-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LOvaLhLr0MnLb2LzhDCOsfQJFLQXmfEktle3F5PE5LZeNJtQrHjWDqmugX08A2YN KJLLRi8v5Z3097VUi4bibw== 0000950142-99-000247.txt : 19990402 0000950142-99-000247.hdr.sgml : 19990402 ACCESSION NUMBER: 0000950142-99-000247 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19981231 FILED AS OF DATE: 19990331 FILER: COMPANY DATA: COMPANY CONFORMED NAME: NFO WORLDWIDE INC CENTRAL INDEX KEY: 0000897940 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-ENGINEERING, ACCOUNTING, RESEARCH, MANAGEMENT [8700] IRS NUMBER: 061327424 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-13707 FILM NUMBER: 99580898 BUSINESS ADDRESS: STREET 1: 2 PICKWICK PLAZA STREET 2: STE 400 CITY: GREENWICH STATE: CT ZIP: 06830 BUSINESS PHONE: 2036298888 MAIL ADDRESS: STREET 1: TWO PICKWICK PLAZA CITY: GREENWICH STATE: CT ZIP: 06830 10-K 1 FORM 10K UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OF 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM _________TO _________ COMMISSION FILE NUMBER: 0 - 21460 NFO WORLDWIDE, INC. ------------------- (Exact name of registrant as specified in its charter) DELAWARE 06-1327424 -------- ---------- (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 2 PICKWICK PLAZA, GREENWICH, CT. 06830 - -------------------------------- ----- (Address of principle executive offices) (Zip Code) (203) 629 - 8888 ---------------- (Registrant's telephone number, including area code) COMMON STOCK, PAR VALUE $.01 PER SHARE -------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by checkmark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K. X The aggregate market value of the voting stock held by non-affiliates of the registrant as of March 26, 1999, was approximately $160,431,671. As of March 26, 1999, there were 21,435,826 shares of the registrant's Common Stock outstanding. DOCUMENT INCORPORATED BY REFERENCE Selected portions of NFO Worldwide, Inc.'s 1999 Proxy Statement are incorporated by reference into Part III of this report on Form 10-K. PART I SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS As certain of the statements made in the Form 10-K are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995), they involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, clients' timing of new product introductions and reformulations, clients' marketing budgets, industry and economic conditions, changes in management or ownership of a client, the effect of the Company's competition on client purchasing decisions, the strategic decisions of the Company's management team, the extent to which the Company is successful in developing and marketing its interactive marketing research techniques, the effect of foreign exchange rate fluctuations, and other factors referenced in this Form 10-K. In addition, the success of the Company's worldwide expansion efforts is dependent in part upon the successful application of NFO's methodologies to different business and consumer environments. ITEM 1. BUSINESS ORGANIZATION NFO Worldwide, Inc., together with its subsidiaries (the "Company" or "NFO"), is a leading provider of research-based marketing information and counsel to the worldwide business community, including over 3,000 clients globally. The Company combines in-depth knowledge of key market sectors - consumer packaged goods and foods, healthcare, financial services, travel and leisure, information technology, automotive and business-to-business - with innovative data collection methodologies and value added products. Key products and services include continuous brand tracking, online research, consumer panels, and multi-country research, as well as market evaluation, product development, customer satisfaction, pricing, distribution and advertising effectiveness. Through its proprietary pre-recruited consumer panel (the "NFO Panel" or the "Panel") and other specialized databases, NFO offers access to over 600,000 North American households (over 1.5 million people) and to over 100,000 European households. The Company offers its clients a wide variety of marketing research services that identify and measure consumer beliefs, attitudes and behavior regarding specific products and services. The Company believes that's its products and services enable clients to develop better products, build more powerful brands, and design and implement more effective marketing and advertising strategies. The Company provides its services in 31 countries and has 12,600 full and part-time employees. The Company provides its marketing information services, databases and marketing research services to a diverse group of clients, including 59 of the largest 100 companies of the FORTUNE 500 list, 23 of the top 25 U.S. bank holding companies, and 37 of the world's 50 largest pharmaceutical firms. The Company also conducts the Consumer Confidence Survey for the Conference Board that is recognized as a leading economic indicator by the U.S. Department of Commerce. 2 The Company, through its largest subsidiary NFO Research, Inc. ("NFOR"), pioneered panel research over 50 years ago. The size and diversity of the NFO Panel allows for specialized research targeting specific ethnic and demographic segments in addition to routine types of marketing studies. The integrity of the Panel is maintained through the expertise of a highly trained and knowledgeable staff, state-of-the-art database systems, and an unwavering focus on developing a strong rapport with Panel members. The Company believes that the size and quality of the NFO Panel, its expertise in the custom design and execution of marketing research, its experience in panel and information management and its systems and processing capabilities give it a competitive advantage over other marketing and consumer information services firms. The Company also believes that these advantages enable it to identify various targeted consumer groups and to measure their responses to or use of particular products and services generally on a more timely and cost-effective basis than firms using non-panel research methods. In September 1997, the Company changed its name from NFO Research, Inc. to NFO Worldwide, Inc., reflecting its rapidly expanding international presence, as well as its growing capabilities and commitment to meeting its clients' requirements with world-class quality, effectiveness, speed and efficiency. The Company was named one of the 200 Best Small companies in America by Forbes magazine in 1996 and 1997 and has since outgrown the criteria for the award. Recently, the Company was named by Inside Research magazine as the fastest growing marketing research firm in the world for the past five years. Furthermore, as evidence of its dynamic growth strategy and desire for heightened visibility in worldwide markets, in December 1997 the Company's common stock was listed on the New York Stock Exchange. Since going public in 1993, the Company's stock had been traded on the NASDAQ. ACQUISITIONS (1998). This past year was a period of unprecedented growth through acquisitions at NFO. Most significant was the November 1998 acquisition of Infratest Burke Aktiengesellschaft Holding ("Infratest Burke"). Founded in 1947, Infratest Burke is headquartered in Munich, Germany, and ranks as one of the top four custom marketing research firms in Europe with 35 offices in 15 countries. The combination of NFO and Infratest Burke created the sixth largest marketing research firm in the world, and one of the top three custom marketing research companies globally. NFO was already the largest custom marketing research firm in North America. The Company completed two acquisitions in October 1998, Donovan Research Pty. Ltd. ("Donovan") and City Research Group Plc ("City Research"). Donovan, founded in 1974 and headquartered in Perth, Australia, is a full service custom research agency with a leading position in fast-moving consumer goods, public policy, tourism, customer satisfaction and continuous tracking research. In addition to its own branded products, AdTest and Packtest, Donovan is also the exclusive regional licensee of MarketMind(TM), a global brand tracking system acquired by NFO in March 1998. City Research, founded in 1978 and headquartered in London, England, is a leading UK marketing research firm specializing in financial services. The company provides syndicated products customized for commercial banking clients, including comprehensive market share data and information relating to customer needs, customer satisfaction, and customer retention. 3 The Company acquired Stochastic International Pty. Ltd. ("Stochastic") in August 1998. Stochastic is the developer of the Stochastic Reaction Monitor continuous brand tracking system, which provides guidance on brand positioning to more than 60 companies in 33 countries. Stochastic was founded in 1981 and is headquartered in London, England. The Company completed three separate acquisitions in the spring of 1998, CF Group, Inc. ("CF") in April and MarketMind Technologies ("MarketMind") and Ross-Cooper-Lund ("RCL") in March. Founded in 1932, CF is headquartered in Toronto and has client service offices in Montreal, Ottawa and Vancouver. CF operates three divisions within Canada - Canadian Facts, the largest custom marketing research organization in Canada, Applied Research Consultants ("ARC"), and Burke International Research - which provide marketing, social and business research services across a variety of industries. CF's data collection capabilities include the largest personal (in-home) interviewing force in Canada, the largest CATI (computer-assisted telephone interviewing) system throughout 9 Canadian cities, and extensive mall interviewing facilities. Additionally, CF maintains a consumer access panel similar to NFOR's, which allows the Company to offer its clients seamless cross-border panel-based research. MarketMind, founded in 1987 with offices in Teaneck, New Jersey, and Melbourne, Australia, owns and licenses the MarketMind(TM) system, which uses proprietary software that combines a set of key diagnostic measures together with the integration, interactive analysis and display of multiple streams of longitudinal data. RCL is a rapidly growing research-based consulting firm that conducts large-scale studies that help clients to diagnose and monitor brand communications and to optimize media budgets. RCL is located in Teaneck, New Jersey, and is the exclusive licensee of the MarketMind(TM) system in the U.S. ACQUISITIONS (1997). The Company aggressively pursued its growth-via-acquisition strategy in 1997 with the December acquisition of New Zealand-based CM Research Group ("CM Research"), the leading provider of custom marketing research in that country and one of the largest marketing research organizations in Australia. CM Research has 5 offices and 5 separate operating companies, and conducts studies for a diversified list of blue chip clients. CM Research became part of MBL (defined below) for operational purposes, making the latter one of only three marketing research firms in the world with full coverage of the Australasia region. The Company took significant steps to expand its presence overseas when, in July 1997, it acquired The MBL Group Plc ("MBL"), a leading international marketing research firm. MBL has 19 companies and 27 offices in 17 countries throughout the world, including the UK, the Middle East, Asia, Mainland China and Southeast Asia. Within the group, MBL has specialists in ad hoc quantitative research, qualitative research, telephone research, and executive interviewing. MBL also has specialists in consumer, social, industrial, and business-to-business research and expertise in packaged goods, automotive, pharmaceutical, financial, airline and travel industries. MBL's services include new product development assistance, corporate image evaluation, employee and customer satisfaction research, total quality management studies, brand-development monitoring, and advertising development and tracking. The Company expanded its presence in the financial services industry through the May 1997 acquisition of Access Research ("Access") by Spectrem. Access was 4 founded in 1987 and has built a national reputation as a leading source of quantitative and qualitative research, consulting and communications services addressing pension sales, operations and marketing issues, especially in the 401(k) market. The combined resources of Spectrem and Access allow clients to benefit from the most extensive and accurate research on plan sponsors, plan participants and performance benchmarks, along with expert advice on how to use that information to make successful decisions. In April, the Company acquired Prognostics, one of the leading providers of survey-based quantitative customer satisfaction research to information technology companies. Prognostics is based on Palo Alto, California, with additional offices in Boston and London, and an affiliate relationship in Tokyo. Through its proprietary software, advanced survey methodology and in-depth industry knowledge, Prognostics offers the most complete range of services in the marketplace. Information technology companies, having begun to shift from an internal, engineering-based focus to an external, market-driven philosophy, utilize Prognostics' services to assess their strengths, vulnerabilities and competitive opportunities. The end result for the client is improved customer retention rates, better-quality decisions and more efficient use of resources. ACQUISITIONS (PRE-1997). In 1994, the Company acquired Payment Systems, Inc. ("PSI"), a Tampa, Florida-based provider of syndicated research products to the financial services industry. PSI has over 100 clients in such financial service areas as retail, corporate and private banking, insurance, mutual funds, and credit cards. PSI is also very active in the international market, with its London office surveying households in nearly a dozen European countries to determine consumer attitudes toward the usage of debit cards and other financial products. Additionally, PSI conducts research in Africa, the Middle East, the Asia-Pacific region, and in six Latin American countries. In 1996, as part of its strategy to diversify into the investment industry and insurance sectors, PSI acquired Spectrem, which is headquartered in San Francisco and has offices in New York, Los Angeles, Chicago, and Philadelphia. Spectrem began operations in 1990 and has grown into a premiere provider of consulting, mergers and acquisition advice and customized information products to companies in the rapidly expanding investment services industry. In response to the competitive environment within the healthcare industry and the resulting opportunities afforded to providers of marketing information, the Company acquired Migliara/Kaplan Associates ("M/K") and its affiliate, Chesapeake Surveys Inc. ("CSI"), in 1996. M/K, with offices in Baltimore and Princeton, is the nation's largest custom market research firm serving the pharmaceutical industry. CSI provides data collection and survey services. The studies conducted by M/K and CSI involve not only doctors but other third parties, which compliments the NFOR HealthMed division's focus on the consumer. M/K's clients now gain a multi-faceted perspective on all of the latest issues affecting the healthcare and pharmaceutical industry. Another rapidly changing industry is travel and tourism, which the Company serves through its Plog Research Inc. ("Plog") subsidiary. Acquired in 1996, Plog is based in Los Angeles and is a leading provider of syndicated research to airlines, hotels, cruise lines and rental car companies. Plog has also conducted both custom and large-scale multi-sponsored studies for major travel and leisure industries. 5 In 1995, the Company signed a joint venture agreement with IPSOS, S.A. ("IPSOS"), a major European marketing research firm, and LT Participations ("LT"), an IPSOS affiliate, to launch access panel activities in Europe. Under the terms of the agreement, NFO, IPSOS and LT have agreed to launch joint venture companies, initially in five western European countries. As part of the agreement, NFO purchased a comparable portion of IPSOS' existing access panel businesses in Germany and France during 1996, and operations subsequently began in the UK and Italy, also. The joint ventures' international subsidiaries include a combined panel of nearly 100,000 households in Germany, France, the UK and Italy. NFO Worldwide is committed to providing its clients with increasingly innovative, results-oriented solutions to their information needs. This is why the Company has changed so dramatically over the years and will continue to do so in the future as it strives to become the undisputed global leader in the marketing information business. BUSINESS STRATEGY The Company's goal is to become the worldwide leader in custom marketing research. In order to accomplish this mission, NFO is aggressively pursuing a four-pronged business development strategy. BROADEN AND EXPAND CORE BUSINESS. The Company is combining and leveraging its outstanding array of branded products, innovative research techniques and people, with its global scale and vertical market sector expertise. The Company intends to develop new services and research concepts that will distinguish it from other marketing research companies while furthering its development as a marketing information services company that can deliver superior research products on a world-wide scale. The Company intends to use its panel methodology and expertise in custom and syndicated research to expand existing client relationships and to target new clients, particularly in the pharmaceutical, high tech, telecommunications and financial services industries in which the Company perceives a growing need for marketing research. The Company also is keenly interested in developing, purchasing or licensing additional, horizontal value-added products and services in areas such as ad testing, market modeling, and brand equity/continuous tracking. It is hoped that the Company can utilize its strong client relationships within its vertical industries to make these new products and services commercially successful. The Company has expanded beyond its core packaged goods business with new services while developing a strong presence in healthcare, information technologies/telecommunications, and financial services. TECHNOLOGICAL ADVANCEMENTS. The Company's strategy is to pioneer new advances in technology that will deliver its services more quickly, cost effectively, and creatively, including opportunities in the areas of on-line marketing research and data collection. The Company's focus on technological advancement is twofold: internal and external. On the internal side, the Company is constantly searching for ways to speed delivery of its services to its clients, and improve the quality of and/or reduce the cost of its services. In 1998, the Company deployed various technologies to speed the labor-intensive coding process for processing questionnaires. In addition, the Company is currently in the process of upgrading its questionnaire development to Microsoft Word for enhanced compatibility. The Company also uses a predictive dialer that eliminates the time telephone interviewers formerly spent dialing numbers and receiving busy signals, thus increasing productivity of the telephone center. Additionally, NFO data networks were upgraded to provide enhanced network connectivity between the Company's offices, and the Company utilizes a document imaging system that saves a significant amount of the time required to process questionnaire responses compared to conventional data entry. 6 NFO believes that the advent and growing penetration of on-line and Internet services will change the mix of media used to conduct marketing research and will grow the overall size of the marketing research industry. Industry growth and media shift will be driven by several factors: 1) high speed access to the needs, opinions and behaviors of consumers provided by interactive research will make marketing research in general a more applicable and necessary business function, especially in those industries where the demand for shorter product development cycles are most acute; 2) the increasing penetration of interactive communication technologies into U.S. and eventually international homes will make interactive-based research a preferred method for researching the general population; 3) the greater customer value provided by interactive-based research will increase interactive research at the expense of existing methodologies, and also cause the overall industry to grow. To address these issues, in 1996 the Company established the NFO Interactive division for the purpose of developing an interactive methodology for performing marketing research. During 1996, the Company developed NFO//net.source, the world's largest representative panel of interactive users, which currently numbers over 190,000 households and over 530,000 individuals. By utilizing e-mail and the World Wide Web to communicate with these panelists, the elapsed time of collecting research information is shortened. This Interactive Panel enables NFO to provide clients with access to a rich source of information about the interactive market and provides the ability to conduct interactive research with accuracy and speed. The Company has created proprietary software systems to facilitate the information collection process and shorten the cycle times required for marketing research. These systems include survey development tools, database management and integration systems, analytic software and Internet software reporting tools. Development has also included extensive process development and calibration studies to ensure NFO's interactive methods provide accurate results and are responsive to customer needs. The Company's interactive products include NFO//net.survey, custom quantitative research via the Internet, NFO//net.gauge, web-site evaluation services, NFO//net.focus, the conduct of focus groups using the Internet, NFO//net.concept, a new tool to speed time to market and save product development resources, and NFO//net.query, an interactive weekly e-mail survey. The products are marketed by the various NFO companies. In addition, the Company has forged separate strategic alliances with major players in the high tech industry, which will enable it to further develop and provide value-added products and services to its customer base. These alliances include Yahoo!, Jupiter Communications, and LiveWorld Productions. These relationships allow NFO to provide innovative research methodologies, including the conduct of virtual focus groups and the presentation of unique imaging capabilities. The Company expects to incorporate additional technologies to advance the effectiveness and applications of marketing research. The Company believes it is one of the leaders in the development of interactive and on-line interviewing in the marketing research industry. STRATEGIC ALLIANCES AND ACQUISITIONS. To enhance its development as a marketing information company, the Company will seek to develop alliances or to acquire companies which will establish or improve the Company's position in key market 7 segments or enhance its research functions or technologies. Examples of this strategy were the acquisitions of PSI and AMS in 1994, M/K, CSI, Plog, and Spectrem in 1996, and MBL, Access, CM Research and Prognostics in 1997. The Company continued this strategy in 1998 with the acquisitions of CF, MarketMind, RCL, Stochastic, Donovan, City Research, and in November 1998, the acquisition of Infratest Burke, one of the top four marketing research firms in Europe and the eighth largest marketing research company in the world based on revenues. The Company is keenly interested in increasing its presence in the high tech, telecommunications, healthcare and financial services sectors. In addition, the Company is interested in increasing its horizontal product and service capabilities in the areas of ad testing, market modeling, brand equity/continuous tracking, and interactive research. NFO's acquisitions have enabled the Company to evolve into a broader, more far-reaching marketing information business, providing its clients with increasingly innovative, results-oriented solutions to their information needs. The Company's criteria for acquisitions include 1) niche service companies that are #1 or #2 in their markets, 2) strong management with vertical market sector or horizontal product/service or geographic experience, 3) value added services or products and 4) a cultural fit with NFO. The Company has very rigorous acquisition criteria and personnel very experienced in the area of mergers and acquisitions. INTERNATIONAL MARKETS. The Company believes that international markets offer the Company potential opportunities to expand the services performed for its existing clients, many of which have substantial international operations, and to attract new clients. Total worldwide marketing research spending was estimated to be $12.1 billion in 1997 by the European Society for Opinion and Marketing Research (ESOMAR) supplemented with NFO estimates. Spending is estimated at $5.3 billion in Europe, $4.6 billion in the U.S. and Canada, $1.8 billion in Australasia and the Middle East, and $.4 billion elsewhere. In the aggregate, marketing research spending outside North America represented $7.5 billion, or nearly 62%, of worldwide spending. To date, custom panel-based research has not been widely used outside of the U.S. The Company believes that international markets offer a source of future growth for its financial services, pharmaceutical, high tech, telecommunications, travel and leisure products, as well as its packaged goods business. To capitalize on these and other perceived opportunities, the Company may seek to acquire or enter into additional joint ventures or similar arrangements with companies that have a presence in certain international markets in which the Company perceives an increasing demand for custom and syndicated marketing research. The Company's recent steps - including its acquisitions of MBL, CM Research, and CF - are indications of the potential the Company believes exists in the international marketing research arena. In addition, the Company's acquisition of Infratest Burke is expected to significantly enhance its capabilities on the international front. THE COMPANY'S SERVICES The Company has three operating segments (as defined pursuant to Statement of Financial Accounting Standards No. 131): North America, Europe and Australasia and the Middle East. Within each of these operating segments, the Company has 8 subsidiaries specializing in various market sectors and types of marketing research services including consumer packaged goods and foods, healthcare, financial services, travel and leisure, information technology, automotive, business-to-business, panel-based research, continuous tracking, and stakeholder management. During 1998, the Company's North American revenues were $189.6 million, or nearly 68%, of the Company's consolidated total of $280.1 million before elimination of intercompany revenues of $4.8 million. European revenues were $50.3 million, or 18% of the consolidated total, while revenues for Australasia and the Middle East represented the remaining 14%. The Company believes that it is the largest custom marketing research firm in North America, the third largest in Europe, and among the top five marketing research firms in Australasia and the Middle East. The Company believes it is the third largest custom marketing research firm in the world. A discussion of each of the operating segments and their larger subsidiaries and key industries follows. NORTH AMERICA CUSTOM RESEARCH AND SYNDICATED SERVICES - NFO RESEARCH. Approximately one-fourth of the Company's revenues are derived from custom panel research, and NFOR is the largest of the Company's North American subsidiaries. NFOR conducts its panel marketing research by surveying targeted segments of the NFO Panel primarily through mail questionnaires and telephone interviews and, most recently, interactive web-based surveys. The NFO Panel is designed to match the general U.S. population according to U.S. Bureau of Census statistics on several important geographic and demographic characteristics. NFOR develops and maintains extensive demographic profiles of these households including information with respect to size and composition of household, household income, age of household members and education and occupation of adult household members. NFO Panel members are located in substantially all of the more than 3,600 counties, 300 metropolitan statistical areas and 200 defined market areas in the continental U.S. NFOR believes that it can generally perform custom marketing research more efficiently and reliably than firms using random research methods. Through the pre-recruited NFO Panel, NFOR can identify on a timely and cost-effective basis a significant sample of consumer households who have the specific characteristics targeted, based on study design, and who are likely to respond to NFOR's surveys. In many cases, NFOR can easily select households with the desired targeted characteristics from data maintained by NFOR concerning the NFO Panel. In other cases involving the need to locate households with targeted characteristics not previously identified, NFOR can efficiently locate such households by screening a segment of its Panel members based on their profiles through a short interview or as part of NFOR's "MultiCard Survey" program. This capability is particularly efficient when seeking households or consumers with "low incidence" characteristics (characteristics exhibited by a relatively small segment of the general population). After locating a sufficient sample of targeted households, NFOR can quickly perform the marketing research project by surveying those sample households. The Company believes that in recent years there has been a trend among its clients to focus on smaller market segments for product or service introductions and marketing programs rather than on broad, mass markets and to focus on segmenting existing product lines to provide products developed for targeted consumers. The size of the NFO Panel and NFOR's extensive demographic and 9 geographical profiles of the NFO Panel households facilitate the ability of NFOR to assist its clients with such "target" or "micro-marketing." NFOR has capitalized on its expertise in locating and researching households within specific geographic areas, with specific user characteristics or with unusual profiles, such as individuals with certain ailments, by developing additional panels of consumer households having demographic or other characteristics of particular interest to clients. One such panel is the CHRONIC AILMENT PANEL, administered by NFOR's HealthMed division, which was created in 1992 to service the healthcare industry. The Chronic Ailment Panel was developed by screening NFO's Panel of individuals for over sixty ailments and chronic conditions, eight disabling conditions and users of several diagnostic testing kits. This specialized sub-panel enables NFOR's clients to quickly identify and obtain information regarding very low incidence conditions and ailments. NFOR has operations facilities located in Toledo and Greensboro. NFOR maintains large mailing and telecommunication facilities in its main operations center in Toledo for the purpose of distributing and administering questionnaires or other materials and packaging and distributing product samples or other materials to survey participants. NFOR maintains a sales and marketing staff in nine locations throughout the U.S. The research executives work primarily with the marketing research departments and product brand management departments of its clients. For many of its larger clients, NFOR emphasizes continuing research programs, including continuous screenings, customer satisfaction programs and annual tracking studies in which the consistency of study design and execution over time is important. The stability of the NFO Panel makes such ongoing studies possible, and often results in additional follow-up projects being commissioned by the client. The services provided by NFOR, as well as by some of the Company's other subsidiaries, are used to perform the following basic types of studies: ATTITUDE, USAGE AND AWARENESS TESTS, which measure the pre-disposition, awareness and usage of products or services among consumers; PRODUCT TESTS, which measure consumers' attitudes and purchasing and usage decisions regarding a new, existing or reformulated product, a sample of which is provided to the consumer by the client through NFOR; PURCHASE/OWNER PROFILES, which determine demographic or other characteristics of consumers owning or purchasing a particular product or service so that a client may improve the effectiveness of marketing or advertising programs by properly positioning them to appropriate consumers; PURCHASE OR CONSUMPTION DIARIES, in which panelists record in diaries their actual purchase or usage of particular products over an extended period to allow for evaluation of brand share and consumer shifts and trends; SCREENINGS, which are used to identify demographic characteristics or the use or purchase of or intention to purchase a product or service, particularly in connection with low-incidence characteristics and products; and CONCEPT TESTS, in which consumers are asked to give their reaction to a concept for a new product, service or advertising campaign before it is developed or introduced into the marketplace. NFOR has an arrangement with IPSOS-ASI, one of the country's leading advertising copy testing companies, that provides advertising concept tests for in-home viewing by NFO Panel members. NFOR utilizes its Screen Test product that provides a patented system by which a client's concept, product or advertising message may be presented in an in-home setting for test material that needs to be seen and heard by panelists rather than being described to them in writing or over the telephone. The Screen Test product is a self-erasing videotape that provides the security needed for handling marketing research of confidential materials. 10 The Company and BASES Worldwide ("BASES") jointly offer Volumetric Concept Screening by Mail ("VCSM") to clients. BASES is a well-respected marketing research company and a leader in simulated volume forecasting for new products and services. This service allows clients to evaluate early state product ideas and choose the most promising concepts. VCSM utilizes the NFO Panel and cost saving mail methodology together with BASES' Key Measures Database of over 5,000 cases for comparative analysis. This is the second joint service offering by the Company and BASES. The two companies also offer a cost saving approach to simulated test marketing, utilizing the NFO Panel and BASES' expertise in volumetric forecasting. HEALTHCARE - MIGLIARA/KAPLAN. M/K is the nation's largest custom full-service healthcare marketing research company with offices in Baltimore, Princeton, and London. M/K distinguishes itself from its competitors because of its unique ability to fuse leading-edge methodologies with decision-oriented business analyses and recommendations. M/K has completed over 3,400 custom studies for more than 150 pharmaceutical, biotechnology, diagnostics, medical devices and managed care companies since its founding in 1980. As a specialist in the area of new product development, M/K guides products from concept to commercialization to post-launch tracking. M/K's extensive expertise leads to shortened timetables for regulatory approval, product launch and return on investment. M/K's marketing research projects range from qualitative studies, such as one-on-one interviews and in-depth focus groups, to highly specialized and customized fully integrated studies using advanced multivariate methods. Many of its research techniques are exclusive and proprietary, giving M/K a true competitive advantage. M/K's strategic thinking directly impacts upon a product's marketing potential. Study objectives frequently include determining positioning strategies, identifying optimal price points, guiding clinical development, identifying target audiences, developing promotional messages, and tracking products post-launch. M/K is also a leader in multivariate methods, including conjoint analysis with market simulation, perceptual mapping, correspondence analysis, multidimensional scaling, psychographic/lifestyle segmentation analysis, and factor and cluster analysis. M/K takes pride in the fact that many of its original clients are still with the firm and have expanded their relationship over the years. Eighty percent of M/K's client base is comprised of repeat business. M/K has historically attracted clients from all corners of the healthcare industry, with management expertise in both diagnostics and pharmaceuticals, giving them firsthand knowledge of the issues surrounding brand management and the positioning of new technologies. FINANCIAL SERVICES - PSI GLOBAL. PSI offers a variety of syndicated programs that provide insight to the financial services industry, as well as propriety consulting services. The products cover a broad range of information utilized by banks and financial institutions on consumer/retail banking services, private banking and investment services, credit card services, distribution technology and corporate banking services. PSI has provided research on credit card usage in Europe since 1990. PSI has since expanded its coverage to bring the same marketing research and strategic business planning expertise to Asia and Latin America. 11 FINANCIAL SERVICES - SPECTREM. Spectrem provides niche consulting and acquisition and divestiture advisory services in the trust and investment products sectors. Founded in 1990, Spectrem has six U.S. offices: San Francisco, Los Angeles, New York, Chicago, Philadelphia and Tampa. Spectrem is a specialist in the business side of investment and trust services and its professionals have held top positions at leading banks, brokerage firms and investment management companies. FINANCIAL SERVICES - ACCESS RESEARCH. Access Research is a research-based financial services consulting firm specializing in the retirement market. Access Research has built a national reputation as a leading source of quantitative and qualitative research, consulting and communications services addressing pension sales, operations and marketing issues, especially in the 401(k) market. The company is located in Windsor, CT. FINANCIAL SERVICES - CITY RESEARCH. City Research, founded in 1978 and headquartered in London, England, is a leading UK marketing research firm specializing in the financial services sector. City Research's products are complimentary to PSI's, and City Research works in conjunction with PSI to sell to the financial services industry throughout the UK. The company provides syndicated products customized for commercial banking clients, including comprehensive market share data and information relating to customer needs, customer satisfaction, and customer retention. TECHNOLOGIES - PROGNOSTICS. Founded in 1981, Prognostics is a leading provider of survey-based quantitative customer satisfaction research to information technology companies worldwide. The Company is headquartered in Palo Alto, California, and has additional offices in Boston and London and has an affiliate relationship in Japan. Using its proprietary methodology (Loyalty Gap Analysis), Prognostics measures customer loyalty and quantifies the customer's intention to continue to purchase products from a particular supplier. By measuring what is important to customers and how satisfied they are with respect to specific attributes, the Prognostics methodology generates a quantitative figure - called the loyalty gap - which directly correlates to customer loyalty. Prognostics has developed a number of syndicated/ tracking survey products around this methodology, and also performs specific, ad hoc research. Prognostics works with over 250 clients worldwide. TECHNOLOGIES - NFO INTERACTIVE. In 1996, the Company established its NFO Interactive division for the purpose of developing an interactive methodology for performing marketing research. The Company has developed NFO//net.source, an interactive consumer panel of on-line households numbering over 190,000 households and over 530,000 individuals. With NFO//net.source, clients can segment the market for selected groups of interactive customers. And, with response rates in excess of 70% from NFO Interactive's pre-recruited on-line panel, clients are assured of accurate results without the non-response and self-selected bias often common with other interactive research methods. NFO Interactive offers several products: NFO//net.survey is custom quantitative research via the Internet using the NFO//net.source on-line panel with the significant advantage of speed. Results are often available in eight to ten days for Web-based surveys and as fast as three to five days for e-mail surveys. NFO//net.gauge delivers sophisticated, customized web-site analysis that goes beyond the surface and truly evaluates a client's web-site effectiveness. The product can trigger intelligent surveys to a random sample of visitors to the site, or alternatively can arrange to have the site evaluated by a specific target market using the NFO//net.source interactive panel. Using NFO//net.gauge, clients are able to address critical issues such as who visits their web-site, are they satisfied with it, and how does the site compare to that of the competition. 12 NFO//net.query is an interactive weekly e-mail survey providing responses from more than 2000 households. It's a short, multi-client survey fielding up to three questions each week with a very high response rate. Clients are able to share the costs to determine the incidence of specific criteria, pre-screen for on-line surveys or focus groups, test an idea, or get the answers to need-to-know questions. NFO//net.concept is a new tool to speed time to market and save product development resources. It is not meant to be a substitute for formal concept testing but rather it is a complimentary tool designed to help clients initially gauge the potential of new product and marketing concepts. Essentially, NFO//net.concept helps clients determine which potential ideas regarding products, line extensions, or promotions deserve the clients scarce resources. NFO//net.focus is the on-line equivalent to the conventional focus group, but with the significant advantages of no geographic boundaries and no travel costs. This product allows for 2-D, 3-D and soon live motion video for concept testing, package testing, and product development. The Company believes that there is significant commercial potential in providing comprehensive interactive survey systems that feature greater speed and household targeting than current methods and has introduced a number of new interactive products to the marketplace. In addition, interactive information collection has the advantage of low distribution and collection costs. TECHNOLOGIES - NFO AD:IMPACT. Formerly known as National Yellow Pages Monitor ("NYPM"), NFO Ad:Impact now augments the former company's global-leading Yellow Pages service offerings with several unique, Web-based audience measurement applications. Launched in 1987, NFO Ad:Impact is the leading provider of syndicated audience measurement to the $12 billion Yellow Pages industry. NFO Ad:Impact ratings usage information is gathered from over 80,000 respondents each year with results reported on a national level, across 535 major metropolitan markets, over 500 individual Yellow Pages directory areas and approximately 300 categories. NFO Ad:Impact also offers other syndicated and custom research services to the Yellow Pages industry, including Active Intermedia Measurement (AIM), Business Usage research and Web Site Survey studies. In 1998, NFO Ad:Impact added several syndicated Web-based audience measurement applications utilizing the NFO Interactive Panel to gather its local market online information. New analytical tools have been developed that will forecast for local media providers showing how consumers' use of traditional Yellow Pages and newspaper products will be affected by consumers' use of local online media. NFO Ad:Impact provides a broad array of unique services that will help local and national media players quantify the value of local advertising to local advertisers. For example, one of the company's products, NFO//consumer.choice, measures consumer awareness, usage of, and related actions taken (merchant contact and/or purchase) from online searches. It is the benchmark local Web audience measurement product, currently monitoring over 50 sites in each of 25 markets. The expanding base of clients of this service include Internet newspapers, Internet Yellow Pages, city guides, search engines, and vertical Web content providers like Cybermeals. 13 TECHNOLOGIES - INFOCOM. In 1996, NFO established the InfoCom division that is devoted to identifying, understanding and tracking business issues in the communications and information technology industries. InfoCom provides access for the communications and technologies industries to the NFO Panel members that have been identified as wireless or mobile phone users, computer owners by brand and operating system, interactive online subscribers and technologically advanced households. Clients can access these consumers and others efficiently for information to make better informed business decisions about the marketplace. CONTINUOUS BRAND TRACKING - MARKETMIND. MarketMind, founded in 1987 and located in Teaneck, New Jersey and Melbourne, Australia, owns and licenses the MarketMind(TM) system, which uses proprietary software that combines a set of key diagnostic measures together with the integration, interactive analysis, and display of multiple streams of longitudinal data. The MarketMind(TM) system is licensed in 20 countries supporting hundreds of brands. The system can be utilized for a number of purposes including: brand health monitoring, new product launches, line extensions, special promotions, price discount and premium tests, loyalty programs, public relations exercises, channel changes, brand repositioning, customer satisfaction measurement, corporate image studies, and marketing mix modeling. CONTINUOUS BRAND TRACKING - STOCHASTIC. Stochastic is the developer of the Stochastic Reaction Monitor continuous brand tracking system, which provides guidance on brand positioning to more than 60 companies in 33 countries. Stochastic was founded in 1981 and is headquartered in London. CONTINUOUS BRAND TRACKING - ROSS-COOPER-LUND. RCL is a rapidly growing brand-based marketing research firm headquartered in Teaneck, New Jersey. RCL conducts research that helps clients understand brand equity, advertising testing, product development and testing, and large-scale studies that help clients to diagnose and monitor brand communications and to optimize media budgets. RCL is the exclusive U.S. licensee of the MarketMind(TM) continuous information tracking system. TRAVEL AND LEISURE - PLOG RESEARCH. Plog offers a number of syndicated products to the travel and leisure industries. Plog's products provide information regarding the attitudes and purchasing behavior of airline users, cruise and car rental users, frequent flyer program members and hotel guests, including comprehensive information about the business and leisure travel habits of Americans. Another Plog syndicated product offers in-depth research on the psychology of the users of interactive media and provides insight to advertisers on when and how to use interactive media. Plog is located in Los Angeles and East Brunswick, New Jersey. CANADA - CF GROUP. Founded in 1932, CF is headquartered in Toronto and has client service offices in Montreal, Ottawa and Vancouver. CF operates three divisions within Canada - Canadian Facts, the largest custom marketing research organization in Canada, Applied Research Consultants ("ARC"), and Burke International Research - which provide marketing, social, and business research services across a variety of industries. CF's data collection capabilities include the largest personal (in-home) interviewing force in Canada, the largest 14 CATI (computer-assisted telephone interviewing) system with over 350 stations throughout 10 Canadian cities, and extensive mall interviewing facilities. CF serves its clients in a broad range of research categories including advertising, concept and product service evaluation, public policy and political research, business-to-business, and customer and employee satisfaction surveys. CF's Canadian access panel, Canadian Family Opinion, when used in combination with the NFO Panel enables clients to utilize the largest access panel in North America for seamless cross-border research. EUROPE INFRATEST BURKE - INTERNATIONAL CUSTOM AND SYNDICATED SERVICES. NFO acquired Infratest Burke in November 1998. Infratest Burke is a leading European marketing research firm founded in 1947 and headquarter in Munich, Germany, with 35 offices in 15 countries. Infratest Burke was ranked by Marketing News in 1997 as the 8th largest marketing research organization in the world. In 1998, the company served over 1,400 clients with 2,600 research and consultancy projects and conducted over 2.2 million interviews. Infratest Burke has performed over 35,000 research projects since 1980 and has enjoyed over an 80% customer loyalty rate from repeat clients. Infratest Burke has some of Europe's largest CATI (computer-assisted telephone interviewing) and CAPI (computer-assisted personal interviewing) systems, with over 700 and 900 stations, respectively. Infratest Burke is ISO 9001 certified in key locations such as Germany, Italy, Sweden and the UK. Infratest Burke's products and services include professional expertise and advanced technical resources in four major fields of activity: strategic and tactical marketing, public policies, customer retention and personnel development. The company conducts both quantitative and qualitative research for a wide range of client management projects and provides multi-client research regarding consumer business statistics. Other services include omnibus surveys, hall/mall tests, and retail analysis. Among its major offerings are AD-VISOR/A.C.E. (Advertising Campaign Evaluation), an on-air copy testing service; COSMOS, a concept, product, and pricing optimization model; PRICER, a pricing strategy analysis model; TRI:M, a customer retention model; and BASES, a simulated test market software package that allows consumer packaged goods marketers to predict the likely sales and success of new products before they are formally launched to consumers. Infratest Burke has been the exclusive European licensee of the BASES system for about 20 years. Infratest Burke provides a wide array of specially-designed marketing research studies and advisory services in selected key industry segments: CONSUMER GOODS AND DURABLES - For more than four decades, Infratest Burke has provided comprehensive marketing research services to global manufactures, marketers and retailers of consumer goods and durables, including those involved with food, soft drinks, diary products, toiletries, white goods, clothing/apparel, and sporting goods. Infratest Burke supports its clients in all aspects of their strategic and tactical brand marketing initiatives through the use of both individually designed ad hoc studies and unique standardized tools with an ultimate goal of determining the underlying consumer trends for their clients products. The company believes it has developed industry-leading marketing research tools and technologies in the area of sales forecasts and image research that benefit their clients in providing consistency and reliability of marketing data on a world-wide basis. 15 AUTOMOTIVE/TRANSPORTATION - For 25 years, Infratest Burke has conducted an ongoing public opinion survey for is automotive clients structured to determine and evaluate consumer attitudes on automotive-related products and services. The company also conducts comprehensive new car and used car buyer surveys, which attempt to uncover market patterns, buyer motivation, brand loyalty, and consumer satisfaction. The company has designed ground-breaking measuring tools specifically designed for transportation and traffic system analysis, including products that monitor the needs and value of various transport systems and products that assemble and interpret travel industry data to monitor the reasons and motivations for personal and business travel and tourism. INFORMATION TECHNOLOGY/TELECOMMUNICATIONS/MEDIA - Infratest Burke's clients in this industry include hardline and cellular phone operators, voice/data communication network providers, computer hardware manufacturers, software developers, mainframe/workstation designers, fax/copier manufacturers, and similar organizations. Products provided by the company are designed to provide timely strategic information relating to market segmentation and positioning, pricing policies, sales forecasts, new product launching analyses, advertising campaign evaluations, standardized "dummy tests", electronic measuring methods, and customer satisfaction and loyalty surveys. Infratest Burke has a long history in this industry, originally serving radio broadcasting clients with national audience measurement. Today, Infratest Burke provides specially designed research studies for many private and public radio and TV companies, print and electronic media providers, video/music industry participants, and advertising companies. HEALTHCARE/DRUGS - This industry in Europe is greatly affected by political decisions and public pressure to develop new products. Successfully bringing a new product to market depends increasingly on marketing research and marketing support. Infratest Burke's specially commissioned studies and analyses focus on providing clients strategic and timely data on the depth and breadth of potential market segments, forecasted sales and penetration levels, early warning studies, pricing and positioning models, customer needs and satisfaction studies, economic analysis, continuous tracking systems, and qualitative research projects. FINANCIAL SERVICES - This industry has shown considerable growth due to changes occurring in the industry, such as the pan-European currency unification and the increasing use of electronic banking and media. The company's products are designed to help clients across the complete marketing function, from pricing and demand research studies, to sales analyses, to communications and advertising research studies, in areas such as direct/electronic banking, discount brokerage services, direct insurance, and other financial services areas. The company developed its Financial Market Data Service ("FMDS") in Europe more than 25 years ago as a continuous structural analysis survey tool to gather and organize data within this sector. BJM/MARKETING BEHAVIOUR/MARKETING BLUEPRINT - INTERNATIONAL. These UK-based research firms were originally part of NFO's MBL Group and offer qualitative and quantitative ad hoc research with high standards of research design and creativity. Their clients cover a wide range of industries, including consumer goods, business-to-business, service providers, pharmaceutical, automotive, retail, and drinks. NFO's MBL Group UK companies are among the top ten marketing research firms in Europe, and conduct research projects in 30 countries. Operationally, these companies are now part of the European operating segment. 16 BJM is the exclusive UK licensee of the Stochastic Reaction Monitor. Use of this product provides clients, in essence, a continuous dialogue with their target consumers, covering what they perceive the brands to be communicating, as well as the impact of this on their beliefs about the brands and, where appropriate, their behavior. The measures provided are rich in diagnostics, allowing a greater understanding of the marketing process and indicating routes to improve the cost-effectiveness of marketing activity. EUROPEAN PANEL JOINT VENTURE. In 1995, the Company signed a joint venture agreement with IPSOS, S.A. ("IPSOS"), a European marketing research firm, and LT Participations ("LT"), an IPSOS affiliate, to launch joint venture companies, originally in five western European countries. As part of the agreement, NFO purchased a comparable portion of IPSOS' existing access panel businesses in Germany and France during 1996. Operations have also begun in the UK and Italy. The joint ventures' international subsidiaries are numerous and include a combined panel of nearly 100,000 households in Germany, France, the UK and Italy. AUSTRALASIA AND THE MIDDLE EAST MBL GROUP - INTERNATIONAL CUSTOM AND SYNDICATED SERVICES. MBL is a leading international marketing research firm with offices in 16 countries throughout Australasia and the Middle East. Founded in 1965, MBL provides strategic planning, marketing research, and research-based consulting, on a worldwide basis. Working through its own subsidiaries and affiliates in the Middle East, Asia, and Southeast Asia, MBL has successfully carried out assignments in some 100 countries around the world. MBL's orientation is towards value-added research - research which is oriented towards problem solving and interpretation of data, rather than simple data provision. The company provides research-based consultancy - answers to problems - not just answers to questions. Within the group, MBL has specialists in ad hoc quantitative research, qualitative research, telephone research, and executive interviewing. MBL has specialists in consumer, social, industrial, and business-to-business research and expertise in packaged goods, automotive, pharmaceutical, financial, airline and travel industries. MBL's services include new product development assistance, corporate image evaluation, employee and customer satisfaction research, total quality management studies, brand-development monitoring, and advertising development and tracking. MBL specializes in international/multi-national project coordination and operates the Stochastic Reaction Monitor brand-development franchise and the ADD+IMPACT advertising pre-testing system, the Visionary Shopper, a computer-based virtual reality shopping system, and the Idea Map, a computer-based product and communication optimization system. CM RESEARCH. CM Research, headquartered in Auckland, New Zealand, is the leading provider of custom marketing research in New Zealand and one of the larger marketing research organizations in Australia. With offices in five cities in both countries, CM Research provides a number of proprietary and self-developed brand services to a blue-chip client list. DONOVAN. Donovan, founded in 1974 and headquartered in Perth, Australia, is a full service custom research agency with a leading position in fast-moving consumer goods, public policy, tourism, customer satisfaction, and continuous 17 tracking research. In addition to its own branded products, AdTest and Packtest, Donovan is also the exclusive regional licensee of MarketMind(TM), the global brand tracking system acquired by NFO in March 1998. CLIENTS The Company is a leading provider of research-based marketing information and counsel to the worldwide business community. Including its subsidiaries, the Company conducts over 11,000 research projects annually for more than 3,000 clients in 31 countries. The Company's clients include 59 of the largest 100 companies on the FORTUNE 500 list, 23 of the top 25 U.S. bank holding companies, and 37 of the world's 50 largest pharmaceutical firms. The Company's enviable roster of clients is further characterized by the longevity of many of these relationships. A number of the Company's core business clients have had ongoing business relationships with the Company for between 30 and 50 years. The longevity of these relationships is enhanced by data comparability with information in the normative databases that the Company has helped its clients build over the years. The Company's data is also used by its clients beyond the research function. For example, some clients have incorporated the Company's data into their internal performance evaluation systems. The Company's client list includes over 3,000 companies. No single client represented more than 10% of its total revenues in 1998 or 1997. The Company's ten largest clients, which collectively represented approximately 21% of its total 1998 revenues, are as follows: oBristol Myers Squibb oPfizer, Inc. oBritish American Tabacco oThe Procter & Gamble Company oCitibank oSearle oCoca-Cola oTelecom NZ Ltd. oGilette oUnilever NFO also has provided the Consumer Confidence Survey among nationally representative households each month for the past 30 years to the Conference Board, a worldwide non-profit business information organization with many of America's largest corporations as members. The Conference Board provides research information to aid businesses in management practices and policy. The U.S. Department of Commerce has recognized the Conference Board's Consumer Confidence Survey performed by NFO as a leading economic indicator since August 1990. Consumer confidence surveys are used by government and private enterprises as predictors of business cycles. THE MARKETING RESEARCH INDUSTRY Revenues for the worldwide marketing research industry reached $12.1 billion in 1997 according to the latest data from ESOMAR and supplemented by company estimates. Spending is estimated at $5.3 billion in Europe (44%), $4.6 billion in the U.S. and Canada (38%), $1.8 billion in Australasia and the Middle East (15%) and $.4 billion elsewhere (3%). In the aggregate, marketing research spending outside the U.S. represented $7.5 billion, or nearly 62%, of worldwide spending. To date, custom panel-based research has not been widely used outside of the U.S. 18 The $4.6 billion domestic marketing research industry is comprised of numerous marketing, advertising and public opinion research organizations that measure consumer attitudes and behavior. The industry is made up of two segments: (i) SYNDICATED research, which generally provides historical information regarding past consumer purchasing decisions (such as aggregate sales or market share within product categories) and is generally made available to the marketplace on a non-exclusive basis, and (ii) CUSTOM OR AD HOC research, which is performed to the specifications of a particular client. Custom research involves the measurement of consumer beliefs, attitudes and behavior toward particular products, services, concepts or advertising programs. Custom research is generally conducted by obtaining information from consumers through questionnaires or interviews. Because information is generally solicited directly from consumers, custom research provides insights into consumers' perceptions of products or services and the patterns of purchase and usage of such products and services by consumers with particular demographic or other profiles. Many clients use custom research to interpret the market share or sales information provided by syndicated research. In addition, by testing a proposed product or advertising campaign on a sample of consumers to whom the product or campaign will be directed, a client can obtain information about the targeted consumers' likely response to the product or campaign before incurring the costs associated with the introduction of the product or campaign to the marketplace. The American Marketing Association estimates that there are over three thousand firms performing custom research services in the U.S., with no firm holding a dominant share of that market. NFO believes it is the largest U.S.-based custom marketing research firm. Custom research may be conducted by panel surveys, unsolicited telephone interviewing, door-to-door personal interviewing and central location interviewing in places such as stores and shopping malls. The largest segment is random telephone interviewing. The Company estimates that panel surveys account for 12% of the segment and involve interviewing members of consumer households who have previously agreed to participate in the research firm's surveys and who have provided demographic and other data about themselves. The Company is currently the largest custom PANEL research firm within the industry, the sixth largest research organization in the world, and one of the top three CUSTOM marketing research firms worldwide. NFO is niche oriented and attempts to exploit specific areas of marketing research where market growth rates are high, margin potential is good, and barriers to entry/exit and competition are limited. Within the U.S., the Company believes it is ranked number one in the following niche markets: custom healthcare research; syndicated financial services research; panel-based packaged goods and services research; high tech customer satisfaction research; and travel/leisure research. The U.S. market is enjoying healthy growth and is becoming more international in scope. According to the June 1998 issue of Marketing News, more than 39% of the combined revenues for the top 50 U.S. marketing research firms come from international activities. This revenue is generated through a combination of subsidiaries, joint ventures, sales offices, and subcontracting of fieldwork to non-U.S. firms. If the trend toward internationalization continues, Marketing News estimates the Top 50 U.S. research firms together will generate 50% of their revenues outside the U.S. by the year 2000. 19 The custom marketing research industry is very competitive and highly fragmented, with participants ranging from relatively small organizations to large, multinational companies with substantial resources. NFO is also subject to competition from marketing and research departments of various companies, advertising agencies, and business-consulting firms. The Company believes that its principal competitive advantages are in the quality of its design of a marketing research product; the ability to design, perform and report on a research project in a short period of time; its price; consistency of service; the NFO Panel; and the global coverage that enables the delivery of consistent research in a multi-country study environment. The Company believes that it competes successfully on projects involving low-incidence or hard-to-find consumers. NFO tends to be less competitive in connection with projects involving simple study design or high incidence characteristics, particularly those projects that can be performed by telephone interviews. COMPETITION The Company's primary worldwide competitors are as follows: Taylor Nelson Sofres, based in London; The Kantar Group Ltd., based in London, UK; Gfk AG of Nuremberg, Germany; IPSOS Group, S.A. of Paris, France; NPD Group of Port Washington, NY; Market Facts, Inc. of Arlington Heights, IL; M/A/R/C Inc. of Irving, TX; Audits & Surveys Worldwide, Inc. of New York, NY; and Opinion Research Corp. of Princeton, NJ. In terms of total research revenues, in 1997 NFO was ranked fifth ($190 million) in the "Top 50 U.S. Research Organizations" list published by MARKETING NEWS in June 1998, up from sixth in the prior year. In the "Top 25 Global Research Organizations" list published by MARKETING NEWS, NFO was ranked ninth overall, up from sixteenth in the prior year. The top three U.S. research companies were ACNielsen Corp., Cognizant Corp. and Information Resources Inc., all of whom primarily provide syndicated marketing information. With the acquisition of Infratest Burke in November 1998, NFO believes it has become the sixth largest marketing research firm in the world and the third largest custom marketing research company worldwide based on revenues. The Company believes it is the largest custom marketing research firm in North America, the third largest in Europe and among the top five in Australasia and the Middle East. TRADEMARKS, PATENTS, SERVICE MARKS AND PROPRIETARY SOFTWARE The Company owns several federally registered trademarks and service marks, the most important of which are NFO, NFO Worldwide, NFO Research, National Family Opinion, Payment Systems, PSI, Migliara/Kaplan, Screen Test, MarketMind and MultiCard Survey. NFO uses the name "Carol Adams," the pen name of the founder's wife who originally supervised contacts with NFO's panel households, in written and oral communications with panel members and recruits, to create a personal relationship between NFO and its panel members. Certain of the Company's non-domestic subsidiaries also maintain various trademarks and patents in the countries in which they operate. NFO considers these trademarks and service marks to be material to the business of the Company. The Company vigorously defends its trademarks and service marks against infringement and other unauthorized use. The Company protects its proprietary software and information systems by limiting access to key personnel through the use of password systems. 20 EMPLOYEES As of December 31, 1998, the Company had 12,600 employees (3,100 full-time and 9,500 part-time). Approximately 1,300 of the 12,600 reside in the U.S. The Company emphasizes the comprehensive training of its personnel. In addition to training in an employee's primary area of responsibility, the Company trains its staff to perform tasks among the different departments to ensure that trained backup staff is available in areas that have periodic short-term increased demand. The Company believes that it has historically experienced low turnover of staff in both the professional and the clerical areas relative to the marketing research industry generally. Long tenure helps to reduce the costs of re-hiring and re-training and establishes and builds upon experience that can be applied to all future work. None of the Company's domestic employees are subject to a collective bargaining agreement. CF has two separate unions covering certain of its employees in Canada; the United Steelworkers of America covers 137 employees, and Le Syndicat des Travailleuses et Travailleurs covers 45 employees. The Company has not experienced any work stoppages and believes its relations with its employees are good. OTHER MATTERS See ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS for a discussion of the Year 2000 and Euro conversion issues and Market Risk Management. ITEM 2. PROPERTIES The Company's primary U.S. operations facility, including data entry, computer, mailing and product storage and handling facilities, a regional sales office and the largest of the Company's three telephone interviewing facilities is located in an approximately 148,000 square foot complex located on approximately 77 acres owned by the Company in Toledo, Ohio. The facility was built in 1975 and first expanded in 1982. The Company recently completed an expansion project which added approximately 50,000 square feet of office space to the facility and renovated the existing space. 21 The Company's remaining facilities are all leased. The following is a summary of the Company's office locations throughout the world:
COMPANY LOCATIONS COMPANY LOCATIONS EXECUTIVE OFFICES Greenwich, CT INFRATEST BURKE Munich, Germany Berlin, Germany NFO RESEARCH Toledo, OH Bonn, GermanyAtlanta, GA Frankfurt, Germany Chicago, IL Hamburg, Germany Cincinnati, OH Wetzler, Germany Greensboro, CT Edinburgh, Scotland Greenwich, CT London, England Minneapolis, MN Paris, France St. Louis, MO Bologna, Italy San Francisco, CA Florence, Italy Milan, Italy MIGLIARA/KAPLAN Baltimore, MD Gothenburg, Sweden CHESAPEAKE SURVEYS Princeton, NJ Stockholm, Sweden London, England Amsterdam, Netherlands Istanbul, Turkey PSI/SPECTREM/ACCESS Tampa, FL Copenhagen, Denmark New York, NY Madrid, Spain San Francisco, CA Cincinnati, OH Los Angeles, CA Philadelphia, PA MBL GROUP London, England Chicago, IL Dubai, United Arab Emirates Hartford, CT Riyadh, Saudi Arabia London, England Hyderabad, India Singapore Colombo, Sri Lanka Hong Kong CITY RESEARCH London, England Taipei, Taiwan Shanghai, China PROGNOSTICS Palo Alto, CA Manila, Philippines Boston, MA Bangkok, Thailand London, England Ho Chi Minh City, Vietnam Singapore NFO INTERACTIVE Greenwich, CT Kuala Lumpur, Malaysia Jakarta, Indonesia NFO AD:IMPACT Greenwich, CT Bahrain, Bahrain San Francisco, CA Dhaka, Bangladesh Cairo, Egypt NFO INFOCOM Greenwich, CT St. Louis, MO CM RESEARCH Auckland, New Zealand Wellington, New Zealand MARKETMIND Teaneck, NJ Sydney, Australia Melbourne, Australia Brisbane, Australia Melbourne, Australia STOCHASTIC London, England DONOVAN Perth, Australia ROSS-COOPER-LUND Teaneck, NJ EUROPEAN Paris, France PLOG RESEARCH Los Angeles, CA JOINT VENTURE Hamburg, Germany East Brunswick, NJ London, England Milan, Italy AMS Greenwich, CT CF GROUP Toronto, Canada Montreal, Canada Ottawa, Canada Vancouver, Canada
22 ITEM 3. LEGAL PROCEEDINGS The Company is not a party to any litigation that is expected to have a material effect on the operations or business of the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS Not Applicable. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The Company's common stock has traded on the New York Stock Exchange since December 29, 1997. Prior to that, the Company's common stock was traded on the NASDAQ National Market tier of the NASDAQ Stock Exchange since its initial public offering was completed in April 1993. The Company's stock symbol is "NFO" on the NYSE and was "NFOR" on the NASDAQ. As of March 26, 1999, there were 224 stockholders of record. The Company believes the total number of beneficial shareholders to be in excess of 3,000 based on the information gathered in distributing the Company's shareholder communications, such as Quarterly Shareholder Statements and the Proxy Statement. The following table sets forth, for the periods indicated, the high and low sales prices per share for the Company's common stock as reported on the NYSE and NASDAQ. The stock prices have been adjusted to give retroactive effect to the 3 for 2 stock split effected on October 15, 1997. Sales Price ----------- Calendar Year 1998 High Low ------------------ ---- --- First Quarter $ 21.375 $ 16.750 Second Quarter 22.000 15.625 Third Quarter 18.750 9.000 Fourth Quarter 14.750 5.550 Calendar Year 1997 High Low ------------------ ---- --- First Quarter $ 15.500 $ 11.170 Second Quarter 17.500 11.330 Third Quarter 18.500 14.500 Fourth Quarter 21.630 15.500 Since its initial public offering, the Company has never declared or paid any cash dividends on its capital stock. The Company currently intends to retain any earnings or other cash resources to repay indebtedness and finance growth and therefore does not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be at the discretion of the Company's Board of Directors and will be dependent upon the results of operations, financial condition, contractual restrictions and other factors deemed relevant by the Board of Directors. 23 ITEM 6. SELECTED FINANCIAL DATA Information required by this item is shown in Exhibit 99.1 and is hereby incorporated by reference. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Information required by this item is shown in Exhibit 99.2 and is hereby incorporated by reference. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA Information required by this item is shown in Exhibit 99.3 and 99.4 and is hereby incorporated by reference. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE The Company has had no disagreements on accounting and financial disclosures with its independent public accountants. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required in response to this item is incorporated by reference to the Company's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. With the exception of the information specifically incorporated by reference, the Company's Proxy Statement is not to be deemed filed as part of this report. ITEM 11. EXECUTIVE COMPENSATION The information required in response to this item is incorporated by reference to the Company's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required in response to this item is incorporated by reference to the Company's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. 24 ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The information required in response to this item is incorporated by reference to the Company's Proxy Statement to be filed with the Securities and Exchange Commission pursuant to Regulation 14A not later than 120 days after the end of the fiscal year covered by this report. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (A) (1)-(2) FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULES: The list of financial statements set forth in the Index to Financial Statements at Page F-1 of Exhibit 99.3 is hereby incorporated by reference, and the list of financial statement schedules set forth in the Index to Financial Schedules at page S-1 of Exhibit 99.4 hereto is hereby incorporated by reference. Financial Statement Schedules, other than that included in Exhibit 99.4, are omitted because of the absence of the condition under which they are required or because the required information is included in the Financial Statements and related notes thereto. (b) REPORTS ON FORM 8-K The following reports on Form 8-K were both filed during the three months ended December 31, 1998: Current Report on Form 8-K dated December 7, 1998, disclosing the change in the registered auditor and chartered accountants of The MBL Group Plc. Current Report on Form 8-K dated November 20, 1998, disclosing the purchase of Infratest Burke Aktiengesellschaft Holding. 25
Incorporated by Reference from -------------- NFO Worldwide, Inc. Registration Exhibit Statement Number No. or Report Exhibit - ------ ------------- ------- 3.1 Restated Certificate of Incorporation Report on Form 10-K for the year ended December 31, 1997. 3.2 Amended and Restated By-laws 33-73516 4.2 (Form S-8) 4 Specimen Common Stock certificate 33-58748 4.1 (Form S-1) 10.1 Loan Agreement, dated as of September 17, 33-58748 10.3 1981, between County of Wood, Ohio and (Form S-1) Twenty-Seven Hundred Associates (Commercial and Research Facility) relating to the $3,200,000 Industrial Development Revenue Bond 10.2 Amendment to Loan Agreement, dated as of 33-58748 10.4 September 27, 1991, between County of Wood, (Form S-1) Ohio and the Predecessor relating to the $3,200,000 Industrial Development Revenue Bond 10.3 Loan Agreement, dated as of December 1, 33-58748 10.5 1983, between County of Wood, Ohio and the (Form S-1) Predecessor relating to the $2,500,000 Industrial Development Revenue Bond 10.4 Amendment to Loan Agreement, dated as 33-58748 10.6 of September 27, 1991, between the County (Form S-1) of Wood, Ohio and the Predecessor relating to the $2,500,000 Industrial Development Revenue Bond 10.5 Assignment and Assumption Agreement, 33-58748 10.3 dated as of September 27, 1991, between (Form S-1) the Predecessor and the Company 10.6 Registration Agreement, dated September 27, 33-58748 10.10 1991, among the Company and its (Form S-1) stockholders parties thereto 10.7 Stockholders Agreement, dated as of 33-58748 10.11 September 27, 1991, among the Company (Form S-1) and its stockholders *Filed herewith. +Management contract or compensatory plan or arrangement. 26 Incorporated by Reference from -------------- NFO Worldwide, Inc. Registration Exhibit Statement Number No. or Report Exhibit - ------ ------------- ------- 10.8 Amendment to Stockholders Agreement, 33-58748 10.12 dated as of April 6, 1993, among the (Form S-1) Company and its stockholders 10.9+ Employment Agreement, dated March 15, Report on Form 10-K 10.14 1995, between the Company and for the year ended William E. Lipner December 31, 1994. 10.10+ Employment Agreement, dated as of Report on Form 10-K 10.10 December 1, 1997, between the Company for the year ended and Patrick G. Healy December 31, 1997. 10.11+ Employment Agreement, dated as Report on Form 10-K 10.11 of December 1, 1997, between the Company for the year ended and Allen R. DeCotiis December 31, 1997. 10.12+ Employment Agreement, dated as of Report on Form 10-Q 10.3 September 12, 1995, between the Company for the quarter ended and Richard A. Spitzer September 30, 1995. 10.13+ Employment Agreement, dated as of December 12, Report on Form 10-K 10.13 December 12, 1996, between the Company for the year ended between the Company and Charles B. Hamlin December 30, 1996. 10.14+ Agreement, dated October 25, 1994, Report on Form 10-Q 10.1 between the Company and John Sculley for the quarter ended September 30, 1995. 10.15+ Employment Agreement, dated as of Report on Form 10-K 10.15 December 1, 1997, between the Company for the year ended and Joseph M. Migliara December 31, 1997. 10.16 Credit Agreement, dated as of March 9, Report on Form 8-K 2 1998, among the Company, the Banks dated March 24, 1998. signatory thereto and Fleet Bank, National Association, as Agent 10.17+ NFO Research, Inc. Stock Option Plan, 333-38497 99 as amended (Form S-3) 10.18+ NFO Research, Inc. Directors' Stock Option Report on Form 10-K 10.26 Plan and Form of Directors' Stock Option for the year ended Agreement December 31, 1994. *Filed herewith. +Management contract or compensatory plan or arrangement. 27 Incorporated by Reference from -------------- NFO Worldwide, Inc. Registration Exhibit Statement Number No. or Report Exhibit - ------ ------------- ------- 10.19+ NFO Research, Inc. Profit Sharing Plan, and 33-83002 4.4 amendments thereto (Form S-8) 10.20+ NFO Research, Inc. Pension Plan, and 33-58748 10.26 amendments thereto (Form S-1) 10.21+ NFO Worldwide, Inc. Executive Deferred 33-58748 10.27 Benefit Plan (Form S-1) 10.22+ Deferred Compensation and Life Insurance Report on Form 10-K 10.29 Benefit Agreement, dated as of May 3, 1980, for the year ended between the Company and William E. Lipner December 31, 1993. 10.23 Office Lease for the Company's headquarters Report on Form 10-K 10.31 at Two Pickwick Plaza, Greenwich, Connecticut for the year ended dated as of April 3, 1987, between JMB Property December 31, 1994. Management Company and the Company, and amendments thereto, as extended 10.24 Office Lease at 5 Centerview Drive, Suite 110, 33-58748 10.29 Greensboro, North Carolina dated December (Form S-1) 18, 1981, and amended on June 21, 1989, and June 24, 1992 10.25 Office Lease for PSI headquarters at 3030 Report on Form 10-K 10.33 North Rocky Point Drive West, Tampa, Florida for the year ended dated September 10, 1993, between December 31, 1994. PSI and The Manufacturers Life Insurance Company 10.26 Office sub-lease for PSI headquarters at 3030 Report on Form 10-K 10.34 North Rocky Point Drive West, Tampa, Florida for the year ended dated September 10, 1994, between PSI and December 31, 1994. Knepper & Willard, Inc. 10.27 Office Lease for Migliara/Kaplan Associates, Report on Form 10-K 10.27 Inc. headquartered at 9 Park Center Court, for the year ended Owings Mills, Maryland dated January 1, 1998, December 31, 1997. between Migliara/Kaplan Associates, Inc. and Nine Park Center Court, LLC. *Filed herewith. +Management contract or compensatory plan or arrangement. 28 Incorporated by Reference from -------------- NFO Worldwide, Inc. Registration Exhibit Statement Number No. or Report Exhibit - ------ ------------- ------- 10.28 Agreement and Plan of Merger, dated as of Report on Form 8-K 1 January 1, 1994, by and among PSI Partners dated January 10, 1994. Acquisition Corporation, Payment Systems, Inc., the Company and the stockholders of PSI Partners Acquisition Corporation 10.29 Asset Purchase Agreement, dated as Report on Form 10-Q 10.2 of November 7, 1994, among Advanced for the quarter ended Marketing Solutions, Inc., as Seller, September 30, 1994. Advanced Marketing Solutions Corp., as Buyer, and the Company 10.30 Master Joint Venture Agreement, dated Report on Form 10-K 10.27 as of July 6, 1995, among the Company, for the year ended IPSOS S.A. and Societe Civile A.P.L.T. December 31, 1995. 10.31 Agreement and Plan of Merger, dated as of Report on Form 8-K 1 November 7, 1995, by and among the dated January 3, 1996. Company, Migliara-Kaplan & Associates, Inc., and the Migliara/Kaplan Associates Inc. and the stockholders of Migliara-Kaplan & Associates, Inc. 10.32 Asset Purchase Agreement, dated as of Report on Form 8-K 2 November 7, 1995, by and among the dated January 3, 1996. Company, Chesapeake Surveys, Inc., a Maryland corporation, and Chesapeake Surveys, Inc., a Delaware corporation 10.33 Agreement and Plan of Merger, dated as of Report on Form 10-K 10.30 December 8, 1995, by and among Plog for the year ended Research, Inc., a California corporation December 31, 1995. ("PRI-California"), Plog Research, Inc., a Delaware corporation, the Company, Stanley C. Plog and the stockholders of PRI-California 10.34 Agreement and Plan of Merger, dated as Report on Form 8-K 1 of March 20, 1997, by and among dated October 22, 1997. Prognostics Corp., a Delaware Corporation, Prognostics, a California corporation dated October 22, 1997 ("Prognostics"), the Company and the shareholders of Prognostics *Filed herewith. +Management contract or compensatory plan or arrangement. 29 Incorporated by Reference from -------------- NFO Worldwide, Inc. Registration Exhibit Statement Number No. or Report Exhibit - ------ ------------- ------- 10.35 Share Purchase Agreement among the Report on Form 8-K 1 Company, NFO U.K., Inc. and the Shareholders dated July 11, 1997. of The MBL Group Plc 10.36 Form of Minority Shareholder Share Purchase Report on Form 8-K 2 Agreement for Acquisition of stock of Minority dated July 11, 1997. Shareholders in a subsidiary of The MBL Group Plc 10.37 Stock Purchase Agreement, dated as of November 10, Report on Form 8-K 10.1 1998, by and among NFO Europe (Deutschland) dated November 20, GmbH & Co. KG, NFO Worldwide, Inc. (the "Company") 1998. and all of the Stockholders (the "Sellers") of Infratest Burke Aktiengesellschaft Holding ("Infratest Burke"). 10.38 Letter Agreement, dated November 17, 1998, among Report on Form 8-K 10.2 the Company, Infratest Burke and the Sellers. dated November 20, 1998. 10.39 Note Purchase Agreement, dated as of November 20, Report on Form 8-K 10.3 1998, between the Company and each of the purchasers dated November 20, signatory thereto relating to the Company's Adjustable 1998. Rate Series A Senior Notes due 2005 and the Company's Adjustable Rate Series B Senior Notes due 2008. 10.40 Note Purchase Agreement, dated as of November 20, Report on Form 8-K 10.4 1998, between the Company and each of the purchasers dated November 20, signatory thereto relating to the Company's 9.84% 1998. Senior Subordinated Notes due 2008. 10.41 Amendment, dated as of November 20, 1998, to the Report on Form 8-K 10.5 separate Note Purchase Agreements dated as of March 9, dated November 20, 1998, between the Company and each of the institutions 1998. signatory thereto. 10.42 Amendment No. 1, dated as of November 20, 1998, to Report on Form 8-K 10.6 the Credit Agreement dated as of March 9, 1998, by dated November 20, and among the Company, Fleet National Bank and The 1998. Chase Manhattan Bank, as co-agents, and the banks signatory thereto. *Filed herewith. +Management contract or compensatory plan or arrangement. 30 Incorporated by Reference from -------------- NFO Worldwide, Inc. Registration Exhibit Statement Number No. or Report Exhibit - ------ ------------- ------- 10.43* Note Purchase Agreement, dated as of March 26, 1999, between the Company and each of the purchasers signatory thereto relating to the Company's $7 million 7.52% Senior Notes due November 15, 2005. 10.44* Note Purchase Agreement, dated as of March 26, 1999, between the Company and each of the purchasers signatory thereto relating to the Company's $8 million 9.84% Senior Subordinated Notes due November 15, 2008. 21* Subsidiaries of the Company 23.1* Consent of Arthur Andersen LLP 23.2* Consent of Soteriou Banerji 27* Financial Data Schedule 99.1* Selected Financial Data 99.2* Management's Discussion and Analysis of Financial Condition and Results of Operations 99.3* Financial Statements 99.4* Financial Statement Schedules *Filed herewith. +Management contract or compensatory plan or arrangement.
31 SIGNATURES Pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on the 30th day of March 1999. NFO WORLDWIDE, INC. By: /s/ William E. Lipner --------------------- Chairman of the Board, President and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on March 30, 1999. /s/ William E. Lipner Chairman of the Board, President, - --------------------- Chief Executive Officer and Director William E. Lipner /s/ Steven J. Gilbert Director - --------------------- Steven J. Gilbert /s/ Patrick G. Healy President - Australasia and the Middle East, - -------------------- Chief Financial Officer and Secretary Patrick G. Healy (Principal Financial Officer and Principal Accounting Officer) /s/ Walter A. Forbes Director - -------------------- Walter A. Forbes /s/ Edmund A. Hajim Director - -------------------- Edmund A. Hajim /s/ John Sculley Director - -------------------- John Sculley 32
Incorporated by Reference from -------------- NFO Worldwide, Inc. Registration Sequential Exhibit Statement Page Number No. or Report Exhibit Number - ------------------------------------------------------------------------------------------------------------------------------------ 3.1 Restated Certificate of Incorporation Report on Form 10-K 3.1 for the year ended December 31, 1997. 3.2 Amended and Restated By-laws 33-73516 4.2 (Form S-8) 4 Specimen Common Stock certificate 33-58748 4.1 (Form S-1) 10.1 Loan Agreement, dated as of September 17, 33-58748 10.3 1981, between County of Wood, Ohio and (Form S-1) Twenty-Seven Hundred Associates (Commercial and Research Facility) relating to the $3,200,000 Industrial Development Revenue Bond 10.2 Amendment to Loan Agreement, dated 33-58748 10.4 as of September 27, 1991, between County (Form S-1) of Wood, Ohio and the Predecessor relating to the $3,200,000 Industrial Development Revenue Bond 10.3 Loan Agreement, dated as of December 1, 33-58748 10.5 1983, between County of Wood, Ohio and (Form S-1) the Predecessor relating to the $2,500,000 Industrial Development Revenue Bond 10.4 Amendment to Loan Agreement, dated 33-58748 10.6 as of September 27, 1991, between (Form S-1) the County of Wood, Ohio and the Predecessor relating to the $2,500,000 Industrial Development Revenue Bond 10.5 Assignment and Assumption Agreement, 33-58748 10.3 dated as of September 27, 1991, between (Form S-1) the Predecessor and the Company 10.6 Registration Agreement, dated September 33-58748 10.10 27, 1991, among the Company and its (Form S-1) stockholders parties thereto *Filed herewith. +Management contract or compensatory plan or arrangement. 33 Incorporated by Reference from -------------- NFO Worldwide, Inc. Registration Sequential Exhibit Statement Page Number No. or Report Exhibit Number - ------------------------------------------------------------------------------------------------------------------------------------ 10.7 Stockholders Agreement, dated as 33-58748 10.11 of September 27, 1991, among the (Form S-1) Company and its stockholders 10.8 Amendment to Stockholders Agreement, 33-58748 10.12 dated as of April 6, 1993, among the (Form S-1) Company and its stockholders 10.9+ Employment Agreement, dated March Report on Form 10-K 10.14 15, 1995, between the Company and for the year ended William E. Lipner December 31, 1994. 10.10+ Employment Agreement, dated as Report on Form 10-K 10.10 of December 1, 1997, between the for the year ended Company and Patrick G. Healy December 31, 1997. 10.11+ Employment Agreement, dated as Report on Form 10-K 10.11 of December 1, 1997, between the for the year ended Company and Allen R. DeCotiis filed December 31, 1997. herewith 10.12+ Employment Agreement, dated as Report on Form 10-Q 10.3 of September 12, 1995, between for the quarter ended the Company and Richard A. Spitzer September 30, 1995. 10.13+ Employment Agreement, dated as Report on Form 10-K 10.13 of December 12, 1996, between the for the year ended Company and Charles B. Hamlin December 31, 1996. 10.14+ Agreement, dated October 25, 1994, Report on Form 10-Q 10.1 between the Company and John Sculley for the quarter ended September 30, 1995. 10.15+ Employment Agreement, dated as of Report on Form 10-K 10.15 December 1, 1997, between the Company for the year ended and Joseph M. Migliara December 31, 1997. 10.16 Credit Agreement, dated as of Report on Form 8-K 2 March 9, 1998, among the Company, dated March 24, 1998. the Banks signatory thereto and Fleet Bank, National Association, as Agent *Filed herewith. +Management contract or compensatory plan or arrangement. 34 Incorporated by Reference from NFO Worldwide, Inc. Registration Sequential Exhibit Statement Page Number No. or Report Exhibit Number - ------------------------------------------------------------------------------------------------------------------------------------ 10.17+ NFO Research, Inc. Stock Option 333-38497 99 Plan, as amended (Form S-3) 10.18+ NFO Research, Inc. Directors' Stock Report on Form 10-K 10.26 Option Plan and Form of Directors' Stock for the year ended Option Agreement December 31, 1994. 10.19+ NFO Research, Inc. Profit Sharing Plan, and 33-83002 4.4 amendments thereto (Form S-8) 10.20+ NFO Research, Inc. Pension Plan, and 33-58748 10.26 amendments thereto (Form S-1) 10.21+ NFO Worldwide, Inc. Executive Deferred 33-58748 10.27 Benefit Plan (Form S-1) 10.22+ Deferred Compensation and Life Insurance Benefit Report on Form 10-K 10.29 Agreement, dated as of May 3, 1980, for the year ended between the Company and William E. Lipner December 31, 1993. 10.23 Office Lease for the Company's headquarters Report on Form 10-K 10.31 at Two Pickwick Plaza, Greenwich, Connecticut for the year ended dated as of April 3, 1987, between JMB Property December 31, 1994. Management Company and the Company, and amendments thereto, as extended 10.24 Office Lease at 5 Centerview Drive, Suite 110, 33-58748 10.29 Greensboro, North Carolina dated December (Form S-1) 18, 1981, and amended on June 21, 1989, and June 24, 1992 10.25 Office Lease for PSI headquarters at Report on Form 10.33 3030 North Rocky Point Drive West, Tampa, 10-K for year ended Florida dated September 10, 1993, between December 31, 1994 PSI and The Manufacturers Life Insurance Company 10.26 Office sub-lease for PSI headquarters at 3030 Report on Form 10-K 10.34 North Rocky Point Drive West, Tampa, Florida for year ended dated September 10, 1994, between PSI and December 31, 1994 Knepper & Willard, Inc. *Filed herewith. +Management contract or compensatory plan or arrangement. 35 Incorporated by Reference from -------------- NFO Worldwide, Inc. Registration Sequential Exhibit Statement Page Number No. or Report Exhibit Number - ------------------------------------------------------------------------------------------------------------------------------------ 10.27 Office Lease for Migliara/Kaplan Associates, Report on Form 10-K 10.27 Inc. headquartered at 9 Park Center Court, for the year ended Owings Mills, Maryland dated January 1, 1998, December 31, 1997. between Migliara/Kaplan Associates, Inc. and Nine Park Center Court, LLC. 10.28 Agreement and Plan of Merger, dated as of Report on Form 8-K 1 January 1, 1994, by and among PSI Partners dated January 10, 1994. Acquisition Corporation, Payment Systems, Inc., the Company and the stockholders of PSI Partners Acquisition Corporation 10.29 Asset Purchase Agreement, dated as of Report on Form 10-Q 10.2 November 7, 1994, among Advanced for the quarter ended Marketing Solutions, Inc., as Seller, September 30, 1994. Advanced Marketing Solutions Corp., as Buyer, and the Company 10.30 Master Joint Venture Agreement, dated as Report on Form 10-K 10.27 of July 6,1995, among the Company, IPSOS for the year ended S.A. and Societe Civile A.P.L.T. December 31, 1995. 10.31 Agreement and Plan of Merger, dated as Report on Form 8-K 1 of November 7, 1995, by and among the dated January 3, 1996. Company, Migliara-Kaplan & Associates, Inc., Migliara/Kaplan Associates Inc. and the & stockholders of Migliara-Kaplan Associates, Inc. 10.32 Asset Purchase Agreement, dated as of Report on Form 8-K 2 November 7, 1995, by and among the Company, dated January 3, 1996. Chesapeake Surveys, Inc., a Maryland corporation, and Chesapeake Surveys, Inc., a Delaware corporation 10.33 Agreement and Plan of Merger, dated as Report on Form 10-K 10.30 of December 8, 1995, by and among Plog for the year ended Research, Inc., a California corporation December 31, 1995. ("PRI-California"), Plog Research, Inc., a Delaware corporation, the Company, Stanley C. Plog and the stockholders of PRI-California *Filed herewith. +Management contract or compensatory plan or arrangement. 36 Incorporated by Reference from -------------- NFO Worldwide, Inc. Registration Sequential Exhibit Statement Page Number No. or Report Exhibit Number - ------------------------------------------------------------------------------------------------------------------------------------ 10.34 Agreement and Plan of Merger, dated as Report on Form 8-K 1 of March 20, 1997, by and among Prognostics dated October 22, 1997. Corp., a Delaware Corporation, Prognostics, a California corporation ("Prognostics"), the Company and the shareholders of Prognostics 10.35 Share Purchase Agreement among the Company, Report on Form 8-K 1 NFO U.K., Inc. and the Shareholders of The dated July 11, 1997. MBL Group Plc 10.36 Form of Minority Share Purchase Agreement Report on Form 8-K 2 among the Company, NFO U.K., Inc., and the dated July 11, 1997. Shareholders of The MBL Group PLC 10.37 Stock Purchase Agreement, dated as of November Report on Form 8-K 10.1 10, 1998, by and among NFO Europe (Deutschland) dated November 20, 1998. GmbH & Co. KG, NFO Worldwide, Inc. (the "Company") and all of the Stockholders (the "Sellers") of Infratest Burke Aktiengesellschaft Holding ("Infratest Burke"). 10.38 Letter Agreement, dated November 17, 1998, among Report on Form 8-K 10.2 the Company, Infratest Burke and the Sellers. dated November 20, 1998. 10.39 Note Purchase Agreement, dated as of November Report on Form 8-K 10.3 20, 1998, between the Company and each of the dated November 20, 1998. purchasers signatory thereto relating to the Company's Adjustable Rate Series A Senior Notes due 2005 and the Company's Adjustable Rate Series B Senior Notes due 2008. 10.40 Note Purchase Agreement, dated as of November Report on Form 8-K 10.4 20, 1998, between the Company and each of the dated November 20, 1998. purchasers signatory thereto relating to the Company's 9.84% Senior Subordinated Notes due 2008. 10.41 Amendment, dated as of November 20, 1998, to the Report on Form 8-K 10.5 separate Note Purchase Agreements dated as of dated November 20, 1998. March 9, 1998, between the Company and each of the institutions signatory thereto. *Filed herewith. +Management contract or compensatory plan or arrangement. 37 Incorporated by Reference from -------------- NFO Worldwide, Inc. Registration Sequential Exhibit Statement Page Number No. or Report Exhibit Number - ------------------------------------------------------------------------------------------------------------------------------------ 10.42 Amendment No. 1, dated as of November 20, 1998, Report on Form 8-K 10.6 to the Credit Agreement dated as of March 9, 1998, dated November 20, 1998. by and among the Company, Fleet National Bank and The Chase Manhattan Bank, as co-agents, and the banks signatory thereto. 10.43* Note Purchase Agreement, dated as of March 26, 1999, 39 between the Company and each of the purchasers signatory thereto relating to the Company's $7 million 7.52% Senior Notes due November 15, 2005. 10.44* Note Purchase Agreement, dated as of March 26, 1999, 86 between the Company and each of the purchasers signatory thereto relating to the Company's $8 million 9.84% Senior Subordinated Notes due November 15, 2008. 21* Subsidiaries of the Company 152 23.1* Consent of Arthur Andersen LLP 158 23.2* Consent of Soteriou Banerji 159 27* Financial Data Schedule 160 99.1* Selected Financial Data 161 99.2* Management's Discussion and Analysis of Financial Condition 162 and Results of Operations 99.3* Financial Statements 170 99.4* Financial Statement Schedules 195 *Filed herewith. +Management contract or compensatory plan or arrangement.
38 EX-10.43 2 EXHIBIT 10.43 EXHIBIT 10.43 - -------------------------------------------------------------------------------- NFO WORLDWIDE, INC. --------------------------------------------------- NOTE PURCHASE AGREEMENT --------------------------------------------------- Dated as of March 15, 1999 $7,000,000 7.52% Senior Notes Due November 15, 2008 - -------------------------------------------------------------------------------- 39 NFO WORLDWIDE, INC. 2 Pickwick Plaza Greenwich, CT 06830 7.52% Senior Notes Due November 15, 2008 Dated as of March 15, 1999 To the Purchaser Named on the Signature Page Hereto Ladies and Gentlemen: NFO WORLDWIDE, INC., a Delaware corporation (together with its successors and assigns, the "Company"), agrees with you as follows: 1. AUTHORIZATION OF NOTES. The Company will authorize the issue and sale of $7,000,000 aggregate principal amount of its 7.52% Senior Notes due November 15, 2008. Such notes shall be substantially in the form set out in Exhibit 1 with such changes therefrom, if any, as may be approved by you and the Company. The term "Notes", as used herein, shall include each of such notes and any promissory notes delivered pursuant to any provision of this Agreement or the Other Agreement (as hereinafter defined) and any promissory notes delivered in substitution or exchange for any Notes pursuant to any such provision, and the term "Note" shall refer to any one of such Notes. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. 2. SALE AND PURCHASE OF NOTES. Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and you will purchase from the Company, at the Closing provided for in Section 3, Notes in the principal amount specified below your name in Schedule A at the purchase price of 100% of the principal amount thereof. Contemporaneously with entering into this Agreement, the Company is entering into a separate Note Purchase Agreement (the "Other Agreement") identical with this Agreement with the purchaser named in Schedule A (the "Other Purchaser"), providing for the sale at the Closing to the Other Purchaser of Notes in the principal amount specified below such Other Purchaser's name in Schedule A. Your obligation hereunder and the obligations of the Other Purchaser under the Other Agreement are several and not joint obligations, and you shall have no obligation under the Other Agreement and no liability to any Person for the performance or non-performance by the Other Purchaser thereunder. 40 3. THE CLOSING. The closing of the sale and purchase of the Notes (the "Closing") to be purchased by you and the Other Purchaser shall occur at the offices of Hebb & Gitlin, P.C., One State Street, Hartford, Connecticut at 10:00 a.m., local time, on March 26, 1999 (the "Closing Date"). At the Closing, the Company will deliver to you the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in denominations of at least $100,000 as you may request), dated the Closing Date and registered in your name (or in the name of your nominee), as indicated in Schedule A, against payment by federal funds wire transfer in immediately available funds of the amount of the purchase price therefor as directed by the Company in Schedule C. If at the Closing the Company shall fail to tender such Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. 4. CONDITIONS TO CLOSING. Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: 4.1 Representations and Warranties. The representations and warranties of the Company in this Agreement shall be correct when made and at the time of the Closing. 4.2 Performance; No Default. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Schedule 5.14) no Default or Event of Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by any of Sections 10.1, 10.2, 10.3, 10.5, 10.8, 10.9 or 10.11 had such Sections applied since such date. 4.3 Compliance Certificates. (a) Officer's Certificate. The Company shall have delivered to you an Officer's Certificate, dated the Closing Date, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled, and that the Junior Financing Condition (as defined in the Existing Note Purchase Agreements) has been satisfied. (b) Secretary's Certificate. The Company shall have delivered to you a certificate of its Secretary or one of its Assistant Secretaries, dated the Closing Date, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes, this Agreement and the Other Agreement. 41 (c) Initial Guarantor Secretary's Certificates. Each of the Initial Guarantors shall have delivered to you a certificate of its Secretary or one of its Assistant Secretaries, dated the Closing Date, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Guaranty Agreement to which such Initial Guarantor is a party. 4.4 Opinions of Counsel. You shall have received opinions in form and substance satisfactory to you, each dated the Closing Date, from (a) Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the Company and the Initial Guarantors, substantially in the form set out in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company hereby instructs such counsel to deliver such opinion to you), and (b) Hebb & Gitlin, your special counsel in connection with such transactions, substantially in the form set out in Exhibit 4.4(b) and covering such other matters incident to such transactions as you may reasonably request. 4.5 Purchase Permitted By Applicable Law, etc. On the Closing Date, your purchase of Notes shall (a) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (c) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. 4.6 Sale of Other Notes. Contemporaneously with the Closing the Company shall sell to the Other Purchaser and the Other Purchaser shall purchase the Notes to be purchased by it at the Closing as specified in Schedule A. 4.7 Payment of Special Counsel Fees. Without limiting the provisions of Section 15.1, the Company shall have paid on or before the Closing the fees, charges and disbursements of your special counsel referred to in Section 4.4(b) to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the Closing Date. 42 4.8 Private Placement Number. A Private Placement Number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes. 4.9 Changes in Corporate Structure. Except as specified in Schedule 4.9, the Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent interim financial statements referred to in Schedule 5.5. 4.10 Subordinated Notes. Contemporaneously with the Closing the Company shall sell, and receive payment (at par) for, Subordinated Funded Debt in an aggregate principal amount of not less than $8,000,000, which Subordinated Funded Debt shall have subordination and other provisions which are acceptable to you in all respects. On or before the Closing Date the Note Purchase Agreement dated as of November 20, 1998 relating to $17,000,000 principal amounts of the Company's subordinated notes shall have been amended and such amendment shall be satisfactory to you in all respects. 4.11 Guaranty Agreements. You shall have received a counterpart of each of the Guaranty Agreements, duly executed and delivered by each of the Initial Guarantors, substantially in the form of Exhibit 4.11, and such Guaranty Agreements shall be in full force and effect. 4.12 Sharing Agreement. You, the Other Purchaser, the holders of the Existing Notes and the bank lenders under the Fleet/Chase Debt Facility shall have entered into an Amended and Restated Sharing Agreement substantially in the form of Exhibit 4.12 (the "Sharing Agreement"), and such agreement shall be in full force and effect. 4.13 Amendments to Existing Agreements. The Company shall have entered into amendments to each of the Existing Note Purchase Agreements, the subordinated note purchase agreements dated as of November 20, 1998, and the Fleet/Chase Debt Facility, and such amendments shall be satisfactory to you in all respects. 4.14 Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you 43 and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents and warrants to you, as of the Closing Date, that: 5.1 Organization; Power and Authority. The Company is a corporation duly organized, validly existing and in good standing under the laws of Delaware, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Other Agreement and the Notes and to perform the provisions hereof and thereof. 5.2 Authorization, etc. This Agreement, the Other Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). 5.3 Disclosure. The Company, through its agent, William Blair & Company, has delivered to you and each Other Purchaser a copy of a Private Placement Memorandum, dated February 10, 1999 (the "Memorandum"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3, this Agreement, the Memorandum, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, since December 31, 1997, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated hereby. 44 5.4 Organization and Ownership of Shares of Subsidiaries; Affiliates. (a) Schedule 5.4 contains (except as noted therein) complete and correct lists of (i) the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its Capital Stock or similar equity interests outstanding owned by the Company and each other Subsidiary and (ii) the Company's Affiliates, other than Subsidiaries. (b) All of the outstanding shares of Capital Stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed in Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of Capital Stock or similar equity interests of such Subsidiary, except for any such restrictions and agreements that are applicable to Subsidiaries which, taken together, are not Material. (e) There are no Unrestricted Subsidiaries. (f) No Subsidiary other than the Initial Guarantors is a guarantor of the Fleet/Chase Debt Facility. 5.5 Financial Statements. The Company has delivered to you and the Other Purchaser copies of the financial statements of the Company and its Subsidiaries listed in Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). 45 5.6 Compliance with Laws, Other Instruments, etc. The execution, delivery and performance by the Company of this Agreement and the Notes will not (a) except for any contravention, breach or default that would not have a Material Adverse Effect, contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary, or (c) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. 5.7 Governmental Authorizations, etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes. 5.8 Litigation; Observance of Agreements, Statutes and Orders. (a) There are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including, without limitation, Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. 5.9 Taxes. The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become 46 delinquent, except for any taxes and assessments (a) the amount of which is not individually or in the aggregate Material or (b) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid for all fiscal years up to and including the fiscal year ended December 31, 1992. 5.10 Title to Property; Leases. The Company and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. 5.11 Licenses, Permits, etc. Except as disclosed in Schedule 5.11, (a) the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (b) to the best knowledge of the Company, no product or practice of the Company or any Subsidiary infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the Company or any of its Subsidiaries. 5.12 Compliance with ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence 47 of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than $1,500,000. The term "benefit liabilities" has the meaning specified in section 4001 of ERISA and the terms "current value" and "present value" have the meaning specified in section 3 of ERISA. (c) The Company and the ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. (d) The expected postretirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not Material. (e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of your representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you. (f) Schedule 5.12 sets forth all ERISA Affiliates and all "employee benefit plans" maintained by the Company (or any "affiliate" thereof) or in respect of which the Notes could constitute an "employer security" ("employee benefit plan" has the meaning specified in section 3 of ERISA, "affiliate" has the meaning specified in section 407(d) of ERISA and section V of the Department of Labor Prohibited Transaction Exemption 95- 60 (60 FR 35925, July 12, 1995) and "employer security" has the meaning specified in section 407(d) of ERISA). 5.13 Private Offering by the Company. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than you, the Other Purchaser and not more than 30 other Institutional Investors, each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action 48 that would subject the issuance or sale of the Notes to the registration requirements of section 5 of the Securities Act. 5.14 Use of Proceeds; Margin Regulations. The Company will apply the proceeds of the sale of the Notes as set forth in Schedule 5.14. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 1% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 1% of the value of such assets. As used in this Section, the term "margin stock" shall have the meaning assigned to it in said Regulation U. 5.15 Existing Debt; Future Liens. (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of each issue of outstanding Debt of the Company and its Subsidiaries with an outstanding principal amount of at least $1,000,000 as of the Closing Date (and specifying, as to each such Debt, the collateral, if any, securing such Debt). The aggregate amount of all Debt of the Company and its Subsidiaries not listed on Schedule 5.15 is less than $2,000,000. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal of or interest on any Debt of the Company or such Subsidiary and no event or condition exists with respect to any Debt of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment. (b) Except as disclosed in Schedule 5.15, neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.5. 5.16 Foreign Assets Control Regulations, etc. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. 5.17 Status under Certain Statutes. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Transportation Acts (49 U.S.C.), as amended, or the Federal Power Act, as amended. 49 5.18 Environmental Matters. Neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing, (a) neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; (b) neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. 5.19 Year 2000 Matters. The Company has reasonable grounds for believing that it will be Year 2000 Compliant and Ready on or before December 1, 1999. "Year 2000 Compliant and Ready" means that (a) the Company's and its Subsidiaries' hardware and software systems, with respect to the operation of their business, will (i) handle satisfactorily date information involving any and all dates before, during and/or after January 1, 2000, including accepting input, providing output and performing date calculations in whole or in part and (ii) operate accurately, without Material interruption, on and in respect of any and all dates before, during and/or after January 1, 2000 and without any Material change in performance; and (b) the Company has developed alternative plans to ensure business continuity in all Material respects in the event of the failure of the items identified in clauses (i) and (ii) in the foregoing clause (a). 6. REPRESENTATIONS OF THE PURCHASER. 6.1 Purchase for Investment. 50 You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. 6.2 Source of Funds. You represent that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by you to pay the purchase price of the Notes to be purchased by you hereunder: (a) the Source is an "insurance company general account" as defined in United States Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (60 FR 35925, July 12, 1995) and in respect thereof you represent that there is no "employee benefit plan" (as defined in section 3(3) of ERISA and section 4975(e)(1) of the Code, treating as a single plan all plans maintained by the same employer or employee organization or affiliate thereof) with respect to which the amount of the general account reserves and liabilities of all contracts held by or on behalf of such plan exceeds 10% of the total reserves and liabilities of such general account (exclusive of separate account liabilities) plus surplus, as set forth in the National Association of Insurance Commissioners' Annual Statement filed with your state of domicile and that such acquisition is eligible for and satisfies the other requirements of such exemption; or (b) if you are an insurance company, the Source does not include assets allocated to any separate account maintained by you in which any employee benefit plan (or its related trust) has any interest, other than a separate account that is maintained solely in connection with your fixed contractual obligations under which the amounts payable, or credited, to such plan and to any participant or beneficiary of such plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or (c) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (c), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (d) the Source constitutes assets of an "investment fund" (within the meaning of part V of PTE 84-14 (the "QPAM Exemption")) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of section V(c)(1) of the QPAM Exemption) of such employer or 51 by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (d); or (e) the Source is a governmental plan; or (f) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (f); or (g) the Source does not include assets of any employee benefit plan described in section 4975(e) of the Code, other than a plan exempt from the coverage of ERISA and the provisions of section 4975 of the Code. As used in this Section 6.2, the terms "employee benefit plan", "governmental plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. 7. INFORMATION AS TO COMPANY. 7.1 Financial and Business Information. The Company shall deliver to each holder of Notes that is an Institutional Investor: (a) Quarterly Statements -- within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of, (i) consolidated balance sheets of the Company and its Subsidiaries, and of the Company and the Restricted Subsidiaries, as at the end of such quarter, and (ii) consolidated statements of income, shareholders' equity and cash flows of the Company and its Subsidiaries, and of the Company and the Restricted Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the consolidated financial position of the companies being reported on and their consolidated results of operations and cash flows, subject to changes 52 resulting from year-end adjustments, provided that, so long as no Unrestricted Subsidiaries existed at any time during the periods covered by such financial statements, delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a); (b) Annual Statements -- within 120 days after the end of each fiscal year of the Company, duplicate copies of, (i) consolidated balance sheets of the Company and its Subsidiaries, and of the Company and the Restricted Subsidiaries, as at the end of such year, and (ii) consolidated statements of income, shareholders' equity and cash flows of the Company and its Subsidiaries, and of the Company and the Restricted Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by (A) an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the consolidated financial position of the companies being reported upon and their consolidated results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (B) a certificate of such accountants stating that they have reviewed this Agreement and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit), provided that, so long as no Unrestricted Subsidiaries existed at any time during the periods covered by such financial statements, the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (B) above, shall be deemed to satisfy the requirements of this Section 7.1(b); 53 (c) SEC and Other Reports -- promptly upon their becoming available, one copy of (i) each financial statement, report (including, without limitation, the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a-3 under the Exchange Act), notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; (d) Notice of Default or Event of Default -- promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(f), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (e) ERISA Matters -- promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any reportable event, as defined in section 4043(c) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the Closing Date; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that could result in the incurrence of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (f) Notices from Governmental Authority -- promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; 54 (g) Actions, Proceedings -- promptly after a Responsible Officer becomes aware of the commencement thereof, notice of any action or proceeding relating to the Company or any Subsidiary in any court or before any Governmental Authority or arbitration board or tribunal as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected to have a Material Adverse Effect; and (h) Requested Information -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries (including, without limitation, information regarding the impact of the occurrence of the year 2000 on the Company and its Subsidiaries and plans of the Company to address any such impact) or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes, or such information regarding the Company required to satisfy the requirements of 17 C.F.R. ss.230.144A, as amended from time to time, in connection with any contemplated transfer of the Notes. 7.2 Officer's Certificate. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth: (a) Covenant Compliance -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Sections 10.1 through 10.12, inclusive, and Sections 10.14 through Section 10.16, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and (b) Event of Default -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review has not disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. 7.3 Inspection. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor: 55 (a) No Default -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (b) Default -- if a Default or Event of Default then exists, at the expense of the Company, to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. 8. PAYMENT OF THE NOTES. 8.1 Required Prepayments; Payment at Maturity. The Company will prepay $1,000,000 principal amount of the Notes on November 15, 2002, and on each November 15 thereafter to and including November 15, 2007, or, in each case, such lesser principal amount as shall be outstanding on each such November 15, all such prepayments to be made at par and without payment of any Make-Whole Amount. The Company will pay all of the principal amount of the Notes remaining outstanding, if any, on November 15, 2008. Each partial prepayment of the Notes pursuant to Section 8.2 will be applied first, to the amount due on the maturity date of the Notes and second, to the mandatory prepayments applicable to the Notes, as set forth in this Section 8.1, in the inverse order of the maturity thereof. 8.2 Optional Prepayments with Make-Whole Amount. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the Notes (but if in part, in an amount not less than $1,000,000 or such lesser amount as shall then be outstanding), at 100% of the principal amount so prepaid, plus accrued interest on, and the Make-Whole Amount determined for the prepayment date with respect to, such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such prepayment date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make- Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such Make-Whole Amount as of the specified prepayment date. 56 8.3 Allocation of Partial Prepayments. In the case of each partial prepayment of the Notes, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. 8.4 Maturity; Surrender, etc. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable Make-Whole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make- Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and canceled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. 8.5 No Other Optional Prepayments or Purchase of Notes. The Company will not prepay (whether directly or indirectly by purchase, redemption or other acquisition) any of the outstanding Notes except (a) upon the payment or prepayment of the Notes in accordance with the terms of this Section 8 or upon an acceleration of the maturity of the Notes pursuant to Section 12 or (b) pursuant to an offer to purchase made by the Company pro rata to the holders of all Notes at the time outstanding upon the same terms and conditions. Any such offer (i) need not comply with the other provisions of this Section 8 (including, without limitation, the requirement to pay any Make-Whole Amount), (ii) shall provide each holder with sufficient information to enable it to make an informed decision with respect to such offer, and (iii) shall remain open for at least 10 Business Days. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant to any payment, prepayment or purchase of Notes pursuant to any provision of this Section 8 and no Notes may be issued in substitution or exchange for any such Notes. 8.6 Make-Whole Amount. The term "Make-Whole Amount" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the Make- Whole Amount may in no event be less than zero. For the purposes of determining the Make- Whole Amount, the following terms have the following meanings: "Called Principal" means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. 57 "Discounted Value" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to the Called Principal of any Note, 0.50% over the yield to maturity implied by (a) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page UST" on the Bloomberg Financial Market Service (or such other display as may replace Page UST on the Bloomberg Financial Market Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (b) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (i) converting U.S. Treasury bill quotations to bond-equivalent yields in accordance with accepted financial practice and (ii) interpolating linearly between (1) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the duration closest to and less than the Remaining Average Life. "Remaining Average Life" means, with respect to any Called Principal, the number of years (calculated to the nearest one-twelfth year) obtained by dividing (a) such Called Principal into (b) the sum of the products obtained by multiplying (i) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (ii) the number of years (calculated to the nearest one-twelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payments" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1. "Settlement Date" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. 58 9. AFFIRMATIVE COVENANTS. The Company covenants that so long as any of the Notes are outstanding: 9.1 Compliance with Law. The Company will and will cause each of its Restricted Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that non-compliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.2 Insurance. The Company will and will cause each of the Restricted Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, co-insurance and self-insurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. 9.3 Maintenance of Properties. The Company will and will cause each of the Restricted Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Restricted Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 9.4 Payment of Taxes and Claims. The Company will and will cause each of the Restricted Subsidiaries to file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes, assessments, charges or levies have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Restricted Subsidiary, provided that neither the Company nor any Restricted Subsidiary need pay any such tax or assessment or claims if (a) the amount, applicability or validity thereof is contested by the Company or such Restricted Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Restricted Subsidiary has established adequate 59 reserves therefor in accordance with GAAP on the books of the Company or such Restricted Subsidiary or (b) the nonpayment of all such taxes, assessments, charges and levies in the aggregate could not reasonably be expected to have a Material Adverse Effect. 9.5 Corporate Existence, etc. The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Sections 10.10 and 10.11, the Company will at all times preserve and keep in full force and effect the corporate existence of each of the Restricted Subsidiaries (unless merged into the Company or a Restricted Subsidiary) and all rights and franchises of the Company and the Restricted Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. 9.6 Line of Business. The Company will not, and will not permit any of its Restricted Subsidiaries to, engage in any business other than the businesses described in the Memorandum and businesses reasonably related thereto. 9.7 Additional Guaranty Agreements; Release of Guaranty Agreements. (a) Additional Guaranties. The Company will cause each Subsidiary that at any time becomes liable in respect of any Guaranty of any of the Company's obligations under the Fleet/Chase Debt Facility after the Closing Date to become (simultaneously or prior to becoming liable in respect of such Guaranty of any of the obligations under the Fleet/Chase Debt Facility) a Guarantor in respect of this Agreement, the Other Agreement and the Notes by executing and delivering to each holder of Notes a Guaranty Agreement in the form set out in Exhibit 4.14. (b) Release of Guaranties. Simultaneously with the release of any Subsidiary's Guaranty of the Company's obligations under the Fleet/Chase Debt Facility, such Subsidiary's Guaranty of the Notes shall be deemed to have been released, provided that such Subsidiary's Guaranties of the Company's obligations under the Subordinated Notes and the Existing Notes shall be released at the same time. The holders of the Notes shall take such action as shall be reasonably requested by the Company to effect such release. The Company shall give prompt written notice to all holders of the Notes upon any Subsidiary's being released from any Guaranty of the Fleet/Chase Debt Facility. 10. NEGATIVE COVENANTS. The Company covenants that, on and after the Closing Date and so long as any of the Notes are outstanding: 10.1 Senior Funded Debt. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or otherwise become directly or indirectly liable 60 with respect to, any Senior Funded Debt (including, without limitation, Senior Funded Debt incurred under the Fleet/Chase Debt Facility), other than Existing Senior Funded Debt, the Notes, InterCompany Debt and Swaps, unless, immediately after giving effect thereto and to the application of the proceeds thereof (and without duplication), (a) no Default or Event of Default exists, and (b) (i) the sum of (A) Consolidated Senior Funded Debt plus (B) the greater of (1) zero, if there shall have been a period of 30 consecutive days during the period of four consecutive fiscal quarters of the Company then most recently ended when Consolidated Current Debt was zero, or (2) the lowest average daily amount of Consolidated Current Debt outstanding during any period of 30 consecutive days during the period of four consecutive fiscal quarters of the Company then most recently ended, if Consolidated Current Debt was not zero during any such period of 30 consecutive days to (ii) Pro Forma EBITDA for such period of four consecutive fiscal quarters, does not exceed 3.0 to 1.0. Any Person becoming a Restricted Subsidiary at any time shall be deemed to have incurred at such time all of its Debt outstanding at such time. 10.2 Subordinated Funded Debt. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or otherwise become directly or indirectly liable with respect to, any Subordinated Funded Debt, other than Existing Subordinated Funded Debt, the Subordinated Notes, Inter-Company Debt and Swaps, unless, immediately after giving effect thereto and to the application of the proceeds thereof (and without duplication), (a) no Default or Event of Default exists, and (b) (i) the sum of (A) Consolidated Funded Debt plus 61 (B) the greater of (1) zero, if there shall have been a period of 30 consecutive days during the period of four consecutive fiscal quarters of the Company then most recently ended when Consolidated Current Debt was zero, or (2) the lowest average daily amount of Consolidated Current Debt outstanding during any period of 30 consecutive days during the period of four consecutive fiscal quarters of the Company then most recently ended, if Consolidated Current Debt was not zero during any such period of 30 consecutive days to (ii) Pro Forma EBITDA for such period of four consecutive fiscal quarters does not exceed 3.5 to 1.0. Any Person becoming a Restricted Subsidiary at any time shall be deemed to have incurred at such time all of its Debt outstanding at such time. The Company will not, directly or indirectly, without the written consent of the Required Holders, (i) amend, modify, supplement, waive compliance with, or assent to noncompliance with, any term, provision or condition of Section 13 of the Subordinated Note Purchase Agreements, (ii) increase the interest rate, or change the amortization schedule, applicable to the Subordinated Notes as in effect immediately after the consummation of the issuance thereof or (iii) repurchase, redeem or voluntarily prepay in whole or in part, any principal, interest or other amounts payable in respect of the Subordinated Notes, or take any action, or set aside any reserve, in furtherance of the foregoing, it being understood that (subject to said Section 13) the foregoing shall not prohibit any scheduled or other required payment of principal or interest. Notwithstanding the foregoing, the Company may, without the consent of any holder of Notes, voluntarily prepay the Subordinated Notes with the proceeds of a Capital Stock offering at any time before May 19, 2000. 10.3 Current Debt. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or otherwise become directly or indirectly liable with respect to, any Current Debt, other than Existing Current Debt, Inter-Company Debt and Swaps, unless, immediately after giving effect thereto and to the application of the proceeds thereof, (a) no Default or Event of Default exists, and (b) there shall have been a period of 30 consecutive days during the period of 12 consecutive months then most recently ended on each day of which either (i) no Consolidated Current Debt was outstanding, or 62 (ii) the Company or such Restricted Subsidiary could have incurred (but did not incur) Senior Funded Debt pursuant to Section 10.1 in an amount not less than the amount of Consolidated Current Debt outstanding on such day. Any Person becoming a Restricted Subsidiary at any time shall be deemed to have incurred at such time all of its Debt outstanding at such time. 10.4 Interest Coverage Ratio. The Company will not permit the ratio of (x) Pro Forma EBITDA for any period of four consecutive fiscal quarters of the Company to (y) Pro Forma Consolidated Interest Expense for such period to be less than 2.5 to 1.0. 10.5 Liens. The Company will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Restricted Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom (whether or not provision is made for the equal and ratable securing of the Notes in accordance with the last paragraph of this Section 10.5), or assign or otherwise convey any right to receive income or profits, except: (a) Liens existing on the date of this Agreement which secure Debt of the Company and the Restricted Subsidiaries outstanding on the Closing Date, which Liens, to the extent not described on Schedule 5.15, secure an aggregate amount of such Debt not in excess of $2,000,000; (b) Liens renewing or replacing Liens then in existence and permitted by paragraph (a) of this Section 10.5 to the extent that the underlying obligations secured by such existing Liens are being extended, renewed or refunded, provided that (i) no such renewal or replacement Lien shall extend to any property of the Company or any Restricted Subsidiary other than property already encumbered by the existing Lien being so renewed or replaced, (ii) the principal amount of the underlying obligation secured by such existing Lien which could have been outstanding at the time of such renewal or replacement shall not be increased in connection with such renewal or replacement, and (iii) immediately prior to, and immediately after giving effect to, such renewal or replacement, no Default or Event of Default exists or would exist; (c) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business 63 (i) in connection with workers' compensation, unemployment insurance and other types of social security or retirement benefits, or (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, bids, leases (other than Capital Leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; (d) (i) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case incurred in the ordinary course of business for sums not yet due and payable or the payment of which is not at the time required by Section 9.4, and (ii) Liens arising solely by virtue of any statutory or common law provisions or, in the case of Infratest or any of its subsidiaries, Liens arising by virtue of any deposit agreement, in each case relating to bankers' Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution, provided that such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company or any Restricted Subsidiary in excess of those set forth by regulations promulgated by the Federal Reserve Board (or, in the case of Infratest, applicable German statutes or regulations); (e) Liens arising from judicial attachments or judgments, or securing appeal bonds, and other similar Liens, provided that (i) the execution or other enforcement of such Liens is effectively stayed, and (ii) the claims secured thereby are being actively contested in good faith and adequate reserves in respect thereof have been established by the Company or such Restricted Subsidiary in accordance with GAAP; (f) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of the business of the Company or any of the Restricted Subsidiaries, provided that such Liens do not, in the aggregate, materially impair the use of such property by the Company or such Restricted Subsidiary; (g) Liens for taxes, assessments or other governmental charges which are not yet due and payable or the payment of which is not at the time required by Section 9.4; (h) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into the Company or a Restricted Subsidiary, or immediately prior to its becoming a Restricted Subsidiary, or any Lien existing on any property acquired by the Company or any Restricted Subsidiary at the time such property is so acquired (whether or not the Debt secured thereby shall have been assumed), provided that (i) no such 64 Lien shall have been created or assumed in contemplation of such consolidation or merger or such acquisition of property, and (ii) each such Lien shall extend solely to the item or items of property so acquired; (i) Liens on property of a Restricted Subsidiary, provided that such Liens secure only Debt owing to the Company or a Restricted Subsidiary; and (j) other Liens not otherwise permitted by paragraphs (a) through (i) of this Section 10.5, so long as the sum, without duplication, of (i) the aggregate amount of Indebtedness secured by such Liens, plus (ii) the aggregate amount of unsecured Debt of all Restricted Subsidiaries, including, without limitation, the IBH Debt, outstanding at such time (other than any such Debt owing to the Company or other Restricted Subsidiaries) shall not exceed 15% of Consolidated Total Capitalization. If, notwithstanding the prohibition contained herein, the Company shall, or shall permit any of the Restricted Subsidiaries to, directly or indirectly create, incur, assume or permit to exist any Lien, other than those Liens permitted by the provisions of paragraphs (a) through (j) of this Section 10.5, it will make or cause to be made effective provision whereby the Notes will be secured equally and ratably with any and all other obligations thereby secured, such security to be pursuant to agreements reasonably satisfactory to the Required Holders and, in any such case, the Notes shall have the benefit, to the fullest extent that, and with such priority as, the holders of the Notes may be entitled under applicable law, of an equitable Lien on such property. Such violation of this Section 10.5 will constitute an Event of Default, whether or not provision is made for an equal and ratable Lien pursuant to this Section 10.5. The filing of a financing statement to evidence for information purposes a lessor's interest in property leased to the Company or a Restricted Subsidiary shall be deemed not to constitute the creation of a Lien. 10.6 Restricted Subsidiary Debt. The Company will not at any time permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or otherwise be or become directly or indirectly liable with respect to, any Debt, other than (x) Debt owing to any other Restricted Subsidiary or to the Company (including any Guaranty of any Debt of any Restricted Subsidiary) and (y) the Excluded Guaranties, unless (without duplication) (a) the aggregate amount of unsecured Debt of all Restricted Subsidiaries, including, without limitation, the IBH Debt, outstanding at such time (other than (i) any such Debt owing to the Company or Restricted Subsidiaries and (ii) the Excluded Guaranties), plus (b) the aggregate amount of obligations secured by Liens permitted pursuant to Section 10.5(j) outstanding at such time, does not exceed 15% of Consolidated Total Capitalization determined at such time. 65 10.7 Consolidated Net Worth. The Company will not, at any time, permit Consolidated Net Worth to be less than the sum of (a) $95,000,000 plus (b) an aggregate amount equal to 50% of Consolidated Net Income (but only if a positive number) for each completed fiscal quarter as of such time beginning with the fiscal quarter ending December 31, 1998. 10.8 Sale-and-Leaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, enter into any Sale-and-Leaseback Transaction, unless, immediately after giving effect thereto, the aggregate amount of all Attributable Debt of the Company and the Restricted Subsidiaries, determined on a consolidated basis, would not exceed $5,000,000. 10.9 Restricted Investments. The Company will not, and will not permit any of the Restricted Subsidiaries to, declare, make or authorize any Restricted Investment unless immediately after giving effect to such action: (a) the aggregate value of all Restricted Investments of the Company and the Restricted Subsidiaries (valued immediately after such action) would not exceed 10% of Consolidated Total Capitalization; and (b) no Default or Event of Default would exist. Any designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall be deemed to be the making of a Restricted Investment by the owner of the Capital Stock of such newly designated Unrestricted Subsidiary in an amount equal to all the share capital and other Investments in such Unrestricted Subsidiary held by the Company and each other Restricted Subsidiary. For the avoidance of doubt, it is understood that any Restricted Investments outstanding prior to the Closing Date shall be deemed not to have been declared, made or authorized at a time when this covenant was effective. 10.10 Merger, Consolidation, Etc. The Company will not, and will not permit any Restricted Subsidiary to, consolidate with or merge with any other corporation or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to any Person except that: (a) the Company may consolidate with or merge with another corporation or convey or transfer (except by lease) all or substantially all of its assets in a single transaction or series of transactions to another Person if: (i) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance or transfer all or substantially all of the assets of the Company as an entirety, as the case may be (the "Successor Corporation"), shall be a solvent corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia; 66 (ii) if the Company is not the Successor Corporation, such corporation shall have executed and delivered to each holder of Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes (pursuant to such agreements and instruments as shall be reasonably satisfactory to the Required Holders), and the Company shall have caused to be delivered to each holder of Notes an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; and (iii) immediately after giving effect to such transaction: (A) no Default or Event of Default would exist, and (B) the Successor Corporation would be able to incur $1 of Funded Debt pursuant to both Section 10.1 and Section 10.2; (b) a Restricted Subsidiary may consolidate with or merge with the Company (so long as the Company is the surviving corporation) or another Restricted Subsidiary or convey, transfer or lease all or substantially all of its assets in a single transaction or series of transactions to the Company or another Restricted Subsidiary; and (c) a Restricted Subsidiary may consolidate with or merge with another corporation or convey, transfer or lease all or substantially all of its assets in a single transaction or series of transactions to another Person if: (i) such transaction is in compliance with Section 10.11 hereof; or (ii) immediately after giving effect to such transaction: (A) no Default or Event of Default would exist, and (B) the Company would be able to incur $1 of Funded Debt pursuant to both Section 10.1 and Section 10.2. No such conveyance or transfer of all or substantially all of the assets of the Company shall have the effect of releasing the Company or any Successor Corporation from its liability under this Agreement or the Notes. 10.11 Sale of Assets, Etc. (a) Sale of Assets. The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless: (i) in the good faith opinion of the Company, the Asset Disposition is in exchange for consideration having a Fair Market Value at least equal to that of the 67 property exchanged and is in the best interest of the Company or such Restricted Subsidiary; (ii) immediately after giving effect to the Asset Disposition, no Default or Event of Default would exist; and (iii) immediately after giving effect to the Asset Disposition, the sum of the Net Proceeds Amounts in respect of all property that was the subject of any Asset Disposition occurring in the period of 365 days ending with and including the date of such Asset Disposition, minus the aggregate cost of Capital Assets acquired by the Company and the Restricted Subsidiaries during such period, would not exceed 15% of Consolidated Total Assets as of the end of the then most recently ended fiscal year of the Company. (b) Disposal of Ownership of a Restricted Subsidiary. The Company will not, and will not permit any of the Restricted Subsidiaries to, sell or otherwise dispose of any shares of Restricted Subsidiary Stock (including, without limitation, pursuant to any merger, consolidation or other transaction specified in Section 10.10(c) hereof, but excluding any transaction permitted by Section 10.10(b) hereof), nor will the Company permit any such Restricted Subsidiary to issue, sell or otherwise dispose of any shares of its own Restricted Subsidiary Stock, provided that the foregoing restrictions do not apply to: (i) the issue of directors' qualifying shares by any such Subsidiary; (ii) any such Transfer of Restricted Subsidiary Stock constituting a Transfer described in clause (a) of the definition of "Asset Disposition"; and (iii) the Transfer of all of the Restricted Subsidiary Stock of a Restricted Subsidiary owned by the Company and the other Restricted Subsidiaries if: (A) such Transfer satisfies the requirements of Section 10.11(a) hereof, (B) in connection with such Transfer the entire Investment (whether represented by stock, Debt, claims or otherwise) of the Company and the other Restricted Subsidiaries in such Restricted Subsidiary is sold, transferred or otherwise disposed of to a Person other than (1) the Company, (2) another Restricted Subsidiary not being simultaneously disposed of, or (3) an Affiliate, and (C) the Restricted Subsidiary being disposed of has no continuing Investment in any other Restricted Subsidiary not being simultaneously disposed of or in the Company. Any designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall be deemed to be an Asset Disposition of all of the Restricted Subsidiary Stock of such newly designated Unrestricted Subsidiary. 68 (c) Release of Guaranties of Subsidiaries. If, with respect to any Subsidiary that is a Guarantor, (i) all of the Company's and any Restricted Subsidiary's Capital Stock or other equity ownership interests in such Guarantor is Transferred (including by way of a merger) to a Person other than the Company or a Restricted Subsidiary in accordance with the requirements of this Section 10.11, (ii) such Guarantor engages in a transaction permitted by Section 10.10(c) with any such Person and the surviving Person or transferee is not a Subsidiary, or (iii) such Guarantor sells all or substantially all of its assets to another Subsidiary or the Company and, in the case of a sale to another Subsidiary, such other Subsidiary becomes a Guarantor by executing a Guaranty Agreement, then the Company may elect to cause the withdrawal of the Guaranty Agreement of such Guarantor. Such election may be exercised if (A) no Default or Event of Default exists and (B) such Guarantor has no Guaranty obligation in respect of any Debt under the Fleet/Chase Debt Facility, the Existing Notes or the Subordinated Notes (except any such obligation which is being released simultaneously with the release of such Guaranty Agreement), and if a Senior Financial Officer of the Company certifies in writing to each holder of Notes that the conditions specified in the foregoing clauses (A) and (B) have been satisfied. Thereafter, the Guaranty Agreement of such Guarantor shall be terminated, null and void and without effect and, upon request of the Company, and in reliance on the accuracy of the Company's written certification, each holder of Notes shall acknowledge such termination. 10.12 Limitation on Contribution to Company Financial Performance by Unrestricted Subsidiaries. (a) The Company will not at any time permit Consolidated Total Assets to be less than 80% of consolidated total assets of the Company and its Subsidiaries as reflected on a consolidated balance sheet of such Persons prepared in accordance with GAAP. (b) The Company will not permit Pro Forma EBITDA for any period of four consecutive fiscal quarters of the Company to be less than 80% of Pro Forma EBITDA (determined as if each reference in such definition to "Restricted Subsidiaries" were to "Subsidiaries") for such period. 10.13 Transactions with Affiliates. Except as set forth in Schedule 10.13, the Company will not, and will not permit any Restricted Subsidiary to, enter into directly or indirectly any transaction or group of related transactions (including, without limitation, the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Restricted Subsidiary), except in the ordinary course and pursuant to the reasonable requirements of the Company's or such Restricted Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. 69 10.14 Leverage Ratios. (a) Senior Leverage Ratio. The Company will not permit the ratio of (x) Consolidated Senior Funded Debt, determined at the end of any fiscal quarter of the Company, to (y) Pro Forma EBITDA for the period of four consecutive fiscal quarters of the Company ending with, and including, such fiscal quarter to be greater than 3.25 to 1.0. (b) Total Leverage Ratio. The Company will not permit the ratio of (x) Consolidated Funded Debt, determined at the end of any fiscal quarter of the Company, to (y) Pro Forma EBITDA for the period of four consecutive fiscal quarters of the Company ending with, and including, such fiscal quarter to be greater than (i) 3.75 to 1.0 at any time on or before December 31, 1999 and (ii) 3.50 to 1.0 at any time thereafter. 10.15 Limit on Acquisitions. The Company will not, and will not permit any Restricted Subsidiary to, make any Acquisition unless: (a) no Default or Event of Default exists or would result from such Acquisition; (b) the Person or assets acquired, as the case may be, involve substantially the same or a similar line of business engaged in by the Company and its Restricted Subsidiaries; (c) the Company demonstrates that, on a consolidated basis with the Person and/or assets to be acquired, in accordance with GAAP, the Company would have been in compliance with Sections 10.4, 10.7, 10.14(a) and 10.14(b) on a trailing four quarters pro forma basis as of the last day of the then most recently completed fiscal quarter of the Company; and (d) the aggregate amount expended by the Company and its Restricted Subsidiaries, whether in cash, Securities or other property, for all Acquisitions permitted hereunder within any one calendar year does not exceed $20,000,000 or its equivalent in other currencies. 10.16 IBH Debt. The Company will not permit the IBH Debt to be renewed, replaced, extended or refinanced and shall not permit the maximum aggregate principal amount thereof which may be outstanding at any time to exceed the sum of (x) 68,000,000 Deutsche Marks and (y) $10,000,000 (or the equivalent thereof in other currencies). 11. EVENTS OF DEFAULT. An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing: 70 (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any term contained in any of Sections 10.1 through 10.12, inclusive, Section 10.14 through Section 10.16, inclusive, or Section 7.1(d); or (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note; or (e) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or (f) (i) the Company or any Restricted Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make- whole amount or interest on any Indebtedness (other than Indebtedness under this Agreement and the Notes) beyond any period of grace provided with respect thereto (after giving effect to any consents or waivers in respect thereof), that individually or together with such other Indebtedness as to which any such failure exists has an aggregate outstanding principal amount of at least $2,000,000, or (ii) the Company or any Restricted Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness (other than Indebtedness under this Agreement and the Notes), that individually or together with such other Indebtedness as to which any such failure exists has an aggregate outstanding principal amount of at least $2,000,000, or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared (or, after giving effect to any consents or waivers in respect thereof, one or more Persons are entitled to declare such Indebtedness to be), due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Indebtedness to convert such Indebtedness into equity interests), (A) the Company or any Subsidiary has become obligated to purchase or repay Indebtedness before its regular maturity or before its 71 regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $2,000,000, or (B) one or more Persons have the right to require the Company or any Subsidiary so to purchase or repay such Indebtedness, or (iv) the Company is in default in the performance of or compliance with any term of the Indebtedness evidenced by the Subordinated Notes or of the Subordinated Note Purchase Agreements, or of any other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared, due and payable before its stated maturity or before its regularly scheduled dates of payment; or (g) the Company or any Restricted Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any Restricted Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to the Company or any Restricted Subsidiary or with respect to any substantial part of the property of the Company or any Restricted Subsidiary, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any Restricted Subsidiary, or any such petition shall be filed against the Company or any Restricted Subsidiary and such petition shall not be dismissed within 60 days; or (i) a final judgment or judgments for the payment of money aggregating in excess of $1,000,000 above the level of coverage provided by any applicable insurance policy are rendered against one or more of the Company and the Restricted Subsidiaries and which judgments are not, within 30 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 30 days after the expiration of such stay; or (j) except as otherwise specifically permitted by this Agreement (including, without limitation, Sections 9.7(c) and 10.11(c)) or the Guaranty Agreement, (i) any of the Guaranty Agreements shall cease to be in full force and effect or shall be declared by a court or Governmental Authority of competent jurisdiction to be void or unenforceable against the Guarantor thereunder, 72 (ii) the validity or enforceability of any of the Guaranty Agreements against the Guarantor thereunder shall be contested by such Guarantor, the Company or any Person owning, directly or indirectly, a majority of the common stock of the Company, or (iii) any Guarantor, the Company or any such Person identified in clause (ii) of this Section 11(j) shall deny that such Guarantor has any further liability or obligation under such Guarantor's Guaranty Agreement; or (k) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $6,000,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 11(k), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in section 3 of ERISA. 73 12. REMEDIES ON DEFAULT, ETC. 12.1 Acceleration. (a) If an Event of Default with respect to the Company described in paragraph (g) or paragraph (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, any holder or holders of more than 66-2/3% in principal amount of the Notes at the time outstanding may at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. 12.2 Other Remedies. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. 12.3 Rescission. 74 At any time after any Notes have been declared due and payable pursuant to clause (b) or clause (c) of Section 12.1, the holders of not less than 66-2/3% in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, due and payable on any Notes other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 17, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. 12.4 No Waivers or Election of Remedies, Expenses, etc. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 15, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. 13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES. 13.1 Registration of Notes. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 13.2 Transfer and Exchange of Notes. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request 75 and shall be substantially in the form of Exhibit 1-A or Exhibit 1-B, as the case may be. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $100,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representations set forth in Section 6.2 and in the second sentence of Section 6.1. 13.3 Replacement of Notes. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original purchaser or a Qualified Institutional Buyer, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. 14. PAYMENTS ON NOTES. 14.1 Place of Payment. Subject to Section 14.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in Greenwich, Connecticut at the principal office of the Company in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction or the principal office of a bank or trust company in such jurisdiction. 14.2 Home Office Payment. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 14.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in 76 writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 14.1. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 13.2. The Company will afford the benefits of this Section 14.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 14.2. 15. EXPENSES, ETC. 15.1 Transaction Expenses. The Company will pay all costs and expenses (including any judgment or settlement approved by the Company, reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by you and the Other Purchaser or holder of a Note in connection with (a) the negotiation, execution and documentation of the transactions contemplated hereby, (b) any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), and (c) any actual or threatened proceeding relating to any action the Company has taken, or will take, as to which the Company has made a representation and warranty hereunder, including, without limitation: (x) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (y) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you). 15.2 Survival. The obligations of the Company under this Section 15 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this Agreement or the Notes, and the termination of this Agreement. 16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT. 77 All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. 17. AMENDMENT AND WAIVER. 17.1 Requirements. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of any of Sections 1, 2, 3, 4, 5, 6 and 21, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any payment or prepayment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 17 and 20. Notwithstanding the provisions of the immediately preceding paragraph, you and the Other Purchaser agree, and each other holder of Notes by its acceptance of any Note shall be deemed to have agreed, to grant its written consent, promptly following the receipt of a written request by the Company for such consent, to any amendment of, or waiver with respect to (prospectively only), clause (ii) of Section 10.14(b), Section 10.15 or Section 10.16 in a manner consistent with any one or more amendments of, or waivers with respect to, the covenants in the Fleet/Chase Debt Facility that correspond to clause (ii) of Section 10.14(b), Section 10.15 or Section 10.16, as the case may be (the "Fleet/Chase Equivalent Provisions"); provided that (A) the Company shall have delivered to each holder of Notes a copy of such amendment or waiver relating to the Fleet/Chase Debt Facility, together with a certificate of a Responsible Officer of the Company to the effect that such copy is true and complete and that such amendment or waiver relating to the Fleet/Chase Debt Facility has become effective in accordance with the terms of the Fleet/Chase Debt Facility and (B) the effect of the requested amendment or waiver relating to clause (ii) of Section 10,14(b), Section 10.15 or Section 10.16, as the case may be, shall be no less favorable (and no more onerous) to the holders of Notes than the corresponding amendment or waiver relating to the Fleet/Chase Debt Facility is to the banks that are parties thereto. In addition, if any or all of the Fleet/Chase Equivalent Provisions are deleted from the Fleet/Chase Debt Facility, or such facility is terminated and not replaced by a substantially similar facility containing provisions equivalent to the Fleet/Chase Equivalent Provisions, then one or more of clause (ii) of Section 10.14(b), Section 10.15 and Section 10.16, whichever shall correspond to the provisions eliminated from the Fleet/Chase Debt Facility (or all such Sections if the Fleet/Chase Debt Facility shall be terminated and not replaced, as stated above), shall be deemed 78 to have been automatically deleted from this Agreement without the need for any action by the Company or the holders of the Notes. 17.2 Solicitation of Holders of Notes. (a) Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 17 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (b) Payment. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. 17.3 Binding Effect, etc. Any amendment or waiver consented to as provided in this Section 17 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. 17.4 Notes held by Company, etc. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. 18. NOTICES. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized 79 overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing, (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Patrick G. Healy, Executive Vice President, Finance & Chief Financial Officer, telecopier: 203-629-8883, or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this Section 18 will be deemed given on the earlier of the date of actual receipt thereof or the third Business Day after such notice shall have been sent in the manner provided above. 19. REPRODUCTION OF DOCUMENTS. This Agreement and all documents relating hereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 19 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. 20. CONFIDENTIAL INFORMATION. For the purposes of this Section 20, "Confidential Information" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by you as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure, 80 (b) subsequently becomes publicly known through no act or omission by you or any person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary or by any other holder of a Note if the disclosure of such Confidential Information to such other holder was made subject to this Section 20, or (d) constitutes financial statements delivered to you under Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you, provided that you may deliver or disclose Confidential Information to (i) your directors, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (v) any Person from which you offer to purchase any Security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 20), (vi) any federal or state regulatory authority having jurisdiction over you, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio, or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any litigation to which you are a party or (z) if an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. 81 Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 20 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 20. 21. SUBSTITUTION OF PURCHASER. You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 21), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. 82 22. MISCELLANEOUS. 22.1 Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. 22.2 Payments Due on Non-Business Days; When Payments Deemed Received. (a) Payments Due on Non-Business Days. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or Make-Whole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. (b) Payments, When Received. Any payment to be made to the holders of Notes hereunder or under the Notes shall be deemed to have been made on the Business Day such payment actually becomes available to such holder at such holder's bank prior to 12:00 noon (local time of such bank). 22.3 Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. 22.4 Construction. Each covenant contained herein shall be construed (absent express provision to the contrary or where the context clearly would indicate otherwise) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision or where the context clearly would indicate otherwise) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. 22.5 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. 22.6 Governing Law. 83 THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW YORK EXCLUDING CHOICE-OF-LAW PRINCIPLES OF THE LAW OF SUCH STATE THAT WOULD REQUIRE THE APPLICATION OF THE LAWS OF A JURISDICTION OTHER THAN SUCH STATE. [Remainder of page intentionally blank. Next page is signature page.] 84 If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, NFO Worldwide, Inc. By:_________________________ Name: Title: The foregoing is hereby agreed to as of the date thereof. [Purchaser] By:_________________________ Name: Title: 85 EX-10.44 3 EXHIBIT 10.44 EXHIBIT 10.44 NFO Worldwide, Inc. ------------------------------- Note Purchase Agreement ------------------------------- Dated as of March 15, 1999 $8,000,000 9.84% Senior Subordinated Notes Due November 15, 2008 86 NFO Worldwide, Inc. 2 Pickwick Plaza Greenwich, CT 06830 9.84% Senior Subordinated Notes Due November 15, 2008 Dated as of March 15, 1999 To the Purchasers Named on the Signature Page Hereto Ladies and Gentlemen: NFO Worldwide, Inc., a Delaware corporation (together with its successors and assigns, the "Company"), agrees with you as follows: Section 1. Authorization of Notes. The Company will authorize the issue and sale of $8,000,000 aggregate principal amount of its 9.84% Senior Subordinated Notes due November 15, 2008 (the "Notes," such term to include any such notes issued in substitution therefor pursuant to Section 13 of this Agreement or the Other Agreement (as hereinafter defined)). The Notes shall be substantially in the form set out in Exhibit 1, with such changes therefrom, if any, as may be approved by you and the Company. Certain capitalized terms used in this Agreement are defined in Schedule B; references to a "Schedule" or an "Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached to this Agreement. Section 2. Sale and Purchase of Notes. Subject to the terms and conditions of this Agreement, the Company will issue and sell to you and you will purchase from the Company, at the Closing provided for in Section 3, Notes in the principal amount specified below your name in Schedule A at the purchase price of 100% of the principal amount thereof. Contemporaneously with entering into this Agreement, the Company is entering into a separate Note Purchase Agreement (the "Other Agreement") identical with this Agreement with the other purchaser named in Schedule A (the "Other Purchaser"), providing for the sale at such Closing to the Other Purchaser of Notes in the principal amount specified below such Other Purchaser's name in Schedule A. Your obligation hereunder and the obligations of the Other Purchaser under the Other Agreement are several and not joint obligations and you shall have no obligation under the Other Agreement and no liability to any Person for the performance or nonperformance by any Other Purchaser thereunder. Section 3. The Closing. 87 The closing of the sale and purchase of $8,000,000 in aggregate principal amount of the Notes (the "Closing") to be purchased by you and the Other Purchaser shall occur at the offices of Paul, Weiss, Rifkind, Wharton & Garrison, 1285 Avenue of the Americas, New York, New York 10019-6064, on March ___, 1999 (the "Closing Date"). At the Closing, the Company will deliver to you the Notes to be purchased by you in the form of a single Note (or such greater number of Notes in denominations of at least $100,000 as you may request), dated the Closing Date and registered in your name (or in the name of your nominee), as indicated in Schedule A, against payment by federal funds wire transfer in immediately available funds of the amount of the purchase price therefor as directed by the Company in Schedule C. If at the Closing the Company shall fail to tender such Notes to you as provided above in this Section 3, or any of the conditions specified in Section 4 shall not have been fulfilled to your satisfaction, you shall, at your election, be relieved of all further obligations under this Agreement, without thereby waiving any rights you may have by reason of such failure or such nonfulfillment. Section 4. Conditions to Closing. Your obligation to purchase and pay for the Notes to be sold to you at the Closing is subject to the fulfillment to your satisfaction, prior to or at the Closing, of the following conditions: Section 4.1. Representations and Warranties. The representations and warranties of the Company in this Agreement shall be correct when made and at the time of the Closing. Section 4.2. Performance; No Default. The Company shall have performed and complied with all agreements and conditions contained in this Agreement required to be performed or complied with by it prior to or at the Closing and after giving effect to the issue and sale of the Notes (and the application of the proceeds thereof as contemplated by Schedule 5.14) no Default or Event of Default shall have occurred and be continuing. Neither the Company nor any Subsidiary shall have entered into any transaction since the date of the Memorandum that would have been prohibited by any of Sections 10.1, 10.2, 10.3, 10.5, 10.8, 10.9 or 10.11 had such Sections applied since such date. Section 4.3. Compliance Certificates. (a) Officer's Certificate. The Company shall have delivered to you an Officer's Certificate, dated the Closing Date, certifying that the conditions specified in Sections 4.1, 4.2 and 4.9 have been fulfilled. (b) Secretary's Certificate. The Company shall have delivered to you a certificate of its Secretary or one of its Assistant Secretaries, dated the Closing Date, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Notes, this Agreement and the Other Agreement. (c) Initial Guarantor Secretary's Certificates. Each of the Initial Guarantors shall have delivered to you a certificate of its Secretary or one of its Assistant Secretaries, dated the Closing Date, certifying as to the resolutions attached thereto and other corporate proceedings relating to the authorization, execution and delivery of the Guaranty Agreement to which such Initial Guarantor 88 is a party. Section 4.4. Opinions of Counsel. You shall have received opinions in form and substance satisfactory to you, each dated the Closing Date, from (a) Paul, Weiss, Rifkind, Wharton & Garrison, counsel for the Company and the Initial Guarantors, substantially in the form set out in Exhibit 4.4(a) and covering such other matters incident to the transactions contemplated hereby as you or your counsel may reasonably request (and the Company hereby instructs such counsel to deliver such opinion to you), and (b) Chapman and Cutler, your special counsel in connection with such transactions, substantially in the form set out in Exhibit 4.4(b) and covering such other matters incident to such transactions as you may reasonably request. Section 4.5. Purchase Permitted by Applicable Law, Etc. On the Closing Date your purchase of Notes shall (a) be permitted by the laws and regulations of each jurisdiction to which you are subject, without recourse to provisions (such as section 1405(a)(8) of the New York Insurance Law) permitting limited investments by insurance companies without restriction as to the character of the particular investment, (b) not violate any applicable law or regulation (including, without limitation, Regulation T, U or X of the Board of Governors of the Federal Reserve System) and (c) not subject you to any tax, penalty or liability under or pursuant to any applicable law or regulation. If requested by you, you shall have received an Officer's Certificate certifying as to such matters of fact as you may reasonably specify to enable you to determine whether such purchase is so permitted. Section 4.6. Sale of Other Notes. Contemporaneously with the Closing the Company shall sell to the Other Purchaser and the Other Purchaser shall purchase the Notes to be purchased by it at the Closing as specified in Schedule A. Section 4.7. Payment of Special Counsel Fees. Without limiting the provisions of Section 16.1, the Company shall have paid on or before the Closing the fees, charges and disbursements of your special counsel referred to in Section 4.4(b) to the extent reflected in a statement of such counsel rendered to the Company at least one Business Day prior to the date of such Closing. Section 4.8. Private Placement Number. A Private Placement Number issued by Standard & Poor's CUSIP Service Bureau (in cooperation with the Securities Valuation Office of the National Association of Insurance Commissioners) shall have been obtained for the Notes. Section 4.9. Changes in Corporate Structure. Except as specified in Schedule 4.9, the Company shall not have changed its jurisdiction of incorporation or been a party to any merger or consolidation and shall not have succeeded to all or any substantial part of the liabilities of any other entity, at any time following the date of the most recent interim financial statements referred to in Schedule 5.5. Section 4.10. Senior Notes. Contemporaneously with the Closing the Company shall sell to 89 the Senior Note Purchasers, and the Senior Note Purchasers shall purchase, the Senior Notes to be purchased by them at the Closing under the Senior Note Purchase Agreements. Section 4.11. Guaranty Agreements. You shall have received a counterpart of each of the Guaranty Agreements, duly executed and delivered by each of the Initial Guarantors, substantially in the form of Exhibit 4.11, and such Guaranty Agreements shall be in full force and effect. Section 4.12. Amendments to Existing Agreements. The Company shall have entered into amendments to each of the Existing Senior Note Purchase Agreements, the Existing Subordinated Note Purchase Agreements and the Fleet/Chase Debt Facility, and such amendments shall be satisfactory to you in all respects. Section 4.13. Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated by this Agreement and all documents and instruments incident to such transactions shall be satisfactory to you and your special counsel, and you and your special counsel shall have received all such counterpart originals or certified or other copies of such documents as you or they may reasonably request. Section 5. Representations and Warranties of the Company. The Company represents and warrants to you, as of the date of the Closing Date, that: Section 5.1. Organization; Power and Authority. The Company is a corporation duly organized, validly existing and in good standing under the laws of Delaware, and is duly qualified as a foreign corporation and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. The Company has the corporate power and authority to own or hold under lease the properties it purports to own or hold under lease, to transact the business it transacts and proposes to transact, to execute and deliver this Agreement and the Other Agreement and the Notes and to perform the provisions hereof and thereof. Section 5.2. Authorization, Etc. This Agreement, the Other Agreement and the Notes have been duly authorized by all necessary corporate action on the part of the Company, and this Agreement constitutes, and upon execution and delivery thereof each Note will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms, except as such enforceability may be limited by (a) applicable bankruptcy, insolvency, reorganization, moratorium or other similar laws affecting the enforcement of creditors' rights generally and (b) general principles of equity (regardless of whether such enforceability is considered in a proceeding in equity or at law). Section 5.3. Disclosure. The Company, through its agent, William Blair & Company, has delivered to you and the Other Purchaser a copy of a Private Placement Memorandum, dated February 10, 1999 (the "Memorandum"), relating to the transactions contemplated hereby. The Memorandum fairly describes, in all material respects, the general nature of the business and principal properties of the Company and its Subsidiaries. Except as disclosed in Schedule 5.3, this 90 Agreement, the Memorandum, the documents, certificates or other writings delivered to you by or on behalf of the Company in connection with the transactions contemplated hereby and the financial statements listed in Schedule 5.5, taken as a whole, do not contain any untrue statement of a material fact or omit to state any material fact necessary to make the statements therein not misleading in light of the circumstances under which they were made. Except as disclosed in the Memorandum or as expressly described in Schedule 5.3, or in one of the documents, certificates or other writings identified therein, or in the financial statements listed in Schedule 5.5, since December 31, 1997, there has been no change in the financial condition, operations, business, properties or prospects of the Company or any Subsidiary except changes that individually or in the aggregate could not reasonably be expected to have a Material Adverse Effect. There is no fact known to the Company that could reasonably be expected to have a Material Adverse Effect that has not been set forth herein or in the Memorandum or in the other documents, certificates and other writings delivered to you by or on behalf of the Company specifically for use in connection with the transactions contemplated hereby. Section 5.4. Organization and Ownership of Shares of Subsidiaries; Affiliates. (a) Schedule 5.4 contains (except as noted therein) complete and correct lists of (i) the Company's Subsidiaries, showing, as to each Subsidiary, the correct name thereof, the jurisdiction of its organization, and the percentage of shares of each class of its Capital Stock or similar equity interests outstanding owned by the Company and each other Subsidiary and (ii) the Company's Affiliates, other than Subsidiaries. (b) All of the outstanding shares of Capital Stock or similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned by the Company and its Subsidiaries have been validly issued, are fully paid and nonassessable and are owned by the Company or another Subsidiary free and clear of any Lien (except as otherwise disclosed in Schedule 5.4). (c) Each Subsidiary identified in Schedule 5.4 is a corporation or other legal entity duly organized, validly existing and in good standing under the laws of its jurisdiction of organization, and is duly qualified as a foreign corporation or other legal entity and is in good standing in each jurisdiction in which such qualification is required by law, other than those jurisdictions as to which the failure to be so qualified or in good standing could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Each such Subsidiary has the corporate or other power and authority to own or hold under lease the properties it purports to own or hold under lease and to transact the business it transacts and proposes to transact. (d) No Subsidiary is a party to, or otherwise subject to any legal restriction or any agreement (other than this Agreement, the agreements listed in Schedule 5.4 and customary limitations imposed by corporate law statutes) restricting the ability of such Subsidiary to pay dividends out of profits or make any other similar distributions of profits to the Company or any of its Subsidiaries that owns outstanding shares of Capital Stock or similar equity interests of such 91 Subsidiary, except for any such restrictions and agreements that are applicable to Subsidiaries which, taken together, are not Material. (e) There are no Unrestricted Subsidiaries. (f) No Subsidiary other than the Initial Guarantors is a guarantor of the Fleet/Chase Debt Facility. Section 5.5. Financial Statements. The Company has delivered to you and the Other Purchaser copies of the financial statements of the Company and its Subsidiaries listed in Schedule 5.5. All of said financial statements (including in each case the related schedules and notes) fairly present in all material respects the consolidated financial position of the Company and its Subsidiaries as of the respective dates specified in such Schedule and the consolidated results of their operations and cash flows for the respective periods so specified and have been prepared in accordance with GAAP consistently applied throughout the periods involved except as set forth in the notes thereto (subject, in the case of any interim financial statements, to normal year-end adjustments). Section 5.6. Compliance with Laws, Other Instruments, Etc. The execution, delivery and performance by the Company of this Agreement and the Notes will not (a) except for any contravention, breach or default that would not have a Material Adverse Effect, contravene, result in any breach of, or constitute a default under, or result in the creation of any Lien in respect of any property of the Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan, purchase or credit agreement, lease, corporate charter or by-laws, or any other agreement or instrument to which the Company or any Subsidiary is bound or by which the Company or any Subsidiary or any of their respective properties may be bound or affected, (b) conflict with or result in a breach of any of the terms, conditions or provisions of any order, judgment, decree, or ruling of any court, arbitrator or Governmental Authority applicable to the Company or any Subsidiary, or (c) violate any provision of any statute or other rule or regulation of any Governmental Authority applicable to the Company or any Subsidiary. Section 5.7. Governmental Authorizations, Etc. No consent, approval or authorization of, or registration, filing or declaration with, any Governmental Authority is required in connection with the execution, delivery or performance by the Company of this Agreement or the Notes. Section 5.8. Litigation; Observance of Agreements, Statutes and Orders. (a) There are no actions, suits or proceedings pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any property of the Company or any Subsidiary in any court or before any arbitrator of any kind or before or by any Governmental Authority that, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. (b) Neither the Company nor any Subsidiary is in default under any term of any agreement or instrument to which it is a party or by which it is bound, or any order, judgment, decree or ruling 92 of any court, arbitrator or Governmental Authority or is in violation of any applicable law, ordinance, rule or regulation (including, without limitation, Environmental Laws) of any Governmental Authority, which default or violation, individually or in the aggregate, could reasonably be expected to have a Material Adverse Effect. Section 5.9. Taxes. The Company and its Subsidiaries have filed all tax returns that are required to have been filed in any jurisdiction, and have paid all taxes shown to be due and payable on such returns and all other taxes and assessments levied upon them or their properties, assets, income or franchises, to the extent such taxes and assessments have become due and payable and before they have become delinquent, except for any taxes and assessments (a) the amount of which is not individually or in the aggregate Material or (b) the amount, applicability or validity of which is currently being contested in good faith by appropriate proceedings and with respect to which the Company or a Subsidiary, as the case may be, has established adequate reserves in accordance with GAAP. The Company knows of no basis for any other tax or assessment that could reasonably be expected to have a Material Adverse Effect. The charges, accruals and reserves on the books of the Company and its Subsidiaries in respect of Federal, state or other taxes for all fiscal periods are adequate. The Federal income tax liabilities of the Company and its Subsidiaries have been determined by the Internal Revenue Service and paid for all fiscal years up to and including the fiscal year ended December 31, 1992. Section 5.10. Title to Property, Leases. The Company and its Subsidiaries have good and sufficient title to their respective properties that individually or in the aggregate are Material, including all such properties reflected in the most recent audited balance sheet referred to in Section 5.5 or purported to have been acquired by the Company or any Subsidiary after said date (except as sold or otherwise disposed of in the ordinary course of business), in each case free and clear of Liens prohibited by this Agreement. All leases that individually or in the aggregate are Material are valid and subsisting and are in full force and effect in all material respects. Section 5.11. Licenses, Permits, Etc. Except as disclosed in Schedule 5.11, (a) the Company and its Subsidiaries own or possess all licenses, permits, franchises, authorizations, patents, copyrights, service marks, trademarks and trade names, or rights thereto, that individually or in the aggregate are Material, without known conflict with the rights of others; (b) to the best knowledge of the Company, no product or practice of the Company or any Subsidiary infringes in any material respect any license, permit, franchise, authorization, patent, copyright, service mark, trademark, trade name or other right owned by any other Person; and (c) to the best knowledge of the Company, there is no Material violation by any Person of any right of the Company or any of its Subsidiaries with respect to any patent, copyright, service mark, trademark, trade name or other right owned or used by the 93 Company or any of its Subsidiaries. Section 5.12. Compliance with ERISA. (a) The Company and each ERISA Affiliate have operated and administered each Plan in compliance with all applicable laws except for such instances of noncompliance as have not resulted in and could not reasonably be expected to result in a Material Adverse Effect. Neither the Company nor any ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans (as defined in section 3 of ERISA), and no event, transaction or condition has occurred or exists that could reasonably be expected to result in the incurrence of any such liability by the Company or any ERISA Affiliate, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate, in either case pursuant to Title I or IV of ERISA or to such penalty or excise tax provisions or to section 401(a)(29) or 412 of the Code, other than such liabilities or Liens as would not be individually or in the aggregate Material. (b) The present value of the aggregate benefit liabilities under each of the Plans (other than Multiemployer Plans), determined as of the end of such Plan's most recently ended plan year on the basis of the actuarial assumptions specified for funding purposes in such Plan's most recent actuarial valuation report, did not exceed the aggregate current value of the assets of such Plan allocable to such benefit liabilities by more than $1,500,000. The term "benefit liabilities" has the meaning specified in section 4001 of ERISA and the terms "current value" and "present value" have the meaning specified in section 3 of ERISA. (c) The Company and the ERISA Affiliates have not incurred withdrawal liabilities (and are not subject to contingent withdrawal liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer Plans that individually or in the aggregate are Material. (d) The expected postretirement benefit obligation (determined as of the last day of the Company's most recently ended fiscal year in accordance with Financial Accounting Standards Board Statement No. 106, without regard to liabilities attributable to continuation coverage mandated by section 4980B of the Code) of the Company and its Subsidiaries is not Material. (e) The execution and delivery of this Agreement and the issuance and sale of the Notes hereunder will not involve any transaction that is subject to the prohibitions of section 406 of ERISA or in connection with which a tax could be imposed pursuant to section 4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first sentence of this Section 5.12(e) is made in reliance upon and subject to the accuracy of your representation in Section 6.2 as to the sources of the funds used to pay the purchase price of the Notes to be purchased by you. (f) Schedule 5.12 sets forth all ERISA Affiliates and all "employee benefit plans" maintained by the Company (or any "affiliate" thereof) or in respect of which the Notes could constitute an "employer security" ("employee benefit plan" has the meaning specified in section 3 of ERISA, "affiliate" has the meaning specified in section 407(d) of ERISA and section V of the Department of Labor Prohibited Transaction Exemption 95-60 (60 FR 35925, July 12, 1995) and 94 "employer security" has the meaning specified in section 407(d) of ERISA). Section 5.13. Private Offering by the Company. Neither the Company nor anyone acting on its behalf has offered the Notes or any similar securities for sale to, or solicited any offer to buy any of the same from, or otherwise approached or negotiated in respect thereof with, any Person other than 31 Institutional Investors (including you and the Other Purchaser), each of which has been offered the Notes at a private sale for investment. Neither the Company nor anyone acting on its behalf has taken, or will take, any action that would subject the issuance or sale of the Notes to the registration requirements of section 5 of the Securities Act. Section 5.14. Use of Proceeds; Margin Regulations. The Company will apply the proceeds of the sale of the Notes as set forth in Schedule 5.14. No part of the proceeds from the sale of the Notes hereunder will be used, directly or indirectly, for the purpose, whether immediate, incidental or ultimate, of buying or carrying any margin stock within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 CFR 221), or for the purpose of buying or carrying or trading in any securities under such circumstances as to involve the Company in a violation of Regulation X of said Board (12 CFR 224) or to involve any broker or dealer in a violation of Regulation T of said Board (12 CFR 220). Margin stock does not constitute more than 1% of the value of the consolidated assets of the Company and its Subsidiaries and the Company does not have any present intention that margin stock will constitute more than 1% of the value of such assets. As used in this Section, the term "margin stock" shall have the meaning assigned to it in said Regulation U. Section 5.15. Existing Debt; Future Liens. (a) Except as described therein, Schedule 5.15 sets forth a complete and correct list of each issue of outstanding Debt of the Company and its Subsidiaries with an outstanding principal amount of at least $1,000,000 as of the Closing Date (and specifying, as to each such Debt, the collateral, if any, securing such Debt). The aggregate amount of all Debt of the Company and its Subsidiaries not listed on Schedule 5.15 is less than $2,000,000. Neither the Company nor any Subsidiary is in default and no waiver of default is currently in effect, in the payment of any principal of or interest on any Debt of the Company or such Subsidiary and no event or condition exists with respect to any Debt of the Company or any Subsidiary that would permit (or that with notice or the lapse of time, or both, would permit) one or more Persons to cause such Debt to become due and payable before its stated maturity or before its regularly scheduled dates of payment. (b) Except as disclosed in Schedule 5.15, neither the Company nor any Subsidiary has agreed or consented to cause or permit in the future (upon the happening of a contingency or otherwise) any of its property, whether now owned or hereafter acquired, to be subject to a Lien not permitted by Section 10.5. Section 5.16. Foreign Assets Control Regulations, Etc. Neither the sale of the Notes by the Company hereunder nor its use of the proceeds thereof will violate the Trading with the Enemy Act, 95 as amended, or any of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B, Chapter V, as amended) or any enabling legislation or executive order relating thereto. Section 5.17. Status under Certain Statutes. Neither the Company nor any Subsidiary is subject to regulation under the Investment Company Act of 1940, as amended, the Public Utility Holding Company Act of 1935, as amended, the Transportation Acts (49 U.S.C.), as amended, or the Federal Power Act, as amended. Section 5.18. Environmental Matters. Neither the Company nor any Subsidiary has knowledge of any claim or has received any notice of any claim, and no proceeding has been instituted raising any claim against the Company or any of its Subsidiaries or any of their respective real properties now or formerly owned, leased or operated by any of them or other assets, alleging any damage to the environment or violation of any Environmental Laws, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect. Except as otherwise disclosed to you in writing, (a) neither the Company nor any Subsidiary has knowledge of any facts which would give rise to any claim, public or private, of violation of Environmental Laws or damage to the environment emanating from, occurring on or in any way related to real properties now or formerly owned, leased or operated by any of them or to other assets or their use, except, in each case, such as could not reasonably be expected to result in a Material Adverse Effect; (b) neither the Company nor any of its Subsidiaries has stored any Hazardous Materials on real properties now or formerly owned, leased or operated by any of them and has not disposed of any Hazardous Materials in a manner contrary to any Environmental Laws in each case in any manner that could reasonably be expected to result in a Material Adverse Effect; and (c) all buildings on all real properties now owned, leased or operated by the Company or any of its Subsidiaries are in compliance with applicable Environmental Laws, except where failure to comply could not reasonably be expected to result in a Material Adverse Effect. Section 5.19. Year 2000 Matters. The Company has reasonable grounds for believing that it will be Year 2000 Compliant and Ready on or before December 1, 1999. "Year 2000 Compliant and Ready" means that (a) the Company's and its Subsidiaries' hardware and software systems, with respect to the operation of their business, will (i) handle satisfactorily date information involving any and all dates before, during and/or after January 1, 2000, including accepting input, providing output and performing date calculations in whole or in part and (ii) operate accurately, without Material interruption, on and in respect of any and all dates before, during and/or after January 1, 2000 and without any Material change in performance; and 96 (b) the Company has developed alternative plans to ensure business continuity in all Material respects in the event of the failure of the items identified in clauses (i) and (ii) in the foregoing clause (a). Section 6. Representations of the Purchaser. Section 6.1. Purchase for Investment. You represent that you are purchasing the Notes for your own account or for one or more separate accounts maintained by you or for the account of one or more pension or trust funds and not with a view to the distribution thereof, provided that the disposition of your or their property shall at all times be within your or their control. You understand that the Notes have not been registered under the Securities Act and may be resold only if registered pursuant to the provisions of the Securities Act or if an exemption from registration is available, except under circumstances where neither such registration nor such an exemption is required by law, and that the Company is not required to register the Notes. Section 6.2. Source of Funds. You represent that at least one of the following statements is an accurate representation as to each source of funds (a "Source") to be used by you to pay the purchase price of the Notes to be purchased by you hereunder: (a) the Source is an "insurance company general account" as defined in United States Department of Labor Prohibited Transaction Exemption ("PTE") 95-60 (60 FR 35925, July 12, 1995) and in respect thereof you represent that there is no "employee benefit plan" (as defined in section 3(3) of ERISA and section 4975(e)(1) of the Code, treating as a single plan all plans maintained by the same employer or employee organization or affiliate thereof) with respect to which the amount of the general account reserves and liabilities of all contracts held by or on behalf of such plan exceeds 10% of the total reserves and liabilities of such general account (exclusive of separate account liabilities) plus surplus, as set forth in the National Association of Insurance Commissioners' Annual Statement filed with your state of domicile and that such acquisition is eligible for and satisfies the other requirements of such exemption; or (b) if you are an insurance company, the Source does not include assets allocated to any separate account maintained by you in which any employee benefit plan (or its related trust) has any interest, other than a separate account that is maintained solely in connection with your fixed contractual obligations under which the amounts payable, or credited, to such plan and to any participant or beneficiary of such plan (including any annuitant) are not affected in any manner by the investment performance of the separate account; or (c) the Source is either (i) an insurance company pooled separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or (ii) a bank collective investment fund, within the meaning of the PTE 91-38 (issued July 12, 1991) and, except as you have disclosed to the Company in writing pursuant to this paragraph (c), no employee benefit plan or group of plans maintained by the same employer or employee organization beneficially 97 owns more than 10% of all assets allocated to such pooled separate account or collective investment fund; or (d) the Source constitutes assets of an "investment fund" (within the meaning of part V of PTE 84-14 (the "QPAM Exemption")) managed by a "qualified professional asset manager" or "QPAM" (within the meaning of part V of the QPAM Exemption), no employee benefit plan's assets that are included in such investment fund, when combined with the assets of all other employee benefit plans established or maintained by the same employer or by an affiliate (within the meaning of section V(c)(1) of the QPAM Exemption) of such employer or by the same employee organization and managed by such QPAM, exceed 20% of the total client assets managed by such QPAM, the conditions of part I(c) and (g) of the QPAM Exemption are satisfied, neither the QPAM nor a person controlling or controlled by the QPAM (applying the definition of "control" in section V(e) of the QPAM Exemption) owns a 5% or more interest in the Company and (i) the identity of such QPAM and (ii) the names of all employee benefit plans whose assets are included in such investment fund have been disclosed to the Company in writing pursuant to this paragraph (d); or (e) the Source is a governmental plan; or (f) the Source is one or more employee benefit plans, or a separate account or trust fund comprised of one or more employee benefit plans, each of which has been identified to the Company in writing pursuant to this paragraph (f); or (g) the Source does not include assets of any employee benefit plan described in section 4975(e) of the Code, other than a plan exempt from the coverage of ERISA and the provisions of section 4975 of the Code. As used in this Section 6.2, the terms "employee benefit plan", "governmental plan" and "separate account" shall have the respective meanings assigned to such terms in Section 3 of ERISA. Section 7. Information as to Company. Section 7.1. Financial and Business Information. The Company shall deliver to each holder of Notes that is an Institutional Investor: (a) Quarterly Statements -- within 60 days after the end of each quarterly fiscal period in each fiscal year of the Company (other than the last quarterly fiscal period of each such fiscal year), duplicate copies of, (i) consolidated balance sheets of the Company and its Subsidiaries, and of the Company and the Restricted Subsidiaries, as at the end of such quarter, and (ii) consolidated statements of income, shareholders' equity and cash flows of the Company and its Subsidiaries, and of the Company and the Restricted Subsidiaries, for such quarter and (in the case of the second and third quarters) for the portion of the fiscal year ending with such quarter, 98 setting forth in each case in comparative form the figures for the corresponding periods in the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP applicable to quarterly financial statements generally, and certified by a Senior Financial Officer as fairly presenting, in all material respects, the consolidated financial position of the companies being reported on and their consolidated results of operations and cash flows, subject to changes resulting from year-end adjustments, provided that, so long as no Unrestricted Subsidiaries existed at any time during the periods covered by such financial statements, delivery within the time period specified above of copies of the Company's Quarterly Report on Form 10-Q prepared in compliance with the requirements therefor and filed with the Securities and Exchange Commission shall be deemed to satisfy the requirements of this Section 7.1(a); (b) Annual Statements -- within 120 days after the end of each fiscal year of the Company, duplicate copies of, (i) consolidated balance sheets of the Company and its Subsidiaries, and of the Company and the Restricted Subsidiaries, as at the end of such year, and (ii) consolidated statements of income, shareholders' equity and cash flows of the Company and its Subsidiaries, and of the Company and the Restricted Subsidiaries, for such year, setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail, prepared in accordance with GAAP, and accompanied by (A) an opinion thereon of independent certified public accountants of recognized national standing, which opinion shall state that such financial statements present fairly, in all material respects, the consolidated financial position of the companies being reported upon and their consolidated results of operations and cash flows and have been prepared in conformity with GAAP, and that the examination of such accountants in connection with such financial statements has been made in accordance with generally accepted auditing standards, and that such audit provides a reasonable basis for such opinion in the circumstances, and (B) a certificate of such accountants stating that they have reviewed this Agreement and stating further whether, in making their audit, they have become aware of any condition or event that then constitutes a Default or an Event of Default, and, if they are aware that any such condition or event then exists, specifying the nature and period of the existence thereof (it being understood that such accountants shall not be liable, directly or indirectly, for any failure to obtain knowledge of any Default or Event of Default unless such accountants should have obtained knowledge thereof in making an audit in accordance with generally accepted auditing standards or did not make such an audit), 99 provided that, so long as no Unrestricted Subsidiaries existed at any time during the periods covered by such financial statements, the delivery within the time period specified above of the Company's Annual Report on Form 10-K for such fiscal year prepared in accordance with the requirements therefor and filed with the Securities and Exchange Commission, together with the accountant's certificate described in clause (B) above, shall be deemed to satisfy the requirements of this Section 7.1(b); (c) SEC and Other Reports -- promptly upon their becoming available, one copy of (i) each financial statement, report (including, without limitation, the Company's annual report to shareholders, if any, prepared pursuant to Rule 14a3 under the Exchange Act), notice or proxy statement sent by the Company or any Subsidiary to public securities holders generally, and (ii) each regular or periodic report, each registration statement (without exhibits except as expressly requested by such holder), and each prospectus and all amendments thereto filed by the Company or any Subsidiary with the Securities and Exchange Commission and of all press releases and other statements made available generally by the Company or any Subsidiary to the public concerning developments that are Material; (d) Notice of Default or Event of Default -- promptly, and in any event within five days after a Responsible Officer becoming aware of the existence of any Default or Event of Default or that any Person has given any notice or taken any action with respect to a claimed default hereunder or that any Person has given any notice or taken any action with respect to a claimed default of the type referred to in Section 11(f), a written notice specifying the nature and period of existence thereof and what action the Company is taking or proposes to take with respect thereto; (e) ERISA Matters -- promptly, and in any event within five days after a Responsible Officer becoming aware of any of the following, a written notice setting forth the nature thereof and the action, if any, that the Company or an ERISA Affiliate proposes to take with respect thereto: (i) with respect to any Plan, any reportable event, as defined in section 4043(c) of ERISA and the regulations thereunder, for which notice thereof has not been waived pursuant to such regulations as in effect on the Closing Date; or (ii) the taking by the PBGC of steps to institute, or the threatening by the PBGC of the institution of, proceedings under section 4042 of ERISA for the termination of, or the appointment of a trustee to administer, any Plan, or the receipt by the Company or any ERISA Affiliate of a notice from a Multiemployer Plan that such action has been taken by the PBGC with respect to such Multiemployer Plan; or (iii) any event, transaction or condition that could result in the incurrence 100 of any liability by the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, or in the imposition of any Lien on any of the rights, properties or assets of the Company or any ERISA Affiliate pursuant to Title I or IV of ERISA or such penalty or excise tax provisions, if such liability or Lien, taken together with any other such liabilities or Liens then existing, could reasonably be expected to have a Material Adverse Effect; (f) Notices from Governmental Authority -- promptly, and in any event within 30 days of receipt thereof, copies of any notice to the Company or any Subsidiary from any Federal or state Governmental Authority relating to any order, ruling, statute or other law or regulation that could reasonably be expected to have a Material Adverse Effect; (g) Actions, Proceedings -- promptly after a Responsible Officer becomes aware of the commencement thereof, notice of any action or proceeding relating to the Company or any Subsidiary in any court or before any Governmental Authority or arbitration board or tribunal as to which there is a reasonable possibility of an adverse determination and that, if adversely determined, could reasonably be expected to have a Material Adverse Effect; and (h) Requested Information -- with reasonable promptness, such other data and information relating to the business, operations, affairs, financial condition, assets or properties of the Company or any of its Subsidiaries (including, without limitation, information regarding the impact of the occurrence of the year 2000 on the Company and its Subsidiaries and plans of the Company to address any such impact) or relating to the ability of the Company to perform its obligations hereunder and under the Notes as from time to time may be reasonably requested by any such holder of Notes, or such information regarding the Company required to satisfy the requirements of 17 C.F.R. ss.230.144A, as amended from time to time, in connection with any contemplated transfer of the Notes. Section 7.2. Officer's Certificate. Each set of financial statements delivered to a holder of Notes pursuant to Section 7.1(a) or Section 7.1(b) hereof shall be accompanied by a certificate of a Senior Financial Officer setting forth: (a) Covenant Compliance -- the information (including detailed calculations) required in order to establish whether the Company was in compliance with the requirements of Sections 10.1 through 10.12, inclusive and Section 10.14 through Section 10.16, inclusive, during the quarterly or annual period covered by the statements then being furnished (including with respect to each such Section, where applicable, the calculations of the maximum or minimum amount, ratio or percentage, as the case may be, permissible under the terms of such Sections, and the calculation of the amount, ratio or percentage then in existence); and 101 (b) Event of Default -- a statement that such officer has reviewed the relevant terms hereof and has made, or caused to be made, under his or her supervision, a review of the transactions and conditions of the Company and its Subsidiaries from the beginning of the quarterly or annual period covered by the statements then being furnished to the date of the certificate and that such review has not disclosed the existence during such period of any condition or event that constitutes a Default or an Event of Default or, if any such condition or event existed or exists (including, without limitation, any such event or condition resulting from the failure of the Company or any Subsidiary to comply with any Environmental Law), specifying the nature and period of existence thereof and what action the Company shall have taken or proposes to take with respect thereto. Section 7.3. Inspection. The Company shall permit the representatives of each holder of Notes that is an Institutional Investor: (a) No Default -- if no Default or Event of Default then exists, at the expense of such holder and upon reasonable prior notice to the Company, to visit the principal executive office of the Company, to discuss the affairs, finances and accounts of the Company and its Subsidiaries with the Company's officers, and (with the consent of the Company, which consent will not be unreasonably withheld) its independent public accountants, and (with the consent of the Company, which consent will not be unreasonably withheld) to visit the other offices and properties of the Company and each Subsidiary, all at such reasonable times and as often as may be reasonably requested in writing; and (b) Default -- if a Default or Event of Default then exists, at the expense of the Company, to visit and inspect any of the offices or properties of the Company or any Subsidiary, to examine all their respective books of account, records, reports and other papers, to make copies and extracts therefrom, and to discuss their respective affairs, finances and accounts with their respective officers and independent public accountants (and by this provision the Company authorizes said accountants to discuss the affairs, finances and accounts of the Company and its Subsidiaries), all at such times and as often as may be requested. Section 8. Payment of the Notes. Section 8.1. Required Prepayments; Payment at Maturity. The Company will prepay $2,666,666 principal amount of the Notes on November 15, 2006 and November 15, 2007, all such prepayments to be made at par and without payment of any MakeWhole Amount. The Company will pay all of the principal amount of the Notes remaining outstanding, if any, on November 15, 2008. Each partial prepayment of the Notes pursuant to Section 8.2 will be applied first, to the amount due on the maturity date of the Notes and second, to the mandatory prepayments applicable to the Notes, as set forth in this Section 8.1, in the inverse order of the maturity thereof. Section 8.2. Optional Prepayments with Make-Whole Amount. The Company may, at its option, upon notice as provided below, prepay at any time all, or from time to time any part of, the 102 Notes (but if in part, in an amount not less than $1,000,000 or such lesser amount as shall then be outstanding), at 100% of the principal amount so prepaid, plus the MakeWhole Amount determined for the prepayment date with respect to such principal amount. The Company will give each holder of Notes written notice of each optional prepayment under this Section 8.2 not less than 30 days and not more than 60 days prior to the date fixed for such prepayment. Each such notice shall specify such prepayment date, the aggregate principal amount of the Notes to be prepaid on such date, the principal amount of each Note held by such holder to be prepaid (determined in accordance with Section 8.3), and the interest to be paid on the prepayment date with respect to such principal amount being prepaid, and shall be accompanied by a certificate of a Senior Financial Officer as to the estimated Make-Whole Amount due in connection with such prepayment (calculated as if the date of such notice were the date of the prepayment), setting forth the details of such computation. Two Business Days prior to such prepayment, the Company shall deliver to each holder of Notes a certificate of a Senior Financial Officer specifying the calculation of such MakeWhole Amount as of the specified prepayment date. Section 8.3. Allocation of Partial Prepayments. In the case of each partial prepayment of the Notes, the principal amount of the Notes to be prepaid shall be allocated among all of the Notes at the time outstanding in proportion, as nearly as practicable, to the respective unpaid principal amounts thereof not theretofore called for prepayment. Section 8.4. Maturity; Surrender, Etc. In the case of each prepayment of Notes pursuant to this Section 8, the principal amount of each Note to be prepaid shall mature and become due and payable on the date fixed for such prepayment, together with interest on such principal amount accrued to such date and the applicable MakeWhole Amount, if any. From and after such date, unless the Company shall fail to pay such principal amount when so due and payable, together with the interest and Make-Whole Amount, if any, as aforesaid, interest on such principal amount shall cease to accrue. Any Note paid or prepaid in full shall be surrendered to the Company and cancelled and shall not be reissued, and no Note shall be issued in lieu of any prepaid principal amount of any Note. Section 8.5. No Other Optional Prepayments or Purchase of Notes. The Company will not prepay (whether directly or indirectly by purchase, redemption or other acquisition) any of the outstanding Notes except (a) upon the payment or prepayment of the Notes in accordance with the terms of this Section 8 or upon an acceleration of the maturity of the Notes pursuant to Section 12 or (b) pursuant to an offer to purchase made by the Company pro rata to the holders of all Notes at the time outstanding upon the same terms and conditions. Any such offer (i) need not comply with the other provisions of this Section 8 (including, without limitation, the requirement to pay any Make-Whole Amount), (ii) shall provide each holder with sufficient information to enable it to make an informed decision with respect to such offer, and (iii) shall remain open for at least 10 Business Days. The Company will promptly cancel all Notes acquired by it or any Affiliate pursuant 103 to any payment, prepayment or purchase of Notes pursuant to any provision of this Section 8 and no Notes may be issued in substitution or exchange for any such Notes. Section 8.6. MakeWhole Amount. The term "Make-Whole Amount" means, with respect to any Note, an amount equal to the excess, if any, of the Discounted Value of the Remaining Scheduled Payments with respect to the Called Principal of such Note over the amount of such Called Principal, provided that the MakeWhole Amount may in no event be less than zero. For the purposes of determining the MakeWhole Amount, the following terms have the following meanings: "Called Principal" means, with respect to any Note, the principal of such Note that is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. "Discounted Value" means, with respect to the Called Principal of any Note, the amount obtained by discounting all Remaining Scheduled Payments with respect to such Called Principal from their respective scheduled due dates to the Settlement Date with respect to such Called Principal, in accordance with accepted financial practice and at a discount factor (applied on the same periodic basis as that on which interest on the Notes is payable) equal to the Reinvestment Yield with respect to such Called Principal. "Reinvestment Yield" means, with respect to the Called Principal of any Note, 1.25% (1.50% (the "Adjusted Spread") in the case of a prepayment of the Notes on or prior to May 20, 2000, from the net proceeds of a public offering of common stock by the Company (a "Public Offering") as herein after provided) over the yield to maturity implied by (a) the yields reported, as of 10:00 A.M. (New York City time) on the second Business Day preceding the Settlement Date with respect to such Called Principal, on the display designated as "Page UST" on the Bloomberg Financial Market Service (or such other display as may replace Page UST on the Bloomberg Financial Market Service) for actively traded U.S. Treasury securities having a maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date, or (b) if such yields are not reported as of such time or the yields reported as of such time are not ascertainable, the Treasury Constant Maturity Series Yields reported, for the latest day for which such yields have been so reported as of the second Business Day preceding the Settlement Date with respect to such Called Principal, in Federal Reserve Statistical Release H.15 (519) (or any comparable successor publication) for actively traded U.S. Treasury securities having a constant maturity equal to the Remaining Average Life of such Called Principal as of such Settlement Date. Such implied yield will be determined, if necessary, by (i) converting U.S. Treasury bill quotations to bondequivalent yields in accordance with accepted financial practice and (ii) interpolating linearly between (1) the actively traded U.S. Treasury security with the duration closest to and greater than the Remaining Average Life and (2) the actively traded U.S. Treasury security with the duration closest to and less than the Remaining Average 104 Life. In the case of any prepayment of the Notes using the Adjusted Spread in calculating the Make-Whole Amount, the principal amount of the Notes prepaid using the Adjusted Spread shall not exceed the net proceeds from the Public Offering. No prepayment of Notes shall be made using the Adjusted Spread unless concurrently therewith the entire principal amount of the Notes and the Existing Subordinated Notes then outstanding shall be prepaid at the applicable Make-Whole Amount. In the case of any concurrent or substantially concurrent prepayment of the Notes using the Adjusted Spread and the unadjusted spread, for purposes of calculating the Make-Whole Amount, the Remaining Average Life shall be the same in each case. "Remaining Average Life" means, with respect to any Called Principal, the number of years (calculated to the nearest onetwelfth year) obtained by dividing (a) such Called Principal into (b) the sum of the products obtained by multiplying (i) the principal component of each Remaining Scheduled Payment with respect to such Called Principal by (ii) the number of years (calculated to the nearest onetwelfth year) that will elapse between the Settlement Date with respect to such Called Principal and the scheduled due date of such Remaining Scheduled Payment. "Remaining Scheduled Payments" means, with respect to the Called Principal of any Note, all payments of such Called Principal and interest thereon that would be due after the Settlement Date with respect to such Called Principal if no payment of such Called Principal were made prior to its scheduled due date, provided that if such Settlement Date is not a date on which interest payments are due to be made under the terms of the Notes, then the amount of the next succeeding scheduled interest payment will be reduced by the amount of interest accrued to such Settlement Date and required to be paid on such Settlement Date pursuant to Section 8.2 or 12.1. "Settlement Date" means, with respect to the Called Principal of any Note, the date on which such Called Principal is to be prepaid pursuant to Section 8.2 or has become or is declared to be immediately due and payable pursuant to Section 12.1, as the context requires. Section 9. Affirmative Covenants. The Company covenants that so long as any of the Notes are outstanding: Section 9.1. Compliance with Law. The Company will and will cause each of its Restricted Subsidiaries to comply with all laws, ordinances or governmental rules or regulations to which each of them is subject, and will obtain and maintain in effect all licenses, certificates, permits, franchises and other governmental authorizations necessary to the ownership of their respective properties or to the conduct of their respective businesses, in each case to the extent necessary to ensure that noncompliance with such laws, ordinances or governmental rules or regulations or failures to obtain or maintain in effect such licenses, certificates, permits, franchises and other governmental authorizations could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. 105 Section 9.2. Insurance. The Company will and will cause each of the Restricted Subsidiaries to maintain, with financially sound and reputable insurers, insurance with respect to their respective properties and businesses against such casualties and contingencies, of such types, on such terms and in such amounts (including deductibles, coinsurance and selfinsurance, if adequate reserves are maintained with respect thereto) as is customary in the case of entities of established reputations engaged in the same or a similar business and similarly situated. Section 9.3. Maintenance of Properties. The Company will and will cause each of the Restricted Subsidiaries to maintain and keep, or cause to be maintained and kept, their respective properties in good repair, working order and condition (other than ordinary wear and tear), so that the business carried on in connection therewith may be properly conducted at all times, provided that this Section shall not prevent the Company or any Restricted Subsidiary from discontinuing the operation and the maintenance of any of its properties if such discontinuance is desirable in the conduct of its business and the Company has concluded that such discontinuance could not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect. Section 9.4. Payment of Taxes and Claims. The Company will and will cause each of the Restricted Subsidiaries to file all tax returns required to be filed in any jurisdiction and to pay and discharge all taxes shown to be due and payable on such returns and all other taxes, assessments, governmental charges, or levies imposed on them or any of their properties, assets, income or franchises, to the extent such taxes, assessments, charges or levies have become due and payable and before they have become delinquent and all claims for which sums have become due and payable that have or might become a Lien on properties or assets of the Company or any Restricted Subsidiary, provided that neither the Company nor any Restricted Subsidiary need pay any such tax or assessment or claims if (a) the amount, applicability or validity thereof is contested by the Company or such Restricted Subsidiary on a timely basis in good faith and in appropriate proceedings, and the Company or a Restricted Subsidiary has established adequate reserves therefor in accordance with GAAP on the books of the Company or such Restricted Subsidiary or (b) the nonpayment of all such taxes, assessments, charges and levies in the aggregate could not reasonably be expected to have a Material Adverse Effect. Section 9.5. Corporate Existence, Etc.. The Company will at all times preserve and keep in full force and effect its corporate existence. Subject to Sections 10.10 and 10.11, the Company will at all times preserve and keep in full force and effect the corporate existence of each of the Restricted Subsidiaries (unless merged into the Company or a Restricted Subsidiary) and all rights and franchises of the Company and the Restricted Subsidiaries unless, in the good faith judgment of the Company, the termination of or failure to preserve and keep in full force and effect such corporate existence, right or franchise could not, individually or in the aggregate, have a Material Adverse Effect. Section 9.6. Line of Business. The Company will not, and will not permit any of its 106 Restricted Subsidiaries to, engage in any business other than the businesses described in the Memorandum and businesses reasonably related thereto. Section 9.7. Additional Guaranty Agreements; Release of Guaranty Agreements. (a) Additional Guaranties. The Company will cause each Subsidiary that at any time becomes liable in respect of any Guaranty of the Company's obligations under the Fleet/Chase Debt Facility after the Closing Date to become (simultaneously or prior to becoming liable in respect of such Guaranty of any of the obligations under the Fleet/Chase Debt Facility) a Guarantor in respect of this Agreement, the Other Agreement and the Notes by executing and delivering to each holder of Notes a Guaranty Agreement in the form set out in Exhibit 4.11. (b) Release of Guaranties. Simultaneously with the release of any Subsidiary's Guaranty of the Company's obligations under the Fleet/Chase Debt Facility, such Subsidiary's Guaranty of the Notes shall be deemed to have been released, it being understood that such Subsidiary's Guaranty of the Company's obligations under the Senior Notes, the Existing Senior Notes and the Existing Subordinated Notes shall be released at the same time. The holders of the Notes shall take such action as shall be reasonably requested by the Company to effect such release. The Company shall give prompt written notice to all holders of the Notes upon any Subsidiary's being released from any Guaranty of the Fleet/Chase Debt Facility. Section 10. Negative Covenants. The Company covenants that, on and after the Closing Date and so long as any of the Notes are outstanding: Section 10.1. Senior Funded Debt. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or otherwise become directly or indirectly liable with respect to, any Senior Funded Debt (including, without limitation, Senior Funded Debt incurred under the Fleet/Chase Debt Facility), other than Existing Senior Funded Debt, the Senior Notes, Inter-Company Debt and Swaps, unless, immediately after giving effect thereto and to the application of the proceeds thereof (and without duplication), (a) no Default or Event of Default exists, and (b) (i) the sum of (A) Consolidated Senior Funded Debt plus (B) the greater of (1) zero, if there shall have been a period of 30 consecutive days during the period of four consecutive fiscal quarters of the Company then most recently ended when Consolidated Current Debt was zero, or (2) the lowest average daily amount of Consolidated Current Debt outstanding during any period of 30 consecutive days during the period of four consecutive fiscal quarters of the Company then most recently ended, 107 if Consolidated Current Debt was not zero during any such period of 30 consecutive days to (ii) Pro Forma EBITDA for such period of four consecutive fiscal quarters, does not exceed 3.45 to 1.0. Any Person becoming a Restricted Subsidiary at any time shall be deemed to have incurred at such time all of its Debt outstanding at such time. Section 10.2. Subordinated Funded Debt. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or otherwise become directly or indirectly liable with respect to, any Subordinated Funded Debt, other than Existing Subordinated Funded Debt, the Notes, Inter-Company Debt and Swaps, unless, immediately after giving effect thereto and to the application of the proceeds thereof (and without duplication), (a) no Default or Event of Default exists, and (b) (i) the sum of (A) Consolidated Funded Debt plus (B) the greater of (1) zero, if there shall have been a period of 30 consecutive days during the period of four consecutive fiscal quarters of the Company then most recently ended when Consolidated Current Debt was zero, or (2) the lowest average daily amount of Consolidated Current Debt outstanding during any period of 30 consecutive days during the period of four consecutive fiscal quarters of the Company then most recently ended, if Consolidated Current Debt was not zero during any such period of 30 consecutive days to (ii) Pro Forma EBITDA for such period of four consecutive fiscal quarters does not exceed 4.0 to 1.0. Any Person becoming a Restricted Subsidiary at any time shall be deemed to have incurred at such time all of its Debt outstanding at such time. Section 10.3. Current Debt. The Company will not, and will not permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or otherwise become directly or indirectly liable with respect to, any Current Debt, other than Existing Current Debt, InterCompany Debt and Swaps, unless, immediately after giving effect thereto and to the application of the proceeds thereof, (a) no Default or Event of Default exists, and (b) there shall have been a period of 30 consecutive days during the period of 12 consecutive months then most recently ended on each day of which either 108 (i) no Consolidated Current Debt was outstanding, or (ii) the Company or such Restricted Subsidiary could have incurred (but did not incur) Senior Funded Debt pursuant to Section 10. 1 in an amount not less than the amount of Consolidated Current Debt outstanding on such day. Any Person becoming a Restricted Subsidiary at any time shall be deemed to have incurred at such time all of its Debt outstanding at such time. Section 10.4. Interest Coverage Ratio. The Company will not permit the ratio of (x) Pro Forma EBITDA for any period of four consecutive fiscal quarters of the Company to (y) Pro Forma Consolidated Interest Expense for such period to be less than 2.13 to 1.0. Section 10.5. Liens. The Company will not, and will not permit any of the Restricted Subsidiaries to, directly or indirectly create, incur, assume or permit to exist (upon the happening of a contingency or otherwise) any Lien on or with respect to any property or asset (including, without limitation, any document or instrument in respect of goods or accounts receivable) of the Company or any such Restricted Subsidiary, whether now owned or held or hereafter acquired, or any income or profits therefrom (whether or not provision is made for the equal and ratable securing of the Notes in accordance with the last paragraph of this Section 10.5), or assign or otherwise convey any right to receive income or profits, except: (a) Liens existing on the date of this Agreement which secure Debt of the Company and the Restricted Subsidiaries outstanding on the Closing Date, which Liens, to the extent not described on Schedule 5.15, secure an aggregate amount of such Debt not in excess of $2,000,000; (b) Liens renewing or replacing Liens then in existence and permitted by paragraph (a) of this Section 10.5 to the extent that the underlying obligations secured by such existing Liens are being extended, renewed or refunded, provided that (i) no such renewal or replacement Lien shall extend to any property of the Company or any Restricted Subsidiary other than property already encumbered by the existing Lien being so renewed or replaced, (ii) the principal amount of the underlying obligation secured by such existing Lien which could have been outstanding at the time of such renewal or replacement shall not be increased in connection with such renewal or replacement, and (iii) immediately prior to, and immediately after giving effect to, such renewal or replacement, no Default or Event of Default exists or would exist; (c) Liens (other than any Lien imposed by ERISA) incurred or deposits made in the ordinary course of business (i) in connection with workers' compensation, unemployment insurance and other types of social security or retirement benefits, or 109 (ii) to secure (or to obtain letters of credit that secure) the performance of tenders, statutory obligations, surety bonds, bids, leases (other than Capital Leases), performance bonds, purchase, construction or sales contracts and other similar obligations, in each case not incurred or made in connection with the borrowing of money, the obtaining of advances or credit or the payment of the deferred purchase price of property; (d) (i) statutoryLiens of landlords and Liens of carriers, warehousemen, mechanics, materialmen and other similar Liens, in each case incurred in the ordinary course of business for sums not yet due and payable or the payment of which is not at the time required by Section 9.4, and (ii) Liens arising solely by virtue of any statutory or common law provisions or, in the case of Infratest or any of its subsidiaries, Liens arising by virtue of any deposit agreement, in each case relating to bankers' Liens, rights of set-off or similar rights and remedies as to deposit accounts or other funds maintained with a creditor depository institution, provided that such deposit account is not a dedicated cash collateral account and is not subject to restrictions against access by the Company or any Restricted Subsidiary in excess of those set forth by regulations promulgated by the Federal Reserve Board (or, in the case of Infratest, applicable German statutes or regulations); (e) Liens arising from judicial attachments or judgments, or securing appeal bonds, and other similar Liens, provided that (i) the execution or other enforcement of such Liens is effectively stayed, and (ii) the claims secured thereby are being actively contested in good faith and adequate reserves in respect thereof have been established by the Company or such Restricted Subsidiary in accordance with GAAP; (f) leases or subleases granted to others, easements, rights-of-way, restrictions and other similar charges or encumbrances, in each case incidental to, and not interfering with, the ordinary conduct of the business of the Company or any of the Restricted Subsidiaries, provided that such Liens do not, in the aggregate, materially impair the use of such property by the Company or such Restricted Subsidiary; (g) Liens for taxes, assessments or other governmental charges which are not yet due and payable or the payment of which is not at the time required by Section 9.4; (h) any Lien existing on property of a Person immediately prior to its being consolidated with or merged into the Company or a Restricted Subsidiary, or immediately prior to its becoming a Restricted Subsidiary, or any Lien existing on any property acquired by the Company or any Restricted Subsidiary at the time such property is so acquired (whether or not the Debt secured thereby shall have been assumed), provided that (i) no such 110 Lien shall have been created or assumed in contemplation of such consolidation or merger or such acquisition of property, and (ii) each such Lien shall extend solely to the item or items of property so acquired; (i) Liens on property of a Restricted Subsidiary, provided that such Liens secure only Debt owing to the Company or a Restricted Subsidiary; and (j) other Liens not otherwise permitted by paragraphs (a) through (i) of this Section 10.5, so long as the sum, without duplication, of (i) the aggregate amount of Indebtedness secured by such Liens, plus (ii) the aggregate amount of unsecured Debt of all Restricted Subsidiaries, including, without limitation, the IBH Debt, outstanding at such time (other than any such Debt owing to the Company or other Restricted Subsidiaries), shall not exceed 17.25% of Consolidated Total Capitalization. If, notwithstanding the prohibition contained herein, the Company shall, or shall permit any of the Restricted Subsidiaries to, directly or indirectly create, incur, assume or permit to exist any Lien, other than those Liens permitted by the provisions of paragraphs (a) through (j) of this Section 10.5, it will make or cause to be made effective provision whereby the Notes will be secured equally and ratably with any and all other obligations thereby secured, such security to be pursuant to agreements reasonably satisfactory to the Required Holders and, in any such case, the Notes shall have the benefit, to the fullest extent that, and with such priority as, the holders of the Notes may be entitled under applicable law, of an equitable Lien on such property. Such violation of this Section 10.5 will constitute an Event of Default, whether or not provision is made for an equal and ratable Lien pursuant to this Section 10.5. The filing of a financing statement to evidence for information purposes a lessor's interest in property leased to the Company or a Restricted Subsidiary shall be deemed not to constitute the creation of a Lien. Section 10.6. Restricted Subsidiary Debt. The Company will not at any time permit any Restricted Subsidiary to, directly or indirectly, create, incur, assume, guarantee, or otherwise be or become directly or indirectly liable with respect to, any Debt, other than (x) Debt owing to any other Restricted Subsidiary or to the Company (including any Guaranty of any Debt of any Restricted Subsidiary) and (y) the Excluded Guaranties, unless (without duplication) (a) the aggregate amount of unsecured Debt of all Restricted Subsidiaries, including, without limitation, the IBH Debt, outstanding at such time (other than (i) any such Debt owing to the Company or Restricted Subsidiaries and (ii) the Excluded Guaranties), plus (b) the aggregate amount of obligations secured by Liens permitted pursuant to Section 10.5(j) outstanding at such time, does not exceed 17.25% of Consolidated Total Capitalization determined at such time. Section 10.7. Consolidated Net Worth. The Company will not, at any time, permit 111 Consolidated Net Worth to be less than the sum of (a) $80,750,000 plus (b) an aggregate amount equal to 50% of Consolidated Net Income (but only if a positive number) for each completed fiscal quarter as of such time beginning with the fiscal quarter ending December 31, 1998. Section 10.8. SaleandLeaseback Transactions. The Company will not, and will not permit any Restricted Subsidiary to, enter into any SaleandLeaseback Transaction unless, immediately after giving effect thereto, the aggregate amount of all Attributable Debt of the Company and the Restricted Subsidiaries, determined on a consolidated basis, would not exceed $5,750,000. Section 10.9. Restricted Investments. The Company will not, and will not permit any of the Restricted Subsidiaries to, declare, make or authorize any Restricted Investment unless immediately after giving effect to such action: (a) the aggregate value of all Restricted Investments of the Company and the Restricted Subsidiaries (valued immediately after such action) would not exceed 10% of Consolidated Total Capitalization; and (b) no Default or Event of Default would exist. Any designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall be deemed to be the making of a Restricted Investment by the owner of the Capital Stock of such newly designated Unrestricted Subsidiary in an amount equal to all the share capital and other Investments in such Unrestricted Subsidiary held by the Company and each other Restricted Subsidiary. For the avoidance of doubt, it is understood that any Restricted Investments outstanding prior to the Closing Date shall be deemed not to have been declared, made or authorized at a time when this covenant was effective. Section 10.10. Merger, Consolidation, Etc.. The Company will not, and will not permit any Restricted Subsidiary to, consolidate with or merge with any other corporation or convey, transfer or lease substantially all of its assets in a single transaction or series of transactions to any Person except that: (a) the Company may consolidate with or merge with another corporation or convey or transfer (except by lease) all or substantially all of its assets in a single transaction or series of transactions to another Person if: (i) the successor formed by such consolidation or the survivor of such merger or the Person that acquires by conveyance or transfer all or substantially all of the assets of the Company as an entirety, as the case may be (the "Successor Corporation"), shall be a solvent corporation organized and existing under the laws of the United States of America, any State thereof or the District of Columbia; (ii) if the Company is not the Successor Corporation, such corporation shall have executed and delivered to each holder of Notes its assumption of the due and punctual performance and observance of each covenant and condition of this Agreement and the Notes (pursuant to such agreements and instruments as shall be reasonably satisfactory to the Required Holders), and the Company shall have caused 112 to be delivered to each holder of Notes an opinion of nationally recognized independent counsel, or other independent counsel reasonably satisfactory to the Required Holders, to the effect that all agreements or instruments effecting such assumption are enforceable in accordance with their terms and comply with the terms hereof; and (iii) immediately after giving effect to such transaction: (A) no Default or Event of Default would exist, and (B) the Successor Corporation would be able to incur $1 of Funded Debt pursuant to both Section 10.1 and Section 10.2; (b) a Restricted Subsidiary may consolidate with or merge with the Company (so long as the Company is the surviving corporation) or another Restricted Subsidiary or convey, transfer or lease all or substantially all of its assets in a single transaction or series of transactions to the Company or another Restricted Subsidiary; and (c) a Restricted Subsidiary may consolidate with or merge with another corporation or convey, transfer or lease all or substantially all of its assets in a single transaction or series of transactions to another Person if: (i) such transaction is in compliance with Section 10.11 hereof; or (ii) immediately after giving effect to such transaction: (A) no Default or Event of Default would exist, and (B) the Company would be able to incur $1 of Funded Debt pursuant to both Section 10.1 and Section 10.2. No such conveyance or transfer of all or substantially all of the assets of the Company shall have the effect of releasing the Company or any Successor Corporation from its liability under this Agreement or the Notes. Section 10.11. Sale of Assets, Etc. (a) Sale of Assets. The Company will not, and will not permit any Restricted Subsidiary to, make any Asset Disposition unless: (i) in the good faith opinion of the Company, the Asset Disposition is in exchange for consideration having a Fair Market Value at least equal to that of the property exchanged and is in the best interest of the Company or such Restricted Subsidiary; (ii) immediately after giving effect to the Asset Disposition, no Default or Event of Default would exist; and (iii) immediately after giving effect to the Asset Disposition, the sum of the Net Proceeds Amounts in respect of all property that was the subject of any Asset Disposition occurring in the period of 365 days ending with and including the date of such Asset Disposition, minus the aggregate cost of Capital Assets acquired by the Company and the Restricted Subsidiaries during such period, would not exceed 17.25% of Consolidated Total 113 Assets as of the end of the then most recently ended fiscal year of the Company. (b) Disposal of Ownership of a Restricted Subsidiary. The Company will not, and will not permit any of the Restricted Subsidiaries to, sell or otherwise dispose of any shares of Restricted Subsidiary Stock (including, without limitation, pursuant to any merger, consolidation or other transaction specified in Section 10.10(c) hereof but excluding any transaction permitted by Section 10.10(b)), nor will the Company permit any such Restricted Subsidiary to issue, sell or otherwise dispose of any shares of its own Restricted Subsidiary Stock, provided that the foregoing restrictions do not apply to: (i) the issue of directors' qualifying shares by any such Subsidiary; (ii) any such Transfer of Restricted Subsidiary Stock constituting a Transfer described in clause (a) of the definition of "Asset Disposition"; and (iii) the Transfer of all of the Restricted Subsidiary Stock of a Restricted Subsidiary owned by the Company and the other Restricted Subsidiaries if: (A) such Transfer satisfies the requirements of Section 10.11(a) hereof, (B) in connection with such Transfer the entire Investment (whether represented by stock, Debt, claims or otherwise) of the Company and the other Restricted Subsidiaries in such Restricted Subsidiary is sold, transferred or otherwise disposed of to a Person other than (1) the Company, (2) another Restricted Subsidiary not being simultaneously disposed of, or (3) an Affiliate, and (C) the Restricted Subsidiary being disposed of has no continuing Investment in any other Restricted Subsidiary not being simultaneously disposed of or in the Company. Any designation of a Restricted Subsidiary as an Unrestricted Subsidiary shall be deemed to be an Asset Disposition of all of the Restricted Subsidiary Stock of such newly designated Unrestricted Subsidiary. (c) Release of Guarantees of Subsidiaries. If, with respect to any Subsidiary that is a Guarantor, (i) all of the Company's and any Restricted Subsidiary's Capital Stock or other equity ownership interests in such Guarantor is Transferred (including by way of a merger) to a Person other than the Company or a Restricted Subsidiary in accordance with the requirements of this Section 10.11, (ii) such Guarantor engages in a transaction permitted by Section 10.10(c) with any such Person and the surviving Person or transferee is not a Subsidiary, or (iii) such Guarantor sells all or substantially all of its assets to another Subsidiary or the Company and, in the case of a sale to another Subsidiary, such other Subsidiary becomes a Guarantor by executing a Guaranty Agreement, then the Company may elect to cause the withdrawal of the Guaranty Agreement of such Guarantor. Such election may be exercised if (A) no Default or Event of Default exists and (B) such Guarantor 114 has no guaranty obligation in respect of any Debt under the Fleet/Chase Debt Facility, the Existing Senior Notes, the Senior Notes, or the Existing Subordinated Notes (except any such obligation which is being released simultaneously with the release of such Guaranty Agreement), and if a Senior Financial Officer of the Company certifies in writing to each holder of the Notes that the conditions specified in clauses (A) and (B) have been satisfied. Thereafter, the Guaranty Agreement of such Guarantor shall be terminated, null and void and without effect and, upon request of the Company, and in reliance on the accuracy of the Company's written certification, each holder of Notes shall acknowledge such termination. Section 10.12. Limitation on Contribution to Company Financial Performance by Unrestricted Subsidiaries. (a) The Company will not at any time permit Consolidated Total Assets to be less than 80% of consolidated total assets of the Company and its Subsidiaries as reflected on a consolidated balance sheet of such Persons prepared in accordance with GAAP. (b) The Company will not permit Pro Forma EBITDA for any period of four consecutive fiscal quarters of the Company to be less than 80% of Pro Forma EBITDA (determined as if each reference in such definition to "Restricted Subsidiaries" were to "Subsidiaries") for such period. Section 10.13. Transactions with Affiliates. Except as set forth in Schedule 10.13, the Company will not, and will not permit any Restricted Subsidiary to, enter into directly or indirectly any transaction or group of related transactions (including, without limitation, the purchase, lease, sale or exchange of properties of any kind or the rendering of any service) with any Affiliate (other than the Company or another Restricted Subsidiary), except in the ordinary course and pursuant to the reasonable requirements of the Company's or such Restricted Subsidiary's business and upon fair and reasonable terms no less favorable to the Company or such Restricted Subsidiary than would be obtainable in a comparable arm's-length transaction with a Person not an Affiliate. Section 10.14. Leverage Ratios. (a) Senior Leverage Ratio. The Company will not permit the ratio of (x) Consolidated Senior Funded Debt, determined at the end of any fiscal quarter of the Company, to (y) Pro Forma EBITDA for the period of four consecutive fiscal quarters of the Company ending with, and including, such fiscal quarter to be greater than 3.74 to 1.0. (b) Total Leverage Ratio. The Company will not permit the ratio of (x) Consolidated Funded Debt, determined at the end of any fiscal quarter of the Company, to (y) Pro Forma EBITDA for the period of four consecutive fiscal quarters of the Company ending with, and including, such fiscal quarter to be greater than (i) 4.25 to 1.0 at any time on or before December 31, 1999 and (ii) 3.50 to 1.0 at any time thereafter. Section 10.15. Limit on Acquisitions. The Company will not, and will not permit any Restricted Subsidiary to, make any Acquisition, unless: (a) no Default or Event of Default exists or would result from such Acquisition; (b) the Person or assets acquired, as the case may be, involve substantially the same or similar line of business engaged in by the Company and its Restricted Subsidiaries; 115 (c) the Company demonstrates that, on a consolidated basis with the Person and/or assets to be acquired, in accordance with GAAP, the Company would have been in compliance with Sections 10.4, 10.7, 10.14(a) and 10.14(b) on a trailing four quarters pro forma basis as of the last day of the then most recently completed fiscal quarter of the Company; and (d) the aggregate amount expended by the Company and its Restricted Subsidiaries, whether in cash, Securities or other property, for all Acquisitions permitted hereunder within any one calendar year exceeds $20,000,000 or its equivalent in other currencies. Section 10.16. IBH Debt. The Company will not permit the IBH Debt to be renewed, replaced, extended or refinanced and shall not permit the maximum aggregate principal amount thereof which may be outstanding at any time to exceed the sum of (x) 68,000,000 Deutsche Marks and (y) $10,000,000 (or the equivalent thereof in other currencies). Section 10.17. Additional Subordinated Funded Debt . The Company will not issue any additional Funded Debt which is subordinate or junior in right of payment to any other Funded Debt of the Company other than Subordinated Funded Debt. Section 11. Events of Default. An "Event of Default" shall exist if any of the following conditions or events shall occur and be continuing: (a) the Company defaults in the payment of any principal or Make-Whole Amount, if any, on any Note when the same becomes due and payable, whether at maturity or at a date fixed for prepayment or by declaration or otherwise; or (b) the Company defaults in the payment of any interest on any Note for more than five Business Days after the same becomes due and payable; or (c) the Company defaults in the performance of or compliance with any term contained in any of Sections 10.1 through 10.12, inclusive, Section 10.14 through Section 10.17, inclusive, or Section 7.1 (d); or (d) the Company defaults in the performance of or compliance with any term contained herein (other than those referred to in paragraphs (a), (b) and (c) of this Section 11) and such default is not remedied within 30 days after the earlier of (i) a Responsible Officer obtaining actual knowledge of such default and (ii) the Company receiving written notice of such default from any holder of a Note; or (e) any representation or warranty made in writing by or on behalf of the Company or by any officer of the Company in this Agreement or in any writing furnished in connection with the transactions contemplated hereby proves to have been false or incorrect in any material respect on the date as of which made; or (f) (i) the Company or any Restricted Subsidiary is in default (as principal or as guarantor or other surety) in the payment of any principal of or premium or make-whole 116 amount or interest on any Indebtedness (other than Indebtedness under this Agreement and the Notes) beyond any period of grace provided with respect thereto (after giving effect to any consents or waivers in respect thereof), that individually or together with such other Indebtedness as to which any such failure exists has an aggregate outstanding principal amount of at least $2,000,000, or (ii) the Company or any Restricted Subsidiary is in default in the performance of or compliance with any term of any evidence of any Indebtedness (other than Indebtedness under this Agreement and the Notes), that individually or together with such other Indebtedness as to which any such failure exists has an aggregate outstanding principal amount of at least $2,000,000, or of any mortgage, indenture or other agreement relating thereto or any other condition exists, and as a consequence of such default or condition such Indebtedness has become, or has been declared (or, after giving effect to any consents or waivers in respect thereof, one or more Persons are entitled to declare such Indebtedness to be), due and payable before its stated maturity or before its regularly scheduled dates of payment, or (iii) as a consequence of the occurrence or continuation of any event or condition (other than the passage of time or the right of the holder of Indebtedness to convert such Indebtedness into equity interests), (A) the Company or any Subsidiary has become obligated to purchase or repay Indebtedness before its regular maturity or before its regularly scheduled dates of payment in an aggregate outstanding principal amount of at least $2,000,000, or (B) one or more Persons have the right to require the Company or any Subsidiary so to purchase or repay such Indebtedness; or (g) the Company or any Restricted Subsidiary (i) is generally not paying, or admits in writing its inability to pay, its debts as they become due, (ii) files, or consents by answer or otherwise to the filing against it of, a petition for relief or reorganization or arrangement or any other petition in bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency, reorganization, moratorium or other similar law of any jurisdiction, (iii) makes an assignment for the benefit of its creditors, (iv) consents to the appointment of a custodian, receiver, trustee or other officer with similar powers with respect to it or with respect to any substantial part of its property, (v) is adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for the purpose of any of the foregoing; or (h) a court or governmental authority of competent jurisdiction enters an order appointing, without consent by the Company or any Restricted Subsidiary, a custodian, receiver, trustee or other officer with similar powers with respect to the Company or any Restricted Subsidiary or with respect to any substantial part of the property of the Company 117 or any Restricted Subsidiary, or constituting an order for relief or approving a petition for relief or reorganization or any other petition in bankruptcy or for liquidation or to take advantage of any bankruptcy or insolvency law of any jurisdiction, or ordering the dissolution, winding-up or liquidation of the Company or any Restricted Subsidiary, or any such petition shall be filed against the Company or any Restricted Subsidiary and such petition shall not be dismissed within 60 days; or (i) a final judgment or judgments for the payment of money aggregating in excess of $1,000,000 above the level of coverage provided by any applicable insurance policy are rendered against one or more of the Company and the Restricted Subsidiaries and which judgments are not, within 30 days after entry thereof, bonded, discharged or stayed pending appeal, or are not discharged within 30 days after the expiration of such stay; or (j) except as otherwise specifically permitted by this Agreement (including without limitation, Section 9.7(c) and 10.11 (c)), or the Guaranty Agreement, (i) any of the Guaranty Agreements shall cease to be in full force and effect or shall be declared by a court or Government Authority of competent jurisdiction to be void or unenforceable against the Guarantor thereunder, (ii) the validity or enforceability of any of the Guaranty Agreements against the Guarantor thereunder shall be contested by such Guarantor, the Company or any Person owning, directly or indirectly, a majority of the common stock of the Company, or (iii) any Guarantor, the Company or any such Person identified in clause (ii) of this clause 11(j) shall deny that such Guarantor has any further liability or obligation under such Guarantor's Guaranty Agreement; or (k) if (i) any Plan shall fail to satisfy the minimum funding standards of ERISA or the Code for any plan year or part thereof or a waiver of such standards or extension of any amortization period is sought or granted under section 412 of the Code, (ii) a notice of intent to terminate any Plan shall have been or is reasonably expected to be filed with the PBGC or the PBGC shall have instituted proceedings under ERISA section 4042 to terminate or appoint a trustee to administer any Plan or the PBGC shall have notified the Company or any ERISA Affiliate that a Plan may become a subject of any such proceedings, (iii) the aggregate "amount of unfunded benefit liabilities" (within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined in accordance with Title IV of ERISA, shall exceed $6,000,000, (iv) the Company or any ERISA Affiliate shall have incurred or is reasonably expected to incur any liability pursuant to Title I or IV of ERISA or the penalty or excise tax provisions of the Code relating to employee benefit plans, 118 (v) the Company or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the Company or any Subsidiary establishes or amends any employee welfare benefit plan that provides post-employment welfare benefits in a manner that would increase the liability of the Company or any Subsidiary thereunder; and any such event or events described in clauses (i) through (vi) above, either individually or together with any other such event or events, could reasonably be expected to have a Material Adverse Effect. As used in Section 11(k), the terms "employee benefit plan" and "employee welfare benefit plan" shall have the respective meanings assigned to such terms in section 3 of ERISA. Section 12. Remedies on Default, Etc. Section 12.1. Acceleration. (a) If an Event of Default with respect to the Company described in paragraph (g) or paragraph (h) of Section 11 (other than an Event of Default described in clause (i) of paragraph (g) or described in clause (vi) of paragraph (g) by virtue of the fact that such clause encompasses clause (i) of paragraph (g)) has occurred, all the Notes then outstanding shall automatically become immediately due and payable. (b) If any other Event of Default has occurred and is continuing, any holder or holders of more than 66-2/3% in principal amount of the Notes at the time outstanding may, subject to any limitations imposed pursuant to Section 13, at any time at its or their option, by notice or notices to the Company, declare all the Notes then outstanding to be immediately due and payable. (c) If any Event of Default described in paragraph (a) or (b) of Section 11 has occurred and is continuing, any holder or holders of Notes at the time outstanding affected by such Event of Default may, subject to any limitations imposed pursuant to Section 13, at any time, at its or their option, by notice or notices to the Company, declare all the Notes held by it or them to be immediately due and payable. Upon any Notes becoming due and payable under this Section 12.1, whether automatically or by declaration, such Notes will forthwith mature and the entire unpaid principal amount of such Notes, plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole Amount determined in respect of such principal amount (to the full extent permitted by applicable law), shall all be immediately due and payable, in each and every case without presentment, demand, protest or further notice, all of which are hereby waived. The Company acknowledges, and the parties hereto agree, that each holder of a Note has the right to maintain its investment in the Notes free from repayment by the Company (except as herein specifically provided for) and that the provision for payment of a Make-Whole Amount by the Company in the event that the Notes are prepaid or are accelerated as a result of an Event of Default, is intended to provide compensation for the deprivation of such right under such circumstances. 119 Section 12.2. Other Remedies. If any Default or Event of Default has occurred and is continuing, and irrespective of whether any Notes have become or have been declared immediately due and payable under Section 12.1, the holder of any Note at the time outstanding may, subject to any limitations imposed pursuant to Section 13, proceed to protect and enforce the rights of such holder by an action at law, suit in equity or other appropriate proceeding, whether for the specific performance of any agreement contained herein or in any Note, or for an injunction against a violation of any of the terms hereof or thereof, or in aid of the exercise of any power granted hereby or thereby or by law or otherwise. Section 12.3. Rescission. At any time after any Notes have been declared due and payable pursuant to clause (b) or clause (c) of Section 12.1, the holders of not less than 66-2/3% in principal amount of the Notes then outstanding, by written notice to the Company, may rescind and annul any such declaration and its consequences if (a) the Company has paid all overdue interest on the Notes, all principal of and Make-Whole Amount, if any, due and payable on any Notes other than by reason of such declaration, and all interest on such overdue principal and Make-Whole Amount, if any, and (to the extent permitted by applicable law) any overdue interest in respect of the Notes, at the Default Rate, (b) all Events of Default and Defaults, other than non-payment of amounts that have become due solely by reason of such declaration, have been cured or have been waived pursuant to Section 18, and (c) no judgment or decree has been entered for the payment of any monies due pursuant hereto or to the Notes. No rescission and annulment under this Section 12.3 will extend to or affect any subsequent Event of Default or Default or impair any right consequent thereon. Section 12.4. No Waivers or Election of Remedies, Expenses, Etc. No course of dealing and no delay on the part of any holder of any Note in exercising any right, power or remedy shall operate as a waiver thereof or otherwise prejudice such holder's rights, powers or remedies. No right, power or remedy conferred by this Agreement or by any Note upon any holder thereof shall be exclusive of any other right, power or remedy referred to herein or therein or now or hereafter available at law, in equity, by statute or otherwise. Without limiting the obligations of the Company under Section 16, the Company will pay to the holder of each Note on demand such further amount as shall be sufficient to cover all costs and expenses of such holder incurred in any enforcement or collection under this Section 12, including, without limitation, reasonable attorneys' fees, expenses and disbursements. Section 13. Subordination. The Indebtedness evidenced by the Notes shall at all times be subordinate and junior in right of payment to all Senior Debt, whether now or hereafter outstanding, all in the manner and with the force and effect hereinafter set forth: (a) In the event of any liquidation, dissolution or winding up of the Company, or of any execution, sale, receivership, insolvency, bankruptcy, liquidation, readjustment, reorganization, or other similar proceeding relative to the Company or its property, all Senior Debt shall first be paid in full before any payment is made upon the debt evidenced by the 120 Notes; and in any such event any payment or distribution of any kind or character, whether in cash, property or Securities (other than in Securities, including equity securities, or other evidences of debt, the payment of which is subordinated to the payment of all Senior Debt which may at the time be outstanding to the same extent as the Notes) which shall be made upon or in respect of any Note shall be paid over to the holders of such Senior Debt, pro rata, for application in payment thereof unless and until such Senior Debt shall have been paid or satisfied in full; (b) In the event that the Notes are declared or become due and payable because of the occurrence of any Event of Default hereunder (under circumstances when clauses (a), (c), (d) or (e) of this Section 13 shall not be applicable), the holders of the Notes shall be entitled to payments only after there shall first have been paid in full all Senior Debt outstanding at the time the Notes are declared or become due and payable because of any such Event of Default, or payment shall have been provided for in a manner satisfactory to the holders of such Senior Debt; (c) In the event that any Specified Senior Debt is declared due and payable because of the occurrence of any event of default applicable to any Specified Senior Debt, then no payment shall be made on any Note from the date that such declaration has been given in writing to the Company by any Required Senior Debt Holders until there shall first have been paid in full all Specified Senior Debt outstanding at such time, or payment shall have been provided for in a manner satisfactory to the holders of such Specified Senior Debt; (d) During the continuance of any default in the payment of either principal or interest on any Specified Senior Debt (under circumstances when clause (c) of this Section 13 shall not be applicable), no payment shall be made on any Note during a period of 180 consecutive days (unless such event of default is cured or waived in writing by the requisite holders of such Specified Senior Debt) from the date that written notice of such default has been given to the Company by the Required Senior Debt Holders and such notice shall specify that it constitutes a "blockage notice" pursuant to this Section 13; (e) If any event of default shall have occurred as a result of a breach of Section 10 of the Senior Note Purchase Agreements or the Existing Senior Note Purchase Agreements (other than Sections 10.8, 10.12 and 10.13) or any comparable covenants from time to time applicable to the Fleet/Chase Debt Facility (under circumstances when neither clause (c) nor clause (d) of this Section 13 shall be applicable) and the Required Senior Debt Holders have given notice of such event to the Company, then no payment shall be made on any Note during a period of 180 consecutive days (unless such event of default is cured or waived in writing by the requisite holders of such Specified Senior Debt) from the date that written notice of such default has been given to the Company by the Required Senior Debt Holders and such notice shall specify that it constitutes a "blockage notice" 121 pursuant to this Section 13; (f) Notwithstanding the foregoing, (i) payment on the Notes shall not be blocked pursuant to clauses (d) and (e) of this Section 13 on more than one occasion in any period of 360 consecutive days, and (ii) the holders of Specified Senior Debt shall not be entitled to give notice pursuant to clauses (d) and (e) of this Section 13 more than once with respect to any event of default which was specified in such a blockage notice and which has continued without interruption since the date such notice was given (it being understood that each failure to make a scheduled payment of principal or interest on Senior Debt shall be deemed to constitute a new event of default), nor shall such holders be entitled to give a separate blockage notice with respect to any event of default not so specified which was known by such holders to exist on the date the blockage notice shall have been given pursuant to clause (d) or (e) and which has continued without interruption from the date such notice was given. No more than three blockage notices can be given pursuant to clauses (d) and (e) of this Section 13. Upon receipt of any notice pursuant to clause (c) of this Section 13 or any blockage notice from the Required Senior Debt Holders pursuant to clause (d) or (e) of this Section 13, the Company shall forthwith send a copy thereof to each holder of the Notes at the time outstanding; and (g) During the Standstill Period (as hereinafter defined), the holders of the Notes shall be prohibited from exercising any remedies under this Agreement, including accelerating the Notes or filing or participating in the filing of an involuntary bankruptcy petition against the Company. Upon the termination of any Standstill Period and subject to the provisions of clauses (a), (b), (c), (d) and (e) of this Section 13, the holders of the Notes may, at their sole election, exercise any and all remedies (including the acceleration of the maturity of the Notes) available to them under this Agreement or applicable law. As used in this Section 13, "Standstill Period" means in the case of the receipt by the Company of a blockage notice pursuant to clauses (d) or (e) of this Section 13 (a "Blockage Notice"), the 180 day period from and after the date of receipt of such notice. In addition to the passage of time, the Standstill Period shall expire on the first to occur of (i) the date on which the Required Senior Debt Holders which shall have delivered a Blockage Notice shall have expressly withdrawn such Blockage Notice in writing, (ii) the date on which there is commenced, either by or against the Company, any proceeding described in clause (a) of this Section 13, (iii) the date on which the holders of Senior Debt shall have accelerated such Senior Debt, and (iv) the date on which the holders of Senior Debt shall have instituted foreclosure or other proceedings relating to the liquidation of collateral which secures such Senior Debt. If any payment or distribution shall be paid to or collected or received by any holders of the Notes in contravention of any of the terms of this Section 13, the last paragraph of Section 10.2 of the Senior Note Purchase Agreement or of the Existing Senior Note Purchase Agreements or any 122 similar provision under the Fleet/Chase Debt Facility, then such holders of the Notes will deliver such payment or distribution, to the extent necessary to pay all such Senior Debt in full, in cash, to the holders of the Senior Debt, ratably in accordance with the respective amounts owing to them, and, until so delivered, the same shall be held in trust by such holders of the Notes as the property of the holders of such Senior Debt. If any amount is delivered to the holders of the Senior Debt pursuant to this Section 13, whether or not such amounts have been applied to the payment of Senior Debt, and the outstanding Senior Debt shall thereafter be paid in full, in cash, by the Company or otherwise other than pursuant to this Section 13, the holders of Senior Debt shall return to such holders of the Notes an amount equal to the amount delivered to such holders of Senior Debt pursuant to this Section 13, so long as after the return of such amounts the Senior Debt shall remain indefeasibly paid in full, in cash. Upon the payment in full of the Senior Debt as in this Section 13 provided, the holders of the Notes will be subrogated to the rights of the holders of Senior Debt to receive payments or distributions of assets of the Company applicable to the Senior Debt until the principal of, premium, if any, and interest on the Notes shall be paid in full; and no payments or distributions (direct or indirect) to the holders of the Senior Debt of cash, property or Securities to which the holders of the Notes would be entitled except for the provisions of this Section 13 shall, as between the Company, its creditors (other than the holders of Senior Debt) and the holders of the Notes, be deemed to be a payment by the Company to or on account of the Senior Debt. Each and every holder of the Notes by its acceptance thereof undertakes and agrees for the benefit of each holder of Senior Debt to execute, verify, deliver and file any proofs of claim which any holder of Senior Debt may at any time require in order to prove and realize upon any rights or claims pertaining to the Notes and to effectuate the full benefit of the subordination contained herein; and upon failure of any holder of the Notes so to do, any such holder of Senior Debt shall be deemed to be irrevocably appointed the agent and attorney-in-fact of the holder of the Notes to execute, verify, deliver and file any such proofs of claim. The Company agrees, for the benefit of the holders of Senior Debt, that in the event that any Note is declared due and payable before its expressed maturity because of the occurrence of an Event of Default hereunder, (i) the Company will give prompt notice in writing of such happening to the holders of Senior Debt and (ii) upon demand made at the option of the holders of the Senior Debt, such Senior Debt shall forthwith become immediately due and payable regardless of the expressed maturity thereof. No right of any holder of any Senior Debt to enforce subordination as herein provided shall at any time or in any way be affected or impaired by any failure to act on the part of the Company or the holders of Senior Debt, or by any noncompliance by the Company with any of the terms, provisions and covenants of the Notes or this Agreement, regardless of any knowledge thereof that any such holder of Senior Debt may have or be otherwise charged with. 123 Each holder of the Notes waives any and all notices of the acceptance of the provisions of this Section 13 or of the creation, renewal, extension or accrual, now or at any time in the future, of any Senior Debt. The obligations of each holder of the Notes under the provisions set forth in this Section 13 shall continue to be effective, or be reinstated, as the case may be, as to any payment in respect of any Senior Debt that is rescinded or must otherwise be returned by the holder of such Senior Debt upon the occurrence or as a result of any bankruptcy or judicial proceeding, all as though such payment had not been made. Each holder of the Notes by its acceptance thereof shall be deemed to acknowledge and agree that the foregoing subordination provisions are, and are intended to be, an inducement to and a consideration of each holder of any Senior Debt, whether such Senior Debt was created or acquired before or after the creation of the Notes, to acquire and hold, or to continue to hold, such Senior Debt, and such holder of Senior Debt shall be deemed conclusively to have relied on such subordination provisions in acquiring and holding, or in continuing to hold, such Senior Debt. Each such holder of Senior Debt is intended to be, and is, a third party beneficiary of this Section 13. Each holder of the Notes acknowledges and agrees that the provisions set forth in this Section 13 shall be enforceable against such Persons by the holders of Senior Debt. Notwithstanding anything contained in this Agreement to the contrary, none of the provisions of this Section 13 or the definitions of "Required Senior Debt Holders" and "Requisite Senior Debt" may, directly or indirectly, be amended, modified, supplemented or waived without the prior written consent of the holders of the Senior Debt. The foregoing provisions are solely for the purpose of defining the relative rights of the holders of Senior Debt on the one hand, and the holders of the Notes on the other hand, and nothing herein shall impair, as between the Company and the holders of the Notes, the obligation of the Company which is unconditional and absolute, to pay the principal, premium, if any, and interest on the Notes in accordance with their terms, nor shall anything herein prevent the holders from exercising all remedies otherwise permitted by applicable law or hereunder upon default hereunder, subject to the rights of the holders of Senior Debt as herein provided for. Section 14. Registration; Exchange; Substitution of Notes. Section 14.1. Registration of Notes. The Company shall keep at its principal executive office a register for the registration and registration of transfers of Notes. The name and address of each holder of one or more Notes, each transfer thereof and the name and address of each transferee of one or more Notes shall be registered in such register. Prior to due presentment for registration of transfer, the Person in whose name any Note shall be registered shall be deemed and treated as the owner and holder thereof for all purposes hereof, and the Company shall not be affected by any notice or knowledge to the contrary. The Company shall give to any holder of a Note that is an Institutional Investor promptly upon request therefor, a complete and correct copy of the names and addresses of all registered holders of Notes. 124 Section 14.2. Transfer and Exchange of Notes. Upon surrender of any Note at the principal executive office of the Company for registration of transfer or exchange (and in the case of a surrender for registration of transfer, duly endorsed or accompanied by a written instrument of transfer duly executed by the registered holder of such Note or his attorney duly authorized in writing and accompanied by the address for notices of each transferee of such Note or part thereof), the Company shall execute and deliver, at the Company's expense (except as provided below), one or more new Notes (as requested by the holder thereof) in exchange therefor, in an aggregate principal amount equal to the unpaid principal amount of the surrendered Note. Each such new Note shall be payable to such Person as such holder may request and shall be substantially in the form of Exhibit 1. Each such new Note shall be dated and bear interest from the date to which interest shall have been paid on the surrendered Note or dated the date of the surrendered Note if no interest shall have been paid thereon. The Company may require payment of a sum sufficient to cover any stamp tax or governmental charge imposed in respect of any such transfer of Notes. Notes shall not be transferred in denominations of less than $100,000, provided that if necessary to enable the registration of transfer by a holder of its entire holding of Notes, one Note may be in a denomination of less than $100,000. Any transferee, by its acceptance of a Note registered in its name (or the name of its nominee), shall be deemed to have made the representations set forth in Section 6.2 and in the second sentence of Section 6.1. Section 14.3. Replacement of Notes. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note (which evidence shall be, in the case of an Institutional Investor, notice from such Institutional Investor of such ownership and such loss, theft, destruction or mutilation), and (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it (provided that if the holder of such Note is, or is a nominee for, an original purchaser or a Qualified Institutional Buyer, such Person's own unsecured agreement of indemnity shall be deemed to be satisfactory), or (b) in the case of mutilation, upon surrender and cancellation thereof, the Company at its own expense shall execute and deliver, in lieu thereof, a new Note, dated and bearing interest from the date to which interest shall have been paid on such lost, stolen, destroyed or mutilated Note or dated the date of such lost, stolen, destroyed or mutilated Note if no interest shall have been paid thereon. Section 15. Payments on Notes. Section 15.1. Place of Payment. Subject to Section 15.2, payments of principal, Make-Whole Amount, if any, and interest becoming due and payable on the Notes shall be made in Greenwich, Connecticut at the principal office of the Company in such jurisdiction. The Company may at any time, by notice to each holder of a Note, change the place of payment of the Notes so long as such place of payment shall be either the principal office of the Company in such jurisdiction 125 or the principal office of a bank or trust company in such jurisdiction. Section 15.2. Home Office Payment. So long as you or your nominee shall be the holder of any Note, and notwithstanding anything contained in Section 15.1 or in such Note to the contrary, the Company will pay all sums becoming due on such Note for principal, Make-Whole Amount, if any, and interest by the method and at the address specified for such purpose below your name in Schedule A, or by such other method or at such other address as you shall have from time to time specified to the Company in writing for such purpose, without the presentation or surrender of such Note or the making of any notation thereon, except that upon written request of the Company made concurrently with or reasonably promptly after payment or prepayment in full of any Note, you shall surrender such Note for cancellation, reasonably promptly after any such request, to the Company at its principal executive office or at the place of payment most recently designated by the Company pursuant to Section 15.1. Prior to any sale or other disposition of any Note held by you or your nominee you will, at your election, either endorse thereon the amount of principal paid thereon and the last date to which interest has been paid thereon or surrender such Note to the Company in exchange for a new Note or Notes pursuant to Section 14.2. The Company will afford the benefits of this Section 15.2 to any Institutional Investor that is the direct or indirect transferee of any Note purchased by you under this Agreement and that has made the same agreement relating to such Note as you have made in this Section 15.2. Section 16. Expenses, Etc. Section 16.1 Transaction Expenses. The Company will pay all costs and expenses (including any judgment or settlement approved by the Company, reasonable attorneys' fees of a special counsel and, if reasonably required, local or other counsel) incurred by you and the Other Purchaser or holder of a Note in connection with (a) the negotiation, execution and documentation of the transactions contemplated hereby, (b) any amendments, waivers or consents under or in respect of this Agreement or the Notes (whether or not such amendment, waiver or consent becomes effective), and (c) any actual or threatened proceeding relating to any action the Company has taken, or will take, as to which the Company has made a representation and warranty hereunder, including, without limitation: (x) the costs and expenses incurred in enforcing or defending (or determining whether or how to enforce or defend) any rights under this Agreement or the Notes or in responding to any subpoena or other legal process or informal investigative demand issued in connection with this Agreement or the Notes, or by reason of being a holder of any Note, and (y) the costs and expenses, including financial advisors' fees, incurred in connection with the insolvency or bankruptcy of the Company or any Subsidiary or in connection with any work-out or restructuring of the transactions contemplated hereby and by the Notes. The Company will pay, and will save you and each other holder of a Note harmless from, all claims in respect of any fees, costs or expenses if any, of brokers and finders (other than those retained by you). Section 16.2. Survival. The obligations of the Company under this Section 16 will survive the payment or transfer of any Note, the enforcement, amendment or waiver of any provision of this 126 Agreement or the Notes, and the termination of this Agreement. Section 17. Survival of Representations and Warranties; Entire Agreement. All representations and warranties contained herein shall survive the execution and delivery of this Agreement and the Notes, the purchase or transfer by you of any Note or portion thereof or interest therein and the payment of any Note, and may be relied upon by any subsequent holder of a Note, regardless of any investigation made at any time by or on behalf of you or any other holder of a Note. All statements contained in any certificate or other instrument delivered by or on behalf of the Company pursuant to this Agreement shall be deemed representations and warranties of the Company under this Agreement. Subject to the preceding sentence, this Agreement and the Notes embody the entire agreement and understanding between you and the Company and supersede all prior agreements and understandings relating to the subject matter hereof. Section 18. Amendment and Waiver. Section 18.1. Requirements. This Agreement and the Notes may be amended, and the observance of any term hereof or of the Notes may be waived (either retroactively or prospectively), with (and only with) the written consent of the Company and the Required Holders, except that (a) no amendment or waiver of any of the provisions of any of Sections 1, 2, 3, 4, 5, 6 and 22, or any defined term (as it is used therein), will be effective as to you unless consented to by you in writing, and (b) no such amendment or waiver may, without the written consent of the holder of each Note at the time outstanding affected thereby, (i) subject to the provisions of Section 12 relating to acceleration or rescission, change the amount or time of any payment or prepayment of principal of, or reduce the rate or change the time of payment or method of computation of interest or of the Make-Whole Amount on, the Notes, (ii) change the percentage of the principal amount of the Notes the holders of which are required to consent to any such amendment or waiver, or (iii) amend any of Sections 8, 11(a), 11(b), 12, 18 and 21. Notwithstanding the provisions of the immediately preceding paragraph, you and the Other Purchaser agree, and each other holder of Notes by its acceptance of any Note shall be deemed to have agreed, to grant its written consent, promptly following the receipt of written request by the Company for such consent, to any amendment of, or waiver with respect to (prospectively only), clause (ii) of Section 10.14(b), Section 10.15 or Section 10.16 in a manner consistent with any one or more amendments of, or waivers with respect to, the covenants in the Fleet/Chase Debt Facility that correspond to clause (ii) of Section 10.14(b), Section 10.15 or Section 10.16, as the case may be (the "Fleet/Chase Equivalent Provisions"); provided that (A) the Company shall have delivered to each holder of Notes a copy of such amendment or waiver relating to the Fleet/Chase Debt Facility, together with a certificate of a Responsible Officer of the Company to the effect that such copy is true and complete and that such amendment or waiver relating to the Fleet/Chase Debt Facility has become effective in accordance with the terms of the Fleet/Chase Debt Facility and (B) the effect of the requested amendment or waiver relating to clause (ii) of Section 10.14(b), 127 Section 10.15 or Section 10.16, as the case may be, shall be no less favorable (and no more onerous) to the holders of Notes than the corresponding amendment or waiver relating to the Fleet/Chase Debt Facility is to the banks that are parties thereto. In addition, if any or all of the Fleet/Chase Equivalent Provisions are deleted from the Fleet/Chase Debt Facility, or such facility is terminated and not replaced by a substantially similar facility containing provisions equivalent to the Fleet/Chase Equivalent Provisions, then one or more of clause (ii) of Section 10.14(b), Section 10.15 and Section 10.16, whichever shall correspond to the provisions eliminated from the Fleet/Chase Debt Facility (or all such Sections if the Fleet/Chase Debt Facility shall be terminated and not replaced, as stated above), shall be deemed to have been automatically deleted from this Agreement without the need for any action by the Company or the holders of the Notes. Section 18.2. Solicitation of Holders of Notes. (a) Solicitation. The Company will provide each holder of the Notes (irrespective of the amount of Notes then owned by it) with sufficient information, sufficiently far in advance of the date a decision is required, to enable such holder to make an informed and considered decision with respect to any proposed amendment, waiver or consent in respect of any of the provisions hereof or of the Notes. The Company will deliver executed or true and correct copies of each amendment, waiver or consent effected pursuant to the provisions of this Section 18 to each holder of outstanding Notes promptly following the date on which it is executed and delivered by, or receives the consent or approval of, the requisite holders of Notes. (b) Payment. The Company will not directly or indirectly pay or cause to be paid any remuneration, whether by way of supplemental or additional interest, fee or otherwise, or grant any security, to any holder of Notes as consideration for or as an inducement to the entering into by any holder of Notes of any waiver or amendment of any of the terms and provisions hereof unless such remuneration is concurrently paid, or security is concurrently granted, on the same terms, ratably to each holder of Notes then outstanding even if such holder did not consent to such waiver or amendment. Section 18.3. Binding Effect, Etc. Any amendment or waiver consented to as provided in this Section 18 applies equally to all holders of Notes and is binding upon them and upon each future holder of any Note and upon the Company without regard to whether such Note has been marked to indicate such amendment or waiver. No such amendment or waiver will extend to or affect any obligation, covenant, agreement, Default or Event of Default not expressly amended or waived or impair any right consequent thereon. No course of dealing between the Company and the holder of any Note nor any delay in exercising any rights hereunder or under any Note shall operate as a waiver of any rights of any holder of such Note. As used herein, the term "this Agreement" and references thereto shall mean this Agreement as it may from time to time be amended or supplemented. Section 18.4. Notes Held by Company, Etc. Solely for the purpose of determining whether the holders of the requisite percentage of the aggregate principal amount of Notes then outstanding 128 approved or consented to any amendment, waiver or consent to be given under this Agreement or the Notes, or have directed the taking of any action provided herein or in the Notes to be taken upon the direction of the holders of a specified percentage of the aggregate principal amount of Notes then outstanding, Notes directly or indirectly owned by the Company or any of its Affiliates shall be deemed not to be outstanding. Section 19. Notices. All notices and communications provided for hereunder shall be in writing and sent (a) by telecopy if the sender on the same day sends a confirming copy of such notice by a recognized overnight delivery service (charges prepaid), or (b) by registered or certified mail with return receipt requested (postage prepaid), or (c) by a recognized overnight delivery service (with charges prepaid). Any such notice must be sent: (i) if to you or your nominee, to you or it at the address specified for such communications in Schedule A, or at such other address as you or it shall have specified to the Company in writing, (ii) if to any other holder of any Note, to such holder at such address as such other holder shall have specified to the Company in writing, or (iii) if to the Company, to the Company at its address set forth at the beginning hereof to the attention of Patrick G. Healy, Executive Vice President, Finance & Chief Financial Officer, telecopier: 2036298883, or at such other address as the Company shall have specified to the holder of each Note in writing. Notices under this Section 19 will be deemed given on the earlier of the date of actual receipt thereof or the third Business Day after such notice shall have been sent in the manner provided above. Section 20. Reproduction of Documents. This Agreement and all documents relating hereto, including, without limitation, (a) consents, waivers and modifications that may hereafter be executed, (b) documents received by you at the Closing (except the Notes themselves), and (c) financial statements, certificates and other information previously or hereafter furnished to you, may be reproduced by you by any photographic, photostatic, microfilm, microcard, miniature photographic or other similar process and you may destroy any original document so reproduced. The Company agrees and stipulates that, to the extent permitted by applicable law, any such reproduction shall be admissible in evidence as the original itself in any judicial or administrative proceeding (whether or not the original is in existence and whether or not such reproduction was made by you in the regular course of business) and any enlargement, facsimile or further reproduction of such reproduction shall likewise be admissible in evidence. This Section 20 shall not prohibit the Company or any other holder of Notes from contesting any such reproduction to the same extent that it could contest the original, or from introducing evidence to demonstrate the inaccuracy of any such reproduction. Section 21. Confidential Information. 129 For the purposes of this Section 21, "Confidential Information" means information delivered to you by or on behalf of the Company or any Subsidiary in connection with the transactions contemplated by or otherwise pursuant to this Agreement that is proprietary in nature and that was clearly marked or labeled or otherwise adequately identified when received by you as being confidential information of the Company or such Subsidiary, provided that such term does not include information that (a) was publicly known or otherwise known to you prior to the time of such disclosure, (b) subsequently becomes publicly known through no act or omission by you or any person acting on your behalf, (c) otherwise becomes known to you other than through disclosure by the Company or any Subsidiary or by any other holder of a Note if the disclosure of such Confidential Information to such other holder was made subject to this Section 21, or (d) constitutes financial statements delivered to you under Section 7.1 that are otherwise publicly available. You will maintain the confidentiality of such Confidential Information in accordance with procedures adopted by you in good faith to protect confidential information of third parties delivered to you, provided that you may deliver or disclose Confidential Information to (i) your directors, officers, employees, agents, attorneys and affiliates (to the extent such disclosure reasonably relates to the administration of the investment represented by your Notes), (ii) your financial advisors and other professional advisors who agree to hold confidential the Confidential Information substantially in accordance with the terms of this Section 20, (iii) any other holder of any Note, (iv) any Institutional Investor to which you sell or offer to sell such Note or any part thereof or any participation therein (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 21), (v) any Person from which you offer to purchase any Security of the Company (if such Person has agreed in writing prior to its receipt of such Confidential Information to be bound by the provisions of this Section 21), (vi) any federal or state regulatory authority having jurisdiction over you, (vii) the National Association of Insurance Commissioners or any similar organization, or any nationally recognized rating agency that requires access to information about your investment portfolio or (viii) any other Person to which such delivery or disclosure may be necessary or appropriate (w) to effect compliance with any law, rule, regulation or order applicable to you, (x) in response to any subpoena or other legal process, (y) in connection with any 130 litigation to which you are a party or (z) it an Event of Default has occurred and is continuing, to the extent you may reasonably determine such delivery and disclosure to be necessary or appropriate in the enforcement or for the protection of the rights and remedies under your Notes and this Agreement. Each holder of a Note, by its acceptance of a Note, will be deemed to have agreed to be bound by and to be entitled to the benefits of this Section 21 as though it were a party to this Agreement. On reasonable request by the Company in connection with the delivery to any holder of a Note of information required to be delivered to such holder under this Agreement or requested by such holder (other than a holder that is a party to this Agreement or its nominee), such holder will enter into an agreement with the Company embodying the provisions of this Section 21. Section 22. Substitution of Purchaser. You shall have the right to substitute any one of your Affiliates as the purchaser of the Notes that you have agreed to purchase hereunder, by written notice to the Company, which notice shall be signed by both you and such Affiliate, shall contain such Affiliate's agreement to be bound by this Agreement and shall contain a confirmation by such Affiliate of the accuracy with respect to it of the representations set forth in Section 6. Upon receipt of such notice, wherever the word "you" is used in this Agreement (other than in this Section 22), such word shall be deemed to refer to such Affiliate in lieu of you. In the event that such Affiliate is so substituted as a purchaser hereunder and such Affiliate thereafter transfers to you all of the Notes then held by such Affiliate, upon receipt by the Company of notice of such transfer, wherever the word "you" is used in this Agreement (other than in this Section 22), such word shall no longer be deemed to refer to such Affiliate, but shall refer to you, and you shall have all the rights of an original holder of the Notes under this Agreement. Section 23. Miscellaneous. Section 23.1. Successors and Assigns. All covenants and other agreements contained in this Agreement by or on behalf of any of the parties hereto bind and inure to the benefit of their respective successors and assigns (including, without limitation, any subsequent holder of a Note) whether so expressed or not. Section 23.2. Payments Due on NonBusiness Days; When Payments Deemed Received. (a) Payments Due on NonBusiness Days. Anything in this Agreement or the Notes to the contrary notwithstanding, any payment of principal of or MakeWhole Amount or interest on any Note that is due on a date other than a Business Day shall be made on the next succeeding Business Day without including the additional days elapsed in the computation of the interest payable on such next succeeding Business Day. (b) Payments, When Received. Any payment to be made to the holders of Notes hereunder or under the Notes shall be deemed to have been made on the Business Day such payment actually becomes available to such holder at such holder's bank prior to 12:00 noon (local time of such bank). 131 Section 23.3. Severability. Any provision of this Agreement that is prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof, and any such prohibition or unenforceability in any jurisdiction shall (to the full extent permitted by law) not invalidate or render unenforceable such provision in any other jurisdiction. Section 23.4. Construction. Each covenant contained herein shall be construed (absent express provision to the contrary or where the context clearly would indicate otherwise) as being independent of each other covenant contained herein, so that compliance with any one covenant shall not (absent such an express contrary provision or where the context clearly would indicate otherwise) be deemed to excuse compliance with any other covenant. Where any provision herein refers to action to be taken by any Person, or which such Person is prohibited from taking, such provision shall be applicable whether such action is taken directly or indirectly by such Person. Section 23.5. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original but all of which together shall constitute one instrument. Each counterpart may consist of a number of copies hereof, each signed by less than all, but together signed by all, of the parties hereto. Section 23.6. Governing Law. This Agreement shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the law of the State of New York excluding choiceoflaw principles of the law of such state that would require the application of the laws of a jurisdiction other than such state. [Remainder of page intentionally blank. Next page is signature page.] 132 If you are in agreement with the foregoing, please sign the form of agreement on the accompanying counterpart of this Agreement and return it to the Company, whereupon the foregoing shall become a binding agreement between you and the Company. Very truly yours, NFO Worldwide, Inc. By Name: Title: Allstate Life Insurance Company By Name: By Name: Authorized Signatories Allstate Life Insurance Company of New York By Name: By Name: Authorized Signatories 133 Defined Terms As used herein, the following terms have the respective meanings set forth below or set forth in the Section hereof following such term: "Acquisition" means any transaction (including any merger or consolidation, but not including the formation of new Subsidiaries after the Closing Date) pursuant to which the Company or any of its Restricted Subsidiaries (a) acquires equity Securities (or warrants, options or other rights to acquire such Securities) of any Person, other than the Company or any Person which is then a Subsidiary, pursuant to a solicitation of tenders therefor, or in one or more negotiated block, market or other transactions not involving a tender offer, or a combination of any of the foregoing, or (b) makes any Person (other than a Subsidiary of the Company) a Restricted Subsidiary, or causes any such Person to be merged into or consolidated with the Company or any of its Restricted Subsidiaries, in any case pursuant to a merger, a purchase of assets or any reorganization providing for the delivery or issuance to the holders of such Person's then outstanding Securities, in exchange for such Securities, of cash or Securities of the Company or any of its Restricted Subsidiaries, or a combination thereof, or (c) purchases all or substantially all of the business or assets of any Person (other than a Subsidiary of the Company). "Affiliate" means at any time, and with respect to any Person, (a) any other Person that at such time directly or indirectly through one or more intermediaries Controls, or is Controlled by, or is under common Control with, such first Person, and (b) any Person beneficially owning or holding, directly or indirectly, 10% or more of any class of voting or equity interests of the Company or any Subsidiary or any corporation of which the Company and its Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly, 10% or more of any class of voting or equity interests. As used in this definition, "Control" means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise. Unless the context otherwise clearly requires, any reference to an "Affiliate" is a reference to an Affiliate of the Company. "Agreement, this" is defined in Section 18.3. "Asset Disposition" means any Transfer except: (a) any (i) Transfer from a Restricted Subsidiary to the Company or another Restricted Subsidiary, and (ii) Transfer from the Company to a Restricted Subsidiary, so long as immediately before and immediately after the consummation of any such Transfer and after giving effect thereto, no Default or Event of Default exists; and (b) any Transfer made in the ordinary course of business and involving only 134 property that is either (i) inventory held for sale or (ii) equipment, fixtures, supplies or materials no longer required in the operation of the business of the Company or any of the Restricted Subsidiaries or that is obsolete. "Attributable Debt" means, as to any particular lease relating to a Sale-and-Leaseback Transaction, the present value of all Long Term Lease Rentals required to be paid by the Company or any Subsidiary under such lease during the remaining term thereof (determined in accordance with generally accepted financial practice using a discount factor equal to the interest rate implicit in such lease if known or, if not known, of 7% per annum). "Business Day" means (a) for the purposes of Section 8.6 only, any day other than a Saturday, a Sunday or a day on which commercial banks in New York City are required or authorized to be closed, and (b) for the purposes of any other provision of this Agreement, any day other than a Saturday, a Sunday or a day on which commercial banks in New York, Connecticut, Illinois or Massachusetts are required or authorized to be closed. "Capital Assets" means all property and equipment of the Company and the Restricted Subsidiaries (after deducting any reserves applicable thereto) which would be shown as such on a consolidated balance sheet of such Persons prepared in accordance with GAAP. "Capital Lease" means, at any time, a lease with respect to which the lessee is required concurrently to recognize the acquisition of an asset and the incurrence of a liability in accordance with GAAP. "Capital Lease Obligation" means, with respect to any Person and a Capital Lease, the amount of the obligation of such Person as the lessee under such Capital Lease which would, in accordance with GAAP, appear as a liability on a balance sheet of such Person. "Capital Stock" means any class of capital stock, share capital or similar equity interest of a Person. "Closing" is defined in Section 3. "Closing Date" is defined in Section 3. "Code" means the Internal Revenue Code of 1986, as amended from time to time, and the rules and regulations promulgated thereunder from time to time. "Company" is defined in the introductory sentence of this Agreement. "Confidential Information" is defined in Section 21. "Consolidated Current Debt" means all Current Debt of the Company and the Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Consolidated Funded Debt" means the sum of Consolidated Senior Funded Debt plus Consolidated Subordinated Funded Debt. "Consolidated Net Income" means, with reference to any period, the net income (or loss) of the Company and the Restricted Subsidiaries for such period (taken as a cumulative whole), as determined in accordance with GAAP, after eliminating all offsetting debits and credits between the Company and the Restricted Subsidiaries and all other items required to be eliminated in the course 135 of the preparation of consolidated financial statements of the Company and the Restricted Subsidiaries in accordance with GAAP, provided that there shall be excluded: (a) the income (or loss) of any Person accrued prior to the date it becomes a Restricted Subsidiary or is merged into or consolidated with the Company or a Restricted Subsidiary, and the income (or loss) of any Person, substantially all of the assets of which have been acquired in any manner, realized by such other Person prior to the date of acquisition, (b) the income (or loss) of any Person (other than a Restricted Subsidiary) in which the Company or any Restricted Subsidiary has an ownership interest, except to the extent that any such income has been actually received by the Company or such Restricted Subsidiary in the form of cash dividends or similar cash distributions, (c) the undistributed earnings of any Restricted Subsidiary to the extent that the declaration or payment of dividends or similar distributions by such Restricted Subsidiary is not at the time permitted by the terms of its charter or any agreement, instrument, judgment, decree, order, statute, rule or governmental regulation applicable to such Restricted Subsidiary, (d) any restoration to income of any contingency reserve, except to the extent that provision for such reserve was made out of income accrued during such period, (e) any aggregate net gain, or any aggregate net loss, during such period arising from the sale, conversion, exchange or other disposition of Capital Assets, (f) any gains resulting from any writeup of any assets, or any loss resulting from any writedown of any assets, (g) any net gain from the collection of the proceeds of life insurance policies, (h) any gain arising from the acquisition of any Security, or the extinguishment, under GAAP, of any Debt, of the Company or any Restricted Subsidiary, (i) any net income or gain, or any net loss, during such period from (i) any change in accounting principles in accordance with GAAP, (ii) any prior period adjustments resulting from any change in accounting principles in accordance with GAAP, (iii) any extraordinary items, or (iv) any discontinued operations or the disposition thereof, (j) in the case of a successor to the Company by consolidation or merger or as a transferee of its assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets, and (k) any portion of such net income that cannot be freely converted into United States Dollars. "Consolidated Net Worth" means, at any time, (a) Consolidated Total Assets minus (b) the total liabilities of the Company and the Restricted Subsidiaries which 136 would be shown as liabilities on a consolidated balance sheet of the Company and the Restricted Subsidiaries as of such time prepared in accordance with GAAP. "Consolidated Senior Funded Debt" means all Senior Funded Debt of the Company and the Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Consolidated Subordinated Funded Debt" means all Subordinated Funded Debt of the Company and the Restricted Subsidiaries, determined on a consolidated basis in accordance with GAAP. "Consolidated Total Assets" means the total assets of the Company and the Restricted Subsidiaries that would appear on a consolidated balance sheet of such Persons prepared in accordance with GAAP. "Consolidated Total Capitalization" means, at any time, the sum, without duplication, of: (a) Consolidated Funded Debt; (b) the amount of all deferred income tax liabilities of the Company and the RestrictedSubsidiaries, determined on a consolidated basis in accordance with GAAP; (c) all amounts properly attributable to minority interests, if any, in the stock and surplus of Restricted Subsidiaries; and (d) Consolidated Net Worth. "Current Debt" means, with respect to any Person, all Debt of such Person which by its terms or by the terms of any instrument or agreement relating thereto matures on demand or within one year from the date of the creation thereof and is not directly or indirectly renewable or extendible at the option of the obligor in respect thereof to a date one year or more from such date, provided that (a) Debt outstanding under a revolving credit or similar agreement which obligates the lender or lenders to extend credit over a period of one year or more and (b) Current Maturities of Funded Debt shall constitute Funded Debt and not Current Debt, even though such Debt by its terms matures on demand or within one year from such date. "Current Maturities of Funded Debt" means, at any time and with respect to any item of Funded Debt, the portion of such Funded Debt outstanding at such time which by the terms of such Funded Debt or the terms of any instrument or agreement relating thereto is due on demand or within one year from such time (whether by sinking fund, other required prepayment or final payment at maturity) and is not directly or indirectly renewable, extendible or refundable at the option of the obligor under an agreement or firm commitment in effect at such time to a date one year or more from such time. "Debt" means, with respect to any Person, without duplication, (a) its liabilities for borrowed money; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including, without limitation, all liabilities created or arising under any conditional sale or other title retention agreement with respect to any such property); 137 (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases; and (d) any Guaranty of such Person with respect to liabilities of a type described in clauses (a) to (c), inclusive, hereof. Without limitation of the foregoing, Debt of any Person shall include all obligations of such Person of the character described in clauses (a) through (c) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. Any Person extending, renewing or refunding any Debt (other than Existing Debt) shall be deemed to have incurred such Debt at the time of such extension, renewal or refunding. "Debt Facility" means any agreement pursuant to which the Company or a Restricted Subsidiary may incur Debt, as such agreement may be amended, modified, restated or replaced by another agreement providing for the incurrence of Debt by any such Person, except for any such amendment, modification, restatement or replacement that provides for an increase in the amount of Debt to an amount greater than that which could have been outstanding on the Closing Date. "Default" means an event or condition the occurrence or existence of which would, with the lapse of time or the giving of notice or both, become an Event of Default. "Default Rate" means that rate of interest that is the greater of (i) 2% per annum above the rate of interest stated in clause (a) of the first paragraph of the Notes or (ii) 2% over the rate of interest publicly announced from time to time by The Chase Manhattan Bank in New York, New York (or its successor) as its "base" or "prime" rate. "Dollars" or "$" means lawful currency of the United States of America. "Environmental Laws" means any and all Federal, state, local, and foreign statutes, laws, regulations, ordinances, rules, judgments, orders, decrees, permits, concessions, grants, franchises, licenses, agreements or governmental restrictions relating to pollution and the protection of the environment or the release of any materials into the environment, including but not limited to those related to hazardous substances or wastes, air emissions and discharges to waste or public systems. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended from time to time, and the rules and regulations promulgated thereunder from time to time in effect. "ERISA Affiliate" means any trade or business (whether or not incorporated) that is treated as a single employer together with the Company under section 414 of the Code. "Event of Default" is defined in Section 11. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "Excluded Guaranties" means (i) the Guaranties of the Restricted Subsidiaries issued on the Closing Date in respect of the Notes and the Senior Notes, (ii) the Guaranties of the Restricted Subsidiaries issued on November 20, 1998 in respect of the Existing Senior Notes, the Existing Subordinated Notes and the Debt under the Fleet/Chase Debt Facility, (iii) any other Guaranties of Subsidiaries issued thereafter in respect of the Debt identified in the foregoing clauses (i) and (ii), 138 (iv) Guaranties of any refinancing, replacement or renewal of such Debt so long as the aggregate principal amount of such Debt is not in excess of that outstanding or, in the case of the Fleet/Chase Debt Facility, available to be borrowed, immediately after giving effect to the sale of the Notes and the Senior Notes on the Closing Date and the holders of such Debt (other than any holders of Subordinated Funded Debt) are parties to the Sharing Agreement, and (v) any Guaranties of Subsidiaries of the Existing Senior Notes, the Existing Subordinated Notes, the Senior Notes, the Notes or the obligations of the Company under the Fleet/Chase Debt Facility if Guaranties of such Subsidiaries shall also have been issued in respect of the Notes pursuant to Section 9.7(a). "Existing Current Debt" means Existing Debt which is Current Debt. "Existing Debt" means (a) Debt of the Company or any Restricted Subsidiary outstanding on the Closing Date and identified on Schedule 5.15 (or included in the aggregate amount set forth in Section 5.15), and any renewal, refinancing or replacement thereof so long as there shall be no increase in the principal amount of such Debt outstanding at the time of such renewal, refinancing or replacement; and (b) Debt incurred pursuant to a Debt Facility identified in Schedule 5.15 to which the Company or any Restricted Subsidiary is a party on the Closing Date (regardless of whether any Debt is outstanding thereunder on thc Closing Date), so long as the aggregate amount of Debt so incurred at any time is not in excess of the maximum amount of Debt permitted to be incurred thereunder on the Closing Date (assuming satisfaction of all funding conditions on such date); and (c) the Excluded Guaranties. "Existing Senior Funded Debt" means Existing Debt which is Senior Funded Debt. "Existing Senior Note Purchase Agreements" means the March 1998 Senior Note Purchase Agreements and the November 1998 Senior Note Purchase Agreements. "Existing Senior Notes" means the March 1998 Senior Notes and the November 1998 Senior Notes. "Existing Subordinated Funded Debt" means Existing Debt which is Subordinated Funded Debt. "Existing Subordinated Note Purchase Agreements" means the separate Note Purchase Agreements dated as of November 20, 1998, among the Company and the purchasers of the Existing Subordinated Notes, as amended, supplemented or restated from time to time. "Existing Subordinated Notes" means the Senior Subordinated Notes issued under the Existing Subordinated Note Purchase Agreements, as such notes may be amended, supplemented or restated from time to time other than any amendment that would increase the principal amount thereof above the principal amount outstanding as of the date of any such amendment. "Fair Market Value" means, at any time and with respect to any property, the sale value of such property that would be realized in an arm's-length sale at such time between an informed and 139 willing buyer and an informed and willing seller (neither being under a compulsion to buy or sell). "Fleet/Chase Debt Facility" means the Debt Facility evidenced by that certain Credit Agreement dated as of March 9, 1998 among the Company, Fleet National Bank and The Chase Manhattan Bank, as coagents, Fleet National Bank, as administrative agent, and the other banks party thereto, providing for a borrowing availability of up to $75 million. "Funded Debt" means, with respect to any Person, all Debt of such Person which by its terms or by the terms of any instrument or agreement relating thereto matures, or which is otherwise payable or unpaid, one year or more from, or is directly or indirectly renewable or extendible at the option of the obligor in respect thereof to a date one year or more (including, without limitation, an option of such obligor under a revolving credit or similar agreement obligating the lender or lenders to extend credit over a period of one year or more) from, the date of the creation thereof. The amount of Funded Debt outstanding under any such revolving credit or similar agreement (including the Fleet/Chase Debt Facility) on any date shall be deemed to be the average daily amount outstanding under such facility during the period of 365 consecutive days ending on and including such date, and not the actual amount outstanding on such date; provided, however, that, (i) as used in the definitions of "Consolidated Senior Funded Debt" and "Consolidated Funded Debt," but only as such terms are used in Section 10.14, the amount of Funded Debt outstanding under any such revolving credit or similar agreement (including the Fleet/Chase Debt Facility) on any date shall be the actual amount outstanding on such date, and (ii) for purposes of Sections 10.1, 10.2, 10.3 and 10.10 from and after the Closing Date, the amount of Funded Debt outstanding under the Fleet/Chase Debt Facility during the period beginning on November 20, 1998 and ending on the Closing Date, shall not include an amount equal to the March 1999 Retired Funded Debt Amount. "GAAP" means generally accepted accounting principles as in effect from time to time in the United States of America. "Governmental Authority" means (a) the government of (i) the United States of America or any state or other political subdivision thereof, or (ii) any jurisdiction in which the Company or any Subsidiary conducts all or any part of its business, or that asserts jurisdiction over any properties of the Company or any Subsidiary, or (b) any entity exercising executive, legislative, judicial, regulatory or administrative functions of, or pertaining to, any such government. "Guarantor" means, at any time, each Person (including, without limitation, each of the Initial Guarantors) that at such time is a Guarantor under a Guaranty Agreement. "Guaranty" means, with respect to any Person, any obligation (except the endorsement in the ordinary course of business of negotiable instruments for deposit or collection) of such Person 140 guaranteeing or in effect guaranteeing any indebtedness, dividend or other obligation of any other Person in any manner, whether directly or indirectly, including, without limitation, obligations incurred through an agreement, contingent or otherwise, by such Person: (a) to purchase such indebtedness or obligation or any property constituting security therefor; (b) to advance or supply funds (i) for the purchase or payment of such indebtedness or obligation, or (ii) to maintain any working capital or other balance sheet condition or any income statement condition of any other Person or otherwise to advance or make available funds for the purchase or payment of such indebtedness or obligation; (c) to lease properties or to purchase properties or services primarily for the purpose of assuring the owner of such indebtedness or obligation of the ability of any other Person to make payment of the indebtedness or obligation; or (d) otherwise to assure the owner of such indebtedness or obligation against loss in respect thereof. In any computation of the indebtedness or other liabilities of the obligor under any Guaranty, the indebtedness or other obligations that are the subject of such Guaranty shall be assumed to be direct obligations of such obligor. "Guaranty Agreements" shall mean each of the Guaranty Agreements executed by the Initial Guarantors pursuant to Section 4.14 and each of the other Guaranty Agreements executed and delivered from time to time pursuant to Section 9.7, in each case as amended or supplemented from time to time. "Hazardous Material" means any and all pollutants, toxic or hazardous wastes or any other substances that might pose a hazard to health or safety, the removal of which may be required or the generation, manufacture, refining, production, processing, treatment, storage, handling, transportation, transfer, use, disposal, release, discharge, spillage, seepage, or filtration of which is or shall be restricted, prohibited or penalized by any applicable law (including, without limitation, asbestos, urea formaldehyde foam insulation and polychlorinated biphenyls). "holder" means, with respect to any Note, the Person in whose name such Note is registered in the register maintained by the Company pursuant to Section 14.1. "IBH Debt" means the Debt of Infratest and its subsidiaries in the aggregate principal amount that could have been incurred under the credit facilities to which Infratest is a party as of November 20, 1998. "Indebtedness" means, with respect to any Person, without duplication, (a) its liabilities for borrowed money and its redemption obligations in respect of mandatorily redeemable Preferred Stock; (b) its liabilities for the deferred purchase price of property acquired by such Person (excluding accounts payable arising in the ordinary course of business but including all liabilities created or arising under any conditional sale or other title retention agreement 141 with respect to any such property); (c) all liabilities appearing on its balance sheet in accordance with GAAP in respect of Capital Leases; (d) all liabilities for borrowed money secured by any Lien with respect to any property owned by such Person (whether or not it has assumed or otherwise become liable for such liabilities); (e) all its liabilities in respect of letters of credit or instruments serving a similar function issued or accepted for its account by banks and other financial institutions (whether or not representing obligations for borrowed money); (f) Swaps of such Person; and (g) any Guaranty of such Person with respect to liabilities of a type described in any of clauses (a) through (f) hereof. Without limitation of the foregoing, Indebtedness of any Person shall include all obligations of such Person of the character described in clauses (a) through (g) to the extent such Person remains legally liable in respect thereof notwithstanding that any such obligation is deemed to be extinguished under GAAP. "Infratest" means Infratest Burke Aktiengesellschaft Holding, a German Aktiengesellschaft (stock corporation). "Initial Guarantor" means each of Migliara/Kaplan Associates, Inc., a Delaware corporation, NFO Research, Inc., a Delaware corporation, Plog Research Inc., a Delaware corporation, Prognostics Corp., a Delaware corporation, PSI Holding Corp., a Delaware corporation, and Ross-Cooper-Lund, Inc., a Delaware corporation. "Institutional Investor" means (a) any original purchaser of a Note, (b) any holder of a Note holding more than 5% of the aggregate principal amount of the Notes then outstanding, and (c) any bank, trust company, savings and loan association or other financial institution, any pension plan, any investment company, any insurance company, any broker or dealer, or any other similar financial institution or entity, regardless of legal form. "InterCompany Debt" means Debt of the Company owing to any WhollyOwned Restricted Subsidiary or Debt of any Restricted Subsidiary owing to the Company or one or more WhollyOwned Restricted Subsidiaries. "Investment" means any investment, made in cash or by delivery of property, by the Company or any of the Restricted Subsidiaries in any Person, whether by acquisition of stock, Debt or other obligation or Security, or by loan, Guaranty, advance, capital contribution or otherwise. "Lien" means, with respect to any Person, any mortgage, lien, pledge, charge, security interest or other encumbrance, or any interest or title of any vendor, lessor, lender or other secured party to or of such Person under any conditional sale or other title retention agreement or Capital Lease, upon or with respect to any property or asset of such Person (including in the case of stock, 142 stockholder agreements, voting trust agreements and all similar arrangements to the extent that such arrangements affect control of the issuer of such stock or the payment of dividends by such issuer). "Long Term Lease Rentals" means, for a lease (other than a Capital Lease) arising from a Sale-and-Leaseback Transaction having a term (including terms of renewal or extension at the option of the lessor or the lessee, whether or not such option has been exercised) expiring more than two (2) years after the commencement of the initial term thereof, the sum of the minimum amount of rental and other obligations required to be paid during such period by the Company or any Subsidiary as lessee, excluding any amounts required to be paid by the lessee (whether or not therein designated as rent or additional rent) (a) which are on account of maintenance and repairs, insurance, taxes, assessments, water rates and similar charges, or (b) which are based on profits, revenues or sales realized by the lessee from the leased property or otherwise based on the performance of the lessee. "MakeWhole Amount" is defined in Section 8.6. "March 1998 Senior Note Purchase Agreements" means the separate Note Purchase Agreements dated as of March 9, 1998, among the Company and the purchasers of the March 1998 Senior Notes, as amended November 20, 1998, as amended, supplemented or restated from time to time. "March 1998 Senior Notes" means the Senior Notes issued under the March 1998 Senior Note Purchase Agreements, as such notes may be amended, supplemented or restated from time to time other than any amendment that would increase the principal amount thereof above the principal amount outstanding as of the date of any such amendment. "March 1999 Retired Funded Debt Amount" means the aggregate principal amount of Funded Debt outstanding under the Fleet/Chase Debt Facility which shall be repaid on the Closing Date from the proceeds of the issuance and sale of the Notes and the Senior Notes. "Material" means material in relation to the business, operations, affairs, financial condition, assets, properties, or prospects of the Company and its Subsidiaries taken as a whole. "Material Adverse Effect" means a material adverse effect on (a) the business, operations, affairs, financial condition, assets or properties of the Company and its Subsidiaries taken as a whole, or (b) the ability of the Company to perform its obligations under this Agreement and the Notes, or (c) the validity or enforceability of this Agreement or the Notes. "Memorandum" is defined in Section 5.3. "Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such term is defined in section 4001 (a)(3) of ERISA). "Net Proceeds Amount" means, with respect to any Transfer of any Property by any Person, an amount equal to the difference of: (a) the aggregate amount of the consideration (valued at the Fair Market Value of such consideration at the time of the consummation of such Transfer) received by such Person in respect of such Transfer, minus 143 (b) all ordinary and reasonable outofpocket costs and expenses actually incurred by such Person in connection with such Transfer, and all taxes arising on account of any gains in respect of such Transfer which are actually payable by such Person. "Notes" is defined in Section 1. "November 1998 Senior Note Purchase Agreements" means the separate Note Purchase Agreements dated as of November 20, 1998, among the Company and the purchasers of the November 1998 Senior Notes, as amended, supplemented or restated from time to time. "November 1998 Senior Notes" means the Senior Notes issued under the November 1998 Senior Note Purchase Agreements, as such notes may be amended, supplemented or restated from time to time other than any amendment that would increase the principal amount thereof above the principal amount outstanding as of the date of any such amendment. "Officer's Certificate" means a certificate of a Senior Financial Officer or of any other officer of the Company whose responsibilities extend to the subject matter of such certificate. "Other Agreement" is defined in Section 2. "Other Purchaser" is defined in Section 2. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "Person" means an individual, a partnership, a corporation, a limited liability company, an association, a trust, an unincorporated organization, or a government or agency or political subdivision thereof. "Plan" means an "employee benefit plan" (as defined in section 3(3) of ERISA) or other plan that is or, within the preceding five years, has been established or maintained, or to which contributions are or, within the preceding five years, have been made or required to be made, by the Company or any ERISA Affiliate or with respect to which the Company or any ERISA Affiliate may have any liability which is covered by Title IV of ERISA. "Preferred Stock" means any class of Capital Stock of a Person that is preferred over any other class of Capital Stock of such Person as to the payment of dividends or other equity distributions or the payment of any amount upon liquidation or dissolution of such Person. "Pro Forma Consolidated Interest Expense" means, in respect of any period, all interest in respect of Debt of the Company and the Restricted Subsidiaries (including imputed interest on Capital Lease Obligations) deducted in determining Consolidated Net Income for such period, determined as if (a) all Persons which became or ceased to be Restricted Subsidiaries during such period had become or ceased to be Restricted Subsidiaries on the first day of such period, and (b) all acquisitions or dispositions of all or substantially all of the assets of any Person or Restricted Subsidiary which occurred during such period had occurred on the first 144 day of such period (and all incurrences or retirements of Debt in connection with any such acquisition or disposition had occurred on such first day). For purposes of this definition, in determining the interest that would have accrued during any period on Debt which bears a floating rate of interest, the interest rate in effect for all of such period shall be deemed to be the interest rate that would have been in effect on the first day of such period had such Debt been outstanding on such day. "Pro Forma EBITDA" means, in respect of any period, Consolidated Net Income for such period plus, to the extent deducted in the determination thereof for such period, each of the following: (a) Pro Forma Consolidated Interest Expense; (b) all depreciation and amortization allowances and other noncash expenses of the Company and the Restricted Subsidiaries; and (c) all taxes imposed on or measured by income or excess profits; in each case determined as if (i) all Persons which became or ceased to be Restricted Subsidiaries during such period had become or ceased to be Restricted Subsidiaries on the first day of such period, (ii) all acquisitions or dispositions of all or substantially all of the assets of any Person or Restricted Subsidiary which occurred during such period had occurred on the first day of such period (and all incurrences or retirements of Debt in connection with any such acquisition or disposition had occurred on such first day), and (iii) all planned future reductions in the compensation paid during such period to the owners of the equity interests in any Person referred to in the foregoing clauses (i) and (ii) had been in effect on the first day of such period. For purposes of the immediately preceding clause (iii), a planned future reduction in the compensation of any such owner shall be deemed to mean the amount by which the salary and bonus payable to such owner in respect of the period for which Pro Forma EBITDA is to be determined (the "Reference Period") exceeds the salary and bonus the Company intends to pay such owner for the equivalent period immediately following the Reference Period, as evidenced by the written agreement of such owner. "property or properties" means, unless otherwise specifically limited, real or personal property of any kind, tangible or intangible, choate or inchoate. "PTE" is defined in Section 6.2(a). "QPAM Exemption" is defined in Section 6.2(d). "Qualified Institutional Buyer" means any Person who is a "qualified institutional buyer" within the meaning of such term as set forth in Rule 144A(a)(1) under the Securities Act. "Required Holders" means, at any time, the holder or holders of at least 51% in principal amount of the Notes at the time outstanding (exclusive of Notes then owned by the Company or any of its Affiliates). "Required Senior Debt Holders" means as of the date of any determination under this Agreement, (a) in the case of any notice pursuant to Section 13(c) or (d), either (x) the holders of 35% in aggregate principal amount of the Senior Notes and the Existing Senior Notes voting as a 145 single class, or (y) the Administrative Agent under the Fleet/Chase Debt Facility (including any successor to Fleet National Bank, as Administrative Agent), and (b) in the case of any notice pursuant to Section 13(e) a notice from the holders of the Requisite Senior Debt, No notice shall be effective: (i) pursuant to Section 13(c) unless, in the case of any notice from the holders of the Senior Notes and the Existing Senior Notes, the aggregate unpaid principal amount of such Senior Debt then outstanding shall be more than $10,000,000 and in the case of any notice from the Administrative Agent under the Fleet/Chase Debt Facility, the aggregate unpaid principal amount of Senior Debt outstanding under the Fleet/Chase Debt Facility shall be more than $10,000,000, provided that if neither group of holders of Senior Debt shall hold an amount in excess of the required minimum set forth in this clause (i), then the minimum outstanding principal amount for each group shall be reduced to $5,000,000, and (ii) pursuant to Section 13(d) unless, in the case of any notice from the holders of the Senior Notes and the Existing Senior Notes, the aggregate unpaid principal amount of such Senior Debt then outstanding shall be more than $15,000,000 and in the case of any notice from the Administrative Agent under the Fleet/Chase Debt Facility, the aggregate unpaid principal amount of Senior Debt outstanding under the Fleet/Chase Debt Facility shall be more than $15,000,000, provided that if neither group of holders of Senior Debt shall hold an amount in excess of the required minimum set forth in this clause (ii), then the minimum outstanding principal amount for each group shall be reduced to $5,000,000. "Requisite Senior Debt" shall mean (x) in the case of the Senior Notes and the Existing Senior Notes, the holders of 51% in aggregate unpaid principal amount of such Senior Debt voting as a single class, and (y) in the case of the Fleet/Chase Debt Facility, the vote of the Administrative Agent and in each case voting in accordance with the following: (i) a vote from both classes of Senior Debt if, (x) the Senior Notes and the Existing Senior Notes shall be outstanding in the aggregate unpaid principal amount equal to or more than $15,000,000, and the aggregate unpaid principal amount of Senior Debt outstanding under the Fleet/Chase Debt Facility shall be equal to or more than $15,000,000; or (y) the Senior Notes and the Existing Senior Notes shall be outstanding in an aggregate unpaid principal amount less than $15,000,000 but more than $5,000,000 and the aggregate unpaid principal amount of Senior Debt outstanding under the Fleet/Chase Debt Facility shall be less than $15,000,000 but more than $5,000,000; (ii) a vote from only the Senior Notes and the Existing Senior Notes if the Senior Notes and the Existing Senior Notes shall be outstanding in the aggregate unpaid principal amount equal to or more than $15,000,000, and the aggregate unpaid principal amount of Senior Debt outstanding under the Fleet/Chase Debt Facility shall be less than $15,000,000; (iii) a vote from only the Administrative Agent if the Senior Debt outstanding 146 under the Fleet/Chase Debt Facility shall be outstanding in an aggregate unpaid principal amount equal to or more than $15,000,000 and the aggregate unpaid principal amount of Senior Notes and the Existing Senior Notes shall be less than $15,000,000; (iv) a vote from only the Senior Notes and the Existing Senior Notes if the Senior Notes and the Existing Senior Notes shall be outstanding in the aggregate unpaid principal amount less than $15,000,000 but equal to or more than $5,000,000, and the aggregate unpaid principal amount of Senior Debt outstanding under the Fleet/Chase Debt Facility shall be less than $5,000,000; (v) a vote from only the Administrative Agent if the Senior Debt outstanding under the Fleet/Chase Debt Facility shall be outstanding in the aggregate unpaid principal amount less than $15,000,000 but equal to or more than $5,000,000, and the aggregate unpaid principal amount of Senior Notes and the Existing Senior Notes shall be less than $5,000,000; and (vi) a vote of a majority in aggregate principal amount of both classes of Senior Debt (voting as a single class) if the aggregate unpaid principal amount of the Senior Notes and the Existing Senior Notes is less than $5,000,000 and the unpaid principal amount of Senior Debt outstanding under the Fleet/Chase Debt Facility is less than $5,000,000. "Responsible Officer" means any Senior Financial Officer and any other officer of the Company with responsibility for the administration of the relevant portion of this Agreement. "Restricted Investments" means all Investments except the following: (a) current assets arising from the sale of goods and services in the ordinary course of business of the Company and the Restricted Subsidiaries; (b) Investments in the Company or one or more Restricted Subsidiaries in the ordinary course of business; (c) Investments in any Person which, after giving effect to such transaction, would be a Restricted Subsidiary; (d) advances to officers, directors and employees of the Company or any of the Restricted Subsidiaries for expenses incurred in the ordinary course of business of the Company or such Restricted Subsidiary; (e) Investments in United States Governmental Securities; (f) Investments in certificates of deposit or banker's acceptances issued by an Acceptable Bank; (g) Investments in debt obligations of issuers organized under the laws of the United States of America, any state thereof or the District of Columbia and rated "A" or better by S&P, "A2" or better by Moody's, or an equivalent rating by any other credit rating agency of recognized national standing; (h) Investments in preferred stock of issuers organized under the laws of the United States of America, any state thereof or the District of Columbia and rated "A" or 147 better by S&P, "A2" or better by Moody's or an equivalent rating by any other credit rating agency of recognized national standing; (i) Investments in obligations of any state of the United States of America, or any governmental subdivision of any such state, in each case rated "A" or better by S&P, "A2" or better by Moody's or an equivalent rating by any other credit rating agency of recognized national standing; (j) Investments which are incurred in connection with transactions permitted by Section 10.10; and (k) to the extent not included in the foregoing clauses (a) to (j), inclusive, cash and cash equivalents. As of any date of determination, each Restricted Investment shall be valued at the greater of: (x) the amount at which such Restricted Investment is shown on the books of the Company or any of the Restricted Subsidiaries (or zero if such Restricted Investment is not shown on any such books); and (y) either (i) in the case of any Guaranty of the obligation of any Person, the amount which the Company or any of the Restricted Subsidiaries has paid on account of such obligation less any recoupment by the Company or such Restricted Subsidiary of any such payments, or (ii) in the case of any other Restricted Investment, the excess of (x) the greater of (A) the amount originally entered on the books of the Company or any of the Restricted Subsidiaries with respect thereto and (B) the cost thereof to the Company or the Restricted Subsidiary over (y) any return of capital (after income taxes applicable thereto) upon such Restricted Investment through the sale or other liquidation thereof or part thereof or otherwise. As used in this definition of "Restricted Investments": "Acceptable Bank" means any bank or trust company (i) which is organized under the laws of the United States of America or any State thereof, (ii) which has capital, surplus and undivided profits aggregating at least $50,000,000, and (iii) which has outstanding senior unsecured Debt rated "A" or better by S&P, "A2" or better by Moody's or an equivalent rating by any other credit rating agency of recognized national standing. "Moody's" means Moody's Investors Service, Inc. "S&P" means Standard & Poor's Ratings Group, a division of McGraw Hill, Inc. "United States Governmental Security" means any direct obligation of, or obligation guaranteed by, the United States of America, or any agency controlled or supervised by or acting as an instrumentality of the United States of America pursuant to authority granted 148 by the Congress of the United States of America, so long as such obligation or guarantee shall have the benefit of the full faith and credit of the United States of America which shall have been pledged pursuant to authority granted by the Congress of the United States of America. "Restricted Subsidiary" means any Subsidiary of the Company other than an Unrestricted Subsidiary. "Restricted Subsidiary Stock" means, with respect to any Person, the Capital Stock (or any options or warrants to purchase stock or other Securities exchangeable for or convertible into stock) of any Restricted Subsidiary owned by such Person. "SaleandLeaseback Transaction" means a transaction or series of transactions pursuant to which the Company or any Restricted Subsidiary shall sell or transfer to any Person (other than the Company or a Restricted Subsidiary) any property, whether now owned or hereafter acquired, and, as part of the same transaction or series of transactions, the Company or any Restricted Subsidiary shall rent or lease as lessee (other than pursuant to a Capital Lease), or similarly acquire the right to possession or use of, such property or one or more properties which it intends to use for the same purpose or purposes as such property. "Securities Act" means the Securities Act of 1933, as amended from time to time. "Security" has the meaning set forth in section 2(1) of the Securities Act. "Senior Debt" shall mean all Indebtedness for borrowed money of the Company other than Subordinated Funded Debt. For purposes of the subordination provisions set forth in Section 13, all trade or accounts payable of the Company shall be specifically excluded from the definition of Senior Debt. "Senior Financial Officer" means the chief financial officer, principal accounting officer, treasurer or controller of the Company. "Senior Funded Debt" means (a) any Funded Debt of the Company (other than Subordinated Funded Debt) and (b) any Funded Debt of any Restricted Subsidiary. "Senior Note Purchase Agreement" means the separate Note Purchase Agreements, dated as of March 15, 1999, among the Company and the purchasers of the Senior Notes issued thereunder as amended, supplemented or restated from time to time. "Senior Note Purchasers" means the purchasers of the Senior Notes. "Senior Notes" means the senior promissory notes issued under the Senior Note Purchase Agreement, as such notes may be amended, supplemented or restated from time to time other than any amendment that would increase the principal amount thereof above the principal amount outstanding as of the date of any such amendment. "Sharing Agreement" means that certain Amended and Restated Sharing Agreement, dated as of March 15, 1999, among the holders of the Existing Senior Notes, the Senior Notes and the banks party to the Fleet/Chase Credit Facility, as further amended, supplemented or restated from time to time, including without limitation, amendments which add additional parties thereto. 149 "Source" is defined in Section 6.2. "Specified Senior Debt" means the Existing Senior Notes, the Senior Notes, and the loans outstanding under the Fleet/Chase Debt Facility. "Subordinated Funded Debt" means the Notes, the Existing Subordinated Notes and any other unsecured Funded Debt that is subordinated in right of payment or security to the Debt of the Company substantially in the manner set forth in Section 13 or in such other manner as shall be satisfactory to the Required Holders. "Subsidiary" means, as to any Person, any corporation, association or other business entity in which such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries owns sufficient equity or voting interests to enable it or them (as a group) ordinarily, in the absence of contingencies, to elect a majority of the directors (or Persons performing similar functions) of such entity, and any partnership or joint venture if more than a 50% interest in the profits or capital thereof is owned by such Person or one or more of its Subsidiaries or such Person and one or more of its Subsidiaries (unless such partnership or joint venture can and does ordinarily take major business actions without the prior approval of such Person or one or more of its Subsidiaries). Unless the context otherwise clearly requires, any reference to a "Subsidiary" is a reference to a Subsidiary of the Company. "Successor Corporation" is defined in Section 10.10. "Swaps" means, with respect to any Person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations obligating such Person to make payments, whether periodically or upon the happening of a contingency. For the purposes of this Agreement, the amount of the obligation under any Swap shall be the amount determined in respect thereof as of the end of the then most recently ended fiscal quarter of such Person, based on the assumption that such Swap had terminated at the end of such fiscal quarter, and in making such determination, if any agreement relating to such Swap provides for the netting of amounts payable by and to such Person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such Person, then in each such case, the amount of such obligation shall be the net amount so determined. "Transfer" means, with respect to any Person, any transaction in which such Person sells, conveys, transfers or leases (as lessor) any of its property, including, without limitation, Restricted Subsidiary Stock. "Unrestricted Subsidiary" means any Subsidiary of the Company designated as such by the Company by written notice to the holders of the Notes given within 5 Business Days of such designation, provided that, at the time of such designation, (a) such Subsidiary does not own any Funded Debt or Capital Stock of the Company or any Restricted Subsidiary, (b) no Default or Event of Default would exist, and 150 (c) the Company would be able to incur $1 of Funded Debt pursuant to both Section 10.1 and Section 10.2; provided further that such notice shall contain a statement to the effect that all conditions to such designation have been satisfied and shall set forth the calculations reasonably necessary to show satisfaction of the condition set forth in the foregoing clause (c). Any Subsidiary of the Company designated as an Unrestricted Subsidiary may not thereafter be a Restricted Subsidiary. "WhollyOwned Restricted Subsidiary" means, at any time, any Restricted Subsidiary 100% of all of the equity interests (except directors' qualifying shares) and voting interests of which are owned by any one or more of the Company and the Company's other WhollyOwned Restricted Subsidiaries at such time. 151 EX-21 4 EXHIBIT 21
EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Jurisdiction Directly Held By Subsidiary of Incorporation and Wholly Owned By ---------- ---------------- ------------------- NFO Research, Inc. Delaware NFO Worldwide, Inc. PSI Holding, Corp. Delaware NFO Worldwide, Inc. Advanced Marketing Solutions Corp. Delaware NFO Worldwide, Inc. Plog Research, Inc. Delaware NFO Worldwide, Inc. Prognostics Corp. Delaware NFO Worldwide, Inc. Migliara/Kaplan Associates, Inc. Delaware NFO Worldwide, Inc. NFO USA, Inc. Delaware NFO Worldwide, Inc. NFO International, Inc. Delaware NFO Worldwide, Inc. Chesapeake Surveys, Inc. Delaware Migliara/Kaplan Associates, Inc. Stochastic International Delaware NFO Research, Inc. Ross-Cooper-Lund Delaware NFO USA, Inc. MarketMind Inc. Delaware NFO USA, Inc. NFO Europe, Inc. Delaware NFO International, Inc. NFO APIM, Inc. Delaware NFO International, Inc. NFO APLT, Inc. Delaware NFO Europe, Inc. NFO Germany, Inc. Delaware NFO Europe, Inc. NFO France, Inc. Delaware NFO Europe, Inc. NFO Italy, Inc. Delaware NFO Europe, Inc. NFO U.K., Inc. Delaware NFO Europe, Inc. NFO Asia-Pacific, Inc. Delaware NFO APIM, Inc. 152 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Jurisdiction Directly Held By Subsidiary of Incorporation and Wholly Owned By ---------- ---------------- ------------------- The MBL Group, Inc. Delaware NFO UK, Inc. Access Research, Inc. Delaware Payment Systems, Inc. NFO Canada, Inc. Ontario, Canada NFO Worldwide, Inc. CF Group, Inc. Ontario, Canada NFO Canada, Inc. Payment Systems International Limited United Kingdom The MBL Group Plc BJM Research and Consulting Ltd. United Kingdom The MBL Group Plc Marketing Blueprint Ltd. United Kingdom The MBL Group Plc Market Behaviour Ltd. United Kingdom The MBL Group Plc City Research Group Plc United Kingdom Payment Systems, Inc. City Research Associate, Ltd. United Kingdom City Research Group Plc Applied Research and Communications, Ltd. United Kingdom City Research Group Plc Strategic Marketing Consultancy Limited United Kingdom City Research Group Plc NFO Europe (Deutschland) Holding GmbH United Kingdom NFO Europe, Inc. NFO Europe (Deutschland) NFO Europe (Deutsch- Verwaltungs GmbH United Kingdom land) Holding GmbH NFO Europe (Deutschland) NFO Europe (Deutsch- GmbH & Co. KG United Kingdom land) Holding GmbH Infratest Burke Aktiengesellschaft NFO Europe (Deutsch- Holding, Inc. ("Infratest Burke") Germany land GmbH & Co. KG Infratest Burke Verwaltungs GmbH Germany Infratest Burke Infratest Burke GmbH & Co. Germany Infratest Burke Infratest Burke InCom Beteiligungs GmbH Germany Infratest Burke 153 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Jurisdiction Directly Held By Subsidiary of Incorporation and Wholly Owned By ---------- ---------------- ------------------- Infratest Burke InCom GmbH Germany Infratest Burke Infratest dimap Gesellschaft fur Trendund Wahlforschung GmbH Germany Infratest Burke Infratest Burke Sozialforschung Beteiligungs GmbH Germany Infratest Burke Infratest Burke Sozialforschung GmbH & Co. Germany Infratest Burke Infratest Burke Wirtschaftsforschung Beteiligungs GmbH Germany Infratest Burke Infratest Burke Wirtschaftsforschung GmbH & Co. Germany Infratest Burke Infratest Burke GmbH & Co. - Marketingforschung Germany Infratest Burke Testpanel-Martkforschungsinsttut Germany Infratest Burke GmbH TPI-Beteiligungs GmbH Germany Infratest Burke Nexxus Kommunikationsanlagen GmbH Germany Infratest Burke Infratest Burke Beteiligungs GmbH Germany Infratest Burke Infratest Forschung GmbH Germany Infratest Burke Infratest Gesundheitsforschung GmbH Germany Infratest Burke Infratest Gesundheitsforschung GmbH & Co. Germany Infratest Burke KFM Klinische Forschung GmbH Germany Infratest Burke Infratest Burke International GmbH Holding Germany Infratest Burke Infratest Burke Group Ltd. United Kingdom Infratest Burke Infratest Burke Ltd. United Kingdom Infratest Burke 154 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Jurisdiction Directly Held By Subsidiary of Incorporation and Wholly Owned By ---------- ---------------- ------------------- Public Attitude Surveys Holding Ltd. United Kingdom Infratest Burke Public Attitude Surveys Limited United Kingdom Infratest Burke System Three (Scotland) Ltd. United Kingdom Infratest Burke Consumer Insights Limited United Kingdom Infratest Burke Infratest Burke InterNational Services Ltd. United Kingdom Infratest Burke Infratest Burke Asia Pacific Ltd. United Kingdom Infratest Burke Infratest Burke Core Company Ltd. United Kingdom Infratest Burke Infratest Burke S.a.r.l. France Infratest Burke InfraForces S.a.r.l. France Infratest Burke T.E.S.T. S.A. France Infratest Burke Infratest Burke S.p.A. Italy Infratest Burke Infratest Burke AB Sweden Infratest Burke Infratest Burke Core Company AB Sweden Infratest Burke Nomina Telemarketing AB Sweden Infratest Burke Infratest Burke ApS Denmark Infratest Burke Trendbox B.V. Netherlands Infratest Burke Plus Remark Research for Marketing Turkey Infratest Burke Infratest U.S. Inc. USA Infratest Burke NFO Donovan Research Pty, Ltd. Australia NFO Asia-Pacific, Inc. CM Research New Zealand NFO Asia-Pacific, Inc. MERAC WLL Ltd. Bahrain The MBL Group Plc 155 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Jurisdiction Directly Held By Subsidiary of Incorporation and Wholly Owned By ---------- ---------------- ------------------- MERAC EGYPT Ltd. Egypt MERAC WLL Ltd. MERAC Arabia Company Ltd. Saudi Arabia MERAC WLL Ltd. MBL Research and Consultancy Group (P) Ltd. India The MBL Group Plc Market Behaviour Ltd. Bangladesh MBL Research and Consultancy Group (P) Ltd. Market Behaviour Ltd. Sri Lanka MBL Research and Consultancy Group (P) Ltd. Market Behaviour (Thailand) Ltd. Thailand MBL Asia-Pacific Ltd. Market Behaviour (Malaysia) Ltd. Malaysia MBL Asia-Pacific Ltd. MBL Asia-Pacific Ltd. Hong Kong The MBL Group Plc Market Behaviour (China) Ltd. Hong Kong MBL Asia-Pacific Ltd. Market Behaviour (Thailand) Ltd. Hong Kong MBL Asia-Pacific Ltd. Market Behaviour (Vietnam) Ltd. Hong Kong MBL Asia-Pacific Ltd. Market Behaviour (Hong Kong) Ltd. Hong Kong MBL Asia-Pacific Ltd. Market Behaviour (International) Ltd.:Taiwan Hong Kong MBL Asia-Pacific Ltd. Market Behaviour (International) Market Behaviour (Inter- Ltd. Taiwan Branch Hong Kong national) Ltd. Taiwan Market Behaviour (International) Ltd. Hong Kong MBL Asia-Pacific Ltd. International Research Associates (Hong Kong) Ltd. Hong Kong MBL Asia-Pacific Ltd. 156 EXHIBIT 21 SUBSIDIARIES OF THE COMPANY Jurisdiction Directly Held By Subsidiary of Incorporation and Wholly Owned By ---------- ---------------- ------------------- Consensus-MB Ltd.:Indonesia Hong Kong MBL Asia-Pacific Ltd. PT Continental Seraratama Surveys Indonesia Consensus-MB Ltd: Indonesia Market Behaviour (Singapore) Plc Ltd: Singapore MBL Asia-Pacific Ltd. PSI Singapore LC Singapore NFO APIM, Inc. Trends-MBL Inc. Philippines MBL Asia-Pacific Ltd.
157 EX-23.1 5 EXHIBIT 23.1 EXHIBIT 23.1 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS As independent public accountants, we hereby consent to the incorporation by reference of our report dated February 26, 1999, except for Note 21, as to which the date is March 23, 1999, included in NFO Worldwide, Inc.'s annual report on Form 10-K for the year ended December 31, 1998, into the Company's previously filed Registration Statements, File Nos. 33-73516, 33-83002, 33-91936, 333-24297, 333-24299, 333-38497, 333-51929, and 333-58067. /s/ ARTHUR ANDERSEN LLP - ----------------------- New York, New York, March 29, 1999. 158 EX-23.2 6 EXHIBIT 23.2 EXHIBIT 23.2 CONSENT OF REGISTERED AUDITORS AND CHARTERED ACCOUNTANTS As registered auditors and chartered accountants, we hereby consent to the incorporation by reference of our report dated February 23, 1998, on the financial statements of The MBL Group Plc as of December 31, 1997, and for each of the years in the two year period ended December 31, 1997, included in NFO Worldwide, Inc.'s annual report on Form 10-K for the year ended December 31, 1998, into NFO Worldwide, Inc.'s previously filed Registration Statements, File Nos. 33-73516, 33-83002, 33-91936, 333-24297, 333-24299, 333-38497, 333-51929, and 333-58067. /s/ Soteriou Banerji - -------------------- London, England, March 29, 1999. 159 EX-27 7 ART.5 FDS FOR YEAR END 10-K
5 This schedule contains summary financial information extracted from the financial statements contained in NFO Worldwide, Inc.'s report on Form 10-K for the year ended December 31, 1998, and is qualified in its entirety by reference to such financial statements. 1,000 12-MOS DEC-31-1998 DEC-31-1998 17,739 0 121,741 967 0 154,037 61,029 16,557 451,798 122,122 190,657 214 0 0 121,549 451,798 275,351 275,351 127,006 246,023 (367) 2,287 4,338 25,357 10,489 14,490 0 0 0 14,490 .68 .67 * Information has been prepared in accordance with SFAS No. 128, basic and diluted EPS have been provided in place of primary and fully diluted, respectively. 160
EX-99.1 8 EXHIBIT 99.1
NFO Worldwide, Inc. SELECTED FINANCIAL DATA (IN THOUSANDS, EXCEPT PER SHARE DATA) Years Ended December 31, 1998 1997 1996 1995 1994 - ------------------------------------------------------------------------------------------------------------------- Income Statement Data(2) Revenues $275,351 $ 190,229 $ 154,943 $ 113,095 $90,435 Operating Income 29,328 23,275 21,377 16,469 13,123 Net Income 14,490 12,505 10,616 9,159 7,671 Basic Earnings per Share(1) $ .68 $ .62 $ .53 $ .49 $ .41 Diluted Earnings per Share(1) $ .67 $ .60 $ .51 $ .48 $ .41 Balance Sheet Data(2) Working Capital $ 31,915 $ 28,464 $ 19,650 $ 15,681 $ 7,918 Total Assets 451,798 170,274 125,443 86,781 75,465 Total Debt 191,053 25,169 5,300 2,664 4,656 Stockholders' Equity 121,763 96,724 74,397 51,226 41,180
(1) FOR COMPARABILITY, THE BASIC AND DILUTED EARNINGS PER SHARE REFLECT THE 3-FOR-2 STOCK SPLITS EFFECTED ON OCTOBER 15, 1997, FEBRUARY 5, 1996, AND APRIL 5, 1994. (2) THE ABOVE TABLES HAVE BEEN PREPARED TO GIVE RETROACTIVE EFFECT TO THE MERGERS WITH PROGNOSTICS ON APRIL 1, 1997, AND THE MBL GROUP PLC. ON JULY 11, 1997, WHICH WERE ACCOUNTED FOR USING THE POOLING OF INTERESTS METHOD. FOR DISCUSSION OF ACQUISITIONS, SEE NOTE 18 TO THE CONSOLIDATED FINANCIAL STATEMENTS. 161 EX-99.2 9 EXHIBIT 99.2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS BUSINESS NFO Worldwide, Inc. (formerly named NFO Research, Inc.), together with its subsidiaries (the "Company"), is a leading provider of research-based marketing information and counsel to the worldwide business community, including over 3,000 clients globally. The Company combines in-depth knowledge of key market sectors - consumer packaged goods and foods, healthcare, financial services, information technology, automotive, travel and leisure and business-to-business - - with innovative data collection methodologies and value added products. Key products and services include continuous brand tracking, online research, consumer panels, and multi-country research, as well as market evaluation, product development, customer satisfaction, pricing, distribution and advertising awareness. RESULTS OF OPERATIONS The following table sets forth for the periods indicated certain income statement data for the Company.
Percentage Increase (Decrease) Income Statements 1998 1997 Years Ended December 31, Over Over 1998 1997 1996 1997 1996 ---- ---- ---- ---- ---- (in thousands, except per share data) Revenues $275,351 $190,229 $154,943 44.7% 22.8% Cost of Revenues 127,006 83,357 66,693 52.4 25.0 Selling, General & Administrative Expenses 109,023 76,705 61,591 42.1 24.5 Amortization Expense 5,080 4,094 2,926 24.1 39.9 Depreciation Expense 4,914 2,798 2,356 75.6 18.8 ------------------------------------------------------------------------- Operating Income 29,328 23,275 21,377 26.0 8.9 Interest Expense, Net 3,750 669 38 460.5 1,660.5 Equity Interest in Net Loss of Affiliated Companies and Other 221 200 318 10.5 (37.1) ------------------------------------------------------------------------- Income Before Income Taxes and Minority Interest 25,357 22,406 21,021 13.2 6.6 Provision for Income Taxes 10,489 8,895 8,983 17.9 (1.0) ------------------------------------------------------------------------- Net Income Before Minority Interest 14,868 13,511 12,038 10.0 12.2 Minority Interest 378 1,006 1,422 (62.4) (29.3) ------------------------------------------------------------------------- Net Income $ 14,490 $ 12,505 $ 10,616 15.9% 17.8% ========================================================================= Basic Shares Outstanding(1) 21,154 20,265 19,911 4.4% 1.8% ========================================================================= Basic Earnings per Share(1) $ .68 $ .62 $ .53 9.7% 17.0% ========================================================================= Diluted Shares Outstanding(1) 21,704 20,832 20,746 4.2% .4% ========================================================================= Diluted Earnings per Share(1) $ .67 $ .60 $ .51 11.7% 17.6% =========================================================================
(1) FOR COMPARABILITY, THE EARNINGS PER SHARE AND SHARE DATA REFLECT THE 3-FOR-2 STOCK SPLITS EFFECTED OCTOBER 15, 1997, AND FEBRUARY 5, 1996. SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS As certain of the statements made in this annual report are "forward-looking statements" (within the meaning of the Private Securities Litigation Reform Act of 1995), they involve known and unknown risks, uncertainties and other factors that may cause actual results, performance or achievements of the Company to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, clients' timing of new product introductions and reformulations, clients' marketing budgets, industry and economic conditions, changes in 162 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) management or ownership of a client, the effect of the Company's competition on client purchasing decisions, the strategic decisions of the Company's management team, the extent to which the Company is successful in developing and marketing its interactive marketing research techniques, the effect of foreign exchange rate fluctuations and other factors referenced in this report. In addition, the success of the Company's worldwide expansion efforts is dependent in part upon the successful application of NFO's methodologies to different business and consumer environments. ACQUISITIONS On November 20, 1998, the Company acquired all of the outstanding shares of capital stock of Infratest Burke Aktiengesellschaft Holding ("Infratest Burke"). Founded in 1947, Infratest Burke is headquartered in Munich and ranks as one of the top four custom marketing research firms in Europe with 35 offices in 15 countries. The company believes the combination of NFO and Infratest Burke created the sixth largest marketing research firm in the world, and one of the top three custom marketing research companies globally. On October 23, 1998, the Company acquired all the outstanding stock of City Research Group Plc ("City Research"). City Research, founded in 1978 and headquartered in London, England, is a leading U.K. marketing research firm specializing in commercial banking. On October 1, 1998, the Company acquired substantially all the net assets of Donovan Research Pty. Ltd. ("Donovan"). Donovan, founded in 1974 and headquartered in Perth, Australia, is a full service custom research agency with a leading position in fast-moving consumer goods, public policy, tourism, customer satisfaction and continuous tracking research. In addition to its own branded products, AdTest and Packtest, Donovan is also the exclusive regional licensee of MarketMind(TM), a global brand tracking system acquired by NFO in March 1998. On August 31, 1998, the Company acquired substantially all the net assets of Stochastic International Pty. Ltd. ("Stochastic"). Stochastic is the developer of the Stochastic Reaction Monitor continuous brand tracking system, which provides guidance on brand positioning to more than 60 companies in 33 countries. Stochastic was founded in 1981 and is headquartered in London. On April 3, 1998, the Company acquired 100 percent of the outstanding stock of CF Group, Inc. ("CF Group"). Founded in 1932, CF Group operates three companies in Canada: Canadian Facts, the largest custom marketing research organization in Canada, Applied Research Consultants ("ARC"), and Burke International. CF Group is headquartered in Toronto and has client service offices in Montreal, Ottawa and Vancouver. On March 4, 1998, the Company acquired, in separate transactions, substantially all the net assets of MarketMind Technologies ("MarketMind") and Ross-Cooper-Lund ("RCL"). MarketMind owns and licenses the MarketMind(TM) system, which uses proprietary software that combines a set of key diagnostic measures together with the integration, interactive analysis and display of multiple streams of longitudinal data. RCL is a research-based consulting firm focused on brand-building strategies and is the exclusive licensee of the MarketMind(TM) system in the United States. The 1998 acquisitions have been accounted for as purchases. Accordingly, the Company's financial statements include the results of operations from the effective date of the respective acquisitions. On December 12, 1997, the Company acquired 100 percent of the outstanding stock of CM Research Group, Ltd., headquartered in Auckland, New Zealand. CM is the leading provider of custom marketing research in New Zealand and one of the larger marketing research organizations in Australia. This acquisition was accounted for using the purchase method. On July 11, 1997, the Company acquired The MBL Group plc ("MBL"), headquartered in London, England, a leading international marketing research firm with 27 offices in 17 countries throughout the UK, the Middle East, and Asia. The Company issued 2,046,363 (adjusted for the 3-for-2 stock split effective October 15, 1997) shares of NFO Common Stock. The acquisition was accounted for as a pooling of interests. The Company also entered into agreements with minority shareholder employees of the various MBL operating subsidiaries to repurchase a portion of the minority shares during 1997 and the remainder in three years. The purchase of the minority interests in MBL's subsidiaries has been accounted for using the purchase method. 163 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) On May 28, 1997, the Company acquired Access Research, Inc., Windsor, CT, a research-based financial services consulting firm specializing in the retirement market. This acquisition was accounted for using the purchase method. On April 1, 1997, the Company acquired 100 percent of the outstanding stock of Prognostics, Palo Alto, CA, a leading provider of survey-based quantitative customer satisfaction research to information technology companies worldwide. The Company issued 2,589,720 (adjusted for the 3-for-2 stock split effective October 15, 1997) shares of NFO Common Stock. The transaction was accounted for as a pooling of interests. As a result of the 1997 pooling of interests transactions, the accompanying financial statements reflect the combined results of NFO, Prognostics, and MBL for all periods presented. On August 15, 1996, the Company acquired The SPECTREM Group, Inc. ("Spectrem"). Spectrem provides niche consulting and acquisition and divestiture advisory services in the trust and investment products sectors. On January 3, 1996, the Company acquired Migliara/Kaplan Associates, Inc. ("M/K"), Chesapeake Surveys, Inc. ("CSI"), and Plog Research, Inc. ("Plog"). M/K is one of the nation's leading full-service health care marketing information companies with offices in Baltimore, MD and Princeton, NJ. CSI provides data collection and survey services, such as focus groups and random telephone interviews. Plog is the nation's leading travel industry marketing research organization. These acquisitions were accounted for using the purchase method. 1998 COMPARED TO 1997 The Company's revenues increased 45 percent to $275.4 million from $190.2 million the previous year. Strong revenue growth occurred in each of the Company's operating segments: North America increased 32 percent to $189.6 million, Europe increased 103 percent to $50.3 million, and Australasia and the Middle East increased 61 percent to $40.1 million. Within North America, the Company's technologies group experienced very strong performance, and its healthcare and travel & leisure sectors registered double-digit growth. Revenues within the Company's North American financial services sector decreased by 16 percent for the year due to the softness within PSI Global, the Company's lead financial services unit. The increases in Europe and Australasia and the Middle East were principally the result of acquisitions, with combined organic revenue growth of 13 percent. Currency translation effects negatively impacted organic international revenues for the year by $3.2 million, or 6 percent. The Company's consolidated organic revenues grew by 13 percent, excluding the effects of PSI Global and currency translations. Cost of revenues increased 52 percent to $127 million from $83.4 million in the prior year. The increase in cost of revenues was primarily the result of increased revenues in each of the Company's three operating segments and the addition of the newly acquired companies in 1998 ($40.1 million). The remainder of the increase in cost of revenues was the result of the Company's continued investment in its North American high technology/telecommunications sector. Selling, general, and administrative expenses increased 42 percent to $109 million from $76.7 million a year ago. Increases were predominately the result of the newly acquired companies ($25.1 million) and increased staffing expenses ($4.5 million). The Company's selling, general and administrative expenses were also influenced by inflationary factors. Depreciation and amortization expenses increased 45 percent to $10 million from $6.9 million in the previous year. The increase was due to the acquisition activity as well as increased capital investment. As a result of the items discussed above, operating income in 1998 increased 26 percent to $29.3 million from $23.3 million in the prior year. Operating income margins were 10.7 percent in 1998 as compared to 12.2 percent in 1997. This decrease was due almost entirely to the decreased financial performance of PSI Global, which was partially offset by the positive margin contributions from the newly acquired companies as well as reduced losses within the Company's Interactive Division. Excluding the effects of (a) acquisitions and negative currency translation effects in 1998, (b) pooling transaction expenses in 1997, and (c) the operating results of PSI Global in both years, the Company's organic operating income increased by 15 percent. In 1998. Also, contributing to the increase was organic growth, offset by lower operating results in the Company's financial services sector. 164 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Interest expense increased to $3.8 million from $.7 million in the prior year. The increase was primarily the result of increased borrowings to fund acquisitions and capital expenditures. Income tax expense increased $1.6 million to $10.5 million from $8.9 million a year ago. The expense reflects the Company's combined U.S. Federal and State tax rate of approximately 40 percent, plus the effects of non-deductible expenses, primarily goodwill amortization. The increase in the effective tax rate from 40 percent to 41 percent was largely due to an increase in the non-U.S. effective tax rate. Minority interests decreased by 62 percent to $.4 million from $1 million last year. The decline was directly related to the purchase of a significant portion of the minorities' shares in the MBL acquisition in July 1997, as well as decreased profitability within this group. The result of items discussed above is that net income increased 16 percent to $14.5 million from $12.5 million a year ago. The 12 percent increase in diluted earnings per share to $.67 from $.60 is the direct result of the increase in net income. 1997 COMPARED TO 1996 The Company's revenues increased 23 percent to $190.2 million from $154.9 million the previous year. Strong revenue growth occurred in each of the Company's operating segments: North America increased 21 percent to $143.8 million, Europe increased 22 percent to $24.8 million, and Australasia and the Middle East increased 41 percent to $24.9 million. Cost of revenues increased 25 percent to $83.4 million from $66.7 million in the prior year. The increase in cost of revenues was primarily the result of increased revenues in each of the Company's three operating segments. The remainder of the increase in cost of revenues was the result of the newly consolidated Middle Eastern and Indian operations having higher than average cost of revenues, along with the Company's continued investment in its Interactive initiatives. Selling, general, and administrative expenses increased 25 percent to $76.7 million from $61.6 million a year ago. This increase includes $1.3 million in pooling transaction expenses related to the acquisitions of Prognostics and MBL. Excluding these transaction expenses, selling, general, and administrative expenses increased 22.4 percent over 1996. Other principal factors for the increase include the first time consolidation of the Company's Middle Eastern and Indian operations ($2.3 million). Additionally, North American selling, general and administrative expenses increased as a result of increased staffing expenses ($3.9 million), the increase associated with the acquisitions of Spectrem in August 1996 and Access research in May 1997 ($1.9 million) and the Company's Interactive activities ($1.2 million). The Company's selling, general and administrative expenses were also influenced by inflationary factors. Amortization expense increased 40 percent to $4.1 million from $2.9 million in the previous year. The primary cause of the increase was a special write-down of the carrying value of intangible assets ($.6 million) associated with AMS, the Company's expert computer software company. Additional increases in amortization expenses in 1997 related to the purchase of a significant portion of the minorities' interests in MBL, and to the increased amortization costs associated with the earnout payments made pursuant to certain companies' financial performance during 1996. As a result of the items discussed above, operating income in 1997 increased 9 percent to $23.3 million from $21.4 million in the prior year. Excluding the $1.3 million of pooling transaction expenses described above, as well as the increased investments in the Company's Interactive operations ($1.0 million) and the negative effect of foreign currency translation ($.3 million), operating income increased 21 percent. Total operating margins for 1997, excluding these items, were 13.6 percent compared to 13.8 percent in 1996. Interest expense increased to $.7 million from less than $.1 million in the prior year. The increase was primarily the result of increased borrowing to fund acquisitions (approximately $20 million) and capital expenditures (approximately $9 million). 165 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) Income tax expense decreased $.1 million to $8.9 million from $9.0 million a year ago. The expense reflects the Company's combined U.S. Federal and State tax rate of approximately 39 percent, plus the effects of non-deductible expenses, primarily goodwill amortization and the transaction expenses related to the two pooling of interests that occurred in 1997, and the lower tax rates in many of the countries outside the U.S. where the Company has operations. The decrease in the effective tax rate from 42.7 percent to 39.7 percent was largely due to a reduction in the non-U.S. effective tax rate. Minority interests decreased by 29 percent to $1.0 million from $1.4 million last year. The decline was directly related to the purchase of a significant portion of the minorities' shares in the MBL acquisition in July 1997. The result of items discussed above is that net income increased 18 percent to $12.5 million from $10.6 million a year ago. The 18 percent increase in diluted earnings per share to $.60 from $.51 is the direct result of the increase in net income. Diluted earnings per share has been adjusted for the stock split effected on October 15, 1997. Net income excluding the pooling transaction expenses rose 30 percent and diluted earnings per share rose 29 percent. LIQUIDITY AND CAPITAL RESOURCES Working capital as of December 31, 1998, was $31.9 million, an increase of $3.5 million from December 31, 1997. The primary reasons for the change in working capital were increases in cash of $9.7 million, accounts receivable of $51.2 million, unbilled receivables of $13.8 million, and prepaids of $8.5 million, partially offset by an increase of $67.2 million in accounts payable and accrued liabilities and an increase of $12.5 million in customer billings in excess of revenues earned. The increases were predominately attributed to the 1998 acquisitions. On November 20, 1998, the Company privately placed an aggregate principal amount of $72 million of Senior and Subordinated Notes. The private placement consisted of $17 million of Series A Notes due November 15, 2005, $38 million of Series B Notes due November 15, 2008, and $17 million of 9.84 percent Subordinated Notes due November 15, 2008. The Series A Notes and the Series B Notes bear interest at fixed annual rates of 7.48 percent and 7.82 percent, respectively, and contain provisions whereby these annual rates will be reduced to 7.18 percent and 7.52 percent, respectively, provided the Company satisfies certain conditions prior to September 30, 1999. In March 1999, the Company satisfied these conditions with the issuance of an aggregate $15 million of Senior and Subordinated Notes. See Note 21 to the consolidated financial statements. The Notes are guaranteed by certain subsidiaries of the Company and were used to finance a portion of the acquisition of Infratest Burke and to pay related fees and expenses. On March 9, 1998, the Company successfully entered into two financing agreements: a private placement of $40 million of Senior Notes and a $75 million revolving credit facility. Borrowings available under these combined facilities total $115 million and are unsecured. Proceeds were used to pay off the Company's then-existing debt of approximately $32 million, finance acquisitions, capital expenditures and working capital. The revolving credit facility replaced the Company's then-existing $35 million revolving credit facility. The $40 million in Senior Notes, due March 1, 2008, bear interest at the fixed rate of 6.83 percent and are to be repayable in equal installments of approximately $5.7 million per year starting in 2002. The $75 million unsecured credit facility has an ultimate maturity date of March 2003 and enables NFO to borrow in multiple currencies at interest rates tied to LIBOR or the prime rate, at the Company's option. In conjunction with the Infratest Burke acquisition and the financing thereof, the Company amended its $75 million revolving credit facility and its $40 million Senior Notes, each originally dated March 9, 1998. The amendments provide, among other things, that the Company's obligations will be guaranteed by certain subsidiaries of the Company. In addition, the amendments increased the rates at which interest annually accrues under the obligations. The Company anticipates that existing cash, together with internally generated funds and its credit availabilities, will provide the Company with the resources needed to satisfy potential acquisitions, capital expenditures, and the Company's growing working capital requirements. The timing and magnitude of future acquisitions will be the single most important factor in determining the Company's long-term capital needs. 166 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) INFLATION Inflation has historically had only a minor effect on the Company's results of operations and its internal and external sources of liquidity and working capital because the Company has generally been able to increase prices to reflect cost increases resulting from inflation. SEASONALITY The Company's business activity has traditionally reflected a modest seasonality factor with slightly higher revenues in the Company's fourth quarter. This seasonality reflects increased research spending in the fourth quarter by clients seeking to complete research studies prior to the holiday season and the close of their fiscal year. Also, the Company generally initiates several large-scale annual projects and tracking programs during the fourth quarter of each year. Over the past three years, the fourth quarter has represented between 27.3 percent and 34.4 percent of the Company's annual revenues. Each of the remaining three quarters ranged between 18.2 percent and 25.9 percent of the annual total. FUTURE REQUIRED ACCOUNTING CHANGES On April 3, 1998, the Accounting Standards Executive Committee of the AICPA issued Statement of Position 98-5, "Reporting on the Costs of Start-Up Activities." This Statement of Position (SOP) provides guidance on the financial reporting of start-up costs and organization costs. It requires costs of start-up activities and organization costs to be expensed as incurred. This SOP is effective for financial statements for fiscal years beginning after December 15, 1998. The adoption of this SOP will not have a material effect on the Company's financial condition or results of operations. YEAR 2000 ISSUES The Company is currently working to resolve the Year 2000 issue. In early 1997, the Company completed an impact analysis across all proprietary custom software programs and systems. As a result of this analysis, affected programs are being modified by the Company's programming departments to ensure future compliance. Any new programs being developed are being made Year 2000 compliant from the outset, while certain existing systems are being made Year 2000 compliant as they are reengineered. The Company operates subsidiaries and divisions worldwide. While many of these operations are already Year 2000 compliant in hardware, software and embedded systems, other operations are still in the process of upgrading their systems for Year 2000 compliance. The Company is in the process of testing its mission critical and non-critical systems and software for Year 2000 compliance by using a test date of January 1, 2000. In instances where the Year 2000 date is not properly processed, the systems and software are upgraded and re-tested as necessary for Year 2000 compliance. Mission critical applications and systems have been prioritized for Year 2000 compliance, and the majority of those systems are already compliant. The Company believes the most likely worst case scenario would be for a non-critical application or system to not be Year 2000 compliant on January 1, 2000. The Company's contingency plan includes manually addressing non-critical applications and systems compliance problems. Additionally, the Company has the ability to readily outsource many of its data collection and processing processes should the need arise. The Company is also coordinating with clients, vendors, affiliates and other outside parties who may affect, or be affected by, the Company's plans to address the Year 2000 issue. During 1998, the Company sent surveys to these outside parties inquiring as to their status in addressing the Year 2000 issue within their respective organizations. Although the results of those surveys are still being gathered and analyzed, the Company does not believe the effect of non-compliance with Year 2000 on the part of any individual or group of outside parties would have a material negative impact on the Company's day-to-day operations. 167 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) The Company originally targeted January 1, 1999, to complete Year 2000 compliance of mission critical systems, including third-party and supply chain vendors. Although the majority of the Company's subsidiaries have met this target, certain newly acquired entities are still being analyzed for compliance. The Company estimates that total Year 2000 compliance costs incurred from 1997 through December 31, 1998, approximate $300,000, and the estimated future cost to complete Year 2000 compliance is approximately $600,000, including capital expenditures of approximately $300,000. THE EURO CONVERSION On January 1, 1999, certain member countries of the European Union established fixed conversion rates between their existing currencies and the European Union's common currency, the Euro. The Company conducts business in member countries. The transition period for the Euro is from January 1, 1999, to June 30, 2002. The Company is addressing the issues involved with the introduction of the Euro. The more important issues include converting information technology systems, reassessing currency risk, and processing accounting and tax records. Based upon progress to date, the Company believes that use of the Euro will not have a significant impact on the manner in which the Company conducts its business and processes its accounting records. Accordingly, conversion to the Euro is not expected to have a material effect on the Company's financial condition or results of operations. MARKET RISK MANAGEMENT The Company is exposed to market risk, including changes in interest rates and foreign currency exchange rates. The Company currently does not have any derivative financial instruments. However, the Company may consider utilizing derivatives in the future in an attempt to mitigate foreign currency exchange rate risk. The Company conducts business in 31 countries throughout the world and has a significant presence in North America, Europe, Australasia and the Middle East. Accordingly, the Company is subject to foreign currency exchange rate risk in those countries. The table below provides information on the Company's debt instruments as of December 31, 1998 (dollars in thousands): Long-Term Debt - Long-Term Debt - ---------------- ---------------- Fixed Rate Variable Rate Principal Average Principal Average Amount Interest Rate Amount Interest Rate ------ ------------- ------ ------------- 1999 $ 220 8.57% $ 176 5.00% 2000 241 8.59 5,057 4.76 2001 3,625 7.54 87 5.00 2002 14,716 7.36 10,518 5.20 2003 14,540 7.35 59,013 4.75 Thereafter 82,860 7.82 -- -- ----------------------------------------------------- Total $ 116,202 7.69% $ 74,851 4.82% ======================================================= 168 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (CONTINUED) STOCK INFORMATION The Company's common stock has traded on the New York Stock Exchange since December 29, 1997. Prior to that date, the Company's Common Stock was traded on the Nasdaq National Market tier of the Nasdaq Stock Market since its initial public offering was completed in April 1993. The Company's stock symbol is "NFO" on the NYSE and was "NFOR" on the Nasdaq. The Company did not declare or pay any cash dividends during 1998, 1997 or 1996. The following table sets forth, for the periods indicated, its high and low sales prices per share as reported on the NYSE and Nasdaq. The stock prices have been adjusted to give retroactive effect to a 3-for-2 stock split effected on October 15, 1997. Sales Price High Low ---- --- Calendar Year 1998 First Quarter $21.375 $16.750 Second Quarter 22.000 15.625 Third Quarter 18.750 9.000 Fourth Quarter 14.750 5.550 Calendar Year 1997 First Quarter $15.500 $11.170 Second Quarter 17.500 11.330 Third Quarter 18.500 14.500 Fourth Quarter 21.630 15.500 169 EX-99.3 10 EXHIBIT 99.3 NFO WORLDWIDE, INC. INDEX TO CONSOLIDATED FINANCIAL STATEMENTS PAGE NUMBER ------ Consolidated Financial Statements for the years ended December 31, 1998, 1997 and 1996: Reports of Independent Public Accountants.......................... F2 & F3 Consolidated Balance Sheets........................................ F4 Consolidated Income Statements..................................... F5 Consolidated Statements of Stockholders' Equity.................... F6 Consolidated Statements of Cash Flows.............................. F7 Notes to Consolidated Financial Statements......................... F8 170 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To the Board of Directors and Stockholders of NFO Worldwide, Inc.: We have audited the accompanying consolidated balance sheets of NFO Worldwide, Inc. (a Delaware corporation) and subsidiaries as of December 31, 1998 and 1997, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 1998. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We did not audit the 1997 and 1996 financial statements of The MBL Group plc, included in the consolidated financial statements of NFO Worldwide, Inc., which statements reflect total assets and total revenues of 13 percent and 26 percent, respectively, in 1997, and total revenues of 25 percent in 1996, of the related consolidated totals, after adjustment to reflect translation into U.S. dollars and generally accepted accounting principles in the United States. The financial statements of The MBL Group plc, prior to those adjustments, were audited by other auditors whose report thereon has been furnished to us, and our opinion expressed herein, insofar as it relates to the amounts included for The MBL Group plc, is based solely on the report of the other auditors. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits and the report of other auditors provide a reasonable basis for our opinion. In our opinion, based on our audits and the report of the other auditors, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of NFO Worldwide, Inc. and subsidiaries as of December 31, 1998 and 1997, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1998, in conformity with generally accepted accounting principles. Our audits were made for the purpose of forming an opinion on the consolidated financial statements taken as a whole. The schedule referred to in Item 14 is presented for the purpose of complying with the Securities and Exchange Commission's rules and is not part of the consolidated financial statements. This schedule has been subjected to the auditing procedures applied in the audits of the consolidated financial statements and, in our opinion, based on our audit and the report of other auditors, fairly states in all material respects the financial data required to be set forth therein in relation to the consolidated financial statements taken as a whole. /s/ ARTHUR ANDERSEN LLP - ----------------------- New York, New York, February 26, 1999, except for Note 21, as to which the date is March 26, 1999 171 REPORT OF THE AUDITORS TO THE SHAREHOLDERS OF THE MBL GROUP PLC We have audited the financial statements of The MBL Group plc as of December 31, 1997, and for each of the years ended December 31, 1997 and 1996, which have been prepared under the historical cost convention and in accordance with generally accepted accounting principles applicable in the United Kingdom. Respective Responsibilities of Directors and Auditors The Company's directors are responsible for the preparation of financial statements. It is our responsibility to form an independent opinion, based on our audit, on those statements and to report our opinion to you. Basis of Opinion We conducted our audit in accordance with Auditing Standards issued by the Auditing Practices Board which are substantially the same as those followed in the United States. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion, the financial statements give a true and fair view of the state of affairs of the group as of December 31, 1997, and of the group's profit and cash flows for each of the years ended December 31, 1997 and 1996, and have been properly prepared in accordance with generally accepted accounting principles in the United Kingdom. /s/ Soteriou Banerji - -------------------- Registered Auditors and Chartered Accountants 253 Gray's Inn Road London, WC1X 8QT Date February 23, 1998 172 CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 1998 AND 1997 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1998 1997 ---- ---- 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 ============================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 173 CONSOLIDATED INCOME STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (IN THOUSANDS, EXCEPT PER SHARE DATA)
1998 1997 1996 ---- ---- ---- 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 ======== ======== ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 174 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (IN THOUSANDS)
Accumulated Additional Other Total Common Common Paid-In Retained Comprehensive Stockholders Comprehensive Shares Stock Capital Earnings Income (Loss) Equity Income ------ ----- ------- -------- ------------- ------ ------ 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 ==================================================================
The shares presented reflect 3-for-2 stock splits effected on October 15, 1997, and February 5, 1996 (Note 11). SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 175 CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (IN THOUSANDS)
1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- 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 ==============================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS. 176 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 1. BUSINESS NFO Worldwide, Inc., together with its subsidiaries (the "Company"), is a leading provider of research-based marketing information and counsel to the worldwide business community, including over 3,000 clients globally. The Company combines in-depth knowledge of key market sectors - consumer packaged goods and foods, healthcare, financial services, information technology, automotive, travel and leisure, and business-to-business - with innovative data collection methodologies and value added products. Key products and services include continuous brand tracking, online research, consumer panels, and multi-country research, as well as market evaluation, product development, customer satisfaction, pricing, distribution and advertising awareness. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONSOLIDATION - The consolidated financial statements include the accounts of NFO Worldwide, Inc. and all its subsidiaries. All significant intercompany accounts and transactions have been eliminated. REVENUE RECOGNITION - The Company recognizes revenue on projects, which are substantially all short-term, by generally applying recent historical contribution margins to project costs as incurred. A provision for anticipated losses is recorded in the period in which they first become determinable. CASH AND CASH EQUIVALENTS - The Company considers all investments with a maturity of three months or less when purchased to be cash equivalents. DEPRECIATION - The Company provides depreciation over the estimated useful lives of the depreciable assets using the straight-line method. INTANGIBLE ASSETS - The Company provides amortization of these assets using the straight-line method over their estimated period of benefit or contractual life, principally as follows: Years - ------------------------------ Customer Lists 7-20 Goodwill 20-40 The Company periodically evaluates the recoverability of goodwill and other intangible assets by assessing whether the unamortized intangible assets can be recovered from undiscounted future cash flows from operations. SYNDICATED PROGRAMS - The Company capitalizes costs associated with certain syndicated programs that have on-going value in excess of one year. Such costs are amortized in proportion to anticipated revenues over the expected useful lives of the programs. PANEL - The Company enhances and rebuilds its Panel on a continuous basis, and the related costs are charged to expense as incurred. The Company expensed $1,649,000, $1,164,000, and $1,347,000 on Panel enhancing and rebuilding in 1998, 1997 and 1996, respectively. INCOME TAXES - Deferred income taxes are recorded to reflect the tax consequences of differences between the tax bases of the Company's assets and liabilities and their financial reporting amounts at each balance sheet date. INVESTMENTS IN AFFILIATED COMPANIES - Investments in affiliated companies are accounted for using the equity method, under which the Company's share of earnings of these affiliates is reflected in income as earned and dividends are credited against the investment in affiliated companies when received. 177 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) FAIR VALUE OF FINANCIAL INSTRUMENTS - The following methods and assumptions were used to estimate the fair value of each category of the Company's financial instruments: CASH AND SHORT-TERM FINANCIAL INSTRUMENTS - The carrying amount approximates fair value due to the short maturity of these instruments. LONG-TERM FINANCIAL INSTRUMENTS - The fair value has been estimated using the expected future cash flows discounted at market interest rates as adjusted for conversion privileges. Fair value of long-term debt approximated the carrying amount at December 31, 1998 and 1997. USE OF ESTIMATES - The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. NET INCOME PER SHARE - Basic net income per share is computed using the weighted average number of common shares outstanding during the period. Diluted net income per share reflects the dilutive effect of common equivalent shares and increased shares that would result from contingently issuable common shares. The effects of anti-dilution are not presented. The 1996 earnings per share amounts have been restated in accordance with Statement of Financial Accounting Standards No. 128. 3.PROPERTY AND EQUIPMENT Property and equipment, at cost, consists of the following at December 31 (in thousands):
Estimated Useful Lives 1998 1997 - ---------------------------------------------------------------------------------------------------------------- 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 =====================
The Construction in Progress in 1998 and 1997 relates to the expansion of the Company's facilities in Greenwich, Connecticut, and Toledo, Ohio, respectively. Certain items in the prior year have been reclassified for consistency with the current year presentation. 4. INTANGIBLE ASSETS Intangible assets consist of the following at December 31 (in thousands):
1998 1997 - ---------------------------------------------------------------------------------------------------------------- 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 =====================
178 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) In 1997, the Company wrote off the unamortized balance of Goodwill of $568,000 associated with AMS, the Company's expert computer software company. This amount is included in amortization expense on the accompanying consolidated income statements. Certain items in the prior year have been reclassified for consistency with the current year presentation. 5. LONG-TERM DEBT Long-term debt consists of the following at December 31 (in thousands):
1998 1997 - ---------------------------------------------------------------------------------------------------------------- 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 ==========================
On November 20, 1998, the Company privately placed an aggregate principal amount of $72 million of Senior and Subordinated Notes. The private placement consisted of $17 million of Series A Senior Notes due November 15, 2005, $38 million of Series B Senior Notes due November 15, 2008, and $17 million of 9.84 percent Subordinated Notes due November 15, 2008. The Series A Senior Notes and the Series B Senior Notes bear interest at fixed annual rates of 7.48 percent and 7.82 percent, respectively, and contain provisions whereby these annual rates will be reduced to 7.18 percent and 7.52 percent, respectively, provided the Company satisfies certain conditions prior to September 30, 1999 (see Note 21). The Notes are guaranteed by certain subsidiaries of the Company and were used to finance a portion of the acquisition of Infratest Burke (see Note 18) and to pay related fees and expenses. On March 9, 1998, the Company successfully concluded a private placement of $40 million in fixed rate Senior Notes and entered into a $75 million revolving credit agreement. Borrowings under these combined $115 million credit facilities are unsecured, the proceeds of which were used to refinance the Company's then-existing debt of approximately $32 million and to finance acquisitions, capital expenditures, and working capital. The $75 million revolving credit facility has an ultimate maturity date of March 2003 and enables the Company to borrow in multiple currencies at interest rates tied to LIBOR or the prime rate, at the Company's option. The $40 million in Senior Notes are due March 1, 2008, bear interest at the fixed rate of 6.83 percent and are to be repaid in equal annual installments of approximately $5.7 million starting in the year 2002. In conjunction with the Infratest Burke acquisition and the financing thereof, the Company amended its $75 million revolving credit facility and its $40 million Senior Notes, each originally dated March 9, 1998. The amendments provide, among other things, that the Company's obligations will be guaranteed by certain subsidiaries of the Company. In addition, the amendments increased the rates at which interest annually accrues under the obligations from 6.43 percent to 6.83 percent. Infratest Burke has three separate term loans: $5 million, DM 9 million, and DM 10 million. The $5 million and DM 9 million term loans have maturity dates of September 2002 and bear interest at the three-month LIBOR rate (as defined in the respective agreements) plus .75 percent (6.03 percent and 4.40 percent at December 31, 1998, respectively). The DM 10 million term loan matures October 2003 and bears interest at the Euro market rate plus .5 percent (3.875 percent at December 31, 1998). Certain of the Company's subsidiaries have capitalized lease obligations. The leases mature between 2002 and 2005 and bear interest at rates ranging between 6.6 percent and 10.26 percent. The leases were collateralized by real estate and equipment having a net book value of $4.7 million at December 31, 1998. 179 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) The Industrial Development Revenue Bonds were due in monthly installments of $10,000 plus interest at 80 percent of the prime rate (effective rate of 6.8 percent at December 31, 1997) and were repaid in 1998. The Bonds were collateralized by real estate with a net book value of $1,296 at December 31, 1997. The Company's financing arrangements contain certain financial and non-financial restrictive covenants that, among other things, require the Company to maintain certain leverage and cash flow ratios. A material adverse change in the Company's financial condition or results of operations may constitute default under the agreements. Required principal payments on long-term debt and other obligations are as follows at December 31, 1998 (in thousands): 1999 $ 396 2000 5,298 2001 3,712 2002 25,234 2003 73,553 Thereafter 82,860 -------- Total $191,053 ========= 6. ACCRUED LIABILITIES Accrued liabilities consist of the following at December 31 (in thousands): 1998 1997 ------------------------------ Accrued Compensation and Payroll Taxes $ 19,092 $ 5,031 Income Taxes Payable (Note 8) 8,901 1,075 Accrued Vacation 4,110 1,089 Purchase Price Payable (Note 18) 4,566 4,229 Accrued Pension (Note 9) 192 350 Accrued Profit Sharing (Note 9) 4,522 812 Other Accrued Liabilities 21,739 6,171 ------------------------------ Total $ 63,122 $ 18,757 ============================ 7. OPERATING LEASES The Company leases office space and equipment under noncancelable operating leases that expire at various dates through 2011. Certain of these leases are subject to rent review and contain escalation clauses. Future minimum annual payments required under the noncancelable leases are as follows at December 31, 1998 (in thousands): 1999 $18,204 2000 13,884 2001 11,136 2002 8,770 2003 6,077 Thereafter 24,913 ------- Total $82,984 ======= Rental expense for the years ended December 31, 1998, 1997 and 1996, including leases on a month-to-month basis, was approximately $9,485,000, $6,306,000, and $4,189,000, respectively. Certain of the Company's subsidiaries rent space in office buildings owned or partially owned by officers of the subsidiaries. Such rents, which were approximately $.8 million and $.5 million in 1998 and 1997, respectively, are believed to be consistent with arms length transactions. 180 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) 8. INCOME TAXES Income Before Income Taxes and Minority Interest is as follows for the years ended December 31 (in thousands):
1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Income Before Income Taxes and Minority Interest: U.S. $ 19,971 $ 18,066 $ 17,115 Foreign 5,386 4,340 3,906 ---------------------------------------------- Total $ 25,357 $ 22,406 $ 21,021 ============================================== The provision for income taxes is as follows for the years ended December 31 (in thousands): 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Current Provision: Federal $ 5,052 $ 6,650 $ 6,193 State and Local 1,759 1,553 1,150 Foreign 2,966 1,118 1,210 ---------------------------------------------- Total 9,777 9,321 8,553 ---------------------------------------------- Deferred Provision (Credit): Federal 661 (621) 256 State and Local 76 (106) 46 Foreign (25) 301 128 ---------------------------------------------- Total 712 (426) 430 ---------------------------------------------- Total Provision $ 10,489 $ 8,895 $ 8,983 ============================================== Temporary differences giving rise to the recorded deferred income tax asset and liability are as follows at December 31 (in thousands): 1998 1997 - ---------------------------------------------------------------------------------------------------------------- Asset: Pension, Postretirement Benefits and Deferred Compensation $ 1,481 $ 1,228 Vacation 516 389 State and Local Taxes 611 355 Other 571 729 ---------------------------- Total Asset $ 3,179 $ 2,701 ============================ Liability: Depreciation and Amortization $ 4,280 $ (337) Undistributed Earnings 549 399 Other 3,041 38 ---------------------------- Total Liability $ 7,870 $ 100 ============================ A reconciliation between the Company's effective tax rate and the U.S. statutory rate is as follows at December 31: 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Statutory Rate 35.0% 35.0% 35.0% Nondeductible Expenses 1.6 2.3 2.2 Nondeductible Pooling Expenses - 2.0 - State and Local Income Taxes, Net of Federal Benefit 5.3 4.0 3.8 Effect of Foreign Tax Rates Different than U.S. Tax Rate (.2) (1.8) (.3) Other (.3) (1.8) 2.0 ----------------------------------------- Effective Tax Rate 41.4% 39.7% 42.7% =========================================
181 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) As of December 31, 1998, the Company has not provided for withholding or applicable foreign income taxes on approximately $8.3 million of accumulated undistributed earnings of its foreign subsidiaries as they are considered by management to be permanently reinvested. If these undistributed earnings were not considered to be permanently reinvested, approximately $.3 million of deferred income taxes would have been provided. 9. EMPLOYEE BENEFIT PLANS One of the Company's subsidiaries has a defined benefit pension plan covering approximately one-half of the Company's U.S. employees. Benefits provided by the plan are based on salary and years of service. The Company's funding policy is to contribute annually the maximum amount that can be deducted for federal income tax purposes. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. Plan assets are principally invested in equity securities and guaranteed fixed income insurance contracts. In 1998, the Company adopted the provisions of Financial Accounting Standards Board Statement No. 132, Employer's Disclosures about Pensions and Other Postretirement Benefits ("SFAS 132"), which prescribes new disclosure requirements. Accordingly, the Company's disclosures have been restated to reflect the requirements of SFAS 132. The following table sets forth the plan's funded status and amounts recognized in the Company's balance sheets at December 31 (in thousands):
1998 1997 - ---------------------------------------------------------------------------------------------------------------- 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 ============================
The Company's required minimum funding amount of $350,000 for 1997, which is included in the above accrued pension cost, is included in current liabilities as of December 31, 1997. 182 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 Pension expense consists of the following for the years ended December 31 (in thousands):
1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Service Cost $ 611 $ 547 $ 502 Interest Cost 526 465 411 Expected Return on Plan Assets (558) (452) (320) Net Amortization and Deferral 22 36 65 ---------------------------------------------- Net Periodic Pension Cost $ 601 $ 596 $ 658 ============================================== Assumptions used in determining pension plan amounts were as follows: 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Discount Rate 7.0% 7.5% 7.75% Rate of Increase in Compensation Levels 4.5 4.75 4.75 Expected Long-Term Rate of Return on Assets 9.0 9.0 9.0
Certain of the Company's subsidiaries maintain profit sharing plans, established under Section 401(k) of the Internal Revenue Code, which cover the majority of full-time U.S. employees. Profit sharing contributions to the plan are at the discretion of the Company's Board of Directors and are generally tied to annual profit performance. The plan also contains a 401(k) feature whereby all eligible employees may contribute up to 15 percent of their basic compensation. The Company makes a matching contribution equal to 25 percent of the first 6 percent of each participant's voluntary contribution. The Company's total contributions related to the plan amounted to approximately $1.2 million, $.9 million, and $.9 million for the years ended December 31, 1998, 1997, and 1996, respectively. The Company has unfunded, nonqualified deferred compensation plans for certain key executives. The plans provide, among other things, for certain deferred compensation to take effect on the employee's retirement, disability, death or other termination of employment. Long-term liabilities include approximately $1.1 million and $.9 million at December 31, 1998 and 1997, respectively, representing the present value of the benefits expected to be provided based on the employees' service to that date. Certain of the Company's foreign subsidiaries maintain benefit plans similar to defined contribution plans for certain employees. The Company has no benefit obligations beyond the contributions that are made by the Company. The Company's total contributions related to these plans amounted to approximately $822,000, $420,000, and $400,000 for the years ended December 31, 1998, 1997, and 1996, respectively. 10. POSTRETIREMENT BENEFIT PROGRAMS Certain of the Company's subsidiaries sponsor two defined benefit postretirement programs that cover salaried and nonsalaried U.S. employees. One program provides medical benefits, and the other provides life insurance benefits. The postretirement healthcare program is contributory, with retiree contributions adjusted annually; the life insurance program is noncontributory. The health care program currently requires the retiree to pay 50 percent of the cost of coverage for the retiree and dependents both before and after attaining age 65. For those retiring on or after January 1, 1994, the co-pay increases at age 65 to 75 percent of the cost of coverage for the retiree and 100 percent of the cost of coverage for dependents. In addition, an employee must complete 10 years of service after age 45 to be eligible for postretirement medical coverage. The Company does not fund its postretirement health care or life insurance programs. 183 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) In 1998, the Company adopted the provisions of SFAS 132 and, accordingly, has retroactively adjusted its disclosures for compliance with the requirements of SFAS 132. The following sets forth the programs' status reconciled with the amount shown in the Company's balance sheets at December 31 (IN THOUSANDS):
1998 1997 - ---------------------------------------------------------------------------------------------------------------- Change in Projected Benefit Obligation: Projected Benefit Obligation at Beginning of Year $ 1,226 $ 1,044 Service Cost 103 96 Interest Cost 72 77 Plan Amendments (68) -- Actuarial (Gain)/Loss (106) 37 Benefits Paid (27) (28) ---------------------------- Projected Benefit Obligation at End of Year 1,200 1,226 ---------------------------- Change in Plan Assets: Company Contributions 27 28 Benefits Paid (27) (28) ---------------------------- Plan Assets at End of Year -- -- ---------------------------- Reconciliation of Projected Benefit Obligation and Total Amount Accrued: Funded Status 1,200 1,226 Unrecognized Net Gain/(Loss) 39 (64) Unrecognized Prior Service Cost 64 -- ---------------------------- Accrued Benefit Cost Included in Long-Term Liabilities in the Accompanying Balance Sheet $ 1,303 $ 1,162 ============================ Net periodic postretirement benefit cost includes the following components (in thousands): 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Benefits Attributed to Service During the Period $ 103 $ 96 $ 72 Interest Cost on Accumulated Postretirement Benefit Obligation 72 77 76 Net Amortization and Deferral (7) (3) 4 ---------------------------------------------- Net Periodic Postretirement Benefit Cost $ 168 $ 170 $ 152 ==============================================
The assumed discount rate used to measure the postretirement benefit obligation is 6.75 percent, 7.25 percent, and 7.5 percent in 1998, 1997, and 1996. The health care trend rates assumed in the above estimates include an initial assumed rate of 9 percent, grading down to a level 5 percent in 2001 and thereafter. The effect of a 1 percent increase in the assumed healthcare trend rates would be to increase the obligation at December 31, 1998, by approximately $121,000, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by approximately $29,000. The effect of a 1 percent decrease in the assumed healthcare trend rates would be to decrease the obligation at December 31, 1998, by approximately $101,000, and the aggregate of the service and interest cost components of net periodic postretirement benefit cost for the year then ended by approximately $23,000. 11. CAPITAL STOCK COMMON STOCK - In September 1996, the Company's Certificate of Incorporation was amended to increase the number of authorized shares of Common Stock to 60 million shares from 15 million shares. PREFERRED STOCK - In connection with the initial public offering, the Company authorized 5,000,000 shares of Serial Preferred Stock to be issued in one or more series, with the Board of Directors to have the authority to fix designations, preferences, powers and relative participating, optional or other rights and restrictions thereof. 184 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) DIVIDENDS - The Company did not declare or pay dividends to common shareholders of NFO Worldwide, Inc. during 1998, 1997, or 1996. Dividends reflected in the accompanying statements of stockholders' equity were paid to shareholders of MBL prior to the merger (see Note 18). STOCK SPLITS - A 3-for-2 stock split was authorized on January 5, 1996, and effected on February 5, 1996, for stockholders of record on January 22, 1996. As a result, approximately 3,375,000 additional shares of NFO Common Stock were issued. Additionally, a 3-for-2 stock split was authorized on September 17, 1997, and effected on October 15, 1997, for stockholders of record on September 30, 1997. As a result, approximately 6,850,000 additional shares of NFO Common Stock were issued. All per share and share amounts in the accompanying consolidated financial statements have been restated to reflect the above stock splits. STOCKHOLDER RIGHTS PLAN - On October 5, 1998, the Company's Board of Directors adopted a Stockholder Rights Plan (the "SR Plan") by declaring a dividend distribution of one preferred share purchase right (a "Right") for each share of the Company's common stock. The SR Plan is intended to give the Company's Board of Directors sufficient time to respond to an unsolicited tender offer or other attempted acquisition. Under the SR Plan, Rights were issued to stockholders of record as of October 15, 1998, and will expire after ten years, unless earlier redeemed or exchanged by the Company. The Rights distribution is not taxable to stockholders. The Rights will be exercisable only if a person or group acquires 15% or more of the Company's common stock or announces a tender offer upon the consummation of which would result in 15% ownership. Each Right will entitle stockholders to buy one one-hundredth of a share of a new series of preferred stock at an exercise price of $50. If, however, a person or group acquires 15% or more of the Company's outstanding common stock, each Right will entitle its holder, other than such person or members of such group, to purchase, at the Right's then-current exercise price, a number of the Company's common shares having a market value of twice the Right's exercise price. If the Company is acquired in a merger or other business combination transaction after a person or group has acquired 15% or more of the Company's outstanding common stock, each Right will entitle its holder to purchase, at the Right's then-current exercise price, a number of the acquiring company's common shares having a market value of twice such exercise price. Under certain circumstances, the Company's Board of Directors may exchange the Right, in whole or in part, at an exchange ratio of one share of common stock (or one-hundredth of a share of the new series of preferred stock) per Right. Prior to the acquisition by a person or group of beneficial owners of 15% or more of the Company's common stock, the Rights are redeemable for one cent per Right at the option of the Board of Directors. Prior to such time, the terms of the Rights may be amended by the Board. STOCK ISSUED IN EXCHANGE FOR NON-RECOURSE NOTES - In December 1994, Prognostics issued 10,000 shares of Non-Voting Common Stock (899,922 common shares of NFO post-combination, see Note 18) to an employee. The Shares were issued in exchange for a non-recourse promissory note in the amount of $40,000 secured by the issued shares. The note bears interest at 8 percent per annum payable quarterly. The outstanding principal is due in December 2000. In August 1995, Prognostics issued 2,595 shares of Non-Voting Common Stock (233,529 common shares of NFO post-combination) to certain employees. The shares were issued in exchange for non-recourse promissory notes totaling $10,000 secured by the issued shares. The notes bear interest at 8 percent per annum payable quarterly. The outstanding principal is due in August 1999. Approximately $7,000 and $11,000 of the above notes were repaid in 1998 and 1997, respectively, resulting in a tax benefit of approximately $1 million in 1998 and $1.75 million in 1997 reflected as an addition to additional paid-in capital. The Company has reflected the remaining notes receivable as an offset to additional paid-in capital. The fair value of the stock on the date of sale, issued in exchange for the non-recourse notes, was assumed to be equal to the face amount of the notes and, accordingly, the Company has not recognized any compensation expense under Accounting Principles Board Opinion No. 25 and related Interpretations. STOCK OPTIONS - The Company has adopted the NFO Worldwide, Inc. Stock Option Plan (the "Stock Option Plan"), the Directors' Stock Option Plan (the "Directors' Stock Option Plan"), and a Consultant's Plan. The Plans provide for the grant of "nonqualified" options to purchase shares of Common Stock. The exercise price of the options is the market value of the Company's Common Stock 185 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) on the date of the grant. The number of shares of Common Stock reserved for issuance under the Stock Option Plan, the Directors' Stock Option Plan, and the Consultant's Plan is 4,677,250, 540,000, and 56,250 shares, respectively. If, as to any number of shares, any option granted pursuant to the Plans shall expire or terminate for any reason, such number of shares shall again be available for grant under the Plans. Under the Stock Option Plan, options become exercisable at such time or times as determined at the date of grant and expire not more than 10 years from the date of grant. Options granted under the Stock Option Plan generally become exercisable over a three-year period at the rate of one-third of the shares awarded each year. The Directors' Stock Option Plan provides that options on 22,500 shares be automatically granted to each nonemployee director upon initial election and that options on 15,000 shares be granted upon each occasion thereafter that the director is elected or reelected to such position. Under the Directors' Stock Option Plan, options become exercisable at any time after the six-month anniversary of the date the option was awarded and expire not more than five years from the date of grant. Under the Consultant's Plan, the options are exercisable any time after the six-month anniversary of the date the option was awarded and expire five years from the date of grant. The Company applies Financial Accounting Standards Board Statement No. 123, Accounting for Stock-Based Compensation, ("SFAS 123") in accounting for its stock-based compensation plans. In accordance with SFAS 123, the Company applies Accounting Principles Board Opinion No. 25 and related Interpretations for expense recognition. All stock options issued by the Company are exercisable at a price equal to the market price at the date of grant. Accordingly, no compensation cost has been recognized for any of the options granted under the Plans. A summary of the status of the Company's plans that issue options as of December 31 and changes during the years then ending is presented below:
Number Weighted of Shares Average Price - ---------------------------------------------------------------------------------------------- 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
186 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) The following table summarizes information about options outstanding at December 31, 1998:
Options Outstanding Options Exercisable ------------------- ------------------- Number Weighted-Average Number Weighted- Range of Outstanding Remaining Exercise Exercisable Average Exercise Prices at 12/31/98 Contractual Life Price at 12/31/98 Exercise Prices - --------------- ----------- ---------------- ----- ----------- --------------- $ 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
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:
1998 1997 1996 - --------------------------------------------------------------------------------------------------------------- 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%
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):
1998 1997 1996 - --------------------------------------------------------------------------------------------------------------- Net Income: As Reported $ 14,490 $ 12,505 $ 10,616 Pro Forma $ 11,513 $ 9,380 $ 8,937 Basic Earnings Per Share: As Reported $ .68 $ .62 $ .53 Pro Forma $ .54 $ .46 $ .45 Diluted Earnings Per Share: As Reported $ .67 $ .60 $ .51 Pro Forma $ .53 $ .45 $ .43 The Company cautions that because the SFAS 123 method of accounting is only applied to options granted in 1995 and thereafter, the resulting proforma results may not be representative of results to be expected in future years. 12. INTEREST EXPENSE, NET Interest expense, net, consists of the following for the years ended December 31 (IN THOUSANDS): 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Interest Income $ (588) $ (259) $ (420) Interest Expense 4,338 928 458 ---------------------------------------------- Total $ 3,750 $ 669 $ 38 ==============================================
187 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):
1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Net income Used for Basic and Diluted Earnings Per Share $ 14,490 $ 12,505 $ 10,616 ============================================== Weighted Average Number of Shares Outstanding Used for Basic Earnings Per Share 21,154 20,265 19,911 Dilutive Stock Options 397 460 741 Contingently Issuable Common Shares 153 107 94 ---------------------------------------------- Weighted Average Number of Shares Outstanding and Common Share Equivalents Used for Diluted Earnings Per Share 21,704 20,832 20,746 ============================================== 14. SUPPLEMENTAL CASH FLOW INFORMATION Supplemental cash flow information consists of the following for the years ended December 31 (IN THOUSANDS): 1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Cash Paid During the Period for: Interest $ 2,806 $ 786 $ 462 ============================================== Income Taxes $ 6,263 $ 6,844 $ 7,813 ============================================== Noncash Investing and Financing Activities: Increase in Goodwill Resulting from Contingent Purchase Price Earned (Note 18) $ 4,631 $ 4,797 $ 3,733 ============================================== Liabilities Assumed in Acquisitions (Note 18) $ 135,489 $ 617 $ 1,018 ==============================================
15. MAJOR CUSTOMERS No single customer accounted for more than 10 percent of net revenues during 1998, 1997, or 1996. 16. COMMITMENTS AND CONTINGENCIES The Company has employment agreements with its principal executives and certain other key employees. These agreements generally do not extend more than three years and contain renewal options. Pursuant to certain acquisition related purchase and sale agreements (see Note 18), the Company is contingently liable to make additional purchase price ("Earnout") payments, provided the acquired companies achieve certain pre-defined earnings targets. 188 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) 17. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED) Quarterly results were as follows (in thousands, except per share data):
First Second Third Fourth ----- ------ ----- ------ 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
Earnings per share is computed independently for the quarters reported, therefore the sum of the quarterly earnings per share may not equal the per share total for the year. The second and third quarter results of 1997 include charges associated with the pooling transaction expenses incurred as the result of the Prognostics and MBL acquisitions. 18. ACQUISITIONS AND JOINT VENTURES On November 20, 1998, the Company acquired all of the outstanding shares of capital stock of Infratest Burke Aktiengesellschaft Holding ("Infratest Burke"). Founded in 1947, Infratest Burke is headquartered in Munich and ranks as one of the top four custom marketing research firms in Europe with 35 offices in 15 countries. The Company believes the combination of NFO and Infratest Burke created the sixth largest marketing research firm in the world, and one of the top three custom marketing research companies globally. The total acquisition cost of DM 248 million (US $149 million) includes the stock purchase of DM 205 million (US $123 million) and the assumption of approximately DM 43 million (US $26 million) of pre-existing debt. The purchase price of DM 205 million (US $123 million) was paid DM 200 million (US $120 million) in cash at closing, with the remaining DM 5 million (US $3 million) payable in cash over the next two and one-half years. On October 23, 1998, the Company acquired City Research Group Plc ("City Research"). City Research, founded in 1978 and headquartered in London, England, is a leading U.K. marketing research firm specializing in commercial banking. The Company acquired all the outstanding stock of City Research for total consideration of approximately $2.4 million, $1.5 million paid in cash at closing and the remainder payable over the next two years in cash and stock based on City Research achieving certain earnings targets. On October 1, 1998, the Company acquired Donovan Research Pty. Ltd. ("Donovan"). Donovan, founded in 1974 and headquartered in Perth, Australia, is a full service custom research agency with a leading position in fast-moving consumer goods, public policy, tourism, customer satisfaction and continuous tracking research. In addition to its own branded products, AdTest and Packtest, Donovan is also the exclusive regional licensee of MarketMind(TM), a global brand tracking system acquired by NFO in March 1998. The Company acquired substantially all the net assets of Donovan for cash consideration of approximately $1.6 million, $1.3 million paid at closing and the remainder payable over the next two years based on Donovan's achievement of certain earnings targets. On August 31, 1998, the Company acquired Stochastic International Pty. Ltd. ("Stochastic"). Stochastic is the developer of the Stochastic Reaction Monitor continuous brand tracking system, which provides guidance on brand positioning to more than 60 companies in 33 countries. Stochastic was founded in 1981 and is headquartered in London. The Company acquired substantially all the net assets of Stochastic for a total purchase price of approximately $2.5 million, $2 million payable at closing in equal amounts of cash and newly issued shares of NFO common stock and the balance payable at the end of the next two years. A further amount is payable in cash at the end of three years, providing that Stochastic achieves certain revenue targets during the third year. 189 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) On April 3, 1998, the Company acquired CF Group, Inc. ("CF Group"). Founded in 1932, CF Group operates three companies in Canada: Canadian Facts, the largest custom marketing research organization in Canada, Applied Research Consultants ("ARC"), and Burke International. CF Group is headquartered in Toronto and has client service offices in Montreal, Ottawa and Vancouver. The Company acquired 100 percent of the outstanding stock of CF Group for a total purchase price of approximately CDN $20 million, 70 percent payable at closing, with 75 percent in cash and 25 percent in newly issued shares of NFO common stock. The remaining 30 percent of the purchase price will be payable in cash and stock over the next two years based on CF Group achieving certain earnings targets. On March 4, 1998, the Company acquired MarketMind Technologies ("MarketMind") and Ross-Cooper-Lund ("RCL"). MarketMind owns and licenses the MarketMind(TM) system, which uses proprietary software that combines a set of key diagnostic measures together with the integration, interactive analysis and display of multiple streams of longitudinal data. RCL is a research-based consulting firm focused on brand-building strategies and is the exclusive licensee of the MarketMind(TM) system in the United States. In separate transactions, the Company acquired substantially all the net assets of each company for the combined consideration of $16.6 million. Of the total purchase price, $12.45 million or 75 percent was paid at closing, while the remaining 25 percent will be payable in cash based upon each company achieving certain earnings targets over the next two years. Approximately 85 percent of the closing consideration was paid in cash, and the remainder in newly issued shares of NFO common stock. The 1998 acquisitions have been accounted for as purchases. Accordingly, the Company's financial statements include the results of operations from the effective date of the respective acquisitions. The initial purchase price allocations were based on preliminary estimates of fair market value and are subject to revision. The above 1998 acquisitions include allocations to goodwill of $126.6 million. The following unaudited pro forma summary presents the condensed consolidated results of operations as if the 1998 acquisitions had occurred on January 1, 1997, and do not purport to be indicative of what would have occurred had the acquisitions been made at that date or of the results which may occur in the future. The pro forma effects of MarketMind, Stochastic, City Research, and Donovan are not material and therefore are not included in the following amounts for the year ended December 31 (in thousands, except per share data): 1998 1997 ---- ---- Revenues $ 444,592 $ 379,250 Net Income 10,905 8,963 Basic Earnings Per Share .51 .44 Diluted Earnings Per Share .50 .43 On December 12, 1997, the Company acquired CM Research Group Limited. Headquartered in Auckland, New Zealand, CM Research Group is the leading provider of custom marketing research in New Zealand, and one of the larger marketing research organizations in Australia. The Company acquired 100 percent of the outstanding stock of CM Research Group for a purchase price of approximately $8.8 million, including the assumption of debt. Of the total purchase price, 30 percent is payable based on CM Research Group's achieving certain earnings targets during the two years following the date of acquisition. All amounts are payable 75 percent in cash and 25 percent in newly issued shares of NFO Common Stock. On May 28, 1997, the Company acquired Access Research, Inc. Access is a research-based financial services consulting firm specializing in the retirement market. The entire purchase price of approximately $4.0 million was paid in cash at closing. The 1997 acquisitions have been accounted for as purchases. Accordingly, the Company's financial statements include the results of operations from the effective date of the respective acquisitions. The above 1997 acquisitions include allocations to goodwill of $9.3 million. The pro forma effects of these acquisitions were not material to the 1997 results. 190 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) On August 15, 1996, the Company acquired The SPECTREM Group, Inc. ("Spectrem"). Spectrem provides niche consulting and acquisition and divesture advisory services in the trust and investment areas. Of the total purchase price, approximately $2.4 million was paid at closing, 50 percent in cash and 50 percent in newly issued shares of NFO Common Stock. The remaining purchase price is due in cash based on Spectrem's earnings, as defined, during the three years following the date of acquisition. For the two years ended August 31, 1998, the amount of additional purchase price actually earned was approximately $1.2 million. On January 3, 1996, the Company acquired Migliara/Kaplan Associates, Inc. ("M/K") and substantially all the net assets of Chesapeake Surveys, Inc. ("CSI"). M/K is a full-service health care marketing information company with offices in Baltimore, Maryland and Princeton, New Jersey. CSI, a sister company of M/K, provides data collection and survey services such as focus groups and random telephone interviews. Of the total purchase price, approximately $11.45 million was paid at closing, approximately 31 percent of which was paid in cash and 69 percent in newly issued shares of NFO Common Stock. Additional portions of the purchase price were due based on M/K earnings, as defined, during the three years following the date of acquisition and payable approximately 30 percent in cash and 70 percent in NFO Common Stock. For the three years ended December 31, 1998, the amount of additional purchase price earned was approximately $11.9 million, including $3.6 million in cash and $8.3 million in shares of the Company's common stock. On January 3, 1996, the Company acquired Plog Research, Inc. ("Plog"). Plog supplies syndicated marketing research products, as well as marketing and forecasting services, to the travel and tourism industries. Of the total purchase price, approximately $5 million was paid at closing, 50 percent in cash and 50 percent in newly issued shares of NFO Common Stock. Additional portions of the purchase price were due based on Plog's earnings, as defined, during the three years following the date of acquisition and payable equally in cash and the Company's Common Stock. For the three years ended December 31, 1998, the amount of additional purchase price earned was approximately $.1 million. The 1996 acquisitions include allocations to goodwill and customer lists of $24.9 and $5.6 million, respectively. The 1996 acquisitions described above were accounted for as purchases and their results of operations have been included in the accompanying consolidated financial statements from their respective dates of acquisition. On July 11, 1997, the Company issued 2,046,363 shares of NFO Common Stock to acquire all of the outstanding stock of The MBL Group plc ("MBL"), a leading international marketing research firm with 27 offices in 17 countries throughout the UK, the Middle East, and Asia. On April 1, 1997, the Company issued 2,589,720 shares of NFO Common Stock to acquire 100% of the outstanding stock of Prognostics, a leading provider of survey-based quantitative customer satisfaction research to information technology companies worldwide. Founded in 1981, Prognostics is headquartered in Palo Alto, California and has additional offices in Boston and London, as well as an affiliate relationship in Japan. The acquisitions of MBL and Prognostics were accounted for as poolings of interests. As a result, the accompanying financial statements have been restated to reflect the combined results of NFO, Prognostics, and MBL for all periods presented. In addition, the Company has entered into agreements with the minority shareholders of the various MBL subsidiaries to repurchase a portion of such shareholders' minority shares during 1997. The consideration for this initial purchase of the minority interests was approximately $14.5 million, of which $11.1 million was paid in cash and $3.4 million via the issuance of 216,850 newly issued shares of NFO Common Stock. The remaining minority interests will then be repurchased in July 2000 based on the higher of (a) a multiple of average profits for the three years ending December 31, 1999 or (b) the original valuation. The purchase of the minority interests in MBL's subsidiaries was accounted for using the purchase method of accounting. The minority interest purchases resulted in an allocation of $13 million to goodwill. The pro forma effects of these minority interest purchases are not material. 191 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) 19. INVESTMENTS IN AFFILIATES At December 31, 1996, the Company had a 42 percent interest in Merac WLL, a marketing research company based in Bahrain and the Company had a 40 percent interest in MBL Research and Consultancy Group (P), Ltd., a marketing research company based in India. During 1997, as part of the MBL minority interest purchases discussed in Note 18, the Company acquired a majority interest in these affiliates. These affiliates have been consolidated since the majority interest acquisition date. The Company, through Infratest Burke, has investments in various affiliates. The largest of these affiliates, Burke, Inc., is a Cincinnati-based marketing research firm in which Infratest Burke has a 50 percent interest. NFO's interest in the activities of these affiliates resulted in income of approximately $154,000 in 1998, which is reflected in equity interest in net loss of affiliated companies on the consolidated income statements. The Company entered into agreements in 1995 with IPSOS, S.A. ("IPSOS"), a major European marketing research firm, and LT Participations ("LT"), an IPSOS affiliate, to launch access panel activities in Europe. Under the terms of the agreements, the Company, IPSOS, and LT have agreed to launch joint venture companies in five western European countries, of which four are currently operational. The Company initially has approximately an 18 percent interest in each joint venture but has the option, at its own discretion, to increase its ownership interest to 50 percent prior to July 2002 by purchasing LT's interest. LT has the right to sell its joint venture interests to the Company anytime after July 1998. As part of these agreements, the Company has purchased a comparable portion of IPSOS' existing access panel businesses in Germany and France. During 1998 and 1997, the Company invested approximately $65,000 and $820,000 respectively, in these joint ventures. NFO's portion of the IPSOS joint ventures' activities resulted in a loss of $210,000, $291,000, and $453,000 during 1998, 1997, and 1996, respectively, which is reflected in equity interest in net loss of affiliated companies on the consolidated income statements. The Company's carrying amount of the above investments is reflected in other assets in the accompanying consolidated balance sheets. 20. SEGMENT DATA The Company has three operating segments as defined by the provisions of Financial Accounting Standards Board Statement No. 131, Disclosures about Segments of an Enterprise and Related Information ("SFAS 131"), North America, Europe and Australasia and the Middle East. Intersegment sales are generally recorded at market or equivalent value. Operating income by geographic segment consists of net sales less related costs and expenses. 192 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) Operating segment and geographic disclosures as required by SFAS 131 are as follows as of and for the years ended December 31 (IN THOUSANDS):
1998 1997 1996 - ---------------------------------------------------------------------------------------------------------------- Revenues: North America $ 189,626 $ 143,760 $ 118,638 Europe 50,349 24,838 20,420 Australasia and the Middle East 40,141 24,893 17,622 ---------------------------------------------- Total Operating Segments 280,116 193,491 156,680 Intersegment Revenues (4,765) (3,262) (1,737) ---------------------------------------------- Total Revenues $ 275,351 $ 190,229 $ 154,943 ============================================== United States (country of domicile) $ 170,083 $ 143,760 $ 118,638 All Foreign Countries Combined 110,033 49,731 38,042 Intersegment Revenues (4,765) (3,262) (1,737) ---------------------------------------------- Total Revenues $ 275,351 $ 190,229 $ 154,943 ============================================== Depreciation and Amortization: North America $ 6,978 $ 5,786 $ 4,602 Europe 1,426 347 274 Australasia and the Middle East 1,487 689 360 ---------------------------------------------- Total Operating Segments 9,891 6,822 5,236 Unallocated Corporate Expenses 103 70 46 ---------------------------------------------- Total Depreciation and Amortization $ 9,994 $ 6,892 $ 5,282 ============================================== Operating Income: North America $ 29,620 $ 25,666 $ 23,227 Europe 5,583 2,055 1,173 Australasia and the Middle East 950 2,114 2,579 ---------------------------------------------- Total Operating Segments 36,153 29,835 26,979 Unallocated Corporate Expenses (6,825) (6,560) (5,602) ---------------------------------------------- Total Operating Income $ 29,328 $ 23,275 $ 21,377 ============================================== Total Assets: North America $ 449,524 $ 224,784 $ 140,956 Europe 234,612 11,751 8,496 Australasia and the Middle East 30,573 32,207 10,814 ---------------------------------------------- Total Operating Segments 714,709 268,742 160,266 Elimination of Investment in Subsidiaries (75,839) (43,752) (26,672) Elimination of Intersegment Receivables (188,051) (55,027) (8,387) Unallocated Corporate Assets 979 311 236 ---------------------------------------------- Total Assets $ 451,798 $ 170,274 $ 125,443 ============================================== Long-Lived Assets: North America $ 26,681 $ 16,616 $ 10,886 Europe 14,999 1,049 1,078 Australasia and the Middle East 2,458 1,941 766 ---------------------------------------------- Total Operating Segments 44,138 19,606 12,730 Unallocated Corporate Assets 334 311 236 ---------------------------------------------- Total Long-Lived Assets $ 44,472 $ 19,917 $ 12,966 ============================================== United States (country of domicile) $ 25,138 $ 16,616 $ 10,886 All Foreign Countries Combined 19,000 2,990 1,844 Unallocated Corporate Assets 334 311 236 ---------------------------------------------- Total Long-Lived Assets $ 44,472 $ 19,917 $ 12,966 ==============================================
193 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996 (continued) 21. SUBSEQUENT EVENT On March 26, 1999, the Company successfully completed the private placement of $7 million in Senior Notes and $8 million in Senior Subordinated Notes, the proceeds of which will be used to reduce existing debt. The Senior and Subordinated Notes bear interest at the fixed rates of 7.52 percent and 9.84 percent, respectively, and are due November 15, 2008. The Senior and Subordinated Notes are to be repaid in equal annual installments of $1 million and $2.67 million beginning in 2002 and 2006, respectively. With the placement of these Notes, the Company satisfied certain provisions contained in its Series A and Series B Senior Notes dated November 20, 1998, thereby reducing the annual interest rates on those Notes. 194 EX-99.4 11 EXHIBIT 99.4 NFO WORLDWIDE, INC. INDEX TO FINANCIAL INFORMATION AND SCHEDULES PAGE NUMBER Schedule II - Valuation and Qualifying Accounts.......................... S-2 195 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (In thousands)
Column A Column B Column C Column D Column E (a) (b) Balance at Additions Beginning of charged to costs Balance at Description Period and expenses Deductions End of Period - ----------- ------ ------------ ---------- ------------- Allowance for doubtful accounts: January 1 - December 31, 1998 $ 471 $ 2,287 (c) $ 1,791 $ 967 January 1 - December 31, 1997 $ 447 $ 151 $ 127 $ 471 January 1 - December 31, 1996 $ 247 $ 243 $ 43 $ 447
Notes: (a) Column "C(2)" has been omitted as it did not contain any amounts. (b) Write off of uncollectible accounts. (c) Includes $228 of acquired beginning balance due to 1998 acquisitions. 196 -----END PRIVACY-ENHANCED MESSAGE-----