, PLANT AND
EQUIPMENT
1. Land, leasehold rights
and buildings, including
buildings on non-owned
land...................... 0.00 (129,240.86)
2. Technical equipment,
plant and machinery....... 0.00 842,373.28
3. Other equipment,
fixtures, fittings and
equipment................. 0.00 (713,132.42)
4. Advance payments....... 0.00 0.00
---- -----------
0.00 0.00
---- -----------
FINANCIAL ASSETS
1. Shares in affiliated
companies................. 0.00 0.00
2. Loans due from
affiliated companies...... 0.00 0.00
3. Shares in associated
companies................. 0.00 (126,649.00)
4. Investments............ 0.00 126,649.00
5. Loans due from other
group companies........... 0.00 0.00
6. Security investments... 0.00 0.00
7. Other loans............ 0.00 0.00
---- -----------
0.00 0.00
---- -----------
0.00 0.00
==== ===========
</TABLE>
E-31
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.1.1 ASSETS (CONTINUED)
<TABLE>
<CAPTION>
DEPRECIATION (CONT.) NET BOOK VALUE
---------------------------- -----------------------------
DISPOSALS 09-30-1997 09-30-1997 09-30-1996
DM DM DM DM
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTANGIBLE ASSETS
1. Franchises, trademarks, patents, licences and similar
rights...................................................... 165,297.94 11,323,783.18 16,297,565.38 19,643,319.06
2. Goodwill................................................. 0.00 3,205,291.59 42,063,252.14 12,783,680.00
3. Advances paid on intangible assets....................... 0.00 0.00 0.00 0.00
------------ ------------- ------------- -------------
165,297.94 14,529,074.77 58,360,817.52 32,426,999.06
------------ ------------- ------------- -------------
PROPERTY, PLANT AND EQUIPMENT
1. Land, leasehold rights and buildings, including buildings
on non-owned land........................................... 94,701.26 145,573.00 10,108,100.18 8,202,729.70
2. Technical equipment, plant and machinery................. 292,031.59 2,968,746.61 2,326,378.08 1,609,479.68
3. Other equipment, fixtures, fittings and equipment........ 2,423,082.61 20,725,939.60 13,553,553.16 12,477,857.71
4. Advance payments......................................... 0.00 0.00 168,812.23 739,628.83
------------ ------------- ------------- -------------
2,809,815.46 23,840,259.21 26,156,843.65 23,029,695.92
------------ ------------- ------------- -------------
FINANCIAL ASSETS
1. Shares in affiliated companies........................... 152,093.89 0.00 624,468.00 366,592.24
2. Loans due from affiliated companies...................... 179,887.21 0.00 0.00 271,530.00
3. Shares in associated companies........................... 92,696.00 931,439.38 301,804.92 1,002,131.88
4. Investments.............................................. 30,000.00 163,872.80 532,681.94 256,784.00
5. Loans due from other group companies..................... 0.00 0.00 271,530.00 0.00
6. Security investments..................................... 0.00 0.00 40,766.25 34,572.00
7. Other loans.............................................. 26,070.82 0.00 349,693.92 496,200.85
------------ ------------- ------------- -------------
480,747.92 1,095,312.18 2,120,945.03 2,427,810.97
------------ ------------- ------------- -------------
3,455,861.32 39,464,646.16 86,638,606.20 57,884,505.95
============ ============= ============= =============
</TABLE>
2.1.2 INVENTORIES
Work in process is valued at production cost. Completed but uninvoiced
services are recorded as finished goods under "Inventories" and are valued at
net sale price.
Production cost includes all components that must be carried as assets
according to tax law.
In case the expected total production cost of work in process exceed total
expected net sales revenues adequate inventory reserves are provided.
Furthermore provisions are established for follow-up services yet to be
performed in connection with finished or invoiced services.
Advance payments from customers are deducted from inventory as such and are
posted as liabilities to the extent they exceed inventory.
2.1.3 RECEIVABLES AND OTHER FIXED ASSETS
Trade accounts receivables are recorded at nominal value. For doubtful
accounts receivables and those carrying discernible risks, direct adjustments
are made; uncollectable debts are written off. General interest and credit risk
is covered by a lump-sum value adjustment of 2%.
E-32
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.1.3 RECEIVABLES AND OTHER FIXED ASSETS (CONTINUED)
Other receivables and other assets are recorded at the nominal amount or at
a lower value assigned at the closing date.
2.1.4 PROVISIONS
Provisions are created for as dictated by sound business judgement to cover
uncertain liabilities, anticipated losses related to incomplete contracts, and
deferred maintenance.
2.1.5 PAYABLES
Payables are recorded at the amount repayable.
2.2 CONSOLIDATION METHODS
2.2.1 CAPITAL CONSOLIDATION
Capital consolidation is performed by the book value method (Section 301
Para. 1 Sentence 2 No. 1 of the Commercial Code). According to this method,
participating interests that must be consolidated are offset against their
allotted share of the net worth of the subsidiaries. This net worth represents
the book value at date of acquisition of the assets, debts, accrued and deferred
items and special items to be reported on in the consolidated financial
statements.
Consolidation surpluses from capital consolidation at the date of
acquisition of the participating interests are offset against reserves (in the
year under review: TDM 0; previous year: TDM 720) -- possibly after allocation
to hidden reserves in the assets of the acquired undertaking--or are allocated
to goodwill and amortized over the 15 years following the year of acquisition of
the interest (amortization during the year under review: TDM 2,110; previous
year: TDM 913).
2.2.2 EQUITY CONSOLIDATION
The associated companies
- MedVantage GmbH Integriertes Datenmanagement im Healthcare Markt,
Frankfurt
- GPI Gesellschaft fur Pharma-Informationssysteme mbH, Frankfurt
- P & P Software und Consulting GmbH, Bad Homburg
were included in the consolidated financial statements by the equity/book value
method.
For reasons of materiality, the other associated companies continued to be
carried at the book values recorded in the stockholder's individual financial
statements.
E-33
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.2.3 PRO-RATA CONSOLIDATION
The joint ventures
- IMePa Institut fur Medizin- und Patientenforschung GmbH, Munich
- I + G Infratest and GFK Medical Research International Inc., Rhode Island,
USA
- Infratest Gesundheitsforschung (Suisse) GmbH, Basel, Switzerland
- I + G Nordic Medical Research A/S, Copenhagen, Denmark
- Infratest + GFK Gesundheitsforschung GmbH & Co., Berlin
- ZEG Zentrum fur Epidemiologie und Gesundheitsforschung GmbH, Berlin
- GPI Kommunikationsforschung Gesellschaft fur Pharma-Informationssysteme
mbH, Nuremberg
- Infratest Epidemiologie und Gesundheitsforschung GmbH & Co., Munich
(prospectively I+G Gesundheitsforschung GmbH & Co, Nuremberg)
- Burke Inc., Cincinnati, USA
were included in the consolidated financial statements on a pro-rata basis,
according to the percentage of the interest in the firm.
2.2.4 ELIMINATION OF INTER-COMPANY PROFITS
Assets to be included in the consolidated financial statements and deriving
wholly or in part from transactions among the companies included in the
consolidated financial statements are reported on the consolidated balance sheet
at acquisition or production cost of the group.
3. BASIS OF FOREIGN CURRENCY TRANSLATION
3.1 TRANSLATION OF INDIVIDUAL FINANCIAL-STATEMENT ITEMS STATED IN FOREIGN
CURRENCY
For annual financial statements containing items based on sums that are or
originally were stated in foreign currency, the conversion to German marks is
performed at the rate in effect at the transaction date. Balance-sheet items are
valued at the exchange rate in effect on the closing date, no exchange gains
being realized.
3.2 TRANSLATION OF FINANCIAL STATEMENTS IN FOREIGN CURRENCIES
The translation of financial statements recorded in foreign currencies was
performed by the current rate method: balance-sheet items were translated at the
rate in effect on the closing date of September 30, 1997, and income-statement
items were translated at the average rate for the fiscal year 1996/97.
E-34
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
3. BASIS OF FOREIGN CURRENCY TRANSLATION (CONTINUED)
3.2 TRANSLATION OF FINANCIAL STATEMENTS IN FOREIGN CURRENCIES (CONTINUED)
Exchange-rate differences resulting from the translation of net worth at
different current rates and differences resulting from the translation of
balance-sheet items at current rates and income statement items at average rates
are recognized separately as a equity item on the balance sheet.
4. NOTES TO CONSOLIDATED BALANCE SHEET ITEMS
4.1 ITEMS OF ACCRUAL AND DEFERRAL FOR DEFERRED TAXES
The deferred tax asset relates to a discrepancy between the goodwill
reported on the individual financial statements of Infratest Burke
Wirtschaftsforschung GmbH & Co, Munich, and that recorded by the Group, and to
the translation of the percentage-of-completion method into the completed-
contact method used within the Group for the tax consequences incurred by the
joint venture Burke Inc., which is included on a pro-rata basis.
4.2 OTHER PROVISIONS AND ACCRUED LIABILITIES
"Other provisions and accrued liabilities" basically recognizes provisions for
Profit-sharing
Follow-up services
Unpaid invoices
Restructuring
Vacations and overtime
Statuary social security benefits (Italy)
Year-end costs
Employee anniversaries.
E-35
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
5. OTHER MANDATORY INFORMATION
5.1 REMAINING TERM
The remaining term on receivables is less than one year. The remaining terms
on payables are shown in the following presentation of accounts payable:
<TABLE>
<CAPTION>
DUE WITHIN AFTER
TOTAL 1 YEAR 1-5 YEARS 5 YEARS
DM DM DM DM
-------------- ------------- ------------- ----------
<S> <C> <C> <C> <C>
Liabilities due to banks.............. 55,203,766.17 33,732,557.33 21,426,822.34 44,386.50
Advance payments received on account
of orders........................... 1,241,319.09 1,241,319.09 0.00 0.00
Trade accounts payable................ 15,884,769.80 15,884,769.80 0.00 0.00
Accounts due to affiliated
companies........................... 3,208,642.29 1,858,450.29 959,592.00 390,600.00
Accounts due to joint ventures........ 73,437.02 73,437.02 0.00 0.00
Accounts due to other group
companies........................... 575,360.64 575,360.64 0.00 0.00
Other liabilities..................... 31,623,276.57 23,099,883.47 8,246,291.45 277,101.65
============== ============= ============= ==========
107,810,571.58 76,465,777.64 30,632,705.79 712,088.15
============== ============= ============= ==========
</TABLE>
5.2 COLLATERALIZATION OF ACCOUNTS PAYABLE
Payables are not collateralized.
5.3 ANALYSIS OF SALES REVENUES
Sales revenues--broken down according to country of realization--are
distributed as follows:
<TABLE>
<CAPTION>
1996/97 1995/96
TDM TDM
-------- --------
<S> <C> <C>
Domestic.................................................. 140,908 140,573
Foreign, Europe........................................... 122,494 92,202
Foreign, other............................................ 26,582 9,136
------- -------
289,984 241,911
======= =======
</TABLE>
5.4 OTHER FINANCIAL OBLIGATIONS
Other financial obligations total TDM 42,345 (previous year: TDM 36,319).
E-36
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
5. OTHER MANDATORY INFORMATION (CONTINUED)
5.5 EMPLOYEES
The average number of employees in the Group--that is, in the fully
consolidated companies--is distributed as follows (itemized by country):
<TABLE>
<CAPTION>
1996/97 1995/96
-------- --------
<S> <C> <C>
Germany..................................................... 419 413
France...................................................... 91 71
Sweden...................................................... 63 62
England..................................................... 163 61
Italy....................................................... 72 60
Holland..................................................... 63 47
--- ---
871 714
=== ===
</TABLE>
The average number of employees of companies included in the consolidated
financial statements on a pro-rata basis only is distributed as follows:
<TABLE>
<CAPTION>
1996/97 1995/96
-------- --------
<S> <C> <C>
Germany..................................................... 123 102
Switzerland................................................. 9 11
France...................................................... 0 4
U.S......................................................... 247 4
Denmark..................................................... 3 1
--- ---
382 122
=== ===
</TABLE>
5.6 REMUNERATION OF OFFICERS
Remuneration paid to the Board of Directors of the parent company, I.B. AG
Holding, during the fiscal year 1996/97 totaled TDM 2,750 (previous year: TDM
1,877).
Total remuneration for the Supervisory Board totaled TDM 75 for the fiscal
year 1996/97.
6. SUMMARY OF DIFFERENCES BETWEEN GERMAN AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The following is a summary of the estimated adjustments to consolidated
profit and to consolidated shareholders' equity that would have been required if
US GAAP would have been applied instead of German GAAP.
E-37
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
6. SUMMARY OF DIFFERENCES BETWEEN GERMAN AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
6.1. APPROXIMATE EFFECTS ON CONSOLIDATED PROFIT OF DIFFERENCES BETWEEN GERMAN
AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
<TABLE>
<CAPTION>
TDM TDM
-------- --------
<S> <C> <C>
Net Profit/(Loss) as reported under German GAAP............. 3,631
------
US GAAP adjustments:
Amortization of goodwill.................................. 5,299
Profit recognition by application of percentage of
completion method....................................... 2,954
Lumpsum reserve on accounts receivable trade.............. 83
Reversal of provision for future expenses................. (324)
Other..................................................... 112 8,124
------
Tax effects:
Deferred taxation......................................... (3,517)
Provision for tax risks................................... (1,540) (5,057)
------
Effect on minority interest............................... 182
------
Approximate Net Profit/(Loss) as adjusted for US GAAP....... 6,880
======
</TABLE>
6.2. APPROXIMATE CUMULATIVE EFFECT ON SHAREHOLDERS' EQUITY OF DIFFERENCES
BETWEEN GERMAN AND US GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
<TABLE>
<CAPTION>
TDM
--------
<S> <C>
Shareholders' equity per German GAAP (1).................... 17,804
------
US GAAP adjustments:
Goodwill.................................................. 9,424
Profit recognition by application of percentage of
completion method....................................... 21,924
Lumpsum reserve on accounts receivable trade.............. 364
Provision for future expenses............................. 2,543
Provision for tax risks................................... (1,975)
Deferred taxation......................................... 1,244
Other..................................................... 116
------
Approximate Shareholders' equity as adjusted for US GAAP.... 51,444
======
</TABLE>
- ------------------------
(1) excluding minority interest
E-38
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
6. SUMMARY OF DIFFERENCES BETWEEN GERMAN AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
6.3. DISCUSSION OF MATERIAL VARIATIONS BETWEEN GERMAN AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES
The material variations between German and US GAAP relate to the
following items:
6.3.1 GOODWILL / AMORTIZATION OF GOODWILL
Goodwill resulting from the consolidation process is amortized over a period
of 30 years applying the straight line method for US GAAP purposes. The
treatment in the local consolidated financial statements follows the treatment
in the tax filing where the amounts of purchase prices exceeding the net equity
of acquired subsidiaries is amortized over a shorter period of time (between 1
and 15 years, depending on the allocation applied). Due to the amortization
opportunity in local taxation deferred taxes / tax assets have been considered
(see Sect. 6.3.6 below).
6.3.2 PERCENTAGE OF COMPLETION METHOD
Profit recognition relating to services rendered to customers follows the
"percentage of completion"-method for US GAAP purposes whereas for local
purposes the "completed contract"-method must be applied. According to the
"completed contract"-method profit may not be recognized until the contractually
agreed services have been accepted by the customers. Compared to the "percentage
of completion"-method the application of the "completed contract"-method leads
to a delay in profit recognition.
6.3.3 LUMPSUM RESERVE ON ACCOUNTS RECEIVABLE TRADE
The difference relates to the application of varying rates for the
calculation of lumpsum bond debt reserves:
<TABLE>
<S> <C>
US GAAP..................................................... 1%
German GAAP................................................. 2%
</TABLE>
6.3.4 PROVISION FOR FUTURE EXPENSES
Local books contain provisions for expenses which can not be related to the
current or prior years but shall cover potential expenses which are related to
the future. Those provisions are not allowed by US GAAP and accordingly were
eliminated in consolidated stockholders' equity adjusted for US GAAP.
6.3.5 PROVISION FOR TAX RISKS
The accounting of German trade tax on income in the local consolidated
financial statements followed the treatment in the tax filings. Since, however,
a probable risk exists that those taxes will be payable a respective provision
was established in the consolidated financial statements adjusted for US GAAP.
E-39
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
6. SUMMARY OF DIFFERENCES BETWEEN GERMAN AND US GENERALLY ACCEPTED
ACCOUNTING PRINCIPLES (CONTINUED)
6.3.6 DEFERRED TAXATION
Deferred taxes relate to temporary differences between the tax bases of
assets or liabilities and the reported amounts according to US GAAP as well as
to tax loss carryforwards. If evidence indicates that it is more likely than not
that deferred tax assets relating to tax loss carryforwards will not be realized
adequate allowances were provided. Deferred taxes have primarily been provided
for temporary differences relating to explanations in Sect. 6.3.1, 6.3.2 and
6.3.3 and to tax loss carryforwards in Germany.
The tax rate applied amounts to 35%.
6.3.7 EQUITY METHOD
Joint venture companies (reference is made to Sect. 2.2.3) were included in
the consolidated financial statements under German GAAP on a pro-rata basis
whereas under US GAAP the Equity method was applied.
E-40
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1997/98
7. CASH FLOW STATEMENT
<TABLE>
<CAPTION>
1996/97
TDM
--------
<S> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Consolidated profit (loss) of the year.................... 6,880
Adjustments to reconcile consolidated profit (loss) to net
cash:
Depreciation and amortization........................... 8,253
Change in provisions for pensions....................... 109
Change in inventories................................... (6,827)
Change in accounts receivables.......................... (10,408)
Change in deferred tax assets........................... 3,025
Change in accounts due from group companies............. 2,459
Change in other operating assets and prepaid expenses... 12,831
Change in deferred income taxes......................... 3,953
Change in tax provisions................................ (2,329)
Change in provisions.................................... 1,331
Change in advance payments received..................... 6,105
Change in amounts owed to group companies............... (1,541)
Change in accounts payables............................. 3,395
Change in other operating liabilities and deferred
charges................................................ 3,330
-------
Net cash provided from operating activities............... 30,566
-------
CASH FLOW FROM INVESTING ACTIVITIES:
Net investment intangible assets.......................... (16,362)
Net investment tangible assets............................ (7,896)
Net investment financial assets........................... (19,013)
-------
Net cash provided from investing activities............... (43,271)
-------
CASH FLOW FROM FINANCING ACTIVITIES
Change in debts to banks.................................. 17,671
Change in minority interest............................... 297
-------
Net cash provided from financing activities............... 17,968
-------
EFFECT OF EXCHANGE RATE DIFFERENCES IN EQUITY............... 408
-------
CHANGE IN CASH AND CASH EQUIVALENTS......................... 5,671
=======
CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR...... 8,873
=======
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR............ 14,544
=======
</TABLE>
RECONCILIATION OF CASH AND CASH EQUIVALENTS
<TABLE>
<CAPTION>
TDM
--------
<S> <C>
Cash and cash equivalents according to German GAAP as of
September 30, 1997........................................ 15,134
Elimination of per quota consolidated entities.............. (590)
-------
14,544
=======
</TABLE>
Munich, January 15, 1998
The Board of Directors
E-41
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
CONSOLIDATED FINANCIAL STATEMENTS
AS OF SEPTEMBER 30, 1996
E-42
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
ASSETS
DM
--------------
<S> <C>
A. FIXED ASSETS
I. Intangible assets
1. Franchise, trademarks, patents, licences and
similar rights...................................... 19,643,319.06
2. Goodwill........................................... 12,783,680.00
--------------
32,426,999.06
II. Property, plant and equipment
1. Land, leasehold rights and buildings, including
buildings on non-owned land......................... 8,202,729.70
2. Other equipment, fixtures, fittings and equipment
including advance payments.......................... 14,826,966.22
--------------
23,029,695.92
III. Financial assets
1. Shares in affiliated companies..................... 366,592.24
2. Loans due from affiliated companies................ 271,530.00
3. Shares in associated companies..................... 1,002,131.88
3. Investments........................................ 256,784.00
4. Security investments............................... 34,572.00
5. Other loans........................................ 496,200.85
--------------
2,427,810.97
--------------
57,884,505.95
--------------
B. Current Assets
I. Inventories
1. Raw material and supplies.......................... 415,873.38
2. Work in progress and finished goods................ 40,063,683.17
3. minus: advance payments received on accounts of
orders.............................................. (38,375,444.81)
4. Advance payments................................... 600,149.62
--------------
2,704,261.36
--------------
II. Accounts receivable and other assets
1. Accounts receivable trade.......................... 39,116,792.72
2. Accounts due from joint ventures................... 671,534.13
3. Accounts due from other group companies............ 441,024.44
4. Other assets....................................... 17,511,658.39
--------------
57,741,009.68
--------------
III. Marketable securities
Other marketable securities........................... 91,532.50
IV. Checks, cash on hand and in Federal Bank and in postal
giro accounts and cash in banks......................... 9,442,685.23
--------------
69,979,488.77
--------------
C. DEFERRED TAX ASSETS...................................... 250,000.00
--------------
D. PREPAID EXPENSES AND DEFERRED CHARGES.................... 2,836,401.17
--------------
130,950,395.89
==============
</TABLE>
E-43
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
CONSOLIDATED BALANCE SHEET AS OF SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
DM DM
-------------- --------------
<S> <C> <C>
A. SHAREHOLDERS'S EQUITY
I. Capital subscribed.................................... 100,000.00
II. Capital surplus
1. Capital surplus.................................... 29,900,000.00
2. minus: settlement with goodwill.................... (720,000.00) 29,180,000.00
--------------
III. Consolidated net income/(loss)....................... (15,726,626.48)
IV. Minority interest..................................... 659,035.21
V. Exchange difference................................... 276,838.26
--------------
14,489,246.99
--------------
B. Provision and Accrued Liabilities
1. Provisions for pensions and similar obligations.... 73,984.61
2. Accrued taxes...................................... 5,948,130.42
3. Other provisions and accrued liabilities........... 27,806,548.89
--------------
33,828,663.92
--------------
C. Liabilities
1. Liabilities due to banks........................... 37,541,445.86
3. Trade accounts payable............................. 13,722,357.31
4. Notes payable...................................... 14,707.52
5. Accounts due to affiliated companies............... 3,046,209.72
7. Accounts due to other group companies.............. 749,012.87
8. Other liabilities.................................. 26,018,092.56
- thereof for taxes: DM 4,748,837.80
- thereof for social security: DM 2,667,794.67
--------------
81,091,825.84
--------------
D. DEFERRED CHARGES......................................... 1,540,659.14
--------------
130,950,395.89
==============
</TABLE>
E-44
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
CONSOLIDATED STATEMENT OF INCOME
FOR THE FISCAL YEAR 1995/96
<TABLE>
<CAPTION>
DM DM
--------------- ---------------
<C> <S> <C> <C>
1. Sales.................................................... 241,910,735.00
2. Increase in work in process and finished goods........... 6,138,616.90
3. Other operating income................................... 5,358,316.49
4. Expenses of services received............................ (108,394,054.70)
5. Personnel expenses.......................................
a) Wages and salaries.................................... (72,690,712.91)
b) Social security, pension and other benefit costs...... (16,275,091.83) (88,965,804.74)
--------------- ---------------
6. Depreciation expenses.................................... (11,850,164.97)
7. Other operating expenses................................. (52,960,177.30)
8. Income from investments and associated companies......... 712,380.43
9. Other interest and similar income........................ 989,331.80
Write-offs of financial assets and marketable
10. securities............................................. (56,986.67)
11. Interest and similar expenses............................ (3,773,417.87)
---------------
12. Result from ordinary operations.......................... (10,891,225.63)
---------------
13. Taxes on income.......................................... (2,494,655.33)
14. Other taxes.............................................. (1,930,219.33)
---------------
15. Consolidated profit (loss) before minority-interest...... (15,316,100.29)
---------------
16. Minority-interest........................................ (410,526.19)
---------------
17. Consolidated profit (loss)............................... (15,726,626.48)
===============
</TABLE>
E-45
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE FISCAL YEAR 1995/96
1. INFORMATION ON INVESTMENT HOLDINGS
For the following notes, the ultimate participating interest of Infratest
Burke AG Holding in the capital of the individual companies has been calculated
as a percentage.
1.1 CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PARTICI- NET OPERATING RESULT
PATING WORTH FOR THE FISCAL YEAR
INTEREST NOMINAL 09/30/96 1995/96
NAME AND PRINCIPAL PLACE OF BUSINESS AS % CAPITAL TDM TDM
- ------------------------------------ -------- ------------ -------- -------------------
<S> <C> <C> <C> <C>
Infratest Burke GmbH & Co, Forschung fur
Entscheidungen in Wirtschaft und Gesellschaft,
Munich (1).......................................... 100 TDM 2,000 2,000 9,439
Infratest Burke Verwaltungs-GmbH...................... 100 TDM 50 50 3
Infratest Burke Wirtschaftsforschung GmbH & Co, Munich
(1) (formerly Infratest Burke Wirtschaftsforschung
GmbH, Munich)....................................... 100 TDM 50 50 2,831
Infratest Burke Wirtschaftsforschung
Beteiligungs-GmbH, Munich........................... 100 TDM 50 50 3
Infratest Burke Sozialforschung GmbH & Co, Munich (1)
(formerly Infratest Burke Sozialforschung GmbH)..... 100 TDM 50 50 437
Infratest Burke Sozialforschung Beteiligungs-GmbH,
Munich.............................................. 100 TDM 50 3 3
Infratest Burke S.r.l., Milan, Italy.................. 100 TLIR 50,000 771 509
Infratest Burke S.a.r.l., Paris, France............... 100 TFF 270 579 (219)
Infratest Burke Group Ltd., London, England........... 100 TGBP 450 1,381 403
Infratest Burke InCom GmbH & Co, Munich (1) (formerly
Infratest InCom GmbH)............................... 100 TDM 100 100 3,966
Infratest Burke InCom Beteiligungs-GmbH, Munich....... 100 TDM 50 53 3
InfraForces S.a.r.l., Paris, France................... 100 TFF 100 45 45
Infratest Burke International Services Ltd., (formerly
Infratest Burke InCom Ltd.), London, England........ 100 TGBP 60 (336) (232)
IBB Infratest Burke GmbH Berlin, Berlin............... 100 TDM 50 119 27
NEXXUS GmbH Gesellschaft fur Kommunikations-technik,
Munich.............................................. 100 TDM 50 39 2
Infratest Burke AB, Goteborg, Sweden.................. 15.2 TSEK 75 541 331
Infratest Burke Asia Pacific Ltd., (formerly:
Infratest Burke Japan Ltd.), London, England........ 80.0 TGBP 50 (123) (117)
Burke International Marktforschung GmbH, Frankfurt.... 75 TDM 200 322 66
Infratest Burke GmbH & Co. Marketingforschung,
Frankfurt........................................... 75 TDM 100 100 (195)
Trendbox B.V., Amsterdam, Netherlands................. 65 THFL 250 (165) (200)
Infratest Gesundheitsforschung GmbH & Co., Infratest
Gesundheitsforschung GmbH & Co., Munich (1)......... 80 TDM 20 20 1,235
</TABLE>
E-46
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1995/96
1. INFORMATION ON INVESTMENT HOLDINGS (CONTINUED)
1.1 CONSOLIDATED SUBSIDIARIES (CONTINUED)
<TABLE>
<CAPTION>
PARTICI- NET OPERATING RESULT
PATING WORTH FOR THE FISCAL YEAR
INTEREST NOMINAL 09/30/96 1995/96
NAME AND PRINCIPAL PLACE OF BUSINESS AS % CAPITAL TDM TDM
- ------------------------------------ -------- ------------ -------- -------------------
<S> <C> <C> <C> <C>
Infratest Gesundheitsforschung GmbH, Geretsried....... 85 TDM 50 53 3
KFM Klinische Forschung GmbH, Munich.................. 72 TDM 50 89 77
Infratest Epidemiologie und Gesundheitsforschung GmbH
& Co., Munich (1)................................... 40 TDM 50 50 (1,109)
Infratest Epidemiologie und Gesundheitsforschung
Verwaltungs-GmbH, Munich............................ 40 TDM 50 55 5
EFB Epidemiologische Forschung GmbH, Berlin........... 40 TDM 50 (56) (209)
</TABLE>
- ------------------------
(1) The presentation of the nominal capital and net worth relates to the capital
amount of the limited-liability partner of the respective partnership.
1.2 NON-CONSOLIDATED SUBSIDIARIES
<TABLE>
<CAPTION>
PARTICI- NET OPERATING RESULT
PATING WORTH FOR THE FISCAL YEAR
INTEREST NOMINAL 09/30/96 1995/96
NAME AND PRINCIPAL PLACE OF BUSINESS AS % CAPITAL TDM TDM
- ------------------------------------ -------- ----------- -------- -------------------
<S> <C> <C> <C> <C>
Infratest Burke Core Company Ltd., (formerly
Infratest Burke European Consultance Centre
Ltd.), London, England........................ 100 TGBP 300 340 0
Infratest Burke S.L., Madrid, Spain (1)......... 50 TPTA 5,000 22 (1)
Infratest U.S. Inc., Wilmington (USA)........... 100 TUSD 1
</TABLE>
- ------------------------
(1) The data pertain to the unaudited annual financial statements as of
December 31, 1995
These firms were not included in the consolidated financial statements in
view of their minimal business activity during the fiscal year 1995/96 or their
secondary importance with respect to the consolidated financial statements
pursuant to Section 296 of the Commercial Code.
Additional participating interests are held in companies that are currently
inactive or are in liquidation.
E-47
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1995/96
1. INFORMATION ON INVESTMENT HOLDINGS (CONTINUED)
1.3 JOINT VENTURES IN THE SENSE OF SECTION 310 OF THE COMMERCIAL CODE
<TABLE>
<CAPTION>
PARTICI- NET OPERATING RESULT
PATING WORTH FOR THE FISCAL YEAR
INTEREST NOMINAL 09/30/96 1995/96
NAME AND PRINCIPAL PLACE OF BUSINESS AS % CAPITAL TDM TDM
- ------------------------------------ -------- ---------- -------- -------------------
<S> <C> <C> <C> <C>
Vector GmbH Automobilmarktforschung, Munich.... 50 TDM 50 1,096 1,018
Infratest + GFK Gesundheitsforschung GmbH &
Co., Berlin (1).............................. 40 TDM 70 70 3,263
Infratest + GFK Gesundheitsforschung
Verwaltungs-GmbH, Berlin..................... 40 TDM 50 60 2
I + G Gesundheits- und Pharmamarkt-Forschung
GmbH & Co., Nurnberg (1)..................... 40 TDM 50 50 3,530
I + G Pharmamarkt-Forschung Verwaltungs-GmbH,
Nurnberg..................................... 40 TDM 50 59 3
I + G France Health and Pharmaceutical Market
Research, Rueil Malmaison, France (2)........ 40 TFF 100 -- --
Infratest Gesundheitsforschung GmbH, Basel,
Suisse....................................... 34 TSFR 200 (918) 81
ZEG Zentrum fur Epidemiologie und Gesundheits-
forschung GmbH, Zepernick.................... 20 TDM 150 377 377
GPI Kommunikationsforschung Gesellschaft fur
Pharma-Informationssysteme mbH, Nurnberg..... 32 TDM 50 1,365 1,286
I + G Infratest und GFK Medical Research
International Inc., Rhode Island, USA........ 26.0 TUSD 100 1,088 255
I + G Nordic Medical Research A/S, Kopenhagen
Denmark...................................... 28 TDKK 500 (108) 100
IMePa Institut fur Medizin- und
Patientenforschung GmbH, Munich.............. 19.6 TDM 100 310 160
Infratest Epidemiologie und
Gesundheitsforschung GmbH & Co., Munich
(1).......................................... 40.0 TDM 50 50 (1,109)
Infratest Epidemiologie und
Gesundheitsforschung Verwaltungs-GmbH,
Munich....................................... 40.0 TDM 50 55 5
EFB Epidemiologische Forschung GmbH, Berlin.... 40.0 TDM 50 (55) (209)
</TABLE>
- ------------------------
(1) The presentation of the nominal capital and net worth relates to the capital
accounts of the limited and unlimited partner of the respective partnership.
(2) The company is in liquidation.
E-48
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1995/96
1. INFORMATION ON INVESTMENT HOLDINGS (CONTINUED)
1.4 ASSOCIATED COMPANIES IN THE SENSE OF SECTION 311 OF THE COMMERCIAL CODE
<TABLE>
<CAPTION>
PARTICI- NET OPERATING RESULT
PATING WORTH FOR THE FISCAL YEAR
INTEREST NOMINAL 09/30/96 1995/96
NAME AND PRINCIPAL PLACE OF BUSINESS AS % CAPITAL TDM TDM
- ------------------------------------ -------- ---------- -------- -------------------
<S> <C> <C> <C> <C>
Infratel GmbH Telefonische Datenerhebung fur die
empirische Wirtschafts- und Sozial-forschung,
Bielefeld (1)................................... 29 TDM 50 187 (6)
GENESIS Institut fur strategische Innovations-
studien--Unabhangige Forschungsgesell-schaft
mbH, Dortmund (2)............................... 27 TDM 100 -- --
L + H AutomobilConsult GmbH, Nurnberg (3)......... 25.2 TDM 50 -- --
L + H MarketingServices GmbH, Nurnberg (3)........ 25.1 TDM 100 -- --
T.E.S.T. S.A., Paris (6).......................... 25 TFF 300 1,397 113
Anders & Partner Gesellschaft fur
Manage-mentdienste mbH, Nurnberg................ 24 TDM 100 -- --
P & P Software und Consulting Gesellschaft mbH,
Bad Homburg (1)................................. 20 TDM 56.5 731 820
MHIG Limited, London, England (5)................. 15 TGBP 2 (404) (390)
MedVantage GmbH Integriertes Daten-management im
Healthcare Markt, Frankfurt..................... 18 TDM 100 (1,683) (477)
GPI Gesellschaft fur Pharma-Informations-systeme
mbH, Frankfurt (4).............................. 12 TDM 100 328 1,403
BBI Mark. Serv. Inc., Delaware, USA............... 1.5 -- -- --
Proteus........................................... -- -- -- --
MAP I + G S.A., Lyon, France (3).................. 20 -- -- --
</TABLE>
- ------------------------
(1) The data pertain to the unaudited annual financial statements as of
December 31, 1995.
(2) No data on the year-end closing for June 30, 1996 were available by the date
of preparation of the annual financial statements.
(3) No data on the year-end closing for September 30, 1996 were available by the
date of preparation of the annual financial statements.
(4) The data pertain to the annual financial statements as of November 30, 1996.
(5) The data pertain to the annual financial statements as of October 30, 1996.
(6) The data pertain to the audited annual financial statements as of
December 31, 1995.
E-49
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1995/96
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION
2.1 INDIVIDUAL ANNUAL FINANCIAL STATEMENTS INCLUDED
The provisions of the Commercial Code and the Stock Corporation Law relating
to balance-sheet preparation, valuation and recognition are complied with in
preparing the annual accounts included in the consolidated financial statements.
In cases where tax provisions relating to balance-sheet preparation mandate the
preparation of a corresponding balance-sheet as part of the annual financial
statements, compliance with these tax provisions is maintained.
2.1.1 ASSETS
Intangible and tangible fixed assets are recorded at acquisition cost less
scheduled depreciation. Depreciation is calculated by the straight-line method,
at the rates permitted by tax law. Low-cost economic goods are depreciated in
full during the year of acquisition and are shown in the development of the
assets as additions and disposals and as depreciation for the current fiscal
year.
The rates of depreciation are:
<TABLE>
<S> <C>
Goodwill.................................................... 10 - 25% p.a.
Software.................................................... 25% p.a.
Vehicle fleet............................................... 20 - 25% p.a.
Other factory and office equipment.......................... 10 - 33% p.a.
</TABLE>
E-50
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1995/96
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.1.1 ASSETS (CONTINUED)
Fixed assets developed as follows (from 10-01-1995 to 09-30-1996):
<TABLE>
<CAPTION>
COST
------------------------------------------------------------------------------------------
10-01-1995 10-01-1995
AT CLOSING DATE EXCHANGE AT CLOSING DATE
RATE RATE RATE
09-30-95 DIFFERENCES 09-30-96 ADDITIONS TRANSFERS DISPOSALS
DM DM DM DM DM DM
--------------- ----------- --------------- ------------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
INTANGIBLE ASSETS
1. Franchises, trademarks,
patent licences and similar
rights...................... 2,295,017.01 50,119.80 2,345,136.81 24,208,611.32 0.00 240,926.14
2. Goodwill................... 0.00 0.00 0.00 13,696,808.84 0.00 0.00
3. Advances paid on intangible
assets...................... 0.00 0.00 0.00 0.00 0.00 0.00
------------- ----------- ------------- ------------- ---- ------------
2,295,017.01 50,119.80 2,345,136.81 37,905,420.16 0.00 240,926.14
============= =========== ============= ============= ==== ============
PROPERTY, PLANT AND EQUIPMENT
1. Land, leasehold rights and
buildings, including
building on non-owned
land........................ 0.00 0.00 0.00 8,317,631.70 0.00 0.00
2. Technical equipment, plant
and machinery............... 0.00 0.00 0.00 2,803,936.09 0.00 0.00
3. Other equipment, fixtures,
fittings and equipment...... 28,794,551.08 (524,988.48) 28,269,562.60 6,079,917.97 0.00 3,769,832.50
4. Advance payments........... 0.00 0.00 0.00 739,628.83 0.00 0.00
------------- ----------- ------------- ------------- ---- ------------
28,794,551.08 (524,988.48) 28,269,562.60 17,941,114.59 0.00 3,769,832.50
------------- ----------- ------------- ------------- ---- ------------
FINANCIAL ASSETS
1. Shares in affiliated
companies................... 641,680.53 0.00 641,680.53 1,526.74 0.00 124,521.14
2. Loans due from affiliated
companies................... 451,417.21 0.00 451,417.21 0.00 0.00 0.00
3. Shares in associated
companies 2,101,037.50 0.00 2,101,037.50 25,939.38 0.00 0.00
4. Investments................ 286,245.00 539.00 286,784.00 0.00 0.00 0.00
5. Security investments....... 0.00 0.00 0.00 34,572.00 0.00 0.00
6. Other loans................ 543,726.16 17,346.49 561,072.65 147,617.54 0.00 186,418.52
------------- ----------- ------------- ------------- ---- ------------
4,024,106.40 17,885.49 4,041,991.89 209,655.66 0.00 310,939.66
------------- ----------- ------------- ------------- ---- ------------
35,113,674.49 (456,983.19) 34,656,691.30 56,056,190.41 0.00 4,321,698.30
============= =========== ============= ============= ==== ============
<CAPTION>
COST
-------------
09-30-96
DM
-------------
<S> <C>
INTANGIBLE ASSETS
1. Franchises, trademarks,
patent licences and similar
rights...................... 26,312,821.99
2. Goodwill................... 13,696,808.84
3. Advances paid on intangible
assets...................... 0.00
-------------
40,009,630.83
=============
PROPERTY, PLANT AND EQUIPMENT
1. Land, leasehold rights and
buildings, including
building on non-owned
land........................ 8,317,631.70
2. Technical equipment, plant
and machinery............... 2,803,936.09
3. Other equipment, fixtures,
fittings and equipment...... 30,579,648.07
4. Advance payments........... 739,628.83
-------------
42,440,844.69
-------------
FINANCIAL ASSETS
1. Shares in affiliated
companies................... 518,686.13
2. Loans due from affiliated
companies................... 451,417.21
3. Shares in associated
companies 2,126,976.88
4. Investments................ 286,784.00
5. Security investments....... 34,572.00
6. Other loans................ 522,271.67
-------------
3,940,707.89
-------------
86,391,183.41
=============
</TABLE>
E-51
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1995/96
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.1.1 ASSETS (CONTINUED)
<TABLE>
<CAPTION>
DEPRECIATION
-----------------------------------------------------------------------------------------
10-01-1995 10-01-1995
AT CLOSING EXCHANGE AT CLOSING ADDITIONS EXCHANGE ADDITIONS
DATE RATE RATE DATE RATE AVERAGE RATE AT CLOSING
09-30-95 DIFFERENCES 09-30-96 RATE DIFFERENCES DATE RATE
DM DM DM DM DM DM
------------- ----------- ------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
INTANGIBLE ASSETS
1. Franchises, trademarks,
patent licences and
similar rights........... 1,571,908.07 25,891.94 1,597,800.01 5,247,938.32 4,375.40 5,252,313.72
2. Goodwill................ 0.00 0.00 0.00 913,128.84 0.00 913,128.84
3. Advances paid on
intangible assets........ 0.00 0.00 0.00 0.00 0.00 0.00
------------- --------- ------------- ------------- --------- -------------
1,571,908.07 25,891.94 1,597,800.01 6,161,067.16 4,375.40 6,165,442.56
------------- --------- ------------- ------------- --------- -------------
PROPERTY, PLANT AND
EQUIPMENT
1. Land, leasehold rights
and buildings, including
building on non-owned
land..................... 0.00 0.00 0.00 114,902.00 0.00 114,902.00
2. Technical equipment,
plant and machinery...... 0.00 0.00 0.00 1,159,278.66 35,177.75 1,194,456.41
------------- --------- ------------- ------------- --------- -------------
3. Other equipment,
fixtures, fittings and
equipment................ 16,720,812.80 0.00 16,720,812.80 4,414,917.15 0.00 4,414,917.15
------------- --------- ------------- ------------- --------- -------------
4. Advance payments........ 0.00 0.00 0.00 0.00 0.00 0.00
------------- --------- ------------- ------------- --------- -------------
16,720,812.80 0.00 16,720,812.80 5,689,097.81 35,177.75 5,724,275.56
------------- --------- ------------- ------------- --------- -------------
FINANCIAL ASSETS
1. Shares in affiliated
companies................ 127,653.04 0.00 127,653.04 24,440.85 0.00 24,440.85
2. Loans due from
affiliated companies..... 173,412.21 0.00 173,412.21 6,475.00 0.00 6,475.00
3. Shares in associated
companies 1,124,845.00 0.00 0.00 0.00 0.00 0.00
4. Investments............. 30,000.00 0.00 30,000.00 0.00 0.00 0.00
5. Security investments.... 0.00 0.00 0.00 0.00 0.00 0.00
6. Other loans............. 0.00 0.00 0.00 26,070.82 0.00 26,070.82
------------- --------- ------------- ------------- --------- -------------
1,455,910.25 0.00 331,065.25 56,986.67 0.00 56,986.67
------------- --------- ------------- ------------- --------- -------------
19,748,631.12 25,891.94 18,649,678.06 11,907,151.64 39,553.15 11,946,704.79
------------- --------- ------------- ------------- --------- -------------
<CAPTION>
DEPRECIATION
---------------------
WRITE-UPS TRANSFERS
DM DM
--------- ---------
<S> <C> <C>
INTANGIBLE ASSETS
1. Franchises, trademarks,
patent licences and
similar rights........... 0.00 325.00
2. Goodwill................ 0.00 0.00
3. Advances paid on
intangible assets........ 0.00 0.00
---- ---------
0.00 325.00
---- ---------
PROPERTY, PLANT AND
EQUIPMENT
1. Land, leasehold rights
and buildings, including
building on non-owned
land..................... 0.00 0.00
2. Technical equipment,
plant and machinery...... 0.00 0.00
---- ---------
3. Other equipment,
fixtures, fittings and
equipment................ 0.00 (1,337.25)
---- ---------
4. Advance payments........ 0.00 0.00
---- ---------
0.00 (1,337.25)
---- ---------
FINANCIAL ASSETS
1. Shares in affiliated
companies................ 0.00 0.00
2. Loans due from
affiliated companies..... 0.00 0.00
3. Shares in associated
companies 0.00 0.00
4. Investments............. 0.00 0.00
5. Security investments.... 0.00 0.00
6. Other loans............. 0.00 0.00
---- ---------
0.00 0.00
---- ---------
0.00 (1,012.25)
---- ---------
</TABLE>
E-52
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1995/96
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.1.1 ASSETS (CONTINUED)
<TABLE>
<CAPTION>
NET BOOK VALUE
-----------------------------
DISPOSALS 09-30-1996 09-30-1996 09-30-1995
DM DM DM DM
------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
INTANGIBLE ASSETS
1. Franchises, trademarks, patent licences and similar 19,643,319.06 723,108.94
rights.................................................... 180,935.80 6,669,502.93
2. Goodwill................................................. 0.00 913,128.84 12,783,680.00 0.00
3. Advances paid on intangible assets....................... 0.00 0.00 0.00 0.00
------------ ------------- ------------- -------------
180,935.80 7,582,631.77 32,426,999.06 723,108.95
------------ ------------- ------------- -------------
PROPERTY, PLANT AND EQUIPMENT
1. Land, leasehold rights and buildings, including building 8,202,729.70 0.00
on non-owned land......................................... 0.00 114,902.00
2. Technical equipment, plant and machinery................. 0.00 1,194,456.41 1,609,479.68 0.00
3. Other equipment, fixtures, fittings and equipment........ 3,032,602.34 18,101,790.36 12,477,857.71 12,073,738.29
4. Advance payments......................................... 0.00 0.00 739,628.83 0.00
------------ ------------- ------------- -------------
3,032,602.34 19,411,148.77 23,029,695.92 12,073,738.29
------------ ------------- ------------- -------------
FINANCIAL ASSETS
1. Shares in affiliated companies........................... 0.00 152,093.89 366,592.24 514,027.49
2. Loans due from affiliated companies...................... 0.00 179,887.21 271,530.00 278,005.00
3. Shares in associated companies........................... 0.00 1,124.845.00 1,002,131.88 976,192.50
4. Investments.............................................. 0.00 30,000.00 256,784.00 256,245.00
5. Security investments..................................... 0.00 0.00 34,572.00 0.00
6. Other loans.............................................. 0.00 26,070.82 496,200.85 543,726.16
------------ ------------- ------------- -------------
0.00 1,512,896.92 2,427,810.97 2,568,196.15
------------ ------------- ------------- -------------
3,213,538.14 28,506,677.46 57,884,505.95 15,365,043.39
------------ ------------- ------------- -------------
</TABLE>
2.1.2 INVENTORIES
Work in process is valued at production cost. Completed but uninvoiced
services are recorded as finished goods under "Inventories" and are valued at
net sale price.
Production cost includes all components that must be carried as assets
according to tax law.
In case the expected total production cost of work in process exceed total
expected net sales revenues adequate provisions for anticipated losses are
established. Furthermore provisions are established for follow-up services yet
to be performed in connection with finished or invoiced services.
Advance payments from customers are deducted from inventory as such and are
posted as liabilities to the extent they exceed inventory.
2.1.3 RECEIVABLES AND OTHER FIXED ASSETS
Trade accounts receivables are recorded at nominal value. For doubtful
accounts receivables and those carrying discernible risks, direct adjustments
are made; uncollectable debts are written off. General interest and credit risk
is covered by a lump-sum value adjustment of 2%.
Other receivables and other assets are recorded at the nominal amount or at
a lower value assigned at the closing date.
E-53
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.1.4 PROVISIONS
Provisions are created for as dictated by sound business judgement to cover
uncertain liabilities anticipated losses related to incomplete contracts, and
deferred maintenance.
2.1.5 PAYABLES
Payables are recorded at the amount repayable.
2.2 CONSOLIDATION METHODS
2.2.1 CAPITAL CONSOLIDATION
Capital consolidation is performed by the book value method (Section 301
Para. 1 Sentence 2 No. 1 of the Commercial Code). According to this method,
participating interests that must be consolidated are offset against their
allotted share of the net worth of the subsidiaries. This net worth represents
the book value at date of acquisition of the assets, debts, accrued and deferred
items and special items to be reported on in the consolidated financial
statements.
Consolidation surpluses from capital consolidation at the date of
acquisition of the participating interests are offset against reserves (in the
year under review: TDM 720; previous year: TDM 1,540)--possibly after allocation
to hidden reserves in the assets of the acquired undertaking--or are allocated
to goodwill and amortized over the 15 years following the year of acquisition of
the interest (amortization during the year under review: TDM 913; previous year:
TDM 68).
2.2.2 EQUITY CONSOLIDATION
The associated companies
- MedVantage GmbH Integriertes Datenmanagement im Healthcare Markt,
Frankfurt
- GPI Gesellschaft fur Pharma-Informationssysteme mbH, Frankfurt
- P & P Software und Consulting GmbH, Bad Homburg
- L + H Marketing Services GmbH, Nurnberg
were included in the consolidated financial statements by the equity/book value
method.
For reasons of materiality, the other associated companies continued to be
carried at the book values recorded in the stockholder's individual financial
statements.
2.2.3 PRO-RATA CONSOLIDATION
The joint ventures
- Vector GmbH Automobilmarktforschung, Munich
- IMePa Institut fur Medizin- und Patientenforschung GmbH, Munich
E-54
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
2. BASIC PRINCIPLES OF PREPARATION OF BALANCE SHEET AND VALUATION (CONTINUED)
2.2.3 PRO-RATA CONSOLIDATION
- I + G Infratest and GFK Medical Research International Inc., Rhode Island,
USA
- Infratest Gesundheitsforschung (Suisse) GmbH, Basel, Suisse
- I + G Nordic Medical Research A/S, Kopenhagen, Danmark
- I + G France Health and Pharmaceutical Market Research, Rueil Malmaison,
France
- I + G Gesundheits- und Pharmamarkt-Forschung GmbH & CoKG, Nurnberg
- I + G Pharmamarkt-Forschung Verwaltungs-GmbH, Berlin
- Infratest + GFK Gesundheitsforschung GmbH & CoKG, Berlin
- Infratest + GFK Gesundheitsforschung Verwaltungs-GmbH, Berlin
- ZEG Zentrum fur Epidemiologie und Gesundheitsforschung GmbH, Berlin
- GPI Kommunikationsforschung Gesellschaft fur Pharma- Informationssysteme
mbH, Nurnberg
- Infratest Epidemiologie und Gesundheitsforschung GmbH & Co., Munich
- Infratest Epidemiologie und Gesundheitsforschung Verwaltungs-GmbH, Munich
- EFB Epidemiologische Forschung GmbH, Berlin
were included in the consolidated financial statements on a pro-rata basis,
according to the percentage of the interest in the firm.
2.2.4 ELIMINATION OF INTER-COMPANY PROFITS
Assets to be included in the consolidated financial statements and deriving
wholly or in part from transactions among the companies included in the
consolidated financial statements are reported on the consolidated balance sheet
at acquisition or production cost of the group.
3. BASIS OF FOREIGN CURRENCY TRANSLATION
3.1 TRANSLATION OF INDIVIDUAL FINANCIAL-STATEMENT ITEMS STATED IN FOREIGN
CURRENCY
For annual financial statements containing items based on sums that are
or originally were stated in foreign currency, the conversion to German
marks is performed at the rate in effect at the transaction date.
Balance-sheet items are valued at the exchange rate in effect on the closing
date, no exchange gains being realized.
E-55
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
3. BASIS OF FOREIGN CURRENCY TRANSLATION (CONTINUED)
3.2 TRANSLATION OF FINANCIAL STATEMENTS IN FOREIGN CURRENCIES
The translation of financial statements recorded in foreign currencies was
performed by the current rate method: balance-sheet items were translated at the
rate in effect on the closing date of September 30, 1996, and income-statement
items were translated at the average rate for the fiscal year 1995/96.
Exchange-rate differences resulting from the translation of net worth at
different current rates and differences resulting from the translation of
balance-sheet items at current rates and income statement items at average rates
are recognized separately as a equity item on the balance sheet.
4. NOTES TO CONSOLIDATED BALANCE SHEET ITEMS
4.1 ITEMS OF ACCRUAL AND DEFERRAL FOR DEFERRED TAXES
The deferred tax asset relates to a provision that was established on
consolidation level for potential risks of the Italian subsidiary.
4.2 OTHER PROVISIONS AND ACCRUED LIABILITIES
"Other provisions and accrued liabilities" basically recognizes provisions
for
Profit-sharing
Follow-up services
Unpaid invoices
Restructuring
Vacations and overtime
Statuary social security benefits (Italy)
Year-end costs
Employee anniversaries.
5. OTHER MANDATORY INFORMATION
5.1 REMAINING TERM
The remaining term on receivables is less than one year. The remaining terms
on payables is less than one year for TDM 75,252 and between one and five years
for TDM 5,840 (other liabilities).
5.2 COLLATERALIZATION OF ACCOUNTS PAYABLE
Payables are not collateralized.
E-56
<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
5. OTHER MANDATORY INFORMATION (CONTINUED)
5.3 ANALYSIS OF SALES REVENUES
Sales revenues--broken down according to country of realization--are
distributed as follows:
<TABLE>
<CAPTION>
1995/96
TDM
--------
<S> <C>
Domestic.................................................... 140,573
Foreign, Europe............................................. 92,202
Foreign, other.............................................. 9,136
-------
241,911
=======
</TABLE>
5.4 OTHER FINANCIAL OBLIGATIONS
Other financial obligations total TDM 36,319.
5.5 EMPLOYEES
The average number of employees in the Group--that is, in the fully
consolidated companies--is distributed as follows (itemized by country):
<TABLE>
<CAPTION>
1995/96
--------
<S> <C>
Germany..................................................... 413
France...................................................... 71
Sweden...................................................... 62
England..................................................... 61
Italy....................................................... 60
Holland..................................................... 47
---
714
===
</TABLE>
The average number of employees of companies included in the consolidated
financial statements on a pro-rata basis only is distributed as follows:
<TABLE>
<CAPTION>
1995/96
--------
<S> <C>
Germany..................................................... 102
Switzerland................................................. 11
France...................................................... 4
U.S......................................................... 4
Denmark..................................................... 1
---
122
===
</TABLE>
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<PAGE>
INFRATEST BURKE AKTIENGESELLSCHAFT HOLDING
MUNICH
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOR THE FISCAL YEAR 1996/97
5. OTHER MANDATORY INFORMATION (CONTINUED)
5.6 REMUNERATION OF OFFICERS
Remuneration paid to the Board of Directors of the parent company, I.B. AG
Holding, during the fiscal year 1995/96 totaled TDM 1,877.
Total remuneration for the Supervisory Board totaled TDM 75 for the fiscal
year 1995/96.
Munich, January 1997
The Board of Directors
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