AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 4, 2000
REGISTRATION NO. 333--
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549
------------------------
FORM F-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CORDIANT COMMUNICATIONS GROUP PLC
(Exact Name of Registrant as Specified in its Charter)
ENGLAND AND WALES 0-13119 NONE
(State or Other (Primary Standard Industrial (I.R.S. Employer
Jurisdiction of Classification Code Number) Identification No.)
Incorporation or
Organization)
------------------------
121-141 WESTBOURNE TERRACE
LONDON W2 6JR UNITED KINGDOM
011-44-171-262-4343
(Address and telephone number of Registrant's principal executive offices)
------------------------
MICHAEL KOPCSAK
GOULD & WILKIE LLP
ONE CHASE MANHATTAN PLAZA
NEW YORK, NY 10018
(212) 820-0120
(Name, address and telephone number of agent for service)
------------------------
COPIES TO:
MICHAEL BUNGEY TIMOTHY B. GOODELL, STEVEN GIRGENTI WAYNE A. WALD, ESQ.
CORDIANT ESQ. HEALTHWORLD ROSENMAN & COLIN LLP
COMMUNICATIONS GROUP WHITE & CASE LLP CORPORATION 575 Madison Avenue
PLC 1155 Avenue of the 100 Avenue of the New York, NY 10022
121-141 Westbourne Americas Americas (212) 940-8800
Terrace New York, NY 10036 New York, NY 10013
London W2 6JR (212) 819-8200 (212) 625-4000
44-171-262-4343
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS PROMPTLY AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION
STATEMENT.
------------------------------
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, check the following box and list the
Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
------------------------------
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES TO AMOUNT TO BE OFFERING PRICE PER AGGREGATE AMOUNT OF
BE REGISTERED (1) REGISTERED (2) SHARE OFFERING PRICE (3) REGISTRATION FEE
Ordinary Shares, nominal value 50p each 53,913,097 Not Applicable $233,658,725.84 $61,685.90
(1) American depositary shares ("Cordiant ADSs") evidenced by American
depositary receipts ("Cordiant ADRs") issuable upon deposit of Cordiant
ordinary shares, nominal value 50p each, of the registrant has been
previously registered under a separate registration statement on Form F-6.
Each Cordiant ADS represents five Cordiant ordinary shares.
(2) Based on (i)(a) 8,124,635 shares of common stock, par value $0.01 per share
of Healthworld Corporation outstanding immediately before filing (excluding
Healthworld common stock held by Cordiant, Healthworld or any subsidiaries
of Cordiant or Healthworld, which shares will not be converted and exchanged
in the merger of Healthworld Acquisition Corp. with and into Healthworld),
(b) 1,526,705 shares of Healthworld common stock issuable upon exercise of
outstanding employee stock options to purchase Healthworld common stock and
(c) 940,624 shares of Healthworld Common Stock to be issued immediately
prior to the effective time pursuant to certain earn-out payment obligations
of Healthworld and (ii) an exchange ratio of 5.090 Cordiant ordinary shares
for each share of Healthworld common stock, which was the exchange ratio
that would have resulted on February 3, 2000, the last business day before
the date of filing of this registration statement.
(3) Pursuant to Rules 457(f)(1) and 457(c) under the Securities Act and solely
for the purpose of calculating the registration fee, the proposed maximum
aggregate offering price is equal to the market value of the approximate
number of shares of Healthworld common stock to be canceled in the merger
and is based upon the average of the high and low sale prices per share of
Healthworld common stock on the Nasdaq Stock Market on February 1, 2000.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
[LOGO]
Your board of directors has unanimously approved a merger of Healthworld
Corporation with Cordiant Communications Group plc.
Healthworld and Cordiant believe that the merger will provide the combined
company with the opportunity to become a leading global healthcare marketing and
communications company. In addition, the merger provides Healthworld
stockholders with the opportunity to receive merger consideration that
represents a premium over the price at which Healthworld common stock was
trading in the months prior to the execution of the merger agreement.
In the merger, Healthworld's stockholders will receive, in exchange for
shares of Healthworld common stock, either Cordiant ADSs, representing five
Cordiant ordinary shares or, at the stockholder's election, Cordiant ordinary
shares. The actual number of Cordiant ADSs or ordinary shares to be exchanged
for Healthworld common stock by Cordiant in the merger will be determined by a
formula based upon the average of the price of Cordiant ordinary shares and the
average of the U.S. dollar/British pound sterling exchange rate, both calculated
during a specified period ending three days prior to the special meeting at
which Healthworld's stockholders will vote upon the merger. Depending on these
price/exchange rate factors, this exchange formula is generally expected and
designed to provide a value to Healthworld stockholders ranging from $17 to $23
for each Healthworld share. The exchange formula is more fully described in the
enclosed proxy statement/prospectus. Based upon the closing price of Cordiant
ordinary shares and the U.S. dollar/British pound sterling exchange rate on
February 1, 2000, Healthworld stockholders would hold approximately 18% of the
outstanding equity of Cordiant after the merger on a fully diluted basis. This
percentage may vary as a result of the final exchange ratio.
Holders of a majority of Healthworld's outstanding common stock entitled to
vote must approve the merger. Certain executive officers of Healthworld (some of
whom are also directors) and their affiliates, who collectively own
approximately 63% of the outstanding common stock, have agreed to vote in favor
of the merger and against any competing transaction. These stockholders have
also granted Cordiant an option to purchase all of their shares of Healthworld
common stock in the event that, among other reasons, the Healthworld
stockholders do not approve the merger. Accordingly, approval of the merger by
Healthworld's stockholders is assured. THE DIRECTORS OF HEALTHWORLD UNANIMOUSLY
RECOMMEND THAT THE STOCKHOLDERS OF HEALTHWORLD VOTE "FOR" THE MERGER.
The enclosed proxy statement/prospectus is lengthy in order to satisfy the
legal and regulatory requirements of both the United States and the United
Kingdom. The proxy statement/prospectus includes a detailed description of the
merger, the business of each of Cordiant and Healthworld, the anticipated tax
consequences of the merger and the supporting analysis for the Bear Stearns
fairness opinion. You are encouraged to read carefully this entire document
before you decide how you wish to vote. YOU SHOULD ALSO CAREFULLY CONSIDER THE
RISK FACTORS RELATING TO THE MERGER DESCRIBED BEGINNING ON PAGE 22 OF THIS
DOCUMENT. In addition, this document incorporates important business and
financial information of Cordiant that is not included in this document. You may
obtain this information without charge by request from Cordiant at the address
listed on page 21. TO OBTAIN TIMELY DELIVERY OF THE INFORMATION, YOU MUST
REQUEST DOCUMENTS BY NO LATER THAN FEBRUARY 16, 2000.
To vote your shares, you may use the enclosed proxy card or attend the
special stockholders meeting. If your shares are held in "street name", i.e., in
the name of a broker, bank or other record holder, you must either direct the
record holder as to how to vote your shares or obtain a proxy from
the record holder to vote at the special meeting. The special meeting will be
held on March 1, at 9:00 a.m., New York City time, at the offices of Rosenman &
Colin LLP, 575 Madison Avenue, 11th Floor, New York, New York 10022. If you fail
to vote, the effect will be a vote against the merger.
I urge you to vote "FOR" the merger.
Very truly yours,
/s/ Steven Girgenti
Steven Girgenti
Chairman and Chief Executive Officer
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THE CORDIANT ORDINARY SHARES OR CORDIANT
ADSS TO BE ISSUED IN THE MERGER, OR DETERMINED IF THIS PROXY
STATEMENT/PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES IN ANY
JURISDICTION WHERE AN OFFER OR SOLICITATION WOULD BE ILLEGAL.
This proxy statement/prospectus is dated February 7, 2000 and was first mailed
to Healthworld stockholders on or about February 8, 2000.
2
HEALTHWORLD CORPORATION
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 1, 2000
TO THE STOCKHOLDERS OF
HEALTHWORLD CORPORATION:
Notice is hereby given that a special meeting of the holders of common stock
of Healthworld Corporation, a Delaware corporation, will be held at 9:00 a.m.,
New York City time, on Wednesday, March 1, 2000, at the offices of Rosenman &
Colin LLP, 575 Madison Avenue, 11th Floor, New York, New York 10022. At the
special meeting, the holders of Healthworld common stock will:
1. Consider and vote on a proposal to approve and adopt the Agreement
and Plan of Merger, dated as of November 9, 1999, as amended on February 3,
2000, among Cordiant Communications Group plc, Healthworld Acquisition
Corp., a wholly-owned subsidiary of Cordiant, and Healthworld, providing for
the merger of Healthworld Acquisition Corp. with and into Healthworld. After
the merger, Healthworld will be a wholly-owned subsidiary of Cordiant. As a
result of the merger, each share of Healthworld common stock issued and
outstanding at the time of the merger will be converted into the right to
receive either Cordiant's American depositary shares or, at each Healthworld
stockholder's election, Cordiant ordinary shares. The actual number of
Cordiant ADSs or ordinary shares to be exchanged for Healthworld common
stock by Cordiant in the merger will be determined by a formula based upon
the average of the price of Cordiant ordinary shares and the average of the
U.S. dollar/British pound sterling exchange rate, both calculated during a
specified period ending three days prior to the special meeting.
2. Consider and act upon such other matters as may properly come before
the meeting or any adjournments thereof.
These items of business are more fully described later in the proxy
statement/prospectus attached to this notice.
HEALTHWORLD'S STOCKHOLDERS WILL HAVE NO DISSENTERS' APPRAISAL RIGHTS IN
CONNECTION WITH THE MERGER. PLEASE SEE THE SECTION ENTITLED "THE MERGER--ABSENCE
OF DISSENTERS' APPRAISAL RIGHTS" BEGINNING ON PAGE 48 OF THE ACCOMPANYING PROXY
STATEMENT/PROSPECTUS FOR A DISCUSSION OF THE ABSENCE OF DISSENTERS' APPRAISAL
RIGHTS IN CONNECTION WITH THE MERGER.
All stockholders of record of Healthworld on the close of business on
February 4, 2000 are entitled to notice of, and to vote at, the special meeting
and any adjournment or postponement thereof. Only holders of record of
Healthworld common stock at the close of business on February 4, 2000 will be
entitled to vote at the special meeting or any adjournment or postponement
thereof. Holders of a majority of Healthworld's common stock entitled to vote
must approve the merger. Certain executive officers of Healthworld (some of whom
are also directors) and their affiliates, who collectively own approximately 63%
of the outstanding common stock, have agreed to vote in favor of the merger and
against any competing transaction. A list of the stockholders of Healthworld as
of the close of business on February 4, 2000 will be available for inspection
during business hours for ten days prior to the special meeting at Healthworld's
principal executive offices located at 100 Avenue of the Americas, New York, New
York 10013. A proxy and proxy statement for the special meeting are enclosed.
THE DIRECTORS OF HEALTHWORLD UNANIMOUSLY RECOMMEND THAT THE STOCKHOLDERS OF
HEALTHWORLD VOTE "FOR" THE MERGER.
All stockholders are cordially invited to attend the special meeting.
Whether or not you plan to attend the special meeting, please complete, date and
sign the enclosed proxy, which is solicited by the board of directors of
Healthworld, and mail it promptly in the enclosed envelope to make sure that
your shares are represented at the special meeting. In the event you decide to
attend the special meeting in person, you may, if you desire, revoke your proxy
and vote your shares in person.
By Order of the Board of Directors
/s/ Stuart Diamond
Stuart Diamond
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
New York, New York
February 7, 2000
2
QUESTIONS AND ANSWERS ABOUT THE MERGER
Q. WHY ARE CORDIANT AND HEALTHWORLD PROPOSING TO MERGE?
A. Cordiant and Healthworld believe that the merger will provide the combined
company with the opportunity to become a leading global healthcare marketing
and communications company. The combination of each company's healthcare
marketing business and the utilization of Cordiant's global operations is
expected to accelerate the growth of the enlarged group. In addition, the
merger provides Healthworld stockholders with the opportunity to receive
merger consideration that represents a premium over the price at which
Healthworld common stock was trading in the months prior to the execution of
the merger agreement.
Q. WHAT WILL HEALTHWORLD STOCKHOLDERS RECEIVE IN THE MERGER?
A. In the merger, Healthworld's stockholders will receive, in exchange for their
shares of Healthworld common stock, either Cordiant ADSs, representing five
Cordiant ordinary shares or, at the stockholder's election, Cordiant
ordinary shares. The actual number of Cordiant ADSs or ordinary shares to be
exchanged for Healthworld common stock by Cordiant in the merger will be
determined by a formula based upon the average of the price of Cordiant
ordinary shares and the average of the U.S. dollar/British pound sterling
exchange rate, both calculated during a specified period ending three days
prior to the special meeting at which Healthworld's stockholders will vote
upon the merger. Depending on these price/exchange rate factors, the
exchange formula is generally expected and designed to provide a value to
Healthworld stockholders ranging from $17 to $23 for each Healthworld share.
The exchange formula is more fully described on page 48 of this proxy
statement/prospectus under the caption "THE MERGER--Conversion of
Healthworld Common Stock in the Merger."
Q. WHAT IS A CORDIANT ADS?
A. A Cordiant ADS is an American depositary share which represents 5 Cordiant
ordinary shares and which has been created to allow U.S. shareholders to
more easily hold and trade interests in Cordiant on U.S. markets. The Bank
of New York is the depositary which will issue the Cordiant ADSs and hold
the Cordiant ordinary shares represented by the Cordiant ADSs. For a
discussion of the differences between owning Cordiant ADSs and Cordiant
ordinary shares, see "DESCRIPTION OF CORDIANT AMERICAN DEPOSITARY
SHARES--General."
Q. HOW CAN HEALTHWORLD STOCKHOLDERS ELECT TO RECEIVE ORDINARY SHARES?
A. After the companies complete the merger, we will provide each holder of
Healthworld common stock with a letter of transmittal, which permits the
holder to elect to receive either Cordiant ordinary shares or Cordiant ADSs
in exchange for all or any portion of the holder's shares of Healthworld
common stock. The letter of transmittal must be properly filled out and
returned by each Healthworld stockholder electing to receive Cordiant
ordinary shares by April 15, 2000. Any Healthworld stockholder who fails to
properly complete and return a letter of transmittal by April 15, 2000, will
receive Cordiant ADSs in exchange for his or her Healthworld common stock.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A. No. After the companies complete the merger, Cordiant will send, together
with the letter of transmittal, instructions to Healthworld stockholders
whose shares were converted in the merger. These instructions will explain
how to exchange your Healthworld stock certificates for Cordiant ADSs or
Cordiant ordinary shares, as the case may be.
Q. IS THE MERGER TAXABLE?
A. The merger will be tax free to U.S. holders of Healthworld common stock
except with respect to cash received for fractional Cordiant ordinary shares
or ADSs.
Q. WHEN IS THE MERGER EXPECTED TO BE COMPLETED?
A. Cordiant and Healthworld expect to complete the merger in March of 2000.
Because the merger is subject to governmental approvals, the companies
cannot predict the exact timing of the completion of the merger.
Q. HOW DO I VOTE?
A. After you have carefully read this proxy statement/prospectus, just mail your
signed proxy card in the enclosed postage-paid envelope to American Stock
Transfer & Trust Company as soon as possible so that your shares may be
represented and voted at the Healthworld special meeting. You may also vote
in person at the Healthworld special meeting. If your shares are held in
"street name", i.e., in the name of a broker, bank or other record holder,
you must either direct the record holder as to how to vote your shares or
obtain a proxy from the record holder to vote at the special meeting.
Q. MAY I CHANGE MY VOTE?
A. Yes. You may withdraw your proxy or change your vote by delivering a
later-dated, signed written notice of revocation or proxy card to American
Stock Transfer & Trust Company before the Healthworld special meeting or by
voting in person at the Healthworld special meeting.
Q. WHOM CAN I CALL WITH QUESTIONS?
A. If you have more questions about the merger, you should contact:
[LOGO]
MORROW & CO., INC.
1-800-566-9061
2
TABLE OF CONTENTS
PAGE
---------
QUESTIONS AND ANSWERS ABOUT THE MERGER..................................................................... 1
TABLE OF CONTENTS.......................................................................................... i
SUMMARY.................................................................................................... 1
The Companies............................................................................................ 1
Special Stockholders Meeting of Healthworld.............................................................. 1
Approval of Cordiant Shareholders at Extraordinary General Meeting....................................... 1
The Merger............................................................................................... 2
Comparative Market Price Data............................................................................ 7
Currencies and Exchange Rates............................................................................ 7
Comparative Per Share Data............................................................................... 8
Recent Developments...................................................................................... 10
Selected Historical Consolidated Financial Data.......................................................... 11
Summary Unaudited Pro Forma Condensed Combined Financial Information..................................... 14
RISK FACTORS RELATING TO THE MERGER........................................................................ 20
FORWARD-LOOKING STATEMENTS REGARDING BUSINESS AND OPERATIONS OF THE COMBINED COMPANY MAY PROVE
INACCURATE............................................................................................... 22
THE SPECIAL MEETING........................................................................................ 24
Date, Time and Place of the Special Meeting.............................................................. 24
Matters to be Considered at the Special Meeting.......................................................... 24
Record Date.............................................................................................. 24
How Will Shares be Voted at the Special Meeting.......................................................... 24
How to Revoke a Proxy.................................................................................... 24
Required Vote; Quorum.................................................................................... 25
Absence of Dissenters' Appraisal Rights.................................................................. 25
Solicitation of Proxies.................................................................................. 25
THE CORDIANT EXTRAORDINARY GENERAL MEETING................................................................. 26
Resolutions Proposed..................................................................................... 26
Resolutions Required for the Merger...................................................................... 26
Purpose of Resolutions................................................................................... 26
THE MERGER................................................................................................. 27
Background of the Merger................................................................................. 27
Healthworld Reasons for the Merger; Recommendation of the Board.......................................... 30
Cordiant's Reasons for the Merger........................................................................ 32
Opinion of Healthworld's Financial Advisors.............................................................. 33
Interest of Certain Persons in the Merger................................................................ 41
Absence of Dissenters' Appraisal Rights.................................................................. 42
Operation of Healthworld Following the Merger............................................................ 43
Conversion of Healthworld Common Stock in the Merger..................................................... 43
Election; Election Procedures............................................................................ 45
Exchange of Certificates in the Merger................................................................... 45
THE MERGER AGREEMENT....................................................................................... 44
i
PAGE
---------
The Merger............................................................................................... 47
Representations and Warranties........................................................................... 47
Conduct of Healthworld Pending the Merger; Other Actions................................................. 47
Takeover Proposals....................................................................................... 48
Stock Options and Other Employee Benefits................................................................ 49
Indemnification and Insurance............................................................................ 50
Conditions to Each Party's Obligations to Complete the Merger............................................ 50
Additional Conditions to the Obligations of Cordiant..................................................... 52
Additional Conditions to the Obligations of Healthworld.................................................. 52
Termination and Effects of Termination................................................................... 53
Termination by Cordiant or Healthworld................................................................... 53
Termination by Cordiant.................................................................................. 53
Termination by Healthworld............................................................................... 53
Fees and Expenses........................................................................................ 54
Amendment; Waiver........................................................................................ 54
THE PRINCIPAL STOCKHOLDER AGREEMENTS....................................................................... 55
Overview................................................................................................. 55
Voting Agreement......................................................................................... 55
Option to Purchase....................................................................................... 56
No Transfer; No Proxies.................................................................................. 56
No Disposition........................................................................................... 56
No Solicitation.......................................................................................... 58
Additional Covenants..................................................................................... 58
Termination.............................................................................................. 58
Representations and Warranties........................................................................... 58
MATERIAL TAX CONSEQUENCES.................................................................................. 59
UNITED STATES TAX CONSEQUENCES........................................................................... 60
UNITED KINGDOM TAX CONSEQUENCES TO U.S. HOLDERS OF ORDINARY SHARES AND ADSS.............................. 62
REGULATORY MATTERS......................................................................................... 64
U.S. Antitrust........................................................................................... 64
Other Laws............................................................................................... 64
ACCOUNTING TREATMENT....................................................................................... 65
DESCRIPTION OF CORDIANT.................................................................................... 65
General.................................................................................................. 65
Strategic Objectives..................................................................................... 65
Multinational Business................................................................................... 65
North America............................................................................................ 65
Marketing Services....................................................................................... 66
Corporate Developments................................................................................... 66
The Demerger............................................................................................. 66
Organization and Services................................................................................ 69
Personnel................................................................................................ 72
Acquisitions & Disposals................................................................................. 72
Competition.............................................................................................. 73
Regulation............................................................................................... 73
ii
PAGE
---------
Description of Property.................................................................................. 74
Legal Proceedings........................................................................................ 74
DESCRIPTION OF HEALTHWORLD................................................................................. 75
Business................................................................................................. 75
Overview................................................................................................. 75
Services................................................................................................. 75
Communications Services.................................................................................. 76
Contract Sales Services.................................................................................. 78
Healthworld B.V.......................................................................................... 79
Clients.................................................................................................. 80
Intellectual Property.................................................................................... 81
Competition.............................................................................................. 81
Government Regulation.................................................................................... 82
Employees................................................................................................ 82
Properties............................................................................................... 82
Legal Proceedings........................................................................................ 83
Control of Healthworld................................................................................... 83
RECENT DEVELOPMENTS........................................................................................ 85
Cordiant................................................................................................. 85
Healthworld.............................................................................................. 85
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA............................................................ 86
Cordiant................................................................................................. 86
Healthworld.............................................................................................. 87
HEALTHWORLD MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS......... 89
EXCHANGE RATES............................................................................................. 100
SHARE MARKET PRICE......................................................................................... 101
Cordiant................................................................................................. 101
Healthworld.............................................................................................. 101
DIVIDEND DATA.............................................................................................. 103
Cordiant................................................................................................. 103
Healthworld.............................................................................................. 103
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION............................................... 104
DESCRIPTION OF CORDIANT ORDINARY SHARES.................................................................... 112
General.................................................................................................. 112
Dividends................................................................................................ 112
Voting Rights............................................................................................ 113
Preemptive Rights and New Issues of Shares............................................................... 113
Disclosure of Interests in Shares........................................................................ 114
Changes in Capital....................................................................................... 114
Transfer of Shares....................................................................................... 114
General Meetings and Notices............................................................................. 115
Liability of Directors and Officers...................................................................... 115
Certain Other Matters.................................................................................... 114
iii
PAGE
---------
Registrar................................................................................................ 114
DESCRIPTION OF CORDIANT AMERICAN DEPOSITARY SHARES......................................................... 115
General.................................................................................................. 115
Share Dividends and Other Distributions.................................................................. 115
Deposit, Withdrawal and Cancellation..................................................................... 116
Voting Rights............................................................................................ 117
Fees and Expenses........................................................................................ 118
Payment of Taxes......................................................................................... 118
Reclassifications, Recapitalizations and Mergers......................................................... 118
Disclosure of Interests.................................................................................. 119
Amendment and Termination................................................................................ 119
Your Right to Receive the Shares Underlying Your Cordiant ADSs........................................... 120
Limitations on Obligations and Liability to Cordiant ADS Holders......................................... 120
Requirements for Depositary Actions...................................................................... 120
Pre-Release of Cordiant ADSs............................................................................. 121
COMPARISON OF RIGHTS OF HEALTHWORLD STOCKHOLDERS AND CORDIANT SHAREHOLDERS................................. 122
Voting Rights............................................................................................ 122
Action By Written Consent................................................................................ 123
Shareholder Proposals and Shareholder Nominations of Directors........................................... 124
Sources and Payment of Dividends......................................................................... 125
Rights of Purchase and Redemption........................................................................ 125
General Meetings of Shareholders......................................................................... 126
Special Meeting of Shareholders.......................................................................... 127
Dissenters' Appraisal Rights............................................................................. 129
Preemptive Rights........................................................................................ 130
Amendment of Governing Instruments....................................................................... 131
Stock Class Rights....................................................................................... 132
Shareholders' Votes on Certain Transactions.............................................................. 132
Rights of Inspection..................................................................................... 134
Standard of Conduct for Directors........................................................................ 135
Classification of the Board of Directors................................................................. 135
Removal of Directors..................................................................................... 135
Vacancies on the Board of Directors...................................................................... 136
Liability of Directors and Officers...................................................................... 136
Indemnification of Directors and Officers................................................................ 137
Shareholders' Suits...................................................................................... 138
Certain Provisions Relating to Share Acquisitions........................................................ 138
Anti-Takeover Measures................................................................................... 139
Disclosure of Interests.................................................................................. 140
Limitation on Enforceability of Civil Liabilities Under U.S. Federal Securities Law...................... 141
Proxy Statement and Reports.............................................................................. 142
FEES AND EXPENSES.......................................................................................... 144
VALIDITY OF SECURITIES..................................................................................... 144
EXPERTS.................................................................................................... 144
U.K. LISTING PARTICULARS AND CIRCULAR...................................................................... 144
FUTURE STOCKHOLDER PROPOSALS............................................................................... 145
iv
PAGE
---------
INDEX TO HEALTHWORLD FINANCIAL STATEMENTS.................................................................. F-1
Report of Independent Public Accountants................................................................. F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998............................................. F-3
Consolidated Statements of Income for the years ended December 31, 1996, 1997 and 1998................... F-4
Consolidated Statements of Stockholders' Equity for the years ended December 31, 1996, 1997 and 1998..... F-5
Consolidated Statements of Cash Flows for the years ended December 31, 1996, 1997 and 1998............... F-6
Notes to Consolidated Financial Statements............................................................... F-7
Consolidated Balance Sheets as of December 31, 1998 and September 30, 1999............................... F-25
Consolidated Statements of Income for the nine months ended September 30, 1998 and 1999.................. F-26
Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1999.............. F-27
Notes to Consolidated Financial Statements............................................................... F-28
Appendix A--Agreement and Plan of Merger................................................................. A-1
Appendix B--Amendment No. 1 to Agreement and Plan of Merger.............................................. B-1
Appendix C--William Butler Stockholder Agreement......................................................... C-1
Appendix D--Herbert Ehrenthal Stockholder Agreement...................................................... D-1
Appendix E--Spencer Falk Stockholder Agreement........................................................... E-1
Appendix F--Michael Garnham Stockholder Agreement........................................................ F-1
Appendix G--Steven Girgenti Stockholder Agreement........................................................ G-1
Appendix H--Francis Hughes Stockholder Agreement......................................................... H-1
Appendix I--William Leslie Milton Stockholder Agreement.................................................. I-1
Appendix J--Steven Girgenti Grantor Retained Annuity Trust Stockholder Agreement......................... J-1
Appendix K--The Girgenti Family Limited Partnership Stockholder Agreement................................ K-1
Appendix L--The Spencer Falk Grantor Retained Annuity Trust u/t/a/d March 5, 1999 Stockholder
Agreement.............................................................................................. L-1
Appendix M--The Steve Girgenti Charitable Lead Annuity Trust Stockholder Agreement....................... M-1
Appendix N--Opinion of Bear Stearns...................................................................... N-1
Appendix O--Steven Girgenti Employment Agreement......................................................... O-1
Appendix P--U.K. Listing Particulars and Circular........................................................ P-1
v
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROXY
STATEMENT/PROSPECTUS. IT DOES NOT CONTAIN ALL OF THE INFORMATION THAT IS
IMPORTANT TO YOU. YOU SHOULD READ CAREFULLY THE ENTIRE PROXY STATEMENT/
PROSPECTUS AND THE ADDITIONAL DOCUMENTS REFERRED TO IN THIS PROXY
STATEMENT/PROSPECTUS TO FULLY UNDERSTAND THE MERGER.
THE COMPANIES
CORDIANT COMMUNICATIONS GROUP PLC
121-141 Westbourne Terrace
London W2 6JR United Kingdom
Tel: 44-20-7262-4343
Cordiant is a global integrated communications group with operations in 70
countries. The group comprises:
- Bates Worldwide, one of the largest advertising and integrated
communications networks in the world;
- Scholz & Friends, the largest multinational advertising network
headquartered in Germany;
- HP:ICM, event conference and exhibition managers;
- a 30% interest in The Facilities Group, a pre-production agency; and
- a 50% interest in Zenith Media Worldwide, a global specialist media
services and planning agency.
HEALTHWORLD CORPORATION
100 Avenue of the Americas
New York, New York 10013
Tel: (212) 625-4000
Healthworld is an international communications and contract sales marketing
organization specializing in healthcare. Healthworld provides many of the
world's largest pharmaceutical and healthcare companies with a comprehensive
range of integrated strategic marketing services designed to accelerate the
acceptance of new products and to sustain their growth. These integrated
services include advertising and promotion, contract sales, consulting, medical
education, public relations, marketing research, publishing, interactive
multimedia and database marketing services. Healthworld offers its clients
global reach and expertise through its operations in the United States, France,
Spain and the United Kingdom, and through Healthworld B.V., a world-wide network
of licensed independent marketing and communications agencies.
SPECIAL STOCKHOLDERS MEETING OF HEALTHWORLD (see page 24)
A special meeting of Healthworld's stockholders will be held on Wednesday,
March 1, 2000, at 9:00 a.m., New York City time, at the offices of Rosenman &
Colin LLP, 575 Madison Avenue, 11th Floor, New York, New York 10022. At the
special meeting, the holders of Healthworld common stock will (a) vote on a
proposal to approve and adopt the merger agreement and (b) act upon such other
matters as may properly come before the special meeting. Under Delaware law,
Healthworld's stockholders do not have dissenters' appraisal rights in
connection with the merger.
Holders of a majority of Healthworld's outstanding common stock entitled to
vote must approve the merger. Certain executive officers of Healthworld (some of
whom are also directors) and their affiliates, who collectively own
approximately 63% of the outstanding Healthworld common stock, have agreed to
vote in favor of the merger and against any competing transaction. These
stockholders have also granted Cordiant an option to purchase all of their
shares of Healthworld common stock in the event that, among other reasons, the
Healthworld stockholders do not approve the merger. Accordingly, approval of the
merger by Healthworld's stockholders is assured.
APPROVAL OF CORDIANT SHAREHOLDERS AT EXTRAORDINARY GENERAL MEETING (see page 26)
Cordiant will hold an extraordinary general meeting of its shareholders on
March 1, 2000. At the meeting Cordiant shareholders will vote on a resolution:
- to approve the merger;
1
- to increase the authorized share capital of Cordiant in order to give
effect to the merger; and
- to authorize the issuance of Cordiant's shares (including those to be
issued in connection with the merger) by the Cordiant board of directors.
The resolution will require the approval of a majority of the votes cast in
person or on a poll at the meeting. Cordiant shareholders must approve these
matters in order for the merger to be completed.
THE MERGER
In the merger, a wholly-owned subsidiary of Cordiant will merge into
Healthworld and Healthworld will become a wholly-owned subsidiary of Cordiant.
CONVERSION OF HEALTHWORLD COMMON STOCK IN THE MERGER (see page 43)
In the merger, each share of Healthworld common stock issued and outstanding
at such time will be converted into the right to receive a number of Cordiant
ADSs or, at your election, a number of Cordiant ordinary shares. Each Cordiant
ADS represents five Cordiant ordinary shares. The actual number of Cordiant ADSs
or ordinary shares to be received by each Healthworld stockholder for each share
of Healthworld common stock in the merger will be determined by a formula based
upon the average of the price of Cordiant ordinary shares and the average of the
U.S. dollar/British pound sterling exchange rate, both calculated during a
specified period ending three days prior to the special meeting at which
Healthworld's stockholders will vote upon the merger. Depending on these
price/exchange rate factors, this exchange formula is generally expected and
designed to provide a value to Healthworld stockholders ranging from $17 to $23
for each Healthworld share.
The Cordiant ADSs to be issued in the merger will trade on the New York
Stock Exchange and will be quoted in U.S. dollars while the Cordiant ordinary
shares to be issued in the merger will trade on the London Stock Exchange and
will be quoted in British pounds sterling. The Bank of New York serves as
depositary for the Cordiant ADSs.
The Bank of New York and Cordiant will not issue fractional Cordiant ADSs or
ordinary shares, respectively. Instead, Cordiant will pay you cash for any
fractional Cordiant ordinary share or Cordiant ADS owed to you based on the
average market value of Cordiant ADSs or ordinary shares during a specified
period ending on the last trading day immediately preceding the merger.
HOW TO CHOOSE TO RECEIVE CORDIANT ORDINARY SHARES INSTEAD OF CORDIANT ADSS (see
page 45)
After the companies complete the merger, we will provide each holder of
Healthworld common stock with a letter of transmittal, which permits the holder
to elect to receive either Cordiant ordinary shares or Cordiant ADSs in exchange
for all or any portion of the holder's shares of Healthworld common stock. If a
holder of Healthworld common stock does not submit a properly completed letter
of transmittal by April 15, 2000, his or her shares will be converted in the
merger into the right to receive the Cordiant ADSs. To make the ordinary share
election, a holder of Healthworld common stock must complete properly and return
the letter of transmittal to The Bank of New York, the exchange agent, before
April 15, 2000.
Neither Healthworld nor the Healthworld board of directors makes any
recommendation as to whether you should elect to receive ordinary shares instead
of Cordiant ADSs in the merger. You must make your own decision with respect to
the election.
RECOMMENDATION OF HEALTHWORLD BOARD OF DIRECTORS (see page 30)
The Healthworld board of directors has unanimously determined that the
merger is in the best interests of Healthworld and its stockholders and approved
the merger and the merger agreement and declared their advisability.
Accordingly, the Healthworld board of directors unanimously recommends that
Healthworld stockholders vote "FOR" approval and adoption of the merger
agreement.
2
PRECLUSION OF COMPETING TRANSACTIONS
Any competing transactions are effectively precluded from succeeding to
prevent the merger for the following reasons:
- Certain executive officers of Healthworld (some of whom are also
directors) and their affiliates, who collectively own approximately 63% of
Healthworld's outstanding common stock, have agreed to vote in favor of
the merger and against any competing transaction. These stockholders have
also granted Cordiant an option to purchase all of their shares of
Healthworld common stock in the event that, among other reasons, the
Healthworld stockholders do not approve the merger. Accordingly, approval
of the merger by Healthworld's stockholders is assured.
- In the merger agreement, Healthworld has agreed not to:
- solicit, aid or encourage any competing offer or transaction,
- enter into any agreement to abandon the merger or enter into any
competing transaction, or
- unless required by the fiduciary duties of its board of directors,
participate in any discussions or furnish any information in
connection with a competing offer or transaction.
- Under the terms of the merger agreement, Healthworld's board of directors
is prohibited from:
- unless required by its fiduciary duties, withdrawing its
recommendation of the merger to Healthworld's stockholders,
- approving or recommending any competing offer or transaction to
Healthworld's stockholders, or
- entering into any agreement related to a competing offer or
transaction.
- In the merger agreement, Cordiant has obligated its board of directors,
unless otherwise required by its fiduciary duties, to recommend approval
of the merger by Cordiant's shareholders and to use its commercially
reasonable efforts to obtain such approval.
OPINION OF FINANCIAL ADVISOR (see page 33)
Bear Stearns & Co. Inc. delivered a written opinion to the Healthworld board
of directors that, as of the date of the opinion, the exchange ratio was fair to
Healthworld's stockholders from a financial point of view. This opinion is not a
recommendation to any Healthworld stockholder as to how to vote. We have
attached this opinion to this proxy statement/prospectus as Appendix N. You
should read it carefully.
INTERESTS OF MEMBERS OF HEALTHWORLD'S BOARD OF DIRECTORS AND MANAGEMENT (see
page 41)
When considering the Healthworld board of directors' recommendation that you
vote in favor of approval and adoption of the merger agreement, you should be
aware that the directors and officers of Healthworld may have interests in the
merger that conflict with, are different from, or in addition to, yours as a
Healthworld stockholder. These interests include employment agreements, stock
options and continuation as Cordiant executive officers.
CONDITIONS TO THE MERGER (see page 50)
Cordiant and Healthworld will complete the merger only if the conditions set
forth in the merger agreement are either satisfied or, if permitted, waived.
These conditions include, among other things:
- approval of the merger by Healthworld's stockholders;
- approval of the merger by Cordiant's shareholders;
- the absence of any material adverse change in Healthworld and its
subsidiaries taken as a whole;
- the absence of any material adverse change in Cordiant and its
subsidiaries taken as a whole which is followed by Cordiant's average
share price being less
3
than 135p during the period for determination of the exchange ratio;
- receipt of necessary regulatory and third-party consents and approvals,
including approvals of U.S. antitrust authorities;
- the absence of any governmental agency or court order prohibiting or
materially interfering with the merger;
- the agreement by the London Stock Exchange to list the additional Cordiant
ordinary shares to be issued upon completion of the merger and the
authorization by the New York Stock Exchange to list the additional
Cordiant ADSs;
- the absence of a material breach of the representations and warranties and
covenants contained in the merger agreement;
- the delivery of a written tax opinion from Rosenman & Colin LLP, counsel
to Healthworld, stating that the merger will be a tax free reorganization
under Section 368(a) of the U.S. Internal Revenue Code; and
- the filing by Cordiant of a registration statement, which becomes
effective for Cordiant's stock options to be exchanged for Healthworld
stock options in the merger.
In addition, if the merger is not completed by May 31, 2000, then either
Cordiant or Healthworld may terminate the merger agreement unless the failure to
complete the merger was caused by the terminating party. If, however, the only
conditions to closing the merger at that time are the receipt of regulatory
approvals, then either party may defer the termination date to August 31, 2000.
If any of these conditions are waived by either party, Cordiant and
Healthworld intend to amend this proxy statement/prospectus as required by law
and distribute the amended proxy statement/prospectus or other information which
is suitable to comply with any such laws.
FEES AND EXPENSES (see page 54)
Cordiant and Healthworld have agreed that all costs and expenses incurred in
connection with the merger shall be paid by the party incurring such costs,
except
- costs incurred by certain principal stockholders of Healthworld that are
required to make Hart Scott Rodino filings with the Federal Trade
Commission, which have been paid by Healthworld; and
- if the approval of Cordiant's shareholders is not obtained, Cordiant is
required to reimburse Healthworld for documented reasonable out-of-pocket
expenses up to a total maximum of $1,500,000.
ABSENCE OF DISSENTERS' APPRAISAL RIGHTS (see page 42)
Under Delaware law, holders of shares of Healthworld common stock do not
have dissenters' appraisal rights with respect to the merger.
STOCK EXCHANGE LISTING (see page 51)
Cordiant will apply to have the additional Cordiant ADSs to be issued in the
merger listed for trading on the New York Stock Exchange and has applied to have
the additional ordinary shares to be issued in the merger admitted to the
Official List of the London Stock Exchange. The authorization for listing and
agreement to admission are conditions to completing the merger.
RISK FACTORS (see page 20)
In determining whether to vote to approve and adopt the merger agreement,
you should carefully consider the risk factors described in this document,
including the risks that:
- Expected benefits from the Cordiant/ Healthworld combination may not be
realized;
- Cordiant's and Healthworld's businesses may not be successfully combined;
4
- The stockholder agreements between Cordiant and certain executive officers
of Healthworld and provisions of the merger agreement may discourage other
companies from trying to combine with Healthworld;
- The combined company may face hurdles with respect to management of growth
and acquisition risks;
- The combined company will be dependent on certain key clients;
- The combined company may forego potential revenues due to client conflicts
of interest;
- The combined company will face significant competition and increasing
industry consolidation;
- The combined company will be dependent on key personnel;
- The value of the Cordiant shares to be received as consideration by the
Healthworld stockholders may fluctuate prior to the merger; and
- Healthworld's executive officers and directors have interests in the
merger that are in conflict with, are different from, or are in addition
to, those of Healthworld's stockholders.
ACCOUNTING TREATMENT (see page 64)
Cordiant will account for the merger as an acquisition under U.K. generally
accepted accounting principles in accordance with Financial Reporting Standard
6, "Acquisitions and Mergers" and will account for the merger as a purchase
under U.S. generally accepted accounting principles in accordance with APB
Opinion No. 16, "Business Combinations."
MATERIAL U.S. INCOME TAX CONSEQUENCES (see page 59)
The merger will be tax-free to U.S. holders of Healthworld common stock
except with respect to cash received for fractional Cordiant ordinary shares or
Cordiant ADSs. All Healthworld stockholders should read carefully the discussion
under "THE MERGER--Material U.S. Income Tax Consequences" and are urged to
consult their own tax advisors as to specific consequences to them of the merger
under U.S. federal, state, local or any other applicable tax laws.
RECORD DATE FOR VOTING (see page 24)
You can vote at the special meeting of Healthworld stockholders if you owned
Healthworld common stock on February 4, 2000.
Holders of a majority of Healthworld's outstanding common stock entitled to
vote must approve the merger. Each share of Healthworld common stock outstanding
on the record date is entitled to one vote. There are no other classes of voting
securities of Healthworld presently outstanding. As of the record date,
directors and executive officers of Healthworld and their affiliates owned
approximately 63% of the outstanding shares of Healthworld common stock.
COMPARISON OF RIGHTS OF HOLDERS OF CORDIANT ORDINARY SHARES WITH HOLDERS OF
HEALTHWORLD COMMON STOCK (see page 122)
In the merger, Healthworld stockholders will receive either Cordiant ADSs
or, at the stockholder's election, Cordiant ordinary shares. Each Cordiant ADS
represents five ordinary shares of Cordiant. There are numerous differences
between the rights of a stockholder in Healthworld, a Delaware corporation, and
the rights of a shareholder in Cordiant, an English company. For example,
- except in limited circumstances, holders of Cordiant ordinary shares will
not be entitled to dissenters' appraisal rights in mergers or any other
types of transactions;
- only holders representing 5% or more of the voting power of Cordiant will
be able to make proposals at a shareholders meeting;
- persons acquiring 3% or more of the voting power of Cordiant will
generally be required to make public disclosures and
5
notifications with respect to their ownership;
- amendments to the memorandum and articles of association of Cordiant will
require the approval of at least 75% of the votes cast at a shareholders'
meeting;
- Cordiant generally will not be permitted the same freedom as Healthworld
has to adopt defensive measures in the event of a takeover bid; and
- although holders of Cordiant ordinary shares will be permitted to initiate
lawsuits on behalf of the company in limited circumstances, holders will
not be able to initiate class action lawsuits against Cordiant.
You should also be aware that it may be difficult to effect service of
process to begin a lawsuit in a U.S. court against directors and officers of
Cordiant who are not residents of the U.S.
COMPARISON OF RIGHTS OF HOLDERS OF CORDIANT ADSS WITH HOLDERS OF CORDIANT
ORDINARY SHARES (see page 111)
Your rights as a holder of Cordiant ADSs will, in some respects, be
different from the rights of a holder of Cordiant ordinary shares. For example,
you will not be entitled to attend and vote at Cordiant general shareholder
meetings but will be able to instruct the depositary, which acts as custodian
for the ordinary shares represented by your Cordiant ADSs, on how to vote such
ordinary shares. See page 117 for a more complete description of your voting
rights after the merger.
The Cordiant ADSs can be converted into ordinary shares whenever the holder
chooses, provided certain fees and expenses of the depositary are paid by the
holder. The depositary charges a fee of up to $5.00 for every 100 Cordiant ADSs
(or portion thereof) converted to ordinary shares.
6
COMPARATIVE MARKET PRICE DATA
The following table presents per share closing market prices as reported on
the NYSE for Cordiant ADSs and on the Nasdaq Stock Market for shares of
Healthworld common stock and the closing mid-market quotation for Cordiant
ordinary shares as quoted in the Official List of the London Stock Exchange on
September 13, 1999, the date of the Healthworld board of directors meeting at
which the initial proposal from Cordiant was reviewed, on September 29, 1999,
the date of the receipt by Healthworld of written confirmation of the revised
proposal from Cordiant, on October 6, 1999, the date of the signing of the
exclusivity agreement between Healthworld and Cordiant, on November 8, 1999, the
date immediately prior to the public announcement of the signing of the merger
agreement, and on February 1, 2000, the latest practicable date prior to the
printing of this document. The table also presents implied equivalent per share
values for shares of Healthworld common stock resulting from the exchange
formula used in calculating the consideration to be received by Healthworld
stockholders in the merger.
Healthworld stockholders are urged to obtain current market quotations for
the Cordiant ADSs, Cordiant ordinary shares and Healthworld common stock before
making a decision with respect to the merger.
ACTUAL
ACTUAL CORDIANT ACTUAL
CORDIANT ORDINARY HEALTHWORLD FORMULA DERIVED VALUE FOR
ADS PRICE SHARE PRICE SHARE PRICE EACH HEALTHWORLD SHARE
--------- ----------- ----------- -------------------------
September 13, 1999...................... $15.13 189.0p $14.00 $20.08
September 29, 1999...................... $14.50 180.5p $13.38 $20.00
October 6, 1999......................... $14.38 176.0p $13.88 $19.78
November 8, 1999........................ $16.56 211.5p $17.50 $22.55
February 1, 2000........................ $22.13 279.0p $22.00 $23.00
CURRENCIES AND EXCHANGE RATES
References in this document to "dollars," "$", "cents" or " CENTS" are to
the currency of the United States and references to "pounds sterling," "pounds,"
"L," "pence" or "p" are to the currency of the United Kingdom. There are 100
pence to each pound. Solely for your convenience, this document contains
translations of certain pounds sterling amounts into U.S. dollars at specified
rates. You should not take these translations as assurances that the pounds
sterling amounts currently represent U.S. dollar amounts or could be converted
into U.S. dollars at the rate indicated or at any other rate, at any time.
In this document, unless otherwise stated, pounds sterling have been
translated into U.S. dollars at a rate of $1.6150 per L1.00, the noon buying
rate in New York City for cable transfers in pounds sterling as certified for
customs purposes by the Federal Reserve Bank of New York on February 1, 2000. On
February 2, 2000, the latest practicable date for which exchange rate
information was available prior to the printing of this document, the noon
buying rate was $1.6060 per L1.00.
The period end, average and range of high and low U.S. dollar/pound sterling
exchange rates for the five years ended December 31, 1998 and the six months
ended June 30, 1999 are presented in the section entitled "EXCHANGE RATES"
beginning on page 100.
7
COMPARATIVE PER SHARE DATA
The following tables present unaudited historical and pro forma per share
data that reflect the completion of the merger based upon the historical
financial statements of Cordiant and Healthworld. The pro forma data are not
indicative of the results of future operations or the actual results that would
have occurred had the merger been completed at the beginning of the periods
presented. You should read the data presented below together with the historical
consolidated financial statements, including applicable notes, of Cordiant
incorporated by reference into this proxy statement/prospectus, and the
historical consolidated financial statements, including applicable notes, of
Healthworld, and the unaudited pro forma consolidated financial information and
notes appearing elsewhere in this document.
The amounts under the caption "Pro forma equivalent per share of Healthworld
common stock" in the tables below were calculated based on an exchange ratio of
5.090 Cordiant ordinary shares for each share of Healthworld common stock,
determined by (1) multiplying (i) 279.0 p, the February 1, 2000 closing middle
market quotation price of Cordiant ordinary shares on the London Stock Exchange,
by (ii) an exchange rate of $1.6195 pounds sterling to U.S. dollars and (2)
dividing such product by $23, the Healthworld common stock value in accordance
with the exchange ratio for the merger. Solely for your convenience, the amounts
under the caption "Post-merger Cordiant pro forma per post-merger Cordiant
ordinary shares" have been translated into U.S. dollars at the noon buying rate
on June 30, 1999.
SIX-MONTHS ENDED AT JUNE 30, 1999
---------------------------------------------------------
PRO FORMA
EQUIVALENT
PER SHARE OF
CORDIANT HEALTHWORLD POST-MERGER HEALTHWORLD
HISTORICAL HISTORICAL CORDIANT COMMON
DATA DATA PRO FORMA DATA STOCK
---------- ----------- --------------- ------------
L $ L $ $
Amounts under U.K. GAAP
Total earnings (millions).................... 6.4 2.0 7.7 12.1 N/A
Basic earnings per share..................... 0.03 0.27 0.03 0.04 0.22
Dividends per share.......................... -- -- -- -- --
Book value per share at period end........... (0.25) 3.67 0.37 0.55 2.79
Amounts under U.S. GAAP
Total earnings/(loss) (millions)............. (4.0) 1.7 (4.5) (7.1) N/A
Earnings per share
Basic...................................... (0.02) 0.23 (0.02) (0.03) (0.13)
Diluted.................................... (0.02) 0.23 (0.02) (0.02) (0.12)
Dividends per share.......................... 0.01 -- 0.01 0.02 0.09
Book value per share at period end........... 0.04 4.14 0.63 0.94 4.77
8
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------------------
PRO FORMA
EQUIVALENT
POST-MERGER PER SHARE OF
CORDIANT HEALTHWORLD CORDIANT HEALTHWORLD
HISTORICAL HISTORICAL PRO FORMA COMMON
DATA DATA DATA STOCK
---------- ----------- ----------- ------------
L $ L $ $
Amounts under U.K. GAAP
Earnings (millions)............................ 13.8 4.0 16.3 25.8 N/A
Basic earnings per share....................... 0.06 0.54 0.06 0.09 0.47
Dividends per share............................ 0.01 -- 0.01 0.02 0.09
Amounts under U.S. GAAP
Earnings (millions)............................ 6.5 4.4 5.4 8.5 N/A
Earnings per share
Basic........................................ 0.03 0.60 0.02 0.03 0.16
Diluted...................................... 0.03 0.58 0.02 0.03 0.16
Dividends per share............................ -- -- -- -- --
9
RECENT DEVELOPMENTS
CORDIANT
On November 9, 1999, Cordiant entered into a new unsecured credit facility
with HSBC Investment Bank PLC and The Bank of New York, increasing its borrowing
base. Consequently, Cordiant canceled its existing credit facilities. The new
credit facility permits Cordiant to make borrowings up to $250 million, which
includes a $125 million five year revolving credit tranche and a $125 million
364 day revolving credit line with one year term loan option. The initial
interest rate under both tranches is 1.0% over LIBOR.
Acquisitions
On December 3, 1999, Cordiant, through a wholly-owned subsidiary, acquired
substantially all the assets of Interactive Edge, Inc., a New York corporation,
Interactive Edge, Inc., a Connecticut corporation and Interactive Edge, LLC, a
Delaware limited liability company, all of which were commonly owned by the
sellers in the acquisition. The purchase price for the acquisition included an
initial payment of $6.1 million paid by Cordiant through the issuance of
Cordiant ADSs having a value of $5.5 million and $600,000 in cash. The
acquisition also provides for an additional contingent payment in 2003 of up to
a maximum of $18.9 million based on Interactive Edge achieving certain revenues
and operating margins for the three years ending December 31, 2002. The
contingent payment will be paid entirely through the issuance of Cordiant ADSs.
On December 13, 1999, Cordiant entered into a definitive agreement to
acquire a majority stake in Diamond Ad Ltd., the third largest advertising
agency in South Korea. Under the terms of the agreement, Cordiant will acquire
an 80 percent equity interest in Diamond Ad Ltd. for initial cash consideration
of L15 million plus the assumption of debt expected to be around L12 million.
The agreement also provides for contingent payments up to a maximum of
approximately L55 million based on the operating results of Diamond Ad Ltd. for
the 42 months ending December 31, 2001.
HEALTHWORLD
On February 3, 2000, Healthworld agreed to issue, subject to stockholder
approval of, and completion of, the merger, 940,624 additional shares of
Healthworld common stock to the former stockholders of Falk Communications, Inc.
immediately prior to the completion of the merger. This share issuance will be
made in full satisfaction of Healthworld's obligation to make earn-out payments
in connection with this acquisition, and was valued at $20,000,000 on
February 3, 2000.
10
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
CORDIANT
The selected financial data set forth below is derived from the Consolidated
Financial Statements of Cordiant and should be read in conjunction with, and is
qualified in its entirety by reference to, such Consolidated Financial
Statements, including the notes thereto, and Management's Discussion and
Analysis of Financial Condition and Results of Operations. Cordiant's
Consolidated Financial Statements as of December 31, 1997 and 1998 and for each
of the years in the three year period ended December 31, 1998, which have been
audited by KPMG Audit Plc, and Cordiant's Management's Discussion and Analysis
of Financial Condition and Results of Operations are incorporated by reference
into this proxy statement/prospectus.
With respect to the year ended December 31, 1997, significant changes were
made to Cordiant's capital structure as a result of the demerger. See
"DESCRIPTION OF CORDIANT." The selected financial data set forth below reflect
the capital structure in place prior to the demerger, which was appropriate
historically to Cordiant, and the capital position, finance charges and tax
liabilities included in such data do not reflect Cordiant's capital position,
finance charges and tax liabilities in respect of any of the periods covered had
Cordiant effected the demerger prior to such period.
YEAR ENDED DECEMBER 31,
-----------------------------------------------------------------
1994 1995 1996 1997
-------------- -------------- -------------- --------------
L L L L
(IN MILLIONS, EXCEPT PER SHARE DATA)
CONSOLIDATED INCOME STATEMENT
DATA:(2)
AMOUNTS IN ACCORDANCE WITH U.K.
GAAP
Commission and fee income
Continuing operations......... L775.4 L761.1 L754.9 L736.1
Discontinued operations....... -- -- -- --
-------------- -------------- -------------- --------------
Total......................... L775.4 L761.1 L754.9 L736.1
Profit (loss) before tax, and
minority interests--
historically reported(3)...... L 32.4 L (22.6) L 41.8 L 34.6
Adjustment for provisions(4).... L (7.8) L (10.3) L (7.0) L (4.7)
-------------- -------------- -------------- --------------
Profit (loss) before tax, and
minority interests--
restated(3)................... L 24.6 L (32.9) L 34.8 L 29.9
Net profit (loss)............... L 6.1 L (47.6) L 17.2 L 10.4
Net profit (loss) per Cordiant
ordinary share--basic......... 2.2 (16.3)p 3.9p 2.3p
Net profit (loss) per Cordiant
ordinary share--diluted....... 2.2 (16.3)p 3.9p 2.3p
APPROXIMATE AMOUNTS IN ACCORDANCE
WITH U.S. GAAP
Profit (loss) from continuing
operations--historically
reported...................... L (11.5) L (46.8) L 6.9 L 6.8
Adjustment for provisions(4).... L 0.6 L (6.0) L 0.2 L (7.2)
-------------- -------------- -------------- --------------
Profit (loss) from continuing
operations--restated.......... L (10.9) L (52.8) L 7.1 L (0.4)
Profit from discontinued
operations.................... -- -- -- --
-------------- -------------- -------------- --------------
Net profit (loss)............... L (10.9) L (52.8) L 7.1 L (0.4)
Net profit (loss) per ordinary
share:(2)
Continuing operations......... (3.9)p (36.1)p 3.2p (0.3)p
Discontinued operations....... -- -- -- --
-------------- -------------- -------------- --------------
Net profit (loss) per ordinary
share(2).................... (3.9)p (36.1)p 3.2p (0.3)p
Net profit (loss) per ADS:(2)
Continuing operations......... (19.3)p (180.6)p 16.0p (0.9)p
Discontinued operations....... -- -- -- --
-------------- -------------- -------------- --------------
Net profit (loss) per
ADS(2)...................... (19.3)p (180.6)p 16.0p (0.9)p
Dividends including tax credit
Per ordinary share............ -- -- 2.6p 3.0p
Per ADS....................... -- -- 13.0p 15.0p
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
-------------------------
-----------------------------------------------------
1998 1998 1998 1999 1999
-------------- -------- -------------- -------------- --------
L $(1 ) L L $(1)
(IN MILLIONS, EXCEPT PER SHARE DATA)
CONSOLIDATED INCOME STATEMENT
DATA:(2)
AMOUNTS IN ACCORDANCE WITH U.K.
GAAP
Commission and fee income
Continuing operations......... L301.8 $501.0 L143.6 L158.6 $250.6
Discontinued operations....... -- -- -- -- --
-------------- ------ -------------- -------------- ------
Total......................... L301.8 $501.0 L143.6 L158.6 $250.6
Profit (loss) before tax, and
minority interests--
historically reported(3)...... L 25.9 $ 43.0 L 8.4 L 11.1 $ 17.5
Adjustment for provisions(4).... L (1.2) $ (2.0) -- -- --
-------------- ------ -------------- -------------- ------
Profit (loss) before tax, and
minority interests--
restated(3)................... L 24.7 $ 41.0 L 8.4 L 11.1 $ 17.5
Net profit (loss)............... L 13.8 $ 22.9 L 4.2 L 6.4 $ 10.1
Net profit (loss) per Cordiant
ordinary share--basic......... 6.2p $ 0.10 1.9p 2.8p $ 0.04
Net profit (loss) per Cordiant
ordinary share--diluted....... 6.2p $ 0.10 1.9p 2.7p $ 0.04
APPROXIMATE AMOUNTS IN ACCORDANCE
WITH U.S. GAAP
Profit (loss) from continuing
operations--historically
reported...................... L 4.8 $ 7.9 L (2.0) L (4.0) $ (6.3)
Adjustment for provisions(4).... L 1.7 $ 2.9 -- -- --
-------------- ------ -------------- -------------- ------
Profit (loss) from continuing
operations--restated.......... L 6.5 $ 10.8 L (2.0) L (4.0) $ (6.3)
Profit from discontinued
operations.................... -- -- -- -- --
-------------- ------ -------------- -------------- ------
Net profit (loss)............... L 6.5 $ 10.8 L (2.0) L (4.0) $ (6.3)
Net profit (loss) per ordinary
share:(2)
Continuing operations......... 2.9p $ 0.05 (0.9)p (1.8)p $(0.03)
Discontinued operations....... -- -- -- -- --
-------------- ------ -------------- -------------- ------
Net profit (loss) per ordinary
share(2).................... 2.9p $ 0.05 (0.9)p (1.8)p $(0.03)
Net profit (loss) per ADS:(2)
Continuing operations......... 14.6p $ 0.24 (5.2)p (8.8)P $(0.14)
Discontinued operations....... -- -- -- -- --
-------------- ------ -------------- -------------- ------
Net profit (loss) per
ADS(2)...................... 14.6p $ 0.24 (5.2)p 14.6p $(0.14)
Dividends including tax credit
Per ordinary share............ 3.5p $ 0.06 -- -- --
Per ADS....................... 17.5p $ 0.29 -- -- --
11
AS OF DECEMBER 31,
--------------------------------------------------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA)-
1994 1995 1996 1997
--------------- --------------- --------------- --------------
L L L L
CONSOLIDATED BALANCE SHEET DATA:
AMOUNTS IN ACCORDANCE WITH U.K.
GAAP
Working capital asset
(deficiency).................... L (32.4) L (25.3) L (59.8) L 2.8
Total assets...................... 972.7 992.9 912.4 377.8
Long term liabilities, including
minority interests.............. 429.8 309.2 262.6 123.2
Shareholder's
deficiency-historically
reported........................ (355.5) (224.9) (215.3) (85.7)
Adjustment for provisions(4)...... 44.9 34.6 27.5 8.8
--------------- --------------- --------------- --------------
Shareholder's
deficiency--restated............ (310.6) (190.3) (187.8) (76.9)
APPROXIMATE AMOUNTS IN ACCORDANCE
WITH U.S. GAAP
Shareholder's funds (deficiency)-
historically reported........... (99.4) (19.0) (0.4) 3.8
Adjustment provisions(4).......... (2.4) (8.4) (6.7) (1.1)
--------------- --------------- --------------- --------------
Shareholder's funds
(deficiency)--restated.......... (101.8) (27.4) (7.1) 2.7
AS OF DECEMBER 31, AS OF JUNE 30
-------------------------
(IN MILLIONS, EXCEPT PER SHARE DATA)-
1998 1998 1998 1999 1999
-------------- -------- -------------- -------------- --------
L $(1 ) L L $(1)
CONSOLIDATED BALANCE SHEET DATA:
AMOUNTS IN ACCORDANCE WITH U.K.
GAAP
Working capital asset
(deficiency).................... L 11.8 $ 19.6 L 5.3 L 1.3 $ 2.1
Total assets...................... 386.7 641.9 343.2 403.3 637.2
Long term liabilities, including
minority interests.............. 136.9 227.3 123.8 136.7 216.0
Shareholder's
deficiency-historically
reported........................ (71.5) (118.7) (76.3) (57.1) (90.2)
Adjustment for provisions(4)...... 7.6 12.6 -- -- --
-------------- ------- -------------- -------------- ------
Shareholder's
deficiency--restated............ (63.9) (106.1) (76.3) (57.1) (90.2)
APPROXIMATE AMOUNTS IN ACCORDANCE
WITH U.S. GAAP
Shareholder's funds (deficiency)-
historically reported........... 10.6 17.4 (1.6) 9.5 15.0
Adjustment provisions(4).......... 0.7 1.4 -- -- --
-------------- ------- -------------- -------------- ------
Shareholder's funds
(deficiency)--restated.......... 11.3 18.8 (1.6) 9.5 15.0
- ------------------------------
(1) These amounts have been translated into U.S. dollars at the noon buying rate
on December 31, 1998 (L1.00-$1.66) and on June 30, 1999 (L1.00-$1.58),
respectively.
(2) Per share and per ADS amounts have been adjusted to reflect the share
consolidation in connection with the demerger.
(3) The profit (loss) before taxes and minority interests reflects: (a)
exceptional costs of L0.0, L0.0, L2.2 million, L16.5 million and
L20.3 million, that were incurred in 1994, 1995, 1996, 1997 and 1998,
respectively; (b) a profit on disposal of operations of L17.8 million and
L20.8 million in 1996 and 1997 respectively; (c) costs relating to the
fundamental reorganization of Cordiant as a result of the demerger of
L33.0 million in 1997 (details of (b) and (c) are set out in Note 2 and 6 in
the Notes to Consolidated Financial Statements incorporated by reference
into this proxy statement/prospectus); and (d) a loss on disposal of
operations of L34.3 million in 1995.
(4) Due to a recent change in U.K. accounting practice pursuant to Financial
Reporting Standard No.12, Cordiant has discounted its property provision for
the purposes of U.K. GAAP. The exercise required to restate the U.K. GAAP
numbers has revealed a number of inconsistencies in the calculation of the
discount of property provisions under U.S. GAAP. The U.S. GAAP numbers have
been restated to correct these inconsistencies. In addition a correction has
been made in 1998 to the deferred compensation adjustment.
HEALTHWORLD
The following selected consolidated financial data:
- as of and for the years ended December 31, 1996, 1997 and 1998 have been
derived from Healthworld's audited Consolidated Financial Statements which
are included elsewhere in this proxy statement/prospectus and should be
read in conjunction with those Consolidated Financial Statements and notes
thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations;
- as of and for the nine months ended September 30, 1998 and 1999 have been
derived from Healthworld's unaudited interim Consolidated Financial
Statements, which are included elsewhere in this proxy
statement/prospectus and should be read in conjunction with those
Consolidated Financial Statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations;
and
- as of and for the year ended December 31, 1994 and as of December 31, 1995
have been derived from Healthworld's audited Consolidated Financial
Statements not included herein.
12
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenues............................................. $13,081 $16,767 $24,209 $35,292 $63,677 $45,784 $54,815
------- ------- ------- ------- ------- ------- -------
Operating expenses
Salaries and related costs......................... 7,890 9,857 15,733 24,186 47,296 34,747 39,973
Other operating expenses........................... 3,385 4,015 4,581 5,427 8,450 5,702 7,398
Depreciation and amortization...................... 328 410 627 849 1,129 769 1,247
------- ------- ------- ------- ------- ------- -------
11,603 14,282 20,941 30,462 56,875 41,218 48,618
======= ======= ======= ======= ======= ======= =======
Income from operations............................... 1,478 2,485 3,268 4,830 6,802 4,566 6,197
Interest (expense) income, net....................... (14) (2) (69) 86 642 551 452
------- ------- ------- ------- ------- ------- -------
Income before provision for income taxes and minority
interests.......................................... 1,464 2,483 3,199 4,916 7,444 5,117 6,649
Provision for income taxes........................... 136 283 524 719 2,976 2,156 2,875
Minority interests in net earnings of subsidiary..... 39 68 124 192 42 32 18
------- ------- ------- ------- ------- ------- -------
Net income........................................... $ 1,289 $ 2,132 $ 2,551 $ 4,005 $ 4,426 $ 2,929 $ 3,756
======= ======= ======= ======= ======= ======= =======
Pro forma information (1):
Net income......................................... $ 1,289 $ 2,132 $ 2,551 $ 4,005 $ 4,426 $ 2,929 $ 3,756
Pro forma adjustment for income taxes.............. 477 755 781 1,304 -- -- --
------- ------- ------- ------- ------- ------- -------
Pro forma net income............................... $ 812 $ 1,377 $ 1,770 $ 2,701 $ 4,426 $ 2,929 $ 3,756
======= ======= ======= ======= ======= ======= =======
Pro forma per share information (1):
Net income per common share:
Basic.............................................. $ 0.17 $ 0.29 $ 0.37 $ 0.54 $ 0.60 $ 0.40 $ 0.50
------- ------- ------- ------- ------- ------- -------
Diluted............................................ $ 0.17 $ 0.29 $ 0.37 $ 0.54 $ 0.58 $ 0.39 $ 0.49
------- ------- ------- ------- ------- ------- -------
Net income per share information:
Net income per common share:
Basic.............................................. $ 0.27 $ 0.45 $ 0.54 $ 0.80 $ 0.60 $ 0.40 $ 0.50
------- ------- ------- ------- ------- ------- -------
Diluted............................................ $ 0.27 $ 0.45 $ 0.54 $ 0.79 $ 0.58 $ 0.39 $ 0.49
------- ------- ------- ------- ------- ------- -------
Common Shares used in computing per share amounts:
Basic.............................................. 4,741 4,741 4,741 5,037 7,415 7,415 7,568
------- ------- ------- ------- ------- ------- -------
Diluted............................................ 4,741 4,741 4,741 5,047 7,592 7,607 7,729
------- ------- ------- ------- ------- ------- -------
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- -------------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital....................... $ 2,391 $ 3,904 $ 4,132 $18,953 $ 9,534 $ 4,304
Total assets.......................... 13,913 16,688 20,536 41,809 50,871 79,539
Long-term debt, including current
portion............................. 733 1,223 1,419 1,156 384 0
Stockholders' equity.................. 3,880 5,235 6,372 24,766 29,201 41,221
- ------------------------
(1) Gives pro forma effect to C corporation taxation for Girgenti, Hughes,
Butler & McDowell, Inc., a subsidiary of Healthworld Corporation, and its
affiliated entities for the years ended December 31, 1994, 1995, 1996 and
1997.
13
SUMMARY UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Cordiant and Healthworld are providing the following unaudited pro forma
condensed combined financial information to give you a better picture of what
the results of operations and financial position of the combined businesses of
Cordiant and Healthworld might have looked like had the merger occurred on an
earlier date. The unaudited pro forma condensed combined financial information
is provided for illustrative purposes only and does not purport to represent
what the actual results of operations or the financial position of the combined
company would have been had the merger occurred on the respective dates assumed,
nor is it necessarily indicative of the combined company's future operating
results, combined financial position or dividend payment policies.
Please see "UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION"
for a more detailed explanation of this analysis. In addition, the unaudited pro
forma condensed combined financial information should be read in conjunction
with the selected historical consolidated financial data of Cordiant, the
selected historical consolidated financial data of Healthworld, management's
discussion and analysis of financial condition and results of operations and the
audited and unaudited financial statements of Cordiant (with the notes thereto)
incorporated by reference into this proxy statement/prospectus, and management's
discussion and analysis of financial condition and results of operations and the
audited and unaudited financial statements of Healthworld, with the notes
thereto, appearing elsewhere in this proxy statement/prospectus.
Basis of Preparation
The unaudited pro forma condensed combined financial information has been
prepared in accordance with U.K. GAAP, which differs from U.S. GAAP. In the
unaudited pro forma consolidated financial information, Healthworld's financial
position and results of operations have been adjusted to U.K. GAAP and
translated into pounds sterling, as described in the notes to the unaudited pro
forma condensed combined financial information contained herein.
Cordiant intends to account for the transaction using the acquisition method
of accounting under U.K. GAAP and the purchase method under U.S. GAAP. The
unaudited pro forma condensed combined financial information has been prepared
on this basis.
The unaudited pro forma condensed combined financial information of Cordiant
gives effect to the transaction between Cordiant and Healthworld as if such
transactions were consummated on June 30, 1999, in the case of the unaudited pro
forma condensed combined balance sheet and on January 1, 1998, in the case of
the unaudited pro forma condensed combined statement of operations for the six
months ended June 30, 1999 and the year ended December 31, 1998.
14
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED
JUNE 30, 1999
(IN MILLIONS, EXCEPT PER
SHARE DATA)
----------------------------
PRO FORMA PRO FORMA
L $
---------------- ---------
Turnover
Group and share of joint ventures........................... L1,010.7 $1,596.8
Less: share of joint ventures............................... (201.4) (318.2)
---------------- --------
Group Turnover.............................................. 809.3 1,278.6
================ ========
Group and share of joint ventures........................... 189.6 299.5
Less: share of joint ventures............................... (10.0) (15.8)
---------------- --------
Commission and fee income................................... 179.6 283.7
Operating and administration expenses....................... (161.7) (255.5)
Depreciation................................................ (5.2) (8.2)
---------------- --------
Operating profit............................................ 12.7 20.0
Share of operating profits:
Joint venture............................................... 1.4 2.2
Associated undertakings..................................... 0.8 1.3
---------------- --------
Profit before interest and taxation......................... 14.9 23.5
Net interest payable and similar charges.................... (1.0) (1.7)
FRS 12--finance charge...................................... (0.6) (0.9)
---------------- --------
Profit before taxation...................................... 13.3 20.9
Taxation.................................................... (4.8) (7.5)
---------------- --------
Profit after taxation....................................... 8.5 13.4
Minority interests.......................................... (0.8) (1.3)
---------------- --------
Net profit.................................................. 7.7 12.1
Dividend proposed on equity shares.......................... -- --
---------------- --------
Profit retained for year.................................... L7.7 $ 12.1
================ ========
Earnings per ordinary share
--Basic................................................... 2.8p
--Diluted................................................. 2.6p
Weighted average number of shares outstanding
--Basic................................................... 280.0
--Diluted................................................. 293.3
15
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED
DECEMBER 31, 1998
---------------------------
(IN MILLIONS, EXCEPT PER
SHARE DATA)
PRO FORMA PRO FORMA
--------------- ---------
L $
Turnover
Group and share of joint ventures........................... L1,920.6 $3,034.5
Less: share of joint ventures............................... (281.8) (445.2)
--------------- --------
Group Turnover.............................................. 1,638.8 2,589.3
=============== ========
Group and share of joint ventures........................... 356.3 563.0
Less: share of joint ventures............................... (14.2) (22.5)
--------------- --------
Commission and fee income................................... 342.1 540.5
Operating and administration expenses....................... (301.4) (476.2)
Depreciation................................................ (10.7) (16.9)
--------------- --------
Operating profit............................................ 30.0 47.4
Share of operating profits:
Joint venture............................................... 1.4 2.2
Associated undertakings..................................... 1.2 1.9
--------------- --------
Profit before interest and taxation......................... 32.6 51.5
Net interest payable and similar charges.................... (2.3) (3.6)
FRS 12--finance charge...................................... (1.2) (1.9)
--------------- --------
Profit before taxation...................................... 29.1 46.0
Taxation.................................................... (11.1) (17.5)
--------------- --------
Profit after taxation....................................... 18.0 28.5
Minority interests.......................................... (1.7) (2.7)
--------------- --------
Net profit.................................................. 16.3 25.8
Dividend proposed on equity shares.......................... (3.1) (4.9)
--------------- --------
Profit retained for year.................................... L13.2 $ 20.9
=============== ========
Earnings per ordinary share
--Basic................................................. 5.9p
--Diluted............................................... 5.9p
Weighted average number of shares outstanding
--Basic................................................. 276.3
--Diluted............................................... 277.2
16
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
AS OF JUNE 30, 1999
---------------------
(IN MILLIONS)
PRO FORMA PRO FORMA
--------- ---------
L $
ASSETS
Current assets:
Cash and short-term deposits................................ L87.5 $138.2
Short-term Investments...................................... 0.8 1.3
Accounts and other receivables, prepayments and accrued
income.................................................... 254.4 402.0
Billable production......................................... 19.9 31.4
----- ------
Total current assets...................................... 362.6 572.9
----- ------
Long-term assets:
Long-Term Investments....................................... 9.1 14.4
Accounts and other receivables, prepayments and accrued
income.................................................... 23.2 36.7
Restricted cash............................................. 3.0 4.7
Property and equipment, net................................. 28.9 45.7
Goodwill, net............................................... 164.1 259.2
----- ------
Total assets.............................................. 590.9 933.6
===== ======
LIABILITIES
Current liabilities:
Bank loans, overdrafts and other loans...................... 36.6 57.8
Accounts payable, other liabilities and accrued expenses.... 317.5 501.5
----- ------
Total current liabilities................................. 354.1 559.3
----- ------
Long-term liabilities:
Accounts payable, other liabilities and accrued expenses.... 17.2 27.2
Provision for joint venture deficit......................... 14.6 23.1
Property, pension and other provisions...................... 44.6 70.5
Long-term debt.............................................. 39.4 62.3
Deferred taxation........................................... 1.3 2.1
Taxation.................................................... 19.1 30.2
Minority interests.......................................... 3.5 5.5
----- ------
Total liabilities......................................... 493.8 780.2
----- ------
NET ASSETS/(LIABILITIES).................................. 97.1 153.4
===== ======
17
WHERE YOU CAN FIND MORE INFORMATION
Cordiant files annual and special reports and other information, and
Healthworld files annual, quarterly and special reports, proxy statements and
other information with the SEC. You may read and copy any reports, statements or
other information on file at the SEC's public reference room located at 450
Fifth Street, NW, Washington, D.C. 20549 or at one of the SEC's other public
reference rooms in New York, New York and Chicago, Illinois. Please call the SEC
at 1-800-SEC-0330 for further information on the public reference rooms. The SEC
filings are also available to the public from commercial document retrieval
services and, for the Healthworld filings and the registration statement of
which this document forms a part, at the Internet world wide web site maintained
by the SEC at WWW.SEC.GOV.
Cordiant has filed a registration statement on Form F-4 to register with the
SEC the Cordiant ordinary shares and the Cordiant ordinary shares underlying
Cordiant ADSs which Healthworld stockholders will receive in the merger and a
registration statement on Form F-6 to register with the SEC the Cordiant ADSs.
This proxy statement/prospectus is a part of the registration statement on
Form F-4 and constitutes a prospectus of Cordiant, as well as being a proxy
statement of Healthworld for its special meeting.
The SEC permits Cordiant to "incorporate by reference" information into this
proxy statement/ prospectus. This means that Cordiant can disclose important
information to you by referring you to another document filed separately with
the SEC. The information incorporated by reference is deemed to be part of this
proxy statement/prospectus, except for any information superseded by information
contained directly in this proxy statement/prospectus.
This proxy statement/prospectus incorporates by reference the documents set
forth below that have been previously filed by Cordiant with the SEC. These
documents contain important information about Cordiant and its financial
condition.
FILEINO. 1-10086INGS DATE
- --------------------------------------------- ---------------------------------------------
Annual Report on Form 20-F Year ended December 31, 1998
Current Reports on Form 6-K Filed on June 30, 1999, November 15, 1999 and
December 15, 1999
Cordiant also incorporates by reference into this proxy statement/prospectus
additional documents that it may file with the SEC from the date of this proxy
statement/prospectus to the date of the Healthworld special meeting. These
include reports such as Annual Reports on Form 20-F and any Current Reports on
Form 6-K so designated.
Cordiant ADSs are listed on the NYSE. Healthworld common stock is listed on
the Nasdaq Stock Market. Cordiant ordinary shares and any ordinary shares
underlying Cordiant ADSs are admitted to the Official List of the London Stock
Exchange. You may inspect any periodic reports and other information filed with
the SEC by Cordiant at the offices of the NYSE, 20 Broad Street, New York, New
York 10005, and in the case of Healthworld, at the offices of The Nasdaq Stock
Market at 1735 K Street, N.W., Washington, D.C. 20006-1506.
After the merger, the additional Cordiant ADSs to be issued in the merger
will be listed on the NYSE. The additional Cordiant ordinary shares to be issued
in the merger will be admitted to the Official List of the London Stock
Exchange.
If you are a Cordiant shareholder, you may have been sent some of the
documents incorporated by reference. You can obtain any of them through Cordiant
or the SEC. Documents incorporated by reference are available without charge,
excluding all exhibits unless an exhibit has been specifically incorporated by
reference into this proxy statement/prospectus. Stockholders may obtain
documents
18
incorporated by reference into this proxy statement/prospectus by requesting
them in writing, or by telephone, from the appropriate company at the following
addresses:
Cordiant Communications Group plc Healthworld Corporation
121-141 Westbourne Terrace 100 Avenue of the Americas
London W2 6JR United Kingdom New York, New York 10013
Telephone: 44-20-7262-4343 Telephone: (212) 625-4202
Web site: www.ccgww.com Attn: Patti Doyen
Attn: Rebecca Taylor
If you would like to request documents from Cordiant or Healthworld, please
do so by February 16, 2000 to receive them before the Healthworld special
meeting.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN, OR INCORPORATED BY
REFERENCE INTO, THIS PROXY STATEMENT/PROSPECTUS TO VOTE ON THE TRANSACTIONS. NO
ONE HAS BEEN AUTHORIZED TO PROVIDE YOU WITH INFORMATION THAT IS DIFFERENT FROM
WHAT IS CONTAINED IN, OR INCORPORATED BY REFERENCE INTO, THIS PROXY
STATEMENT/PROSPECTUS. THIS PROXY STATEMENT/PROSPECTUS IS DATED FEBRUARY 7, 2000.
YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED IN, OR INCORPORATED BY
REFERENCE INTO, THIS PROXY STATEMENT/ PROSPECTUS IS ACCURATE AS OF ANY DATE
OTHER THAN THAT DATE, AND NEITHER THE MAILING OF THIS PROXY STATEMENT/PROSPECTUS
TO STOCKHOLDERS NOR THE ISSUANCE OF CORDIANT ADSS OR ORDINARY SHARES IN THE
MERGER SHALL CREATE ANY IMPLICATION TO THE CONTRARY.
19
RISK FACTORS RELATING TO THE MERGER
EXPECTED BENEFITS FROM THE CORDIANT/HEALTHWORLD COMBINATION MAY NOT BE REALIZED
Cordiant and Healthworld entered into the merger agreement with the
expectation that the merger will result in cost savings and revenue
enhancements. There can be no assurance that the combined company will realize
these anticipated benefits in full or at all. If the expected benefits are not
realized, the price of the Cordiant ADSs and the Cordiant ordinary shares could
be adversely affected.
CORDIANT'S AND HEALTHWORLD'S BUSINESSES MAY NOT BE SUCCESSFULLY COMBINED
The merger involves the combining of the businesses of Healthworld and
Cordiant that have previously operated separately. This involves a number of
risks, including:
- demands on management related to the significant increase in size of
Cordiant after the merger, including the combining of operations resulting
from Cordiant's and Healthworld's recent acquisitions;
- the diversion of management's attention to the combining of operations;
- difficulties in the combining of operations and systems;
- difficulties in the assimilation and retention of employees;
- challenges in keeping clients; and
- potential adverse short-term effects on operating results.
THE STOCKHOLDER AGREEMENTS BETWEEN CORDIANT AND CERTAIN EXECUTIVE OFFICERS OF
HEALTHWORLD AND PROVISIONS OF THE MERGER AGREEMENT MAY DISCOURAGE OTHER
COMPANIES FROM TRYING TO COMBINE WITH HEALTHWORLD
Certain executive officers of Healthworld (some of whom are also directors)
and their affiliates, who collectively own approximately 63% of the outstanding
Healthworld common stock, have agreed to vote in favor of the merger and against
any competing transaction. These stockholders have also granted Cordiant an
option to purchase all of their shares of Healthworld common stock in the event
that, among other reasons, the Healthworld stockholders do not approve the
merger. Accordingly, approval of the merger by Healthworld's stockholders is
assured. In addition, under the merger agreement, Healthworld's board of
directors is prohibited from participating in any discussions with respect to
any competing transaction, from withdrawing its support for the merger and from
certain other actions, except as limited in certain cases by its fiduciary
duties. The stockholder agreements and the provisions of the merger agreement
are likely to discourage other companies from trying to combine with Healthworld
in an alternative transaction which may be superior to the merger for
Healthworld's stockholders.
THE COMBINED COMPANY MAY FACE HURDLES WITH RESPECT TO MANAGEMENT OF GROWTH AND
ACQUISITION RISKS
The combined company's growth will depend on a number of factors, including
the combined company's ability to:
- maintain the high quality of the services it provides to clients;
- increase the number of services it provides to existing clients;
- recruit, motivate and retain skilled creative, technical and marketing
personnel in a highly competitive market for qualified personnel in the
marketing and communications industry; and
20
- grow through the acquisition of other communications businesses in an
environment of increased competition for acquisition candidates.
There can be no assurance that the combined company will be able to
successfully achieve all or any of these strategies for growth.
THE COMBINED COMPANY WILL BE DEPENDENT ON CERTAIN KEY CLIENTS
Each of Cordiant's and Healthworld's revenues are dependent upon the
advertising, sales and marketing expenditures of a number of key clients. Based
on the pro forma financial statements contained in this proxy
statement/prospectus, the five largest clients of the combined company are
expected to account for approximately 23% of the combined company's revenues.
The merger may cause these major clients to reassess their relationship with
Cordiant or Healthworld, as the case may be. Results of operations of the
combined company could be materially adversely affected by the loss of one or
more of its major clients.
THE COMBINED COMPANY MAY FOREGO POTENTIAL REVENUES DUE TO CLIENT CONFLICTS OF
INTEREST
Client conflicts of interest are inherent in the marketing and
communications industry due to the proprietary nature of such clients' products.
The combined company's ability to compete for new clients and assignments will
be limited by the combined company's general practice, and the practice followed
by many of the combined company's competitors, of not representing clients with
competing product lines. In addition, the combined company will often be
contractually precluded from representing companies with competing products. As
a result, the combined company may not be retained by existing, new or potential
clients with respect to certain products if the combined company provides
marketing or communications services for competing products.
THE COMBINED COMPANY WILL FACE SIGNIFICANT COMPETITION AND INCREASING INDUSTRY
CONSOLIDATION
The marketing and communications industry is highly competitive. The
combined company will compete with other marketing and communications firms,
including international and local full-service agencies and special marketing
and communications firms and other contract sales and marketing organizations. A
number of the combined company's competitors will have substantially greater
financial resources, personnel and facilities than the combined company. In
addition, if the current trend toward consolidation continues, the combined
company may face greater competition for clients. Although Cordiant and
Healthworld believe that the combined company will be able to compete on the
basis of the quality of its creative product, service, reputation and personal
relationships with clients, there can be no assurance that the combined company
will be able to maintain its competitive position in the industry.
THE COMBINED COMPANY WILL BE DEPENDENT ON KEY PERSONNEL
The combined company will be dependent on the efforts and abilities of its
senior management. The loss of the services of any of these key employees could
have a material adverse effect on the combined company. In addition, while a
number of executive officers of Cordiant and Healthworld have entered into
employment agreements and confidentiality and non-solicitation agreements with
its respective company, there is no assurance that the combined company would be
able to prevent the unauthorized disclosure or use of its knowledge, practices,
procedures or client lists.
THE VALUE OF THE CORDIANT SHARES TO BE RECEIVED AS CONSIDERATION BY THE
HEALTHWORLD STOCKHOLDERS MAY FLUCTUATE PRIOR TO THE MERGER
The actual number of Cordiant ADSs or ordinary shares to be exchanged for
Healthworld common stock by Cordiant in the merger will be determined by a
formula based upon the average of
21
the price of Cordiant ordinary shares and the average of the U.S. dollar/British
pound sterling exchange rate, both calculated during a specified period ending
three days prior to the special meeting at which Healthworld's stockholders will
vote upon the merger. These factors can be expected to vary from the date of the
merger agreement to the time of the merger due to changes in the business,
operations or prospects of Cordiant, general market and economic conditions and
other factors, which may have an adverse effect on the amount of consideration
to be received by you. Depending on these price/exchange rate factors, Cordiant
is expected to issue a number of Cordiant ADSs or ordinary shares for each share
of Healthworld common stock valued at between $17.00 and $23.00. If, however,
the value of Cordiant's average ordinary share price drops below 135p during the
period for determining the exchange ratio, Cordiant will have the option to
terminate the merger agreement unless Healthworld's board of directors elects to
fix the number of Cordiant ordinary shares to be received for each share of
Healthworld common stock at 7.6902 (or the corresponding number of Cordiant
ADSs). Under this circumstance, you may receive Cordiant ordinary shares with a
value of less than $17.00 for each share of Healthworld common stock (or the
corresponding number of Cordiant ADSs).
HEALTHWORLD'S EXECUTIVE OFFICERS AND DIRECTORS HAVE INTERESTS IN THE MERGER THAT
ARE IN CONFLICT WITH, ARE DIFFERENT FROM, OR ARE IN ADDITION TO THOSE OF
HEALTHWORLD'S STOCKHOLDERS
You should be aware that the executive officers of Healthworld and members
of the Healthworld board of directors have interests in the merger that are in
conflict with, are different from, or in addition to, yours as a Healthworld
stockholder. These interests include employment agreements, stock options and
continuation as executive officers of Healthworld and its subsidiaries. For
example, all of the executive officers and directors of Healthworld hold stock
options which will, except as noted below, become immediately vested and
exercisable, along with all other stock options held by Healthworld's employees,
as a result of the merger. Certain of Healthworld's executive officers (some of
whom are also directors) and their affiliates hold approximately 63% of
Healthworld's outstanding common stock and will receive a majority of the
consideration received in connection with the merger. The employment agreement
of Stuart Diamond, the chief financial officer of Healthworld, provides for
significant payments and other benefits (including, except as noted in the next
sentence, vesting of all of his Healthworld stock options) if Mr. Diamond's
employment with Healthworld is terminated under certain circumstances following
the merger. In addition, on November 8, 1999, Healthworld granted to
Mr. Diamond stock options to purchase 200,000 shares of its common stock, which
will not vest as a result of the merger. In addition, Steven Girgenti, chairman
and chief executive officer of Healthworld, entered into a new employment
agreement which will become effective at the time of the merger, providing for,
among other things, a base salary of $500,000 per annum, annual bonuses based
upon the achievement of certain performance targets, and the grant at the time
of the merger of 275,000 options under one of Cordiant's share option plans. See
"THE MERGER--Interests of Certain Persons in the Merger."
FORWARD-LOOKING STATEMENTS REGARDING BUSINESS AND OPERATIONS
OF THE COMBINED COMPANY MAY PROVE INACCURATE
Cordiant and Healthworld have made forward-looking statements in this
document and, with respect to Cordiant, in documents incorporated by reference
into this proxy statement/prospectus, concerning future performance, costs,
revenues and growth of Healthworld and/or Cordiant, industry and customer growth
and statements regarding operational efficiencies from and benefits of the
merger and estimated company earnings. These statements may generally, but not
always, be identified by the use of words such as "anticipates," "should,"
"expects" or "believes." By their nature, forward-looking statements involve
risk and uncertainty because they relate to events and depend on circumstances
that
22
will occur in the future. Many factors could cause actual results and
developments to differ materially from those expressed or implied by these
forward-looking statements. These factors include:
- the risk that the combined company will not achieve anticipated cost
savings or revenue enhancements;
- the risk that Cordiant and Healthworld will be unable to successfully
combine their businesses which have previously operated separately;
- the ability of the combined company to manage its growth and acquisition
risks;
- the potential loss of revenue due to client conflicts of the combined
company;
- changes in the economic conditions in markets served by the operations of
Cordiant and/or Healthworld which would adversely affect the level of
demand for the services provided;
- material declines in advertising expenditures resulting from, among other
things, regional, national and international political and economic
conditions, technological changes, the availability of media and
regulatory regimes in the world's advertising markets for each company;
and
- material differences in actual results from those anticipated depending
on, among other things, gains to or losses from its client base, the
amount of revenue derived from clients, the Cordiant's exposure to changes
in the exchange rates of major currencies against the pound sterling
(because a substantial portion of its revenues are derived and costs
incurred outside of the U.K.), the general level of advertising
expenditures in Cordiant's markets referred to above, and the overall
level of economic activity in Cordiant's major markets as discussed above.
23
THE SPECIAL MEETING
DATE, TIME AND PLACE OF THE SPECIAL MEETING
The special meeting of Healthworld stockholders will be held at 9:00 a.m.,
New York City time, on Wednesday, March 1, 2000, at the offices of Rosenman &
Colin LLP, 575 Madison Avenue, 11th Floor, New York, New York 10022.
MATTERS TO BE CONSIDERED AT THE SPECIAL MEETING
At the special meeting, the holders of record of shares of Healthworld
common stock will:
1. Consider and vote on a proposal to approve and adopt the Agreement and Plan
of Merger, dated as of November 9, 1999, as amended on February 3, 2000,
among Cordiant Communications Group plc, Healthworld Acquisition Corp., a
wholly-owned subsidiary of Cordiant, and Healthworld, providing for the
merger of Healthworld Acquisition Corp. with and into Healthworld. After the
merger, Healthworld will be a wholly-owned subsidiary of Cordiant. As a
result of the merger, each share of Healthworld common stock issued and
outstanding at the time of the merger will be converted into the right to
receive either Cordiant's American depositary shares or, at each Healthworld
stockholder's election, Cordiant ordinary shares. The actual number of
Cordiant ADSs or ordinary shares to be exchanged for Healthworld common
stock by Cordiant in the merger will be determined by a formula based upon
the average of the price of Cordiant ordinary shares and the average of the
U.S. dollar/British pound sterling exchange rate, both calculated during a
specified period ending three days prior to the special meeting; and
2. Consider and act upon such other matters as may properly come before the
meeting or any adjournments thereof.
RECORD DATE
Healthworld has fixed the close of business on February 4, 2000 as the
record date for the determination of Healthworld stockholders entitled to notice
of, and to vote at, the special meeting.
- All Healthworld stockholders of record at the close of business on
February 4, 2000 are entitled to notice of the Healthworld special
meeting.
- Only holders of record of Healthworld common stock at the close of
business on February 4, 2000 are entitled to vote at the special meeting.
As of February 4, 2000, there were 8,124,301 outstanding shares of
Healthworld common stock held by approximately 32 holders of record.
HOW WILL SHARES BE VOTED AT THE SPECIAL MEETING
Proxies that are properly executed by holders of Healthworld common stock,
if received in time for the special meeting and not subsequently revoked, will
be voted at the special meeting in accordance with the instructions given in the
proxies. Proxies that are properly executed but do not contain instructions with
respect to the proposal for approval of the merger will be voted "FOR" approval
of the merger.
HOLDERS OF HEALTHWORLD COMMON STOCK ARE NOT ENTITLED TO DISSENTERS' APPRAISAL
RIGHTS UNDER DELAWARE LAW WITH RESPECT TO THE MERGER. SEE "THE MERGER--ABSENCE
OF DISSENTERS' APPRAISAL RIGHTS."
Healthworld stockholders should not send stock certificates with the
enclosed proxy card. If the merger is completed, Cordiant will furnish
Healthworld stockholders with instructions for exchanging their shares of
Healthworld common stock for Cordiant ADSs or ordinary shares, as the case may
be, at that time.
HOW TO REVOKE A PROXY
If you are a stockholder holding Healthworld shares in your own name, you
may revoke a previously given proxy at any time prior to its exercise by:
- delivering, prior to the special meeting, to American Stock Transfer &
Trust Company, a written notice of revocation or a proxy having a later
date or time than the executed proxy; or
- voting in person at the special meeting.
24
If you do not hold your Healthworld shares in your own name, you may revoke
a previously given proxy by following the revocation instructions provided by
the bank, broker or other party who is the registered owner of the shares.
REQUIRED VOTE; QUORUM
Holders of a majority of Healthworld's outstanding common stock entitled to
vote must approve the merger. Each share of Healthworld common stock outstanding
on the record date is entitled to one vote. There are no other classes of voting
securities of Healthworld presently outstanding.
As of the record date, directors and executive officers of Healthworld and
their affiliates owned approximately 63% of the outstanding shares of
Healthworld common stock.
Certain executive officers of Healthworld (some of whom are also directors)
and their affiliates, who collectively own approximately 63% of the outstanding
common stock, have agreed to vote in favor of the merger and against any
competing transaction. These stockholders have also granted Cordiant an option
to purchase all of their shares of Healthworld common stock in the event that,
among other reasons, the Healthworld stockholders do not approve the merger.
Accordingly, approval of the merger by Healthworld's stockholders is assured.
Brokers and nominees are precluded from exercising their voting discretion
on the approval and adoption of the merger agreement and, for this reason,
absent specific instructions from the beneficial owner of shares of Healthworld
common stock, may not vote these shares. Shares that are not voted because
brokers did not receive instructions are referred to as "broker non-votes."
Holders of a majority in voting power of the Healthworld common stock
outstanding on the record date must be present in person or by proxy at the
special meeting to constitute a quorum. Abstentions and broker non-votes are
counted as present or represented for purposes of determining a quorum for the
special meeting. Because the affirmative vote of the holders of a majority of
the voting power of Healthworld common stock is required for approval and
adoption of the merger agreement, AN ABSTENTION, UNRETURNED PROXY OR BROKER
NON-VOTE WILL HAVE THE SAME EFFECT AS A VOTE AGAINST APPROVAL AND ADOPTION OF
THE MERGER AGREEMENT.
ABSENCE OF DISSENTERS' APPRAISAL RIGHTS
UNDER DELAWARE LAW, HOLDERS OF HEALTHWORLD COMMON STOCK DO NOT HAVE ANY
DISSENTERS' APPRAISAL RIGHTS, WHICH WOULD GIVE YOU THE RIGHT TO OBTAIN PAYMENT
IN CASH IN EXCHANGE FOR YOUR SHARES OF HEALTHWORLD COMMON STOCK AS A RESULT OF
THE MERGER. SEE "THE MERGER--ABSENCE OF DISSENTERS' APPRAISAL RIGHTS."
SOLICITATION OF PROXIES
Healthworld will bear the costs of the special meeting and of soliciting
proxies for the special meeting. Cordiant and Healthworld will share equally the
amount of the filing fees and the other expenses incurred in connection with the
cost of filing, printing and distributing this proxy statement/ prospectus. In
addition to solicitation by mail, the directors, officers and employees of
Healthworld may also solicit proxies from stockholders by telephone, facsimile,
telegram or other electronic means or in person. Healthworld will make
arrangements with brokerages and others custodians, nominees and fiduciaries to
send the proxy materials to beneficial owners, and Healthworld will reimburse
those brokerage houses and custodians for their reasonable expenses in doing so.
Morrow & Co. Inc., will assist in the solicitation of proxies by Healthworld for
a fee not to exceed $3,500 plus reasonable out-of-pocket expenses.
25
THE CORDIANT EXTRAORDINARY GENERAL MEETING
In connection with the merger, the board of directors of Cordiant has
convened an extraordinary general meeting of the shareholders of Cordiant for
March 1, 2000.
RESOLUTIONS PROPOSED
At the meeting, Cordiant will propose the following resolutions:
RESOLUTION 1--to approve the merger and to provide for the following matters
in connection with the merger:
- to increase the authorized share capital of Cordiant from L150,500,000 to
L208,000,000, by creating an additional 115,000,000 Cordiant ordinary
shares of nominal value 50p each; and
- to authorize the Cordiant board of directors to issue "relevant
securities" (as defined by the U.K. Companies Act) up to a maximum
aggregate nominal amount of L93,603,427 which is equivalent to 187,206,854
Cordiant ordinary shares.
RESOLUTION 2, which is conditioned on the completion of the merger:
- to give the Cordiant board of directors power to issue "equity securities"
(as defined by the U.K. Companies Act) for cash (1) for any rights issue
made other than in accordance with U.K. statutory preemption rights, (2)
for certain employee share and incentive plans, and (3) to satisfy
purchase price obligations in connection with acquisitions by its
subsidiaries where the consideration received by Cordiant for the share
issuance consists of cash paid by, or obligations to pay cash of, a
subsidiary.
RESOLUTION 3, which is conditioned upon completion of the merger:
- to give the Cordiant board of directors, beyond the authority given under
RESOLUTION 2, the power to issue equity securities for cash other than in
accordance with U.K. statutory preemption rights, up to an aggregate
nominal amount of L6,737,000 which is equivalent to 13,475,000 Cordiant
ordinary shares.
RESOLUTIONS REQUIRED FOR THE MERGER
The Cordiant shareholders must approve Resolution 1 in order to complete the
merger. The approval of Resolutions 2 and 3 is not required to complete the
merger, but will only become effective upon completion of the merger.
PURPOSE OF RESOLUTIONS
The resolutions described above provide for an increase in ordinary share
capital and provide authority for the Cordiant board of directors to issue
shares. The allotment authority and powers proposed to be conferred by these
resolutions described above will replace the Cordiant board of directors'
existing general issuance authority and powers, to the extent not already
utilized. The increase in the authorized share capital and the increase in the
board issuance authority will enable the board to issue Cordiant ordinary shares
pursuant to the merger agreement and maintain an appropriate level of authority
to issue additional Cordiant ordinary shares. The issuance authority will expire
on the date of the Annual General Meeting of Cordiant held in 2000, or on
October 7, 2000, if earlier, unless previously revoked, varied or renewed, and
except that issuances may be made after the time of the expiration of such
authority for any applicable agreements entered into prior to such expiration.
26
THE MERGER
BACKGROUND OF THE MERGER
Healthworld's business strategy has, in part, been to grow in order to
capitalize on continued growth in marketing and communications spending by
pharmaceutical and other healthcare companies. Healthworld has pursued this
strategy of growth internally and through carefully selected acquisitions. The
management of Healthworld explored potential acquisitions and joint ventures as
part of its day-to-day operations and, since 1998, Healthworld has acquired four
companies. The Healthworld board of directors has, in the past, evaluated
additional strategic alternatives and opportunities to enhance and maximize
stockholder value, including the possible sale of Healthworld or a merger. These
strategic alternatives and opportunities were either identified internally or
resulted from unsolicited inquiries.
Between January and April 1998, on several occasions, in light of the
complementary strengths of Cordiant and Healthworld in professional and consumer
healthcare marketing and communications businesses, Michael Bungey, chief
executive officer of Cordiant and Steven Girgenti, chairman and chief executive
officer of Healthworld, explored possible commercial arrangements involving the
mutual cross referral of business between the healthcare operations of Cordiant
and Healthworld for areas of business in which the referring company was not
suited to serve the referred client adequately. The discussions were conceptual
only, and no subsequent steps were taken.
In June 1998, Mr. Bungey and Mr. Girgenti met and discussed, for the first
time, the possibility of a more formal alliance involving a joint venture or
minority equity investment by either party. Again, the discussions were
conceptual only and, at this stage, no detailed proposals were considered.
Throughout the course of the next year, Cordiant and Healthworld maintained an
informal relationship consisting of occasional mutual business cross referrals.
On July 15, 1999, Mr. Bungey and Mr. Girgenti met to discuss an extension of
the informal Cordiant and Healthworld business relationship. During the course
of this meeting, the possibility of Cordiant acquiring Healthworld for shares
was raised by Cordiant. The discussion was again conceptual and did not result
in a detailed proposal.
On July 28, 1999, Mr. Bungey and Art D'Angelo, finance director of Cordiant,
met with Mr. Girgenti and Stuart Diamond, chief financial officer of
Healthworld, to discuss the concept of Cordiant acquiring Healthworld. Cordiant
proposed acquiring 100% of Healthworld for stock. The discussion was
inconclusive on many important issues and did not result in the formation of a
combination proposal.
On August 3, 1999, Cordiant and Healthworld entered into a confidentiality
agreement. Thereafter, each party commenced a preliminary due diligence review
of the other party and provided certain non-public information to the other
concerning its respective operations.
On August 19, 1999, Mr. Bungey and Mr. Girgenti met to discuss how
Healthworld would operate within Cordiant in the event that Healthworld was
acquired by Cordiant. Mr. Bungey and Mr. Girgenti agreed that, if the potential
transaction was completed, Healthworld would become a new division of Bates
Worldwide and the healthcare marketing agencies of the two companies would be
combined operationally.
On August 25, 1999, Mr. Bungey and Andrew Boland, investor relations
director for Cordiant, together with Cordiant's financial advisor, Warburg
Dillon Read, met with Mr. Girgenti and Mr. Diamond to explain Cordiant's
business strategy, the stock market's perspective on Cordiant and the potential
benefits to Cordiant of entering into a stock for stock transaction with
Healthworld. The terms of Cordiant's proposal were not discussed at this
meeting.
On August 27, 1999, Cordiant sent a letter to Healthworld indicating an
interest in acquiring Healthworld for Cordiant ordinary shares at a value of
$18.50 per share of Healthworld common stock,
27
subject to, among other things, the completion of satisfactory due diligence,
the agreement of Healthworld's management to vote their shares of Healthworld
common stock in favor of the transaction and the execution of a binding merger
agreement.
During the week following Cordiant's indication of interest, Healthworld
retained Bear Stearns as its financial advisor in connection with the possible
sale of Healthworld to, or combination of Healthworld with, another entity,
including Cordiant.
In the first half of September 1999, Healthworld's management had a number
of meetings or discussions with various members of Healthworld's board of
directors, Bear Stearns and Healthworld's outside legal counsel, Rosenman &
Colin LLP, to review various aspects of Cordiant's proposal and indication of
interest. During the period, Bear Stearns had several discussions with Warburg
Dillon Read regarding the terms of the Cordiant proposal. In order to maximize
stockholder value, Healthworld's management indicated that an effort should be
made to determine if a higher price for Healthworld could be obtained. To assist
in this process, Healthworld's management, with the assistance of Bear Stearns,
identified certain major marketing and communications companies that
Healthworld's management viewed as credible potential acquirers in that the
companies identified were, to the knowledge of Healthworld's management,
financially able to propose an alternative transaction which would be
competitive with, or superior to, Cordiant's proposal and were a strategically
good fit. Healthworld's management authorized Bear Stearns to approach these
identified companies to explore whether any of these companies were interested
in acquiring, or merging with, Healthworld.
On September 13, 1999, the board of directors held a meeting at which Bear
Stearns was present. At the meeting, Healthworld's management and Bear Stearns
discussed Cordiant's proposal of merger with the board. The board of directors
ratified management's decision to authorize Bear Stearns to explore whether
acceptable alternative acquirers identified by Healthworld's management were
interested in acquiring, or merging with, Healthworld and, if so, the general
terms of any such alternative transactions.
Between September 14, 1999, and September 24, 1999, Bear Stearns made
inquiries to the identified companies as to whether any of the companies were
interested in acquiring, or merging with, Healthworld. Bear Stearns reported
during the period that one entity contacted by Bear Stearns informally expressed
interest but at a maximum price level and with conditions that were deemed by
Healthworld management to be inferior to Cordiant's written proposal. None of
the other entities contacted by Bear Stearns expressed an interest to acquire,
or merge with, Healthworld.
On September 24, 1999, Mr. Girgenti, Mr. Diamond and Alex Spizz, a member of
the board of directors of Healthworld, Bear Stearns and Rosenman & Colin, met
with Mr. Bungey, Mr. D'Angelo, Warburg Dillon Read and Cordiant's outside legal
counsel, White & Case LLP, to negotiate the terms of the proposed acquisition by
Cordiant of Healthworld. At this meeting Cordiant indicated that as a condition
to going forward it must have a 30-day period of exclusivity to conduct due
diligence and negotiate the terms of a definitive merger agreement with
Healthworld. In addition, Cordiant stated that prior to entering into any merger
agreement with Healthworld, stockholders owning more than 50 percent of the
outstanding shares of Healthworld must enter into agreements with Cordiant
pursuant to which they agreed to vote in favor of the merger. Healthworld, on
the other hand, indicated to Cordiant that as a condition to any exclusivity
period, Cordiant needed to increase its proposed offer and provide Healthworld's
stockholders with certain price protections in the form of a "collar". After
lengthy negotiations, the key terms agreed to in principle at this meeting were:
- a stock-for-stock exchange structure;
- an exchange mechanism that would provide Healthworld's stockholders with a
value of $20 at the time the merger agreement was signed and a "collar"
that was generally intended to provide Healthworld's stockholders with a
value between $17 and $23 per share at the time of the
28
merger, depending on the price of Cordiant ordinary shares and the
exchange rate at around that time;
- Healthworld to obtain from certain significant Healthworld stockholders
(who were executive officers of Healthworld and, in some cases, also
directors of Healthworld) who, in the aggregate, owned more than a
majority of Healthworld's common stock, agreements to vote in favor of the
merger and to grant Cordiant an option to purchase those shares in the
event the significant stockholder did not vote as directed (other general
terms of each stockholder agreement to be negotiated directly with each
significant stockholder);
- A lock-up term and orderly marketing arrangements for the shares
Mr. Girgenti would receive in the merger;
- Healthworld using its reasonable efforts to have the significant
Healthworld stockholders agree to lock-up terms and orderly marketing
arrangements for the shares of Cordiant which each of them would receive
in the merger (the lock up terms and arrangements to be negotiated
directly with each significant stockholder); and
- Subject to the approval of its board of directors, Healthworld granting
Cordiant a 30-day period of exclusivity to conduct due diligence and
negotiate the terms of a definitive merger agreement with Healthworld.
On September 29, 1999, Healthworld received written confirmation of the
revised proposal from Cordiant and the Healthworld board of directors held a
telephonic meeting at which Bear Stearns and Rosenman & Colin were present. Bear
Stearns reported on the status of the negotiations with Cordiant and the results
of its inquiries to other potential acquirers.
On September 30, 1999, the Healthworld board of directors held a telephonic
board meeting at which Bear Stearns and Rosenman & Colin were present. Bear
Stearns and Rosenman & Colin explained to the board that Cordiant wanted
assurance from Healthworld in the form of an exclusivity agreement that it would
not sell or attempt to sell or negotiate to sell Healthworld with any other
party other than Cordiant or provide information to any party other than
Cordiant in connection with the sale of Healthworld for a period of 30 days in
order to give Cordiant time to evaluate a merger with Healthworld. Healthworld's
board of directors authorized Healthworld to enter into a 30-day exclusivity
agreement.
On October 6, 1999, Healthworld executed the 30-day exclusivity agreement
which was to expire on November 5, 1999.
On October 13 and 14, 1999, Cordiant's management, Warburg Dillon Read and
KPMG, Cordiant's independent accountants, met with senior executive officers and
other officers of Healthworld and its subsidiaries, both in New York and London,
to conduct financial and business due diligence on Healthworld.
Between October 15 and 24, 1999, White & Case, Warburg Dillon Read and KPMG
continued to conduct legal, business and financial due diligence on Healthworld
and Healthworld, Bear Stearns, Rosenman & Colin and Arthur Andersen,
Healthworld's independent accountants, conducted legal, business and financial
due diligence on Cordiant.
Between October 25 and November 5, 1999, Cordiant's and Healthworld's
managements and their respective legal counsel and financial advisors continued
to discuss and negotiate the terms of the proposed merger and the merger
agreement as well as the stockholder agreements to be entered into by the
significant Healthworld stockholders. Concurrently, each party continued with
their mutual legal and financial due diligence review.
On October 31, 1999, the board of Cordiant met to review the proposed
transaction and the current status of the ongoing negotiations and to receive an
update on the status of the due diligence.
29
Warburg Dillon Read and KPMG were present at the board meeting by telephone. The
board of Cordiant resolved to proceed with the merger and to appoint a committee
of the board to approve entering into the transaction, subject to satisfactory
final due diligence, and to approve the terms of the merger documentation.
Between November 3, 1999 and November 7, 1999, Cordiant's and Healthworld's
managements and their respective legal and financial advisors continued to
negotiate the terms of the merger agreement and the stockholder agreements,
including the negotiation of the initial exchange ratio based on the value of
Cordiant's ordinary shares. In addition, Healthworld agreed to extend the
exclusivity period under the exclusivity agreement to November 12, 1999.
On November 8 and 9, 1999, Cordiant's and Healthworld's management and their
respective legal counsel finalized the terms of the merger agreement and each of
the stockholders' agreements and negotiated and finalized the terms of
Mr. Girgenti's employment agreement with the post-merger Healthworld, which is
to become effective on the date of the merger.
On November 8, 1999, Healthworld's board of directors met to review the
merger. At the Healthworld board meeting, Healthworld's executive management and
Rosenman & Colin presented key aspects of the merger transaction. Bear Stearns
presented its financial analysis of the transaction and delivered orally its
fairness opinion, which was later confirmed in a written fairness opinion dated
as of November 8, 1999, that as of that date and based upon and subject to the
matters stated in the opinion, the exchange ratio offered by Cordiant was fair
from a financial point of view to the stockholders of Healthworld. After an
active discussion and review of numerous factors, the Healthworld board of
directors concluded that the Cordiant proposal was in the best interests of
Healthworld stockholders and voted unanimously to approve and declare advisable
the merger, the merger agreement and each of the transactions contemplated by
those agreements, and adopted a resolution recommending that the Healthworld
stockholders approve and adopt the merger agreement.
On November 8, 1999, the committee of the board of directors of Cordiant met
and approved the terms of the merger.
On the morning of November 9, 1999, the merger agreement, each of the
stockholder agreements and Mr. Girgenti's employment agreement were signed by
each of the parties and a press release was issued by each of Cordiant and
Healthworld announcing the transaction.
HEALTHWORLD REASONS FOR THE MERGER; RECOMMENDATION OF THE BOARD
At its meeting on November 8, 1999, the board of directors of Healthworld,
by unanimous vote, determined that the merger is in the best interests of
Healthworld and its stockholders, approved and declared advisable the merger and
the merger agreement and related transactions and recommended that the
stockholders of Healthworld approve and adopt the merger agreement.
In the course of reaching its determinations, the Healthworld board of
directors consulted with Healthworld's management, as well as its financial and
legal advisors. The Healthworld board of directors considered the following
material factors:
- the financial presentation and opinion of Bear, Stearns & Co. Inc. given
at the Healthworld board meeting on November 8, 1999 that, based upon the
factors set forth in its written opinion attached hereto as Appendix N,
the exchange ratio is fair from a financial point of view to the
stockholders of Healthworld. Healthworld stockholders are urged to read
the Bear Stearns opinion in its entirety;
- the Healthworld board of directors' belief that the analyses of Bear
Stearns supported the Healthworld board of directors' conclusion that the
exchange ratio is fair from a financial point of view to, and is in the
best interests of, the Healthworld stockholders, both in terms of the
30
immediate financial consideration to be received and the potential for
future appreciation in value of the Cordiant ordinary shares and ADSs;
- The following favorable terms of the merger agreement:
-- the exchange ratio provided for in the merger agreement gives
Healthworld stockholders the opportunity to receive merger
consideration that represents a premium over the price at which
Healthworld common stock was trading in the months prior to the
execution of the merger agreement;
-- the relative consideration certainty of the proposed merger resulting
from the formula for determining the exchange ratio;
-- the fact that the merger would provide holders of Healthworld common
stock with the opportunity to retain an equity interest in the combined
entity which will give Healthworld's stockholders the opportunity to
benefit from any future appreciation in value of the Cordiant ordinary
shares and ADSs;
-- the structure of the merger, which permits Healthworld's U.S.
stockholders to exchange their Healthworld common stock for Cordiant
securities on a tax-free basis; and
-- the likelihood of the consummation of the merger.
- the relative advantages of being part of a larger company, such as
economies of scale and cost savings, improved visibility and purchasing
power, and the competitive trend toward large international concerns in
the marketing and communications business;
- the perceived compatibility of people, vision and quality of work between
Cordiant and Healthworld;
- the results of operations, financial condition, competitive position and
prospects of Healthworld and Cordiant, both on a historical and future
basis and as separate and combined entities;
- management's assessment of stockholder value deriving from possible
strategic alternatives, including remaining a separate company and growing
through future acquisitions and joint ventures;
- the opportunity for Healthworld's stockholders to become shareholders of
Cordiant, which the Healthworld board recognized as one of the larger and
more diversified advertising and communications companies in the world;
and
- the greater liquidity of Cordiant's ordinary shares due to its relatively
higher trading volume in contrast to Healthworld's common stock.
The discussion above of the factors considered by the Healthworld board of
directors is not intended to be exhaustive but includes the material factors
considered by the Healthworld board. In view of the wide variety of factors
considered by the Healthworld board of directors in connection with its
evaluation of the merger and the complexity of these matters, the Healthworld
board of directors did not consider it practical, and did not attempt, to
quantify, rank or otherwise assign relative weights to the specific factors
considered in reaching its decision. The Healthworld board of directors
conducted a discussion of the factors described above, including asking
questions of Healthworld's management and Healthworld's legal and financial
advisors, and reached unanimous consensus that the merger was in the best
interests of Healthworld and the Healthworld stockholders. In considering the
factors described above, individual members of the Healthworld board may have
given different weight to different factors. The Healthworld board relied on the
experience and expertise of its financial advisor for quantitative analysis of
the financial terms of the merger. See "Opinion of Healthworld's Financial
Advisor."
31
THE BOARD OF DIRECTORS OF HEALTHWORLD HAS UNANIMOUSLY APPROVED THE MERGER
AGREEMENT, THE MERGER AND EACH OF THE TRANSACTIONS CONTEMPLATED THEREBY AND
DECLARED THEIR ADVISABILITY. ACCORDINGLY, THE BOARD OF DIRECTORS OF HEALTHWORLD
UNANIMOUSLY RECOMMENDS THAT YOU VOTE "FOR" THE APPROVAL AND ADOPTION OF THE
MERGER AGREEMENT.
CORDIANT'S REASONS FOR THE MERGER
Cordiant's directors believe that the merger provides Cordiant with the
following benefits:
OPPORTUNITY TO BUILD THE LEADING GLOBAL HEALTHCARE MARKETING
NETWORK. Cordiant currently operates healthcare marketing agencies in the
United States, the United Kingdom, Italy and Australia under the Healthcom
brand. Healthcom focuses on marketing products to healthcare professionals.
Cordiant also services some of the world's largest healthcare companies through
Bates Worldwide, its global advertising network. Bates Worldwide provides
expertise in DTC advertising for prescription drugs in the United States and
marketing over-the-counter products to consumers internationally.
The merger will enable the combined company to:
- combine Healthworld's expertise in professional and consumer channels with
Cordiant's multinational pharmaceutical experience;
- offer a wider range of services to clients of the combined company;
- utilize Cordiant's global network to enhance Healthworld's geographic
presence; and
- provide Healthworld with the resources to expand its specialist healthcare
network
Cordiant intends to leverage its enlarged base of healthcare clients by creating
a global healthcare marketing network. Cordiant currently operates in over 70
countries and will utilize this global platform and office infrastructure to
develop Healthworld internationally.
ACCELERATION IN MEETING CORDIANT'S STRATEGIC OBJECTIVES. Cordiant has set
itself three strategic objectives designed to position its business for
profitable growth. By the end of 2000, it aims to have grown:
- marketing services to 30% of total revenues;
- multinational clients to 40% of total revenues; and
- North American revenues to 30% of its business.
The acquisition of Healthworld is expected to accelerate the achievement of
these objectives.
INCREASED PARTICIPATION IN THE HIGH GROWTH HEALTHCARE MARKETING SECTOR. The
merger will increase Cordiant's exposure to the specialist market for healthcare
marketing and promotional services, the growth rate of which has outstripped the
advertising market as a whole over the last three years. This growth is being
driven by three principal factors:
- the growth in new products coming to market;
- increased drug usage; and
- the increasing focus of pharmaceutical companies to maximize return on
investment.
GREATER EXPOSURE TO MARKETING SERVICES. The acquisition of Healthworld will
increase Cordiant's business in marketing services in both the healthcare sector
and in consumer product markets. Marketing services are growing at a faster rate
than traditional major media advertising, driven by clients' needs to target
specific market segments, to measure returns more effectively and to obtain an
integrated marketing solution.
32
Healthworld's wholly owned subsidiary, Milton Headcount, is the fifth
largest field marketing company in the United Kingdom, providing major consumer
product clients with strategic and tactical field marketing, merchandising,
in-store training, audits and database management. 141 Worldwide, Cordiant's
marketing service network, has been built over the last three years into a
global business with offices in over 40 countries, representing 22% of
Cordiant's total revenues in the year ended December 31, 1998. The combination
of Milton Headcount's expertise in consumer field marketing with 141 Worldwide's
direct marketing and promotion capabilities will allow Cordiant to offer an
enhanced range of marketing services to clients.
FURTHER OPPORTUNITIES TO GROW REVENUES FROM MULTI-NATIONAL CLIENTS. The
merger will enhance Cordiant's multinational client base, and provide
opportunities to offer a wider range of services to clients of the combined
company. Healthcare marketing is becoming an increasingly global business as
pharmaceutical companies seek to maximize returns on research by marketing on a
worldwide basis. Cordiant intends to create a global healthcare marketing
network to exploit this trend.
LARGER REVENUE BASE IN THE NORTH AMERICAN MARKET. Cordiant is currently
under-represented in the important North American market, which represented 24%
of Cordiant's revenues during the year ended December 31, 1998, compared to a
total industry weighting of 39%. The merger will significantly increase
Cordiant's business in North America. Healthworld generated revenues in North
America of $28 million during the 12 months ended September 30, 1999.
EARNINGS ENHANCEMENT. The acquisition of Healthworld is expected to be
earnings enhancing in the first full year of ownership by Cordiant.
Cordiant expects to achieve annual pre-tax cost savings of at least
L1.5 million by combining the Healthworld and existing Cordiant healthcare
agency operations and by eliminating costs associated with operating Healthworld
as a public company.
OPINION OF HEALTHWORLD'S FINANCIAL ADVISORS
At the November 8, 1999 meeting of the Healthworld board of directors, Bear
Stearns delivered its oral opinion (subsequently confirmed in writing) that the
exchange ratio to be provided for in the merger is fair, from a financial point
of view, to the public stockholders of Healthworld.
THE FULL TEXT OF THE BEAR STEARNS OPINION, WHICH SETS FORTH THE ASSUMPTIONS
MADE, MATTERS CONSIDERED AND QUALIFICATIONS AND LIMITATIONS ON THE REVIEW
UNDERTAKEN BY BEAR STEARNS, IS ATTACHED AS APPENDIX N TO THIS PROXY
STATEMENT/PROSPECTUS AND IS INCORPORATED IN THIS PROXY STATEMENT/ PROSPECTUS BY
REFERENCE. THE SUMMARY OF THE BEAR STEARNS OPINION SET FORTH IN THIS PROXY
STATEMENT/PROSPECTUS IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT
OF THE BEAR STEARNS OPINION. HEALTHWORLD STOCKHOLDERS ARE URGED TO READ
CAREFULLY THE BEAR STEARNS OPINION IN ITS ENTIRETY.
The Bear Stearns opinion is intended for the benefit and use of the
Healthworld board of directors, is directed only to the fairness to the public
stockholders of Healthworld, from a financial point of view, of the exchange
ratio to be provided for in the merger, does not address the merits of the
underlying decision by Healthworld to engage in the merger and does not
constitute a recommendation to any holder of Healthworld common stock or to the
board of directors of Healthworld as to how to vote on the merger or any related
matter.
Although Bear Stearns evaluated the fairness to the public stockholders of
Healthworld, from a financial point of view, of the exchange ratio to be
provided for in the merger, such exchange ratio was determined by Healthworld
and Cordiant, through arm's-length negotiations, which determination was not
based on any recommendation by Bear Stearns. Bear Stearns did provide certain
advice to the board of directors of Healthworld from time to time during the
course of the negotiations. The board of directors of Healthworld did not
provide specific instructions to, or place any limitations upon, Bear
33
Stearns with respect to the procedures to be followed or the factors to be
considered by Bear Stearns in performing its analyses or rendering the Bear
Stearns opinion.
In connection with rendering the opinion, Bear Stearns, among other things:
- reviewed the merger agreement and the stockholder agreements;
- reviewed Healthworld's annual reports to stockholders on Form 10-K for the
years ended December 31, 1997 and 1998, and its quarterly reports on
Form 10-Q for the periods ended March 31, 1999 and June 30, 1999;
- reviewed certain operating and financial information, including
projections, provided to Bear Stearns by management of Healthworld
relating to Healthworld's business and prospects;
- met with certain members of Healthworld's senior management to discuss its
business, operations, historical and projected financial results and
future prospects;
- reviewed Cordiant's annual reports to shareholders and annual reports on
Form 20-F for the years ended December 31, 1996 through 1998 and its
current report on Form 6-K for the period ended June 30, 1999;
- reviewed certain operating and financial information relating to
Cordiant's business and prospects;
- met with certain members of Cordiant's senior management to discuss its
business, operations, and future prospects;
- reviewed estimates of cost savings and other combination benefits expected
to result from the merger, jointly prepared and provided to Bear Stearns
by the senior managements of Healthworld and Cordiant;
- reviewed the historical prices, valuation parameters and trading volumes
of the Healthworld common stock and the Cordiant ordinary shares and ADSs;
- reviewed publicly available financial data, stock market performance data
and valuation parameters of companies which Bear Stearns deemed generally
comparable to Healthworld and Cordiant;
- reviewed the terms of recent acquisitions of companies which Bear Stearns
deemed generally comparable to Healthworld;
- reviewed the pro forma financial results, financial condition and
capitalization of Cordiant, giving effect to the merger; and
- conducted such other studies, analyses, inquiries and investigations, as
Bear Stearns deemed appropriate.
In the course of its review, Bear Stearns relied upon and assumed, without
independent verification, the accuracy and completeness of the financial and
other information, including without limitation the projections and synergy
estimates, provided to it by Healthworld and analysts' consensus estimates
related to Cordiant. With respect to Healthworld's projected financial results
and the potential synergies that could be achieved upon consummation of the
merger, Bear Stearns assumed that they had been reasonably prepared reflecting
the best currently available estimates and judgments of the senior management of
Healthworld as to the expected future performance of Healthworld. Bear Stearns
did not assume any responsibility for the independent verification of any such
information or of the projections and synergy estimates provided to it. Bear
Stearns has further relied upon the assurances of the senior management of
Healthworld that they are unaware of any facts that would make the information,
projections and synergy estimates provided to Bear Stearns incomplete or
misleading.
34
In arriving at its opinion, Bear Stearns did not perform or obtain any
independent appraisal of the assets or liabilities of Healthworld and Cordiant,
nor was Bear Stearns furnished with any such appraisals. During the course of
its engagement, Bear Stearns was asked by the board of directors of Healthworld
to solicit indications of interest from various third parties regarding a
transaction with Healthworld, and Bear Stearns considered the results of such
solicitation in rendering its opinion. Bear Stearns assumed that the merger
would qualify as a tax-free "reorganization" within the meaning of
Section 368(a) of the Internal Revenue Code. Bear Stearns' opinion is
necessarily based on economic, market and other conditions, and the information
made available to it, as of the date of the opinion. Bear Stearns did not
express any opinion as to the price or range of prices at which the shares of
Healthworld common stock or Cordiant ordinary shares or ADSs may trade
subsequent to the announcement of the merger or as to the price or range of
prices at which the Cordiant ordinary shares and ADSs may trade subsequent to
the consummation of the merger.
In connection with preparing and rendering the opinion, Bear Stearns
performed a variety of valuation, financial and comparative analyses. The
summary of the analyses, as set forth below, does not purport to be a complete
description of the analyses underlying the Bear Stearns opinion. The preparation
of a fairness opinion is a complex process and is not necessarily susceptible to
summary description. Bear Stearns believes that its analyses must be considered
as a whole. Selecting portions of its analyses and the factors considered by
Bear Stearns, without considering all the factors and analyses, could create an
incomplete view of the processes underlying the opinion. Moreover, the estimates
contained in the analyses are not necessarily indicative of actual values or
predictive of future results or values, which may be significantly more or less
favorable than those suggested by the analyses. In addition, analyses relating
to the value of businesses or securities do not purport to be appraisals or
necessarily reflect the prices at which businesses or securities actually may be
sold. Accordingly, the estimates are inherently subject to substantial
uncertainties.
The following is a summary of the material valuation, financial and
comparative analyses performed by Bear Stearns in arriving at the Bear Stearns
opinion as of the date thereof.
HISTORICAL STOCK PRICE AND EXCHANGE RATIO ANALYSIS
Bear Stearns reviewed the historical closing stock prices of Healthworld
common stock and Cordiant ordinary shares, including, among others, the
six-month and one-year periods prior to November 4, 1999. Over the prior six
months, Healthworld's common stock had traded between a high of $17.50 on
November 3, 1999 and a low of $10.38 on June 15, 1999. Over the prior twelve
months, Cordiant's ordinary shares traded between a high of 202.5p on
November 4, 1999 and a low of 98.5p on November 20, 1998. Bear Stearns observed
that:
- the stock price of Healthworld was $17.25 on November 4, 1999, the date on
which the analysis was made;
- the stock price of Healthworld was $13.88 on October 6, 1999, the date of
the signing of the exclusivity agreement between Healthworld and Cordiant;
- the stock price of Healthworld was $13.38 on September 29, 1999, the date
of receipt of written confirmation of the revised proposal from Cordiant;
- the stock price of Healthworld was $14.00 on September 13, 1999, the date
of the Healthworld board of directors meeting at which the initial
proposal from Cordiant was reviewed;
- the average stock price of Healthworld was $14.04 for the three months
prior to November 4, 1999; and
- the average stock price of Healthworld was $13.18 for the six months prior
to November 4, 1999.
35
Assuming an implied purchase price of $20.00 (based on the average stock
price for Cordiant's ordinary shares of 181.4p per share for the 15 trading days
ending on November 4, 1999), the implied purchase price represented implied
premiums of 15.9%, 44.1%, 49.5%, 42.9%, 42.5% and 51.8%, respectively.
Similarly, assuming an implied purchase price of $21.89 (based on the
closing stock price for Cordiant's ordinary shares of 202.5p per share on
November 4, 1999), the implied purchase price represented implied premiums of
26.9%, 57.8%, 63.7%, 56.4%, 55.9% and 66.1%, respectively.
Bear Stearns also reviewed the historical closing stock prices of
Healthworld common stock and Cordiant ordinary shares and the implied market
exchange ratios determined by dividing the price per share of Healthworld by the
price per share of Cordiant over various periods of time including, among
others, November 4, 1999 and the periods of five trading days, ten trading days,
fifteen trading days, three months, six months and one year prior to
November 4, 1999. Bear Stearns calculated that the market exchange ratio was as
follows for the following date and time periods:
THE FIVE THE TEN THE FIFTEEN THE THREE THE SIX THE ONE
TRADING DAYS TRADING DAYS TRADING DAYS MONTHS MONTHS YEAR PRIOR
PRIOR TO PRIOR TO PRIOR TO PRIOR TO PRIOR TO TO
DATE OR NOVEMBER NOVEMBER NOVEMBER NOVEMBER NOVEMBER NOVEMBER NOVEMBER
TIME PERIOD 4, 1999 4, 1999 4, 1999 4, 1999 4, 1999 4, 1999 4, 1999
- ----------- --------- ------------ ------------ ------------ --------- --------- ----------
Market Exchange
Ratio............... 5.198 5.628 5.567 5.432 4.751 4.586 5.232
Bear Stearns compared these figures to exchange ratios for the merger of
6.602 (the exchange ratio that would apply assuming a Cordiant average trading
price of between $3.03 to $3.48, converted at an exchange rate of 1.6375 $/L)
and 6.785 (the exchange ratio that would apply assuming a Cordiant average
trading price of between $2.51 to $2.95, converted at an exchange rate of 1.6375
$/L).
COMPARABLE PUBLIC COMPANY ANALYSIS
In the course of its analysis, Bear Stearns compared certain ratios and
multiples of Healthworld to the corresponding ratios and multiples of certain
publicly-traded companies in the two industry sectors that Bear Stearns believed
were generally comparable to Healthworld: advertising companies (Omnicom,
Interpublic Group, WPP Group, Young & Rubicam, True North, Saatchi & Saatchi and
Cordiant) and pharmaceutical marketing companies (Professional Detailing, Inc.,
Ventiv Health, Inc., Access Worldwide Communications, Inc. and Boron, LePore &
Associates, Inc.). The multiples and ratios were calculated based on publicly
available financial information and research reports, and were adjusted for
certain extraordinary and non-recurring items. Financial data reviewed included
- revenue;
- earnings before interest, taxes, depreciation and amortization ("EBITDA");
- earnings before interest and taxes ("EBIT");
- net income; and
- earnings per share ("EPS") for various time periods as well as certain
operating margins, valuation statistics, financial ratios and projected
growth rates.
For purposes of its analysis, Bear Stearns also reviewed the harmonic means
of certain valuation multiples of the comparable companies. The harmonic mean is
the reciprocal of the average of the reciprocals of each of the multiples. For
example, the harmonic mean of 10x and 20x is calculated as follows: 1/((1/10 +
1/20)/2) = 13.3x.
Among other analyses, for each of the comparable companies, Bear Stearns
calculated the enterprise value multiples, which are the ratios of the sum of
their equity value as of November 4, 1999 plus debt less cash and cash
equivalents ("Enterprise Value") to their projected calendar 1999 and 2000
36
EBITDA and the ratios of their stock prices as of November 4, 1999 to their
respective projected calendar year 1999 and 2000 earnings per share. Bear
Stearns then compared the calculated ratios and multiples of the comparable
companies to the calculated ratios and multiples for Healthworld based on:
- the closing price for Healthworld on October 6, 1999 (the date on which
Healthworld and Cordiant signed an exclusivity agreement) of $13.88 per
share;
- an implied purchase price for Healthworld of $20.00 per share (the implied
per share purchase price based on the average Cordiant share price for the
15 trading days prior to November 4, 1999); and
- an implied purchase price for Healthworld of $21.89 per share (the implied
per share purchase price based on Cordiant's closing share price on
November 4, 1999).
These ratios are summarized in the table below:
PER SHARE
EBITDA PRICE/
MULTIPLE EARNINGS
----------------------- -----------------------
1999E 2000E 1999E 2000E
-------- -------- -------- --------
ADVERTISING COMPANIES:
High............................................... 18.0x 15.6x 42.1x 36.6x
Low................................................ 10.4 9.4 25.5 20.8
Harmonic Mean...................................... 13.2 11.5 29.4 25.1
PHARMACEUTICAL MARKETING
COMPANIES:
High............................................... 17.7x 13.3x 46.9x 23.9x
Low................................................ 2.9 2.4 30.0 7.1
Harmonic Mean...................................... 7.3 3.6 36.6 10.9
Bear Stearns observed that, relative to these comparable advertising
companies:
- At an implied price for Healthworld of $20.00, the EBITDA multiples
proposed to be paid for Healthworld are:
- within the range of the EBITDA multiples of the comparable advertising
companies,
- higher than the EBITDA multiples for Cordiant, but
- slightly below the harmonic mean. The EPS multiples at an implied price
of $20.00 are slightly below the multiple range and are lower than the
EPS multiple for Cordiant.
- At an implied price for Healthworld of $21.89, the EBITDA multiples
proposed to be paid for Healthworld are:
- within the range of the EBITDA multiples of the comparable advertising
companies,
- slightly above the EBITDA multiples for Cordiant, and
- slightly above the harmonic mean. The EPS multiples at an implied price
of $21.89 are within, but at the lower end of, the multiple range and
are higher than the EPS multiples for Cordiant.
In comparing the multiples proposed to be paid for Healthworld to the
trading multiples of the advertising company comparables, Bear Stearns noted
that all of the advertising company comparables were dramatically larger than
Healthworld in terms of equity market value. Bear Stearns further noted and
observed that the trading multiples of the advertising company comparables
tended to be positively correlated with their total equity market values.
37
Relative to the pharmaceutical marketing company comparables:
- The EBITDA multiples proposed to be paid for Healthworld are within the
range and above the harmonic mean of the comparable companies based on
implied purchase prices for Healthworld of either $20.00 or $21.89 per
share.
- The implied 1999 earnings per share multiples proposed to be paid for
Healthworld are below the range of the 1999 earnings per share multiples
for the comparable companies based on purchase prices per share for
Healthworld of either $20.00 and $21.89 per share.
- The implied 2000 earnings per share multiples for Healthworld are within,
and at the high end of the multiple range for the comparable companies
based on implied purchase prices of either $20.00 or $21.89 per share.
Bear Stearns noted that the data was not highly comparable given the
earnings difficulties currently being experienced by most of the publicly
traded pharmaceutical marketing companies.
Bear Stearns chose the comparable companies because they have general
business, operating and financial characteristics similar to those of
Healthworld, and Bear Stearns received guidance from Healthworld management
regarding the comparability of the selected companies. However, Bear Stearns
noted that no company used in the foregoing analysis is identical to
Healthworld. Accordingly, Bear Stearns did not rely solely on the mathematical
results of the analysis, but also made qualitative judgments concerning
differences in financial and operating characteristics of Healthworld and the
comparable companies and other factors that could affect the values of each.
COMPARABLE TRANSACTIONS ANALYSIS
Bear Stearns reviewed certain publicly-available financial information
related to four merger and acquisition transactions completed in the advertising
sector since January 1, 1996 that it deemed generally comparable to the merger.
Transactions reviewed by Bear Stearns included Omnicom Group's acquisition of
Abbott Mead Vickers PLC, Snyder Communication's acquisition of Arnold
Communications, Omnicom Group's acquisition of GGT Group PLC and Omnicom Group's
acquisition of Ketchum Communications. For each of the comparable transactions,
Bear Stearns reviewed certain publicly-available financial information for the
acquired companies including, to the extent available, revenue, EBITDA, EBIT,
net income and certain valuation statistics, as adjusted for certain
extraordinary and non-recurring items. The percentage premium over the acquired
companies' stock price paid by the acquiror (based on the acquired company's
stock price one month prior to the public announcement of the proposed
transaction) and the ratios of the enterprise values of the acquired companies
to their respective latest twelve months ("LTM") revenues, EBITDA and EBIT and
the ratios of the equity value of the acquired companies to their respective LTM
net income are listed in
38
the table below and are compared to the calculated premiums and ratios for
Healthworld based on the implied purchase prices of $20.00 and $21.89 per share.
EQUITY VALUE TO: ENTERPRISE VALUE TO:
---------------------- ---------------------------------------
LAST TWELVE
ONE MONTHS LAST TWELVE LAST TWELVE LAST TWELVE
MONTH NET MONTHS MONTHS MONTHS
PREMIUM INCOME REVENUE EBITDA EBIT
-------- ----------- ----------- ----------- -----------
Healthworld:
At implied price ($20.00)....................... 42.9% 28.7x 2.14x 16.0x 18.7x
At implied price ($21.89)....................... 56.4 31.4 2.40 17.9 20.9
Precedent Transactions:
High............................................ 46.9% 32.7x 1.30x 23.9x 39.3x
Low............................................. 46.9 32.7 0.39x 6.6 19.8
Harmonic mean................................... 46.9 32.7 0.61 11.8 28.8
Bear Stearns observed that the implied purchase prices of $20.00 and $21.89
per share produced revenue multiples that are above the range of revenue
multiples paid in comparable transactions, EBITDA multiples that are within the
range and above the harmonic mean and EBIT multiples that are slightly below the
low-end of the range based on an implied purchase price of $20.00 per share and
slightly above the lower end of the range based on an implied purchase price of
$21.89 per share. On the basis of the one month premium and price to earnings
multiple, the implied Healthworld premiums and multiples are comparable to the
one precedent transaction involving a public company for which there was
meaningful data. Bear Stearns noted that no transaction used in the foregoing
analysis is identical to the merger. Bear Stearns also noted that there was
limited data available for the selected transactions, owing to the fact that
only two of the acquired companies were publicly traded. Accordingly, Bear
Stearns indicated that it did not place significant weight on this valuation
method.
RELATIVE CONTRIBUTION ANALYSIS
Bear Stearns calculated the relative ownership by Healthworld shareholders
and Cordiant shareholders of Cordiant following the merger based on equity
market capitalization and enterprise value at a range of exchange ratios
provided for in the merger agreement. Bear Stearns then compared Healthworld's
relative ownership percentages based on equity market capitalization to the LTM
and projected 1999 and 2000 net income contribution by Healthworld to the
combined company and Healthworld relative ownership percentages based on
enterprise value to the LTM and projected 1999 and 2000 revenue, EBITDA and EBIT
contributions to the combined company, which projected results were provided to
Bear Stearns by the management of Healthworld, in the case of Healthworld's
projections, and in the case of Cordiant were based on consensus analyst
expectations. In this relative contribution analysis, Bear Stearns did not take
into account any of the cost savings or synergies assumed by either company to
result from the merger.
Bear Stearns calculated that using an exchange ratio of 6.602 (the exchange
ratio that would apply assuming a Cordiant average trading price between $3.03
and $3.48) and an exchange ratio of 6.785 (the exchange ratio that would apply
assuming Cordiant average trading price between $2.51 and $2.95), Healthworld's
stockholders would own 19.7% and 20.1%, respectively, of the combined company
based on equity market capitalization and 18.8% of the combined company based on
enterprise value. Bear Stearns noted that the percentage of the combined company
to be owned by Healthworld stockholders exceeds Healthworld's percentage
contribution to the combined company for all observed measures and periods.
39
PRO FORMA MERGER ANALYSIS
Bear Stearns reviewed and analyzed certain pro forma financial impacts of
the merger on the holders of Healthworld common stock and Cordiant ordinary
shares based on:
- a price for Cordiant common stock of 202.5p per share, the closing price
on November 4, 1999;
- 236.4 million diluted ordinary shares of Cordiant outstanding and
7.8 million diluted shares of Healthworld common stock outstanding;
- exchange ratio of 6.602;
- EPS projections for Healthworld which were based on the projections
provided to Bear Stearns by the managements of Healthworld and consensus
analysts' estimates for Cordiant, respectively;
- accounting for the merger as a "purchase". With respect to the accounting
treatment of the merger, Cordiant has advised Bear Stearns that goodwill
recorded in the merger will not be amortized on a yearly basis, but
rather, will be subjected to a periodic impairment test;
- no assumed cost savings or synergies; and
- $2.5 million of assumed cost savings or synergies.
The results of the analysis indicated that, without cost savings or
synergies, the acquisition of Healthworld by Cordiant would result in slight
dilution of the projected 2000 EPS of Cordiant ordinary shares.
With assumed cost savings or synergies of $2.5 million pre-tax, the
acquisition of Healthworld by Cordiant would result in slight accretion of the
projected 2000 EPS of Cordiant ordinary shares.
From the standpoint of Healthworld stockholders, the acquisition of
Healthworld by Cordiant, without synergies, would result in slight accretion of
the projected 2000 EPS of Healthworld common shares.
With assumed cost savings or synergies of $2.5 million pre-tax, the
acquisition of Healthworld by Cordiant would result in slightly more accretion
of the projected 2000 EPS of Healthworld common shares than without the assumed
cost savings or synergies included.
OTHER ANALYSES
Bear Stearns conducted such other analyses as it deemed necessary, including
the following:
- reviewing historical and projected financial and operating data for both
Healthworld and Cordiant;
- analyzing selected investment research reports on, and earnings and other
estimates for, each of Healthworld and Cordiant;
- analyzing the historic stock performance and trading volume for
Healthworld and Cordiant; and
- reviewing available information regarding the institutional holdings of
Healthworld common stock and Cordiant ordinary shares.
The Healthworld board of directors engaged Bear Stearns as its financial
advisor based on Bear Stearns' experience and expertise. Bear Stearns is an
internationally recognized investment banking firm that has substantial
experience in the health care and advertising industries and expertise in
transactions similar to the merger. As part of its investment banking business,
Bear Stearns is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. Pursuant
40
to the terms of its engagement letter, dated September 7, 1999, Healthworld has
agreed to pay Bear Stearns the following compensation:
- a fee of $375,000 in connection with the delivery of the Bear Stearns
opinion;
- a transaction fee, contingent upon and payable at closing of the merger,
of 1.25% of the total consideration to be paid by Cordiant in the merger
against which the opinion fee is to be credited, which transaction fee is
estimated at approximately $2.4 million; and
- to reimburse Bear Stearns for all out-of-pocket expenses, including
reasonable fees and disbursements of counsel, and of other consultants and
advisors retained by Bear Stearns.
Healthworld has also agreed to indemnify Bear Stearns and certain related
persons against certain liabilities in connection with its engagement, including
certain liabilities under the federal securities laws. In the ordinary course of
business, Bear Stearns may actively trade the equity securities of Healthworld
and Cordiant for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in the securities.
INTEREST OF CERTAIN PERSONS IN THE MERGER
When considering the Healthworld board's recommendation that you vote in
favor of approval and adoption of the merger agreement, you should be aware that
the directors and officers of Healthworld have interests in the merger that
conflict with, are different from, or in addition to, yours as a Healthworld
stockholder. These interests include employment agreements, stock options and
continuation as executive officers of Healthworld and its subsidiaries.
Healthworld's board of directors was aware of these interests when it approved
the merger and the merger agreement. To Healthworld's knowledge, the executive
officers and directors of Healthworld do not have any material interests in the
merger, apart from their interests as Healthworld stockholders, other than those
described below.
NEW HEALTHWORLD EMPLOYMENT AGREEMENT WITH STEVEN GIRGENTI. At the time of
the merger, a new employment agreement for Steven Girgenti, chairman and chief
executive officer of Healthworld, will take effect and replace Mr. Girgenti's
current employment agreement. The complete text of the employment agreement is
attached to this proxy statement/prospectus as Appendix O and is incorporated by
reference into this proxy statement/prospectus. The new employment agreement
provides for, among other things, a minimum term of two years, a base salary of
$500,000 per annum, annual bonuses based upon the achievement of certain
performance targets, and the grant at the time of the merger of 275,000 options
under Cordiant's Performance Share Option Plan. Under the terms of
Mr. Girgenti's current employment agreement, Mr. Girgenti currently receives,
among other things, an annual base salary of $415,000 and an annual incentive
bonus based upon Healthworld's achieving certain performance targets. Under the
terms of Mr. Girgenti's new employment agreement, if Mr. Girgenti's employment
is terminated by Healthworld without good cause, as defined in the agreement,
Mr. Girgenti is entitled to his base salary, bonuses and benefits for the longer
of the originally scheduled term of his new employment agreement or one year
from the date of such termination.
EMPLOYMENT AGREEMENT WITH STUART DIAMOND. The current employment agreement
between Healthworld and Stuart Diamond, Healthworld's chief financial officer,
provides for a term ending no sooner than August 31, 2000, a base salary of
$210,000 per annum, discretionary bonuses and benefits. In addition, on
November 8, 1999, Healthworld granted to Mr. Diamond stock options to purchase
200,000 shares of its common stock, which options will not vest as a result of
the merger but will become equivalent options to purchase Cordiant ordinary
shares. Mr. Diamond's employment agreement provides for significant payments as
well as other benefits (including, except as noted in the preceding sentence,
vesting of all of his Healthworld stock options) if Mr. Diamond's employment
with Healthworld is terminated under certain circumstances following the merger.
In the event of such a
41
termination, Mr. Diamond is entitled to (1) an additional bonus payment equal to
the bonus paid by Healthworld to Mr. Diamond in the prior year, (2) payment of
an additional 18 months' base salary if Mr. Diamond's employment is terminated
within one year of the merger and 12 months' base salary if Mr. Diamond's
employment is terminated between one and two years after the merger, and (3)
payment for continued benefits for a period of one year from the date of
termination.
HEALTHWORLD 1997 STOCK OPTION PLAN. The merger agreement provides that at
the effective time each outstanding option to purchase shares of Healthworld
common stock will become an equivalent right with respect to Cordiant ordinary
shares. At the time of the merger, all of the stock options outstanding under
Healthworld's 1997 Stock Option Plan (other than the 200,000 stock options
issued to Stuart Diamond on November 8, 1999) will become immediately vested and
exercisable. As of January 28, 2000, there were 1,527,039 stock options issued
and outstanding under Healthworld's 1997 Stock Option Plan (including the
200,000 stock options issued to Mr. Diamond on November 8, 1999 which will not
become immediately vested and exercisable as a result of the merger) at an
average exercise price of $12.53 per share. All of the executive officers and
directors of Healthworld hold stock options which will become immediately vested
and exercisable as a result of the merger. Pursuant to his employment agreement,
Herbert Ehrenthal, a director and senior executive at Healthworld, is entitled
to receive an additional grant of 50,000 stock options in 2000.
Directors and executive officers of Healthworld presently hold options to
purchase shares of Healthworld's common stock under Healthworld's 1997 Stock
Option Plan as follows:
NUMBER OF SHARES OF HEALTHWORLD
DIRECTOR OR EXECUTIVE OFFICER COMMON STOCK SUBJECT TO OPTIONS AVERAGE EXERCISE PRICE
- ----------------------------- ------------------------------- ----------------------
Steven Girgenti................................ 50,000 $12.75
William Leslie Milton.......................... 50,000 $12.00
William Butler................................. 35,000 $10.71
Herbert Ehrenthal.............................. 85,000 $11.25
Michael Garnham................................ 47,500 $11.33
Francis Hughes................................. 35,000 $10.71
Peter Knight................................... 40,000 $12.03
Colin Lloyd.................................... 40,000 $12.03
Jonah Shacknai................................. 40,000 $12.03
Alex Spizz..................................... 40,000 $12.03
Spencer Falk................................... 0 --
Stuart Diamond................................. 150,000(1) $11.63
The stock options listed above will, if they are outstanding at the time of
the merger, be converted into options to purchase Cordiant ordinary shares and
will become immediately vested and exercisable as a result of the merger.
- ------------------------
(1) Does not include the 200,000 stock options granted to Stuart Diamond on
November 8, 1999 which will not become immediately vested and exercisable as
a result of the merger.
ABSENCE OF DISSENTERS' APPRAISAL RIGHTS
PURSUANT TO DELAWARE LAW, HOLDERS OF HEALTHWORLD COMMON STOCK DO NOT HAVE
ANY DISSENTERS' APPRAISAL RIGHTS, WHICH WOULD GIVE YOU THE RIGHT TO OBTAIN
PAYMENT OF CASH IN EXCHANGE FOR YOUR SHARES OF HEALTHWORLD COMMON STOCK AS A
RESULT OF THE MERGER.
Dissenters' appraisal rights are not available to holders of shares
(1) listed on a national securities exchange;
(2) designated as a national market system security on an interdealer
quotation system operated by the National Association of Securities
Dealers, Inc.; or
42
(3) held of record by more than 2,000 stockholders;
unless holders of stock are required to accept in the merger anything other than
any combination of
(A) shares of stock or depositary receipts of the surviving corporation in
the merger;
(B) shares of stock or depositary receipts of another corporation that, at
the effective date of the merger, will be either
(a) listed on a national securities exchange,
(b) designated as a national market system security on an interdealer
quotation system operated by the National Association of Securities
Dealers, Inc. or
(c) held of record by more than 2,000 holders, or
(C) cash in lieu of fractional shares of the stock or depositary receipts
received.
OPERATION OF HEALTHWORLD FOLLOWING THE MERGER
Cordiant expects that it will operate Healthworld as a subsidiary of
Cordiant. Cordiant will align its existing healthcare operations under
Healthworld in a new division of Bates Worldwide. Steven Girgenti, chairman and
chief executive officer of Healthworld, and the other senior members of the
Healthworld management team, will continue to manage the Healthworld business.
See "--Cordiant Reasons for the Merger."
CONVERSION OF HEALTHWORLD COMMON STOCK IN THE MERGER
In the merger, Healthworld stockholders will receive, in exchange for shares
of common stock, either Cordiant ADSs, representing five Cordiant ordinary
shares or, at each stockholder's election, Cordiant ordinary shares. The actual
number of Cordiant ADSs or ordinary shares to be exchanged for Healthworld
common stock by Cordiant in the merger will be determined by a formula based
upon the average of the price of Cordiant ordinary shares and the average of the
U.S. dollar/British pound sterling exchange rate, both calculated during a
specified period ending three trading days prior to the special meeting at which
Healthworld's stockholders will vote on the merger. Except in the limited
circumstance described in the next sentence, depending on these price/exchange
rate factors, Cordiant will be obligated to issue an amount of Cordiant ADSs or
ordinary shares for each share of Healthworld common stock valued at between
$17.00 and $23.00. If the average of Cordiant's reference share price as
determined above during the time period prior to the merger drops to $2.2106,
Cordiant will have the option to terminate the merger agreement unless
Healthworld's board of directors elects to fix the number of Cordiant ordinary
shares to be received for each share of Healthworld common stock at 7.6902 (or
the corresponding amount of Cordiant ADSs). In this event, Healthworld
stockholders may receive Cordiant shares with a market value of less than $17.00
for each Healthworld share. Using the Cordiant ordinary share price and exchange
rate as of the last full day before the filing, the amount to be issued would be
valued at $23.
For illustration purposes only, based on the February 1, 2000, closing price
of Cordiant ordinary shares of 279p and a U.S. dollar/pound sterling exchange
rate of 1.6150 (implying a U.S. dollar equivalent share price or reference share
price (see chart below) of $4.5059), each Healthworld share would be exchanged
for 5.1045 Cordiant ordinary shares (equivalent to 1.0209 Cordiant ADSs) valuing
each Healthworld Share at $23.00. The exchange ratio used to determine the
actual number of
43
Cordiant ADSs or ordinary shares to be issued for each share of Healthworld's
common stock will be determined as illustrated in the following table:
- ------------------------------------------------------------------------------------------
Cordiant reference Cordiant share price Exchange ratio for Exchange ratio for
share price* (U.S. (in pence for Cordiant ordinary Cordiant ADSs
dollars) illustrative purposes shares
only**)
- ------------------------------------------------------------------------------------------
Less than $2.5054 Less than 155.13p $17 divided by $17 divided by 5x
Cordiant reference Cordiant reference
share price share price
- ------------------------------------------------------------------------------------------
Greater than or equal Greater than or equal 6.7854 Cordiant 1.3571 Cordiant ADSs
to $2.5054 but less to 155.13p but less ordinary shares for for each Healthworld
than $2.9475 than 182.51p each Healthworld share
- ------------------------------------------------------------------------------------------
Greater than or equal Greater than or equal $20 divided by $20 divided by 5x
to $2.9475 but less to 182.51p but less Cordiant reference Cordiant reference
than or equal to than or equal to share price share price
$3.0294 187.58p
- ------------------------------------------------------------------------------------------
Greater than $3.0294 Greater than 187.58p 6.602 Cordiant 1.3204 Cordiant ADSs
but less than or but less than or ordinary shares for for each Healthworld
equal to $3.4838 equal to 215.72p each Healthworld share
share
- ------------------------------------------------------------------------------------------
Greater than $3.4838 Greater than 215.72p $23 divided by $23 divided by 5x
Cordiant reference Cordiant reference
share price share price
- ------------------------------------------------------------------------------------------
* Refers to the average value of the closing price for Cordiant ordinary
shares on the London Stock Exchange over the ten consecutive trading days ending
on the third trading day prior to the date of the Healthworld stockholders
meeting to approve the merger, multiplied by the average U.S. dollar/ pound
sterling exchange rate during the same period.
** A U.S. dollar/pound sterling exchange rate of 1.6150 has been used in the
table above for illustrative purposes only. The reference share price levels are
defined in the merger agreement in U.S. dollars, and the pound sterling
equivalents are therefore subject to change.
If the Cordiant reference share price is equal to or less than $2.2106,
Cordiant will have the option to terminate the merger agreement unless the board
of directors of Healthworld elects to fix the exchange ratio at 7.6902.
FRACTIONAL SHARES. No fractional Cordiant ADSs or ordinary shares will be
issued in the merger, and any fractional Cordiant ADS or ordinary share
interests will not entitle the owner thereof to vote or to any rights of a
holder of Cordiant ADSs or ordinary shares.
Instead of any fractional Cordiant ADS or ordinary share, each Healthworld
stockholder who would otherwise have been entitled to a fraction of a Cordiant
ADS or ordinary share, as the case may be, will receive from the exchange agent:
- a cash payment instead of any fractional Cordiant ADS determined by
multiplying (1) the average trading price of a Cordiant ADS for the ten
trading days ending on the day immediately preceding the merger by (2) the
fractional Cordiant ADS interest to which the holder would otherwise be
entitled; and/or
- a cash payment instead of such fractional Cordiant ordinary share
determined by multiplying (1) the average trading price of a Cordiant
ordinary share for the ten trading days ending on the
44
day immediately preceding the merger by (2) the fractional Cordiant
ordinary share interest to which such holder would otherwise be entitled.
The term "trading price" shall mean, on any trading day, with respect to
Cordiant ADSs, the closing sales price of Cordiant ADSs reported on the New York
Stock Exchange Composite Tape and, with respect to ordinary shares, the middle
market quotation of an ordinary share reported on the Daily Official List of the
London Stock Exchange. The term "trading day" shall mean any day on which
securities are traded, with respect to Cordiant ADSs, on the New York Stock
Exchange, and with respect to ordinary shares, on the London Stock Exchange.
ELECTION; ELECTION PROCEDURES
After the companies complete the merger, the exchange agent will mail to
each holder of record of Healthworld common stock a letter of transmittal which
will permit the stockholder to elect to receive either Cordiant ordinary shares
or Cordiant ADSs in exchange for all or any portion of the holder's shares of
Healthworld common stock. A single ordinary share election may be made for all
shares of Healthworld common stock held by any holder of Healthworld common
stock or, alternatively, an ordinary share election may be made for a portion of
a holder's shares. If a stockholder does not submit a properly completed letter
of transmittal by April 15, 2000 the shares of Healthworld common stock held by
the stockholder will be converted in the merger into the right to receive the
ADS consideration.
All ordinary share elections will be required to be made on the letter of
transmittal. To make an effective election with respect to shares of Healthworld
common stock, the holder must properly complete and return the letter of
transmittal to the exchange agent before the election deadline. The election
deadline has been set for April 15, 2000.
Cordiant has the right to make additional rules not inconsistent with the
merger agreement governing the validity of the letters of transmittal and the
issuance and delivery of certificates for Cordiant ADSs or ordinary shares into
which shares of Healthworld common stock are converted in the merger. All
rules and determinations will be final and binding on all holders of Healthworld
common stock.
EXCHANGE OF CERTIFICATES IN THE MERGER
Promptly after the merger, the exchange agent will mail to each holder of
record of Healthworld common stock whose shares are converted into the right to
receive Cordiant ADSs and/or ordinary shares, appropriate transmittal materials
and instructions advising the holder of the terms of the exchange effected by
the merger and the procedure to be used for the surrender of the certificates
representing Healthworld common stock in exchange for the Cordiant ADSs and/or
ordinary shares that the holder has the right to receive under the merger
agreement. Holders of Healthworld common stock are requested not to surrender
their certificates for exchange until after the merger when the transmittal
form and instructions are received. Certificates representing Cordiant ADSs
and/or ordinary shares shall be delivered to the holder as promptly as
practicable after proper delivery of the applicable Healthworld certificates and
appropriate transmittal materials to the exchange agent.
Cordiant has appointed The Bank of New York as the exchange agent who will
exchange certificates which, before the merger, represent outstanding shares of
Healthworld common stock and, in the merger, will be converted into the right to
receive Cordiant ADSs, or if properly elected, Cordiant ordinary shares.
Holders of Healthworld common stock will not be liable for any charges in
connection with the receipt of Cordiant ADSs. See "DESCRIPTION OF CORDIANT
AMERICAN DEPOSITARY SHARES."
45
At the time of the merger and after the merger and until surrendered as
provided above, Healthworld certificates will be deemed, except as required by
applicable law, to represent only the right to receive the whole number of
Cordiant ADSs and/or ordinary shares into which the number of shares of
Healthworld common stock shown thereon have been converted in the merger. No
dividends or other distributions declared, made or paid after the merger with
respect to ordinary shares with a record date on or after the merger shall be
paid to the holder of any unsurrendered Healthworld certificate with respect to
the Cordiant ADSs and/or ordinary shares represented thereby and no cash payment
instead of fractional Cordiant ADSs and/or ordinary shares shall be paid to any
holder until the holder of record of the Healthworld certificate shall surrender
such Healthworld certificate as provided above. Except as applicable law may
require otherwise, following surrender of any Healthworld certificate, there
will be paid to the record holder of the certificates representing Cordiant ADSs
and/or ordinary shares issued in exchange for the Healthworld certificate,
without interest:
- at the time of the surrender, the amount of dividends or other
distributions, if any, with a record date at the time of the merger or
after the merger which became payable, but which were not paid by reason
of the immediately preceding sentence, with respect to the Cordiant ADSs
and/or ordinary shares; and
- at the appropriate payment date, the amount of dividends or other
distributions with a record date at the time of the merger or after merger
but before surrender and a payment date after surrender payable with
respect to the Cordiant ADSs and/or ordinary shares.
Cordiant ordinary shares issued and deposited with the depositary for the
issuance of Cordiant ADSs will be registered in the name of BNY (Nominees) Ltd.
In addition, Cordiant will periodically deposit cash in an amount sufficient to
provide the exchange agent with funds to make the cash payments for fractional
shares required to be made under the merger agreement.
Healthworld certificates that are surrendered will be canceled. No interest
will be paid or accrued on any amount payable upon surrender of the stock
certificates. No holder of an unsurrendered Healthworld certificate will receive
any dividends or other distributions with respect to Cordiant ADSs or ordinary
shares to which it is entitled under the merger agreement until the Healthworld
certificate registered to the holder is surrendered to the exchange agent.
46
THE MERGER AGREEMENT
The following description of the merger agreement, as amended, describes the
material terms of the agreement but does not purport to describe all the terms
of the agreement. The complete text of the merger agreement and the amendment to
the merger agreement are attached to this proxy statement/prospectus as
Appendices A and B and are incorporated by reference into this proxy
statement/prospectus. All stockholders are urged to read the merger agreement
and the amendment to the merger agreement in their entirety because it is the
legal document that governs the merger.
THE MERGER
Pursuant to the merger agreement, Healthworld Acquisition Corp., a Delaware
corporation and an indirect wholly-owned subsidiary of Cordiant, will merge into
Healthworld, with Healthworld surviving as a subsidiary of Cordiant.
The merger will become effective when Healthworld and Healthworld
Acquisition Corp. file the certificate of merger with the Secretary of State of
the State of Delaware or at a later time if so specified in the certificate of
merger. The merger is expected to become effective on the same day as the
closing of the merger, which will take place either as soon as practicable after
the conditions described in the merger agreement have been satisfied or waived
or on another date agreed upon by Cordiant and Healthworld.
REPRESENTATIONS AND WARRANTIES
The merger agreement contains a number of customary representations and
warranties made by Cordiant and Healthworld regarding, among other things, due
organization, good standing and qualification; capital structure; corporate
authority to enter into the contemplated transactions and lack of conflicts with
corporate governance documents; governmental filings; reports and financial
statements; absence of certain changes or events; litigation and liabilities;
brokers or finders; ownership of the other party's common stock; permits and
compliance with laws; compliance with agreements; votes required to approve the
merger; material contracts; tax matters; and year 2000 compliance. Healthworld
made additional representations and warranties regarding employee benefit
matters; intellectual property; and environmental matters. Healthworld also
represented that it has taken or will take all actions appropriate and necessary
to ensure that provisions of Delaware law limiting business combinations will
not affect the merger or any other transaction contemplated by the merger
agreement.
The merger agreement also contains customary representations and warranties
of Cordiant regarding Healthworld Acquisition Corp., including its corporate
authority to enter into the contemplated transactions and absence of previous
business activities.
CONDUCT OF HEALTHWORLD PENDING THE MERGER; OTHER ACTIONS
During the period from the signing of the merger agreement until the merger
becomes effective, Healthworld has agreed as to itself and its subsidiaries,
unless Cordiant approves otherwise in writing, among other things, that it will
carry on its businesses in the ordinary course, preserve its business
organization, and, to the extent consistent therewith, use commercially
reasonable efforts to keep available the services of their current officers and
employees and preserve their relationships with customers, suppliers and others
having business dealings with them intact.
In addition, Healthworld has agreed as to itself and its subsidiaries that
before the merger it will not take any of the following actions outside of the
parameters specified in the merger agreement:
- declare and pay dividends or change its share capital,
47
- issue, deliver, pledge, dispose of or otherwise encumber its securities,
- amend its corporate governance documents,
- agree to acquire, merge with or purchase the assets of any business or
corporation outside the ordinary course of business,
- sell, lease or otherwise dispose of any of its material assets,
- incur significant debt outside the ordinary course of business,
- alter its corporate structure or ownership,
- modify its benefit plans and compensation of directors, officers and
employees outside of the ordinary course of business,
- make capital expenditures in excess of $100,000 individually and
$1,000,000 in the aggregate,
- agree to settle any material claim or litigation,
- make or rescind any material tax election or settle any material tax
liability,
- make any material change in its method of accounting, or
- enter into agreements restraining its business.
In addition, Cordiant and Healthworld have each agreed:
- to cooperate in the preparation of the necessary documents to be filed
with the regulatory authorities; and
- to use commercially reasonable efforts to obtain auditor's consent
letters.
Healthworld has agreed to use its best efforts to cause each person who may
be considered an affiliate of Healthworld under Rule 145 of the Securities Act
to execute an affiliate agreement restricting the disposition of the affiliate's
Cordiant ADSs or ordinary shares received in the merger. Neither Cordiant nor
the depositary will register any transfers of Cordiant ordinary shares or
Cordiant ADSs by any person who has executed an affiliate agreement unless the
transfer is in compliance with the restrictions contained in the affiliate
agreements.
Cordiant has agreed to take certain actions, including refraining from
disposing of Healthworld's capital stock for a period of six years, required for
the merger to be tax-free to Healthworld's U.S. stockholders who beneficially
own 5% or more of Cordiant ordinary shares as a result of the merger. Cordiant
has agreed to indemnify such stockholders for any breach of this covenant.
The merger agreement also provides for Cordiant to arrange for the issue of
a valuation report in accordance with section 103 of the U.K. Companies Act,
which provides that a public company may not, subject to certain limited
exceptions, issue shares for a consideration other than cash unless the
consideration received by the public company for the share issue has been
independently valued as required by the U.K. Companies Act.
TAKEOVER PROPOSALS
Healthworld has agreed that neither it nor any of its subsidiaries nor any
of the officers and directors of it or its subsidiaries will, and that it will
direct and use its best reasonable efforts to cause its or its subsidiaries'
employees, agents and representatives not to:
- solicit, facilitate, initiate or encourage the submission of any takeover
proposal;
48
- enter into any agreement with respect to any takeover proposal or enter
into any arrangement, understanding or agreement requiring it to abandon,
terminate or fail to consummate the merger or any other transaction
contemplated by the merger agreement;
- participate in any way in any discussions or negotiations regarding, or
furnish to any person or legal entity any information with respect to any
takeover proposal;
- take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may be reasonably expected to lead to any
takeover proposal; or
- approve or recommend, or propose to approve or recommend, any takeover
proposal.
However, if, based upon the advice of its outside counsel, Healthworld's board
of directors determines in good faith that the failure to take such action would
result in a breach of its fiduciary duties under applicable law, Healthworld and
its board of directors shall have the right to:
- participate in discussions or negotiations regarding, or furnish to any
person or legal entity any information with respect to, any takeover
proposal; or
- withdraw or modify, or propose to withdraw or modify, the approval or
recommendation by the board of directors of the merger and the merger
agreement.
A takeover proposal is an acquisition proposal by a third party regarding any
proposed merger or other business combination, sale or other disposition of any
material amount of assets, sale of shares of capital stock, tender offer or
exchange offer or similar transactions involving Healthworld or any of its
subsidiaries.
Healthworld has also agreed to:
- cease any discussions or negotiations with any parties regarding any
takeover proposal as being conducted at the time the merger agreement was
signed,
- notify Cordiant within 12 hours of any request for information regarding
takeover proposal or any inquiry, proposal, discussion or negotiation with
respect to any takeover proposal, and
- promptly request that each person who executed a confidentiality agreement
with it in connection with its consideration of a takeover proposal return
all confidential information previously furnished to the person.
STOCK OPTIONS AND OTHER EMPLOYEE BENEFITS
In the merger, all outstanding and unexercised Healthworld stock options,
whether vested or unvested, will
- be assumed by Cordiant,
- become immediately vested and exercisable (other than options to purchase
200,000 shares of common stock granted to Stuart Diamond on November 8,
1999),
- cease to represent a right to acquire shares of Healthworld common stock,
and
- be converted automatically into options to purchase Cordiant ordinary
shares.
Each option will remain subject to the terms of the Healthworld 1997 Stock
Option Plan and the agreement evidencing its grant, except that after the merger
- the number of Cordiant ordinary shares purchasable upon exercise of each
Healthworld option shall be equal to the number of shares of Healthworld
common stock that were purchasable under such option immediately prior to
the merger multiplied by the exchange ratio, subject to any rounding as
provided for in the merger agreement, and
49
- the exercise price per Cordiant ordinary share under each option will be
obtained by dividing
(1) the per share exercise price of each option by
(2) the exchange ratio, and then
(3) dividing such quotient by the exchange rate, subject to any rounding
as provided for in the merger agreement.
Notwithstanding the foregoing, the number of Cordiant ordinary shares and
the exercise price per Cordiant ordinary share of each Healthworld stock option
that is intended to be an "incentive stock option," as defined in section 422 of
the U.S. tax code, will be adjusted as required by Section 424 of the U.S. tax
code. Healthworld has agreed that it will make all necessary arrangements with
respect to the Healthworld stock plans to permit the assumption by Cordiant of
any unexercised Healthworld stock options.
INDEMNIFICATION AND INSURANCE
After the merger, Cordiant will, and will cause Healthworld to, indemnify
the directors, officers, employees and agents of Healthworld and its
subsidiaries for any losses they incur because they acted as directors,
officers, employees or agents of Healthworld or its subsidiaries before the
merger, as follows:
- Cordiant will maintain all rights to indemnification and all limitations
on liability existing under the Healthworld certificate of incorporation
and the Healthworld by-laws in favor of those directors, officers,
employees and agents of Healthworld;
- Cordiant will maintain all rights to indemnification and all limitations
on liability existing under any agreement between any of those directors
or officers and Healthworld or its subsidiaries;
- Cordiant will, for a period of six years after the merger becomes
effective, indemnify those directors and officers to the same extent they
are indemnified on the date of the merger agreement; and
- Cordiant will, for a period of six years after the merger becomes
effective, provide liability insurance for those directors and officers
for acts or omissions occurring before the effective time of the merger on
terms no less favorable as those of any policy presently in effect.
However, during the six-year period, Cordiant will not be required to
provide any more coverage than can be obtained for the remainder of the
period for an annual premium costing more than 150% of the annual premium
currently paid by Healthworld for its existing coverage.
CONDITIONS TO EACH PARTY'S OBLIGATIONS TO COMPLETE THE MERGER
Healthworld and Cordiant may complete the merger only if each of the
following conditions is satisfied or waived:
SHAREHOLDER APPROVALS
(1) The holders of a majority of the Healthworld common stock entitled to
vote on the merger approve and adopt the merger agreement;
(2) The approval, by a majority of the votes cast, whether in person or by
proxy, at the extraordinary general meeting of the shareholders of
Cordiant, of a resolution
(a) to approve the merger,
(b) to increase the ordinary share capital of Cordiant; and
50
(c) to authorize the issue of Cordiant ordinary shares.
REGULATORY APPROVALS
The following required filings and authorizations, as well as the
shareholder approvals, have been made or obtained without being subject to
conditions, restrictions or reversals that would have a material adverse effect
on Cordiant and Healthworld and their respective subsidiaries, taken as a whole:
(1) filing the certificate of merger with the Secretary of State of the
State of Delaware;
(2) termination or expiration of the waiting period under Hart-Scott-Rodino;
(3) all necessary state securities law permits or approvals;
(4) compliance with the rules and regulations of the NYSE and the London
Stock Exchange; and
(5) U.K. Treasury Consent pursuant to Section 765 of the U.K. Income and
Corporation Taxes Act in 1988.
(6) No laws, judgments or orders have been enacted or issued that restrain,
enjoin, or prohibit the completion of the merger.
EFFECTIVE REGISTRATION STATEMENT.
The registration statement on Form F-4 shall have become effective under the
Securities Act, there is no stop order regarding the registration and the SEC
has not initiated or threatened any proceedings for that purpose.
STOCK EXCHANGE LISTING
(1) The London Stock Exchange shall have agreed to admit to the Official
List, subject only to allotment, of the London Stock Exchange the
additional Cordiant ordinary shares to be issued in the merger and such
agreement not having been withdrawn; and
(2) the additional Cordiant ADSs to be issued in the merger shall have been
authorized for listing on the NYSE, subject to official notice of
issuance.
As used in the merger agreement with respect to conditions for completion of
the merger, a "material adverse effect" means, with respect to any entity, a
material adverse effect on the financial condition, properties, business or
results of operations of the entity and its subsidiaries, taken as a whole.
CONSENTS UNDER AGREEMENTS RECEIVED
Consent or approval having been obtained from each person whose consent or
approval is required in connection with the consummation of the transactions
contemplated by the merger agreement under any agreement to which Cordiant or
Healthworld or any of their respective subsidiaries is a party, except those for
which the failure to obtain the consent or approval, individually or in the
aggregate, would not reasonably be expected to have a material adverse effect on
Cordiant or Healthworld or materially impair the transactions contemplated by
the merger agreement.
51
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF CORDIANT
The obligations of Cordiant to effect the merger are also subject to the
satisfaction or waiver by Cordiant of the following conditions:
REPRESENTATIONS AND WARRANTIES
(1) Each of the representations and warranties of Healthworld set forth in
the merger agreement in all material respects, being true, in each case,
when made and as of the closing date, except to the extent that a
representation and warranty expressly speaks as of a specific date; and
(2) Cordiant having received a certificate signed on behalf of Healthworld
by an executive officer of Healthworld to this effect.
PERFORMANCE OF OBLIGATIONS
(1) Healthworld having performed and complied with, in all material
respects, the agreements, covenants and obligations required to be
performed or complied with by it under the merger agreement at or prior
to the closing date; and
(2) Cordiant having received a certificate signed on behalf of Healthworld
by an executive officer to this effect.
MATERIAL ADVERSE EFFECT
A material adverse effect shall not have occurred affecting Healthworld and
no facts or circumstances arising after the date of the merger agreement shall
have occurred which, individually or in the aggregate, could reasonably be
expected to have a material adverse effect on Healthworld.
ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF HEALTHWORLD.
The obligation of Healthworld to effect the merger is also subject to the
satisfaction or waiver by Healthworld of the following conditions:
REPRESENTATIONS AND WARRANTIES TRUE
(1) Each of the representations and warranties of Cordiant set forth in the
merger agreement, in all material respects, being true, in each case,
when made and as of the closing date, except to the extent that a
representation and warranty expressly speaks as of a specific date;
(2) Healthworld having received a certificate signed on behalf of Cordiant
by an executive officer of Cordiant to this effect.
TAX OPINION
Healthworld having received an opinion from Rosenman & Colin LLP
substantially to the effect that, on the basis of the facts, representations and
assumptions set forth in the opinion, the merger will be treated for U.S.
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the U.S. Internal Revenue Code.
COMPLIANCE WITH COVENANTS
(1) Cordiant having performed and complied with, in all material respects,
the agreements, covenants and obligations required to be performed or
complied with by it under the merger agreement at or prior to the closing
date; and
52
(2) Healthworld having received a certificate signed on behalf of Cordiant
by an executive officer to this effect.
MATERIAL ADVERSE EFFECT
A material adverse effect shall not have occurred affecting Cordiant where,
following such material adverse effect, the average price for Cordiant ordinary
shares during the measurement period for the exchange ratio is less than 135p.
TERMINATION AND EFFECTS OF TERMINATION
Cordiant and Healthworld may terminate the merger agreement and abandon the
merger at any time prior to the merger becoming effective by mutual written
consent.
If the merger agreement is terminated other than because of a breach by one
of the parties under the merger agreement, it shall become void and there will
be no liability under the merger agreement for either Cordiant or Healthworld,
except for the payment of certain Healthworld fees by Cordiant if the merger
agreement is terminated due to Cordiant's failure to obtain shareholder approval
for the merger. See "--FEES AND EXPENSES."
TERMINATION BY CORDIANT OR HEALTHWORLD
Cordiant or Healthworld may terminate the merger agreement and abandon the
merger at any time prior to the merger provided that it has not breached the
merger agreement in a way that has contributed to the failure of the merger to
be consummated, if
-- the merger is not completed by May 31, 2000, except that if at that time
all material governmental authorizations have not been obtained but all
other conditions to the closing have been fulfilled or are capable of
being fulfilled, the directors of either Cordiant or Healthworld may
elect to extend the termination date to August 31, 2000,
-- a court order permanently prohibiting completion of the merger becomes
final and nonappealable,
-- the approval of Healthworld's stockholders required by the merger
agreement is not obtained, or
-- the approval of Cordiant's shareholders required by the merger agreement
is not obtained.
TERMINATION BY CORDIANT
Cordiant may terminate the merger agreement and abandon the merger at any
time prior to the merger, by action of its board, if Healthworld materially
breaches any representation, warranty, covenant or agreement contained in the
merger agreement which, unless cured, when taken together with any other
breaches, has or could reasonably be expected to have a material adverse effect.
TERMINATION BY HEALTHWORLD
Healthworld may terminate the merger agreement and abandon the merger at any
time prior to the merger by action of the board if Cordiant materially breaches
any representation, warranty, covenant or agreement contained in the merger
agreement which, unless cured, when taken together with any other breaches, has
or could reasonably be expected to have a material adverse effect.
53
FEES AND EXPENSES
Whether or not the merger is completed, all costs and expenses incurred in
connection with the merger will be paid by the party incurring the expense,
except that:
-- Healthworld has paid the costs of the Hart-Scott-Rodino filing(s) made by
Steven Girgenti and Spencer Falk which were required in connection with
the merger, and
-- if the merger agreement is terminated solely as a result of the failure
to obtain the necessary approval of Cordiant's shareholders, then
Cordiant will be required to pay to Healthworld all documented reasonable
out-of-pocket expenses incurred by Healthworld in connection with the
merger not to exceed a total amount of $1,500,000.
AMENDMENT; WAIVER
Cordiant and Healthworld may amend the merger agreement by written agreement
prior to completion of the merger, but, after Healthworld's stockholders or
Cordiant's shareholders have approved the merger agreement, no amendment may be
made which by law requires further stockholder approval without the stockholder
approval being obtained.
Any provision of the merger agreement may be waived prior to the merger
being completed, but only if the waiver is in writing and signed by the party
against whom the waiver is to be effective.
54
THE PRINCIPAL STOCKHOLDER AGREEMENTS
The following description of the stockholder agreements describes the
material terms of the stockholder agreements entered into by certain principal
stockholders who are, or are beneficially owned by, executive officers (and in
some cases, directors) of Healthworld with Cordiant and Healthworld Acquisition
Corp., but does not purport to describe all the terms of the agreements. The
complete text of the stockholder agreements are attached to this proxy
statement/prospectus as Appendices C through M and are incorporated by reference
into this proxy statement/prospectus. All stockholders are urged to read the
stockholder agreements.
OVERVIEW
In connection with the merger agreement, each of
- William Butler,
- Herbert Ehrenthal,
- Spencer Falk,
- Michael Garnham,
- Steven Girgenti,
- Francis Hughes,
- William Leslie Milton,
- Steven Girgenti Grantor Retained Annuity Trust,
- The Girgenti Family Limited Partnership,
- The Spencer Falk Grantor Retained Annuity Trust, and
- The Steve Girgenti Charitable Lead Annuity Trust,
each a holder of shares of Healthworld common stock, entered into a stockholder
agreement with Cordiant and Healthworld Acquisition Corp. on November 9, 1999.
The principal stockholders that entered into the stockholder agreements held
collectively, as of November 9, 1999, the date the agreements were signed,
approximately 63% of the voting power of the outstanding stock of Healthworld.
VOTING AGREEMENT
Under each stockholder agreement, each principal stockholder agreed, among
other things, to vote in favor of the merger and the approval of the terms of
the merger agreement and each of the other actions contemplated by the merger
agreement.
In addition to agreeing to vote in favor of adoption of the merger agreement
and the merger, each of the principal stockholders has also agreed to vote
against the following matters at any Healthworld stockholders meeting or in
response to any proposed written consent of the Healthworld stockholders, in
which the following matters are submitted to the Healthworld stockholders for
their vote:
- any action or agreement that would result in a breach in any material
respect of any covenant, representation or warranty or any other
obligation or agreement of Healthworld under the merger agreement or such
stockholder agreement;
- any merger, consolidation or other business combination involving
Healthworld or its subsidiaries other than the merger with Cordiant;
55
- any sale, lease or transfer of a material amount of assets of Healthworld
or its subsidiaries, or a reorganization, recapitalization, dissolution or
liquidation of Healthworld or its subsidiaries;
- any change in a majority of the persons who constitute the board of
directors of Healthworld;
- any change in the present capitalization of Healthworld or any amendment
of Healthworld organizational documents;
- any material change in Healthworld's corporate structure or business;
- any other action involving Healthworld or its subsidiaries which is
intended, or could reasonably be expected, to materially impede, interfere
with, delay, postpone, or materially adversely affect the merger.
OPTION TO PURCHASE
In addition, the principal stockholders have each granted to Healthworld
Acquisition Corp. an irrevocable option to purchase all the shares of
Healthworld common stock owned by such principal stockholder under his or its
respective stockholder agreement for a cash purchase price per share based upon
the valuation formula contained in the merger agreement and as described above
under "THE MERGER--Conversion of Healthworld Common Stock in the Merger," but
measured over the ten trading days ending on the date such option is exercised.
The option may be exercised by Healthworld Acquisition Corp. for all of the
shares of Healthworld common stock held by all of the principal stockholders, at
any time within 20 days after the occurrence of any of the following events:
(1) Healthworld fails to obtain the requisite stockholder approval for the
merger; (2) the termination of the merger agreement due to a breach by
Healthworld; or (3) any violation by a principal stockholder of any term under
the stockholder agreements.
NO TRANSFER; NO PROXIES
Except for permitted transfers, each principal stockholder has agreed not
to, directly or indirectly, offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of or enter into any contract, option or
other arrangement or understanding with respect to or consent to the offer for
sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Healthworld shares of common stock or any
interest therein.
In addition, each principal stockholder has agreed not to grant any proxies
or powers of attorney, deposit their shares into a voting trust or enter into a
voting agreement with respect to their respective shares of Healthworld common
stock.
NO DISPOSITION
After completion of the merger, each principal stockholder also agreed, for
a period specified below, except for permitted transfers, not to directly or
indirectly, offer to sell, contract to sell, transfer, assign, cause to be
redeemed or otherwise sell or dispose of any Cordiant ordinary shares or ADSs
received by such principal stockholder in connection with the merger without the
prior written consent of Cordiant.
56
The following table sets forth the aggregate percentage of Cordiant ordinary
shares and/or ADSs received in the merger that each principal stockholder may
sell after expiration of the periods following the merger indicated below:
AFTER AFTER AFTER
STOCKHOLDER IMMEDIATELY 6 MONTHS 12 MONTHS 24 MONTHS
- ----------- ----------- -------- --------- ---------
William Butler...................................... 15% 15% 55% 100%
Herbert Ehrenthal................................... 30% 30% 65% 100%
Spencer Falk (1).................................... 10% 10% 50% 100%
Michael Garnham..................................... 20% 20% 60% 100%
Steven Girgenti..................................... 10% 10% 50% 100%
Francis Hughes...................................... 30% 30% 100% 100%
William Leslie Milton............................... 30% 100% 100% 100%
Steven Girgenti Grantor Retained Annuity Trust...... 10% 10% 50% 100%
The Girgenti Family Limited Partnership............. 10% 10% 50% 100%
The Spencer Falk Grantor Retained
Annuity Trust (2)................................. 10% 10% 50% 100%
The Steve Girgenti Charitable Lead Annuity Trust.... 10% 10% 50% 100%
- ------------------------
(1) Does not include 732,276 shares of Healthworld common stock to be issued to
Spencer Falk, as a former stockholder Falk Communications, Inc., immediately
prior to the completion of the merger. See "RECENT
DEVELOPMENTS--Healthworld."
(2) Does not include 81,364 shares of Healthworld common stock to be issued to
the Spencer Falk Grantor Retained Annuity Trust, as a former stockholder of
Falk Communications, Inc., immediately prior to the completion of the
merger. See "RECENT DEVELOPMENTS--Healthworld."
Upon the expiration of the respective holding periods set forth in the table
above, each stockholder may effect dispositions of all or any portion of
Cordiant ordinary shares or ADSs beneficially owned by such stockholder subject
to any applicable restrictions under the federal securities laws and
restrictions of general application under English law, the Listing Rules of the
London Stock Exchange, if applicable, and Cordiant's policies made pursuant to
such rules regarding dealings in Cordiant ordinary shares by directors and
relevant employees of Cordiant and its subsidiaries, if applicable.
Each principal stockholder also agreed that for the period commencing upon
the consummation of the merger and ending 180 days after the expiration of such
stockholder's holding period, such stockholder would (1) give Cordiant one
business day prior written notice of any intended disposition of Cordiant
ordinary shares or ADSs to be made by such stockholder and (2) at the request of
Cordiant effect such disposition through brokers or other financial
intermediaries designated by Cordiant to maintain an orderly trading market for
the Cordiant ordinary shares or ADSs, provided that such financial intermediary
agrees to effect and does effect the disposition in a reasonable period
following such notice.
Under the stockholder agreements "permitted transfers" include transfers (1)
to any family member of such principal stockholder, (2) to trusts established
solely for the benefit of such principal stockholder and/or such stockholder's
family and/or a charitable organization, (3) to a foundation created or
established by the principal stockholder, or any other charitable organization,
(4) to a corporation, limited liability company, or partnership that is owned
entirely by such principal stockholder and/or any family member, (5) to the
executor, administrator or personal representative of the estate of such
principal stockholder or any other family member, or (6) to any guardian,
trustee or
57
conservator appointed with respect to the assets of such principal stockholder,
provided, that any such transferee executes an agreement to be bound by the
terms of such stockholder agreement.
NO SOLICITATION
Each principal stockholder has agreed:
- not to, directly or indirectly, solicit or respond to any inquiries or the
making of any proposal of a takeover proposal;
- to promptly notify Cordiant if such stockholder receives any inquiry or
proposal relating to a takeover proposal; and
- to cease and cause to be terminated any existing activities, discussions
or negotiations with any party relating to a takeover proposal.
ADDITIONAL COVENANTS
In addition to the covenants described above under the sections "--Voting
Agreement," "--No Transfer; No Proxies" and "--No Solicitation," the principal
stockholders agreed:
- not to take any action that would make any representation or warranty of
such principal stockholder made in such principal stockholders' agreement
untrue or have the effect of preventing or disabling the stockholder from
performing his obligations under his respective stockholder agreement;
- to promptly notify Cordiant of the number of any shares of Healthworld
common stock acquired by such stockholder after entering into such
stockholder agreement; and
- to vote any such additional shares of Healthworld common stock in
accordance with the voting agreements under such stockholder agreement.
TERMINATION
Each stockholder agreement shall terminate, and no party shall have any
rights or obligations thereunder, upon the earlier of (1) the termination of the
merger agreement and (2) the effective time of the merger, except that:
(1) the voting obligations of such principal stockholder to vote against any
merger, business combination or other similar transaction with a third party as
set forth above under "--Voting Agreement" shall terminate on the earlier to
occur of the effective time of the merger and 120 days after the termination of
the merger agreement (unless the merger agreement is terminated by reason of the
failure to obtain the requisite approval of Cordiant shareholders in which case
such stockholder's obligations under such clause shall terminate simultaneously
with the termination of the merger agreement);
(2) the option to purchase the shares of Healthworld common stock owned by
such principal stockholder shall survive for a period of 20 days following the
termination of such stockholder agreement under the circumstances previously
described above under "--Option to Purchase"; and
(3) the restrictions on the sale of Cordiant ordinary shares or Cordiant
ADSs received in the merger shall continue for the periods specified in each
principal stockholder's stockholder agreement. See "--No Disposition."
REPRESENTATIONS AND WARRANTIES
The principal stockholders agreement contains a number of customary and
general representations and warranties made by each of the principal
stockholders regarding, among other things, ownership of their shares and
authority to enter into the principal stockholders agreement, as well as
customary and general representations and warranties made by Cordiant and
Healthworld Acquisition Corp. regarding, among other things, authority to enter
into the stockholder agreements.
58
MATERIAL TAX CONSEQUENCES
This section describes (1) the material United States federal income tax
consequences to U.S. holders, as defined below, of Healthworld common stock who
exchange such stock for Cordiant ADSs or ordinary shares and (2) the material
U.S. federal income and U.K. tax consequences to U.S. holders of the ownership
and disposition of Cordiant ADSs and ordinary shares. This discussion assumes
that U.S. holders hold Healthworld common stock, and will hold Cordiant ordinary
shares or ADSs, as the case may be, as capital assets. For purposes of this
section, "U.S. holder" means a beneficial owner of Healthworld common stock,
Cordiant ordinary shares or ADSs that is:
- an individual citizen or resident of the United States;
- a corporation created or organized in or under the laws of the United
States, any state thereof or the District of Columbia;
- a domestic partnership as defined in Section 7701 (a) (4) of the Internal
Revenue Code of 1986 and regulations thereunder;
- an estate other than a foreign estate as defined in Section 7701(a) (31)
of the Internal Revenue Code; or
- a trust (1) that validly elects to be treated as a U.S. person for United
States federal income tax purposes or (2)(a) under the primary
jurisdiction of a court within the United States and (b) over which one or
more U.S. persons have control.
For the purposes of this section, "eligible U.S. holder" means a U.S. holder
of Cordiant's ordinary shares or ADSs that:
- is resident in the U.S. for purposes of the U.S.-U.K. income tax treaty
and, in the case of a corporation, is not also resident in the U.K. for
U.K. tax purposes;
- holds the ordinary shares or ADSs in a manner which is not effectively
connected with a permanent establishment in the U.K. through which the
U.S. person carries on business or with a fixed base in the U.K. from
which the U.S. person performs independent personal services; and
- is not otherwise ineligible for benefits under the U.S.-U.K. income tax
treaty with respect to income and gains derived in connection with the
ordinary shares or ADSs.
This section does not describe all aspects of U.S. taxation or U.K. taxation
that may be relevant to U.S. holders in light of their particular circumstances,
such as U.S. holders whose Cordiant ordinary share or ADSs were acquired as a
result of the exercise of an employee stock option or otherwise as compensation
or U.S. holders subject to special treatment under the U.S. federal income tax
laws (for example, U.S. holders that hold stock or ADSs as part of a straddle,
hedge or conversion transaction, financial institutions, insurance companies,
tax-exempt organizations, dealers, traders in securities that elect to adjust
the valuation of these securities to reflect current market values and recognize
gain or loss annually based on fair market value at year end, persons subject to
alternative minimum tax, or persons that own actually or constructively 5% or
more of the voting power or value of Cordiant after the merger). This
section also does not address any aspects of state or local taxation or foreign
taxation, other than material U.K. tax consequences.
The discussion of U.S. federal income tax consequences is based on the tax
laws of the United States, including the Internal Revenue Code, its legislative
history, existing and proposed regulations thereunder, published rulings and
court decisions, as in effect on the date this proxy statement/ prospectus
becomes effective, as well as on the U.S.-U.K. income tax treaty, all of which
are subject to change or changes in interpretation, possibly with retroactive
effect. The United States and the United Kingdom have announced that they intend
to enter into negotiations to update their income tax treaty.
59
The discussion of U.K. tax consequences is based on current Inland Revenue
practice and the present U.S.-U.K. income tax treaty. The discussion of U.K.
taxation relating to dividends addresses only eligible U.S. holders who are not
resident or, in the case of individuals, ordinarily resident in the U.K. for
U.K. tax purposes.
Each U.S. holder is advised to consult his or her own tax advisors as to the
U.S. and U.K. tax consequences of the merger, including the facts and
circumstances that may be unique to the U.S. holder, and as to any estate, gift,
state, local or non-U.S. tax consequences of the merger and the ownership and
disposition of Cordiant ADSs or ordinary shares. These tax advisors are urged to
review the merger agreement for a full description of the technical details of
the merger.
UNITED STATES TAX CONSEQUENCES
UNITED STATES TAX CONSEQUENCES OF THE MERGER TO U.S. HOLDERS OF HEALTHWORLD
COMMON STOCK
Healthworld will receive, as a condition to the merger, from its special
counsel, Rosenman & Colin LLP, a tax opinion which states that in the opinion of
counsel:
- the merger will be treated as a reorganization within the meaning of
Section 368(a) of the Internal Revenue Code;
- no gain or loss will be recognized by any Healthworld stockholder for U.S.
federal income tax purposes on the exchange of Healthworld common stock
for Cordiant ADSs or ordinary shares except with respect to cash received
in lieu of a fractional interest in a Cordiant ADS or ordinary share;
- the aggregate tax basis of the Cordiant ADSs or ordinary shares received,
including fractional units treated as received as discussed below, by the
U.S. holder will be the same as the aggregate tax basis of the Healthworld
common stock surrendered in exchange therefor in the merger; and
- the holding period of the Cordiant ADSs or ordinary shares, including
fractional units treated as received as discussed below, will include the
holding period of the Healthworld common stock held as a capital asset and
surrendered in exchange therefor in the merger.
The tax opinion is expressly based upon the consummation of the merger
according to the merger agreement, the accuracy of representations made by
Healthworld and Cordiant, and compliance with the covenants in the merger
agreement. A breach of certain covenants or representations in the merger
agreement could cause the merger to fail to qualify as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code.
This opinion will be based on assumptions and updated representations of
Healthworld and Cordiant to be delivered at the time of the merger. The tax
opinion cannot be relied upon if any of the factual representations are, or
later become, inaccurate. Healthworld does not intend to waive receipt of the
tax opinions from its counsel and will not waive receipt of such opinion without
first circulating revised proxy materials and resoliciting the vote of its
stockholders.
The tax opinion is not binding on the Internal Revenue Service or a court
and does not preclude the Internal Revenue Service or a court from adopting a
contrary position. Neither Healthworld nor Cordiant will seek a ruling from the
Internal Revenue Service as to the tax treatment of the merger.
Healthworld stockholders will receive cash instead of fractional interests
in Cordiant ADSs and ordinary shares. A U.S. holder who receives cash instead of
a fractional Cordiant ADS or ordinary share will be treated as having received
the fractional Cordiant ADS or ordinary share in the merger and then as having
sold the fractional Cordiant ADS or ordinary share for cash. The amount of any
capital gain or loss of the U.S. holder attributable to that sale will be equal
to the difference between
60
the cash received with respect to the fractional Cordiant ADS or ordinary share
and the tax basis that is allocated to the fractional Cordiant ADS or ordinary
share. In the case of an individual U.S. holder, any such gain generally will be
subject to U.S. federal income tax at a rate that is lower than the maximum
marginal U.S. federal income tax rate applicable to ordinary income if the U.S.
holder has a holding period for the fractional Cordiant ADS or ordinary share of
more than 12 months at the time of the merger.
UNITED STATES TAX CONSEQUENCES OF THE OWNERSHIP OF CORDIANT ORDINARY SHARES AND
ADSS
TAXATION OF DIVIDENDS
As discussed below under "United Kingdom Tax Consequences," an eligible U.S.
holder is entitled to a U.K. tax credit that is offset by the U.K. withholding
tax. Under the present U.S.-U.K. income tax treaty, eligible U.S. holders will
include as ordinary income the amount of any dividend paid by Cordiant out of
its current or accumulated earnings and profits, as determined for United States
federal income tax purposes (the "base dividend") plus the amount of any U.K.
credit, before reduction for U.K. withholding tax. If Cordiant paid a dividend
of $90, for example, for U.S. federal income tax purposes an eligible U.S.
holder would recognize ordinary income of $90 plus the $10 U.K. tax credit, or a
total of $100. The income is recognized when the dividend is actually or
constructively received by the eligible U.S. holder, in the case of Cordiant
ordinary shares, or by the depositary, in the case of Cordiant ADSs. The
dividend will not be eligible for the dividends-received deduction generally
allowed to U.S. corporations in respect of dividends received from other U.S.
corporations. Distributions in excess of Cordiant current and accumulated
earnings and profits, as determined for U.S. federal income tax purposes, will
be treated as a return of capital to the extent of the eligible U.S. holder's
basis in the Cordiant ordinary shares or ADSs and thereafter as capital gain. In
determining the U.S. dollar amount of dividend income, an eligible U.S. holder
will use the spot currency exchange rate on the date the dividend is included in
income. Any difference between that U.S. dollar amount and the dollars actually
received may constitute foreign currency gain or loss, which is ordinary gain or
loss. Individual eligible U.S. holders, however, are not required to recognize
gain of less than $200 from the exchange of foreign currency in a "personal
transaction" as defined in Section 988(e) of the Internal Revenue Code.
Subject to some specific limitations and requirements, an eligible U.S.
holder will be entitled under the U.S.-U.K. income tax treaty to credit the U.K.
withholding tax against the eligible U.S. holder's United States federal income
tax liability. Claiming a U.S. foreign tax credit with respect to the U.K.
withholding tax imposed under the U.S.-U.K. income tax treaty upon the refunded
U.K. tax credit may result in a lower effective U.S. federal income tax rate on
dividends paid by Cordiant for certain eligible U.S. holders. It is not clear
whether inclusion of the U.K. tax credit in income and entitlement to the U.S.
foreign tax credit are dependent on the eligible U.S. holder filing a claim with
the U.K. Inland Revenue. Eligible U.S. holders that do not elect to claim
foreign tax credits for any foreign taxes imposed during a taxable year may
instead claim a deduction for U.K. withholding tax. For foreign tax credit
limitation purposes, a dividend paid by Cordiant will be income from sources
outside the U.S., but generally will be treated separately, together with other
items of "passive income" or, in the case of certain holders, "financial
services income". The rules relating to the computation of foreign taxes are
complex and eligible U.S. holders should consult their own tax advisors to
determine whether and to what extent a credit would be available and whether any
filings or other actions may be required to substantiate their foreign tax
credit claim.
It is possible that, in the future, Cordiant will be at least 50% owned by
U.S. persons. Under Section 904(g) of the Internal Revenue Code, dividends paid
by a foreign corporation that is at least 50% owned by U.S. persons may be
treated as U.S. source income, rather than foreign source income, for foreign
tax credit purposes to the extent the foreign corporation has more than an
insignificant amount of U.S. source income, and the effect of this rule may be
to treat a portion of the dividends
61
paid by Cordiant as U.S. source income. Under the U.S.-U.K. income tax treaty,
Section 904 (g) (10) of the Internal Revenue Code would permit an eligible U.S.
holder to elect to treat Cordiant dividends as foreign source income for foreign
tax credit limitation purposes, if the dividend income is separated from other
income items for purposes of calculating the holder's foreign tax credit.
TAXATION OF CAPITAL GAINS
In general, for U.S. tax purposes, U.S. holders of Cordiant ADSs will be
treated as the owners of the underlying Cordiant ordinary shares that are
represented by the Cordiant ADSs and deposits and withdrawals of Cordiant
ordinary shares by U.S. holders in exchange for Cordiant ADSs will not be
treated as a sale or other disposition for U.S. federal income tax purposes.
Upon a sale or other disposition of Cordiant ordinary shares or ADSs, a U.S.
holder will recognize gain or loss for U.S. federal income tax purposes in an
amount equal to the difference between the U.S. dollar value of the amount
realized and the U.S. holder's tax basis (determined in U.S. dollars) in the
Cordiant ordinary shares or ADSs. Generally, the gain or loss will be a
long-term capital gain or loss if the U.S. holder's holding period for the
Cordiant ordinary shares or ADSs exceeds one year and any gain or loss generally
will be income from sources within the United States for foreign tax credit
limitation purposes. Long-term capital gain for a non-corporate U.S. holder is
generally subject to federal income tax at a rate that is lower than the maximum
marginal U.S. federal income tax rate applicable to ordinary income.
BACKUP WITHHOLDING AND INFORMATION REPORTING
In general, information reporting requirements will apply to dividend
payments, or other taxable distributions, in respect of Cordiant ordinary shares
or ADSs made within the United States to a non-corporate U.S. person.
Accordingly, individual U.S. holders will receive an annual statement showing
the amount of taxable dividends paid to them during the year. "Backup
withholding" at the rate of 31% will apply to these payments (except for
dividends paid prior to January 1, 2001):
- if the holder or beneficial owner fails to provide an accurate taxpayer
identification number in the manner required by United States law and
applicable regulations;
- if there has been notification from the Internal Revenue Service of a
failure by the holder or beneficial owner to report all interest or
dividends required to be shown on its federal income tax returns; or
- in some limited circumstances, if the holder or beneficial owner fails to
comply with applicable certification requirements.
In general, payment of the proceeds from the sale of Cordiant ordinary
shares or ADSs to or through a U.S. office of a broker is subject to both U.S.
backup withholding and information reporting requirements, unless the holder or
beneficial owner establishes an exemption. Different rules apply to payments
made outside the U.S. through an office outside the U.S.
Amounts withheld under the backup withholding rules may be credited against
a U.S. holder's U.S. tax liability, and a U.S. holder may obtain a refund of any
excess amounts withheld under the backup withholding rules by filing the
appropriate claim for refund with the Internal Revenue Service.
UNITED KINGDOM TAX CONSEQUENCES TO U.S. HOLDERS OF ORDINARY SHARES AND ADSS
For the purposes of the U.S.-U.K. income tax treaty, eligible U.S. holders
of Cordiant ADSs will be treated as owners of the Cordiant ordinary shares
underlying the Cordiant ADSs.
62
TAXATION OF DIVIDENDS
An eligible U.S. holder that receives a dividend payment of $90 from
Cordiant on or after April 6, 1999 will be entitled under the U.S.-U.K. income
tax treaty to a U.K. tax credit amount of $10, subject to a U.K. withholding tax
of an equal amount (i.e., $10) resulting in a net receipt, before applicable
U.S. taxes, of $90 (i.e., an amount equal to the dividend). Accordingly, an
eligible U.S. holder who receives as beneficial owner a dividend from Cordiant
will not be entitled under the U.S.-U.K. income tax treaty to receive any
additional payment in respect of the tax credit from the U.K. Inland Revenue.
See "United States Tax Consequences of the Ownership of Cordiant Ordinary Shares
and ADSs--Taxation of Dividends" above.
TAXATION OF CAPITAL GAINS
An eligible U.S. holder who is not resident or ordinarily resident for tax
purposes in the U.K. will not generally be liable for U.K. tax on capital gains
realized on the disposal of his Cordiant ordinary shares or ADSs. This general
rule does not apply if, at the time of the disposal, the eligible U.S. holder
carries on a trade, profession or vocation in the U.K. through a branch or
agency and the Cordiant ordinary shares or ADSs are or have been used, held or
acquired for the purposes of such trade, profession or vocation, or for the
purposes of such branch or agency. A U.S. holder who is an individual and who
has, on or after March 17, 1998, ceased to be resident and ordinarily resident
(or becomes, on or after that date, neither resident nor ordinarily resident)
for tax purposes in the U.K. for a period of less than five tax years and who
disposes of Cordiant ordinary shares or ADSs during that period may be liable
for U.K. tax on capital gains realized, subject to any available exemption or
relief.
STAMP DUTY AND STAMP DUTY RESERVE TAX
U.K. stamp duty is charged in respect of certain documents and U.K. stamp
duty reserve tax is imposed in respect of certain transactions in securities.
A transfer of Cordiant ordinary shares will generally be subject to U.K.
stamp duty at the rate of 0.5% of the amount or value of the consideration given
for the transfer (with rounding up to the nearest multiple of L5). An agreement
to transfer Cordiant ordinary shares or any interest in the Cordiant ordinary
shares for money or money's worth will normally give rise to a charge of stamp
duty reserve tax at the rate of 0.5% of the consideration given. If an agreement
to transfer Cordiant ordinary shares is completed by a duly stamped transfer
within six years, then the charge to stamp duty reserve tax will be canceled or,
where the stamp duty reserve tax charge has been paid, the stamp duty reserve
tax will, provided that a claim for repayment is made, be repaid.
Transfers of shares through the electronic transfer system known as "CREST"
are generally subject to stamp duty reserve tax rather than stamp duty. A charge
to stamp duty or stamp duty reserve tax respectively at the rates of 1.5% (with
rounding up to the nearest multiple of L5) or 1.5% of the value of the
consideration or, in some circumstances, the value of the Cordiant ordinary
shares concerned, may arise on a transfer of the Cordiant ordinary shares to, or
to the custodian of, the depositary or to certain persons providing a clearance
service or their nominees or agents and will generally be payable by the
depositary or person providing the clearance service. Any tax or duty payable by
the depositary or the custodian of the depositary on deposit of Cordiant
ordinary shares will be charged by the depositary to the party to whom ADRs are
delivered against the deposits. However, any stamp duty reserve tax or stamp
duty arising on the issue of the Cordiant ADSs constituting merger consideration
will be paid by Cordiant.
Stamp duty reserve tax will not be payable on any agreement to transfer
Cordiant ADRs or beneficial ownership of Cordiant ADSs. A transfer of the
underlying Cordiant ordinary shares from the depositary to the holder of a
Cordiant ADS upon cancellation of the Cordiant ADS generally will be subject to
a fixed U.K. stamp duty of L5 per instrument of transfer.
63
REGULATORY MATTERS
Under the merger agreement, neither party is required to complete the merger
unless all required regulatory consents and approvals that would be material to
Cordiant and Healthworld on a combined basis are obtained without any
restrictions or conditions that would have a material adverse effect on Cordiant
and Healthworld on a combined basis. It is possible that these regulatory
consents and approvals will not be obtained at all or on a timely basis or that
material conditions will be imposed on these consents and approvals. See "THE
MERGER AGREEMENT--Conditions."
U.S. ANTITRUST
Under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and the
rules promulgated thereunder, the merger may not be completed unless specific
waiting period requirements have been satisfied. On December 14, 1999, Cordiant,
Healthworld, Steven Girgenti and Spencer Falk each filed a premerger
notification and report form under the HSR Act with the Antitrust Division of
the Department of Justice and the Federal Trade Commission. Early termination of
the applicable waiting period under the HSR Act was granted on December 28,
1999.
OTHER LAWS
It is possible that one or more of the regulatory approvals required to
complete the merger will not be obtained on a timely basis or at all. In
addition, it is possible that any of the governmental entities with which
filings are made may seek, as conditions for granting approval of the merger,
regulatory concessions. Under the merger agreement, if any regulatory body's
approval is subject to conditions or restrictions that would have a material
adverse effect on Cordiant or Healthworld on a combined basis, either Cordiant
or Healthworld can elect not to complete the merger. It is possible that
Cordiant or Healthworld will not be able to comply with conditions imposed or
that compliance or non-compliance will have adverse consequences for Cordiant
after completion of the merger. See "THE MERGER AGREEMENT--Conditions."
ACCOUNTING TREATMENT
Cordiant will account for the merger as an acquisition under U.K. generally
accepted accounting principles in accordance with Financial Reporting Standard 6
"Acquisitions and Mergers" and will account for the merger as a purchase for
U.S. generally accepted accounting principles purposes in accordance with APB
Opinion No. 16 "Business Combinations." Accordingly, from and after the merger,
Healthworld's consolidated results of operations will be included in Cordiant's
consolidated results of operations. Healthworld's financial statements will be
kept under U.S. generally accepted accounting principles. For purposes of
preparing Cordiant's consolidated financial statements under U.K. generally
accepted accounting principles, Cordiant will convert Healthworld's financial
statements from U.S. generally accepted accounting principles to U.K. generally
accepted accounting principles and establish a new accounting basis for
Healthworld's assets and liabilities based upon the fair market values thereof
and the purchase price for Healthworld. Therefore, the purchase accounting
adjustments made in connection with the development of the Unaudited Pro Forma
Condensed Combined Financial Information appearing elsewhere in this proxy
statement/prospectus are preliminary and have been made solely for purposes of
developing the Unaudited Pro Forma Condensed Combined Financial Information to
comply with the disclosure requirements of the SEC. Although the final
allocation will differ, the Unaudited Pro Forma Condensed Combined Financial
Information reflects Cordiant's best estimate based upon currently available
information.
64
DESCRIPTION OF CORDIANT
GENERAL
Cordiant Communications Group plc is a global integrated communications
group. Cordiant comprises: Bates Worldwide, one of the largest advertising and
integrated communications networks in the world; Scholz & Friends, the largest
multinational advertising network headquartered in Germany; HP:ICM, event
conference and exhibition managers; a 30% equity stake in The Facilities Group,
a pre-production agency; and a 50% equity stake in Zenith Media Worldwide, a
global specialist media services and planning agency.
Cordiant comprises the ongoing businesses of Cordiant plc after the demerger
of Saatchi & Saatchi plc in December 1997. Prior to the demerger, Cordiant plc
was the holding company for a group of advertising and creative marketing
communication businesses, the two largest of which were the advertising networks
Bates Worldwide and Saatchi & Saatchi. Following the demerger, Saatchi & Saatchi
retained a 70% stake in the Facilities Group and a 50% interest in Zenith Media
Worldwide, each of which is operated as a joint venture with Cordiant.
In 1997, 141 Worldwide was established as a separately branded network
within Bates Worldwide, specializing in sales promotion, direct marketing,
interactive media and associated activities. Since the demerger, 141 Worldwide
has expanded rapidly and at the end of 1998 operated in 40 offices in 31
countries.
Cordiant's principal corporate offices are located at 121-141 Westbourne
Terrace London W2 6JR, Cordiant's United Kingdom telephone number is
011-44-20-7262-4343. Information about Cordiant can be found on the Cordiant
website, www.ccgww.com.
STRATEGIC OBJECTIVES
Cordiant has three key strategic objectives designed to position its
business for profitable growth. By the end of year 2000, Cordiant aims to:
- grow revenues from multinational clients (where Cordiant represents the
client in five or more countries) to 40% of Cordiant's business;
- grow the share of revenues attributable to Cordiant's North American
operations to 30% of Cordiant's total revenues; and
- grow the revenues from marketing services to 30% of total revenues.
MULTINATIONAL BUSINESS
Cordiant possesses a truly global advertising network. Bates Worldwide, with
156 offices in over 70 countries, has both the global reach and local creative
expertise to provide Cordiant's clients with the competitive advantage Bates'
"Think Global. Act Local."-Registered Trademark- philosophy asserts. While the
proportion of revenues coming from multinational clients increased to
33 percent in 1998 from 30 percent in 1997, Cordiant's revenue contribution from
multinational clients remains below that of its major competitors. Cordiant
seeks to exploit opportunities to build existing local client relationships into
profitable regional and global partnerships. This has been, in Cordiant's
experience, an important source of new multinational business in the past, and
an avenue Cordiant intends to exploit further in the future.
NORTH AMERICA
In 1998, revenue attributable to Cordiant's North American operations
represented 24 percent of total revenues, up from 22 percent in 1997. North
America was Cordiant's best performing region in
65
terms of improved profitability in 1998, with strong organic growth being
bolstered by the acquisition of diversified services businesses.
Taking the industry as a whole, North America accounted for approximately
40 percent(3) of worldwide advertising expenditure in 1998, with an even greater
proportion of global spending being controlled from the region. With
approximately 24 percent of Cordiant's revenues coming from North America in
1998, Cordiant is currently under-represented in this important market. Cordiant
intends to further build its operations in the region to 30 percent of total
revenues by a combination of organic growth and value-enhancing acquisitions.
MARKETING SERVICES
Although, according to industry sources, approximately 45 percent of
worldwide advertising expenditure in 1998 was directed towards major media
advertising, Cordiant believes that an increasing proportion is spent on other
marketing disciplines such as direct marketing, sales promotion, consulting and
research, public relations and other specialist communications. The rapidly
increasing cost of traditional media, combined with clients' increasing desire
for integrated marketing solutions, suggests that diversified services will grow
more rapidly than traditional media advertising over the next five years.
Cordiant has sought to capitalize on these market developments by developing 141
Worldwide into a highly effective global network offering common methodologies
in sales promotion, direct marketing, events marketing, interactive media,
merchandising and sponsorship across the globe. 141 Worldwide increased its
representation to 40 offices in 31 countries in 1998. In 1998, diversified
marketing services represented 22 percent of Cordiant revenues, an increase of
2 percent over 1997, towards Cordiant's target of 30 percent by 2000.
CORPORATE DEVELOPMENTS
THE DEMERGER
On April 21, 1997, the Board of Directors of Cordiant announced its decision
to recommend to its shareholders that they approve a spinoff or demerger of
Saatchi & Saatchi from Cordiant plc with the remaining businesses renamed
Cordiant Communications Group plc. The demerger was motivated by the desire to
allow each of Cordiant plc and Saatchi & Saatchi to stand on its own and to
allow the primary advertising agencies of the Cordiant and Saatchi & Saatchi,
namely Bates Worldwide and Saatchi & Saatchi, to respond more quickly to client
needs and opportunities. The demerger took effect on December 15, 1997 and, from
the effective date of the demerger, Cordiant and Saatchi & Saatchi have operated
as separate public companies and neither Cordiant nor Saatchi & Saatchi
beneficially owns any shares of the other. As a result of the demerger, Cordiant
and Saatchi & Saatchi each own a 50 percent equity stake in Zenith.
RELATIONSHIP BETWEEN CORDIANT AND SAATCHI & SAATCHI FOLLOWING THE
DEMERGER. As a result of the demerger, Cordiant and Saatchi & Saatchi are
separate publicly traded companies and operate independently of each other.
Neither company has any interest in the shares of the other. However, Cordiant
and its subsidiaries or other companies within the Cordiant group entered into
certain agreements and arrangements with Saatchi & Saatchi and Zenith in order
to enable the demerger to be carried out, allocate responsibility for certain
obligations, provide for certain transitional arrangements and otherwise define
their relationship following the demerger. The terms of these agreements and
arrangements are principally governed by the demerger agreement, dated
September 30, 1997, between Cordiant, Saatchi & Saatchi, Saatchi & Saatchi
Holdings Limited and Zenith, and certain agreements required to be entered into
pursuant to the demerger agreement. The principal terms of these agreements and
arrangements are described below.
- ------------------------
(3) Sources: ZENITH MEDIA WORLDWIDE, Advertising Expenditure Forecasts, January
1999.
66
PROPERTY GUARANTEES. The following outstanding guarantees by Cordiant
companies of obligations of certain companies under Saatchi & Saatchi were not
released in connection with the demerger:
- Saatchi & Saatchi's lease of premises at 375 Hudson Street, New York, for
a term expiring on January 31, 2013, at a current annual base rent of
$17.9 million subject to periodic rent reviews; and
- the Saatchi & Saatchi Group's lease of premises at 21 Dukes Road, London,
for a term expiring on October 31, 2016 with a tenant's right to break on
October 31, 2006 with a current annual base rent is L255,882, subject to
periodic rent reviews.
In connection with the demerger, Saatchi & Saatchi agreed to give
additional, or in some cases substitute, guarantees and to indemnify Cordiant
against any liability in its preexisting guarantees.
OWNERSHIP AND OPERATION OF ZENITH MEDIA WORLDWIDE
ZENITH SHAREHOLDERS' AGREEMENT. Cordiant, Saatchi & Saatchi and Saatchi &
Saatchi Holdings Limited, at the effective time of the demerger, entered into a
shareholders' agreement to regulate the relationship between Cordiant and
Saatchi & Saatchi Holdings as shareholders of Zenith.
The Zenith shareholders' agreement provides for the operation of Zenith
including:
- the composition of executive and non-executive management;
- matters that require consent of both shareholders before they can be
undertaken by Zenith (alteration of capital structure, annual business
plan and contracts out of the ordinary course of its business or not at
arm's length terms);
- the transfer of shares of Zenith; and
- resolution of disputes both between shareholders and Zenith and clients of
the shareholders and Zenith.
Zenith distributes up to seventy-five percent of its profits to its
shareholders and divides them between them in part by reference to the
proportions in which Zenith receives revenue from clients of each shareholder.
The remainder is retained by Zenith unless otherwise agreed.
The Zenith shareholders' agreement prohibits the transfer of shares in
Zenith, except in certain limited circumstances. After December 14, 2000, a
shareholder will be entitled to transfer all of its shares in Zenith, subject to
a right of first refusal in favor of the other shareholder. The agreement also
contains options whereby one shareholder is entitled to acquire all of the
Zenith shares of the other shareholder in the event that: (1) the other
shareholder becomes insolvent; (2) the other shareholder experiences a change of
control and following which there is a material breach of any of the terms of
the media services agreement (described below) to which that shareholder is a
party which either is not capable of remedy or is not remedied within a certain
period; or (3) the other shareholder terminates the media services agreement to
which it is a party.
The Zenith shareholders' agreement will remain in force until (1) either
shareholder acquires all of the shares in Zenith held by the other, (2) an order
is made or resolution is passed for the winding up of Zenith or (3) a third
party acquires all of the shares of Zenith.
ZENITH MEDIA SERVICES AGREEMENTS. In connection with the demerger, each of
Cordiant and Saatchi & Saatchi entered into a media services agreement with
Zenith. Under the terms of these agreements the shareholders each appointed
Zenith as the exclusive supplier of media buying, media planning and certain
related services for all of the clients, subject to certain exceptions, of each
shareholder. Each of the media services agreements will terminate on
December 31, 2001 or on any
67
subsequent anniversary of that date if either party has given to the other at
least 12 months' written notice of such termination.
ZENITH BANK FACILITY. In connection with the demerger, Zenith entered into
an agreement providing it with a L21.5 million secured reducing multi-currency
revolving credit facility. Cordiant and Saatchi & Saatchi provided unlimited
guarantees to the lenders in respect of the Zenith credit facility and agreed
between themselves that any liability under such guarantees is to be shared
equally.
At December 31, 1998 the amount outstanding under the Zenith credit facility
was L20.5 million. This facility amortizes by L2 million in each of 1999 and
2000 and L4 million in 2001, with the balance due in 2002.
The Zenith credit facility requires Zenith to comply with various financial
covenants relating to gross interest cover, maximum gross debt and gross capital
expenditure. It provides that under certain specified events of default, amounts
made available could be declared immediately due and payable. In addition to
customary events of default, these events include defaults by certain companies
under Zenith in respect of debt limits or where there has been a change of
control of Zenith. Both Cordiant and Saatchi & Saatchi have guaranteed the
Zenith credit facility.
OWNERSHIP AND OPERATION OF THE FACILITIES GROUP
Cordiant, Saatchi & Saatchi, Saatchi & Saatchi (Central Services) Limited
and The Facilities Group Limited, at the effective time of the demerger, entered
into a shareholders' agreement that defined their relationship as shareholders
of The Facilities Group. Saatchi & Saatchi is a party to that agreement in order
to guarantee the obligations of Saatchi & Saatchi Limited. Cordiant has a
30 percent equity stake in The Facilities Group and Saatchi & Saatchi holds the
other 70 percent. The Facilities Group agreement makes provision for the
operation of The Facilities Group, including the composition of executive
management and the transfer of shares.
The distributable profits of The Facilities Group will be divided between
shareholders (1) in the proportions in which The Facilities Group receives
revenue from clients of each shareholder or, (2) if not attributable to either
shareholder, in proportion to each shareholder's equity stake. The agreement
also permits either shareholder to acquire all of the shares in The Facilities
Group owned by the other shareholder if: (1) the other shareholder becomes
insolvent; or (2) the other shareholder undergoes a change in control.
The Facilities Group agreement will remain in force until (1) either
shareholder acquires all of the shares in The Facilities Group held by the
other, (2) an order is made or resolution is passed for the winding up of The
Facilities Group or (3) a third party acquires all of the shares of The
Facilities Group.
EMPLOYEE BENEFITS PLANS. Cordiant employees are members of a number of
pension schemes throughout the world, but principally in the U.K. and the U.S.
Cordiant currently operates two principal U.K. pension schemes: a defined
benefits scheme (the Cordiant Group Pension Scheme) and a defined contribution
scheme (the Cordiant Group Money Purchase Pension Plan). Since the demerger,
Saatchi & Saatchi employees have remained members of these schemes.
Employees of Saatchi & Saatchi and Zenith have continued their membership in
both schemes through the present pursuant to Inland Revenue approval. Cordiant
and Saatchi & Saatchi have agreed that, at the end of a transitional period,
Saatchi & Saatchi's members within the two U.K. pension schemes will be given
the opportunity to transfer to new pension arrangements being set up by
Saatchi & Saatchi. A transfer payment determined by the trustee of the two U.K.
pension schemes, having taken actuarial advice, will be made to the new
Saatchi & Saatchi pension arrangements in respect of the accrued rights under
the relevant U.K. pension scheme of those members who request a transfer. The
same provisions apply to employees of Zenith who are members of Cordiant's U.K.
pension schemes.
68
ORGANIZATION AND SERVICES
Cordiant's operations consist of advertising and other creative marketing
services including direct marketing, media services, sales promotion, production
services, interactive media and market research. In 1998, Cordiant's largest
five clients accounted for 19.6 percent of revenues. The two largest clients
accounted for 5.7 percent and 5.3 percent, respectively, of total revenues.
Cordiant's principal activities are organized as follows:
ORGANIZATION ACTIVITIES
- --------------------------------------------- ---------------------------------------------
Bates Worldwide.............................. Advertising and integrated communications
Scholz & Friends............................. Advertising and integrated communications
The Campaign Palace.......................... Advertising and integrated communications
141 Worldwide................................ Diversified marketing services
The Decision Shop............................ Strategic marketing and research
HP:ICM....................................... Live communications
Zenith Media Worldwide(1).................... Media services
The Facilities Group(2)...................... Production services
- ------------------------
(1) Owned 50 percent by Cordiant, 50 percent by Saatchi & Saatchi
(2) Owned 30 percent by Cordiant, 70 percent by Saatchi & Saatchi
ADVERTISING AND INTEGRATED COMMUNICATIONS
Cordiant's advertising agencies are principally involved in the creation of
advertising and marketing programs for products, services, brands, companies and
organizations. These programs involve various media such as television,
magazines, newspapers, cinema, radio, outdoor, electronic and interactive media,
as well as techniques such as direct marketing, sales promotion and design. The
creation of advertising and marketing materials includes the writing, designing
and development of concepts. When the concepts have been approved by the client,
the agency supervises the production of materials necessary to implement that
program. These include film, video, print and electronic materials, which are
produced externally.
The agencies often perform a strategic planning function which involves
analysis of the particular product, service, brand, company or organization
against its competitors and the market.
Cordiant's agencies also evaluate the choice of media to reach the desired
market most efficiently. In the case of global and regional campaigns,
Cordiant's networks, Bates Worldwide and Scholz & Friends, plan and coordinate
the implementation of their campaigns through their networks of national
agencies.
Cordiant's agencies also buy media space and time for their clients. This is
executed by Zenith, by the agencies' in-house teams or sourced from external
suppliers.
BATES WORLDWIDE
Bates Worldwide is a global advertising and integrated communications
network with 156 owned or affiliated offices located in over 70 countries. In
1998, Bates Worldwide (including 141 Worldwide, The Campaign Palace and The
Decision Shop) accounted for 86 percent of Cordiant's revenues. Bates
Worldwide's creative approach is derived from each product's Unique Selling
Proposition ("U.S.P.(5)"), in the belief that the foundation for effective
communication is a strong selling proposition. Bates Worldwide, the U.S.P.
agency, adheres to the operating philosophy of "Think Global, Act
Local"-Registered Trademark-, reflecting both the networks' global reach and its
creative expertise at a local level.
69
ORGANIZATIONAL DEVELOPMENTS. Expanding out from its advertising base, Bates
Worldwide is energetically building its total integrated service capacity. Most
notably, in 1997, 141 WORLDWIDE was established as a separately branded network
with special expertise in sales promotion, direct marketing, interactive media,
and associated activities. Strategic acquisitions were also made in 1998 to
strengthen Bates Worldwide's diversified services capabilities. In North
America, Churchill Public Relations, a business to business PR, advertising and
research company, and The Criterion Group, a travel and tourism specialist, were
acquired.
As part of Cordiant's commitment to provide an enhanced service to its
international clients, a number of acquisitions were made in Latin America. In
Argentina, Bates Worldwide purchased Fernando Fernandez and merged it with
Verdino Bates. It also acquired an equity interest in Newcomm Bates in Brazil.
In addition, a number of small "in-fill" acquisitions were made, primarily
in Continental Europe, either to support the development of 141 Worldwide or to
strengthen existing operations.
THE CAMPAIGN PALACE. The Campaign Palace is a full-service advertising
agency operating in Australia and New Zealand as a separately branded creative
agency within Bates Worldwide.
Part of The Campaign Palace is The Media Palace, a media planning and
strategy consultancy. The Media Palace has a core philosophy that media should
be a lead discipline in advertising developments and should drive the
communications process.
SCHOLZ & FRIENDS
Scholz & Friends is the largest German-based multinational network(4) with
13 offices operating across Europe. Scholz & Friends provides clients with a
wide range of marketing services including advertising, sales promotion, public
relations, direct marketing, design, consulting and interactive media. Cordiant
currently owns 90 percent of Scholz & Friends. During 1998, the network
accounted for approximately 12 percent of Cordiant's revenue.
With its headquarters in Germany, Scholz & Friends' most significant clients
include major German companies such as Deutsche Bank, Deutsche Telekom,
Frankfurter Allgemeine Zeitung, Lufthansa, Mercedes, Schwarkopf/Henkel and
Tchibo.
Scholz & Friends further consolidated its integrated marketing services
capabilities to clients in 1998, acquiring Market Lab AG, a corporate consulting
firm, and Scholz & Friends NeuMarkt, an agency specializing in mail order and
sales.
In 1995, Scholz & Friends moved from operating independently within the
Bates Worldwide network to operating as an independent network. The Scholz &
Friends network has expanded to include 13 offices in 11 European countries,
with the Asia Pacific region served by a central office in Singapore. In the
Middle East, the Balkan region and the Baltic countries, Scholz & Friends
operates affiliate relationships with partner agencies. The expansion of
Scholz & Friends was further developed in 1998 with the opening of a new office
in London and Moscow.
Scholz & Friends has developed a "family" system by dividing the agency into
independent agency units. Each unit or "family" operates autonomously within the
agency, headed by a managing director and creative director. This concept has
been extended across the Scholz & Friends network, providing clients with a
coordinated response from experienced local management.
- ------------------------
(4) source: ADVERTISING AGE, Agency Report April 1999.
70
DIVERSIFIED MARKETING SERVICES
Cordiant has been developing a number of its diversified marketing services
as separately branded operations. These businesses have potential for
high-margin revenue growth and Cordiant expects them to enhance the network's
ability to generate global client accounts. The services provided are set out
below.
141 WORLDWIDE. 141 Worldwide is a global network specializing in
diversified marketing services, offering expertise in a wide range of activities
including sales promotion, direct marketing, event marketing, merchandising,
sponsorship, design and interactive media. Launched in 1997 as a separately
branded network within Bates Worldwide, 141 Worldwide has grown rapidly and now
comprises 40 offices in 31 countries.
The network has over 250 clients worldwide, with over 50 percent of revenues
coming from multinational clients.
141 Worldwide has developed internet marketing expertise in four regional
centers: New York, London, Sydney and Singapore. Work includes the design,
creation and maintenance of websites and the development of marketing
opportunities on the Internet for clients' products. Internet-related revenues
accounted for 5 percent of 141 Worldwide's business in 1998.
141 Worldwide's international network operates to standard practices and a
unified philosophy utilizing two operating systems: the 141 Management system is
used by the network to guide clients from strategic development through to the
execution of creative work; the 141 Creative Project Flow is a methodology used
to help clients understand better the creative process used by the network.
There is also a central 141 Networking office in London to transfer knowledge of
the latest research and legislation across the network.
The development of 141 Worldwide is key to Cordiant's strategic objective
that an increasing proportion of Cordiant's total revenues be derived from
diversified marketing services. Cordiant expects continued development of the
141 Worldwide brand from both organic growth and strategic acquisitions.
STRATEGIC MARKETING AND RESEARCH
THE DECISION SHOP. The Decision Shop is a strategic marketing and research
business within Bates Worldwide specializing in brand positioning research,
consultancy and econometric modeling. The Decision Shop provides analytical
skills that assist multinational clients to reposition their key brands for
future growth.
The Decision Shop has conducted over 100 brand positioning studies around
the world using its proprietary Brand Essence Programme technology. In 1998, The
Decision Shop launched the N-Vision positioning program, an integrated solution
in brand positioning. This followed the introduction of Brand Health, a program
to assess the value to brands of alternative marketing and communications
strategies. Brand Health, which is both evaluative and diagnostic, is of
increasing relevance in the increasingly accountable world of marketing
communication.
LIVE COMMUNICATIONS
HP:ICM. HP:ICM is a leading specialist communications agency providing
creative and production consultancy in the areas of live events, exhibitions,
film, video, multimedia and brand experience. The agency provides a full service
to its clients, from strategic and creative development through to design,
production and implementation. HP:ICM provides a complete service to clients to
successfully operate live events, embracing all key supports such as delegate
management, film and video production, graphic design, print and interactive
media. HP:ICM's end products take many forms,
71
such as displays at visitor centers, exhibition stands, conferences, internal
corporate television networks, trans-continental roadshows, multi-media training
programs and corporate videos. The agency is based in London although
approximately half of its revenues are generated outside the UK.
PRODUCTION SERVICES
THE FACILITIES GROUP. Based in central London, The Facilities Group
provides a broad range of technical and creative services to clients in the
areas of design, print, production, artwork, audio visual, multimedia and
television production. The Facilities Group was created to offer clients a
quicker, more efficient service by maximizing the potential of new technology in
the management of advertising production processes. The Facilities Group is
jointly owned by Cordiant and Saatchi & Saatchi, with Cordiant holding a
30 percent stake.
In addition to providing for the majority of press, television, design and
new media production requirements of it shareholders, The Facilities Group has
continued to expand its list of external clients.
MEDIA SERVICES
ZENITH MEDIA WORLDWIDE. Zenith Media Worldwide is a specialist media
agency, providing media planning, buying, evaluation and consultancy services to
its clients. Zenith is headquartered in London and has 51 offices or affiliated
agencies in 28 countries across the world.
Zenith provides its services to clients of Bates Worldwide and Saatchi &
Saatchi. In addition, in 1998 approximately 60 percent of its revenues were
generated from Zenith's list of direct clients.
Zenith has invested in recruiting, training and retaining talent and in
providing these people with sophisticated proprietary media systems under the
brand name Zenith Optimization of Media, ZOOM-TM-. This includes the upgrading
and the standardization of hardware and software platforms across its network,
the development of Intranet Communications with clients and the launch of global
and national optimization systems and research such as ZOOM Wizard, ZOOM Merlin,
ZOOM Mediamaps and ZOOM Director.
Cordiant and Saatchi & Saatchi each have a 50 percent equity stake in
Zenith, and both companies account for Zenith as a joint venture. In addition,
both Cordiant and Saatchi & Saatchi entered into an agreement in which they
agree to use Zenith as their exclusive media services supplier, subject to
certain exceptions, until at least December 31, 2000. See "--Ownership and
Operation of Zenith Media Worldwide."
PERSONNEL
As of June 1, 1999, Cordiant employed approximately 5,100 people worldwide.
The success of Cordiant's advertising and media services businesses, like that
of all other advertising agencies, depends largely on the skill and creativity
of their personnel and their relationships with clients. Cordiant believes that
its relationship with its employees is good.
ACQUISITIONS & DISPOSALS
ACQUISITIONS
During 1998, Cordiant made the following acquisitions:
In the U.S., The Criterion Group, Inc., a company specializing in marketing
for the travel and tourism industry, was acquired and renamed Bates Travel and
Tourism, Inc. Churchill Group, Inc., a public relations company, and Churchill
Advertising, Inc., a business-to-business advertising company,
72
were acquired and renamed Bates Churchill Group, Inc. and Bates Churchill
Advertising Group, Inc., respectively.
In Australia, a 24.9 percent holding in The Communications Group Pty Ltd.
(the holding company for Cordiant's Australian businesses), was acquired, giving
Cordiant 100 percent control.
In Argentina, Cordiant's 10 percent investment in Verdino Bates SA was
increased, at the same time acquiring and merging with it Fernando Fernandez SA,
to give a 63 percent holding in the merged entity which was renamed Verdino
Bates Fernando Fernandez SA. Also, in December 1998, Cordiant acquired a
32 percent equity interest in Newcomm Bates SA in Brazil.
Since the demerger, Cordiant has made a number of small acquisitions
including acquisitions in Germany, Spain, Norway, Sweden, Holland, India and the
Middle East.
During 1997, Cordiant made the following acquisitions: a 51 percent interest
in Grapple Cordiant 141 (Pty) Ltd., a South African company; a further
25 percent interest in X/M Harrow Pty Limited, an Australian company, raising
its holding to 75 percent; and Scholz & Friends GmbH acquired a further
33 percent interest in Scholz & Friends Dresden GmbH, in Germany, increasing
Cordiant's effective holding of Scholz & Friends Dresden to 76.5 percent.
DISPOSALS
During 1998, Cordiant divested itself of a controlling interest in Bates
Japan Ltd to retain a 31 percent share of the company now operating as a joint
venture and renamed Saatchi & Saatchi Bates Yomiko KKK. Neither a profit nor a
loss arose from this restructuring.
In October 1997, Cordiant completed the sale of National Research
Group, Inc.
COMPETITION
The advertising industry is highly competitive at both an international and
local level. Cordiant's principal competitors in the advertising industry are
the large multi-national agencies based in the U.S., the U.K. and France as well
as smaller agencies which operate in local markets. The principal competitive
factors include an agency's reputation, its creative strength and quality of
client service, its ability to perceive clients' needs accurately, the
commercial effectiveness of its ideas, its geographic coverage and diversity,
its understanding of advertising media and its media buying power. In addition,
an agency's ability to maintain its existing clients and develop new
relationships depends to a significant degree on factors such as the
interpersonal skills of the individuals managing client accounts. Normal
practice in the industry is for agency contracts to have a three month
termination period.
Cordiant believes it is well positioned to compete in the advertising
industry. From a client perspective, Bates Worldwide's reputation is enhanced by
being the original U.S.P.-TM- agency. Cordiant also believes that the
combination of its local presence and our worldwide network provides Cordiant
with one of the strongest operating formats to implement advertising strategies
on a worldwide basis. Furthermore, the process of clients consolidating their
business in the advertising market will continue to offer opportunities for
Bates Worldwide to win new business.
REGULATION
Governments, government agencies and industry self-regulatory bodies in the
various countries in which Cordiant operates continue to adopt legislation and
regulations which directly or indirectly affect the form, content and scheduling
of advertising and other communications services, or otherwise affect the
activities of such businesses and their clients. Certain of the legislation and
regulations relate to considerations such as truthfulness, substantiation,
interpretation of claims made and comparative
73
advertising. In addition, there is a tendency toward restrictions or
prohibitions relating to advertising for such products as pharmaceuticals,
tobacco and alcohol.
DESCRIPTION OF PROPERTY
Cordiant leases all its premises. The principal properties leased by
Cordiant are as follows:
AREA 1998 ANNUAL BASE NEXT RENT EXPIRATION
LOCATION SQ. FT. RENTAL-MILLIONS REVIEW DATE OF LEASE
- -------- -------- ---------------- ----------- ----------
498 Seventh Avenue
New York, New York........................... 204,000 $6.0 2004 2014
121-141 Westbourne Terrace
London, England.............................. 62,500 L1.5 -- 2003
In addition, in respect to Landsdowne House, Berkeley Square London,
England, Cordiant leases 103,000 square feet at an annual rental of
L6.5 million which is sublet for mainly coterminous periods as Cordiant at an
average annualized rental of approximately L6.1 million during 1998. A further
72,000 square feet at an annual rental of L3.1 million is sublet on a short-term
basis at an average annualized rental of approximately L1.9 million during 1998.
At December 31, 1998, Cordiant's owned and leased properties and fixtures
(including furniture and equipment) had a net book value of L11.9 million
($19.8 million).
Cordiant considers its offices and other facilities to be in good condition.
However, it has surplus office space based on the needs of its current business.
At December 31, 1998, L33.2 million ($55.1 million) had been reserved by
Cordiant for potential costs of surplus space, primarily in London and New York
City.
LEGAL PROCEEDINGS
Cordiant is a party in various lawsuits incidental to its business
operations. In the opinion of Cordiant, none of such litigation in which it is
currently a party will have a material adverse effect on Cordiant's financial
condition or its operations as a result of an unfavorable outcome.
74
DESCRIPTION OF HEALTHWORLD
BUSINESS
On November 12, 1997, Healthworld acquired, in exchange for shares of its
common stock, all of the issued and outstanding common stock of each of (1)
Girgenti, Hughes, Butler & McDowell, Inc. and its affiliated entities ("GHB&M")
and (2) Milton Marketing Group Limited and its subsidiaries ("Milton"). Unless
otherwise indicated, all references in this proxy statement/prospectus to
"Healthworld" include (1) GHB&M and Milton and give effect to their acquisition
by Healthworld, and (2) all of the other subsidiaries of Healthworld formed or
acquired subsequent to the acquisition of GHB&M and Milton.
OVERVIEW
Healthworld is an international communications and contract sales marketing
organization specializing in healthcare. Healthworld provides many of the
world's largest pharmaceutical and healthcare companies with a comprehensive
range of integrated strategic marketing services designed to accelerate the
acceptance of new products and to sustain their growth. These integrated
services include advertising and promotion, contract sales, consulting, medical
education, public relations, marketing research, publishing, interactive
multimedia and database marketing services. Healthworld offers its clients
global reach and expertise through its operations in the United States, France,
Spain and the United Kingdom, and through Healthworld B.V., a world-wide network
of licensed independent marketing and communications agencies.
Healthworld Corporation was incorporated in Delaware on September 12, 1996
and conducted no operations prior to the completion of the acquisition of GHB&M
and Milton on November 12, 1997. In connection with these acquisitions, the
entities comprising GHB&M and Milton became wholly-owned subsidiaries of
Healthworld Corporation on November 12, 1997. In July 1998, Healthworld acquired
80% of the capital stock of HFT, a French holding company, which owns 100% of
the capital stock of Torrent S.A., a French healthcare communications agency,
and its subsidiaries. In addition, in July 1998, Healthworld acquired all of the
capital stock of Colwood House Medical Publications (UK) Limited, a United
Kingdom medical education company. In October 1998, Healthworld acquired all of
the capital stock of CPA Espana, S.L., a healthcare communications agency
located in Madrid, Spain. In August 1999, Healthworld acquired all of the
capital stock of Falk Communications, Inc., a healthcare communications agency
located in New York City.
Healthworld conducts all of its operations in the United States through
GHB&M and Falk, in the United Kingdom through Milton and Colwood, in France
through HFT and in Spain through CPA Espana. GHB&M and Milton have been
operating in the marketing and communications industry since April 1986 and
August 1978, respectively. See Healthworld's consolidated financial statements
contained elsewhere in this proxy statement/prospectus for additional financial
information with respect to Healthworld's U.S. and European operations.
In November 1997, Healthworld completed an IPO where Healthworld issued and
sold an aggregate of 2,415,000 shares of its common stock.
Healthworld's principal executive offices are located at 100 Avenue of the
Americas, New York, New York 10013. Healthworld's telephone number is
(212) 625-4000.
SERVICES
Healthworld provides a variety of communications and contract sales services
to its clients, ranging from the execution of a discrete marketing project to
taking responsibility for a client's overall marketing message, which enables
Healthworld to incorporate a wide variety of its services into one integrated
marketing campaign. Healthworld seeks to develop brand loyalty and awareness for
its
75
clients at all stages of a product's life-cycle and approaches each project by
carefully evaluating the product, the client's goals with respect to such
product and industry and competitive considerations.
Revenues from Healthworld's U.S. operations are derived primarily from
providing advertising and promotion, consulting and medical education services
to its clients. In addition, Healthworld offers other communications services
through its U.S. operations to clients, including public relations, marketing
research, publishing, interactive multimedia and database marketing services. In
February 1998, Healthworld's U.S. operations began offering contract sales
services to its healthcare related clients. Revenues from Healthworld's European
operations are derived primarily from providing contract sales services and
advertising and promotion services. As a result of Healthworld's acquisition of
Colwood in July 1998, Healthworld's European operations also began providing
medical education services.
COMMUNICATIONS SERVICES
ADVERTISING AND PROMOTION. Healthworld's traditional advertising and
promotion services include developing creative concepts to be used in
advertising campaigns for pharmaceutical and other healthcare products and
applying such creative concepts to the development and production of a wide
variety of marketing and promotional materials, including: medical journal
advertisements, direct mail materials, sales force brochures, hospital displays,
convention exhibit panels, drug sample packages and reminder promotional items.
Such campaigns are targeted almost exclusively to physicians, nurses and other
healthcare providers as well as wholesale distributors. Healthworld also
analyzes marketing research data, which is either developed by Healthworld
(through various methods including focus group studies, telephone interview
studies and mailings) or obtained from its clients and other third-party
sources, to determine the most appropriate audience to target as well as the
types of marketing and promotional materials to employ in a campaign.
In response to the growth of direct-to-consumer marketing ("DTC") campaigns
during the last five years, GHB&M expanded its advertising and promotion
services to include DTC. Healthworld believes that GHB&M was one of the first
firms to develop a DTC campaign for prescription drugs and has become an
industry leader in developing such DTC campaigns based on the number of DTC
assignments it has performed. Through a dedicated team engaged exclusively in
developing DTC campaigns, Healthworld believes it offers more specialized and
comprehensive services to its clients than firms which focus primarily on the
promotion of consumer products, generally, or on non DTC advertising and
promotion of pharmaceutical products. In fiscal 1996, 1997 and 1998 and in the
first nine months of 1999, Healthworld's revenues from DTC assignments
represented 20%, 16%, 11% and 8%, respectively, of Healthworld's total revenues.
Healthworld's U.S. operations generated revenues from advertising and
promotion services of approximately $9.6 million in fiscal 1996, $13.0 million
in fiscal 1997, $15.7 million in fiscal 1998 and $13.7 million in the first nine
months of 1999, constituting 67%, 71%, 68% and 63%, respectively, of its U.S.
operations' consolidated revenues. Healthworld's European operations generated
revenues from advertising and promotion services of approximately $3.1 million
in fiscal 1996, $3.4 million in fiscal 1997, $5.8 million in fiscal 1998 and
$6.4 million in the first nine months of 1999, constituting 31%, 20%, 14% and
19%, respectively, of the European operations' consolidated revenues.
Healthworld's total revenues from advertising and promotion services were
approximately $12.7 million in fiscal 1996, $16.4 million in fiscal 1997,
$21.5 million in fiscal 1998 and $20.0 million in the first nine months of 1999,
constituting 52%, 46%, 34% and 37%, respectively, of Healthworld's total
revenues.
CONSULTING. Healthworld's consulting services include strategic planning,
new product development, clinical and regulatory affairs and health economics.
Clients retain Healthworld to assist them in the development of strategic and
business plans. Typically, Healthworld investigates and studies the results of
clinical trials and marketing research studies to formulate a strategic
direction for a
76
client's products. Healthworld may recommend to its clients, among other things,
conducting cost effectiveness clinical studies, extending patent life projection
through line extensions, considering various approaches to dealing with the FDA
and developing pricing strategies and specific clinical trials to support
certain marketing objectives. Healthworld currently subcontracts clinical and
regulatory affairs and health economics consulting services to independent
companies specializing in such services. While Healthworld is currently
considering expanding to provide such regulatory affairs and health economics
consulting services "in-house", there can be no assurance that Healthworld will,
in the future, expand into such services.
Healthworld's U.S. operations generated revenues from its consulting
services of approximately $1.8 million in fiscal 1996, $2.8 million in fiscal
1997, $3.5 million in fiscal 1998 and $2.8 million in the first nine months of
1999, constituting 13%, 15%, 15% and 13%, respectively, of the consolidated
revenues of Healthworld's U.S. operations, and 8%, 8%, 6% and 5%, respectively,
of Healthworld's total revenues. Healthworld's European operations currently do
not provide consulting services.
MEDICAL EDUCATION. Healthworld develops medical education programs targeted
primarily to healthcare providers that are tied closely to the strategy and
marketing goals of its pharmaceutical and healthcare clients, including
continuing medical education programs for which physicians obtain credit and are
required to complete in order to maintain their licenses. In addition to
planning, implementing and managing symposia, workshops and other conferences
that commonly utilize a multidisciplinary faculty to address the full spectrum
of care on featured topics, Healthworld creates newsletters, articles, slide
lecture kits and posters. Healthworld also assists pharmaceutical and other
healthcare companies in developing, writing and placing journal articles and
supplements and offers specialized training programs which incorporate new
training technologies that can be applied in selling pharmaceutical products to
non-traditional purchasers, including managed care organizations and public
health officials. Healthworld offers such services throughout a product's
life-cycle, including prior to regulatory approval, in order to create awareness
and generate interest among the healthcare community about such product prior to
such approval.
Healthworld's U.S. operations generated revenues from its medical education
services of approximately $1.4 million in fiscal 1996, $1.2 million in fiscal
1997, $1.6 million in fiscal 1998 and $2.9 million in the first nine months of
1999, constituting 10%, 7%, 7% and 13%, respectively, of the consolidated
revenues of Healthworld's U.S. operations. Healthworld's European operations,
which began offering medical education services in July 1998 as a result of
Healthworld's acquisition of Colwood, generated revenues from its medical
education services of approximately $1.7 million in fiscal 1998 and
$2.3 million in the first nine months of 1999, constituting 4% and 7%,
respectively, of the consolidated revenues of Healthworld's European operations.
Healthworld's total revenues from medical education services were approximately
$1.4 million in fiscal 1996, $1.2 million in fiscal 1997, $3.3 million in fiscal
1998 and $5.2 million in the first nine months of 1999, constituting 6%, 4%, 5%
and 10%, respectively, of Healthworld's total revenues.
PUBLIC RELATIONS. Healthworld provides a broad range of public relations
services to its clients, including tactical development, media relations, crisis
management, special events, public sponsorship packages, professional and
patient association liaison, grant and fellowship initiatives, editorial
projects, graphic design and video production. Healthworld typically integrates
its public relations programs into its overall marketing campaign for a client.
Healthworld believes that its in-depth knowledge of professional trade and
consumer media and its strong media contacts provide it with ongoing
opportunities to place high impact stories publicizing client products and
services.
MARKETING RESEARCH. Healthworld develops and offers its clients specialized
research programs to measure the "return on investment" ("ROI") of its DTC and
other marketing programs. The ROI model utilized by Healthworld is a proprietary
model based on a consumer products research methodology that has been adapted
and modified for use with respect to prescription drugs. Through
77
the use of its ROI model, Healthworld has established normative data that it
will use as benchmarks for future ROI studies. Healthworld believes that data
from such programming assists Healthworld and its clients in determining the
most effective means of marketing a particular product.
PUBLISHING. Healthworld offers management publications to pharmaceutical
companies as a marketing tool with respect to drugs used for long term therapy
for chronic conditions or illnesses such as asthma, arthritis, ulcers, heart
disease, diabetes and obesity. In addition, Healthworld believes that such
patient management publications can be utilized by insurers and managed care
companies as part of a disease specific patient management program designed to
educate a patient as to his or her disease, including treatment options and
lifestyle advice which may lead to an overall reduction in the cost of treatment
and care.
INTERACTIVE MULTIMEDIA. Healthworld may from time to time incorporate
interactive multimedia and other new technologies into its programs and
campaigns. Healthworld has utilized virtually all existing digital formats,
including laser disc, kiosks, on-line and CD-ROM and owns an extensive archive
of over 4,000 medical illustrations which it incorporates in such multimedia
formats. Healthworld offers website design and updating, demographics targeting,
statistical measurement and list analysis.
DATABASE MARKETING. Healthworld employs database technology to develop and
implement marketing campaigns that are targeted to specific audience profiles.
Healthworld utilizes its own or its clients' databases as well as databases it
leases from third parties (including the American Medical Association).
Revenues from public relations, marketing research, publishing, interactive
multimedia and database marketing services did not, in the aggregate, constitute
more than 7% of Healthworld's total revenues in any fiscal year and in the first
nine months of 1999.
CONTRACT SALES SERVICES
Healthworld offers a flexible range of contract sales services which are
delivered primarily through dedicated sales teams. Healthworld's contract sales
teams form a network of trained professionals that provides clients with
substantial flexibility in selecting the extent and costs of promoting products
as well as the clients' level of involvement in managing the sales effort.
Dedicated sales teams are comprised of sales representatives recruited by
Healthworld, in accordance with client specifications, to conduct sales efforts
for a particular client. Dedicated sales teams can be managed by Healthworld or
can report directly to the client, depending on client preference.
Healthworld believes that speed of recruitment, quality of training and
management of sales representatives, supported by information technology, are
key to providing clients with a sales force tailored to meet their geographic
and scheduling needs. Healthworld's ability to assemble a sales team quickly is
a product of combining the talents of experienced personnel for screening and
interviewing candidates with the use of information technology to expedite
recruitment. Healthworld believes that it can recruit a client-specific national
sales force in as few as eight to twelve weeks, depending on the assignment.
Sound hiring procedures, supplemented by Healthworld's internal training and
development programs, help to ensure the quality of recruited personnel.
Currently, Healthworld provides its contract sales services in the United
States primarily to healthcare related companies and in the United Kingdom
primarily to consumer product, utility and healthcare related companies.
Healthworld hires sales personnel on a project-by-project basis, with the actual
number of representatives retained contingent upon a particular assignment. As
of September 30, 1999, Healthworld employed, either on a part-time or full-time
basis, approximately 969 contract sales representatives. Healthworld began
providing contract sales services to pharmaceutical
78
and other healthcare product companies in the United Kingdom in May 1997 and in
the United States in February 1998.
In February 1998, Healthworld began offering contract sales services in the
United States through Headcount LLC, a limited liability company which is
managed by two senior managers both of whom have prior experience in managing a
contract sales organization dedicated specifically to the pharmaceutical
industry. Healthworld owns 85% of the members' equity in Headcount and such
senior managers own the remaining 15% of the members' equity. Healthworld and
such senior managers have entered into an operating agreement with respect to,
among other things, the business and management of Headcount and the transfer or
other disposition of any members' equity in Headcount. Healthworld's contract
sales operations in the United States currently focus, and will continue to
focus, primarily on pharmaceutical and other healthcare products and services.
Healthworld's European operations generated revenues from its contract sales
services of approximately $6.6 million in fiscal 1996, $13.3 million in fiscal
1997, $32.6 million in fiscal 1998 and $24.3 million in the first nine months of
1999, constituting 67%, 78%, 81% and 73%, respectively, of the consolidated
revenues of Healthworld's European operations. Healthworld's U.S. operations,
which began offering contract sales services in 1998, generated revenues from
its contract sales services of approximately $795,000 in fiscal 1998 and
$1.9 million in the first nine months of 1999, constituting 3% and 9%
respectively, of the consolidated revenues of Healthworld's U.S. operations.
Healthworld's total revenues from contract sales services were approximately
$6.6 million in fiscal 1996, $13.3 million in fiscal 1997, $33.4 million in
fiscal 1998 and $26.1 million in the first nine months of 1999, constituting
27%, 38%, 53% and 48%, respectively, of Healthworld's total revenues.
HEALTHWORLD B.V.
Healthworld B.V. is a world-wide network of licensed independent marketing
and communications agencies which began operating in August 1993. Healthworld
B.V. was organized as a Dutch corporation by Healthworld and two other founding
licensees in response to the founders' belief that pharmaceutical and other
healthcare companies will increasingly seek to retain marketing and
communications companies with international reach and experience. Healthworld
B.V. generally operates as a trade organization through which its licensed
agencies provide business referrals to one another and, where appropriate, work
with other licensed agencies with respect to projects which require expertise in
other geographic markets. As such, Healthworld B.V. does not generate revenues
from operations and is funded solely by membership fees and royalty payments
from its licensees. Healthworld B.V. enables its member agencies to utilize the
creative talents of other member agencies that have expertise and knowledge of
particular countries or geographic regions to develop consistent and integrated
multinational campaigns for the clients of such member agencies.
Healthworld B.V. currently consists of Healthworld, through GHB&M in the
United States, Milton in the United Kingdom, HFT in France and CPA Espana in
Spain, and other affiliated marketing and communications agencies independent of
Healthworld located in Canada, Colombia, Denmark, Finland, Germany, Holland,
Hungary, Italy, Japan, Norway and Sweden. Member agencies are carefully selected
based on, among other things, quality of work, local reputation, client base and
certain other organizational and financial criteria. All member agencies (other
than Japan and Germany) have entered into a license agreement with Healthworld
B.V. which provides, among other things, that such agency will perform services
for the clients of any other member agency upon request by such other member
agency. In addition, each such license agreement provides for the member agency
to pay a royalty fee to Healthworld B.V. and permits such member agency to use
certain of Healthworld's trademarks, including the "Healthworld" name, within
its geographic market.
Healthworld owns 87% of the capital stock of Healthworld B.V., and the
remainder is owned by 5 other member agencies. Each agency that enters into a
license agreement with Healthworld B.V. is
79
given the opportunity to become a shareholder of Healthworld B.V. Healthworld
B.V. is managed by a board of directors consisting of five members, and
Healthworld is entitled to designate 3 members.
Although to date, Healthworld B.V. has neither conducted significant
operations nor contributed materially to Healthworld's operations, Healthworld
believes that Healthworld B.V. has enabled Healthworld to attract additional
clients based upon Healthworld's ability to offer more extensive global reach
and expertise.
CLIENTS
Healthworld's communications clients are primarily pharmaceutical and other
healthcare companies, including healthcare service providers and manufacturers
of diagnostic equipment, medical equipment, medical devices and medical
supplies. Healthworld currently provides its contract sales services in the
United States to healthcare related companies and in the United Kingdom
primarily to consumer products, utility and healthcare related companies.
Healthworld's major clients include many of the world's largest pharmaceutical
companies and Healthworld has enjoyed long-standing relationships with many of
such clients.
Healthworld's revenues are highly dependent upon the advertising, sales and
marketing expenditures of pharmaceutical and other healthcare companies and
other non-healthcare clients. Generally, such clients are not bound to
individual communications and contract sales companies, and any client of
Healthworld could at any time in the future and for any reason, including a
prolonged economic recession or regulatory problems with respect to a product,
reduce its marketing budget, transfer its business to another agency or take
in-house all or part of the business performed by Healthworld.
Healthworld derives a large portion of its revenues from a small number of
clients. These clients generally do not engage Healthworld on an exclusive basis
and may engage different companies for different services with respect to their
products or with respect to a particular product. Moreover, the contracts with
Healthworld's clients generally have a term of up to one year and are generally
renewable. Typically, such contracts may be terminated by the client on short
notice. As a result, Healthworld's results of operations may be materially
adversely affected by the loss of one or more of its clients, the deterioration
of Healthworld's relationship with any of its major clients, a decline in the
business of its major clients or a decline in the marketing and communications
spending by its major clients, either generally or with respect to specific
products for which Healthworld is engaged.
For the 1996, 1997, 1998 fiscal years and the first nine months of 1999, the
five largest clients of Healthworld represented an aggregate of 52%, 46%, 43%
and 44%, respectively, of Healthworld's total revenues. For the 1996, 1997, 1998
fiscal years and the first nine months of 1999, American Home Products (through
its Wyeth-Ayerst Laboratories and Whitehall Laboratories divisions) accounted
for approximately 27%, 19%, 8% and 7%, respectively, of Healthworld's total
revenues, and Sterling Gas Utility Company accounted for approximately 0%, 4%,
14% and 19%, respectively, of Healthworld's total revenues.
Client conflicts of interest are inherent in the marketing and
communications industry, particularly with respect to pharmaceutical and other
healthcare clients for whom Healthworld performs services, due to the
proprietary nature of such clients' products. Healthworld's ability to compete
for new clients and assignments is limited by Healthworld's general practice,
and the practice followed by many of Healthworld's competitors, of not
representing competing products simultaneously. In addition, Healthworld is
often contractually precluded from representing a competing product. As a
result, Healthworld may not be retained by existing, new or potential clients
with respect to certain products if Healthworld provides marketing or
communications services with respect to competing products.
80
INTELLECTUAL PROPERTY
In 1997, Healthworld entered into a 50-year license agreement with
Healthworld B.V. pursuant to which Healthworld B.V. granted Healthworld rights
to use the "Healthworld' and "Healthworld Corporation" trademarks, the tradename
"Healthworld" and the Healthworld logo, for $1.00 per year. Under the license
agreement, Healthworld B.V. must obtain Healthworld's prior written consent
before further licensing such licensed property in the United States.
Healthworld B.V. has trademarks registered with the United States Patent and
Trademark Office for the words "Healthworld" and "Healthworld Corporation" which
expire in March 2004 and for the Healthworld name together with its logo which
expires in May 2005. Healthworld B.V. also has trademarks registered or
applications for such registrations pending for the tradename "Healthworld" and
the Healthworld logo in the United Kingdom and in each of the other countries in
which licensed Healthworld B.V. agencies are located, as well as several other
countries. Healthworld considers all United States and European trademarks to be
material to its operations.
COMPETITION
The healthcare communications and contract sales industries throughout the
United States and Europe are highly competitive. Healthworld competes with many
other marketing, communications and contract sales firms, including
international and regional full-service and specialty firms. Consolidation
within the pharmaceutical and healthcare industries as well as a trend by
pharmaceutical and healthcare companies to limit outsourcing of sales, marketing
and communications services to fewer organizations has heightened the
competition among such service providers. In addition, many of the larger
consumer product marketing and communications companies have acquired specialty
healthcare marketing and communications companies, which themselves have been
increasingly consolidating in recent years. For instance, each of Bozell,
Jacobs, Kenyon & Eckhardt, Grey Advertising, Interpublic Group, Omnicom
Group Inc., Saatchi & Saatchi and Young & Rubicam Inc. has one or more divisions
specializing in healthcare marketing and communications. Many of these companies
have substantially greater financial resources, personnel and facilities than
Healthworld. If the trend toward consolidation continues, Healthworld may face
greater competition for its clients and for acquisition candidates. Although
Healthworld believes it is able to compete on the basis of the quality of its
creative product, service, reputation and personal relationships with clients,
there can be no assurance that Healthworld will be able to maintain its
competitive position in the industry.
With respect to contract sales services provided to consumer products and
utility companies in the United Kingdom, Healthworld currently competes against
in-house sales departments of such companies and contract sales organizations
operating in the United Kingdom, many of which are larger and have substantially
greater financial resources. With respect to contract sales services targeted to
pharmaceutical and medical devices, Healthworld currently competes in the United
Kingdom and the United States against the in-house sales departments of
pharmaceutical companies and local contract sales organizations specializing in
pharmaceutical and medical device products. The primary competitive factor
affecting contract sales and marketing services is the ability to quickly
assemble, train and manage large qualified sales forces to handle broad scale
sales campaigns. Healthworld believes that it competes favorably in these areas
in the United Kingdom with respect to its non-healthcare related contract sales
services. However, with respect to healthcare related contract sales services,
there can be no assurance that Healthworld will compete favorably in these areas
in the United Kingdom or in the United States.
While there are relatively low barriers to entry into the marketing and
communications industry as a whole, Healthworld believes that its specific
expertise with respect to the pharmaceutical and healthcare industry
distinguishes it from prospective competitors attempting to develop healthcare
communications businesses. Notwithstanding Healthworld's expertise, it expects
that it will face additional competition from new entrants into the industry in
the future. There can be no assurance
81
that existing or future competitors will not develop or offer marketing
communications services and products that provide significant performance,
creative, technical or other advantages over those offered by Healthworld.
GOVERNMENT REGULATION
While there are no laws that specifically regulate the healthcare
communications industry, the healthcare and pharmaceutical industries are
generally subject to a high degree of government regulation, and the trend is
toward regulation of increasing stringency. Federal, state, local and foreign
laws and regulations affect the permissible form, content and timing of
marketing activities involving pharmaceutical and other healthcare products.
Some of these laws relate to general considerations such as truthfulness,
comparative advertising and the relative responsibilities of clients and
advertising firms. Other laws, such as the Food, Drug and Cosmetics Act and the
anti-fraud and abuse laws and regulations affecting the Medicare, Medicaid and
other governmental healthcare programs, regulate the form, content and/or timing
of marketing activities involving pharmaceutical and other healthcare products,
including the permissible activities Healthworld may undertake to develop
markets for its clients' products. Healthworld has implemented a rigorous review
process, emphasizing the importance of compliance with regulatory matters. In
addition, Healthworld's clients generally follow a rigorous internal review
process.
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect pharmaceutical and other healthcare
companies, particularly with respect to spending by such companies on marketing
and communications services to promote their products. Numerous governments have
undertaken efforts to control growing healthcare costs through legislation,
regulation and voluntary agreements with medical care providers and
pharmaceutical and other healthcare product companies. Implementation of
government healthcare reform may adversely affect marketing expenditures by
pharmaceutical and other healthcare companies which could decrease the business
opportunities available to Healthworld. Management is unable to predict the
likelihood of healthcare reform legislation being enacted or the effects such
legislation would have on Healthworld. In addition, the success of Healthworld's
growth strategy depends on its ability to take advantage of certain industry
trends, including continued increases in overall spending levels by
pharmaceutical and other healthcare companies for marketing and communications
services. Such growth in spending levels has evolved rapidly in recent years,
and Healthworld is unable to predict whether such growth in spending will
continue at present levels or at all. Healthworld's results of operations could
be materially adversely affected in the event Healthworld is unable to respond
effectively to the enactment of healthcare reform legislation or changing
industry trends which may affect future spending levels by pharmaceutical and
other healthcare companies for marketing and communications services.
EMPLOYEES
As of September 30, 1999, Healthworld employed 1,356 employees on a
full-time and part-time basis. Healthworld's U.S. operations employed 254
employees of which 52 were part-time. The part-time employees worked primarily
in contract sales. Healthworld's European operations employed 1,102 employees of
which 448 were part-time. Approximately 922 of the 1,102 employees were involved
in contract sales. Healthworld is not a party to any collective bargaining
agreement and Healthworld's employees are not represented by any labor union.
Healthworld considers its relationship with its employees to be good.
Healthworld's success depends, in large part, upon its ability to attract,
develop, motivate and retain highly skilled creative and technical employees, of
which there can be no assurance.
PROPERTIES
Healthworld maintains corporate headquarters in New York City in a leased
facility which occupies approximately 44,600 square feet of office space. The
lease for such office space is due to expire on
82
December 31, 2009 and has escalating rent currently at the base rate of $750,000
per annum which will increase to $970,000 per annum from December 2003 through
the expiration of the lease. In October 1998, Healthworld entered into a lease
for an additional 22,000 square feet of office space in the building where it
maintains its corporate headquarters. Currently this space is being sublet to an
unaffiliated tenant for a two year period expiring in September 2000. Any
amounts in excess of Healthworld's rental payments received from the sublessee
are remitted to the rental agent.
Through Falk, Healthworld leases an additional 14,740 square feet of office
space in New York City with a current annual base rent of $288,900.
Healthworld leases approximately 18,000 square feet of office space in
various locations in the United Kingdom, of which 2,800 square feet are
currently sublet to third parties. The aggregate annual base rent for all of
Healthworld's United Kingdom facilities is approximately $386,000. Healthworld
owns approximately 5,300 square feet of office space in the United Kingdom
obtained as a result of the Colwood acquisition in July 1998.
Healthworld leases approximately 2,400 square feet of office space in
Madrid, Spain. The aggregate annual base rent for all of Healthworld's Spain
locations is approximately $40,000.
Healthworld leases approximately 7,104 square feet of office space in
France. The aggregate annual base rent for all of Healthworld's France locations
is approximately $115,000.
Healthworld believes that its existing facilities are adequate to meet its
current operating needs and that suitable additional space would be available to
Healthworld on reasonable terms should Healthworld require additional space to
accommodate future operations or expansion.
LEGAL PROCEEDINGS
Healthworld is a party in various lawsuits incidental to its business
operations. In the opinion of Healthworld, none of such litigation in which it
is currently a party will have a material adverse effect on Healthworld's
financial condition or its operations as a result of an unfavorable outcome.
Healthworld, as part of its business, develops marketing and communications
campaigns and materials for, and provides contract sales services with respect
to, pharmaceutical and other healthcare products, including newly developed
drugs. As a result, Healthworld may, in the future be subject to certain types
of litigation, including claims arising from false or misleading statements made
with respect to the use or efficacy of such pharmaceutical and healthcare
products or, in limited circumstances, product liability claims. Certain of
Healthworld's contracts with its clients provide for the client to indemnify
Healthworld against such liabilities. In addition, Healthworld maintains
liability insurance, although there can be no assurance that the coverage
maintained by Healthworld will be sufficient to cover all future claims. In
certain limited circumstances, however, Healthworld is obligated to indemnify
its clients with respect to such claims and liabilities. Healthworld could be
materially and adversely affected if it were required to pay damages or bear the
costs of defending any claim outside the scope of, or in excess of, a
contractual indemnification provision or beyond the level of insurance coverage
or in the event that an indemnifying party does not fulfill its indemnification
obligations. Even if any such claim was without merit, defending against such
claim could result in adverse publicity and diversion of management's time and
attention and could have a material adverse effect on Healthworld.
CONTROL OF HEALTHWORLD
Healthworld is not owned or controlled by any government or by any other
corporation, except to the extent that Cordiant may be deemed to control
Healthworld as a result of the merger agreement and the stockholder agreements.
The completion of the merger or the exercise by Cordiant of the options to
purchase Healthworld's common stock under the stockholder agreements will result
in a change of control of Healthworld.
83
The following table lists, as of February 2, 2000, the total number of
shares of Healthworld common stock beneficially owned (as defined in Rule 13d-3
of the Securities Exchange Act) by any person who is known to Healthworld to be
the beneficial owner of more than ten percent of Healthworld's common stock and
the total number of shares of Healthworld common stock beneficially owned by the
directors and executive officers of Healthworld as a group. The common stock is
the only outstanding class of capital stock of Healthworld.
AMOUNT BENEFICIALLY
IDENTITY OF PERSON OR GROUP OWNED % OF CLASS
- --------------------------- ------------------- ----------------------
Healthworld Acquisition Corp. and Cordiant Communications
Group plc................................................. 5,108,382 63.0%
Steven Girgenti............................................. 2,218,842 27.3%
William Leslie Milton....................................... 1,278,901 15.8%
All directors and executive officers as a group
(12 persons).............................................. 5,453,268 67.2%
All of the shares of Healthworld beneficially owned by Healthworld
Acquisition Corp. and Cordiant Communications Group plc reflect Healthworld
Acquisition Corp.'s option to purchase shares of Healthworld's common stock
under the stockholder agreements, which option may be exercisable within
60 days under certain conditions. As the 100% owner of Healthworld Acquisition
Corp., Cordiant Communications Group plc may also be deemed to beneficially own
all of the shares subject to this option.
The shares of Healthworld common stock beneficially owned by Steven
Girgenti, William Leslie Milton and all directors and executive officers of
Healthworld as a group include 22,917, 22,917 and 326,386 shares issuable upon
exercise of stock options, respectively, to acquire shares of Healthworld's
common stock exercisable within 60 days.
84
RECENT DEVELOPMENTS
CORDIANT
On November 9, 1999, Cordiant entered into a new unsecured credit facility
with HSBC Investment Bank PLC and The Bank of New York, increasing its borrowing
base. Consequently, Cordiant canceled its existing credit facilities. The new
credit facility permits Cordiant to make borrowings up to $250 million, which
includes a $125 million five year revolving credit tranche and a $125 million
364 day revolving credit line with one year term loan option. The initial
interest rate under both tranches is 1.0% over LIBOR.
Acquisitions
On December 3, 1999, Cordiant, through a wholly-owned subsidiary, acquired
substantially all the assets of Interactive Edge, Inc., a New York corporation,
Interactive Edge, Inc., a Connecticut corporation and Interactive Edge, LLC, a
Delaware limited liability company, all of which were commonly owned by the
sellers in the acquisition. The purchase price for the acquisition included an
initial payment of $6.1 million paid by Cordiant through the issuance of
Cordiant ADSs having a value of $5.5 million and $600,000 in cash. The
acquisition also provides for an additional contingent payment in 2003 of up to
a maximum of $18.9 million based on Interactive Edge achieving certain revenues
and operating margins for the three years ending December 31, 2002. The
contingent payment will be paid entirely through the issuance of Cordiant ADSs.
On December 13, 1999, Cordiant entered into a definitive agreement to
acquire a majority stake in Diamond Ad Ltd., the third largest advertising
agency in South Korea. Under the terms of the agreement, Cordiant will acquire
an 80 percent equity interest in Diamond Ad Ltd. for initial cash consideration
of L15 million plus the assumption of debt expected to be around L12 million.
The agreement also provides for contingent payments up to a maximum of
approximately L55 million based on the operating results of Diamond Ad Ltd. for
the 42 months ending December 31, 2001.
HEALTHWORLD
On February 3, 2000, Healthworld agreed to issue, subject to stockholder
approval of, and completion of, the merger, 940,624 additional shares of
Healthworld common stock to the former stockholders of Falk Communications, Inc.
immediately prior to the completion of the merger. This share issuance will be
made in full satisfaction of Healthworld's obligation to make earn-out payments
in connection with this acquisition, and was valued at $20,000,000 on
February 3, 2000. See "HEALTHWORLD MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS."
85
SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
CORDIANT
The selected financial data set forth below is derived from the Consolidated
Financial Statements of Cordiant and should be read in conjunction with, and is
qualified in its entirety by reference to, such Consolidated Financial
Statements, including the notes thereto, and Management's Discussion and
Analysis of Financial Condition and Results of Operations. Cordiant's
Consolidated Financial Statements as of December 31, 1997 and 1998 and for each
of the years in the three year period ended December 31, 1998, which have been
audited by KPMG Audit Plc, and Cordiant's Management's Discussion and Analysis
of Financial Condition and Results of Operations are incorporated by reference
in this proxy statement/prospectus.
With respect to the year ended December 31, 1997, significant changes were
made to Cordiant's capital structure as a result of the demerger. See
"DESCRIPTION OF CORDIANT." The selected financial data set forth below reflect
the capital structure in place prior to the demerger, which was appropriate
historically to Cordiant and the capital position, finance charges and tax
liabilities included in such data do not reflect Cordiant's capital position,
finance charges and tax liabilities in respect of any of the periods covered had
Cordiant effected the demerger prior to such period.
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
1994 1995 1996 1997 1998 1998
-------------- --------------- -------------- -------------- -------------- --------
L L L L L $(1)
(IN MILLIONS, EXCEPT PER SHARE DATA)
CONSOLIDATED INCOME STATEMENT
DATA:(2)
AMOUNTS IN ACCORDANCE WITH U.K.
GAAP
Commission and fee income
Continuing operations.......... L775.4 L761.1 L754.9 L736.1 L301.8 $501.0
Discontinued operations........ -- -- -- -- -- --
Total.......................... L775.4 L761.1 L754.9 L736.1 L301.8 $501.0
-------------- --------------- -------------- -------------- -------------- ------
Profit (loss) before tax, and
minority interests--
historically reported(3)....... L32.4 L(22.6) L41.8 L34.6 L25.9 $ 43.0
Adjustment for provisions(4)..... L(7.8) L(10.3) L(7.0) L(4.7) L(1.2) $ (2.0)
-------------- --------------- -------------- -------------- -------------- ------
Profit (loss) before tax, and
minority interests--
restated(3).................... L24.6 L(32.9) L34.8 L29.9 L24.7 $ 41.0
Net profit (loss)................ L6.1 L(47.6) L17.2 L10.4 L13.8 $ 22.9
Net profit (loss) per Cordiant
ordinary share -basic.......... 2.2 (16.3)p 3.9p 2.3p 6.2p $ 0.10
Net profit (loss) per Cordiant
ordinary share -diluted........ 2.2 (16.3)p 3.9p 2.3p 6.2p $ 0.10
APPROXIMATE AMOUNTS IN ACCORDANCE
WITH U.S. GAAP
Profit (loss) from continuing
operations-historically
reported....................... L(11.5) L(46.8) L6.9 L6.8 L4.8 $ 7.9
Adjustment for provisions(4)..... L0.6 L(6.0) L0.2 L(7.2) L1.7 $ 2.9
Profit (loss) from continuing
operations-restated............ L(10.9) L(52.8) L7.1 L(0.4) L6.5 $ 10.8
Profit from discontinued
operations..................... -- -- -- -- -- --
-------------- --------------- -------------- -------------- -------------- ------
Net profit (loss)................ L(10.9) L(52.8) L7.1 L(0.4) L6.5 $ 10.8
Net profit (loss) per ordinary
share:(2)
Continuing operations.......... (3.9)p (36.1)p 3.2p (0.2)p 2.9p $ 0.05
Discontinued operations........ -- -- -- -- -- --
Net profit (loss) per ordinary
share(2)..................... (3.9)p (36.1)p 3.2p (0.2)p 2.9p $ 0.05
Net profit (loss) per ADS:(2)
Continuing operations.......... (19.3)p (180.6)p 16.0p (0.9)p 14.6p $ 0.24
Discontinued operations........ -- -- -- -- -- --
-------------- --------------- -------------- -------------- -------------- ------
Net profit (loss) per ADS(2)... (19.3)p (180.6)p 16.0p (0.9)p 14.6p $ 0.24
Dividends including tax credit
Per Ordinary Share............. -- -- 2.6p 3.0p 3.5p $ 0.06
Per ADS........................ -- -- 13.0p 15.0p 17.5p $ 0.29
SIX MONTHS ENDED
JUNE 30,
------------------------------------------
1998 1999 1999
-------------- -------------- --------
L L $(1)
(IN MILLIONS, EXCEPT PER SHARE DATA)
CONSOLIDATED INCOME STATEMENT
DATA:(2)
AMOUNTS IN ACCORDANCE WITH U.K.
GAAP
Commission and fee income
Continuing operations.......... L143.6 L158.6 $250.6
Discontinued operations........ -- -- --
Total.......................... L143.6 L158.6 $250.6
-------------- -------------- ------
Profit (loss) before tax, and
minority interests--
historically reported(3)....... L8.4 L11.1 $ 17.5
Adjustment for provisions(4)..... -- -- --
-------------- -------------- ------
Profit (loss) before tax, and
minority interests--
restated(3).................... L8.4 L11.1 $ 17.5
Net profit (loss)................ L4.2 L6.4 $ 10.1
Net profit (loss) per Cordiant
ordinary share -basic.......... 1.9p 2.8p $ 0.04
Net profit (loss) per Cordiant
ordinary share -diluted........ 1.9p 2.7p $ 0.04
APPROXIMATE AMOUNTS IN ACCORDANCE
WITH U.S. GAAP
Profit (loss) from continuing
operations-historically
reported....................... L(2.0) L(4.0) $ (6.3)
Adjustment for provisions(4)..... -- -- --
Profit (loss) from continuing
operations-restated............ L(2.0) L(4.0) $ (6.3)
Profit from discontinued
operations..................... -- -- --
-------------- -------------- ------
Net profit (loss)................ L(2.0) L(4.0) $ (6.3)
Net profit (loss) per ordinary
share:(2)
Continuing operations.......... (0.9)p (1.8)p $(0.03)
Discontinued operations........ -- -- --
Net profit (loss) per ordinary
share(2)..................... (0.9)p (1.8)p $(0.03)
Net profit (loss) per ADS:(2)
Continuing operations.......... (5.2)p (8.8)P $(0.14)
Discontinued operations........ -- -- --
-------------- -------------- ------
Net profit (loss) per ADS(2)... (5.2)p 14.6p $(0.14)
Dividends including tax credit
Per Ordinary Share............. -- -- --
Per ADS........................ -- -- --
86
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------
1994 1995 1996 1997
--------------- --------------- --------------- --------------
L L L L
(IN MILLIONS, EXCEPT PER SHARE DATA)
CONSOLIDATED BALANCE SHEET DATA:
AMOUNTS IN ACCORDANCE WITH U.K.
GAAP
Working capital asset
(deficiency).................... L(32.4) L(25.3) L(59.8) L2.8
Total assets...................... 972.7 992.9 912.4 377.8
Long term liabilities, including
minority interests.............. 429.8 309.2 262.6 123.2
Shareholder's
deficiency-historically
reported........................ (355.5) (224.9) (215.3) (85.7)
Adjustment for provisions(4)...... 44.9 34.6 27.5 8.8
--------------- --------------- --------------- --------------
Shareholder's
deficiency--restated............ (310.6) (190.3) (187.8) (76.9)
APPROXIMATE AMOUNTS IN ACCORDANCE
WITH U.S. GAAP
Shareholder's funds (deficiency)-
historically reported........... (99.4) (19.0) (0.4) 3.8
Adjustment for provisions(4)...... (2.4) (8.4) (6.7) (1.1)
--------------- --------------- --------------- --------------
Shareholder's funds
(deficiency)--restated.......... (101.8) (27.4) (7.1) 2.7
YEAR ENDED DECEMBER 31, AS OF JUNE 30,
------------------------- ------------------------------------------
1998 1998 1998 1999 1999
-------------- -------- -------------- -------------- --------
L $(1) L L $(1)
(IN MILLIONS, EXCEPT PER SHARE DATA)
CONSOLIDATED BALANCE SHEET DATA:
AMOUNTS IN ACCORDANCE WITH U.K.
GAAP
Working capital asset
(deficiency).................... L11.8 $ 19.6 L5.3 L1.3 $ 2.1
Total assets...................... 386.7 641.9 343.2 403.3 637.2
Long term liabilities, including
minority interests.............. 136.9 227.3 123.8 136.7 216.0
Shareholder's
deficiency-historically
reported........................ (71.5) (118.7) (76.3) (57.1) (90.2)
Adjustment for provisions(4)...... 7.6 12.6 -- -- --
-------------- ------- -------------- -------------- ------
Shareholder's
deficiency--restated............ (63.9) (106.1) (76.3) (57.1) (90.2)
APPROXIMATE AMOUNTS IN ACCORDANCE
WITH U.S. GAAP
Shareholder's funds (deficiency)-
historically reported........... 10.6 17.4 (1.6) 9.5 15.0
Adjustment for provisions(4)...... 0.7 1.4 -- -- --
-------------- ------- -------------- -------------- ------
Shareholder's funds
(deficiency)--restated.......... 11.3 18.8 (1.6) 9.5 15.0
- ------------------------------
(1) These amounts have been translated into U.S. dollars at the noon buying rate
on December 31, 1998 (L1.00-$1.66) and on June 30, 1999 (L1.00-$1.58),
respectively.
(2) Per share and per ADS amounts have been adjusted to reflect the share
consolidation in connection with the demerger.
(3) The profit (loss) before taxes and minority interests reflects:
(a) exceptional costs of L0.0, L0.0, L2.2 million, L16.5 million and
L20.3 million, that were incurred in 1994, 1995, 1996, 1997 and 1998,
respectively; (b) a profit on disposal of operations of L17.8 million and
L20.8 million in 1996 and 1997 respectively; (c) costs relating to the
fundamental reorganization of Cordiant as a result of the demerger of
L33.0 million in 1997 (details of (b) and (c) are set out in Note 2 and 6 in
the Notes to Consolidated Financial Statements incorporated by reference in
this document); and (d) a loss on disposal of operations of L34.3 million in
1995.
(4) Due to a recent change in U.K. accounting practice pursuant to Financial
Reporting Standard No.12, Cordiant has discounted its property provision for
the purposes of U.K. GAAP. The exercise required to restate the U.K. GAAP
numbers has revealed a number of inconsistencies in the calculation of the
discount of property provisions under U.S. GAAP. The U.S. GAAP numbers have
been restated to correct these inconsistencies. In addition a correction has
been made in 1998 to the deferred compensation adjustment.
HEALTHWORLD
The following selected consolidated financial data:
- as of and for the years ended December 31, 1996, 1997 and 1998 have been
derived from Healthworld's audited Consolidated Financial Statements which
are included elsewhere in this proxy statement/prospectus and should be
read in conjunction with those Consolidated Financial Statements and notes
thereto and Management's Discussion and Analysis of Financial Condition
and Results of Operations;
- as of and for the nine months ended September 30, 1998 and 1999 have been
derived from Healthworld's unaudited interim Consolidated Financial
Statements, which are included elsewhere in this proxy
statement/prospectus and should be read in conjunction with those
Consolidated Financial Statements and notes thereto and Management's
Discussion and Analysis of Financial Condition and Results of Operations;
and
87
- as of and for the year ended December 31, 1994 and as of December 31, 1995
have been derived from Healthworld's audited Consolidated Financial
Statements not included herein.
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
-------- -------- -------- -------- -------- -------- --------
(IN MILLIONS, EXCEPT PER SHARE DATA)
STATEMENT OF INCOME DATA:
Revenues........................................... $13,081 $16,767 $24,209 $35,292 $63,677 $45,784 $54,815
------- ------- ------- ------- ------- ------- -------
Operating expenses
Salaries and related costs....................... 7,890 9,857 15,733 24,186 47,296 34,747 39,973
Other operating expenses......................... 3,385 4,015 4,581 5,427 8,450 5,702 7,398
Depreciation and amortization.................... 328 410 627 849 1,129 769 1,247
------- ------- ------- ------- ------- ------- -------
11,603 14,282 20,941 30,462 56,875 41,218 48,618
------- ------- ------- ------- ------- ------- -------
Income from operations............................... 1,478 2,485 3,268 4,830 6,802 4,566 6,197
Interest (expense) income, net....................... (14) (2) (69) 86 642 551 452
------- ------- ------- ------- ------- ------- -------
Income before provision for income taxes and minority
interests.......................................... 1,464 2,483 3,199 4,916 7,444 5,117 6,649
Provision for income taxes........................... 136 283 524 719 2,976 2,156 2,875
Minority interests in net earnings of subsidiary..... 39 68 124 192 42 32 18
------- ------- ------- ------- ------- ------- -------
Net income........................................... $1,289 $2,132 $2,551 $4,005 $4,426 $ 2,929 $3,756
======= ======= ======= ======= ======= ======= =======
Pro forma information(1):
Net income......................................... $1,289 $2,132 $2,551 $4,005 $4,426 $ 2,929 $3,756
Pro forma adjustment for income taxes.............. 477 755 781 1,304 -- -- --
------- ------- ------- ------- ------- ------- -------
Pro forma net income............................... $812 $1,377 $1,770 $2,701 $4,426 $ 2,929 $3,756
======= ======= ======= ======= ======= ======= =======
Pro forma per share information(1):
Net income per common share:
Basic............................................ $0.17 $0.29 $0.37 $0.54 $0.60 $ 0.40 $0.50
======= ======= ======= ======= ======= ======= =======
Diluted.......................................... $0.17 $0.29 $0.37 $0.54 $0.58 $ 0.39 $0.49
======= ======= ======= ======= ======= ======= =======
Net income per share information:
Net income per common share:
Basic............................................ $0.27 $0.45 $0.54 $0.80 $0.60 $ 0.40 $0.50
======= ======= ======= ======= ======= ======= =======
Diluted.......................................... $0.27 $0.45 $0.54 $0.79 $0.58 $ 0.39 $0.49
======= ======= ======= ======= ======= ======= =======
Common Shares used in computing per share amounts:
Basic.............................................. 4,741 4,741 4,741 5,037 7,415 7,415 7,568
======= ======= ======= ======= ======= ======= =======
Diluted............................................ 4,741 4,741 4,741 5,047 7,592 7,607 7,729
======= ======= ======= ======= ======= ======= =======
AS OF DECEMBER 31, AS OF SEPTEMBER 30,
---------------------------------------------------- -------------------
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- -------------------
(IN THOUSANDS)
BALANCE SHEET DATA:
Working capital...................................... $2,391 $3,904 $4,132 $18,953 $9,534 $ 4,304
Total assets......................................... 13,913 16,688 20,536 41,809 50,871 79,539
Long-term debt, including current portion............ 733 1,223 1,419 1,156 384 0
Stockholders' equity................................. 3,880 5,235 6,372 24,766 29,201 41,221
- ------------------------------
(1) Gives pro forma effect to C corporation taxation for Girgenti, Hughes,
Butler & McDowell, Inc., a subsidiary of Healthworld Corporation, and its
affiliated entities for the years ended December 31, 1994, 1995, 1996 and
1997
88
HEALTHWORLD MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the
Healthworld's audited Consolidated Financial Statements and notes thereto
appearing elsewhere herein.
INTRODUCTION
Healthworld Corporation was incorporated in Delaware on September 12, 1996
and conducted no operations prior to the consummation of the consolidation of
Girgenti, Hughes, Butler & McDowell, Inc. and its affiliated entities ("GHB&M")
and Milton Marketing Group Limited and it subsidiaries ("Milton") on
November 12, 1997. Healthworld is a holding company whose principal assets are
the capital stock of GHB&M, Milton, Falk Communications, Inc., HFT, Colwood
House Medical Publications (UK) Limited and CPA Espana. Healthworld entered into
separate Agreements and Plans of Organization in October 1997 with the
stockholders of GHB&M and Milton and, pursuant thereto, acquired GHB&M and
Milton on November 12, 1997. As a result of the consolidation, all of the shares
of GHB&M and Milton (including the minority interests in the subsidiaries of
Milton) were acquired by Healthworld, and GHB&M and Milton became wholly-owned
subsidiaries of Healthworld.
The consolidation has been accounted for as a pooling of interests, which
method of accounting assumes that GHB&M and Milton have been combined from
inception and restates the historical financial statements for the periods prior
to the consummation of the consolidation as though GHB&M and Milton had been
combined from inception. The acquisition by Healthworld of the minority
interests in certain of the subsidiaries comprising Milton occurred
simultaneously with the acquisition by Healthworld of GHB&M and Milton and has
been accounted for under the purchase method of accounting.
In July 1998, Healthworld acquired 80% of the capital stock of HFT, a French
holding company, which owns 100% of the capital stock of Torrent SA, a French
healthcare communications agency, which in turn owns 100% of the capital stock
of Aigue Marine SARL and Katchina Productions SARL, each a French company. In
July 1998, Healthworld acquired all of the capital stock of Colwood House
Medical Publications (UK) Ltd., a United Kingdom medical education company. In
October 1998, Healthworld acquired all of the capital stock of CPA Espana, a
healthcare communications agency located in Madrid, Spain. In August 1999,
Healthworld acquired 100% of the capital stock of Falk Communications Inc., a
healthcare communications agency located in New York City. The acquisitions
subsequent to the consolidation have been accounted for using the purchase
method of accounting, whereby the excess purchase price over the fair value of
the respective net assets acquired is recorded as goodwill. On November 9, 1999,
Healthworld entered into the merger agreement in which it agreed to be acquired
by Cordiant and pursuant to which a newly-formed wholly-owned subsidiary of
Cordiant will be merged with and into Healthworld and Healthworld will become a
wholly-owned subsidiary of Cordiant upon the satisfaction of certain conditions,
as further described in this proxy statement/ prospectus.
GENERAL
Healthworld offers its clients a comprehensive range of integrated services
throughout a product's life-cycle, from the development stage (pre-regulatory
approval) to product launch and continuing through the post-launch stage and, if
applicable, such product's switch from prescription to over-the-counter status.
Healthworld derives its revenues from fees generated from providing
communications and contract sales services to its clients.
Healthworld has provided contract sales services since January 1994.
Historically, Healthworld's contract sales organization operated only in the
United Kingdom and provided its services primarily to
89
consumer products companies, utilities and other non-healthcare related
companies. In May 1997, Healthworld began providing contract sales services to
pharmaceutical and other healthcare companies in order to take advantage of the
increased use by such companies in the United Kingdom of contract sales forces
to market their products. In February 1998, Healthworld began offering contract
sales services in the United States, and such operations currently focus, and
will continue to focus, primarily on pharmaceutical and other healthcare
products.
Historically, Healthworld's results of operations have been subject to
quarterly fluctuations. Generally, Healthworld's revenues and profits have been
lowest in the first quarter and highest in the fourth quarter. Healthworld's
quarterly revenue trends result from a number of factors including, among other
things, the timing of commencement, completion or cancellation of major projects
and industry billing practices which are tied to clients' annual marketing
budgets, while Healthworld's communications services expenses generally remain
constant throughout the year. Healthworld's quarterly results may fluctuate as a
result of such factors and a number of additional factors, including delays or
costs associated with acquisitions, government regulatory initiatives and
general conditions in the healthcare industry. Healthworld believes that because
of such fluctuations, quarterly comparisons of its financial results cannot be
relied upon as an indication of future performance.
Milton and Colwood operate only in the United Kingdom, HFT operates only in
France, and CPA Espana operates only in Spain. As a result, Healthworld is
susceptible to foreign exchange rate fluctuations between the British pound
sterling, the French Franc and the Spanish Peseta, respectively, and the U.S.
dollar. Healthworld's financial statements are denominated in U.S. Dollars, and
accordingly, changes in the exchange rate between the British pound sterling,
the French franc and the Spanish peseta, against the U.S. dollar will affect the
translation of Healthworld's European operations' financial results into U.S.
dollars for purposes of reporting Healthworld's consolidated financial results.
90
RESULTS OF OPERATIONS
The following table sets forth certain consolidated income statement data of
Healthworld as a percentage of revenues for the periods indicated:
NINE MONTHS
ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
STATEMENT OF INCOME DATA:
Revenues................................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Operating Expenses
Salaries and related costs............................. 65.0 68.5 74.3 75.9 72.9
General and office expenses............................ 18.9 15.4 13.3 12.4 13.5
Depreciation and amortization.......................... 2.6 2.4 1.7 1.7 2.3
----- ----- ----- ----- -----
86.5 86.3 89.3 90.0 88.7
Income from operations................................... 13.5 13.7 10.7 10.0 11.3
Interest (expense) income, net........................... (0.3) 0.2 1.0 1.2 0.8
----- ----- ----- ----- -----
Income before provision for income taxes and minority
interests.............................................. 13.2 13.9 11.7 11.2 12.1
Provision for income taxes............................... 2.2 2.0 4.6 4.7 5.2
Minority interests in net earnings of subsidiary......... 0.5 0.6 0.1 0.1 --
----- ----- ----- ----- -----
Net income............................................... 10.5% 11.3% 7.0% 6.4% 6.9%
===== ===== ===== ===== =====
Pro forma information:
Income before provisions for income taxes and minority
interests.............................................. 13.2% 13.9%
Pro forma provision for income taxes..................... 5.4 5.6
Minority interests in net earnings of subsidiaries....... 0.5 0.6
----- -----
Pro forma net income..................................... 7.3% 7.7%
===== =====
Note: Percentages may not correspond to financial statements due to rounding.
The following table sets forth certain operating data with respect to
Healthworld's communications and contract sales operations for the periods
indicated:
NINE MONTHS ENDED
YEAR ENDED DECEMBER 31, SEPTEMBER 30,
------------------------------ -------------------
1996 1997 1998 1998 1999
-------- -------- -------- -------- --------
(IN THOUSANDS)
Revenues:
Communications............................... $17,573 $21,962 $30,233 $20,788 $28,617
Contract Sales............................... 6,636 13,330 33,444 24,996 26,198
------- ------- ------- ------- -------
$24,209 $35,292 $63,677 $45,784 $54,815
======= ======= ======= ======= =======
Income from operations:
Communications............................... $ 2,458 $ 3,525 $ 5,998 $ 3,839 $ 4,945
Contract Sales............................... 810 1,305 804 727 1,252
------- ------- ------- ------- -------
$ 3,268 $ 4,830 $ 6,802 $ 4,566 $ 6,197
======= ======= ======= ======= =======
91
FISCAL NINE MONTHS ENDED SEPTEMBER 30, 1999 COMPARED TO FISCAL NINE MONTHS ENDED
SEPTEMBER 30, 1998
REVENUES
Revenues for the nine months ended September 30, 1999 was $54.8 million, an
increase of $9.0 million, or 19.7%, from $45.8 million for the nine months ended
September 30, 1998.
Communications revenues for the nine months ended September 30, 1999
increased to $28.6 million, an increase of $7.8 million, or 37.7%, from
$20.8 million for the same period in the prior year. Of such increase,
approximately $7.3 million was attributable to the additional revenues derived
as a result of Healthworld's acquisitions, while the remaining increase was
attributable to the growth of advertising and promotion services in the U.S.
Contract sales revenues increased to $26.2 million, an increase of
$1.2 million, or 4.8%, from $25.0 million for the same period in the prior year.
This increase was attributable to (i) an increase in U.S. contract sales
revenues from primarily new clients of $1.7 million, (ii) an increase in U.K.
consumer contract sales of $1.1 million, offset by a decrease in U.K. medical
contract sales revenues of approximately $1.6 million resulting from the
discontinuation of the U.K. syndicated, medical contract sales business.
SALARIES AND RELATED COSTS
Salaries and related costs for the nine months ended September 30, 1999 was
$40.0 million, an increase of $5.2 million, or 15.0%, from $34.7 million for the
nine months ended September 30, 1998. Salaries and related costs includes all
compensation and related benefits for all employees and contracted talent. Such
increase was primarily attributable to (i) approximately $4.2 million of
salaries and related costs associated with the compensation expense generated by
the inclusion of Healthworld's acquisitions, (ii) approximately $665,000
relating to additional staffing costs to support the growth in communications
services, and (iii) $330,000 to support the growth in contract sales services.
Salaries and related costs represented 72.9% of revenues for the first nine
months of 1999, compared to 75.9% for the first nine months of 1998. Such
decrease, as a percentage of revenues, was primarily attributable to the growth
of the Healthworld's communications operations as a percentage of total
revenues. Generally, labor costs associated with the Healthworld's
communications operations are less as a percentage of corresponding revenues
than those for the contract sales services.
GENERAL AND OFFICE EXPENSES
General and office expenses for the nine months ended September 30, 1999 was
$7.4 million, an increase of $1.7 million, or 29.7%, from $5.7 million for the
nine months ended September 30, 1998. General and office expenses include
occupancy and related costs, client development and other related administrative
costs. Such increase was primarily attributable to $1.2 million of expenses
related to the inclusion of Healthworld's acquisitions and increased occupancy
and related costs and business development costs commensurate with the growth in
business activity. General and office expenses represented 13.5% of revenues for
the first nine months of 1999, compared to 12.5% of revenues for the first nine
months of 1998.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense for the nine months ended
September 30, 1999 was $1.2 million, an increase of $478,000, or 62.2%, from
$769,000 for the nine months ended September 30, 1998. The increase was related
to (i) amortization expense associated with the goodwill generated in connection
with Healthworld's acquisitions, which acquisitions were accounted for by the
purchase method of accounting, and (ii) additional depreciation expense
attributable to property and equipment acquired in connection with such
acquisitions. Depreciation and amortization expense
92
represented 2.3% of revenues for the first nine months of 1999, compared to 1.7%
for the first nine months of 1998.
INCOME FROM OPERATIONS
Income from operations for the nine months ended September 30, 1999 was
$6.2 million, an increase of $1.6 million, or 35.7%, from $4.6 million for the
nine months ended September 30, 1998. Income from operations represented 11.3%
of revenues for the first nine months of 1999, compared to 10.0% for the first
nine months of 1998.
INTEREST INCOME, NET
Interest income, net for the nine months ended September 30, 1999 was
$452,000, a decrease of $99,000 from $551,000 for the nine months ended
September 30, 1998, primarily due to lower interest rates received on cash
balances and the lower cash and cash equivalents balances throughout the nine
months ended September 30, 1999.
PROVISION FOR INCOME TAXES
The provision for income taxes for the nine months ended September 30, 1999
was $2.9 million; an increase of $719,000 from $2.2 million for the nine months
ended September 30, 1998. The provision for income taxes, based on management's
estimates of the effective year-end rate, was recorded at effective rates of
42.1% and 43.2% for the nine months ended September 30, 1998 and 1999,
respectively. The increase in the estimated effective rate reflects
nondeductible amortization expense in connection with the acquisitions.
NET INCOME
Net income for the nine months ended September 30, 1999 was $3.8 million, an
increase of $827,000, or 28.2%, from $2.9 million for the nine months ended
September 30, 1998. Net income represented 6.9% of revenues for the nine months
ended September 30, 1999 compared to 6.4% for the nine months ended
September 30, 1998.
FISCAL 1998 COMPARED TO FISCAL 1997
REVENUES
Revenues for 1998 were $63.7 million, an increase of $28.4 million, or
80.4%, from $35.3 million for 1997. Contract sales revenues increased to
$33.5 million, an increase of 150.9% from $13.3 million in 1997. This was
attributable to the growth of the contract sales operation in the United
Kingdom, which resulted primarily from additional field marketing business from
existing clients. Communications revenues for 1998 increased to $30.2 million,
an increase of 37.7% from $22.0 million for 1997. Of such increase,
approximately $3.8 million was attributable to revenues derived as a result of
business generated by Healthworld's acquisitions in 1998. The remaining increase
was primarily attributable to the growth of the Healthworld's United States
advertising and promotion services, which resulted from continued growth out of
existing client relationships as well as assignments from new clients.
SALARIES AND RELATED COSTS
Salaries and related costs for 1998 were $47.3 million, an increase of
$23.1 million, or 95.6%, from $24.2 million for 1997. Salaries and related costs
include all compensation and related benefits for all employees and contracted
talent. Such increase was attributable to (i) approximately $16.0 million of
additional salaries and related costs commensurate with the growth of
Healthworld's U.K. and U.S. contract sales operations, (ii) approximately
$2.8 million relating to the additional support staff hired to
93
handle the increased level of contract sales business activity in the U.K., and
salaries related to the start-up of the U.S. contract sales division, (iii)
approximately $2.2 million related to the growth of Healthworld's U.S.
communications business, and (iv) approximately $1.9 million related to staffing
costs incurred in connection with Healthworld's acquisitions in 1998. Salaries
and related costs represented 74.3% of revenues in 1998, compared to 68.5% in
1997. Such increase, as a percentage of revenues, was primarily attributable to
the growth of the Healthworld's U.K. contract sales operations and the
corresponding increase in labor costs and increased staffing costs for such
operations. Generally, labor costs associated with contract sales operations are
greater as a percentage of corresponding revenues than those for Healthworld's
other services.
GENERAL AND OFFICE EXPENSES
General and office expenses for 1998 were $8.5 million, an increase of
$3.0 million or 55.7%, from $5.4 million for 1997. General and office expenses
primarily include occupancy and related costs, client development and other
related administrative costs. Such increase was attributable to (i) increased
business development costs and start-up costs for the U.S. contract sales
division of approximately $1.2 million, (ii) $470,000 of write-off costs
associated with the loss of Ionica, a large U.K. contract sales client (this
client filed for receivership, the United Kingdom equivalent of bankruptcy in
the United States, in 1998), (iii) increased occupancy and occupancy related
costs of approximately $360,000, (iv) increased professional and other related
costs of approximately $289,000, partially attributable to costs associated with
the transition of Healthworld from a private company to a public company and (v)
$693,000 of additional costs as a result of Healthworld's acquisitions in 1998.
General and office expenses represented 13.3% of revenues in 1998, compared to
15.4% of revenues in 1997. The decrease in general and office expenses, as a
percentage of revenues, was primarily attributable to general and office
expenses generally being fixed relative to increases in Healthworld's revenues.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for 1998 was $1.1 million, an increase of
$280,000 or 33.0% from $849,000 for 1997. The increase was primarily
attributable to additional amortization expenses related to Healthworld's
acquisitions in 1998, which were accounted for under the purchase method of
accounting. Depreciation and amortization represented 1.8% of revenues for 1998,
compared to 2.4% for 1997.
INCOME FROM OPERATIONS
Income from operations for 1998 was $6.8 million, an increase of
$2.0 million, or 40.8%, from $4.8 million for 1997. Income from operations
represented 10.7% of revenues for 1998, compared to 13.7% for 1997, the decrease
being attributable to (i) start-up costs for the U.S. and U.K. medical contract
sales businesses, (ii) $470,000 of write-off costs associated with the loss of
Ionica, a large U.K. contract sales client, and (iii) the sharp increase in
Healthworld's U.K. contract sales revenues, the profit margins of which are
generally lower than those of the communications segment.
INTEREST (EXPENSE) INCOME, NET
Interest (expense) income, net for 1998 was $642,000, an increase of
$556,000 from $86,000 for 1997, resulting primarily from higher cash and cash
equivalents balances for 1998 primarily attributable to the receipt of the net
proceeds from Healthworld's IPO, which resulted in net offering proceeds of
$16.4 million (net of related expenses). The IPO was consummated in
November 1997.
94
PROVISION FOR INCOME TAXES
The provision for income taxes for 1998 was $3.0 million, an increase of
$2.3 million from $719,000 for 1997. Such increase was primarily attributable to
Healthworld being taxed as a C corporation for 1998. Through the date of the
Healthworld consolidation, certain of the companies comprising GHB&M were
treated as S corporations, pursuant to which income or loss of each of such
companies was allocated to its stockholders by inclusion in their respective
individual income tax returns.
NET INCOME
Net income for 1998 was $4.4 million, an increase of $421,000, or 10.5%,
from $4.0 million for 1997. Net income represented 7.0% of revenues for 1998
compared to 11.3% for 1997. Net income on a pro forma basis for 1997 was 7.7% of
revenues.
FISCAL 1997 COMPARED TO FISCAL 1996
REVENUES
Revenues for 1997 were $35.3 million, an increase of $11.1 million, or
45.8%, from $24.2 million for 1996. Of such increase, (i) $6.7 million was
attributable to the growth of Healthworld's contract sales operations, of which
$3.3 million was attributable to business from new clients and $3.4 million was
attributable to net new projects from existing clients and (ii) $3.3 million and
$984,000 was attributable to revenues from advertising and promotion and
consulting services, respectively, of which approximately $1.0 million was
attributable to business from new clients and the remaining amount resulted
primarily from new projects from existing clients.
SALARIES AND RELATED COSTS
Salaries and related costs for 1997 were $24.2 million, an increase of
$8.5 million, or 53.7%, from $15.7 million for 1996. Such increase was primarily
attributable to (i) $4.9 million of additional labor and other direct costs
related to Healthworld's contract sales operations, and $700,000 relating to
additional management staff for increased contract sales operations, (ii)
$1.3 million relating to additional staff hired to support the increased level
of business activity in the United States and (iii) $800,000 relating to
staffing costs in the United Kingdom incurred in anticipation of increased
business activity in advertising and promotion and public relations which did
not occur in the period. Salaries and related costs represented 68.5% of
revenues in 1997 compared to 65.0% in 1996. Such increase, as a percentage of
revenues, was primarily attributable to the growth of Healthworld's contract
sales operations and the corresponding increase in labor costs of such
operations, and increases in salaries and other costs. Generally, labor costs
associated with contract sales operations are greater as a percentage of
corresponding revenues than those for Healthworld's other services.
GENERAL AND OFFICE EXPENSES
General and office expenses for 1997 were $5.4 million, an increase of
$846,000, or 18.5%, from $4.6 million for 1996. Such increase was primarily
attributable to (i) additional rent and occupancy costs of $500,000 primarily
related to expanded office space in the United Kingdom and (ii) increased costs
of $300,000 primarily related to increased business development costs, and the
growth of Healthworld's contract sales operations. General and office expenses
represented 15.4% of revenues in 1997, compared to 18.9% in 1996. The decrease
in other operating expenses, as a percentage of revenues, was primarily
attributable to such expenses generally being fixed relative to increases in
Healthworld's revenues.
95
DEPRECIATION AND AMORTIZATION
Depreciation and amortization for 1997 was $849,000, an increase of
$222,000, or 35.4%, from $627,000 for 1996. Depreciation and amortization
represented 2.4% of revenues in 1997, compared to 2.6% in 1996.
INCOME FROM OPERATIONS
Income from operations for 1997 was $4.8 million, an increase of
$1.6 million, or 47.8%, from $3.3 million for 1996. Income from operations
represented 13.7% of revenues in 1997, compared to 13.5% in 1996.
INTEREST (EXPENSE) INCOME, NET
Interest (expense) income, net for 1997 was $86,000, an increase of $155,000
from ($69,000) for 1996, resulting primarily from higher cash and cash
equivalents balances for 1997 primarily attributable to the receipt of
$16.4 million of net proceeds (net of related expenses) from Healthworld's IPO.
The IPO was consummated in November 1997.
PROVISION FOR INCOME TAXES
The provision for income taxes fluctuated in 1996, 1997 and 1998 primarily
as a result of the dollar amount of income before provision for income taxes. It
should be noted that the low effective income tax rate in 1996 and 1997 is
primarily the result of Healthworld's U.S. subsidiaries being treated as S
corporations rather than C corporations for the period up until November 12,
1997.
NET INCOME
Net income for 1997 was $4.0 million, an increase of $1.5 million, or 57.0%,
from $2.6 million for 1996. Net income represented 11.3% of revenues for 1997
compared to 10.5% for 1996.
LIQUIDITY AND CAPITAL RESOURCES
During the first nine months of 1999, cash provided by operations was
approximately $9.4 million, which consisted of net income for the period of
$3.8 million, non-cash charges of $1.3 million, an increase in advance billings
of $10.1 million and an aggregate increase of accounts payable and accrued
expenses of $1.8 million. This was partially offset by an increase in accounts
receivable of approximately $8.0 million. Cash used in investing activities was
$8.8 million and was primarily attributable to the initial cash payment for
Falk, net of cash received of $8.0 million, and capital expenditures of
$1.0 million offset by proceeds from the sale of fixed assets of $193,000. Cash
used in financing activities was $189,000, and primarily resulted from $345,000
for repayments of bank loans and capital leases offset by cash provided by stock
option exercises of $156,000.
The decrease in working capital at September 30, 1999 as compared to
December 31, 1998 was primarily attributable to the cash payments in connection
with the Falk acquisition, partially offset by net income from operations for
the nine months.
Healthworld maintains relationships with one bank in the United States and a
number of banks in Europe which have extended various secured and unsecured,
committed and uncommitted lines of credit in amounts sufficient to meet
Healthworld's cash needs. In July 1999, Girgenti, Hughes, Butler and
McDowell, Inc., a wholly-owned subsidiary of Healthworld with operations in the
U.S., entered into a $5.0 million uncommitted line of credit with a bank of
which no amounts are outstanding to date. Amounts outstanding under the line of
credit accrue interest at the bank's prime rate or at LIBOR plus 1.75%. The line
of credit is guaranteed by the other entities comprising Healthworld's U.S.
operations, including Healthworld Corporation, and is secured by a security
interest in all of the
96
personal property owned by certain of the entities comprising Healthworld's U.S.
operations. The line expires in September 2000. Healthworld is also a party to
various secured and unsecured, committed lines of credit and overdraft
facilities outside of the United States in an aggregate amount of approximately
$2.8 million. Healthworld has no amounts outstanding to date under such
facilities outside of the United States.
In July 1998, Healthworld acquired HFT. Healthworld's initial cash purchase
price was 20.3 million French francs (approximately US$3.4 million), including
expenses related to the acquisition. Total amounts to be paid in connection with
the acquisition, including potential, future earn-out payments to take place on
or prior to April 15, 2000 and April 15, 2002 based upon a multiple of operating
income of HFT and the seller's option to sell and Healthworld's option to
purchase the remaining 20% of the capital stock of HFT, will not exceed
48.0 million French francs (approximately US$8.1 million).
In July 1998, Healthworld acquired all of the capital stock of Colwood, a
United Kingdom medical education company. Healthworld's initial cash purchase
price was L4.5 million (approximately US$7.5 million) including expenses related
to the acquisition. Total amounts to be paid in connection with the acquisition,
including potential, future earn-out payments to take place in April 2000 and
August 2001 based upon Colwood achieving certain targeted operating profits, are
not to exceed approximately L8.0 million (approximately US$13.3 million).
Pursuant to the acquisition agreement with respect to the Colwood
transaction, Healthworld deposited an amount equal to L1.0 million
(approximately US$1.7 million) in an interest-bearing escrow account to be
applied towards the potential, future earn-out payments to be made in
April 2000 and August 2001, and may be required to deposit into such escrow
account additional amounts based on net operating profits to be applied towards
such potential, future earn-out payments. Accordingly, such committed amounts
will not be available for working capital purposes.
In October 1998, Healthworld acquired all of the capital stock of CPA
Espana, a healthcare communications agency located in Madrid, Spain.
Healthworld's initial cash purchase price was approximately 261 million Spanish
pesetas (approximately US$1.9 million) including expenses related to the
acquisition. Total amounts to be paid in connection with the acquisition,
including potential, future earn-out payments to take place in April 2000 and
April 2003 based upon CPA Espana achieving certain targeted operating profits,
are not to exceed approximately 710 million Spanish pesetas (approximately
US$5.1 million).
In August 1999, Healthworld acquired 100% of the capital stock of Falk
Communications, Inc., a healthcare communications agency located in New York
City. The initial cost to Healthworld, including expenses related to the
acquisition, was approximately $17.0 million, consisting of approximately
$9.0 million in cash and 649,111 shares of Healthworld's common stock. Total
amounts to be paid in cash and Healthworld's common stock in connection with the
acquisition, including potential, future earn-out payments to take place on or
prior to April 30, 2000, 2001, 2002 and 2003 based upon a multiple of operating
income of Falk, are not expected to exceed $37.8 million. However, because the
amount of common stock to be paid in connection with additional earn-out
payments is based upon a moving average price of the common stock during a
20 day period ending 3 days before the date payment is made, while such common
stock paid in connection with the earn-outs will be valued for accounting
purposes based upon its market price on the date of issuance, it is possible
that as a result of market fluctuations in the price of the common stock the
value of the aggregate consideration paid to the Falk shareholders in connection
with the merger could exceed $37.8 million.
Management believes that cash generated from Healthworld's operations and
available to Healthworld under various lines of credit are adequate to support
its short-term cash requirements for capital expenditures, earn-outs and
maintenance of working capital.
97
Inflation did not have a significant impact upon the results of Healthworld
during fiscal 1996, 1997 or 1998 or the first nine months of 1999.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Healthworld, as a result of doing business outside of the United States, is
susceptible to foreign exchange rate fluctuations. Milton and Colwood operate
only in the United Kingdom, HFT operates only in France, and CPA Espana operates
only in Spain. Both France and Spain are members of the European Monetary Union,
consequently the French franc and the Spanish peseta are pegged to the Euro. As
a result, Healthworld is susceptible to rate fluctuations between the British
pound sterling, the French franc and the Spanish peseta, respectively, and the
U.S. dollar. Healthworld's financial statements are denominated in U.S. dollars,
and accordingly, changes in the exchange rate between the British pound
sterling, the French franc and the Spanish peseta against the U.S. dollar will
affect the translation of the European operations' financial results into U.S.
dollars for purposes of reporting Healthworld's consolidated financial results.
Healthworld does not utilize derivative financial instruments to hedge against
changes in foreign exchange rates or for any other purpose.
YEAR 2000 COMPLIANCE
Historically many computer programs were generally written using two digits
rather than four to define the applicable year. Accordingly, such programs may
have been unable to distinguish property between the Year 1900 and the Year
2000. This would result in system failures or data corruption for Healthworld,
its customers or suppliers which could cause disruptions of operations.
Healthworld conducted a review of its internal systems and material clients
and vendors with respect to Year 2000 issues. As expected, Healthworld
experienced no interruption in its business systems.
The total cost of Healthworld's Year 2000 assessment and remediation efforts
has not been material to Healthworld's results of operations or liquidity.
Healthworld funded its expenditures related to the Year 2000 plan with cash
flows from operations. The capitalization or expense of the foregoing
expenditures will be determined using current authoritative guidance.
98
EXCHANGE RATES
This table sets forth, for each period indicated, the high and low noon
buying rates for one pound sterling expressed in U.S. dollars, the average noon
buying rate during such period, and the noon buying rate at the end of such
period, based upon information provided by the Federal Reserve Bank of New York:
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
---------------------------------------------------- JUNE 30,
1994 1995 1996 1997 1998 1999
-------- -------- -------- -------- -------- ----------
High........................................ $1.6368 $1.6440 $1.7123 $1.7035 $1.7222 $1.6585
Low......................................... $1.4615 $1.5302 $1.4948 $1.5775 $1.6114 $1.5765
Average..................................... $1.5319 $1.5785 $1.5607 $1.6376 $1.6574 $1.6188
Period End.................................. $1.5665 $1.5535 $1.7123 $1.6427 $1.6628 $1.5765
As of February 1, 2000, the latest practicable date for which exchange rate
information was available prior to the filing of this document, the noon buying
rate for one pound sterling expressed in U.S. dollars was $1.6150.
This table sets forth, for each period indicated, the high and low noon
buying rates for one U.S. dollar expressed in pounds sterling, the average noon
buying rate during such period, and the noon buying rate at the end of such
period, based upon information provided by the Federal Reserve Bank of New York:
YEAR ENDED DECEMBER 31,
---------------------------------------------------
1994 1995 1996
--------------- --------------- ---------------
High........................................ L0.6109 L0.6083 L0.5840
Low......................................... L0.6842 L0.6535 L0.6690
Average..................................... L0.6528 L0.6335 L0.6408
Period End.................................. L0.6384 L0.6437 L0.5840
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED
--------------------------------- JUNE 30,
1997 1998 1999
--------------- --------------- ---------------
High........................................ L0.5870 L0.5807 L0.6030
Low......................................... L0.6339 L0.6206 L0.6343
Average..................................... L0.6107 L0.6034 L0.6177
Period End.................................. L0.6088 L0.6014 L0.6343
As of February 1, 2000, the latest practicable date for which exchange rate
information was available prior to the filing of this document, the noon buying
rate for one U.S. dollar was L0.6192.
99
SHARE MARKET PRICE
CORDIANT
The Cordiant ordinary shares are only traded on the London Stock Exchange.
Cordiant ADSs, each representing five Cordiant ordinary shares, have been issued
by the depositary and are listed on the NYSE and trade under the ticker symbol
"CDA." The Cordiant ADSs to be issued in the merger will be issued by the
depositary and listed on the NYSE and will trade under the same ticker symbol.
The table below shows, for the periods indicated, the highest and lowest
middle-market quotations for the Cordiant ordinary shares as derived from the
Daily Official List of the London Stock Exchange and the highest and lowest
sales prices of Cordiant ADSs on the NYSE Composite Tape.
CORDIANT ORDINARY
SHARES CORDIANT ADSS
------------------------- -------------------------
HIGH LOW HIGH LOW
-------- -------- -------- --------
(L PER CORDIANT ($ PER CORDIANT
ORDINARY SHARE) ADS)
YEAR ENDED DECEMBER 31, 1997
First Quarter......................................... 0.98 1.23 7.81 9.66
Second Quarter........................................ 1.19 1.35 9.45 10.89
Third Quarter......................................... 1.17 1.34 9.14 10.99
Fourth Quarter........................................ 1.00 1.34 8.63 10.89
YEAR ENDED DECEMBER 31, 1998
First Quarter......................................... 0.89 1.23 7.25 10.69
Second Quarter........................................ 1.15 1.36 9.63 12.25
Third Quarter......................................... 1.02 1.34 8.75 11.75
Fourth Quarter........................................ 0.95 1.12 8.31 10.38
YEAR ENDING DECEMBER 31, 1999
First Quarter......................................... 1.07 1.67 9.50 13.50
Second Quarter........................................ 1.56 1.93 12.44 15.38
Third Quarter......................................... 1.65 1.98 12.75 15.50
Fourth Quarter........................................ 3.02 1.72 24.38 14.00
YEAR ENDED DECEMBER 31, 2000
First Quarter (through February 1, 2000).............. 3.17 2.67 25.94 21.88
The last middle market quotation of the Cordiant ordinary shares on the
London Stock Exchange and the last sales price of the Cordiant ADSs on the NYSE
on November 8, 1999 prior to any public announcement of the signing of the
merger agreement, were 211.5p per Cordiant ordinary share and $16.56 per
Cordiant ADS, and on February 1, 2000, the last trading day for which
information was available prior to the printing of this proxy
statement/prospectus, were 279p per Cordiant ordinary share and $22.13 per
Cordiant ADS. HEALTHWORLD STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR THE CORDIANT ORDINARY SHARES AND THE CORDIANT ADSS BEFORE MAKING
A DECISION WITH RESPECT TO THE MERGER.
HEALTHWORLD
Healthworld common stock is traded on the Nasdaq Stock Market under the
ticker symbol "HWLD". Healthworld's common stock began trading on November 21,
1997. This table shows the
100
high and low sale prices of one share of Healthworld common stock on the Nasdaq
Stock Market for the periods presented.
HIGH LOW
-------- --------
($ PER SHARE)
YEAR ENDED DECEMBER 31, 1997
Fourth Quarter.............................................. $12.75 $ 9.00
YEAR ENDED DECEMBER 31, 1998
First Quarter............................................... $19.38 $ 9.75
Second Quarter.............................................. $19.00 $12.00
Third Quarter............................................... $17.50 $12.13
Fourth Quarter.............................................. $15.63 $10.25
YEAR ENDED DECEMBER 31, 1999
First Quarter............................................... $16.00 $10.88
Second Quarter.............................................. $15.50 $10.38
Third Quarter............................................... $14.75 $10.69
Fourth Quarter.............................................. $22.94 $13.75
YEAR ENDED DECEMBER 31, 2000
First Quarter (through February 1, 2000).................... $22.30 $20.73
The last sale price of a share of Healthworld common stock on the Nasdaq
Stock Market on September 13, 1999, the date of the Healthworld board of
directors meeting at which the initial proposal from Cordiant was reviewed, on
September 29, 1999, the date of the receipt by Healthworld of written
confirmation of the revised proposal from Cordiant, on October 6, 1999, the date
of the signing of the exclusivity agreement between Healthworld and Cordiant,
and on November 8, 1999, the date immediately prior to the public announcement
of the signing of the merger agreement, was $14.00, $13.38, $13.88 and $17.50
per share, respectively. On February 1, 2000, the last trading day for which
information was available prior to the printing of this proxy
statement/prospectus, the last sale price was $22.00 per share.
HEALTHWORLD STOCKHOLDERS ARE URGED TO OBTAIN CURRENT MARKET QUOTATIONS FOR
THE HEALTHWORLD COMMON STOCK BEFORE MAKING A DECISION WITH RESPECT TO THE
MERGER.
101
DIVIDEND DATA
CORDIANT
The following table sets forth dividends announced and paid in respect of
Cordiant ordinary shares and Cordiant ADSs, for the periods indicated, including
the associated U.K. tax credit available to certain beneficial owners of
Cordiant ordinary shares or Cordiant ADSs who are resident in the U.S. for tax
purposes, but before deduction of U.K. withholding taxes. See "MATERIAL TAX
CONSEQUENCES--United Kingdom Tax Consequences of the ownership of Cordiant
ordinary shares and Cordiant ADSs." Therefore, the amounts shown are not those
that were actually paid to holders of Cordiant ordinary shares and Cordiant
ADSs. The percentage of any dividend represented by the associated U.K. tax
credit has varied over the periods indicated. As of April 6, 1999, the U.K. tax
credit is now effectively completely set off by the amount of applicable U.K.
withholding taxes. The U.K. tax credit is currently one-ninth of the cash
dividend. Dividends have been translated from pounds sterling per Cordiant ADS
into U.S. dollars using the exchange rate on the date the dividends were paid.
Dividends recommended by Cordiant's board of directors in respect of a
particular fiscal year are paid in the following fiscal year if approved by
Cordiant shareholders. Cordiant paid the dividends set forth below on the
Cordiant ordinary shares for the years indicated. See "EXCHANGE RATES,"
"CORDIANT FOLLOWING THE MERGER--Dividends," "DESCRIPTION OF CORDIANT ORDINARY
SHARES--Dividends" and "DESCRIPTION OF CORDIANT AMERICAN DEPOSITARY
SHARES--Share Dividends and Other Distributions."
DIVIDENDS PER CORDIANT ORDINARY
SHARE AND CORDIANT ADS
-------------------------------
TOTAL
-------------------------------
1995
Ordinary share............................................ --
ADS....................................................... --
1996
Ordinary share............................................ 2.6p
ADS....................................................... $0.22
1997
Ordinary share............................................ 1.2p
ADS....................................................... $0.10
1998
Ordinary share............................................ 1.4p
ADS....................................................... $0.12
1999
Ordinary share............................................ *
ADS....................................................... *
- ------------------------
* Cordiant has currently not declared a dividend for 1999.
HEALTHWORLD
Healthworld has never declared or paid a dividend on its common stock. The
companies comprising GHB&M made S corporation cash distributions to the
stockholders of GHB&M of an aggregate of $1.5 million in fiscal 1996, $498,000
in fiscal 1997 and, immediately prior to the consummation of the consolidation
on November 12, 1997, approximately $3.7 million. The companies comprising
Milton paid no cash dividends on their common stock to the stockholders of
Milton in fiscal 1996 and an aggregate of $160,000 in fiscal 1997.
In the past, Healthworld retained all earnings, if any, to finance the
expansion of its business and for general corporate purposes, including
acquisitions.
102
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
Introductory Note
The following unaudited pro forma condensed combined financial information
gives pro forma effect to the transaction, after giving effect to the pro forma
adjustments described in the accompanying notes. The unaudited pro forma
condensed combined financial information has been prepared from, and should be
read in conjunction with, the respective historical consolidated financial
statements and notes thereto of Cordiant, which are incorporated by reference in
this proxy statement/ prospectus, and Healthworld, which are included elsewhere
in this proxy statement/prospectus. See "Where You Can Find More Information"
and "INDEX TO HEALTHWORLD FINANCIAL INFORMATION"
The unaudited pro forma condensed combined financial information is provided
for illustrative purposes only and does not purport to represent what the actual
results of operations or the financial position of the combined group would have
been had the transaction occurred on the respective dates assumed, nor is it
necessarily indicative of the combined group's future operating results,
combined financial position or dividend payment policies.
The pro forma adjustments reflected in the accompanying unaudited pro forma
condensed combined financial information reflect estimates made by Cordiant
management and assumptions that it believes to be reasonable. The unaudited pro
forma condensed combined financial information does not give effect to any
restructuring costs and transaction costs, nor any potential cost savings or
other synergies that could result from the transaction. See "THE MERGER--Reasons
for the Merger."
The unaudited pro forma condensed combined financial information has been
prepared in accordance with U.K. GAAP which differs in certain significant
respects from U.S. GAAP. Note 37 to the consolidated financial statements of
Cordiant included in Cordiant's Annual Report on Form 20-F filed on June 29,
1999 (which is incorporated by reference in this proxy statement/prospectus),
which presented U.S. GAAP information for the years ended December 31, 1996,
1997 and 1998, provides a description of the principal differences between U.K.
GAAP and U.S. GAAP as they relate to Cordiant. Note 5 to the unaudited pro forma
condensed combined financial information includes a reconciliation of the pro
forma profit and pro forma net assets to U.S. GAAP.
Cordiant will account for the transaction as an acquisition under U.K. GAAP
in accordance with Financial Reporting Standard 6, "Acquisitions and Mergers"
and will account for the transaction as a purchase under U.S. GAAP in accordance
with APB Opinion No. 16, "Business Combinations."
The historical financial statements of Healthworld have been prepared in
accordance with U.S. GAAP. For the purposes of presenting the unaudited pro
forma condensed combined financial information, financial information relating
to Healthworld has been adjusted to conform with U.K. GAAP as described in
Note 2 to the unaudited pro forma condensed combined financial information.
The pro forma adjustments to the unaudited pro forma condensed combined
balance sheet at June 30, 1999 were prepared as if the transaction was
consummated as of June 30, 1999. The pro forma adjustments to the unaudited pro
forma condensed combined statement of operations for the six months ended
June 30, 1999 and the year ended December 31, 1998 were prepared as if the
transaction was consummated on January 1, 1998.
The pro forma amounts pertaining to post-transaction Cordiant in the
unaudited pro forma condensed combined financial information are presented in
pounds sterling and are, for convenience only, also expressed in U.S. dollars at
the rates shown in Note 1 to the unaudited pro forma condensed combined
financial information.
103
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 1999
---------------------------------------------------------------
HEALTHWORLD U.K. GAAP
U.S. GAAP ADJUSTMENTS HEALTHWORLD
(NOTE 1) (NOTES 1, 2) U.K. GAAP CORDIANT
------------- ------------- ------------- ---------------
L L L L
(IN MILLIONS, EXCEPT PER SHARE DATA)
Turnover
Group and Share of joint
venturees.................. L21.0 L23.2(a) L44.2 L966.5
Less: share of joint
ventures................... -- -- -- (201.4)
------------- ------------- ------------- ---------------
Group Turnover............... 21.0 23.2 44.2 765.1
============= ============= ============= ===============
Group and share of joint
ventures................... 21.0 -- 21.0 168.6
Less: share of joint
ventures................... -- -- -- (10.0)
------------- ------------- ------------- ---------------
Commission and fee income.... 21.0 -- 21.0 158.6
Operating and administration
expenses................... (18.7) -- (18.7) (143.0)
Depreciation................. (0.5) 0.2(d) (0.3) (4.9)
------------- ------------- ------------- ---------------
Operating profit............. 1.8 0.2 2.0 10.7
Share of operating profits:
Joint venture................ -- -- -- 1.4
Associated undertakings...... -- -- -- 0.8
------------- ------------- ------------- ---------------
Profit before interest and
taxation................... 1.8 0.2 2.0 12.9
Net interest payable and
similar charges............ 0.2 -- 0.2 (1.2)
FRS 12--finance charge....... -- -- -- (0.6)
------------- ------------- ------------- ---------------
Profit before taxation....... 2.0 0.2 2.2 11.1
Taxation..................... (0.9) -- (0.9) (3.9)
------------- ------------- ------------- ---------------
Profit after taxation........ 1.1 0.2 1.3 7.2
Minority interests........... -- -- -- (0.8)
------------- ------------- ------------- ---------------
Net profit................... 1.1 0.2 1.3 6.4
Dividend proposed on equity
shares..................... -- -- -- --
------------- ------------- ------------- ---------------
Profit retained for year..... L1.1 L0.2 L1.3 L6.4
============= ============= ============= ===============
Earnings per ordinary share
--Basic (Note 4)........... 17.6p 2.8p
--Diluted.................. 17.1p 2.7p
Weighted average number of
shares outstanding
--Basic (Note 4)........... 7.4 226.1
--Diluted.................. 7.6 239.1
SIX MONTHS ENDED JUNE 30, 1999
------------------------------------------
PRO FORMA
ADJUSTMENTS TOTAL TOTAL
(NOTE 3(C)) PRO FORMA PRO FORMA
----------- ---------------- ---------
L L $
(IN MILLIONS, EXCEPT PER SHARE DATA)
Turnover
Group and Share of joint
venturees.................. -- L1,010.7 $1,596.8
Less: share of joint
ventures................... -- (201.4) (318.2)
--- ---------------- --------
Group Turnover............... -- 809.3 1,278.6
=== ================ ========
Group and share of joint
ventures................... -- 189.6 299.5
Less: share of joint
ventures................... -- (10.0) (15.8)
--- ---------------- --------
Commission and fee income.... -- 179.6 283.7
Operating and administration
expenses................... -- (161.7) (255.5)
Depreciation................. -- (5.2) (8.2)
--- ---------------- --------
Operating profit............. -- 12.7 20.0
Share of operating profits:
Joint venture................ -- 1.4 2.2
Associated undertakings...... -- 0.8 1.3
--- ---------------- --------
Profit before interest and
taxation................... -- 14.9 23.5
Net interest payable and
similar charges............ -- (1.0) (1.7)
FRS 12--finance charge....... -- (0.6) (0.9)
--- ---------------- --------
Profit before taxation....... -- 13.3 20.9
Taxation..................... -- (4.8) (7.5)
--- ---------------- --------
Profit after taxation........ 8.5 13.4
Minority interests........... -- (0.8) (1.3)
--- ---------------- --------
Net profit................... -- 7.7 12.1
Dividend proposed on equity
shares..................... -- -- --
--- ---------------- --------
Profit retained for year..... -- L7.7 $ 12.1
=== ================ ========
Earnings per ordinary share
--Basic (Note 4)........... 2.7p
--Diluted.................. 2.6p
Weighted average number of
shares outstanding
--Basic (Note 4)........... 280.0
--Diluted.................. 293.0
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE PRO FORMA FINANCIAL
INFORMATION.
104
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1998
----------------------------------------------------------------
HEALTHWORLD U.K. GAAP
U.S. GAAP ADJUSTMENTS HEALTHWORLD
(NOTE 1) (NOTES 1, 2) U.K. GAAP CORDIANT
------------- ------------- ------------- ----------------
L L L L
(IN MILLIONS, EXCEPT PER SHARE DATA)
Turnover
Group and Share of joint
venturees......................... L40.3 L32.9(a) L73.2 L1,847.4
Less: share of joint ventures....... -- -- -- (281.8)
------------- ------------- ------------- ----------------
Group Turnover...................... 40.3 32.9 73.2 1,565.6
============= ============= ============= ================
Group and share of joint ventures... 40.3 -- 40.3 316.0
Less: share of joint ventures....... -- -- -- (14.2)
------------- ------------- ------------- ----------------
Commission and fee income........... 40.3 -- 40.3 301.8
Operating and administration
expenses.......................... (35.3) -- (35.3) (266.1)
Depreciation........................ (0.7) 0.2 (d) (1.0) (9.7)
(0.5)(e)
------------- ------------- ------------- ----------------
Operating profit.................... 4.3 (0.3) 4.0 26.0
Share of operating profits:......... --
Joint venture....................... -- -- -- 1.4
Associated undertakings............. -- -- -- 1.2
------------- ------------- ------------- ----------------
Profit before interest and
taxation.......................... 4.3 (0.3) 4.0 28.6
Net interest payable and similar
charges........................... 0.4 -- 0.4 (2.7)
FRS 12--finance charge.............. -- -- -- (1.2)
------------- ------------- ------------- ----------------
Profit before taxation.............. 4.7 (0.3) 4.4 24.7
Taxation............................ (1.9) -- (1.9) (9.2)
------------- ------------- ------------- ----------------
Profit after taxation............... 2.8 (0.3) 2.5 15.5
Minority interests.................. -- -- -- (1.7)
------------- ------------- ------------- ----------------
Net profit.......................... 2.8 (0.3) 2.5 13.8
Dividend proposed on equity
shares............................ -- -- -- (3.1)
------------- ------------- ------------- ----------------
Profit retained for year............ L2.8 L(0.3) L2.5 L10.7
============= ============= ============= ================
Earnings per ordinary share
- --Basic (Note 4).................... 33.8p 6.2p
- --Diluted........................... 32.9p 6.2p
Weighted average number of shares
outstanding
- --Basic (Note 4).................... 7.4 222.4
- --Diluted........................... 7.6 223.3
YEAR ENDED DECEMBER 31, 1998
---------------------------------------------
PRO FORMA
ADJUSTMENTS TOTAL TOTAL
(NOTE 3(C)) PRO FORMA PRO FORMA
-------------- ---------------- ---------
L L $
(IN MILLIONS, EXCEPT PER SHARE DATA)
Turnover
Group and Share of joint
venturees......................... L L1,920.6 $3,034.5
Less: share of joint ventures....... -- (281.8) (445.2)
-------------- ---------------- --------
Group Turnover...................... -- 1,638.8 2,589.3
============== ================ ========
Group and share of joint ventures... -- 356.3 563.0
Less: share of joint ventures....... -- (14.2) (22.5)
-------------- ---------------- --------
Commission and fee income........... -- 342.1 540.5
Operating and administration
expenses.......................... -- (301.4) (476.2)
Depreciation........................ -- (10.7) (16.9)
-------------- ---------------- --------
Operating profit.................... -- 30.0 47.4
Share of operating profits:.........
Joint venture....................... -- 1.4 2.2
Associated undertakings............. -- 1.2 1.9
-------------- ---------------- --------
Profit before interest and
taxation.......................... -- 32.6 51.5
Net interest payable and similar
charges........................... -- (2.3) (3.6)
FRS 12--finance charge.............. -- (1.2) (1.9)
-------------- ---------------- --------
Profit before taxation.............. -- 29.1 46.0
Taxation............................ -- (11.1) (17.5)
-------------- ---------------- --------
Profit after taxation............... -- 18.0 28.5
Minority interests.................. -- (1.7) (2.7)
-------------- ---------------- --------
Net profit.......................... -- 16.3 25.8
Dividend proposed on equity
shares............................ -- (3.1) (4.9)
-------------- ---------------- --------
Profit retained for year............ -- L13.2 $ 20.9
============== ================ ========
Earnings per ordinary share
- --Basic (Note 4).................... 5.9p
- --Diluted........................... 5.9p
Weighted average number of shares
outstanding
- --Basic (Note 4).................... 276.3
- --Diluted........................... 277.2
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE PRO FORMA FINANCIAL
INFORMATION.
105
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEETS
JUNE 30, 1999
----------------------------------------------------------------------------
HEALTHWORLD U.K. GAAP PRO FORMA
U.S. GAAP ADJUSTMENTS HEALTHWORLD ADJUSTMENTS
(NOTE 1) (NOTES 1, 2) U.K. GAAP CORDIANT (NOTE 3(C))
------------- ------------ ------------- ------------- -------------
L L L L L
(IN MILLIONS)
ASSETS
Current assets:
Cash and short-term deposits......... L11.1 -- L11.1 L64.8 L11.6
Short-term Investments............... -- -- -- 0.8 --
Accounts and other receivables,
prepayments and accrued income..... 12.5 12.5 241.9 --
Billable production.................. 2.4 -- 2.4 17.5 --
------------- ------ ------------- ------------- -------------
Total current assets............... 26.0 -- 26.0 325.0 11.6
------------- ------ ------------- ------------- -------------
Long-term assets:
Long-Term Investments................ -- -- -- 9.1 --
Accounts and other receivables,
prepayments and accrued income..... 0.4 -- 0.4 22.8 --
Restricted cash...................... 1.1 1.9 (f) 3.0 -- --
Property and equipment, net.......... 2.8 -- 2.8 26.1 --
Goodwill, net........................ 8.9 (2.2)(b) 10.4 20.3 133.4
3.8 (c)
0.4 (d)
(0.5)(e)
------------- ------ ------------- ------------- -------------
Total assets....................... 39.2 3.4 42.6 403.3 145.0
============= ====== ============= ============= =============
LIABILITIES
Current liabilities:
Bank loans, overdrafts and other
loans.............................. 0.1 1.9 (f) 2.0 34.6 --
Accounts payable, other liabilities
and accrued expenses............... 18.8 1.6 (c) 20.4 289.1 8.0
------------- ------ ------------- ------------- -------------
Total current liabilities.......... 18.9 3.5 22.4 323.7 8.0
------------- ------ ------------- ------------- -------------
Long-term liabilities:
Accounts payable, other liabilities
and accrued expenses............... 0.6 2.2 (c) 2.8 14.4 --
Provision for joint venture
deficit............................ -- -- -- 14.6 --
Property, pension and other
provisions......................... -- -- -- 44.6 --
Long-term debt....................... 0.1 -- 0.1 39.3 --
Deferred taxation.................... -- -- -- 1.3 --
Taxation............................. -- -- -- 19.1 --
Minority interests................... 0.1 -- 0.1 3.4 --
------------- ------ ------------- ------------- -------------
Total liabilities.................. 19.7 5.7 25.4 460.4 8.0
------------- ------ ------------- ------------- -------------
NET ASSETS/(LIABILITIES)........... 19.5 (2.3) 17.2 (57.1) 137.0
============= ====== ============= ============= =============
JUNE 30, 1999
--------------------------
TOTAL TOTAL
PRO PRO
FORMA FORMA
-------------- ---------
L $
(IN MILLIONS)
ASSETS
Current assets:
Cash and short-term deposits......... L87.5 $138.2
Short-term Investments............... 0.8 1.3
Accounts and other receivables,
prepayments and accrued income..... 254.4 402.0
Billable production.................. 19.9 31.4
-------------- ------
Total current assets............... 362.9 572.9
-------------- ------
Long-term assets:
Long-Term Investments................ 9.1 14.4
Accounts and other receivables,
prepayments and accrued income..... 23.2 36.7
Restricted cash...................... 3.0 4.7
Property and equipment, net.......... 28.9 45.7
Goodwill, net........................ 164.1 259.2
-------------- ------
Total assets....................... 590.9 933.6
============== ======
LIABILITIES
Current liabilities:
Bank loans, overdrafts and other
loans.............................. 36.6 57.8
Accounts payable, other liabilities
and accrued expenses............... 317.5 501.5
-------------- ------
Total current liabilities.......... 354.1 559.3
-------------- ------
Long-term liabilities:
Accounts payable, other liabilities
and accrued expenses............... 17.2 27.2
Provision for joint venture
deficit............................ 14.6 23.1
Property, pension and other
provisions......................... 44.6 70.5
Long-term debt....................... 39.4 62.3
Deferred taxation.................... 1.3 2.1
Taxation............................. 19.1 30.2
Minority interests................... 3.5 5.5
-------------- ------
Total liabilities.................. 493.8 780.2
-------------- ------
NET ASSETS/(LIABILITIES)........... 97.1 153.4
============== ======
The accompanying notes are an integral part of the pro forma financial
information.
106
NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
NOTE 1--CURRENCY TRANSLATION OF HEALTHWORLD FINANCIAL STATEMENT
The Healthworld historical balance sheet information and related pro forma
adjustments to the unaudited pro forma condensed combined balance sheet at
June 30, 1999 and statement of operations for the year ended December 31, 1998
have been translated into pounds sterling at the noon buying rate as published
by the Federal Reserve Bank of New York on June 30, 1999 of L1 = $1.58. Certain
of the Healthworld balance sheet and statement of operations classifications
have been revised to conform with the financial statement presentation of
Cordiant.
NOTE 2--HEALTHWORLD U.S. TO U.K. GAAP ADJUSTMENTS
a. Under U.K. GAAP, turnover comprises amounts billed to clients (excluding
sales taxes and intragroup transactions), including amounts billed to clients
for third-party pass-through expenses. Under U.S. GAAP, revenue is required to
be net of third-party pass-through expenses. Accordingly, these adjustments add
third-party pass-through expenses (six months ended 1999--L23.2 million, 1998--
L32.9 million) to turnover to conform the presentation to U.K. GAAP.
b. Under U.K. GAAP, the policy followed by Cordiant prior to the
introduction of Financial Reporting Standard 10, "Goodwill and Intangible
Assets" (which is effective for accounting periods ending on or after
December 23, 1998 and has been adopted by Cordiant on a prospective basis) was
to write off goodwill against shareholders' equity in the year of acquisition.
FRS 10 requires goodwill to be capitalized and either amortized or subjected to
an annual impairment review. This adjustment represents the elimination of
goodwill (six months ended 1999--L2.2 million) arising from business
acquisitions prior to 1998 directly against equity, as allowed under U.K. GAAP.
Under U.S. GAAP, goodwill and intangible assets arising from business
acquisitions are capitalized and amortized over their estimated useful lives.
c. Under U.K. GAAP, contingent purchase price payments must be recognized
as payables (with the related increase in goodwill) upon the completion of the
acquisition transaction rather than when payable. Under U.S. GAAP, contingent
purchase price payments are only accounted for at the time the contingent
purchase price payments are earned. This adjustment represents the grossing-up
of goodwill to include contingent purchase price payments not yet earned on
post-1997 acquisitions (six months ended 1999--L3.8 million), and the recording
of the corresponding payable, as required by U.K. GAAP.
d. U.K. GAAP requires goodwill to be capitalized and either amortized or
subjected to an annual impairment review. Under U.S. GAAP, goodwill and
intangible assets arising in an acquisition would be capitalized and amortized
over their useful economic lives. This adjustment represents reversal of the
amortization of the goodwill expensed (six months ended 1999--L(0.2) million,
1998--L(0.2) million) under U.S. GAAP. Under Cordiant's U.K. GAAP accounting
policies, where appropriate, goodwill is not amortized but is subject to an
annual impairment review.
e. This adjustment represents the writedown of goodwill (1998--L(0.5)
million) relating to an acquisition. Under U.K. GAAP, if goodwill is regarded as
impaired, it is subjected to an annual impairment review, which review considers
future discounted cash flows related to the subject asset. Under U.S. GAAP,
goodwill arising from business acquisitions is capitalized and amortized over
the estimated useful life and an impairment review, if necessary, only considers
undiscounted future cash flows.
f. Under U.K. GAAP, notes payable in connection with irrevocable payment in
satisfaction of a note payable continue to be reflected on the obligor's
financial statements (even after irrevocable payment is made by the obligor)
until the payment is distributed to the obligee. Under U.S. GAAP, once the
obligor has made an irrevocable payment in satisfaction of a note payable, the
note payable is
107
required to be removed from the financial statements. This adjustment represents
the grossing up of notes payable (L1.9 million) which are not included in
Healthworld's balance sheet under U.S. GAAP.
NOTE 3--PRO FORMA ACQUISITION ADJUSTMENTS
The unaudited pro forma condensed combined financial information records the
transaction as being accounted for as an acquisition with the excess of the fair
value of the consideration over the fair value of net assets acquired being
allocated to goodwill. No adjustment has been made to reflect any other
transactions subsequent to June 30, 1999 for Cordiant or for Healthworld.
The unaudited pro forma condensed combined financial information assumes
that Cordiant will issue 5.0903 Cordiant ordinary shares (equivalent to 1.0181
of a Cordiant ADS) for each share of Healthworld common stock outstanding at the
time of the merger. The total purchase price assumed is based on the Cordiant
ordinary share closing price on February 1, 2000 on the London Stock Exchange of
L2.79 and assumes exercise of all vested Healthworld stock options outstanding
at that date. The aggregate number of outstanding shares of Healthworld common
stock and shares of Healthworld common stock issuable upon exercise of vested
options is assumed to be 10.6 million. As a result, 53.9 million new Cordiant
ordinary shares are assumed to be issued in the merger. The pro forma financial
data do not give effect to any restructuring costs, nor any potential cost
savings or other synergies that could result from the merger.
A preliminary allocation of the purchase price and the estimate of goodwill
have been performed for purposes of the unaudited pro forma condensed combined
financial information based on initial appraisal estimates and other valuation
studies which are currently in process and assumptions which Cordiant believes
are reasonable. The final allocation and valuation of goodwill are subject to
completion of these studies, which is expected to be completed within the next
twelve months. However, Cordiant does not expect the differences between the
preliminary and final allocations and calculations to have a material impact on
shareholders' equity or profit for the period. A preliminary allocation, in
accordance with U.K. GAAP, is shown below.
The calculation to determine the preliminary allocation of the purchase
price and the pro forma goodwill, which is based on the example set forth in the
table below, is for illustrative pro forma purposes only. Similarly, the final
exchange ratio referred to below cannot be determined until the transaction
takes place and therefore the ratio is based on initial estimates. The
preliminary allocation is as follows:
Healthworld shares issued for Falk (i)...................... 1.0 million
Healthworld shares outstanding at January 28, 2000.......... 8.1 million
Healthworld options outstanding at January 28, 2000......... 1.5 million
----------------------
10.6 million(a)
Exchange ratio per share (ii)............................... 5.090(b)
Cordiant Shares assumed to be issuable (equals (a)
multiplied by (b))........................................ 53.9 million(c)
Cordiant per ordinary share closing mid price on
February 1, 2000.......................................... L2.790(d)
Total assumed purchase consideration (equals (c) multiplied
by (d)) (iii)............................................. L150.4 million(e)
Costs and fees of transaction............................... L8.0 million(f)
Less:
Book value of Healthworld's tangible net assets (iv)........ L(9.2) million(g)
Proceeds from exercising Healthworld options (v)............ L11.6 million(h)
Issue of Healthworld shares for Falk (vi)................... L12.2 million(i)
Comprises: Healthworld's U.K GAAP goodwill.................. L10.4 million
Pro forma goodwill adjustment............................... L133.4 million
Total goodwill (equals (e) plus (f), less (g), less (h),
less (i)) (vii)........................................... L143.8 million
108
(i) On February 3, 2000, Healthworld agreed to issue, subject to stockholder
approval of, and completion of, the merger, 940,624 additional shares of
Healthworld common stock to the former stockholders of Falk Communications, Inc.
immediately prior to the completion of the merger. This share issuance will be
made in full satisfaction of Healthworld's obligation to make earn-out payments
in connection with this acquisition, and was valued at $20,000,000 on
February 3, 2000.
(ii) The exchange ratio is calculated by dividing the pounds sterling
equivalent of $23.00 by Cordiant's share prices on February 1, 2000 of L2.790.
The closing pounds sterling/US dollar exchange rate on January 28, 2000 was
$1.6195.
(iii) The assumed purchase consideration is expressed on a diluted basis.
(iv) The book value of Healthworld's tangible net assets equals the net
assets of L22.8 million less the value of goodwill of L32.0 million.
(v) The proceeds from the exercise of Healthworld's options outstanding on
January 28, 2000, is equal to the number of options, (1.5 million), multiplied
by the average exercise price of $12.53 and then converting that amount to
pounds sterling at the sterling/US Dollar exchange rate on January 28, 2000.
(vi) The pro forma goodwill has been calculated using Healthworld's
September 30, 1999 information as Healthworld's acquisition of Falk
Communications, Inc. in August, 1999 materially impacted Healthworld's tangible
net assets. The pro forma goodwill based on Healthworld's June 30, 1999
information would have been L125.4 million.
(vii) Goodwill has been capitalized as an intangible fixed asset and is not
expected to be amortized. However, Cordiant believes that, based on a
preliminary review, the goodwill has an indefinite economic life and will be
subject to annual review for impairment by a comparison of the discounted future
cash flows expected to be generated by the asset.
NOTE 4--PRO FORMA EPS
Pro forma combined basic earnings per ordinary share has been calculated by
dividing pro forma combined net income by the weighted average shares
outstanding after completion of the transaction, using an assumed ratio of 5.090
Cordiant ordinary shares for each Healthworld share.
109
NOTE 5--RECONCILIATION BETWEEN U.S. AND U.K. GAAP
EFFECTS ON PRO FORMA NET EARNINGS OF DIFFERENCES
BETWEEN U.S. AND U.K. GAAP
SIX MONTHS SIX MONTHS
ENDED ENDED YEAR ENDED
JUNE 30, JUNE 30, DECEMBER 31,
1999 1999 1998
---------- -------------- -------------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
Pro forma profit for the period in conformity with U.K.
GAAP..................................................... $ 12.1 L7.7 L16.3
U.S. GAAP ADJUSTMENTS:
Amortization of goodwill and other intangibles........... (8.7) (5.5) (6.3)
Amortization of pro forma goodwill (*)................... (2.8) (1.8) (3.6)
Compensation costs....................................... (7.7) (4.9) (1.0)
-------- -------------- -------------
NET PROFIT/(LOSS) ATTRIBUTABLE TO ORDINARY SHAREHOLDERS IN
CONFORMITY WITH U.S. GAAP................................ $ (7.1) L(4.5) L5.4
-------- -------------- -------------
Pro forma net profit per pro forma ordinary share-basic.... $ (0.03) (1.6)p 2.0p
Average number of pro forma ordinary shares-basic (in
millions)................................................ 280.0 280.0 276.3
Pro forma net profit per pro forma ordinary shares
-diluted................................................. $ (0.02) (1.5)p 1.9p
Average number of pro forma ordinary shares--diluted (in
millions)................................................ 293.0 293.0 277.2
* Estimated amortization of goodwill arising on the acquisition of Healthworld
by Cordiant using a 40-year life.
CUMULATIVE EFFECT ON PRO FORMA NET ASSETS OF DIFFERENCES
BETWEEN U.S. AND U.K. GAAP
JUNE 30, JUNE 30,
1999 1999
--------- -------------
(IN MILLIONS)
Pro forma net assets in conformity with U.K. GAAP........... $153.0 L97.1
U.S. GAAP ADJUSTMENTS:
Goodwill and U.S. purchase accounting in respect of
acquisitions............................................ 103.8 65.7
Contingent capital accruals............................... 5.2 3.3
------ -------------
NET ASSETS IN CONFORMITY WITH U.S. GAAP..................... $262.4 L166.1
====== =============
110
DESCRIPTION OF CORDIANT ORDINARY SHARES
GENERAL
The following information is a summary of the material terms of the Cordiant
ordinary shares as set out in the Cordiant articles of association as presently
in effect which are filed as an exhibit to the registration statement of which
this proxy statement/prospectus forms a part. See "DESCRIPTION OF CORDIANT
AMERICAN DEPOSITARY SHARES" and "COMPARISON OF RIGHTS OF HEALTHWORLD
STOCKHOLDERS AND CORDIANT SHAREHOLDERS."
Cordiant ordinary shares issued in exchange for Healthworld common stock in
the merger will be delivered in the form of Cordiant ADSs which will each
represent five Cordiant ordinary shares unless the recipient elects to receive
Cordiant ordinary shares. The amended and restated deposit agreement among The
Bank of New York, Cordiant and you as a Cordiant ADS holder will govern the
rights of holders of Cordiant ADSs as described in "DESCRIPTION OF CORDIANT
AMERICAN DEPOSITARY SHARES." You should be aware that the rights of Cordiant ADS
holders are different from the rights of the holders of Cordiant ordinary
shares.
All of the issued Cordiant ordinary shares are, and all of the Cordiant
ordinary shares issued in the merger will be, in registered form and credited as
fully paid. Cordiant ordinary shares are represented in certificated form and
also in uncertificated form under "CREST". CREST is an electronic settlement
system in the United Kingdom which enables Cordiant ordinary shares to be
evidenced other than by a physical certificate and transferred electronically
rather than by delivery of a physical transfer form.
Cordiant ADS holders have the same rights with respect to the Cordiant
ordinary shares represented by their Cordiant ADSs, irrespective of whether
those Cordiant ordinary shares are in certificated or uncertificated form. Under
English law, persons who are neither residents nor nationals of the U.K. may
freely hold, vote and transfer Cordiant ordinary shares in the same manner and
under the same terms as U.K. residents or nationals.
At January 28, 2000, 228,793,146 Cordiant ordinary shares were issued and
outstanding. At the Cordiant extraordinary general meeting to be held on
March 1, 2000, shareholders of Cordiant will, in addition to voting with respect
to approval of the merger, vote on proposals.
-- to increase the authorized share capital of Cordiant from L150,000,000 to
L208,000,000; and
-- to give directors of Cordiant certain authorities to allot (issue) shares
and other securities.
See "THE CORDIANT EXTRAORDINARY GENERAL MEETING."
DIVIDENDS
Except to the extent that the special rights attached to any other class of
shares which may be issued in future provide otherwise (and except as described
below under "Disclosure of Interests in Shares"), holders of Cordiant ordinary
shares are entitled to receive such dividends as may be declared by Cordiant pro
rata, but if any Cordiant ordinary share is issued on terms that it shall be (i)
entitled to dividends from a particular date or (ii) rank equally as regards
dividends with a share already issued, it shall rank accordingly. No dividends
may be declared in excess of an amount recommended by the board of directors.
The board of directors of Cordiant may pay to the shareholders such interim
dividends as appear to be justified by the profits of Cordiant. Dividends and
interim dividends may only be paid out of profits available for distribution
within the meaning of the U.K. Companies Act. Any dividend unclaimed after a
period of 12 years from the date such dividend became due for payment shall be
forfeited and shall revert to Cordiant. Dividends with respect to Cordiant ADSs
held by the depositary will be converted into U.S. dollars, and the depositary
will distribute them to the holders of Cordiant ADSs.
111
VOTING RIGHTS
Subject to any special rights or restrictions as to voting attached to any
class of shares in accordance with the articles (and except as described below
under "Disclosure of Interests in Shares"), on a show of hands every shareholder
who is present in person (which includes a corporate shareholder present by a
duly authorised representative) shall have one vote and on a poll every
shareholder present in person or by proxy shall have one vote for every share
held by him, PROVIDED, that a holder of shares which are not fully paid is not
entitled to vote unless all sums then payable to Cordiant in respect of the
shareholder's shares have been paid.
Voting at any meeting of shareholders is by a show of hands unless a poll is
demanded. A poll may be demanded by at least three shareholders present in
person or by proxy and entitled to vote at the meeting, and in certain other
circumstances. Holders of Cordiant ordinary shares may appoint one or more
proxies (who may, but need not be, the beneficial owners of the shares in
question) to attend and, on a poll, vote on their behalf. (See "COMPARISON OF
RIGHTS OF HEALTHWORLD STOCKHOLDERS AND CORDIANT SHAREHOLDERS--Voting Rights"
below.) Holders of Cordiant ordinary shares do not have cumulative voting
rights.
Holders of Cordiant ADSs will not be entitled to attend, speak and vote at
any general meeting of Cordiant shareholders but will be entitled to supply
their voting instructions to the depositary or its nominee, who will vote the
Cordiant ordinary shares underlying their Cordiant ADSs in accordance with their
instructions.
PREEMPTIVE RIGHTS AND NEW ISSUES OF SHARES
Under Section 80 of the U.K. Companies Act, and subject to certain limited
exceptions, the directors of Cordiant may not issue any "relevant securities"
unless authorized to do so by a resolution passed by a majority of the votes
cast at a meeting. Relevant securities as defined in the U.K. Companies Act
would include Cordiant ordinary shares or securities convertible into Cordiant
ordinary shares. In addition, Section 89 of the U.K. Companies Act provides
that, unless authorized by a special resolution passed by not less than
75 percent of the votes cast at a meeting, the board of directors of Cordiant
may not issue any equity securities (as defined in the U.K. Companies Act, which
includes Cordiant ordinary shares and rights to subscribe for or to convert
securities into such shares) which are or will be paid for wholly in cash,
unless the securities are first offered to existing shareholders in proportion
to their shareholdings. Sections 80 and 89 of the U.K. Companies Act do not
apply to issuances pursuant to employees' share schemes, as defined by that Act.
It is customary for an English public company periodically to authorize its
board of directors to issue up to a certain amount of securities in general and
to issue up to a certain amount of equity securities for cash other than in
accordance with statutory preemption rights. In accordance with institutional
investor guidelines, the amount of relevant securities fixed by shareholders is
normally restricted to a nominal amount equal to one third of the existing
issued ordinary share capital, and the amount of equity securities generally
permitted to be issued for cash other than in connection with a rights issue is
normally restricted to 5% of the existing issued ordinary share capital. By a
resolution passed by Cordiant shareholders on June 18, 1996, the board of
directors was authorized for a five year period to issue securities up to an
aggregate nominal amount of L39,597,683.75. By a resolution passed at the annual
general meeting of Cordiant held on July 8, 1999, the board of directors was
authorized for the period until the annual general meeting in 2000 to issue
equity securities under this authority other than in accordance with statutory
pre-emption rights either (1) by means of a rights issue involving more flexible
procedures than the statutory procedures, (2) pursuant to employee share and
incentive schemes approved by Cordiant shareholders, and (3) in a nominal amount
not exceeding L5,600,000. These authorities are proposed to be replaced by new
authorities to be conferred at the extraordinary general meeting of Cordiant to
be held on March 1, 2000, which will, among other things, give the board of
directors general issuance authority in amounts based on the issued share
capital of
112
Cordiant as enlarged by the merger. See "THE CORDIANT EXTRAORDINARY GENERAL
MEETING."
Because of the securities laws in various jurisdictions, rights issues by
Cordiant may not in all cases be made available to all shareholders in all
jurisdictions. This includes, potentially, holders of Cordiant ordinary shares
and ADSs in the United States. In view of the current and anticipated level of
U.S. shareholdings in Cordiant, however, Cordiant intends to take steps to make
it possible for such holders to participate in any future rights issue.
DISCLOSURE OF INTERESTS IN SHARES
Under the U.K. Companies Act, any person who has a material interest (within
the meaning of the U.K. Companies Act) in 3 percent or more of the outstanding
Cordiant ordinary shares, must, within two days after becoming so interested (or
becoming aware of such interest) and thereafter upon certain changes in such
interest, give notice to Cordiant of certain information with respect to his
interests.
In addition, Section 212 of the U.K. Companies Act gives Cordiant the power
to require persons it believes to have, or to have acquired within the previous
three years, an interest in its voting shares, to disclose certain information
with respect to those interests. Failure to supply the information required may
lead to disenfranchisement of the relevant shares and a prohibition on their
transfer and receipt of dividends and payments in respect of those shares. In
this context, the term "interest" is widely defined and will generally include
an interest of any kind whatsoever in voting shares, including any interest of a
holder of a Cordiant ADS. See "COMPARISON OF RIGHTS OF HEALTHWORLD STOCKHOLDERS
AND CORDIANT SHAREHOLDERS--Disclosure of Interests."
CHANGES IN CAPITAL
The Cordiant shareholders may pass an ordinary resolution by a simple
majority of the votes cast to do any of the following:
- consolidate, or consolidate and then divide, all or any of Cordiant's
share capital into new shares of larger nominal amounts than its existing
shares;
- cancel any shares which have not, at the date of the relevant resolution,
been subscribed or agreed to be subscribed by any person and reduce the
amount of Cordiant's authorized share capital by the amount of the shares
so canceled;
- divide some or all of Cordiant's shares into shares of a smaller nominal
amount; and
- increase Cordiant's authorized share capital.
Cordiant will also be able:
- with the authority of shareholders and subject to the limitations imposed
by the U.K. Companies Act, by ordinary or special resolution, depending on
the circumstances relating to the purchase, to purchase its own shares;
and
- by special resolution and, where required by the U.K. Companies Act,
subject to confirmation by Court order, to reduce its share capital, any
capital redemption reserve, share premium account or any other
undistributable reserve.
TRANSFER OF SHARES
Except as described in this paragraph, the Cordiant articles of association
do not restrict the transferability of Cordiant ordinary shares. Cordiant
ordinary shares will be able to be transferred by an instrument in any usual
form or in any form acceptable to the directors and in accordance with the
procedures of CREST for transfer of uncertificated shares. The directors may
refuse to register a transfer:
- if it is of shares which are not fully paid;
113
- if it is not stamped and duly presented for registration, together with
the share certificate and evidence of title as the directors reasonably
require;
- if it is with respect to more than one class of shares;
- if it is in favor of more than four persons jointly; or
- in certain circumstances, if the holder has failed to provide the required
particulars in response to a notice served by Cordiant under the
investigative power referred to under "--Disclosure of Interests in
Shares" above.
Cordiant may not refuse to register transfers of Cordiant ordinary shares if
this refusal would prevent dealings in the shares on the London Stock Exchange
from taking place on an open and proper basis. The registration of transfers may
be suspended at any time and for any period as the directors may determine. The
register of shareholders may not be closed for more than 30 days in any year.
GENERAL MEETINGS AND NOTICES
A shareholder who is not registered on Cordiant's register of shareholders
with an address in the U.K. and who has not supplied to Cordiant an address
within the U.K. for the purpose of giving notice will not be entitled to receive
notices from Cordiant. In certain circumstances, Cordiant will be able to give
notices to shareholders by advertisement in newspapers in the U.K. Holders of
Cordiant ADSs will be entitled to receive notices under the terms of the deposit
agreement relating to Cordiant ADSs. See "DESCRIPTION OF CORDIANT AMERICAN
DEPOSITARY SHARES--Voting Rights." Under the Cordiant articles of association,
the annual general meeting of shareholders will be held within 15 months after
the preceding annual general meeting and at a time and place determined by the
directors.
LIABILITY OF DIRECTORS AND OFFICERS
See "COMPARISON OF RIGHTS OF HEALTHWORLD STOCKHOLDERS AND CORDIANT
SHAREHOLDERS--Liability of Directors and Officers" for a discussion of the
inability of an English company to exempt directors and officers from certain
liabilities.
CERTAIN OTHER MATTERS
Under the terms of its articles of association, Cordiant may, in certain
cases, sell the shares of a shareholder it has been unable to contact. This
power is exercisable if, in the previous 12 years, at least three dividends have
been declared, warrants and checks in respect of dividends on the shares in
question have not been cashed, and no communication has been received by
Cordiant from the shareholder or other person entitled to the shares. Cordiant
must first advertise its intention to sell the shares. The net proceeds of sale
will belong to Cordiant and an interest-free debt in that amount will be created
in favor of the person formerly entitled to the shares.
Where two or more persons are registered as the holders of any share, they
are deemed to hold the share as joint tenants with right of survivorship. Any
one of such joint holders may give receipts for any dividend payable to such
joint holders, but only the person whose name is listed first in the share
register will be entitled to delivery of the certificate representing the shares
or to receive notices from Cordiant. Any one of the joint holders of a share may
vote at any meeting of Cordiant shareholders as if that person were the sole
holder; provided that if more than one of the joint holders attempts to vote,
the person whose name is listed first in the share register will be the holder
entitled to vote.
REGISTRAR
The registrar for Cordiant ordinary shares currently is, and after the
merger will be, Computershare Services PLC, P.O. Box 82, Caxton House, Redcliffe
Way, Bristol, BS99 7NH.
114
DESCRIPTION OF CORDIANT AMERICAN DEPOSITARY SHARES
GENERAL
The Bank of New York as depositary will issue Cordiant ADSs to holders of
Healthworld common stock in certificated or book-entry form upon completion of
the merger. Each Cordiant ADS will represent ownership interests in five
Cordiant ordinary shares and the right to receive five Cordiant ordinary shares
which Cordiant will deposit with the custodian, which currently is the London
office of The Bank of New York. Each Cordiant ADS will also represent the right
to receive securities, cash or other property deposited with The Bank of New
York but not distributed to Cordiant ADS holders. The Bank of New York's
Corporate Trust Office is located at 101 Barclay Street, New York, New York,
10286, its principal executive office is located at One Wall Street, New York,
New York 10286, and the custodian's office is located at One Canada Square,
London E145AL, England.
Because The Bank of New York will actually be the recordholder of the
underlying Cordiant ordinary shares, you must rely on it to exercise the rights
of a shareholder, and you will not have the option to attend, speak and vote at
shareholder meetings as its proxy, as described below. An amended and restated
deposit agreement among Cordiant, The Bank of New York and Cordiant ADS holders,
set out the obligations of The Bank of New York. New York law governs the
deposit agreement and the Cordiant ADRs evidencing the Cordiant ADSs.
You may hold Cordiant ADSs either directly or indirectly through your broker
or financial institution. If you hold Cordiant ADSs directly, you are a Cordiant
ADS holder. This description assumes you hold your Cordiant ADSs directly. If
you hold the Cordiant ADSs indirectly, you must rely on the procedures of your
broker or financial institution to assert the rights of Cordiant ADS holders
described in this section. You should consult with your broker or financial
institution to find out what those procedures are.
Healthworld stockholders should be aware that the trading volume for
Cordiant ADSs is lower than that of Cordiant ordinary shares.
The following is a summary of the deposit agreement. Because it is a
summary, it does not contain all the information that may be important to you.
For more complete information, you should read the entire deposit agreement and
the Cordiant ADR, the document evidencing Cordiant ADSs. Copies of the deposit
agreement and the Cordiant ADR will be available for inspection at the Corporate
Trust Office of the depositary and at the London office of the custodian set
forth above.
SHARE DIVIDENDS AND OTHER DISTRIBUTIONS
HOW WILL YOU RECEIVE DIVIDENDS AND OTHER DISTRIBUTIONS ON THE SHARES?
The Bank of New York will pay to you the cash dividends or other
distributions it or the custodian receives on shares or other deposited
securities, after deducting its fees and expenses. You will receive these
distributions in proportion to the number of Cordiant ordinary shares your
Cordiant ADSs represent.
-- CASH. The Bank of New York will convert any cash dividend or
distribution Cordiant pays on the shares, other than any dividend or
distribution paid in U.S. dollars, into U.S. dollars if it can do so on a
reasonable basis and can transfer the U.S. dollars to the United States.
If that is not possible on a reasonable basis, or if any approval from
any government is needed and cannot be obtained or is not obtained within
a reasonable period of time, the deposit agreement allows The Bank of New
York to distribute the pounds sterling only to those Cordiant ADS holders
to whom it is possible to do so or to hold the pounds sterling it cannot
convert for the account of the Cordiant ADS holders who have not been
paid. It will not invest the foreign currency and will not be liable for
any interest in respect thereof. It will
115
distribute only whole U.S. dollars and cents. Any fraction of a cent
attributable to a Cordiant ADS shall be held by The Bank of New York
without liability for interest on such balance. The balance so held will
be added to the next sum received by the depositary for distribution. It
will not invest the pounds sterling and it will not be liable for any
interest. If the exchange rates fluctuate during a time when The Bank of
New York cannot convert the foreign currency, you may lose some or all of
the value of the distribution.
Before making a distribution, The Bank of New York will deduct any
withholding taxes that must be paid under applicable laws. See "MATERIAL TAX
CONSEQUENCES."
-- SHARES. The Bank of New York may distribute new Cordiant ADSs
representing any shares Cordiant distributes as a dividend or free
distribution. The Bank of New York will only distribute whole Cordiant
ADSs. It may sell shares which would require it to issue a fractional
Cordiant ADS and distribute the net proceeds to the holders entitled to
those shares. If The Bank of New York does not distribute additional cash
or Cordiant ADSs, each Cordiant ADS will also represent the additional
Cordiant ordinary shares.
-- RIGHTS TO RECEIVE ADDITIONAL SHARES. If Cordiant offers holders of
securities any rights, including rights to subscribe for additional
shares, The Bank of New York may take actions necessary to make these
rights available to you. If The Bank of New York determines that it is
not legal or not feasible to make these rights available to you, The Bank
of New York may sell the rights and allocate the net proceeds to Cordiant
ADS holders' accounts.
If The Bank of New York makes rights available to you, upon instruction from
you it will exercise the rights and purchase the shares on your behalf. The Bank
of New York will then deposit the shares and issue Cordiant ADSs to you. It will
only exercise rights if you pay it the exercise price and any charges the rights
require you to pay.
U.S. securities laws may restrict the sale, deposit, cancellation, and
transfer of the Cordiant ADSs issued after an exercise of rights. The Bank of
New York will not offer you rights unless those rights and the securities to
which the rights relate are either exempt from registration or have been
registered under the Securities Act with respect to a distribution to you.
Cordiant will have no obligation to register under the Securities Act those
rights or the securities to which they relate.
-- OTHER DISTRIBUTIONS. The Bank of New York will send to you anything else
Cordiant distributes on deposited securities based on your proportionate
stake in the Cordiant ADSs by any means The Bank of New York thinks is
legal, fair and practical. If it cannot make the distribution in that
way, The Bank of New York may decide to sell what Cordiant
distributed--for example by public or private sale--and distribute the
net proceeds, in the same way as it does with cash.
Cordiant will have no obligation to take any other action to permit the
distribution of Cordiant ADSs, ordinary shares, rights or anything else to
Cordiant ADS holders.
DEPOSIT, WITHDRAWAL AND CANCELLATION
HOW DOES THE DEPOSITARY ISSUE CORDIANT ADSS?
The Bank of New York will issue Cordiant ADSs if you or your broker deposit
Cordiant ordinary shares or evidence of rights to receive shares. The Bank of
New York will issue additional Cordiant ADSs if you or your broker deposit
Cordiant ordinary shares, along with any appropriate instruments of transfer, or
endorsement, with the custodian. The Bank of New York may also require you to
deliver an agreement transferring your right as a shareholder to receive
dividends or other property. Upon payment of its fees and of any taxes or
charges, such as stamp taxes or stock transfer taxes or fees, The Bank of New
York will register the appropriate number of Cordiant ADSs in the names you
request
116
and will issue book-entry Cordiant ADSs or, if you specifically request, deliver
ADRs at its corporate trust office to the persons you request. THESE TAXES OR
CHARGES WILL NOT BE PAYABLE BY HEALTHWORLD STOCKHOLDERS OR BY HOLDERS OF
OUTSTANDING HEALTHWORLD STOCK OPTIONS IN CONNECTION WITH THEIR RECEIPT OF
CORDIANT ADSS PURSUANT TO THE MERGER AGREEMENT.
HOW DO CORDIANT ADS HOLDERS CANCEL A CORDIANT ADS AND OBTAIN ORDINARY
SHARES?
You may submit a written request to withdraw Cordiant ordinary shares and
turn in your Cordiant ADSs at the Corporate Trust Office of The Bank of New
York. Upon payment of the depositary's fees and of any taxes or charges, such as
stamp taxes or stock transfer taxes or fees, the depositary will deliver the
deposited securities underlying the Cordiant ADSs at the office of the
custodian, except that The Bank of New York may deliver at its Corporate Trust
Office any dividends or distributions with respect to the deposited securities
represented by the Cordiant ADSs, or any proceeds from the sale of any
dividends, distributions or rights, which may be held by The Bank of New York.
Alternatively, at your request, risk and expense, The Bank of New York will
deliver the deposited securities at its Corporate Trust Office.
VOTING RIGHTS
HOW DO YOU VOTE?
Upon receipt of notice from Cordiant of any meeting of holders of shares,
The Bank of New York will notify you of an upcoming meeting of Cordiant's
shareholders and arrange to deliver certain materials to you. The materials will
(1) contain the information contained in the materials delivered by Cordiant to
its shareholders and (2) explain how you may instruct The Bank of New York to
vote the shares or deposited securities underlying your Cordiant ADSs as you
direct. For instructions to be valid, The Bank of New York must receive them on
or before the date specified in the instructions. The Bank of New York will (1)
to the extent practical, subject to applicable law and the provisions of the
memorandum and articles of association of Cordiant, vote the underlying Cordiant
ordinary shares represented by the Cordiant ADSs as you instruct and (2) only
vote as you instruct. However, if The Bank of New York does not receive your
voting instructions, you will be deemed to have instructed the Depositary to
vote your shares in the manner requested by Cordiant.
Although the depositary will try to send the notice of the vote reasonably
in advance of the meeting, Cordiant will not be able to assure that you will
receive the voting materials in time to ensure that you can instruct The Bank of
New York to vote your shares. In addition, The Bank of New York and its agents
are not responsible for failing to carry out voting instructions or for the
manner of carrying out voting instructions.
117
FEES AND EXPENSES
FOR: CORDIANT ADS HOLDERS MUST PAY:
- ---- ------------------------------
Each issuance of a Cordiant ADS, including as $5 (or less) per 100 ADSs or portion thereof
a result of a distribution of shares or
rights or other property
Each cancellation of a Cordiant ADS, $5 (or less) per 100 ADSs or portion thereof
including if the deposit agreement
terminates
Transfer and registration of Cordiant Registration or transfer fees
ordinary shares on Cordiant's share
register from your name to the name of The
Bank of New York or its agent when you
deposit or withdraw shares
Conversion of pounds sterling to U.S. dollars Expenses of The Bank of New York
Cable, telex and facsimile transmission Expenses of The Bank of New York
expenses, if expressly provided in the
agreement
As necessary Certain taxes and governmental charges The
Bank of New York or the custodian has to pay
on any Cordiant ADS or ordinary share
underlying a Cordiant ADS, for example, stock
transfer taxes, stamp duty reserve tax or
withholding taxes
NO SUCH TAXES OR CHARGES WILL BE PAYABLE BY HEALTHWORLD STOCKHOLDERS OR BY
HOLDERS OF OUTSTANDING HEALTHWORLD STOCK OPTIONS WHO EXERCISE THEIR OPTIONS AT
THE TIME OF THE MERGER IN CONNECTION WITH THEIR RECEIPT OF CORDIANT ADSS OR
ORDINARY SHARES PURSUANT TO THE MERGER AGREEMENT.
PAYMENT OF TAXES
You will be responsible for any taxes or other governmental charges payable
on your ADSs or on the deposited securities underlying your ADSs. The Bank of
New York may deduct the amount of any taxes owed from any payments to you. It
may also restrict the transfer of your Cordiant ADSs or restrict the withdrawal
of your underlying deposited securities until you pay any taxes owed on your
Cordiant ADSs or underlying securities. It may also sell deposited securities
and dividends and other distributions made by Cordiant to shareholders to pay
any taxes owed. You will remain liable if the proceeds of the sale are not
enough to pay the taxes. If The Bank of New York sells deposited securities, it
will, if appropriate, reduce the number of Cordiant ADSs held by you to reflect
the sale and pay to you any proceeds, or send to you any property, remaining
after it has paid the taxes.
RECLASSIFICATIONS, RECAPITALIZATIONS AND MERGERS
If Cordiant:
-- changes the nominal value of any of the Cordiant ordinary shares,
-- reclassifies, splits or consolidates any of the Cordiant ordinary
shares,
-- distributes securities on any of the Cordiant ordinary shares that are
not distributed to you, or
-- recapitalizes, reorganizes, merges, consolidates, sells all or
substantially all of its assets, or takes any similar action, then:
- The cash, shares or other securities received by The Bank of New York
will become new deposited securities under the deposit agreement, and
each Cordiant ADS will automatically represent its equal share of the
new deposited securities; and
118
- The Bank of New York may, with Cordiant's approval, issue additional
Cordiant ADSs or ask you to surrender your outstanding Cordiant ADSs in
exchange for new Cordiant ADSs identifying the new deposited
securities.
DISCLOSURE OF INTERESTS
Each Cordiant ADS holder is required to comply with requests made by
Cordiant in order for it to comply with the provisions of the U.K. Companies Act
dealing with ownership interests in the Cordiant ordinary shares. Failure to
comply with these requests may prevent your rights to (1) vote, (2) receive
dividends and (3) transfer your Cordiant ADSs. See "DESCRIPTION OF CORDIANT
ORDINARY SHARES--Disclosure of Interests in Shares."
AMENDMENT AND TERMINATION
HOW MAY THE AGREEMENT BE AMENDED?
Cordiant may agree with The Bank of New York to amend the deposit agreement
and the Cordiant ADRs without your consent for any reason. If the amendment adds
or increases fees or charges (except for taxes and governmental changes,
registration fees, cable, telex and facsimile transmission costs, delivery costs
and conversion expenses), or prejudices an important right of Cordiant ADS
holders, it will only become effective 30 days after The Bank of New York
notifies you of the Amendment. AT THE TIME AN AMENDMENT BECOMES EFFECTIVE, YOU
ARE CONSIDERED, BY CONTINUING TO HOLD YOUR CORDIANT ADSS, TO AGREE TO THE
AMENDMENT AND TO BE BOUND BY THE AGREEMENTS AS AMENDED. HOWEVER, NO AMENDMENT
WILL IMPAIR YOUR RIGHT TO RECEIVE THE DEPOSITED SECURITIES IN EXCHANGE FOR YOUR
ADSS.
HOW MAY THE AGREEMENT BE TERMINATED?
The Bank of New York will terminate the deposit agreement if Cordiant asks
it to do so, in which case it must notify you at least 30 days before
termination. The Bank of New York may also terminate the agreement after
notifying you if The Bank of New York informs Cordiant that it would like to
resign and Cordiant does not appoint a new depositary bank within 60 days.
If any Cordiant ADSs remain outstanding after termination, The Bank of New
York will stop registering the transfer of Cordiant ADSs, will stop distributing
dividends to Cordiant ADS holders, and will not give any further notices or do
anything else under the deposit agreement other than:
- collect dividends and distributions on the deposited securities,
- sell rights and other property offered to holders of deposited securities,
and
- deliver Cordiant ordinary shares, other deposited securities and any
dividends or other distributions received upon cancellation of Cordiant
ADSs.
At any time after two years after termination of the deposit agreement, The
Bank of New York may sell any remaining deposited securities. After that, The
Bank of New York will hold the money it received on the sale, as well as any
cash it is holding under the agreement, for the pro rata benefit of the Cordiant
ADS holders that have not surrendered their Cordiant ADSs. It will not invest
the money and has no liability for interest. The Bank of New York's only
obligations will be to account for the money and cash. After termination,
Cordiant's only obligations will be with respect to indemnification of, and to
pay specified amounts to, The Bank of New York.
119
YOUR RIGHT TO RECEIVE THE SHARES UNDERLYING YOUR CORDIANT ADSS
You have the right to cancel your Cordiant ADSs and withdraw the underlying
shares at any time except:
-- due to temporary delays caused by The Bank of New York or Cordiant
closing its transfer books, the deposit of Cordiant ordinary shares in
connection with voting at a shareholders' meeting, or the payment of
dividends;
-- when you owe money to pay fees, taxes and similar charges; or
-- when it is necessary to prohibit withdrawals in order to comply with any
laws or governmental regulations that apply to Cordiant ADSs or to the
withdrawal of Cordiant ordinary shares or other deposited securities.
This right of withdrawal may not be limited by any provision of the deposit
agreement.
LIMITATIONS ON OBLIGATIONS AND LIABILITY TO CORDIANT ADS HOLDERS
The deposit agreement expressly limits the obligations and liability of
Cordiant and The Bank of New York. Cordiant and The Bank of New York:
- are only obligated to take the actions specifically set forth in the
deposit agreement;
- are not liable if either of them is prevented or delayed by law, any
provision of the Cordiant articles of association or circumstances beyond
their control from performing their obligations under the agreement;
- are not liable if either of them exercises, or fails to exercise,
discretion permitted under the agreement;
- have no obligation to become involved in a lawsuit or proceeding related
to the Cordiant ADSs or the deposit agreement on your behalf or on behalf
of any other party unless they are indemnified to their satisfaction; and
- may rely upon any advice of or information from any legal counsel,
accountants, any person depositing Cordiant ordinary shares, any Cordiant
ADS holder or any other person whom they believe in good faith is
competent to give them that advice or information.
In the deposit agreement, Cordiant and The Bank of New York agree to indemnify
each other under specified circumstances.
REQUIREMENTS FOR DEPOSITARY ACTIONS
Before The Bank of New York will issue or register the transfer of a
Cordiant ADS, make a distribution on a Cordiant ADS, or permit withdrawal of
Cordiant ordinary shares, Cordiant or The Bank of New York may require:
-- payment of taxes, including stamp duty reserve and stock transfer taxes
or other governmental charges, and transfer or registration fees charged
by third parties for the transfer of any shares or other deposited
securities, as well as the fees and expenses of The Bank of New York;
-- production of satisfactory proof of the identity of the person
presenting Cordiant ordinary shares for deposit or Cordiant ADSs upon
withdrawal, and of the genuineness of any signature or other information
they deem necessary; and
-- compliance with regulations The Bank of New York may establish
consistent with the deposit agreement, including presentation of transfer
documents.
120
The Bank of New York may refuse to deliver, transfer, or register transfers
of Cordiant ADSs generally when the transfer books of The Bank of New York are
closed or at any time if The Bank of New York or Cordiant thinks it advisable to
do so.
PRE-RELEASE OF CORDIANT ADSS
The Bank of New York may issue Cordiant ADSs before deposit of the
underlying Cordiant ordinary shares. This is called a pre-release of Cordiant
ADSs. The Bank of New York may also deliver Cordiant ordinary shares prior to
the receipt and cancellation of pre-released Cordiant ADSs even if the Cordiant
ADSs are canceled before the pre-release transaction has been closed out. A
pre-release is closed out as soon as the underlying Cordiant ordinary shares are
delivered to The Bank of New York. The Bank of New York may receive Cordiant
ADSs instead of Cordiant ordinary shares to close out a pre-release. The Bank of
New York may pre-release Cordiant ADSs only under the following conditions:
(1) before or at the time of the pre-release, the person to whom the
pre-release is being made must represent to The Bank of New York in writing
that it or its customer, as the case may be, owns the Cordiant ordinary
shares or ADSs to be remitted;
(2) the pre-release must be fully collateralized with cash or collateral
that The Bank of New York considers appropriate; and
(3) The Bank of New York must be able to close out the pre-release on
not more than five business days' notice.
The pre-release will be subject to whatever indemnities and credit
regulations that The Bank of New York considers appropriate. In addition, The
Bank of New York will limit the number of Cordiant ADSs that may be outstanding
at any time as a result of pre-release, although The Bank of New York may
disregard the limit from time to time as it deems appropriate.
121
COMPARISON OF RIGHTS OF HEALTHWORLD STOCKHOLDERS
AND CORDIANT SHAREHOLDERS
As a result of the merger, holders of Healthworld common stock will receive
either (1) Cordiant ADSs, each representing five ordinary shares of Cordiant, a
company organized under the laws of England and Wales, or (2) if a proper
election is made by holders of Healthworld common stock, Cordiant ordinary
shares. The following is a summary comparison of material differences between
the rights of a Healthworld stockholder and a Cordiant shareholder arising from
the differences between the corporate laws of Delaware and of England and Wales,
the governing instruments of the two companies and the securities laws and
regulations governing the two companies. However, it is not a complete
description of the laws of Delaware or of England and Wales, the other rules or
laws referred to in this summary, the Healthworld certificate of incorporation,
the Healthworld by-laws or the Cordiant memorandum and articles of association.
For information as to where copies of the governing instruments of Healthworld
and Cordiant may be obtained, see "SUMMARY--Where You Can Find More
Information." You are encouraged to obtain and read these documents.
You should refer to "DESCRIPTION OF CORDIANT AMERICAN DEPOSITARY SHARES" for
a description of the Cordiant ADSs and a discussion of the ways in which the
rights of holders of Cordiant ADSs may differ from those of holders of Cordiant
ordinary shares.
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
VOTING RIGHTS
Under Delaware law, each stockholder is Under English law, a shareholder entitled to
entitled to one vote for each share of vote at a shareholders' meeting is entitled
capital stock held by the stockholder unless to one vote on a show of hands regardless of
the certificate of incorporation provides the number of shares he or she holds;
otherwise. The Healthworld certificate of provided, however, that any five shareholders
incorporation does not alter the voting entitled to vote (or a lower number if
rights of holders of Healthworld common provided in the articles of association) and
stock. any shareholder(s) representing at least 10%
of the voting rights or capital paid up on
shares having voting rights (or a lower
percentage if provided in the articles of
association) has the statutory right to
demand a vote by a poll, on which each
shareholder entitled to vote would have one
vote for each share held.
The Cordiant articles of association provide
that voting will be conducted on a show of
hands, unless a poll is demanded by
(a) the chairman of the meeting, or
(b) at least three shareholders present in
person or by proxy having the right to
vote at the meeting, or
(c) any shareholder or shareholders
representing at least 10% of the voting
rights of all shareholders having the
right to vote at the meeting, or
122
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
(d) any shareholder or shareholders holding
shares that have voting rights at the
meeting on which the aggregate sum paid
is equal to at least 10% of the total
sum paid up on all the shares having
voting rights at the meeting.
Under English law, ordinary resolutions
decided on a show of hands must be approved
by at least a majority of the shareholders
present in person, or by proxy if the
articles of association so permit, and voting
at a meeting. If a poll is demanded, the
resolution conducted on a poll must be
approved by at least a majority of the votes
cast at the meeting. Both special and
extraordinary resolutions require the
affirmative vote of at least 75% of the votes
cast at the meeting to be approved.
A holder of Cordiant ADSs will not be
entitled to attend and vote at Cordiant
general shareholder meetings but will be able
to instruct the depositary how to vote the
ordinary shares underlying the holder's
Cordiant ADSs. A more complete description of
the voting rights of a holder of Cordiant
ADSs is found at "DESCRIPTION OF CORDIANT
AMERICAN DEPOSITARY SHARES--Voting Rights."
The Healthworld by-laws provide that the Under English law, two shareholders present
presence of the holders of a majority of the in person constitute a quorum for purposes of
outstanding voting power entitled to vote a general meeting, unless the company's
constitutes a quorum for the transaction of articles of association specify otherwise.
business at a stockholders' meeting. The Cordiant articles of association do not
Under Delaware law, a certificate of specify otherwise, except that the
incorporation may provide that in elections shareholders do not need to be present in
of directors and other specified person, and may instead be present by proxy,
circumstances, stockholders are entitled to to constitute a quorum.
cumulate votes. The Healthworld certificate Cumulative voting is not recognized under
of incorporation does not so provide. English law.
ACTION BY WRITTEN CONSENT
Under Delaware law, unless otherwise provided English law and Cordiant's articles of
in the certificate of incorporation, association do not provide for shareholders
stockholders may take any action required or of a public company such as Cordiant to pass
permitted to be taken at a stockholders' resolutions by written consent in
meeting without a meeting if consented to in substitution for voting at general meetings.
writing by the same number of votes that
would be required if the action were to be
taken at a meeting. The Healthworld by-laws
affirmatively allow for action by the
stockholders by written consent.
123
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
SHAREHOLDER PROPOSALS AND SHAREHOLDER NOMINATIONS OF DIRECTORS
SEC rules allow precatory resolutions to be English law, shareholders may demand that a
included Under in management's proxy resolution to be proposed by them be voted on
statement for annual meetings of stockholders at an annual general meeting, or that a
if, among other conditions required to be statement be circulated to shareholders with
met, advance notice is given to the respect to any resolution to be proposed or
corporation. business to be dealt with at any general
meeting, if the demand is made
(1) by shareholders holding at least 5% of
the voting power of shares having a right
to vote on the resolution, or
(2) by at least 100 shareholders holding
shares on which there has been paid up an
average sum per shareholder of at least
DIVIDED BY 100.
The shareholders must deposit the demand at
the company's registered office at least six
weeks before the meeting to which it relates,
in the case of a resolution to be proposed at
an annual general meeting, or one week before
the meeting, in the case of a statement to be
circulated. Shareholders wishing to propose a
resolution at a meeting other than an annual
general meeting must generally comply with
the requirements for calling an extraordinary
general meeting described below under
"Special Meeting of Shareholders".
Under Cordiant's articles of association, no
person other than a director retiring at the
meeting or who is recommended by the
directors for election shall be eligible for
election as a director at any general meeting
unless a notice of intention to propose such
election, signed by a shareholder entitled to
vote, and notice of willingness to be
elected, signed by the proposed director, is
left at Cordiant's registered office not less
than 7 nor more than 21 days before the day
of the meeting. In general, resolutions to
appoint directors must be put to shareholders
on the basis of one resolution for each
nominated director.
124
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
SOURCES AND PAYMENT OF DIVIDENDS
Under Delaware law, the board of directors, An English company may pay dividends on its
subject to any restrictions in the shares only out of its profits available for
corporation's certificate of incorporation, distribution within the meaning of the U.K.
may declare and pay dividends out of Companies Act. Distributable profits are
(1) surplus of the corporation, which is defined as accumulated, realized profits less
defined as net assets less statutory accumulated, realized losses, and do not
capital, or include the nominal value of the company's
(2) if no surplus exists, out of the net issued share capital, share premiums, which
profits of the corporation for the year are equal to the excess of the consideration
in which the dividend is declared for the issue of shares over the aggregate
and/or the preceding year; nominal amount of such shares, or certain
provided, however, that if the capital of the other undistributable reserves. Amounts
corporation has been diminished to an amount credited to the share premium account,
less than the aggregate amount of capital however, may be used to pay up unissued
represented by the issued and outstanding shares which may then be distributed to
stock of all classes having preference upon shareholders in proportion to their holdings.
the distribution of assets, the board may not In addition, under English law, Cordiant will
declare and pay dividends out of the not be permitted to make a distribution if,
corporation's net profits until the at the time, the amount of its net assets is
deficiency in the capital has been repaired. less than the aggregate of its issued and
The Healthworld certificate of incorporation paid-up share capital and undistributable
contains no provisions restricting dividends reserves. Subject to these limitations, the
on Healthworld common stock. Cordiant board will have the power under the
Cordiant articles of association to pay cash
dividends. Dividends may also be declared by
shareholders in general meeting, provided
that such dividends may not exceed the amount
proposed by the directors. Dividends in kind
and scrip dividends giving the shareholders
the option to elect to receive additional
Cordiant ordinary shares in lieu of a cash
dividend, may be paid by the directors with
the approval of shareholders in general
meeting.
RIGHTS OF PURCHASE AND REDEMPTION
Under Delaware law, any corporation may Under English law, a company may issue
purchase, redeem and dispose of its own redeemable shares if authorized by its
shares, except that it may not purchase or articles of association, subject to any
redeem these shares if the capital of the conditions stated therein. The Cordiant
corporation is impaired at the time or would articles of association permit the issuance
become impaired as a result of the of redeemable shares.
redemption. A company may purchase its own shares,
However, at any time, a corporation may including any redeemable shares, if the
purchase or redeem any of its shares which purchase
are entitled upon any distribution of assets (1) is authorized by its articles of
to a preference over another class of its (1) association, and
stock if these shares will be retired upon (2) (a) in the case of an open-market
acquisition or redemption, thereby reducing purchase, authority to make the market
the capital of the corporation. purchase has been given by an ordinary
resolution of its shareholders, or
125
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
(b) in all other cases, the proposed
purchase contract has been approved by a
special resolution of shareholders.
A company may redeem or repurchase shares
only if the shares are fully paid and, in the
case of public companies, only out of
(1) distributable profits, or
(2) (to the extent permitted by the U.K.
Companies Act) the proceeds of a new
issue of shares made for the purpose of
the repurchase or redemption.
The London Stock Exchange requires that
purchases of 15% or more of a company's share
capital must be made through either a tender
or partial offer to all shareholders, at a
stated maximum or fixed price. Purchases
below the 15% threshold may be made through
the open market only if the price is not more
than 5% above the average of the middle
market quotations taken from the daily
official list of the London Stock Exchange
for the five trading days before the purchase
date.
The London Stock Exchange requires that where
a company has issued securities which are
listed on the London Stock Exchange and are
convertible into, exchangeable for or carry a
right to subscribe for equity shares of the
class to be repurchased, the holders of such
securities must first pass an extraordinary
resolution approving any repurchase at a
separate class meeting. Cordiant has no such
listed securities.
GENERAL MEETINGS OF SHAREHOLDERS
The Healthworld by-laws provide that all Under the Cordiant articles of association,
meetings of stockholders are to be held at all general meetings of shareholders will be
any place designated by the Healthworld held at the time and place determined by the
board, or if no designation is made, at the directors.
principal executive office of Healthworld.
126
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS
Delaware law provides that special meetings Under English law and Cordiant's articles of
of stockholders may be called by association, an extraordinary general meeting
(1) the board of directors, or of shareholders may be called by
(2) any person or persons authorized by the (1) the board of directors, or
corporation's certificate of (2) shareholders holding at least one-tenth
incorporation or by-laws. of the paid-up capital of the company
The Healthworld by-laws provide that special carrying voting rights at general
meetings of stockholders may be called meetings, if the directors do not
(1) by the Healthworld board, or within 21 days after a written demand
(2) by the holders of not less than a from them, proceed to call a meeting.
majority of the outstanding voting
capital stock of Healthworld.
127
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
The Healthworld by-laws provide that The notice requirements for an ordinary
stockholders entitled to receive notice of a resolution, an extraordinary resolution and a
special meeting must receive notice of the special resolution are as follows:
meeting at least 10 days and not more than 60 (1) Ordinary resolution--14 clear days'
days prior to the meeting. notice,
(2) Extraordinary resolution--14 clear
days' notice,
(3) Special resolution--21 clear days'
notice.
In addition, general meetings may be called
upon shorter notice if
(1) in the case of an annual general
meeting, all the shareholders who are
permitted to attend and vote agree to
the shorter notice, or
(2) in the case of any extraordinary
general meeting, a majority of the
shareholders holding at least 95% by
nominal value of the shares which can
be voted at this meeting so agree.
"Clear days' notice" means calendar days and
excludes
(1) the date of mailing,
(2) the date of service (or deemed service)
of the notice, and
(3) the date of the meeting itself.
Cordiant's articles of association provide
that documents sent by first class mail are
deemed to have been served on the day after
mailing.
"Extraordinary resolutions" are relatively
unusual and are confined to a limited number
of matters out of the ordinary course of
business. Where a company has more than one
class of shares (which Cordiant at present
does not) changes to the rights of a
particular class normally require approval by
Extraordinary Resolution at a separate
meeting of shareholders of that class.
"Special resolutions" generally involve
proposals to
(1) change the name of the company,
(2) alter its capital structure in certain
ways,
(3) change or amend the rights of
shareholders,
(4) permit the company to issue new shares
for cash without applying the shareholders'
preemptive rights,
128
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
(5) amend the company's objects (purpose)
clause in its memorandum of
association,
(6) amend the company's articles of
association, or
(7) carry out other matters for which the
company's articles of association or
the U.K. Companies Act prescribe that a
"special resolution" is required.
All other proposals relating to the ordinary
course of the company's business, such as the
election of directors and transactions, such
as mergers, acquisitions and dispositions
requiring shareholder approval, are the
subject of an "ordinary resolution."
DISSENTERS' APPRAISAL RIGHTS
Delaware law provides stockholders of a English law does not provide for a merger of
corporation involved in certain mergers the one company into another or for dissenters'
right to demand and receive payment of the appraisal rights on a takeover. Following a
fair value of their stock. These dissenters' successful takeover offer, however, a
appraisal rights are not available to shareholder who has not accepted the offer
Healthworld stockholders in connection with may in certain circumstances apply to a court
the Cordiant/Healthworld merger. Dissenters' and the court may specify terms for the
appraisal rights are not available to holders acquisition of his shares that it considers
of shares appropriate, as described under "--
Shareholders' Votes on Certain Transactions"
below.
(1) listed on a national securities
exchange;
(2) designated as a national market system
security on an interdealer quotation
system operated by the National
Association of Securities Dealers,
Inc.; or
(3) held of record by more than 2,000
stockholders;
unless holders of stock are required to
accept in the merger anything other than any
combination of
(A) shares of stock or depositary receipts
of the surviving corporation in the
merger;
(B) shares of stock or depositary receipts
of another corporation that, at the
effective date of the merger, will be
either
(a) listed on a national securities
exchange,
(b) designated as a national market
system security on an interdealer
quotation
129
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
system operated by the National
Association of Securities Dealers,
Inc. or
(c) held of record by more than 2,000
holders, or
(C) cash in lieu of fractional shares of
the stock or depositary receipts
received.
In addition, dissenters' appraisal rights are
not available to the holders of shares of the
surviving corporation in the merger if the
merger does not require the approval of the
stockholders of that corporation.
For a description of dissenters' appraisal
rights in connection with the
Cordiant/Healthworld merger, see "THE
MERGER--Absense of Dissenters' Appraisal
Rights" on page 47.
PREEMPTIVE RIGHTS
Under Delaware law, a stockholder is not Under English law, the issuance, in
entitled to preemptive rights to subscribe consideration solely for cash (including
for additional issuances of stock or any certain cash equivalents), of equity
security convertible into stock unless they securities, being:
are specifically granted in the certificate (1) shares which, with respect to dividends
of incorporation. The Healthworld certificate or capital, carry a right to participate
of incorporation does not provide for beyond a specified amount and are not
preemptive rights. held under an employees' share scheme
(as defined by the U.K. Companies Act),
or
(2) rights to subscribe for or convert into
such shares,
is not permitted unless such equity
securities are offered first to the existing
equity shareholders in proportion to their
respective holdings, or a special resolution
providing that statutory pre-emptive rights
will not apply to the issue has been passed
by shareholders in a general meeting.
At its annual general meeting each year,
Cordiant has generally passed, as is the
custom of many English companies listed on
the London Stock Exchange, resolutions to
authorize the board of directors of Cordiant
(a) to make rights issues under procedures
more flexible than those afforded by
statutory preemption rights and (b) to make
other issues for cash up to a specified
amount of share capital, generally 5% of the
current issued share capital, other than in
accordance with these preemption rights. In
Cordiant's case, these annual resolutions
have also
130
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
in recent years included authorities to make
issues under employee share and incentive
schemes which have been approved by
shareholders, to provide for situations in
which these schemes may not technically fall
within the statutory definition of employees'
share schemes (for example because employees
of non-subsidiary affiliates such as Zenith
are allowed to participate).
The resolutions to be proposed to Cordiant
shareholders at the extraordinary general
meeting to be held on March 1, 2000 (See
"CORDIANT EXTRAORDINARY GENERAL MEETING"
above) will authorize the board to allot
equity securities with a nominal value not
exceeding 5% of the expected issued share
capital following the merger without
preemption rights and also to issue equity
securities for cash in the circumstances
described above and in connection with
acquisitions by subsidiaries of Cordiant
where the subsidiary agrees to pay a cash
amount to Cordiant for issuing shares as
consideration. Cordiant expects to continue
this practice after the merger.
AMENDMENT OF GOVERNING INSTRUMENTS
Under Delaware law, unless the certificate of Under English law, shareholders have the
incorporation requires a greater vote, an power to amend
amendment to the certificate of incorporation (1) the objects, or purpose, clause in a
requires company's memorandum of association and
(1) the recommendation of the board of (2) any provisions of the company's
directors, articles of association
(2) the affirmative vote of a majority of by special resolution, subject to, in the
the outstanding stock entitled to vote case of amendments to the objects clause of
thereon, and the memorandum of association, the right of
(3) the affirmative vote of a majority of dissenting shareholders to apply to court to
the outstanding stock of each class cancel the amendments.
entitled to vote thereon as a class. Under English law, the board of directors is
Under Delaware law, stockholders have the not authorized to change the memorandum of
power to adopt, amend or repeal by-laws association or the articles of association.
unless the certificate of incorporation gives Where there is more than one class of shares,
those powers to the directors of the amendments affecting the rights of the
corporation. holders of any class of shares may, depending
The Healthworld certificate of incorporation on the rights attached to the class and the
and by-laws each provide that the board of nature of the amendments, also require
directors is authorized to amend, repeal or approval by extraordinary resolution of each
alter the by-laws, without any action on the of the classes
part of the
131
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
stockholders, but any by-law adopted by the affected in separate class meetings. See
board of directors may be amended or repealed "--Stock Class Rights."
by the stockholders entitled to vote thereon.
STOCK CLASS RIGHTS
Under Delaware law, any change to the rights The Cordiant memorandum and articles of
of holders of the Healthworld common stock association provides that
would require an amendment to the Healthworld (1) the rights of any class of shares may
certificate of incorporation. only be changed by an extraordinary
Delaware law provides that the holders of resolution passed at a separate class
shares of a class or series shall be entitled meeting of the holders of the relevant
to vote as a class upon a proposed amendment class of shares or by written consent
if the amendment class will: of the holders of at least 75 percent
(1) increase or decrease the authorized of the shares of the class issued;
shares of the class or series; (2) the quorum required for the separate
(2) increase or decrease the par value of class meetings is at least two people who
the shares of the class or series; or hold, or act as proxies for, at least
(3) alter or change the powers, preferences one third of the total nominal value of
or special rights of the shares of the the existing shares of the class,
class or series and so as to affect except that at any adjournment of a
them adversely. class meeting, one shareholder shall
constitute a quorum, regardless of the
number of shares that person holds;
(3) a poll may be demanded at a separate
class meeting by any holder of shares of
the class present in person or by
proxy.
SHAREHOLDERS' VOTES ON CERTAIN TRANSACTIONS
Generally, under Delaware law, unless the The U.K. Companies Act provides for schemes
certificate of incorporation provides for the of arrangement, which are arrangements or
vote of a larger portion of the stock, compromises between a company and any class
completion of a merger, consolidation, sale, of shareholders or creditors and used in
lease or exchange of all or substantially all certain types of reconstructions,
of a corporation's assets or dissolution amalgamations, capital reorganizations or
requires takeovers. These arrangements require:
(1) the approval of the board of directors, (1) the approval at a special meeting
and convened by order of the court of
(2) approval by the vote of the holders of shareholders or creditors representing
a majority of the outstanding stock or, a majority in number and 75% in value
if the certificate of incorporation of the shares held by or debt owed to
provides for more or less than one vote each affected class of shareholders or
per share, a majority of the votes of creditors present and voting, either in
the outstanding stock of a corporation person or by proxy; and
entitled to vote on the matter. (2) sanctions by order of the court.
The Healthworld certificate of incorporation Once approved and sanctioned, all
does not provide for the vote of a larger shareholders and creditors of the relevant
portion of the stock for a merger or class are bound by the terms of the scheme,
consolidation. and a dissenting
132
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
shareholder would have no rights comparable
to dissenters' appraisal rights provided
under Delaware law.
Under the rules of The Nasdaq Stock Market, Under the rules of the London Stock Exchange,
acquisitions involving shareholder approval
(1) substantial security holders or other (1) is usually required for an acquisition
insiders, or or disposal by a listed company if,
(2) the issuance of additional shares of generally, the company or business to
common stock of a listed company be acquired or disposed of represents
totaling 20% or more of the voting 25% or more of the gross assets,
power or outstanding shares of common profits before tax, turnover, market
stock require the approval of the capitalization or gross capital of the
holders of a majority of the shares listed company, and
voting on the acquisition. Other (2) may also be required for an acquisition
transactions do not require stockholder or disposal of assets between a listed
approval under the rules of The Nasdaq company and certain related parties,
Stock Market. including
(a) directors of the company or its
subsidiaries,
(b) holders of 10% or more of the voting
rights in the listed company's or any
of its holding companies or its
subsidiaries, or
(c) any of their associates.
The U.K. Companies Act also provides
(1) that where a takeover offer is made for
the shares of a U.K. company, and
(2) within four months of the date of the
offer, the offeror has acquired or
contracted to acquire at least
nine-tenths in value of the shares of
any class to which the offer relates,
the offeror may, within two months of
reaching the nine-tenths level, require
shareholders who do not accept the
offer to transfer their shares on the
terms of the offer. A dissenting
shareholder may object to the transfer
or its proposed terms by applying to
the court within six weeks of the date
on which notice of the transfer was
given. In the absence of fraud or
oppression, the court is unlikely to
order that the acquisition not take
effect, but it may specify different
terms for the transfer that it finds
appropriate, although such objections
are rare in practice.
133
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
A minority shareholder is also entitled in
these circumstances, in the alternative, to
require the offeror to acquire his shares on
the terms of the offer or such terms as may
be specified by the Court.
RIGHTS OF INSPECTION
Delaware law allows any stockholder Except when closed under the provisions of
(1) to inspect the U.K. Companies Act, the register of
(a) the corporation's stock ledger, shareholders of an English company may be
(b) a list of its stockholders, and inspected during business hours
(c) its other books and records, and (1) for free, by its shareholders and
(2) to make copies or extracts of those (2) for a fee by any other person.
materials during normal business hours, In both cases, the documents may be copied
provided that for a fee.
(a) the stockholder makes a written The shareholders of an English public company
request under oath stating the may also inspect, without charge, during
purpose of his inspection, and business hours
(b) the inspection is for a purpose (1) minutes of meetings of the shareholders
reasonably related to the person's and obtain copies of the minutes for
interest as a stockholder. a fee, and
(2) service contracts of the company's
directors, if the contracts have more than
12 months unexpired or require more
than 12 months' notice to terminate.
In addition, the published annual accounts of
a public company are required to be available
for shareholders at a general meeting and a
shareholder is entitled to a copy of these
accounts.
The shareholders of Cordiant will not have
rights to inspect the accounting records of
Cordiant or minutes of meetings of its
directors.
134
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
STANDARD OF CONDUCT FOR DIRECTORS
Neither Delaware law, the Healthworld Under English law, a director has a fiduciary
certificate of incorporation nor the duty to act in a company's best interest.
Healthworld by-laws contains any specific This duty includes obligations
provisions regarding the standard of conduct (1) not to create an actual or potential
of a director. The scope of the fiduciary conflict between his duty to the company
duties of the Healthworld board is con- and duties to any other person or his
sequently determined by the courts of the personal interests, and
State of Delaware. In general, directors have (2) to exercise his powers only in
a duty to act without self-interest, on a accordance with the memorandum and articles
well-informed basis and in a manner they of association of the company.
reasonably believe to be in the best
interests of the stockholders.
In addition, a director must exercise
reasonable care and skill. The precise scope
of this duty is unclear, but the test appears
to be both subjective (i.e., was the
director's conduct that of a reasonably
diligent person who has the knowledge and
experience of the director) and objective
(i.e., was the director's conduct that of a
reasonably diligent person having the
knowledge and experience that a director
should have).
CLASSIFICATION OF THE BOARD OF DIRECTORS
Delaware law permits the certificate of English law permits a company to provide for
incorporation or a stockholder-adopted by-law the classification of the board of directors
to provide that directors be divided into with respect to the term of office that any
one, two or three classes, with the term of director may hold.
office of one class of directors to expire The memorandum and articles of association of
each year. Cordiant, however, do not provide for a
The Healthworld certificate of incorporation classified board.
and by-laws contain no such provision.
REMOVAL OF DIRECTORS
Delaware law provides that a director may be Under the U.K. Companies Act, shareholders
removed with or without cause by the holders may remove a director without cause by
of a majority in voting power of the shares ordinary resolution, irrespective of any
entitled to vote at an election of directors, provisions of the company's articles of
except that association or any service contract the
(1) members of a classified board of director has with the company, provided that
directors may be removed only for 28 clear days' notice of the resolution is
cause, unless the certificate of given to the company. The articles of
incorporation provides otherwise, and association of Cordiant provide that one
(2) directors may not be removed in certain third of the directors, or the number nearest
situations in the case of a corporation to one-third, will retire from office at each
having annual general meeting. This provision is
operated by Cordiant in such a way as
135
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
cumulative voting. to ensure that all directors who have been in
Healthworld's certificate of incorporation office for three years or more since they
and by-laws do not provide for cumulative were last elected or re-elected will retire
voting and Healthworld's by-laws from office at the meeting. Directors who
affirmatively allow for the removal of any retire by rotation in this way are eligible
director, with or without cause, by the for re-election.
affirmative vote of the holders of a majority
of the outstanding stock entitled to vote for
the election of directors.
VACANCIES ON THE BOARD OF DIRECTORS
Under Delaware law, unless otherwise provided Under English law, shareholders may by
in the certificate of incorporation or the ordinary resolution, at a meeting at which
bylaws, any director retires, appoint a person to be
(1) vacancies on a board of directors and a director
(2) newly created directorships resulting (1) to fill a vacancy, or
from an increase in the number of (2) to become an additional director,
directors may be filled by a majority subject to any maximum number of directors
of the directors in office. However, if provided in the company's articles of
the holders of any specific class of association. (Cordiant's articles
stock are entitled to elect directors, require a minimum of 3 and a maximum of
vacancies and newly created 14 directors.) The board of directors
directorships of the class may only be has the to appoint a director to serve
filled by a majority of the power until the next annual general meeting
directors elected by the class. In the of the company, whereupon the director
case of a classified board, directors concerned is required to retire but
elected to fill vacancies or newly will be eligible for election.
created directorships will hold office
until the next election of the class
for which the directors have been
chosen.
The Healthworld by-laws provide that
(1) any vacancies on the Healthworld board
or
(2) newly created directorships will be
filled by a majority of the remaining
directors in office, even if less than
a quorum.
LIABILITY OF DIRECTORS AND OFFICERS
Delaware law permits a corporation's English law does not permit a company to
certificate of incorporation to include a exempt any director or officer of the company
provision eliminating or limiting the or any person employed by the company as an
personal liability of a director to the auditor from any liability arising from
corporation and its stockholders for damages negligence, default, breach of duty or breach
arising from a breach of fiduciary duty as a of trust against the company.
director. However, no provision can limit the
liability of a director for
(1) any breach of his duty of loyalty to
the corporation or its stockholders,
136
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
(2) acts or omissions not in good faith or
that involve intentional misconduct or
a knowing violation of law,
(3) intentional or negligent payment of
unlawful dividends or stock purchases
or redemption, or
(4) any transaction from which he derives
an improper personal benefit.
The Healthworld certificate of incorporation
provides that, to the fullest extent
permitted by Delaware law, a director of
Healthworld will not be liable to Healthworld
or its stockholders for money damages for
breach of fiduciary duty as a director.
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Delaware law provides that a corporation may English law does not permit a company to
indemnify any officer or director who is made indemnify
a party to any third party suit or proceeding (1) a director or officer of the company,
on account of being a director, officer or or
employee of the corporation against expenses, (2) any person employed by the company as
including attorney's fees, judgments, fines an auditor
and amounts paid in settlement reasonably against any liability arising from
incurred by him in connection with the negligence, default, breach of duty or breach
action, through, among other things, a of trust against the company, EXCEPT that
majority vote of a quorum consisting of indemnification is allowed for liabilities
directors who were not parties to the suit or incurred
proceeding if the officer or director (1) in defending proceedings in which
(1) acted in good faith and in a manner he judgment is entered in favor of the
reasonably believed to be in the best director or officer or the director or
interests of the corporation, and officer is acquitted, or
(2) in a criminal proceeding, had no (2) where the director or officer is held
reasonable cause to believe his conduct liable, but the court finds that he acted
was unlawful. honestly and reasonably and that relief
should be granted.
The Healthworld by-laws provide that The U.K. Companies Act does not, however,
(1) Healthworld will indemnify its current prevent a company from purchasing and
and former directors, officers and maintaining insurance for directors, officers
employees to the fullest extent and auditors against any liability arising
permitted by law, and from negligence, default, breach of duty or
(2) the indemnification will include the breach of trust against the company.
right to receive advance payment of any Cordiant maintains directors' and officers'
expenses incurred in connection with liability insurance and currently intends to
any proceeding. continue to do so.
Healthworld maintains directors' and
officers' insurance.
137
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
SHAREHOLDERS' SUITS
Under Delaware law, a stockholder may Although English law only permits a
initiate a derivative action to enforce a shareholder to initiate a lawsuit on behalf
right of a corporation if the corporation of the company in limited circumstances, the
fails to enforce the right itself. The U.K. Companies Act permits a shareholder
complaint must whose name is on the register of shareholders
(1) state that the plaintiff was a of the company to apply for a court order
stockholder at the time of the (1) on the ground that the company's
transaction of which the plaintiff affairs are being or have been conducted in
complains or that the plaintiff's a manner unfairly prejudicial to the
shares thereafter devolved on the interests of all or some shareholders,
plaintiff by operation of law, and including the shareholder making the
(2)(a) allege with particularity the claim or
efforts made by the plaintiff to (2) on the ground that any actual or
obtain the action the plaintiff proposed act or omission of the company is
desires from the directors or or would be so prejudicial.
(b) state the reasons for the plaintiff's The court has wide discretion in granting
failure to obtain the action or for relief, and may authorize civil proceedings
not making the effort. to be brought in the name of the company by a
Additionally, the plaintiff must remain a shareholder on terms that the court directs.
stockholder through the duration of the Except in these limited circumstances,
derivative suit. The action will not be English law does not generally permit class
dismissed or compromised without the approval action lawsuits by shareholders on behalf of
of the Delaware Court of Chancery. the company or on behalf of other
shareholders.
In order to become a shareholder and enforce
these rights under English law, holders of
Cordiant ADSs would be required to withdraw
from the depositary at least one of their
Cordiant ordinary shares underlying the
Cordiant ADSs. See "DESCRIPTION OF CORDIANT
AMERICAN DEPOSITARY SHARES--Deposit,
Withdrawal and Cancellation" for information
about how to withdraw Cordiant ordinary
shares.
CERTAIN PROVISIONS RELATING TO SHARE ACQUISITIONS
Section 203 of the Delaware General In the case of a company listed on the London
Corporation Law prohibits "business Stock Exchange, shareholder approval must be
combinations," including mergers, sales and obtained for certain acquisitions or
leases of assets, issuances of securities and disposals of assets involving directors or
similar transactions by a corporation or a substantial shareholders or their associates.
subsidiary with an "interested stockholder" In addition, takeovers of public companies,
who beneficially owns 15 percent or more of a i.e., generally those listed on the London
corporation's voting stock, within three Stock Exchange, are regulated by the City
years after the person or entity becomes an Code on Takeovers and Mergers (the City
interested stockholder, unless Code), which is
138
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
(1) the transaction that will cause the (1) comprised of non-statutory
person to become an interested rulesunenforceable at law, and
stockholder is approved by the board of (2) administered by the Takeover Panel, a
directors of the target prior to the body consisting of representatives of City
transaction, of London financial and professional
(2) after completion of the transaction in institutions which oversees the conduct
which the person becomes an interested of takeovers.
stockholder, the interested stockholder The City Code provides that when
holds at least 85% of the voting stock (1) any person acquires, whether by a
of the corporation not including (a) series of transactions over a period of
shares held by officers and directors time or not, shares which, together
of interested stockholders and (b) with shares held or acquired by persons
shares held by specified employee acting in concert with him, represent
benefit plans or 30% or more of the voting rights of a
(3) after the person becomes an interested public company, or
stockholder, the business combination (2) any person, together with persons
is approved by the board and holders of acting in concert with him, holds at least
at least 66 2/3% of the outstanding 30% but not more than 50% of the rights
voting stock, excluding shares held by and that person, or any person acting
the interested stockholder. in concert with him, acquires any
The merger of Cordiant and Healthworld is not additional shares,
governed by the limitations set forth in the person must generally make an offer for
Section 203. The Healthworld voting board has all of the equity shares of the company,
unanimously approved and adopted the merger whether voting or non-voting, and any class
agreement and each of the transactions of voting non-equity shares of the company
contemplated thereby. held by that person or any person acting in
concert with him, for cash, or accompanied by
a cash alternative, at not less than the
highest price paid by the person or these
persons for the relevant shares during the 12
months preceding the date of the offer. The
requirements may be waived with the approval
of shareholders at a general meeting in
certain circumstances.
ANTI-TAKEOVER MEASURES
Under Delaware law, directors generally have Under English law, directors of a company
a duty to act without self-interest, on a have a fiduciary duty to take only those
well-informed basis and in a manner they actions which are in the interests of the
reasonably believe to be in the best company. Generally, anti- takeover measures
interests of the stockholders. are not actions which fall within this
category.
Nevertheless, a Delaware court will generally Under the City Code, a company is prohibited
apply a policy of judicial deference to board from taking any action without the approval
of director decisions to adopt anti-takeover of its shareholders at a general meeting
measures in the face of a potential takeover after
where the directors are able to show that (1) a bona fide offer has been communicated
(1) they had reasonable grounds for to its board of directors, or
believing (2) the board action taken was reasonable
in
139
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
that there was a danger to corporate relation to the threat posed.
policy and effectiveness from an which action could effectively result in the
acquisition proposal, and offer being frustrated or in the shareholders
(2) its board of directors has reason to being denied an opportunity to decide on its
believe that a bona fide offer might be merits.
imminent,
DISCLOSURE OF INTERESTS
Acquirors of Healthworld common stock are The U.K. Companies Act provides that anyone
subject to disclosure requirements under who acquires a material interest or becomes
Section 13(d)(1) of the Securities Exchange aware that he has acquired a material
Act and Rule 13d-1 thereunder, which provide interest in 3% or more of any class of shares
that any person who becomes the beneficial of a public company's issued share capital
owner of more than 5% of the outstanding carrying rights to vote at general
Healthworld common stock must, within 10 days shareholder meetings must notify that company
after such acquisition in writing of his interest within two days.
(1) file a Schedule 13D with the SEC which Thereafter, any increase or decrease of a
reduce disclosing specified whole percentage or decreases the interest to
information, and below 3%, and certain other events such as
(2) send a copy of the Schedule 13D to changes in the identity of the registered
Healthworld and to each securities holder of the shares, must be notified in
exchange on which the security is writing to the company. This requirement will
traded. apply to holders of Cordiant ordinary shares.
In addition, holding a Cordiant ADS will
generally constitute holding an interest in
the underlying Cordiant ordinary shares.
The U.K. Companies Act also provides that a
public company may, by notice in writing,
require a person whom the company knows or
reasonably believes to be or to have been
within the three preceding years, interested
in the company's issued voting share capital
to
(1) confirm whether this is or is not the
case, and
(2) if this is the case, to give further
information that the company requires
relating to his interest and any other
interest in the company's shares of
which he is aware.
The disclosure must be made within a
reasonable period as specified in the
relevant notice which may be as short as one
or two days.
When the notice is served by a company on a
person who is or was interested in shares of
the company and that person fails to give the
company any information required by the
notice
140
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
within the time specified in the notice, the
company may apply to the court for an order
directing that the shares in question be
subject to restrictions prohibiting, among
other things,
(1) any transfer of the shares,
(2) the exercise of voting rights relating
to the shares,
(3) the issue of further shares relating to
the shares, and
(4) the payment of dividends and other pay-
ments on such shares other than in a
liquidation.
These restrictions may also void any
agreement to transfer the shares.
The articles of association of Cordiant
provide that the Cordiant board may, subject
to certain limitations, impose certain of the
restrictions set forth in the above
paragraph, without applying to the court.
In addition, after the merger, holders of
Cordiant ADSs or ordinary shares will be
required to comply with specified U.S.
securities law requirements, including filing
Schedules 13D with respect to their
beneficial ownership of the underlying
Cordiant ordinary shares if they beneficially
own more than 5% of the Cordiant ordinary
shares outstanding.
LIMITATION ON ENFORCEABILITY OF CIVIL LIABILITIES UNDER U.S. FEDERAL SECURITIES LAW
ABILITY TO BRING SUITS, ENFORCE JUDGMENTS AND ENFORCE U.S LAW
Healthworld is a U.S. company incorporated Cordiant is an English company located in the
under the laws of Delaware. Most of its U.K. Many of the directors and officers of
directors and senior officers are residents Cordiant are not U.S. residents. In addition,
of the U.S., and Healthworld has substantial although Cordiant has substantial assets in
assets located in the U.S. As a result, U.S. the U.S., a large portion of its assets and
investors generally can initiate lawsuits in of the assets of its directors and officers
the U.S. against Healthworld and its are located outside of the U.S. As a result,
directors and officers and can enforce U.S. investors may find it difficult in a
lawsuits based on U.S. federal securities lawsuit based on the civil liability
laws in U.S. courts. provisions of the U.S. federal securities
laws
(1) to effect service within the U.S. upon
Cordiant and the directors and officers of
Cordiant located outside the U.S.,
141
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
(2) to enforce in U.S. courts or outside
the U.S. judgments obtained against those
persons in U.S. courts,
(3) to enforce in U.S. courts judgments
obtained against those persons in
courts in jurisdictions outside the
U.S., and
(4) to enforce against those persons
located outside the U.S., whether in
original actions or in actions for the
enforcement of judgments of U.S.
courts, civil liabilities based solely
upon the U.S. federal securities laws.
SHORT SWING PROFITS
Directors and officers of Healthworld are Directors and officers of Cordiant will not
governed by rules under the Securities be subject to the Securities Exchange Act's
Exchange Act that may require directors and "short swing" profit rules because Cordiant
officers to forfeit to Healthworld any "short will be a foreign private issuer under the
swing" profits realized from purchases and Securities Exchange Act which will not be
sales, as determined under the Securities subject to these rules.
Exchange Act and the rules thereunder, of
Healthworld equity securities.
However, directors of Cordiant will be
subject to applicable U.K. legislation
prohibiting insider dealing. In addition, the
directors will have to comply with the Model
Code of the London Stock Exchange, which
provides that the considerations taken into
account by directors and relevant employees
when deciding whether or not to deal in
shares of the company must not be of a short-
term nature. The Model Code also places addi-
tional restrictions on trading during periods
prior to announcement of a company's results
and at certain other times.
PROXY STATEMENT AND REPORTS
NOTICES AND REPORTS TO STOCKHOLDERS
Under the Securities Exchange Act proxy As a foreign private issuer, Cordiant will
rules, Healthworld must comply with notice not be governed by the Securities Exchange
and disclosure requirements relating to the Act proxy rules. However, Cordiant will be
solicitation of proxies for stockholder governed by the U.K. Companies Act and the
meetings. London Stock Exchange listing rules
regulating notices of shareholder meetings,
which provide that notice of a shareholder
meeting must be accompanied by
142
PROVISIONS TO BE APPLICABLE TO
CORDIANT SHAREHOLDERS
PROVISIONS CURRENTLY APPLICABLE TO AFTER THE
HEALTHWORLD STOCKHOLDERS MERGER
- ---------------------------------- ---------------------------------------------
(1) a shareholder circular containing an
explanation of the purpose of the meeting,
and
(2) the recommendations of the board with
respect to actions to be taken.
In addition, Cordiant will send Cordiant
ordinary shareholders a copy of its annual
report and accounts or a summary thereof and
a copy of its half-yearly unaudited results.
In addition, under the listing rules,
Cordiant will, depending upon the nature,
size and importance of such matters, be
required to send to shareholders details
relating to certain acquisitions,
dispositions, takeovers, mergers and offers
either made by or in respect of the company.
REPORTING REQUIREMENTS
As a U.S. public company, Healthworld must As a foreign private issuer with securities
file with the SEC, among other reports and listed on the NYSE and registered under
notices: Section 12 of the Exchange Act, Cordiant will
(1) an annual report on Form 10-K within 90 be required to publicly file with the d the
SEC an days after the end of each NYSE annual reports on Form 20-F within six
fiscal year, months after the end of each fiscal year and
(2) quarterly reports on Form 10-Q within current reports on Form 6-K.
45 days after the end of each fiscal Cordiant will also be required to notify the
quarter, other than the fourth quarter, London Stock Exchange of (among other
and matters)
(3) current reports on Form 8-K upon the (1) any major new developments relating to
occurrence of important corporate its business which are not public knowledge
events. and may lead to a substantial movement
in its stock price,
(2) notifications received by it from
persons holding an interest in 3% or more
of any class of the company's share
capital,
(3) any changes in its board of directors,
(4) any purchase or redemption by it of its
own equity securities,
(5) interests of directors in its shares or
debentures, and
(6) changes in its capital structure.
143
FEES AND EXPENSES
Pursuant to the merger agreement, all costs and expenses incurred in
connection with the merger will be paid by the party incurring the expense,
except in certain circumstances. See "THE MERGER AGREEMENT-- Fees and Expenses."
Estimated fees and expenses incurred or to be incurred by Cordiant in
connection with the merger are approximately $12.9 million. Estimated fees and
expenses incurred or to be incurred by Healthworld in connection with the merger
are approximately $3.5 million.
Neither Cordiant nor Healthworld will pay any fees or commissions to any
broker or dealer or any person other than Warburg Dillon Read LLC and Bear,
Stearns & Co., Inc. Upon request, Healthworld will reimburse brokers, dealers,
commercial banks and trust companies for reasonable and necessary costs and
expenses incurred by them in forwarding materials to their customers.
VALIDITY OF SECURITIES
Macfarlanes will pass upon the validity under English law of the Cordiant
ordinary shares to be issued in connection with the merger.
EXPERTS
The consolidated financial statements of Healthworld as of December 31, 1997
and 1998 and for each of the three years in the period ended December 31, 1998
included elsewhere in this proxy statement/prospectus have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in auditing and accounting in giving said
reports.
The consolidated financial statements of Cordiant as of December 31, 1998
and 1997, and for each of the three years in the period ended December 31, 1998
have been incorporated by reference herein in reliance upon the report of KPMG
Audit plc, independent auditors, incorporated by reference herein and upon the
authority of the firm as experts in auditing and accounting.
U.K. LISTING PARTICULARS AND CIRCULAR
A copy of a document comprising a circular to Cordiant shareholders and the
U.K. listing particulars relating to Cordiant in connection with the
extraordinary general meeting and in
accordance with the Listing Rules of the London Stock Exchange is attached as
Appendix P to this proxy statement/prospectus. Neither the circular/U.K. listing
particulars nor the documents listed in the circular/U.K. listing particulars
form a part of, or are incorporated into, this proxy statement/ prospectus.
144
FUTURE STOCKHOLDER PROPOSALS
If the merger is completed as expected, Healthworld will not hold an annual
meeting of Healthworld stockholders in 2000. If the merger is not approved by
Healthworld stockholders or is not completed for any other reason, Healthworld
will hold a 2000 annual meeting. Stockholder proposals submitted for inclusion
in the proxy statement for the 2000 annual meeting must comply with the
requirements of the SEC. Any Healthworld stockholder who intended to submit a
proposal for inclusion in the proxy materials for the 2000 annual meeting was
required to have submitted his or her proposal to Healthworld's executive
offices no later than December 24, 1999.
The proxy or proxies designated by the board of directors of Healthworld
will have discretionary authority to vote on any matter properly presented by a
Healthworld stockholder for consideration at the next annual meeting of
stockholders but not submitted for inclusion in the proxy materials for such
meeting unless notice of the matter is received by Healthworld at its principal
executive office not later than March 9, 2000 and certain other conditions of
the applicable rules for the Securities and Exchange Commission are satisfied.
145
INDEX TO HEALTHWORLD FINANCIAL STATEMENTS
PAGE
--------
CONSOLIDATED FINANCIAL STATEMENTS OF HEALTHWORLD
Report of Independent Public Accountants.................. F-2
Consolidated Balance Sheets as of December 31, 1997 and
1998.................................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1996, 1997 and 1998........................ F-4
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1996, 1997 and 1998............ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996, 1997 and 1998........................ F-6
Notes to Consolidated Financial Statements................ F-7
INTERIM CONSOLIDATED FINANCIAL STATEMENTS OF HEALTHWORLD
Consolidated Balance Sheets as of December 31, 1998 and
September 30, 1999...................................... F-25
Consolidated Statements of Income for the nine months
ended September 30, 1998 and 1999....................... F-26
Consolidated Statements of Cash Flows for the nine months
ended September 30, 1998 and 1999....................... F-27
Notes to Consolidated Financial Statements................ F-28
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Healthworld Corporation and subsidiaries:
We have audited the accompanying consolidated balance sheets of Healthworld
Corporation (a Delaware Corporation) and subsidiaries as of December 31, 1997
and 1998 (Note 3), and the related consolidated statements of income,
stockholders' equity and cash flows for each of the three years in the 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 conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Healthworld Corporation and
subsidiaries as of December 31, 1997 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1998 in conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Melville, New York
February 17, 1999
F-2
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31,
-------------------
1997 1998
-------- --------
ASSETS
Current Assets:
Cash and cash equivalents............................... $18,092 $ 6,472
Accounts receivable, net................................ 14,269 18,889
Unbilled production charges............................. 1,501 3,151
Other current assets.................................... 1,004 1,501
------- -------
Total current assets........................................ 34,866 30,013
Restricted cash............................................. 300 1,860
Property and equipment, net................................. 2,434 4,443
Goodwill, net............................................... 3,670 14,266
Other assets................................................ 539 289
------- -------
$41,809 $50,871
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Bank loans and overdrafts............................... $ 634 $ --
Current portion of long-term debt....................... 702 135
Current portion of capitalized lease obligations........ 125 74
Accounts payable........................................ 1,836 4,247
Accrued expenses........................................ 6,148 7,739
Advance billings........................................ 6,468 7,982
Other current liabilities............................... -- 302
------- -------
Total current liabilities................................... 15,913 20,479
Long-term debt.............................................. 230 116
Capitalized lease obligations............................... 99 59
Minority interests.......................................... -- 111
Deferred rent............................................... 768 888
Other liabilities........................................... 33 17
------- -------
Total liabilities........................................... 17,043 21,670
======= =======
Commitments and contingencies (Note 16)
Stockholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares outstanding..................... -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; and 7,415,000 and 7,415,167 shares
outstanding, respectively............................. 74 74
Additional paid-in capital.............................. 22,746 22,748
Retained earnings....................................... 1,931 6,357
Accumulated other comprehensive income.................. 15 22
------- -------
Total stockholders' equity.................................. 24,766 29,201
------- -------
$41,809 $50,871
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-3
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
Revenues.................................................... $24,209 $35,292 $63,677
Operating expenses:
Salaries and related costs................................ 15,733 24,186 47,296
General and office expenses............................... 4,581 5,427 8,450
Depreciation and amortization............................. 627 849 1,129
------- ------- -------
20,941 30,462 56,875
Income from operations...................................... 3,268 4,830 6,802
Interest (expense) income, net.............................. (69) 86 642
------- ------- -------
Income before provision for income taxes and minority
interests................................................. 3,199 4,916 7,444
Provision for income taxes.................................. 524 719 2,976
Minority interests in net earnings of subsidiaries.......... 124 192 42
------- ------- -------
Net income.................................................. $ 2,551 $ 4,005 $ 4,426
======= ======= =======
Per share information (Note 12):
Net income per common share:
Basic..................................................... $ 0.54 $ 0.80 $ 0.60
======= ======= =======
Diluted................................................... $ 0.54 $ 0.79 $ 0.58
======= ======= =======
Common shares used in computing per share amounts:
Basic..................................................... 4,741 5,037 7,415
======= ======= =======
Diluted................................................... 4,741 5,047 7,592
======= ======= =======
Pro forma information (Notes 12 & 13):
Income before provision for income taxes and minority
interests............................................... $ 3,199 $ 4,916
Pro forma provision for income taxes...................... 1,305 2,023
Minority interests in net earnings of subsidiaries........ 124 192
------- -------
Pro forma net income........................................ $ 1,770 $ 2,701
======= =======
Pro forma per share information:
Pro forma net income per common share:
Basic..................................................... $ 0.37 $ 0.54
======= =======
Diluted................................................... $ 0.37 $ 0.54
======= =======
Common shares used in computing pro forma per share amounts:
Basic....................................................... 4,741 5,037
======= =======
Diluted..................................................... 4,741 5,047
======= =======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-4
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
ACCUMULATED
COMPRE- ADDITIONAL OTHER
HENSIVE COMMON PAID-IN RETAINED COMPREHENSIVE
INCOME STOCK CAPITAL EARNINGS INCOME (LOSS) TOTAL
-------- -------- ---------- -------- ------------- --------
Balance, December 31, 1995........ $47 $ 256 $ 4,939 $(6) $ 5,236
Comprehensive income:
Net income...................... 2,551 2,551 2,551
Other comprehensive income--
foreign currency translation
adjustments................... 72 72 72
------
Comprehensive income.............. 2,623
======
Distributions to stockholders..... (1,487) (1,487)
--- ------- ------- --- -------
Balance, December 31, 1996........ 47 256 6,003 66 6,372
Comprehensive income:
Net income...................... 4,005 4,005 4,005
Transition loss in foreign
subsidiaries.................. (35) (35) (35)
Other comprehensive income
(loss)--foreign currency
translation adj.'s.............. (51) (51) (51)
------
Comprehensive income.............. 3,919
======
Initial public offering of common
stock, net of cost of
offering........................ 24 16,421 16,445
Issuance of common stock for
acquisition of minority
interests....................... 3 2,329 2,332
Distributions to stockholders..... (4,197) (4,197)
Dividends......................... (105) (105)
Undistributed earnings in "S"
corporation..................... 3,740 (3,740) --
--- ------- ------- --- -------
Balance, December 31, 1997........ 74 22,746 1,931 15 24,766
Comprehensive income:
Net income...................... 4,426 4,426 4,426
Other comprehensive income --
foreign currency translation
adjustments................... 7 7 7
------
Comprehensive income.............. 4,433
======
Exercise of stock options......... 2 2
--- ------- ------- --- -------
Balance, December 31, 1998........ $74 $22,748 $ 6,357 $22 $29,201
=== ======= ======= === =======
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-5
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
Cash flows from operating activities:
Net income................................................ $ 2,551 $ 4,005 $ 4,426
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 627 849 1,129
Deferred rent........................................... 23 103 120
Deferred income taxes................................... 89 (643) 180
Transition loss......................................... -- (35) --
Minority interests in net earnings of subsidiaries...... 124 192 42
Loss (gain) on sale of fixed assets..................... 18 (17) (14)
Changes in operating assets and liabilities, net of
effects from acquisitions of businesses:
Accounts receivable..................................... (2,141) (2,519) (2,010)
Unbilled production charges............................. 1,562 61 (1,345)
Other current assets.................................... (46) (379) (117)
Other assets............................................ (88) 69 292
Accounts payable........................................ (507) (610) 490
Advance billings........................................ 221 200 851
Accrued expenses........................................ 998 4,082 464
Other current liabilities............................... -- -- 16
Other liabilities....................................... 18 (48) (36)
------- ------- --------
Net cash provided by operating activities................... 3,449 5,310 4,488
------- ------- --------
Cash flows from investing activities:
Capital expenditures, net............................... (720) (1,071) (970)
Proceeds from the sale of fixed assets.................. 50 100 93
Businesses acquired, net of cash received............... (242) -- (12,273)
Restricted cash, net.................................... -- -- (1,560)
------- ------- --------
Net cash (used in) investing activities..................... (912) (971) (14,710)
------- ------- --------
Cash flows from financing activities:
Net proceeds from initial public offering............... -- 16,445 --
Payment of majority stockholder dividends............... -- (105) --
Payments of minority interest shareholders' dividends... -- (55) --
Proceeds from exercise of stock options................. -- -- 2
Net proceeds from (repayment of) line of credit......... 109 (400) (634)
Distributions to stockholders........................... (1,487) (4,197) --
Proceeds from bank loans................................ -- 255 --
Issuance of bank loans and long-term debt............... 300 -- --
Repayment of bank loans and long-term debt.............. (289) (262) (688)
Capital lease repayments................................ (77) (151) (135)
------- ------- --------
Net cash (used in) provided by financing activities......... (1,444) 11,530 (1,455)
------- ------- --------
Effect of exchange rates on cash............................ (17) 9 57
------- ------- --------
Net increase (decrease) in cash and cash equivalents........ 1,076 15,878 (11,620)
Cash and cash equivalents at beginning of year.............. 1,138 2,214 18,092
------- ------- --------
Cash and cash equivalents at end of year.................... $ 2,214 $18,092 $ 6,472
======= ======= ========
Supplemental disclosure of cash flow information:
Cash paid for:
Taxes................................................... $ 131 $ 851 $ 2,415
======= ======= ========
Interest................................................ $ 129 $ 139 $ 64
======= ======= ========
Supplemental schedule of noncash investing activities:
Capital leases for new equipment........................ $ -- $ -- $ 43
======= ======= ========
Issuance of stock for acquisition of minority
interests............................................. $ -- $ 2,332 $ --
======= ======= ========
The accompanying notes to consolidated financial statements are an integral
part of these statements.
F-6
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 1. ORGANIZATION
On November 12, 1997, Healthworld Corporation acquired (the
"Consolidation"), in exchange for shares of its Common Stock, all of the issued
and outstanding common stock of each of (i) Girgenti, Hughes, Butler &
McDowell, Inc. and its affiliated entities ("GHB&M") and (ii) Milton Marketing
Group Limited and its subsidiaries ("Milton"). Unless otherwise indicated, all
references herein to the "Company" give effect to the Consolidation and include
GHBM, Milton and each of Healthworld Corporation's other subsidiaries. The
Consolidation was accounted for under the pooling of interests method of
accounting. Accordingly, the Company's consolidated financial statements and
notes thereto have been restated to include the results of GHB&M and Milton for
all periods presented.
In July 1998, the Company acquired 80% of the capital stock of HFT, a French
holding company, which owns 100% of the capital stock of Torrent S.A., a French
healthcare communications agency, which in turn owns 100% of the capital stock
of Aigue Marine SARL and Katchina Productions SARL, each a French company
(collectively, the "HFT Group Companies"). In addition, in July 1998, the
Company acquired all of the capital stock of Colwood House Medical Publications
(UK) Limited ("Colwood"), a United Kingdom medical education company. In
October 1998, the Company acquired all of the capital stock of CPA Espana, S.L.
("CPA Spain"), a healthcare communications agency located in Madrid, Spain. The
acquisitions of the aforementioned companies (collectively, the "1998
Acquisitions"), have been accounted for using the purchase method of accounting,
whereby the excess initial purchase price over the fair value of net assets
acquired has been recorded as goodwill (Note 6).
Certain amounts in the financial statements for prior periods have been
reclassified to conform to the current year presentation for comparative
purposes.
NOTE 2. BUSINESS
The Company is an international communications and contract sales marketing
organization specializing in healthcare. The Company provides many of the
world's largest pharmaceutical and healthcare companies with a comprehensive
range of strategic marketing services designed to accelerate acceptance of new
products and to sustain their growth. These integrated services include
advertising and promotion, contract sales, consulting, publishing, medical
education, public relations, interactive multimedia, database marketing and
marketing research services. The Company offers its clients global reach and
expertise through its operations in the United States, the United Kingdom,
France and Spain and through Healthworld B.V., a world-wide network of licensed
independent marketing and communications agencies.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its majority and wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
RESTATEMENT
As discussed in Note 1, the Company completed the Consolidation on
November 12, 1997, which was accounted for under the pooling of interests method
of accounting. Accordingly, the Company's
F-7
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
consolidated financial statements and notes thereto have been restated to
include the results of GHB&M and Milton for the years ended December 31, 1996
and 1997.
FISCAL YEAR CHANGE
In December 1997, the Company changed the fiscal year end of Milton from
November 30 to December 31 to eliminate the one month lag in reporting. The one
month lag was eliminated during the fourth quarter of 1997 as an adjustment to
retained earnings of $(35).
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of the Company's European subsidiaries are
translated into United States Dollars. Assets and liabilities of Milton and
Colwood are translated from British Pounds Sterling, those of the HFT Group
Companies are translated from French Francs and those of CPA Spain are
translated from Spanish Pesetas at year-end exchange rates. Income and expense
items for the Company's European subsidiaries are translated at average exchange
rates prevailing during each fiscal year. The resulting translation adjustments
are recorded as a separate component of stockholders' equity.
REVENUE RECOGNITION
Revenues and fees are derived from clients for creative concept development,
production of advertising and promotional materials and the supply of long and
short-term personnel for client marketing purposes. For services such as the
production of advertising and promotion materials, fees are recognized when the
production materials are completed. With respect to services such as consulting,
publishing and public relations, the Company is either paid a monthly retainer
or bills on an actual time incurred basis, which, in each case, the Company
recognizes as income each month to match its monthly payroll and operating
costs. Revenues associated with contract sales services are recognized as such
services are provided and payroll expenses are incurred.
Accounts receivable includes fees recognized, project costs, and media and
production costs incurred on behalf of clients, which are paid for by the
Company and billed to clients. The Company records gross contract revenues for
contract sales services. The related direct costs are included in salaries and
related costs on the accompanying consolidated statements of income.
CONCENTRATION OF CREDIT RISK
The Company provides services to a range of clients operating mostly in the
healthcare, consumer products and utility industries. For the years ended
December 31, 1996 and 1997, the Company had one client which constituted
approximately 26.9% and 18.8% of total revenues, respectively, and for the year
ended December 31, 1998, the Company had one client which accounted for
approximately 14.1% of total revenues. The Company extends credit to all
qualified clients, but does not believe that it is exposed to any undue
concentration of credit risk to any significant degree. At December 31, 1997 and
1998, no single customer accounted for more than 10% of the Company's total
trade receivables. The Company maintains reserves for potential credit losses,
but has not experienced any material losses from individual clients or groups of
clients.
F-8
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
CASH AND CASH EQUIVALENTS
For purposes of the consolidated balance sheets and consolidated statements
of cash flows, the Company considers all highly liquid instruments purchased
with original maturities of three months or less to be cash equivalents.
UNBILLED PRODUCTION CHARGES
Unbilled production charges consists principally of costs incurred in
producing marketing communications for clients and field marketing personnel to
be billed. Such amounts will be billed to clients at either a defined stage of
the project or when production is complete.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation
and amortization. Depreciation and amortization are computed using both
accelerated and straight-line methods over the following periods:
Buildings............................ 30 years
Motor vehicles....................... 4-8 years
Furniture and equipment.............. 4-14 years
Leasehold improvements............... Lesser of lease term or useful life
Equipment held under capital Lesser of lease term or useful life
leases.............................
EQUIPMENT HELD UNDER CAPITAL LEASES
Equipment held under capital leases is accounted for in accordance with
Statement of Financial Accounting Standards ("SFAS") No. 13, "Accounting for
Leases", and is recorded in property and equipment. The present value of the
related liability is included in capitalized lease obligations.
GOODWILL
Goodwill represents the Company's excess purchase price over the fair value
of net assets acquired and is being amortized on a straight-line basis. Amounts
recognized to date have been amortized over 30 years from the original date of
acquisition. Amortization expense of goodwill for the years ended December 31,
1996, 1997 and 1998 amounted to $42, $78 and $259 respectively.
ACCOUNTING FOR LONG-LIVED ASSETS
During 1996, the Company adopted SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
This statement requires the Company to review long-lived assets, including
certain intangibles and goodwill, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The provisions of SFAS No. 121 have had no impact on the financial
statements for all periods presented.
F-9
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
ADVANCE BILLINGS
Advance billings consists of progress billings for production jobs that are
not completed, as well as accrued media placements that have been billed to
clients.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". This statement requires an asset and liability
approach for measuring deferred taxes based on temporary differences between the
financial statement and income tax bases of assets and liabilities existing at
each balance sheet date using enacted rates for the years in which the taxes are
expected to be paid or recovered.
As a result of the Consolidation, the entities comprising GHB&M (other than
Syberactive, Inc., which was already treated as a C corporation) are no longer
treated as S corporations. Deferred tax assets and liabilities were established
in the fourth quarter of 1997 due to the termination of GHB&M's S corporation
status on November 12, 1997. This resulted in a credit to the provision for
income taxes of $404 for the year ended December 31, 1997 (Note 11).
STOCK-BASED COMPENSATION
In 1997, the Company adopted the provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation", by continuing to apply the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees", while providing the required pro forma disclosures as if the fair
value method had been applied (Note 14).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company accounts for the fair value of its financial instruments in
accordance with SFAS No. 107, "Disclosures about Fair Value of Financial
Instruments". The carrying value of all financial instruments reflected in the
accompanying balance sheets approximates fair value at December 31, 1997 and
1998, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
"Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 1999 and will not require retroactive restatement
of prior period financial statements. This statement requires the recognition of
all derivative instruments as either assets or
F-10
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
liabilities in the balance sheet measured at fair value. Derivative instruments
will be recognized as gains or losses in the period of change. If certain
conditions are met where the derivative instrument has been designated as a fair
value hedge, the hedged item may also be marked to market through earnings thus
creating an offset. If the derivative is designed and qualifies as a cash flow
hedge, the changes in fair value of the derivative instrument may be recorded in
comprehensive income. The Company does not presently make use of derivative
instruments.
NOTE 4. RESTRICTED CASH
In connection with the Colwood acquisition, the Company deposited an amount
equal to L1,000 (approximately US$1,700) in an interest-bearing escrow account
to be applied towards potential, future earn-out payments. For 1997 and 1998, in
connection with the lease for office space, the Company was required to
establish irrevocable standby letters of credit with face amounts of $300 and
$200, respectively. The Company set aside certificates of deposit in the amounts
of $300 and $200 in 1997 and 1998, respectively, as collateral for such letters
of credit.
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31,
1997 1998
-------- --------
Land...................................................... $ -- $ 334
Buildings................................................. -- 439
Motor vehicles............................................ 261 614
Furniture and equipment................................... 3,704 4,964
Leasehold improvements.................................... 942 1,091
Equipment held under capital leases....................... 295 200
------- -------
5,202 7,642
Less: accumulated depreciation and amortization........... (2,768) (3,199)
------- -------
$ 2,434 $ 4,443
======= =======
Depreciation and amortization expense for the years ended December 31, 1996,
1997 and 1998 amounted to approximately $585, $771 and $870, respectively.
F-11
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6. ACQUISITIONS OF BUSINESSES
MILTON CATER LIMITED ("MCL")
MCL was formed in April 1996, and the Company acquired 51% of its equity in
May 1996. The remaining 49% of MCL's equity was owned by a key employee and was
purchased by the Company on November 12, 1997 for no consideration pursuant to a
prior agreement between Milton and the minority stockholder.
MILTON MARKETING LIMITED ("MML")
In April 1996, the Company acquired an additional 7.5% interest in MML for
$234, which increased the Company's interest in MML to 92.5%. The acquisition of
the 7.5% interest was accounted for using the purchase method of accounting. The
excess purchase price over the fair value of the minority share of net assets
was $188 and has been recorded as goodwill. As described above the remaining
7.5% interest was acquired on November 12, 1997.
PDM COMMUNICATIONS LIMITED ("PDM")
In November 1996, the Company acquired a 75% interest in PDM for a cash
purchase price of $32. The minority stockholder had a put option and the Company
had a call option with respect to the remaining 25% of the shares not owned by
the Company. This acquisition was accounted for using the purchase method of
accounting and the purchase price was allocated to the assets purchased and the
liabilities assumed based on their fair values at the date of acquisition. The
excess purchase price over the fair value of the net assets acquired was $523
and has been recorded as goodwill. On November 12, 1997 the Company exercised
its call option as fully described above. The Company may be required under
certain circumstances to remit to a prior PDM stockholder up to approximately
$320 no later than July 31, 1999.
MINORITY INTERESTS
On November 12, 1997, the Company acquired the remaining minority interests
in all Milton subsidiaries. In accordance with the terms of the acquisitions,
the Company issued 259 shares of common stock in exchange for all minority
shareholders' interest in their respective companies. These acquisitions were
accounted for using the purchase method of accounting. The excess purchase price
over the fair value of the minority interest share of the net assets acquired
was $2,046 and has been recorded as goodwill.
THE HFT GROUP COMPANIES
In July 1998, the Company acquired 80% of the capital stock of HFT, a French
holding company, which owns 100% of the capital stock of Torrent, a French
healthcare communications agency, which in turn owns 100% of the capital stock
of Aigue Marine SARL and Katchina Productions SARL, each a French company. The
initial cash purchase price paid by the Company was approximately 20,300 French
Francs (approximately US$3,400) including expenses related to the acquisition.
Total amounts to be paid in connection with the acquisition, including
potential, future earn-out payments to take place on or prior to April 15, 2000
and April 15, 2002 based upon (i) a multiple of operating income of the HFT
Group Companies, and (ii) the seller's option to sell and the Company's option
to purchase the
F-12
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6. ACQUISITIONS OF BUSINESSES (CONTINUED)
remaining 20% of the capital stock of HFT, will not exceed 48,000 French Francs
(approximately US$8,100). The acquisition has been accounted for using the
purchase method of accounting, whereby the excess of the initial purchase price
over the fair value of the net assets acquired, 1,600 French Francs
(approximately US$267), after removing minority interests, was recorded as
goodwill. Total goodwill recorded on the purchase was approximately $3,100.
COLWOOD
In July 1998, the Company acquired all of the capital stock of Colwood, a
United Kingdom medical education company. The initial cash purchase price paid
by the Company was L4,500 (approximately US$7,500) including expenses related to
the acquisition. Total amounts to be paid in connection with the acquisition,
including potential, future earn-out payments to take place in April 2000 and
August 2001 based upon Colwood achieving certain targeted operating profits, are
not to exceed approximately L8,000 (approximately US$13,300). Pursuant to the
acquisition agreement, the Company deposited an amount equal to L1,000
(approximately US$1,700) in an interest-bearing escrow account to be applied
towards the potential, future earn-out payments, and may potentially be required
to deposit into such escrow account additional amounts, based on net operating
profits, to be applied towards such payments. The acquisition has been accounted
for using the purchase method of accounting, whereby the excess of the initial
purchase price over the fair value of the net assets acquired, L891
(approximately US$1,500), was recorded as goodwill. Total goodwill recorded on
the purchase was L3,600 (approximately US$6,000).
CPA SPAIN
In October 1998, the Company acquired all of the capital stock of CPA Spain,
a healthcare communications agency located in Madrid, Spain. The initial cash
purchase price paid by the Company was approximately 261,000 Spanish Pesetas
(approximately US$1,900) including expenses related to the acquisition. Total
amounts to be paid in connection with the acquisition, including potential,
future earn-out payments to take place in April 2000 and April 2003 based upon
CPA Spain achieving certain targeted operating profits, are not to exceed
approximately 710,000 Spanish Pesetas (approximately US$5,100). The acquisition
has been accounted for using the purchase method of accounting, whereby the
excess of the initial purchase price over the fair value of the net assets
acquired, 24,900 Spanish Pesetas (approximately US$164), was recorded as
goodwill. Total goodwill recorded on the purchase was $1,700. The results of
operations of these acquisitions are included in the consolidated financial
statements from the respective dates of acquisition.
Summarized below are the unaudited pro forma results of operations for the
years ended December 31, 1996, 1997 and 1998 of the Company as though the
acquisitions of MCL, MML, PDM and the remaining minority interests in certain of
Milton's subsidiaries had occurred at the beginning of 1996, and the
acquisitions of the HFT Group Companies, Colwood and CPA Spain had occurred at
the
F-13
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 6. ACQUISITIONS OF BUSINESSES (CONTINUED)
beginning of 1997. Adjustments have been made for income taxes, amortization of
goodwill, interest income and minority interests in net earnings of subsidiaries
related to these transactions.
TWELVE MONTHS ENDED
DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
Pro Forma:
Revenues....................................... $24,596 $44,144 $68,696
Net income..................................... 1,459 2,663 4,285
Basic net income per common share.............. $ 0.31 $ 0.53 $ 0.58
======= ======= =======
Diluted net income per common share............ $ 0.31 $ 0.53 $ 0.56
======= ======= =======
These pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the acquisitions been
made at the beginning of 1996, 1997 or 1998 or of results which may occur in the
future.
NOTE 7. BANK LOANS AND OVERDRAFTS
The Company has the following loans and overdraft facilities outstanding at
December 31,
1997 1998
-------- --------
Term loan (a)............................................... $ 345 $ 232
Term note/loan (b).......................................... 125 19
Business development loan (c)............................... 10 --
Overdraft facility (d)...................................... 634 --
4% loan notes (e)........................................... 452 --
------- -----
1,566 251
Less: current portion....................................... (1,336) (135)
------- -----
$ 230 $ 116
======= =====
- ------------------------
(a) During November 1995, a bank provided a Term Loan of $588 to the Company
which bears interest at the UK base rate (6.25% as of December 31, 1998)
plus 2% per annum and is payable in installments of $58 every May and
November with the final installment due in November 2000. The Term Loan
requires the Company to maintain certain financial covenants. As of
December 31, 1998, the Company was in compliance with all of the provisions
of the Term Loan.
(b) During February 1996, a bank provided a Term Loan of $300 to finance the
construction of additional office space in the United States. This Term Loan
bears interest at 7.75% per annum and is payable in 36 monthly installments
commencing March 1996.
(c) This loan bore interest at 10.5% per annum and matured in April 1998.
F-14
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 7. BANK LOANS AND OVERDRAFTS (CONTINUED)
(d) The Company has in place an overdraft facility with a bank, which bears
interest at the UK base rate plus 1.75% per annum. As of December 31, 1997
and 1998 the outstanding balance was approximately $634 and $0,
respectively, while the overdraft facility limits were approximately $820
and $1,245, respectively.
(e) In connection with the Milton Headcount Limited acquisition, the Company
issued a $462, 4% unsecured note, which was paid in full in July 1998.
AT DECEMBER 31, 1998, MATURITIES OF DEBT ARE AS FOLLOWS:
1999........................................................ $135
2000........................................................ 116
----
$251
====
The Company has several credit facilities with various financial
institutions. At December 31, 1997 and 1998, there was $634 and $0,
respectively, outstanding under the collective Company facilities.
NOTE 8. CAPITALIZED LEASE OBLIGATIONS
The Company has entered into capital leases for computer equipment and motor
vehicles. The lease payments are payable monthly on a straight-line basis. The
assets relating to the leases are capitalized and amortized over a period
approximating the lease period.
Minimum future lease payments under capital leases as of December 31, 1998
are as follows:
1999........................................................ $ 87
2000........................................................ 53
2001........................................................ 8
----
Total minimum lease payments................................ 148
Less: amounts representing interest......................... 15
----
Present value of minimum lease payments..................... $133
====
Interest rates on capitalized leases vary from 11% to 15% and are imputed
based on the lessor's implicit rate of return.
F-15
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 9. ACCRUED EXPENSES
Major components of accrued expenses at December 31, included:
1997 1998
-------- --------
Salaries and related costs.................................. $2,887 $2,370
Value added tax............................................. 1,393 2,068
Income taxes................................................ 902 1,297
Other....................................................... 680 1,673
Offering costs.............................................. 286 --
Acquisition costs........................................... -- 331
------ ------
$6,148 $7,739
====== ======
NOTE 10. COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements.
Comprehensive income consists of net income and foreign currency translation
adjustments which are presented in the Consolidated Statement of Stockholder's
Equity. No provision for income taxes has been made with respect to foreign
currency translation adjustments because all earnings of foreign subsidiaries
are expected to be permanently reinvested outside the United States.
NOTE 11. INCOME TAXES
Income taxes have been provided for using the liability method in accordance
with SFAS No. 109, "Accounting for Income Taxes". The provision for income taxes
is recorded at an effective rate of 14.6% and 40.0% for the fiscal years ended
December 31, 1997 and 1998, respectively. Prior to the Consolidation in 1997,
certain of the entities comprising GHB&M were treated as S corporations and were
not subject to Federal corporate income taxes.
F-16
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 11. INCOME TAXES (CONTINUED)
The provision for income taxes was comprised of the following at
December 31,
1996 1997 1998
-------- -------- --------
Current:
Federal............................................ $ -- $ 301 $1,371
State and local.................................... 69 681 463
Foreign............................................ 366 380 962
---- ------ ------
$435 $1,362 $2,796
==== ====== ======
Deferred:
Federal............................................ -- (16) 130
State and local.................................... 89 (223) 50
---- ------ ------
89 (239) 180
Deferred taxes resulting from subchapter "S"
corporation termination............................ -- (404) --
---- ------ ------
Total................................................ $524 $ 719 $2,976
==== ====== ======
Reconciliation of the statutory Federal income tax rate to the Company's
effective tax rate is as follows:
DECEMBER 31,
--------------------
1997 1998
-------- --------
U.S. Federal statutory rate................................ 34.0% 34.0%
State and local taxes, net of Federal benefit.............. 6.1 4.5
Tax effect resulting from foreign operations............... 0.6 1.0
Income from "S" corporation period taxable to
shareholders............................................. (21.3) --
Deferred taxes resulting from subchapter "S" corporation
termination.............................................. (8.2) --
Non-deductible foreign tax losses.......................... 1.8 --
Non-deductible goodwill amortization....................... 0.5 1.2
Other...................................................... 1.1 (0.7)
----- ----
Effective income tax rate.................................. 14.6% 40.0%
===== ====
F-17
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 11. INCOME TAXES (CONTINUED)
Significant components of deferred tax assets are as follows:
DECEMBER 31,
-------------------
1997 1998
-------- --------
Current deferred tax assets and liabilities:
Accounts receivable....................................... $ 55 $ 25
Various accruals and other................................ 36 (31)
---- ----
91 (6)
Non-current deferred tax assets:
Deferred rent............................................. 328 245
---- ----
Total deferred tax asset.................................... $419 $239
==== ====
No provision for U.S. income taxes has been made for $2,895 of cumulative
unremitted earnings of foreign subsidiaries at December 31, 1998 because those
earnings are expected to be permanently reinvested outside the United States.
NOTE 12. NET INCOME PER COMMON SHARE
In accordance with SFAS No. 128, "Earnings Per Share", basic earnings per
common share amounts were computed by dividing net earnings by the weighted
average number of common shares outstanding, excluding any potential dilution.
Diluted earnings per common share amounts were computed by reflecting potential
dilution from the exercise of stock options.
The following chart provides a reconciliation of information used in
calculating the per share amounts, for the twelve month periods ended
December 31, 1996, 1997 and 1998:
YEAR ENDED DECEMBER 31,
------------------------------------
1996 1997 1998
-------- -------- --------
Net income.................................................. $2,551 $4,005 $4,426
Pro forma provision for income taxes........................ 781 1,304 --
------ ------ ------
Pro forma net income........................................ 1,770 2,701 4,426
====== ====== ======
Basic common shares outstanding............................. 4,741 5,037 7,415
Effect of dilutive securities:
Stock options............................................. -- 10 177
------ ------ ------
Diluted shares outstanding.................................. 4,741 5,047 7,592
====== ====== ======
Basic net income per common share........................... $ 0.37 $ 0.54 $ 0.60
====== ====== ======
Diluted net income per common share......................... $ 0.37 $ 0.54 $ 0.58
====== ====== ======
F-18
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 13. PRO FORMA NET INCOME
Pro forma net income for the twelve month periods ended December 31, 1996
and 1997 includes the pro forma effect of a C corporation income tax provision
as if each of the companies comprising GHB&M (other than Syberactive, Inc.,
which was already treated as a C corporation) were treated as C corporations for
the entire period.
NOTE 14. STOCK BASED COMPENSATION PLANS
On October 13, 1997, the Board of Directors adopted the 1997 Stock Option
Plan (the "1997 Plan"). The 1997 Plan authorized the granting of stock options
to purchase up to an aggregate of 710 shares of the Company's common stock. On
June 10, 1998, the Board of Directors adopted an amendment to the 1997 Plan to
increase by 700 the aggregate number of shares of the Company's common stock
available under the 1997 Plan, which amendment was approved by the Company's
stockholders on June 10, 1998. The awards can take the form of Incentive Stock
Options ("ISOs") and Non-qualified Stock Options ("NQSOs"). Awards may be
granted to key employees, directors and consultants. ISOs and NQSOs are granted
in terms not to exceed ten years and become exercisable as set forth when the
award is granted. Options may be exercised in whole or in part. The exercise
price of the ISOs and NQSOs is the market price of the Company's common stock on
the date of grant. Any plan participant who is granted ISOs and possesses more
than 10% of the voting rights of the Company's outstanding common stock must be
granted options at an option price of at least 110% of fair market value on the
date of grant and the option must be exercised within five years from the date
of grant. Under the 1997 Plan, ISOs and NQSOs have been granted to key employees
and directors for terms of up to ten years, at exercise prices ranging from
$9.00 to $16.50 and are exercisable in whole or in part at the stated times from
the date of grant up to three years from the date of grant.
The following is a summary of stock option activity granted under the 1997
Plan and related information for the years ended December 31, 1997 and 1998:
WEIGHTED AVERAGE
QUALIFIED NON-QUALIFIED TOTAL EXERCISE PRICE
--------- ------------- --------- ----------------
(ACTUAL AMOUNTS)
Balance at December 31, 1996................. -- -- -- --
Granted...................................... 361,250 179,500 540,750 $ 9.09
Exercised.................................... -- -- -- --
Forfeited.................................... (1,250) -- (1,250) 9.00
------- ------- --------- ------
Balance at December 31,1997.................. 360,000 179,500 539,500 9.07
Granted...................................... 177,151 349,849 527,000 13.38
Exercised.................................... (167) -- (167) 11.13
Forfeited.................................... (17,649) (16,500) (34,149) 10.90
------- ------- --------- ------
Balance at December 31, 1998................. 519,335 512,849 1,032,184 $11.20
The Company accounts for awards granted to employees and directors under APB
No.25, under which no compensation cost has been recognized for stock options
granted. Had compensation cost for
F-19
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 14. STOCK BASED COMPENSATION PLANS (CONTINUED)
these stock options been determined consistent with SFAS No. 123, the Company's
net income and earnings per share would have been reduced to the following pro
forma amounts:
1997 1998
-------- --------
Net income: As reported $2,701 $4,426
Pro forma 2,582 3,270
Basic EPS: As reported $ 0.54 $ 0.60
Pro forma 0.51 0.44
Diluted EPS: As reported $ 0.54 $ 0.58
Pro forma 0.51 0.43
The fair value of each option is estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted-average
assumptions:
1997 1998
-------- --------
Expected life (years)....................... 4.4 4.5
Risk free interest rate..................... 5.79% 5.75%
Volatility.................................. 43% 60%
Dividend yield.............................. 0% 0%
Remaining contractual life (years).......... 8.78 8.34
The weighted average fair value of options granted at fair value (market
price) and at an exercise price above the fair market price was $3.88 and $3.77,
respectively, in 1997 and $7.09 and $7.72, respectively, in 1998. The weighted
average exercise price of options granted at fair value (market price) and those
granted at exercise prices above fair market price was $9.01 and $9.90,
respectively, in 1997 and $13.32 and $16.50, respectively, in 1998.
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts as the Company anticipates additional awards in
future years.
NOTE 15. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers. The accounting
policies of the operating segments are the same as those described in the
Summary of Significant Accounting Policies.
The Company is organized based on the services that it offers. Under this
organizational structure, the Company operates in two principal operating
segments: communications and contract sales. The Company's communications
operations provides integrated services to clients which includes advertising
and promotion, consulting, medical education, public relations, publishing,
database marketing, interactive media and marketing research services. The
Company's contract sales operations involve forming dedicated sales teams to
provide clients with substantial flexibility in selecting the extent and costs
of promoting products as well as the clients' level of involvement in managing
the sales effort.
F-20
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 15. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
Segment information is as follows:
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
Revenues:
Communications................................. $17,573 $21,962 $30,233
Contract Sales................................. 6,636 13,330 33,444
------- ------- -------
$24,209 $35,292 $63,677
Income from operations:
Communications................................. $ 2,458 $ 3,525 $ 5,998
Contract Sales................................. 810 1,305 804
------- ------- -------
$ 3,268 $ 4,830 $ 6,802
Interest (expense) income........................ (69) 86 642
------- ------- -------
Income before taxes.............................. $ 3,199 $ 4,916 $ 7,444
AS OF DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
Total assets:
Communications................................. $17,237 $34,168 $40,725
Contract Sales................................. 3,299 7,641 10,146
------- ------- -------
$20,536 $41,809 $50,871
Expenditures for additions to fixed assets:
Communications................................. $ 545 $ 867 $ 585
Contract Sales................................. 175 204 385
------- ------- -------
$ 720 $ 1,071 $ 970
One customer in the communications segment represented $6.6 million, or
18.8%, of the Company's consolidated revenues for the year ended December 31,
1997, and one customer in the contract sales segment was responsible for
$9.0 million, or 14.1%, of the Company's consolidated revenues for the year
ended December 31, 1998.
F-21
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 15. SEGMENT AND GEOGRAPHIC INFORMATION (CONTINUED)
Geographic information is as follows:
YEAR ENDED DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
Revenues:
Domestic....................................... $14,314 $18,172 $23,149
Foreign........................................ 9,895 17,120 40,528
------- ------- -------
$24,209 $35,292 $63,677
Income from operations:
Domestic....................................... $ 2,183 $ 3,710 $ 4,165
Foreign........................................ 1,085 1,120 2,637
------- ------- -------
$ 3,268 $ 4,830 $ 6,802
AS OF DECEMBER 31,
------------------------------
1996 1997 1998
-------- -------- --------
Identifiable assets:
Domestic....................................... $14,049 $31,365 $19,975
Foreign........................................ 6,487 10,444 30,896
------- ------- -------
$20,536 $41,809 $50,871
NOTE 16. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has entered into various leases for property. All leases are
payable in monthly or quarterly installments, and are accounted for on a
straight-line basis over the term of the lease.
The following is a schedule of the minimum annual lease payments due:
1999........................................................ $1,302
2000........................................................ 1,302
2001........................................................ 1,286
2002........................................................ 1,252
2003........................................................ 1,097
Thereafter.................................................. 6,243
Total rent expense incurred for the years ended December 1996, 1997 and 1998
was approximately $1,043, $1,196 and $1,359, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (the "Agreements") with
certain key employees. The agreements contain provisions for base salary and
incentives dependent upon certain
F-22
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 16. COMMITMENTS AND CONTINGENCIES (CONTINUED)
performance measures, and are subject to termination by either party. The
aggregate annual minimum base compensation required by the Agreements is
approximately $2,719.
DEFINED CONTRIBUTION PLANS
The Company has a defined contribution plan (the "Contribution Plan") that
is intended to qualify under Section 401(k) of the Internal Revenue Code
("IRC"). All domestic employees, except those who have not attained the age of
21, are eligible to participate in the Contribution Plan. Participants may
contribute, through payroll deductions, up to 15% of their base compensation,
not to exceed IRC limitations. The Company matches up to 4% of salary for
participating employees. For the years ended December 31, 1996, 1997 and 1998
the Company contributed $124, $172 and $246, respectively.
The Company makes non-contractual payments into the personal pension plans
of various European senior managers. For the years ended December 31, 1996, 1997
and 1998, the Company contributed $41, $56 and $72, respectively.
LITIGATION
In the normal course of business, the Company is a party to various claims
and/or litigation. Management believes that the settlement of all such claims
and/or litigation, considered in the aggregate will not have a material adverse
effect on the Company's financial position and results of operations.
F-23
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NOTE 17. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly financial information for
the years ended 1997 and 1998:
YEAR ENDED DECEMBER 31, 1997
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Revenues................................................... $6,278 $7,473 $9,435 $12,106
Income from operations..................................... 216 899 1,723 1,992
Net income................................................. 191 762 1,374 1,678
Pro forma information (1):
Pro forma net income..................................... 105 491 914 1,191
Pro forma basic earnings per share(2).................... $ 0.02 $ 0.10 $ 0.19 $ 0.20
Pro forma diluted earnings per share(2).................. $ 0.02 $ 0.10 $ 0.19 $ 0.20
YEAR ENDED DECEMBER 31, 1998
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
Revenues................................................ $13,988 $14,877 $16,919 $17,893
Income from operations.................................. 324 1,731 2,511 2,236
Net income.............................................. 304 1,131 1,494 1,497
Basic earnings per share(2)............................. $ 0.04 $ 0.15 $ 0.20 $ 0.20
Diluted earnings per share(2)........................... $ 0.04 $ 0.15 $ 0.20 $ 0.20
- ------------------------
(1) Gives pro forma effect to C corporation taxation for GHB&M.
(2) The sum of the quarters does not equal the full year per share amounts
included in the accompanying statement of income due to the effect of the
weighted average number of shares outstanding during the fiscal year as
compared to the quarters.
F-24
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 6,472 $ 6,851
Accounts receivable, net.................................. 18,889 30,298
Unbilled production charges............................... 3,151 2,738
Other current assets...................................... 1,501 1,426
------- -------
Total current assets........................................ 30,013 41,313
Restricted cash............................................. 1,860 1,972
Property and equipment, net................................. 4,443 5,146
Goodwill, net............................................... 14,266 30,407
Other assets................................................ 289 701
------- -------
Total assets................................................ $50,871 $79,539
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 135 $ --
Current portion of capitalized lease obligations.......... 74 52
Accounts payable.......................................... 4,247 5,459
Accrued expenses.......................................... 7,739 9,204
Advance billings.......................................... 7,982 20,352
Other current liabilities................................. 302 1,942
------- -------
Total current liabilities................................... 20,479 37,009
Long-term debt.............................................. 116 --
Capitalized lease obligations............................... 59 105
Minority interests.......................................... 111 122
Deferred rent............................................... 888 1,008
Other liabilities........................................... 17 74
------- -------
Total liabilities........................................... 21,670 38,318
------- -------
Stockholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorized; no shares outstanding....................... -- --
Common stock, $.01 par value; 20,000,000 shares
authorized; 7,415,167, and 8,098,280 shares outstanding,
respectively............................................ 74 81
Additional paid-in capital................................ 22,748 31,062
Retained earnings......................................... 6,357 10,113
Accumulated other comprehensive income.................... 22 (35)
------- -------
Total stockholders' equity.................................. 29,201 41,221
------- -------
Total liabilities and stockholders' equity.................. $50,871 $79,539
======= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-25
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
---------------------
SEPT. 30, SEPT. 30,
1998 1999
--------- ---------
Revenues.................................................... $45,784 $54,815
------- -------
Operating expenses:
Salaries and related costs................................ 34,747 39,973
General and office expenses............................... 5,702 7,398
Depreciation and amortization............................. 769 1,247
------- -------
41,218 48,618
Income from operations...................................... 4,566 6,197
Interest income, net........................................ 551 452
------- -------
Income before provision for income taxes and minority
interests................................................. 5,117 6,649
Provision for income taxes (Note 2)......................... 2,156 2,875
Minority interests in net earnings of subsidiaries.......... 32 18
------- -------
Net income.................................................. $ 2,929 $ 3,756
======= =======
Per share information (Note 3):
Net income per common share:
Basic................................................... $ 0.40 $ 0.50
======= =======
Diluted................................................. $ 0.39 $ 0.49
======= =======
Common shares used in computing per share amounts:
Basic................................................... 7,415 7,568
======= =======
Diluted................................................. 7,607 7,729
======= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-26
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN THOUSANDS)
NINE MONTHS ENDED
-------------------------------
SEPT. 30, 1998 SEPT. 30, 1999
-------------- --------------
Cash flows from operating activities:
Net income................................................ $ 2,929 $3,756
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 769 1,247
Deferred rent........................................... 73 66
Deferred income taxes................................... (29) 30
Minority interests in net earnings of subsidiaries...... 32 18
Gain on sale of fixed assets............................ (14) (28)
Changes in operating assets and liabilities, net of
effects from acquisitions of businesses:
Accounts receivable..................................... (1,363) (8,031)
Unbilled production charges............................. (1,408) 406
Other current assets.................................... (35) 113
Other assets............................................ (117) (154)
Accounts payable........................................ 285 1,124
Advance billings........................................ (227) 10,097
Accrued expenses........................................ 1,344 687
Other liabilities....................................... (12) 57
-------- ------
Net cash provided by operating activities................... 2,227 9,388
-------- ------
Cash flows from investing activities:
Capital expenditures.................................... (709) (1,012)
Proceeds from the sale of fixed assets.................. 93 193
Businesses acquired, net of cash received............... (10,213) (7,966)
Restricted cash......................................... (1,698) 16
-------- ------
Net cash used in investing activities....................... (12,527) (8,769)
-------- ------
Cash flows from financing activities:
Repayments of line of credit............................ (634) --
Repayment of bank loans and long term debt.............. (588) (243)
Capital lease repayments................................ (104) (102)
Proceeds from exercise of stock options................. -- 156
-------- ------
Net cash used in financing activities....................... (1,326) (189)
-------- ------
Effect of exchange rates on cash............................ 136 (51)
-------- ------
Net (decrease) increase in cash and cash equivalents........ (11,490) 379
Cash and cash equivalents at beginning of period............ 18,092 6,472
-------- ------
Cash and cash equivalents at end of period.................. $ 6,602 $6,851
======== ======
Supplemental disclosure of cash flow information:
Cash paid for:
Taxes................................................... $ 1,339 $2,690
======== ======
Interest................................................ $ 57 $ 107
======== ======
Supplemental schedule of noncash investing and financing
activities:
Capital leases for new equipment.......................... $ 42 $ 125
======== ======
Common stock issued in connection with the acquisition of
business................................................ $ -- $8,165
======== ======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
F-27
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1. ORGANIZATION AND BASIS OF PRESENTATION
On November 12, 1997, Healthworld Corporation acquired (the
"Consolidation"), in exchange for shares of its Common Stock, all of the issued
and outstanding common stock of each of (i) Girgenti, Hughes, Butler &
McDowell, Inc. and its affiliated entities ("GHB&M") and (ii) Milton Marketing
Group Limited and its subsidiaries ("Milton"). Unless otherwise indicated, all
references herein to the "Company" give effect to the Consolidation and include
GHBM, Milton and each of the Company's other subsidiaries. The Consolidation was
accounted for under the pooling of interests method of accounting.
The Company is an international communications and contract sales marketing
organization specializing in healthcare. The Company provides many of the
world's largest pharmaceutical and healthcare companies with a comprehensive
range of integrated strategic marketing services designed to accelerate the
acceptance of new products and to sustain their growth. These integrated
services include advertising and promotion, contract sales, consulting, medical
education, public relations, marketing research, publishing, interactive
multimedia and database marketing services. The Company offers its clients
global reach and expertise through its operations in the United States, France,
Spain and the United Kingdom and through Healthworld B.V., a world-wide network
of marketing and communications agencies operating under exclusive licensing
agreements.
The accompanying unaudited consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, which are, in the opinion
of the Company's management, necessary to present fairly the financial position
as of September 30, 1999 and the results of operations and cash flows for the
interim periods ended September 30, 1998 and 1999. Interim results are not
necessarily indicative of results for a full year. For further information,
refer to the consolidated financial statements and the accompanying notes
included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.
2. INCOME TAXES
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes". The provision for income taxes (recorded at an effective rate
of 42.6% for the three months ended September 30, 1998 and 1999, and at an
effective rate of 42.1% and 43.2% for the nine months ended September 30, 1998
and 1999, respectively) reflects management's estimation of the effective tax
rate that was and is expected to be applicable for the respective fiscal years.
This estimate is evaluated by management each quarter.
3. NET INCOME PER COMMON SHARE
In accordance with SFAS No. 128, "Earnings Per Share", basic earnings per
common share amounts were computed by dividing net earnings by the weighted
average number of common shares outstanding, excluding any potential dilution.
Diluted earnings per common share amounts were computed by reflecting potential
dilution from the exercise of stock options.
F-28
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
3. NET INCOME PER COMMON SHARE (CONTINUED)
The following chart provides a reconciliation of information used in
calculating the per share amounts for the nine-month periods ended
September 30, 1998 and 1999:
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
Numerator:
Net income................................................ $2,929 $3,756
------ ------
Denominator for basic net income per common share........... 7,415 7,568
Effect of dilutive securities:
Stock options............................................. 192 161
------ ------
Denominator for diluted net income per share................ 7,607 7,729
====== ======
Basic net income per common share........................... $ 0.40 $ 0.50
====== ======
Diluted net income per common share......................... $ 0.39 $ 0.49
====== ======
4. COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, "Reporting Comprehensive Income",
which establishes standards for reporting and display of comprehensive income
and its components in a full set of general-purpose financial statements.
Comprehensive income consists of net income and foreign currency translation
adjustments. No provision for income taxes has been made with respect to foreign
currency translation adjustments because all earnings of foreign subsidiaries
are expected to be permanently reinvested outside the United States. These
amounts have been included in the accompanying consolidated balance sheet under
the caption "Accumulated other comprehensive income".
Comprehensive income is as follows:
NINE MONTHS
ENDED
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
Net income.................................. $2,929 $3,756
Other comprehensive income:
Foreign currency translation
adjustments............................. 136 (57)
------ ------
Comprehensive income........................ $3,065 $3,699
====== ======
F-29
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
5. SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers.
The Company is organized based on the services that it offers. Under this
organizational structure, the Company operates in two principal operating
segments: communications and contract sales. The Company's communications
operations provide integrated services to clients which includes advertising and
promotion, consulting, medical education, public relations, marketing research,
publishing, interactive media and database marketing research services. The
Company's contract sales operations involve forming dedicated sales teams which
provide clients with substantial flexibility in selecting the extent and cost of
promoting products as well as the clients' level of involvement in managing its
sales effort.
Segment information is as follows:
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998 1999
-------- --------
Revenues:
Communications.......................................... $20,788 $28,617
Contract Sales.......................................... 24,996 26,198
------- -------
$45,784 $54,815
======= =======
Income from operations:
Communications.......................................... $ 3,839 $ 4,945
Contract Sales.......................................... 727 1,252
------- -------
$ 4,566 $ 6,197
======= =======
6. ACQUISITION OF BUSINESS
In August 1999, the Company acquired all of the capital stock of Falk
Communications, Inc. ("Falk"), a United States healthcare communications
company. The initial purchase price paid by the Company was $16,952 consisting
of $9,000 in cash, including expenses related to the acquisition, and Company
Common Stock valued at $7,952. Total amounts to be paid in connection with the
acquisition, including expenses related to the acquisition and potential, future
earn-out payments to take place in April 2000, 2001, 2002 and 2003, based upon a
multiple of operating income of Falk, are not expected to exceed $37,802.
However, because the amount of Common Stock to be paid in connection with
additional earn-out payments is based upon a moving average price of the Common
Stock during a 20 day period ending 3 days before the date payment is made,
while such Common Stock paid in connection with the earn-outs will be valued for
accounting purposes based upon its market price on the date of issuance, it is
possible that as a result of market fluctuations in the price of the Common
Stock the value of the aggregate consideration paid to the Falk shareholders in
connection with the
F-30
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. ACQUISITION OF BUSINESS (CONTINUED)
merger could exceed $37,802. The acquisition has been accounted for using the
purchase method of accounting, whereby the excess of the initial purchase price
over the fair value of the net assets acquired, $500, was recorded as goodwill.
Total goodwill recorded on the purchase was $16,452. A dividend payable, in the
amount of $1,664, is recorded in other current liabilities in the accompanying
consolidated balance sheet. This dividend represents the difference between the
pre-acquisition net assets of Falk and the net assets at the time of the
acquisition.
On September 15, 1999, Healthworld paid $425, consisting of $211 cash and
$213 in Common Stock to the Falk shareholders in exchange for Falk stock
received by the Falk Communications, Inc. Defined Contribution Plan and Trust
u/t/a dated July 29, 1999 as consideration to certain Falk employees. A tax
deduction will be taken on Healthworld's income tax return for the taxable year
ending December 31, 1999 with respect thereto. Upon determination of the final
tax deduction, Healthworld will make a payment of additional consideration paid
to acquire the Falk stock, such payment will be in cash and Common Stock.
The results of operations of the acquisition are included in the
consolidated financial statements from the date of acquisition.
Summarized below are the unaudited pro forma results of operations for the
nine months ended September 30, 1998 and 1999 of the Company as though the Falk
acquisition had occurred at the beginning of the periods presented.
Additionally, the unaudited pro forma results of operations for the nine months
ended September 30, 1998 includes the pro forma effects of the acquisition of
Colwood House Medical Publications (UK) Limited and the acquisition of 80% of
the capital stock of HFT, a French holding company, which owns 100% of the
capital stock of Torrent, S.A., a French healthcare communications agency, which
in turn owns 100% of the capital stock of Aigue Marine SARL and Katchina
Productions SARL, each a French company, as though these acquisitions had
occurred at the beginning of 1998. Adjustments have been made for income taxes,
amortization of goodwill, salary expense based on employment agreements and
interest income related to these transactions.
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------
1998 1999 *
-------- --------
Pro Forma:
Revenues................................................ $56,937 $59,364
Net income.............................................. 2,757 1,868
======= =======
Basic net income per common share....................... $ 0.34 $ 0.23
======= =======
Diluted net income per common share..................... $ 0.33 $ 0.23
======= =======
Common shares used in computing per share amounts:
Basic................................................... 8,080 8,094
======= =======
Diluted................................................. 8,272 8,254
======= =======
F-31
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
6. ACQUISITION OF BUSINESS (CONTINUED)
* Included in the pro forma results of operations for the nine months ended
September 30, 1999 is a charge of approximately $2,100 to the statement of
income of Falk, which represents the compensation expense related to the
issuance in July 1999 of 78 shares of Falk's common stock to certain of its key
employees. Excluding the effect of this stock issuance, pro forma net income
would be $3,023 and basic and diluted pro forma earnings per share would be
$0.37.
These pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the acquisitions been
made at the beginning of the periods presented or of results, which may occur in
the future.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities". The statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the Balance Sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognized currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting.
Pursuant to SFAS No. 137, "Accounting for Derivative Instruments and Hedging
Activities--Deferral of the Effective Date of FASB Statement No. 133--An
Amendment of FASB Statement No. 133", issued in June 1999, SFAS No. 133 is
effective for fiscal years beginning after June 15, 2000. While the Company
operates in international markets, it does so presently without the use of
derivative instruments and therefore SFAS No. 133 is not currently applicable.
8. SUBSEQUENT EVENT
On November 9, 1999, the Company entered into an agreement (the "Merger
Agreement") to be acquired by Cordiant Communications Group plc ("Cordiant"),
pursuant to which a newly-formed wholly-owned subsidiary of Cordiant will be
merged with and into the Company (the "Merger") and, the Company will become a
wholly-owned subsidiary of Cordiant upon the satisfaction of certain conditions,
including the receipt of certain regulatory approvals and the approval of the
Merger by the stockholders of the Company and Cordiant. Certain management
insiders of the Company beneficially owning approximately 63% of the Company's
Common Stock, namely Steven Girgenti, William Leslie Milton, Spencer Falk,
Francis Hughes, Herbert Ehrenthal, William Butler and Michael Garnham, have
entered into stockholder agreements with Cordiant, pursuant to which, among
other things, such stockholders (i) are obligated to vote in favor of the Merger
and (ii) have granted an option to Cordiant to purchase their shares of the
Company's Common Stock, which options are exercisable only upon the occurrence
of certain events.
F-32
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
8. SUBSEQUENT EVENT (CONTINUED)
Pursuant to the terms of the Merger Agreement, the Company's stockholders
will receive, in exchange for their shares of Common Stock, either Cordiant's
American Depositary Receipts, each representing five Cordiant ordinary shares
("ADRs"), or, at such stockholder's election, Cordiant ordinary shares. The
actual amount of ADRs and ordinary shares to be issued to the Company's
stockholders at the time of the Merger will be based upon the average of the
price of Cordiant's ordinary shares during a 10-day trading period ending three
trading days prior to the Company's stockholder meeting. Depending upon the
market price of Cordiant's ordinary shares and the currency exchange rate
between the British Pound Sterling and the United States Dollar during such
period, Cordiant will be obligated to issue an amount of ADRs or ordinary shares
for each share of the Company's Common Stock valued at between $17.00 and $23.00
per share. If Cordiant's stock price drops by more than 25% from the time of
entering into the Merger Agreement and the time prior to the anticipated closing
of the Merger, Cordiant has the right to terminate the Merger, subject to the
Company's right to revoke such termination and consummate the Merger, provided
that Company stockholders will receive 7.6902 Cordiant ordinary shares (or the
corresponding amount of ADRs) per share of the Company's Common Stock held by
them in such event.
F-33
APPENDIX A
AGREEMENT AND PLAN OF MERGER
AMONG
CORDIANT COMMUNICATIONS GROUP PLC
HEALTHWORLD ACQUISITION CORP.
AND
HEALTHWORLD CORPORATION
DATED AS OF NOVEMBER 9, 1999
TABLE OF CONTENTS
PAGE
--------
ARTICLE I DEFINITIONS....................................... 2
Section 1.1 Definitions................................. 2
ARTICLE II THE MERGER....................................... 7
Section 2.1 The Merger.................................. 7
Section 2.2 Effective Time.............................. 7
Section 2.3 Effects of the Merger....................... 7
Section 2.4 Exchange Ratio.............................. 7
Section 2.5 Conversion and Exchange of Shares........... 8
Section 2.6 Procedure for Election...................... 9
Section 2.7 Exchange of Certificates.................... 9
Section 2.8 Withholding Rights.......................... 13
Section 2.9 Company Stock Options; Other Stock-Based
Plans.................................................. 13
Section 2.10 The Surviving Corporation.................. 15
ARTICLE III THE CLOSING..................................... 15
Section 3.1 Closing..................................... 15
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.... 16
Section 4.1 Organization, Standing and Power............ 16
Section 4.2 Capital Structure........................... 16
Section 4.3 Authority Relative to this Agreement........ 17
Section 4.4 Non-Contravention; Approvals and Consents... 18
Section 4.5 SEC Reports and Financial Statements........ 19
Section 4.6 Information Supplied........................ 20
Section 4.7 Absence of Certain Events................... 20
Section 4.8 Litigation.................................. 21
Section 4.9 Compliance with Applicable Law.............. 21
Section 4.10 Employee Plans............................. 22
Section 4.11 Employment Relations and Agreement......... 25
Section 4.12 Contracts.................................. 26
Section 4.13 Taxes...................................... 26
Section 4.14 Intellectual Property...................... 28
Section 4.15 Environmental Laws and Regulations......... 29
Section 4.16 Voting Requirements........................ 29
Section 4.17 Ownership of Parent Stock.................. 29
Section 4.18 State Takeover Statutes; Certain Charter
Provisions............................................. 29
Section 4.19 Year 2000.................................. 29
Section 4.20 Brokers.................................... 30
ARTICLE V REPRESENTATIONS AND WARRANTIES OF PARENT AND
MERGER SUB................................................ 30
Section 5.1 Organization and Qualification.............. 30
Section 5.2 Capital Stock............................... 30
Section 5.3 Authority Relative to this Agreement........ 31
Section 5.4 Non-Contravention; Approvals and Consents... 32
Section 5.5 SEC Reports and Financial Statements........ 33
Section 5.6 Absence of Certain Changes or Events........ 33
Section 5.7 Absence of Undisclosed Liabilities.......... 34
Section 5.8 Legal Proceedings........................... 34
Section 5.9 Information Supplied........................ 34
(i)
PAGE
--------
Section 5.10 Permits; Compliance with Laws and Orders... 35
Section 5.11 Compliance with Agreements................. 35
Section 5.12 Vote Required.............................. 36
Section 5.13 Contracts.................................. 36
Section 5.14 Taxes...................................... 36
Section 5.15 Year 2000.................................. 36
Section 5.16 Ownership of Company Common Stock.......... 37
Section 5.17 Business of Merger Sub..................... 37
Section 5.18 Brokers.................................... 37
ARTICLE VI COVENANTS RELATING TO CONDUCT OF BUSINESS........ 37
Section 6.1 Conduct of Business by the Company Pending
the Merger............................................. 37
Section 6.2 No Solicitation............................. 40
Section 6.3 Third Party Standstill Agreements........... 41
ARTICLE VII ADDITIONAL AGREEMENTS........................... 41
Section 7.1 Access to Information....................... 41
Section 7.2 Preparation of Registration Statement and
Proxy Statement........................................ 41
Section 7.3 Approval Of Shareholders.................... 42
Section 7.4 Company Affiliates.......................... 43
Section 7.5 Auditors' Letters........................... 43
Section 7.6 Stock Exchange Listing...................... 43
Section 7.7 Fees and Expenses........................... 43
Section 7.8 Commercially Reasonable Efforts............. 44
Section 7.9 Public Announcements........................ 44
Section 7.10 Indemnification; Directors and Officers
Insurance.............................................. 44
Section 7.11 Compliance with Treasury Regulations....... 45
Section 7.12 No Transfer of Stock....................... 45
Section 7.13 Dividends, Distributions and Issuances..... 45
Section 7.14 Section 103 CA 1985........................ 46
ARTICLE VIII CONDITIONS PRECEDENT........................... 46
Section 8.1 Conditions to Each Party's Obligation to
Effect the Merger...................................... 46
Section 8.2 Conditions to Obligation of Parent And
Merger Sub to Effect the Merger........................ 48
Section 8.3 Conditions to Obligation of the Company to
Effect the Merger...................................... 48
ARTICLE IX TERMINATION AMENDMENT AND WAIVER................. 50
Section 9.1 Termination................................. 50
Section 9.2 Effect of Termination....................... 51
Section 9.3 Amendment................................... 51
Section 9.4 Waiver...................................... 51
ARTICLE X GENERAL PROVISIONS................................ 51
Section 10.1 Non-Survival of Representations and
Warranties............................................. 51
Section 10.2 Notices.................................... 51
Section 10.3 Interpretation............................. 53
Section 10.4 Counterparts............................... 53
Section 10.5 Entire Agreement; No Third-Party
Beneficiaries.......................................... 53
Section 10.6 Governing Law.............................. 53
Section 10.7 Assignment................................. 53
Section 10.8 Severability............................... 53
Section 10.9 Enforcement of this Agreement.............. 54
Section 10.10 Incorporation of Exhibits................. 54
(ii)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 9, 1999 (this
"Agreement"), among Cordiant Communications Group plc, a company organized under
the laws of England and Wales ("Parent"), Healthworld Acquisition Corp., a
Delaware corporation and a wholly owned subsidiary of Parent ("Merger Sub"), and
Healthworld Corporation, a Delaware corporation (the "Company") (Merger Sub and
the Company being hereinafter collectively referred to as the "Constituent
Corporations").
W I T N E S S E T H:
WHEREAS, Parent, Merger Sub and the Company intend to effect a merger of
Merger Sub with and into the Company in accordance with this Agreement, the
Delaware General Corporation Law (the "DGCL") and such other state laws as may
be applicable (the "Merger"). Upon consummation of the Merger, Merger Sub will
cease to exist, and the Company will become a wholly owned subsidiary of Parent;
WHEREAS, the respective boards of directors of Parent and Merger Sub have
approved this Agreement and the Merger, upon the terms and subject to the
conditions set forth herein and unanimously recommend that its shareholders
approve the transactions contemplated by this Agreement;
WHEREAS, the Board of Directors of the Company has unanimously approved this
Agreement and the Merger, upon the terms and subject to the conditions set forth
herein, has determined that it is advisable and in the best interests of its
stockholders, and unanimously recommends that its stockholders approve the
Merger;
WHEREAS, it is intended that the Merger qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended, and the rules and regulations thereunder (the "Code"); and
WHEREAS, to induce Parent and Merger Sub to enter into this Agreement and to
consummate the Merger, simultaneously with the execution of this Agreement,
certain stockholders of the Company owning in the aggregate approximately 63% of
the outstanding shares of Company Common Stock (as defined herein) on a fully
diluted basis, are entering into agreements with Parent and Merger Sub (the
"Stockholder Agreements") pursuant to which they have agreed, among other
things, to vote the shares of Company Common Stock owned by such stockholder in
favor of the adoption and approval of this Agreement and the approval of the
Merger.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties agree as follows:
ARTICLE I
DEFINITIONS
Section 1.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires, the terms
defined in this Article have the meanings assigned to them in this Article:
"ADS CONSIDERATION" has the meaning set forth in Section 2.5(c).
"AFFILIATE" has the meaning set forth in Section 7.4.
"AFFILIATE AGREEMENT" has the meaning set forth in Section 7.4.
"AGREEMENT" has the meaning set forth in the preamble hereto.
A-1
"BUSINESS DAY" means a day other than a Saturday, a Sunday or a day on which
banks in New York, New York or London, England are permitted or required by law
to close.
"CERTIFICATE" has the meaning set forth in Section 2.5(c).
"CERTIFICATE OF MERGER" has the meaning set forth in Section 2.2.
"CIRCULAR" has the meaning set forth in Section 4.6(b).
"CLOSING" has the meaning set forth in Section 3.1.
"CLOSING DATE" has the meaning set forth in Section 3.1.
"COC" has the meaning set forth in Section 8.1(h)(i).
"CODE" has the meaning set forth in the fourth WHEREAS clause hereto.
"COMPANIES ACT" has the meaning set forth in Section 5.2(a).
"COMPANY" has the meaning set forth in the preamble hereto.
"COMPANY AFFILIATES" has the meaning set forth in Section 7.4.
"COMPANY COMMON STOCK" means the common stock, par value $.01 per share, of
the Company.
"COMPANY DISCLOSURE LETTER" has the meaning set forth in Section 4.1.
"COMPANY FINANCIAL STATEMENTS" has the meaning set forth in Section 4.5(a).
"COMPANY MATERIAL ADVERSE EFFECT" means any condition, change or effect that
is materially adverse to the business, operations, results of operations,
condition (financial or otherwise) or prospects of the Company and its
Subsidiaries taken as a whole.
"COMPANY PERMITS" has the meaning set forth in Section 4.9.
"COMPANY SEC REPORTS" has the meaning set forth in Section 4.5(a).
"COMPANY STOCK PLAN" has the meaning set forth in Section 4.2(a).
"COMPANY STOCK RIGHTS" has the meaning set forth in Section 2.9(a)(ii).
"COMPANY STOCKHOLDERS' APPROVAL" has the meaning set forth in
Section 7.3(b).
"COMPANY STOCKHOLDERS' MEETING" has the meaning set forth in
Section 7.3(b).
"CONSTITUENT CORPORATIONS" has the meaning set forth in the preamble hereto.
"CONTRACTS" has the meaning set forth in Section 4.4(a).
"DEPOSIT AGREEMENT" means the Deposit Agreement dated as of November 15,
1983, as amended and restated as of April 1, 1991, as amended as of July 16,
1991, and as further amended as of December 10, 1997, between Parent, the
Depositary, and the holders from time to time of Parent ADRs.
"DEPOSITARY" means The Bank of New York.
"DGCL" has the meaning set forth in the first WHEREAS clause hereto.
"EFFECTIVE TIME" has the meaning set forth in Section 2.2.
"ELECTION DATE" has the meaning set forth in Section 2.6(a).
"EMPLOYEE BENEFIT PLANS" has the meaning set forth in Section 4.10(a).
"ENVIRONMENTAL LAW" has the meaning set forth in Section 4.15(a).
"ERISA" has the meaning set forth in Section 4.10(a).
A-2
"EXCHANGE ACT" means the U.S. Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"EXCHANGE AGENT" has the meaning set forth in Section 2.7(a).
"EXCHANGE FUND" has the meaning set forth in Section 2.7(a).
"EXCHANGE RATE" means the average currency exchange rate of pounds sterling
to US dollars based upon the noon buying rate in the City of New York for cable
transfers in foreign currencies as announced by the Federal Reserve Bank of New
York for customs purposes over the 10 consecutive Trading Days ending (i) with
respect to the Parent Share Value, on the third Trading Day immediately prior to
the Company Stockholders' Meeting and (ii) with respect to the calculation of
the amount to be paid in respect of the fractional Parent Ordinary Shares
pursuant to Section 2.7(e), immediately preceding the Closing Date.
"EXCHANGE RATIO" has the meaning set forth in Section 2.4.
"FINAL ORDERS" has the meaning set forth in Section 8.1(g).
"FORM F-4" has the meaning set forth in Section 5.9(a).
"FSA" has the meaning set forth in Section 4.6(b).
"FTA" has the meaning set forth in Section 8.1(h)(i).
"GOVERNMENTAL OR REGULATORY AUTHORITY" has the meaning set forth in
Section 4.4(a).
"HOLDERS" means the holders of record of certificates of Company Common
Stock as of the Effective Time.
"HSR ACT" has the meaning set forth in Section 4.4(b).
"INTELLECTUAL PROPERTY" has the meaning set forth in Section 4.14(a).
"ISSUANCE OBLIGATION" has the meaning set forth in Section 4.2(a).
"LAWS" has the meaning set forth in Section 4.4(a).
"LICENSE" has the meaning set forth in Section 4.14(a).
"LIEN" has the meaning set forth in Section 5.2(b).
"LISTING PARTICULARS" has the meaning set forth in Section 4.6(b).
"LSE" means London Stock Exchange Limited.
"MATERIAL EMPLOYMENT AGREEMENTS" has the meaning set forth in
Section 4.11(b).
"MATERIAL SUBSIDIARIES" means Bates U.K. Limited, The Communications Group
Pty Ltd, Bates Gruppen A/S (Denmark), Sholz & Friends GmbH, Bates Gruppen AS
(Norway), Bates Advertising Holding SA and Bates Advertising USA, Inc.
"MERGER" has the meaning set forth in the first WHEREAS clause hereto.
"MERGER CONSIDERATION" has the meaning set forth in Section 2.5(c).
"MERGER SUB" has the meaning set forth in the preamble hereto.
"NYSE" means the New York Stock Exchange, Inc.
"OFT" has the meaning set forth in Section 8.1(h)(i).
"ORDERS" SHALL HAVE THE MEANING SET FORTH IN SECTION 4.4(A).
"ORDINARY SHARE CONSIDERATION" has the meaning set forth in Section 2.5(c).
A-3
"ORDINARY SHARE ELECTION" has the meaning set forth in Section 2.6(a).
"ORDINARY SHARE ELECTION FORM" has the meaning set forth in Section 2.6(a).
"PARENT" has the meaning set forth in the preamble hereto.
"PARENT ADRS" has the meaning set forth in Section 2.5(c).
"PARENT ADSS" has the meaning set forth in Section 2.5(c).
"PARENT DISCLOSURE DOCUMENTS" has the meaning set forth in Section 4.6(b).
"PARENT DISCLOSURE LETTER" has the meaning set forth in Section 5.2(c).
"PARENT MATERIAL ADVERSE EFFECT" means any condition, change or effect that
is materially adverse to the business, operations, results of operations,
condition (financial or otherwise) or prospects of Parent and its Subsidiaries
taken as a whole.
"PARENT ORDINARY SHARES" means validly issued, fully paid and nonassessable
ordinary shares, with a nominal value of U.K. fifty pence each, of Parent.
"PARENT PERMITS" has the meaning set forth in Section 5.10.
"PARENT SEC REPORTS" has the meaning set forth in Section 5.5.
"PARENT SHARE RIGHT" has the meaning set forth in Section 2.9(a)(ii).
"PARENT SHARE VALUE" means the product of (x) the average of the closing
middle market quotation of a Parent Ordinary Share on the LSE as reported in the
Daily Official List of the London Stock Exchange for each of the 10 consecutive
Trading Days ending on the third Trading Day immediately preceding the date of
the Company Stockholders' Meeting multiplied by (y) the Exchange Rate.
"PARENT SHAREHOLDERS' APPROVAL" has the meaning set forth in
Section 7.3(a).
"PARENT SHAREHOLDERS' MEETING" has the meaning set forth in Section 7.3(a).
"PARENT SHARES" has the meaning set forth in Section 2.5(c).
"PRE-EFFECTIVE PERIODS" has the meaning set forth in Section 4.13(a).
"PREFERRED STOCK" has the meaning set forth in Section 4.2(a).
"PROXY STATEMENT" has the meaning set forth in Section 4.6(a).
"REGISTRATION STATEMENT" has the meaning set forth in Section 5.9(a).
"SEC" means the Securities and Exchange Commission.
"SECURITIES ACT" means the U.S. Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"SOFTWARE" has the meaning set forth in Section 4.19.
"SOS" has the meaning set forth in Section 8.1(h)(i).
"STOCK OPTION" has the meaning set forth in Section 8.1(h)(i).
"STOCKHOLDER AGREEMENTS" has the meaning set forth in the fifth WHEREAS
clause.
"SUBSIDIARY" of any person means (i) any corporation of which the
outstanding capital stock having at least a majority of the votes entitled to be
cast in the election of directors under ordinary circumstances shall at the time
be owned, directly or indirectly, by such person or (ii) any other person of
which at least a majority of the voting interest under ordinary circumstances is
at the time, directly or indirectly, owned by such person.
"SURVIVING CORPORATION" has the meaning set forth in Section 2.1.
A-4
"TAKEOVER PROPOSAL" has the meaning set forth in Section 6.2(a).
"TAX" or "TAXES" has the meaning set forth in Section 4.13(c).
"TAX CONTROVERSY" has the meaning set forth in Section 4.13(c).
"TAX RETURNS" has the meaning set forth in Section 4.13(c).
"TERMINATION NOTICE" has the meaning set forth in Section 2.4(iv).
"TRADING DAY" shall mean any day on which securities are traded, with
respect to Parent ADSs, on the NYSE, and with respect to Parent Ordinary Shares,
on the LSE.
"VEBAS" has the meaning set forth in Section 4.10(a).
"VOTING DEBT" has the meaning set forth in Section 4.2(a).
ARTICLE II
THE MERGER
Section 2.1 THE MERGER. Upon the terms and subject to the conditions set
forth in this Agreement, at the Effective Time (as defined in Section 2.2),
Merger Sub shall be merged with and into the Company in accordance with the
DGCL. Following the Merger, the separate existence of Merger Sub shall cease,
and the Company shall be the surviving corporation in the Merger (the "Surviving
Corporation"), shall succeed to and assume all rights and obligations of Merger
Sub and shall continue to be governed by the laws of the State of Delaware with
all its rights, privileges, immunities, powers and franchises and shall continue
unaffected by the Merger except as set forth in this Article II.
Section 2.2 EFFECTIVE TIME. As soon as practicable following the
satisfaction or waiver of the conditions set forth in Article VIII, the Company
and Merger Sub will cause a certificate of merger (the "Certificate of Merger")
to be executed and filed with the Secretary of State of the State of Delaware
and make all other filings or recordings required by applicable law in
connection with the Merger. The Merger shall become effective at such time as
the Certificate of Merger is duly filed with the Secretary of State of the State
of Delaware or at such later time as is specified in the Certificate of Merger
in accordance with the DGCL (the "Effective Time").
Section 2.3 EFFECTS OF THE MERGER. The Merger shall have the effects set
forth in the applicable provisions of the DGCL.
Section 2.4 EXCHANGE RATIO. Except as provided in clause (a) and (b) of
Section 2.5, at the Effective Time, each share of Company Common Stock
outstanding immediately prior to the Effective Time shall, in accordance with
Section 2.5(c) and (d), be converted into and shall be canceled in exchange for
the right to receive from Parent, a number of Parent Ordinary Shares determined
as set forth below (the "Exchange Ratio"):
(i) if the Parent Share Value is equal to or greater than $2.9475 and
equal to or less than $3.0294, the Exchange Ratio shall be determined by
dividing $20.00 by the Parent Share Value;
(ii) if the Parent Share Value is greater than $3.4838, the Exchange
Ratio shall be determined by dividing $23.00 by the Parent Share Value;
(iii) if the Parent Share Value is greater than $3.0294 and equal to
or less than $3.4838, the Exchange Ratio will be 6.602;
(iv) if the Parent Share Value is equal to or greater than $2.5054
and less than $2.9475, the Exchange Ratio will be 6.7854;
A-5
(v) if the Parent Share Value is less than $2.5054, the Exchange
Ratio shall be determined by dividing $17.00 by the Parent Share Value;
PROVIDED, HOWEVER,
(vi) if the Parent Share Value is equal to or less than $2.2106, then
Parent shall have the right to terminate the Agreement, by delivery of
written notice to such effect to the Company (the "Termination Notice"),
subject to the following sentence. During the ten Business Days following
the Company's receipt of the Termination Notice, the Company shall have
the option to proceed, and cause Parent and Merger Sub to proceed, with
the Merger despite Parent's delivery of a Termination Notice, which
option shall be exercisable by means of written notice to Parent to such
effect within such ten Business Day period, in which case the Agreement
will remain in full force and effect and the Exchange Ratio shall be
fixed at 7.6902.
Section 2.5 CONVERSION AND EXCHANGE OF SHARES. At the Effective Time:
(a) CANCELLATION OF TREASURY STOCK AND STOCK OWNED BY PARENT AND MERGER
SUB. All shares of Company Common Stock owned by the Company as treasury stock
and any shares of Company Common Stock owned by Parent, Merger Sub or any
Subsidiary of Parent or Merger Sub immediately prior to the Effective Time
shall, by virtue of the Merger, and without any action on the part of the holder
thereof, no longer be outstanding, shall be canceled and retired without payment
of any consideration therefor and shall cease to exist.
(b) CAPITAL STOCK OF MERGER SUB. Each share of common stock of Merger Sub
outstanding immediately prior to the Effective Time shall be canceled and, in
consideration of the issuance of Parent Ordinary Shares as provided by
Section 2.5(c), the Surviving Corporation shall issue to Parent such number of
shares of common stock, $.01 par value per share, in Surviving Corporation as
shall be agreed between Merger Sub and Parent prior to the Effective Time to
have an aggregate value equal to the Parent Ordinary Shares to be issued in the
Merger.
(c) CONVERSION OF COMPANY COMMON STOCK. Except as provided in clauses
(a) and (b) of this Section 2.5, each share of Company Common Stock outstanding
immediately prior to the Effective Time shall be converted into and shall be
canceled in exchange for the right to receive from Parent pursuant to
Section 2.5(d) a number of Parent Ordinary Shares equal to the Exchange Ratio,
which shall be delivered to the holders of Company Common Stock (i) in the form
of American Depositary Shares (the "Parent ADSs"), each representing the right
to receive five Parent Ordinary Shares (the "ADS Consideration") or (ii) if and
to the extent elected by any such holder, in the manner provided in
Section 2.6, in the form of Parent Ordinary Shares, in registered form
("Ordinary Share Consideration" and, together with the ADS Consideration, the
"Merger Consideration"); PROVIDED, HOWEVER, that the Parent ADSs may be
evidenced by one or more receipts ("Parent ADRs") issued in accordance with the
Deposit Agreement. At the Effective Time, all Company Common Stock shall no
longer be outstanding, shall be canceled and retired and shall cease to exist,
and each certificate (a "Certificate") formerly representing any of such Company
Common Stock shall thereafter represent only the right to receive the Merger
Consideration and the right, if any, to receive pursuant to Section 2.7(e) cash
in lieu of fractional Parent ADSs (or, if applicable, fractional Parent Ordinary
Shares) and any dividend or distribution pursuant to Section 2.7(c), in each
case without interest. Parent shall, following the Closing, pay all stamp
duties, stamp duty reserve tax and other taxes and similar levies imposed in
connection with the issuance or creation of the Parent Ordinary Shares, Parent
ADSs and any Parent ADRs in connection therewith (such Parent Ordinary Shares or
Parent ADSs to be received by a holder may be referred to in this Agreement as
"Parent Shares").
(d) In consideration of the issue to Parent by the Surviving Corporation of
shares of common stock of the Surviving Corporation pursuant to Section 2.5(b)
hereof, Parent shall issue, in accordance with Section 2.7, such number of
Parent Ordinary Shares as is equal to the number of shares of Company Common
Stock outstanding immediately prior to the Effective Time multiplied by the
A-6
Exchange Ratio, to permit (i) the issuance of Parent ADSs and (ii) if elected by
any holder of Company Common Stock in the manner provided in Section 2.6, the
delivery of Parent Ordinary Shares, in registered form, to the holders of such
Company Common Stock for the purpose of giving effect to the delivery of the
Merger Consideration referred to in Section 2.5(c).
(e) In the event that, subsequent to the date of this Agreement but prior to
the Effective Time, the Company changes the number of shares of Company Common
Stock, or Parent changes the number of Parent Ordinary Shares, issued and
outstanding as a result of a stock split, stock combination, stock dividend,
recapitalization, redenomination of share capital or other similar transaction,
the Exchange Ratio and other items dependent thereon shall be appropriately
adjusted.
Section 2.6 PROCEDURE FOR ELECTION. (a) Prior to the Effective Time, the
Company shall cause the Exchange Agent to make available to all holders of
Company Common Stock of record an election form and other appropriate materials
(collectively, the "Ordinary Election Form") providing for such holder to elect
to receive the Ordinary Share Consideration with respect to all or any portion
of such holder's shares of Company Common Stock (the "Ordinary Share Election").
Any shares of Company Common Stock with respect to which there shall not have
been effected such election by submission to the Exchange Agent of an effective,
properly completed Ordinary Share Election form on or prior to the date
specified in such form (the "Election Date"), which shall be the date that is
three days prior to the date of the Company Stockholders' Meeting, shall be
converted in the Merger into the right to receive the ADS Consideration.
(b) Record holders of shares of Company Common Stock who are nominees only
may submit a separate Ordinary Share Election Form for each beneficial owner for
whom such record holder is a nominee; PROVIDED, HOWEVER, that, at the request of
Parent, such record holder shall certify to the reasonable satisfaction of
Parent that such record holder holds such shares as nominee for the beneficial
owner thereof. For purposes of this Agreement, each beneficial owner for which
an Ordinary Share Election Form is submitted will be treated as a separate
holder of shares of Company Common Stock.
Section 2.7 EXCHANGE OF CERTIFICATES. (a) Exchange Agent. Within five
business days following the Effective Time (i) Parent shall issue and deposit
with the Depositary, for the benefit of the holders of shares of Company Common
Stock converted into the ADS Consideration in accordance with Section 2.5(c),
Parent Ordinary Shares in an amount sufficient to permit the Depositary to issue
Parent ADRs representing the number of Parent ADSs issuable pursuant to
Section 2.5(c) and (ii) Parent shall, for the benefit of the holders of the
shares of Company Common Stock converted into Parent Ordinary Shares in the
Merger, make available to the Surviving Corporation for deposit with a bank or
trust company designated before the Closing Date by Parent and reasonably
acceptable to the Company (the "Exchange Agent"), (A) certificates representing
the number of duly authorized whole Parent Ordinary Shares issuable in
accordance with Section 2.5(c), and (B) an amount of cash equal to the aggregate
amount payable in lieu of fractional Parent ADSs and Parent Ordinary Shares in
accordance with Section 2.7(e) (such cash, certificates representing Parent
Ordinary Shares and Parent ADRs representing Parent ADSs, together with any
dividends or distributions with respect thereto being hereinafter referred to as
the "Exchange Fund"), to be held for the benefit of and distributed to the
holders of Company Common Stock in accordance with this Section. The Exchange
Agent shall agree to hold such Parent Ordinary Shares and funds for delivery as
contemplated by this Section, and upon such additional terms as may be agreed
upon by the Exchange Agent, the Company and Parent shall cause the Depositary to
issue through and upon the instructions of the Exchange Agent, for the benefit
of the holders of shares of the Company Common Stock converted into the ADS
Consideration in accordance with Section 2.5(c), Parent ADRs representing the
number of Parent ADSs issuable pursuant to Section 2.5(c). Neither the Company,
its affiliates nor the holders of Company Common Stock shall be responsible for
any stamp duty reserve tax payable in connection with the ADS Consideration. The
Exchange Agent shall invest any cash included in the Exchange Fund as directed
by
A-7
the Surviving Corporation on a daily basis. Parent and the Surviving Corporation
shall replace any monies lost through an investment made pursuant to this
Section 2.7. Any interest and other income resulting from such investments shall
promptly be paid to the Surviving Corporation. All Parent Ordinary Shares and
Parent ADSs deposited in the Exchange Fund shall, as of the Effective Time, have
been registered under the Securities Act pursuant to a registration statement on
Form F-4 declared effective by the SEC.
(b) EXCHANGE PROCEDURES. As soon as reasonably practicable after the
Effective Time, the Surviving Corporation shall cause the Exchange Agent to mail
to each holder of record of a Certificate immediately prior to the Effective
Time whose shares are converted pursuant to this Article II into the right to
receive Parent Ordinary Shares or Parent ADSs a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as the Surviving
Corporation or Parent may reasonably specify) providing instructions for use in
effecting the surrender of Certificates in exchange for certificates
representing Parent ADRs which represent Parent ADSs or Parent Ordinary Shares
and cash in lieu of fractional Parent ADSs or Parent Ordinary Shares. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together with
such letter of transmittal duly executed and completed in accordance with its
terms, the holder of such Certificate shall be entitled to receive in exchange
therefor (i) a certificate or certificates representing one or more Parent ADRs
representing, in the aggregate, that whole number of Parent ADSs and/or that
whole number of Parent Ordinary Shares elected to be received in accordance with
Section 2.6, (ii) the amount of dividends or other distributions, if any, with a
record date on or after the Effective Time which theretofore became payable with
respect to such Parent ADSs and Parent Ordinary Shares, and (iii) the cash
amount payable in lieu of fractional Parent ADSs and Parent Ordinary Shares in
accordance with Section 2.7(e), in each case which such holder has the right to
receive pursuant to the provisions of this Article II, and the Certificate so
surrendered shall forthwith be canceled. In no event shall the holder of any
Certificate be entitled to receive interest on any funds to be received in the
Merger. In the event of a transfer of ownership of Company Common Stock which is
not registered in the transfer records of the Company, a certificate or
certificates representing that whole number of Parent Ordinary Shares elected to
be received in accordance with Section 2.6 and/or one or more Parent ADRs
representing, in the aggregate, that whole number of Parent ADSs, plus the cash
amount payable in lieu of fractional Parent Ordinary Shares and Parent ADSs in
accordance with Section 2.7(e), may be issued to a transferee if the Certificate
representing such Company Common Stock is presented to the Exchange Agent
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this Section 2.7(b) and subject to
Section 2.7(c), each Certificate shall, after the Effective Time, represent for
all purposes only the right to receive the whole number of Parent Ordinary
Shares and/or Parent ADSs into which the number of shares of Company Common
Stock shown thereon have been converted as contemplated by this Article II plus
the cash amount payable in lieu of fractional Parent ADSs and Parent Ordinary
Shares in accordance with Section 2.7(e). Notwithstanding the foregoing,
certificates representing Company Common Stock surrendered for exchange by any
Person constituting an "Affiliate" of the Company for purposes of Section 7.4
shall not be exchanged until Parent has received an Affiliate Agreement (as
defined in Section 7.4) as provided in Section 7.4.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends or
other distributions declared, made or paid after the Effective Time with respect
to Parent Ordinary Shares with a record date on or after the Effective Time
shall be paid to the holder of any unsurrendered Certificate with respect to the
Parent Ordinary Shares and Parent ADSs represented thereby and no cash payment
in lieu of fractional Parent Ordinary Shares and Parent ADSs shall be paid to
any such holder pursuant to Section 2.7(e) until the holder of record of such
Certificate shall surrender such Certificate in accordance with this Section.
Subject to the effect of applicable laws, following surrender of any such
A-8
Certificate, there shall be paid to the record holder of the certificates
representing Parent Ordinary Shares and the Parent ADRs which represent Parent
ADSs issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions, if any, with a record
date on or after the Effective Time which theretofore became payable, but which
were not paid by reason of the immediately preceding sentence, with respect to
such Parent Ordinary Shares and Parent ADSs and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a record date on or
after the Effective Time but prior to surrender and a payment date subsequent to
surrender payable with respect to such Parent Ordinary Shares and Parent ADSs.
Dividends or other distributions with a record date on or after the Effective
Time but prior to surrender of Certificates by holders thereof payable in
respect of Parent Ordinary Shares and Parent ADSs held by the Exchange Agent
shall be held in trust for the benefit of such holders of Certificates.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON STOCK. All Parent
Ordinary Shares and Parent ADSs issued upon the surrender for exchange of
Certificates in accordance with the terms hereof (including any cash paid
pursuant to Section 2.7(e)) shall be deemed to have been issued at the Effective
Time in full satisfaction of all rights pertaining to the Converted Shares
represented thereby, subject, however, to the Surviving Corporation's obligation
to pay any dividends which may have been declared by the Company on the shares
of Company Common Stock in accordance with the terms of this Agreement and which
remained unpaid at the Effective Time. From and after the Effective Time, the
stock transfer books of the Company shall be closed and there shall be no
further registration of transfers thereon of the shares of Company Common Stock
which were outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Section.
(e) NO FRACTIONAL SHARES. No certificate or scrip representing fractional
Parent ADSs or Parent Ordinary Shares will be issued in the Merger upon the
surrender for exchange of Certificates, and such fractional Parent ADS or Parent
Ordinary Share interests will not entitle the owner thereof to vote or to any
rights of a holder of Parent ADSs or Parent Ordinary Shares. In lieu of any such
fractional Parent ADS or Parent Ordinary Share, each holder of Certificates who
would otherwise have been entitled to a fraction of Parent ADS or Parent
Ordinary Share in exchange for such Certificates pursuant to this Section shall
receive from the Exchange Agent, as applicable, (i) a cash payment in lieu of
such fractional Parent ADS determined by multiplying (A) the average of the
closing sale prices for Parent ADSs on the NYSE as reported in The Wall Street
Journal for each of the 10 consecutive Trading Days immediately preceding the
Closing Date by (B) the fractional Parent ADS interest to which such holder
would otherwise be entitled, and/or (ii) a cash payment in lieu of such
fractional Parent Ordinary Share determined by multiplying (A) the average of
the closing middle market quotation of a Parent Ordinary Share on the LSE as
reported in The Financial Times for each of the 10 consecutive Trading Days
ending immediately preceding the Closing Date by (B) the fractional Parent
Ordinary Share interest to which such holder would otherwise be entitled.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the Exchange Fund which
remains undistributed to the stockholders of the Company for one (1) year after
the Effective Time shall be delivered to or as directed by Parent, upon demand,
and any holders of Certificates who have not theretofore complied with this
Article II shall thereafter look only to Parent (subject to abandoned property,
escheat and other similar laws) as a general creditor for payment of their claim
for Parent ADSs, Parent Ordinary shares, any cash in lieu fractional Parent ADSs
and Parent Ordinary Shares and any dividends or distributions with respect to
Parent ADSs and Parent Ordinary Shares. Neither Parent nor the Surviving
Corporation shall be liable to any holder of any Certificate for Parent ADSs or
Parent Ordinary Shares (or dividends or distributions with respect to either),
or cash payable in respect of fractional Parent ADSs or Parent Ordinary Shares,
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law. Any securities or amounts remaining unclaimed by holders
of Parent Shares three years after the Effective Time (or such earlier date
immediately prior to such time as such amounts would otherwise escheat to or
become property of any governmental
A-9
entity) shall, to the extent permitted by applicable law, become the property of
the Surviving Corporation free and clear of any claims or interest of any Person
previously entitled thereto.
(g) LOST, STOLEN OR DESTROYED CERTIFICATES. If any Certificate shall have
been lost, stolen or destroyed, upon the making of an affidavit of that fact by
the person claiming such Certificate to be lost, stolen or destroyed and, if
required by Parent, the posting by such person of a bond in such reasonable
amount as Parent may direct as indemnity against any claim that may be made
against it with respect to such Certificate, the Exchange Agent will deliver in
exchange for such lost, stolen or destroyed Certificate the applicable Merger
Consideration with respect to the shares of Company Common Stock formerly
represented thereby, any cash in lieu of fractional Parent ADSs or Parent
Ordinary Shares, and unpaid dividends and distributions in respect of or on
Parent ADSs or Parent Ordinary Shares deliverable in respect thereof, pursuant
to this Agreement.
Section 2.8 WITHHOLDING RIGHTS. Each of the Surviving Corporation and
Parent shall be entitled to deduct and withhold from the consideration otherwise
payable pursuant to this Agreement to any holder of shares of Company Common
Stock such amounts as it is required to deduct and withhold with respect to the
making of such payment under the Code, or any provision of state, local or
foreign tax law, including the tax laws of the United Kingdom. To the extent
that amounts are so withheld by the Surviving Corporation or Parent, as the case
may be, such withheld amounts shall be treated for all purposes of this
Agreement as having been paid to the holder of the shares of Company Common
Stock in respect of which such deduction and withholding was made by the
Surviving Corporation or Parent, as the case may be.
Section 2.9 COMPANY STOCK OPTIONS; OTHER STOCK-BASED PLANS. (a) At the
Effective Time, the board of directors of the Company (or the appropriate
committee thereof) shall have adopted such resolutions, taken such actions and
obtained any necessary consents as may be required to effect the following:
(i) adjust or implement, as may be applicable or appropriate, the
terms of all outstanding and unexercised stock options to purchase shares
of Company Common Stock (each, a "Stock Option") heretofore granted under
the Company Stock Plan (as defined in Section 4.2(a)) and the terms of
the Company Stock Plan to provide that at the Effective Time, each Stock
Option outstanding and unexercised immediately prior to the Effective
Time shall be deemed to constitute an option to acquire, pursuant to the
terms of the Company Stock Plan, Parent Ordinary Shares where (x) the
number of Parent Ordinary Shares purchasable upon exercise of each such
Stock Options shall be equal to the number of shares of Company Common
Stock that were purchasable under such Stock Option immediately prior to
the Effective Time multiplied by the Exchange Ratio, subject to
adjustment as provided in Section 2.5(e), and rounding down to the
nearest whole Parent Ordinary Share and (y) the per Parent Ordinary Share
exercise price under each such Stock Option shall be obtained by dividing
the per share exercise price of each such Stock Option by the Exchange
Ratio and dividing such result by the Exchange Rate, subject to
adjustment as provided in Section 2.5(e), and rounding down to the
nearest penny. Notwithstanding the foregoing, in the case of any Stock
Option to which Section 421 of the Code applies by reason of its
qualification under Section 422 of the Code ("qualified stock options"),
the option price, the number of shares purchasable pursuant to such Stock
Option and the terms and conditions of exercise of such Stock Option
shall be determined in order to comply with Section 424(a) of the Code.
Accordingly, with respect to any qualified stock options, the per Parent
Ordinary Share exercise price shall be rounded up to the nearest cent;
(ii) adjust or implement, as may be applicable or appropriate, the
terms of all outstanding stock units, deferred stock awards, stock
appreciation rights and other rights to acquire Company Common Stock,
restricted stock, or any other interest in respect of Company Common
Stock under any Company stock plan, program, arrangement or
A-10
agreement set forth in Section 2.9(a) of the Company Disclosure Letter
(as defined herein), other than Stock Options ("Company Stock Rights"),
to provide that, at the Effective Time, (x) each holder of a Company
Stock Right shall be entitled to that number of stock units, deferred
stock awards, stock appreciation rights or other corresponding rights,
including shares of restricted stocks, as the case may be, with respect
to Parent Ordinary Shares ("Parent Share Rights") equal to the number of
applicable Company Stock Rights held by such holder immediately prior to
the Closing multiplied by the Exchange Ratio, on the same terms and
conditions as were applicable under such Company Stock Right, as adjusted
in accordance with this Section 2.9, subject to adjustment as provided in
Section 2.5(e), and rounding down to the nearest whole Parent Ordinary
Share, and (y) the share value on the grant date with respect to each
Parent Share Right shall be equal to the share value on the grant date of
the corresponding Company Stock Right as in effect immediately prior to
the Effective Time, divided by the Exchange Ratio and dividing such
result by the Exchange Rate, subject to adjustment as provided in
Section 2.5(e), and rounding down to the nearest penny; and
(iii) make such other changes to the Company Stock Plan and any other
plan, program, arrangement or agreement providing for the issuance or
grant of any other interest in respect of, or payment determined by
reference to, the capital stock of the Company or any of its subsidiaries
as appropriate to give effect to the Merger, subject to approval by
Parent.
(b) As of the Effective Time, Parent agrees to assume all Stock Options and
Company Stock Rights in accordance with the terms hereof. Immediately following
the Effective Time, Parent shall deliver to the holders of Stock Options and
Company Stock Rights appropriate notices setting forth such holders' rights
pursuant to the applicable Company stock plan, program, arrangement or
agreement, and the agreements evidencing the grants of such Stock Options and
Company Stock Rights shall continue in effect on the same terms and conditions
(subject to the adjustments required by this Section 2.9 after giving effect to
the Merger). After the Effective Time, Parent shall comply with the terms of the
Company Stock Plan, as adjusted in accordance with Section 2.5(e). Parent shall
take all corporate action necessary to reserve for issuance a sufficient number
of Parent Ordinary Shares for delivery upon exercise of Stock Options assumed by
it in accordance with Section 2.9. Simultaneously with the Closing, Parent shall
file a registration statement on Form S-3 or Form S-8, as the case may be (or
any successor or other appropriate forms), which shall cover all of the Parent
Ordinary Shares to be issued upon the exercise of Stock Options assumed by
Parent in accordance with this Section 2.9 and shall use its reasonable best
efforts to maintain the effectiveness of such registration statement or
registration statements (and maintain the current status of the prospectus or
prospectuses contained therein) for so long as such options remain outstanding.
(c) During the period from the date of this Agreement through the Effective
Time, the Company agrees that it will not grant any stock options, stock
appreciation rights, stock units, deferred stock awards or other rights to
acquire Company Common Stock or any other interest in Company Common Stock other
than required automatic grants of Stock Options to the Company's directors under
the Company Stock Plan and will not take any action to accelerate the
exercisability of Stock Options or Company Stock Rights, and/or permit cash
payments to holders of Stock Options or Company Stock Rights with respect to
such Stock Options or Company Stock Rights. It is acknowledged that the terms of
the Company Stock Option Plan provide that all outstanding Stock Options will
become immediately vested and exercisable in the event of a Change of Control
(as defined therein).
A-11
Section 2.10 THE SURVIVING CORPORATION. (a) The certificate of
incorporation of Merger Sub, as in effect immediately prior to the Effective
Time shall be amended to change the name of Merger Sub to "Healthworld
Corporation" and, as so amended, shall be the Certificate of Incorporation of
the Surviving Corporation until thereafter changed or amended as provided
therein or applicable Law.
(b) The bylaws of Merger Sub as in effect immediately prior to the Effective
Time, shall be the bylaws of the Surviving Corporation until amended in
accordance with therein or the Certificate of Incorporation and applicable Law.
(c) From and after the Effective Time, until successors are duly elected or
appointed and qualified in accordance with applicable Law, (i) the directors of
Merger Sub at the Effective Time shall be the directors of the Surviving
Corporation, and (ii) the officers of Merger Sub at the Effective Time shall be
the officers of the Surviving Corporation.
ARTICLE III
THE CLOSING
Section 3.1 CLOSING. The closing of the Merger (the "Closing") shall take
place (i) at the offices of Macfarlanes, 10 Norwich Street, London, EC4A1BD,
with a meeting to be held simultaneously at the offices of White & Case LLP,
1155 Avenue of the Americas, New York, New York 10036, for the delivery of
certain documents in connection therewith, at a time to be agreed by the parties
on the third business day after the day on which the last of the conditions set
forth in Article VIII (other than those conditions that by their nature are to
be fulfilled at the Closing, but subject to the fulfillment or waiver of such
conditions) shall be fulfilled or waived in accordance with this Agreement or
(ii) at such other places and time and/or on such other date as the Company and
Parent may agree in writing (the "Closing Date").
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub as follows:
Section 4.1 ORGANIZATION, STANDING AND POWER. The Company and each of its
Subsidiaries is a corporation or limited liability company duly organized,
validly existing and in good standing (with respect to jurisdictions which
recognize the concept of good standing) under the laws of the jurisdiction in
which it is incorporated or organized and has the requisite corporate or other
power and authority to own, lease and operate its properties and to carry on its
business as now being conducted except for such failures to be so incorporated,
existing and in good standing or to have such power and authority, which,
individually or in the aggregate, could not be reasonably expected to have a
Company Material Adverse Effect. The Company and each of its Subsidiaries is
duly qualified to do business, and is in good standing (with respect to
jurisdictions which recognize the concept of good standing), in each
jurisdiction where the character of its properties owned or held under lease or
the nature of its activities makes such qualification necessary, except where
the failure to be so qualified could not reasonably be expected to, individually
or in the aggregate, have a Company Material Adverse Effect. The Company has
made available to Parent and Merger Sub complete and correct copies of the
certificate of incorporation and by-laws of the Company and the comparable
governing documents of each of its Subsidiaries, in each case as amended to the
date of this Agreement. Other than as set forth in Section 4.1 of the letter
dated the date hereof and delivered by the Company to Parent and Merger Sub
simultaneously with the execution and delivery of this Agreement (the "Company
Disclosure Letter"), the respective certificates of incorporation and by-laws or
other organizational documents of
A-12
the Subsidiaries of the Company do not contain any provision limiting or
otherwise restricting the ability of the Company to control such Subsidiaries.
Section 4.2 CAPITAL STRUCTURE. (a) As of the date hereof, the authorized
capital stock of the Company consists of twenty million (20,000,000) shares of
Company Common Stock and one million (1,000,000) shares of preferred stock, par
value $.01 per share ("Preferred Stock"). At the close of business on
November 5, 1999, (i) 8,109,965 shares of Company Common Stock were issued and
outstanding, all of which were validly issued, fully paid and nonassessable and
free of preemptive rights, (ii) no shares of Company Common Stock were held in
the treasury of the Company or by Subsidiaries of the Company and
(iii) 1,880,799 shares of Company Common Stock were reserved for future issuance
pursuant to the Company's 1997 Stock Option Plan, as amended (the "Company Stock
Plan"). No shares of Preferred Stock are outstanding. As of the date of this
Agreement, except (i) as set forth above and (ii) as set forth in
Section 4.2(a) of the Company Disclosure Letter, no shares of capital stock or
other voting securities of the Company were issued, reserved for issuance or
outstanding. The Company does not have any outstanding bonds, debentures, notes
or other obligations the holders of which have the right to vote (or which are
convertible into or exercisable for securities having the right to vote) with
the stockholders of the Company on any matter ("Voting Debt"). As of the date of
this Agreement, except for stock options covering not in excess of 1,536,089
shares of Company Common Stock issued under the Company Stock Plan and except as
set forth in Section 4.2(a) of the Company Disclosure Letter, there are no
outstanding or authorized options, warrants, calls, rights or subscriptions,
claims of any character, obligations, convertible or exchangeable securities or
other commitments, contingent or otherwise, to which the Company is a party or
by which it is bound obligating the Company or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, additional shares of
capital stock of the Company or any of its Subsidiaries or obligating the
Company or any of its Subsidiaries to grant, extend or enter into any such
option, warrant, call, right or agreement (each an "Issuance Obligation").
(b) Section 4.2(b) of the Company Disclosure Letter sets forth (i) the name
and jurisdiction of incorporation of each Subsidiary of the Company, (ii) its
authorized capital stock, (iii) the number of issued and outstanding shares of
its capital stock and (iv) the record owners of such shares. Except as set forth
in Section 4.2(b) of the Company Disclosure Letter, all of the outstanding
capital stock of, or ownership interests in, each Subsidiary of the Company is
owned by the Company, directly or indirectly. All of the issued and outstanding
shares of capital stock of each Subsidiary are validly existing, fully paid and
non-assessable. Except as set forth in the Company SEC Reports or
Section 4.2(b) of the Company Disclosure Letter, no Subsidiary of the Company
has outstanding Voting Debt and no Subsidiary of the Company is bound by,
obligated under, or party to an Issuance Obligation with respect to any security
of the Company or any Subsidiary of the Company. Except as set forth in the
Company SEC Reports or Section 4.2(b) of the Company Disclosure Letter, all of
such capital stock or ownership interest is owned by the Company, directly or
indirectly, free and clear of all Liens.
(c) Except for the Company's interest in its Subsidiaries, and as set forth
in the Company SEC Reports or Section 4.2(c) of the Company Disclosure Letter,
the Company does not directly or indirectly own any equity or similar interest
in, or any interest convertible into or exchangeable or exercisable for any
equity or similar interest in, any corporation, partnership, joint venture,
limited liability company or other business association or entity (other than
non-controlling investments in the ordinary course of business and corporate
partnering, development, cooperative marketing and similar undertakings and
arrangements entered into in the ordinary course of business).
Section 4.3 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has all
requisite corporate power and authority to enter into this Agreement, and,
subject to obtaining the Company Stockholders' Approval (as defined in
Section 7.3(b)), to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the
A-13
Company and the consummation by the Company of the transactions contemplated
hereby have been duly authorized by all necessary corporate action on the part
of the Company (other than obtaining the Company Stockholders' Approval),
including the unanimous approval of the Board of Directors of the Company which
has unanimously resolved to recommend the approval of this Agreement by the
stockholders of the Company and directed that this Agreement be submitted to the
stockholders of the Company for their consideration, and no other corporate
proceedings on the part of the Company or its stockholders are necessary to
authorize the execution, delivery and performance of this Agreement by the
Company and the consummation by the Company of the transactions contemplated
hereby, other than obtaining the Company Stockholders' Approval. This Agreement
has been duly and validly executed and delivered by the Company and constitutes
a legal, valid and binding obligation of the Company enforceable against the
Company in accordance with its terms, except as enforceability may be limited by
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
equitable principles (regardless of whether such enforceability is considered in
a proceeding in equity or at law).
Section 4.4 NON-CONTRAVENTION; APPROVALS AND CONSENTS. (a) The execution
and delivery of this Agreement by the Company do not, and the performance by the
Company of its obligations hereunder and the consummation of the transactions
contemplated hereby will not, conflict with, result in a violation or breach of,
constitute (with or without notice or lapse of time or both) a default under,
result in or give to any person any right of payment or reimbursement,
termination, cancellation, modification or acceleration of, or result in the
creation or imposition of any Lien upon any of the assets or properties of the
Company or any of its Subsidiaries under, any of the terms, conditions or
provisions of (i) the certificates or articles of incorporation or bylaws (or
other comparable charter documents) of the Company or any of its Subsidiaries,
or (ii) subject to the obtaining of the Company Stockholders' Approval and the
taking of the actions described in Section 4.4(b) and except as disclosed in
Section 4.4(a) of the Company Disclosure Letter, (x) any statute, law, rule,
regulation or ordinance (together, "Laws"), or any judgment, decree, order,
writ, permit or license (together, "Orders"), of any court, tribunal,
arbitrator, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision (a "Governmental or Regulatory Authority")
applicable to the Company or any of its Subsidiaries or any of their respective
assets or properties, or (y) any note, bond, mortgage, security agreement,
indenture, license, franchise, permit, concession, contract, lease or other
instrument, obligation or agreement of any kind (together, "Contracts") to which
the Company or any of its Subsidiaries is a party or by which the Company or any
of its Subsidiaries or any of their respective assets or properties is bound,
excluding from the foregoing clauses (x) and (y) conflicts, violations,
breaches, defaults, rights of payment and reimbursement, terminations,
modifications, accelerations and creations and impositions of Liens which,
individually or in the aggregate, could not reasonably be expected to have a
Company Material Adverse Effect or prevent, materially impair, or materially
delay the ability of the Company to consummate the transactions contemplated by
this Agreement.
(b) Except (i) for the filing of a premerger notification report by the
Company under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations thereunder (the "HSR Act"), (ii) for the
filing of the Proxy Statement (as defined in Section 4.6(a) and the Registration
Statement (as defined in Section 5.9(a)) with the SEC pursuant to the Exchange
Act and the Securities Act, the declaration of the effectiveness of the
Registration Statement by the SEC and filings with various state securities
authorities that are required in connection with the transactions contemplated
by this Agreement, (iii) for the filing of the Certificate of Merger and other
appropriate merger documents required by the DGCL with the Secretary of State
and appropriate documents with the relevant authorities of other states in which
the Constituent Corporations are qualified to do business, and (iv) as disclosed
in Section 4.4(b) of the Company Disclosure Letter, no consent, approval or
action of, filing with or notice to any Governmental or Regulatory Authority or
other public or
A-14
private third party is necessary or required under any of the terms, conditions
or provisions of any law or order of any Governmental or Regulatory Authority or
any Contract to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries or any of their respective assets
or properties is bound for the execution and delivery of this Agreement by the
Company, the performance by the Company of its obligations hereunder or the
consummation of the transactions contemplated hereby, other than such consents,
approvals, actions, filings and notices which the failure to make or obtain, as
the case may be, individually or in the aggregate, could not reasonably be
expected to have a Company Material Adverse Effect or prevent, materially impair
or materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement.
Section 4.5 SEC REPORTS AND FINANCIAL STATEMENTS. (a) The Company has
delivered or made available to Parent a true and complete copy of each form,
report, schedule, registration statement, definitive proxy statement and other
document (together with all amendments thereof and supplements thereto) filed by
the Company or any of its Subsidiaries with the SEC since November 21, 1997 (as
such documents have since the time of their filing been amended or supplemented,
the "Company SEC Reports"), which are all the documents (other than preliminary
materials) that the Company and its Subsidiaries were required to file with the
SEC since such date. As of their respective dates, the Company SEC Reports
(i) complied as to form in all material respects with the requirements of the
Securities Act or the Exchange Act, if applicable, as the case may be, and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim consolidated financial statements (including, in each case, the notes,
if any, thereto) of the Company included in the Company SEC Reports (the
"Company Financial Statements") complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, were
prepared in accordance with U.S. generally accepted accounting principles
applied on a consistent basis during the periods involved (except as may be
indicated therein or in the notes thereto and except with respect to unaudited
statements as permitted by Form 10-Q of the SEC) and fairly present (subject, in
the case of the unaudited interim financial statements, to normal, recurring
year-end audit adjustments (which are not expected to be, individually or in the
aggregate, materially adverse to the Company and its Subsidiaries taken as a
whole)) the consolidated financial position of the Company and its consolidated
subsidiaries as at the respective dates thereof and the consolidated results of
their operations and cash flows for the respective periods then ended. Except as
set forth in Section 4.5(a) of the Company Disclosure Letter, each Subsidiary of
the Company is treated as a consolidated subsidiary of the Company in the
Company Financial Statements for all periods covered thereby.
(b) Except as set forth in the Company SEC Reports or Section 4.5(b) of the
Company Disclosure Letter, neither the Company nor any of its Subsidiaries has
any liability or obligation of any nature (whether accrued, absolute, contingent
or otherwise), except for liabilities and obligations incurred in the ordinary
course of business consistent with past practice since June 30, 1999 which could
not reasonably be expected to, individually or in the aggregate, have a Company
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is in
default in respect of the material terms and conditions of any indebtedness or
other agreement which could, individually or in the aggregate, be expected to
have a Company Material Adverse Effect.
Section 4.6 INFORMATION SUPPLIED. (a) The proxy statement relating to the
Company Stockholders' Meeting (as defined in Section 7.3(b)), as amended or
supplemented from time to time (as so amended and supplemented, the "Proxy
Statement"), and any other documents to be filed by the Company with the SEC in
connection with the Merger and the other transactions contemplated hereby will
(in the case of the Proxy Statement and any such other documents filed with the
SEC under the Exchange Act or the Securities Act), comply as to form in all
material respects with the requirements
A-15
of the Exchange Act and the Securities Act, respectively, and will not, on the
date of its filing or, in the case of the Proxy Statement, on the date it is
mailed to stockholders of the Company and at the time of the Company
Stockholders' Meeting, contain any untrue statement of a material fact or omit
to state any material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under which they
are made, not misleading, except that no representation is made by the Company
with respect to information supplied in writing by or on behalf of Parent or
Merger Sub expressly for inclusion therein and information incorporated by
reference therein from documents filed by Parent, Merger Sub or any of their
respective Subsidiaries with the SEC.
(b) The information supplied by the Company for inclusion in any filing by
Parent or Merger Sub with the LSE in respect of the Merger (including, without
limitation, the Class 1 circular to be issued to shareholders of Parent (the
"Circular"), and the listing particulars under Part IV of the Financial Services
Act 1986 of the United Kingdom (the "FSA") relating to Parent Ordinary Shares
(the "Listing Particulars") (together with any amendments or supplements
thereto, the "Parent Disclosure Documents") will be, in all material respects,
in accordance with the facts and will not omit anything materially likely to
affect the import of such information.
(c) Notwithstanding the foregoing provisions of this Section 4.6, no
representation or warranty is made by the Company with respect to statements
made or incorporated by reference in the Registration Statement, the Proxy
Statement or the Parent Disclosure Documents based on information supplied by
Parent or Merger Sub expressly for inclusion or incorporation by reference
therein.
Section 4.7 ABSENCE OF CERTAIN EVENTS. Except as disclosed in the Company
SEC Reports or in Section 4.7 of the Company Disclosure Letter, since June 30,
1999, the Company and its Subsidiaries have operated their respective businesses
only in the ordinary course consistent with past practices and, except as
disclosed in the Company SEC Reports or in Section 4.7 of the Company Disclosure
Letter, there has not occurred (i) any event, occurrence or conditions which,
individually or in the aggregate, could reasonably be expected to have a Company
Material Adverse Effect; (ii) any entry into or any commitment or transaction
that, individually or in the aggregate, could reasonably be expected to have a
Company Material Adverse Effect; (iii) any material change by the Company or any
of its Subsidiaries in its accounting methods, principles or practices;
(iv) any amendments or changes in the Certificate of Incorporation or Bylaws of
the Company; (v) any revaluation by the Company or any of its Subsidiaries of
any of their respective assets, including, without limitation, write-offs of
accounts receivable, other than in the ordinary course of the Company's and its
Subsidiaries' businesses consistent with past practices; (vi) any damage,
destruction or loss which, individually or in the aggregate, resulted in or
could reasonably be expected to have a Company Material Adverse Effect;
(vii) any event pursuant to which the Company or any of its Subsidiaries has
incurred any material liabilities (direct, contingent or otherwise) or engaged
in any material transaction or entered into any material agreement, in each case
outside the ordinary course of business which, individually or in the aggregate,
could be reasonably expected to have a Company Material Adverse Effect;
(viii) any increase in the compensation of any officer of the Company or any of
its Subsidiaries or any general salary or benefits increase to the employees of
the Company or any of its Subsidiaries other than in the ordinary course of
business; or (ix) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of the Company,
or any repurchase, redemption or other acquisition by the Company or any of its
Subsidiaries of any outstanding shares of capital stock or other securities of,
or other ownership interests in, the Company. Except as set forth in the Company
SEC Reports or Section 4.7 of the Company Disclosure Letter, since June 30,
1999, neither the Company nor any of its Subsidiaries has taken any action
specified in Section 6.1 of this Agreement.
Section 4.8 LITIGATION. Except as disclosed in Section 4.8 of the Company
Disclosure Letter, there are no investigations, actions, suits or proceedings
pending against the Company or its Subsidiaries or, to the knowledge of the
Company, threatened against the Company or its Subsidiaries
A-16
(or any of their respective properties, rights or franchises), at law or in
equity, or before or by any federal or state commission, board, bureau, agency,
regulatory or administrative instrumentality or other Governmental Entity or any
arbitrator or arbitration tribunal, that could reasonably be expected to have a
Company Material Adverse Effect, and, to the knowledge of the Company, no
development has occurred with respect to any pending or threatened action, suit
or proceeding that could reasonably be expected to result in a Company Material
Adverse Effect or could prevent, materially impair or materially delay the
consummation of the transactions contemplated hereby. Neither the Company nor
any of its Subsidiaries is subject to any judgment, order or decree entered in
any lawsuit or proceeding which could reasonably be expected to have a Company
Material Adverse Effect.
Section 4.9 COMPLIANCE WITH APPLICABLE LAW. The Company and its
Subsidiaries hold, and at all required times have held, all permits, licenses,
variances, exceptions, orders and approvals of all Governmental Entities
necessary for the lawful conduct of their respective businesses (the "Company
Permits"), except for failures to hold such permits, licenses, variances,
exemptions, orders and approvals which could not reasonably be expected to have,
individually or in the aggregate, a Company Material Adverse Effect. The Company
and its Subsidiaries are, and at all times have been, in compliance with the
terms of the Company Permits, except where the failure so to comply could not
reasonably be expected to have, individually or in the aggregate, a Company
Material Adverse Effect. The businesses of the Company and its Subsidiaries are
not being, and have not been, conducted in violation of any law, ordinance or
regulation of any Governmental Entity except for violations or possible
violations which, individually or in the aggregate, do not and could not
reasonably be expected to have a Company Material Adverse Effect. Except as set
forth in Section 4.9 of the Company Disclosure Letter, no investigation or
review by any Governmental Entity with respect to the Company or any of its
Subsidiaries is pending or, to the knowledge of the Company, threatened, nor, to
the knowledge of the Company, has any Governmental Entity indicated an intention
to conduct the same, other than, in each case, those which could not reasonably
be expected to have, individually or in the aggregate, a Company Material
Adverse Effect.
Section 4.10 EMPLOYEE PLANS. (a) List of Plans. Set forth in
Section 4.10(a) of the Company Disclosure Letter is an accurate and complete
list of all domestic and foreign (i) "employee benefit plans," within the
meaning of Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended, and the rules and regulations thereunder ("ERISA"); (ii) bonus,
stock option, stock purchase, restricted stock, incentive, fringe benefit,
"voluntary employees' beneficiary associations" ("VEBAs"), under
Section 501(c)(9) of the Code, profit-sharing, pension or retirement, deferred
compensation, medical, life, disability, accident, salary continuation,
severance, accrued leave, vacation, sick pay, sick leave, supplemental
retirement and unemployment benefit plans, programs, arrangements, commitments
and/or practices (whether or not insured); and (iii) employment, consulting,
termination, and severance contracts or agreements; in each case for active,
retired or former employees or directors, whether or not any such plans,
programs, arrangements, commitments, contracts, agreements and/or practices
(referred to in (i), (ii) or (iii) above) are in writing or are otherwise exempt
from the provisions of ERISA; that have been established, maintained or
contributed to (or with respect to which an obligation to contribute has been
undertaken) or with respect to which any potential liability is borne by the
Company or any of its Subsidiaries (including, for this purpose and for the
purpose of all of the representations in this Section 4.10, any predecessors to
the Company or to any of its Subsidiaries and all employers (whether or not
incorporated) that would be treated together with the Company and any of its
Subsidiaries as a single employer (1) within the meaning of Section 414 of the
Code, or (2) as a result of the Company or any Subsidiary being or having been a
general partner of any such employer), since January 1, 1993 ("Employee Benefit
Plans").
(b) STATUS OF PLANS. Except as set forth in Section 4.10(b) of the Company
Disclosure Letter, each Employee Benefit Plan (including any related trust)
complies in form with the requirements of all applicable laws, including,
without limitation, ERISA and the Code, and has at all times been
A-17
maintained and operated in substantial compliance with its terms and the
requirements of all applicable laws, including, without limitation, ERISA and
the Code. No complete or partial termination of any Employee Benefit Plan has
occurred or is expected to occur. Except as set forth in Section 4.10(b) of the
Company Disclosure Letter, neither the Company nor any of its Subsidiaries has
any commitment, intention or understanding to create, modify or terminate any
Employee Benefit Plan. Except as required to maintain the tax-qualified status
of any Employee Benefit Plan intended to qualify under Section 401(a) of the
Code, no condition or circumstance exists that would prevent the amendment or
termination of any Employee Benefit Plan. No event has occurred and no condition
or circumstance has existed that could result in a material increase in the
benefits under or the expense of maintaining any Employee Benefit Plan from the
level of benefits or expense incurred for the most recent fiscal year ended
thereof.
(c) NO PENSION PLANS. No Employee Benefit Plan is an "employee pension
benefit plan" (within the meaning of Section 3(2) of ERISA) subject to
Section 412 of the Code or Section 302 or Title IV of ERISA. Neither the Company
nor any of its Subsidiaries has ever maintained or contributed to, or had any
obligation to contribute to (or borne any liability with respect to) any
"multiple employer plan" (within the meaning of the Code or ERISA) or any
"multiemployer plan" (as defined in Section 4001(a)(3) of ERISA).
(d) LIABILITIES. Neither the Company nor any of its Subsidiaries maintains
any Employee Benefit Plan which is a "group health plan" (as such term is
defined in Section 607(1) of ERISA or Section 5000(b)(1) of the Code) that has
not been administered and operated in all respects in compliance with the
applicable requirements of Part 6 of Subtitle B of Title I of ERISA and
Section 4980B of the Code except to the extent that such non-compliance will not
result in any material liability to the Company or any of its Subsidiaries and
neither the Company nor any of its Subsidiaries is subject to any material
liability, including, without limitation, additional contributions, fines,
taxes, penalties or loss of tax deduction as a result of such administration and
operation. No Employee Benefit Plan which is such a group health plan is a
"multiple employer welfare arrangement," within the meaning of Section 3(40) of
ERISA. Each Employee Benefit Plan that is intended to meet the requirements of
Section 125 of the Code meets such requirements, and each program of benefits
for which employee contributions are provided pursuant to elections under any
Employee Benefit Plan meets the requirements of the Code applicable thereto.
Neither the Company nor any of its Subsidiaries maintains any Employee Benefit
Plan which is an "employee welfare benefit plan" (as such term is defined in
Section 3(1) of ERISA) that has provided any "disqualified benefit" (as such
term is defined in Section 4976(b) of the Code) with respect to which an excise
tax could be imposed.
Neither the Company nor any of its Subsidiaries maintains any Employee
Benefit Plan (whether qualified or non-qualified under Section 401(a) of the
Code) providing for post-employment or retiree health, life insurance and/or
other welfare benefits and having unfunded liabilities, and neither the Company
nor any of its Subsidiaries have any obligation to provide any such benefits to
any retired or former employees or active employees following such employees'
retirement or termination of service. Neither the Company nor any of its
Subsidiaries has any unfunded liabilities pursuant to any Employee Benefit Plan
that is not intended to be qualified under Section 401(a) of the Code. No
Employee Benefit Plan holds as an asset any interest in any annuity contract,
guaranteed investment contract or any other investment or insurance contract,
policy or instrument issued by an insurance company that, to the knowledge of
the Company, is or may be the subject of bankruptcy, conservatorship,
insolvency, liquidation, rehabilitation or similar proceedings.
Neither the Company nor any of its Subsidiaries has incurred any material
liability for any tax or excise tax arising under Chapter 43 of the Code, and no
event has occurred and no condition or circumstance has existed that could give
rise to any such liability.
A-18
There are no actions, suits, claims or disputes pending, or, to the best
knowledge and belief of the Company, threatened, anticipated or expected to be
asserted against or with respect to any Employee Benefit Plan or the assets of
any such plan (other than routine claims for benefits and appeals of denied
routine claims). No civil or criminal action brought pursuant to the provisions
of Title I, Subtitle B, Part 5 of ERISA is pending, threatened, anticipated, or
expected to be asserted against the Company or any of its Subsidiaries or any
fiduciary of any Employee Benefit Plan, in any case with respect to any Employee
Benefit Plan. No Employee Benefit Plan or any fiduciary thereof has been the
direct or indirect subject of an audit, investigation or examination by any
governmental or quasi-governmental agency.
(e) CONTRIBUTIONS. Full payment has been timely made of all amounts which
the Company or any of its Subsidiaries is required, under applicable law or
under any Employee Benefit Plan or any agreement relating to any Employee
Benefit Plan to which the Company or any of its Subsidiaries is a party, to have
paid as contributions or premiums thereto as of the last day of the most recent
fiscal year of such Employee Benefit Plan ended prior to the date hereof. All
such contributions and/or premiums have been fully deducted for income tax
purposes and no such deduction has been challenged or disallowed by any
governmental entity, and to the best knowledge and belief of the Company and its
Subsidiaries no event has occurred and no condition or circumstance has existed
that could give rise to any such challenge or disallowance. The Company has made
adequate provision for reserves to meet contributions and premiums and any other
liabilities that have not been paid or satisfied because they are not yet due
under the terms of any Employee Benefit Plan, applicable law or related
agreements. Benefits under all Employee Benefit Plans are as represented and
have not been increased subsequent to the date as of which documents have been
provided.
(f) TAX QUALIFICATION. Each Employee Benefit Plan intended to be qualified
under Section 401(a) of the Code has, as currently in effect, been determined to
be so qualified by the Internal Revenue Service. Each trust established in
connection with any Employee Benefit Plan which is intended to be exempt from
Federal income taxation under Section 501(a) of the Code has, as currently in
effect, been determined to be so exempt by the Internal Revenue Service. Each
VEBA has been determined by the Internal Revenue Service to be exempt from
Federal income tax under Section 501(c)(9) of the Code. Since the date of each
most recent determination referred to in this paragraph (f), no event has
occurred and no condition or circumstance has existed that resulted or is likely
to result in the revocation of any such determination or that could adversely
affect the qualified status of any such Employee Benefit Plan or the exempt
status of any such trust or VEBA.
(g) TRANSACTIONS. Neither the Company nor any of its Subsidiaries nor any
of their respective directors, officers, employees or, to the best knowledge and
belief of the Company, other persons who participate in the operation of any
Employee Benefit Plan or related trust or funding vehicle, has engaged in any
transaction with respect to any Employee Benefit Plan or breached any applicable
fiduciary responsibilities or obligations under Title I of ERISA that would
subject any of them to a tax, penalty or liability for prohibited transactions
or breach of any obligations under ERISA or the Code or would result in any
claim being made under, by or on behalf of any such Employee Benefit Plan by any
party with standing to make such claim.
(h) TRIGGERING EVENTS. Except as set forth in Section 4.10(h) of the
Company Disclosure Letter, the execution of this Agreement and the consummation
of the transactions contemplated hereby, do not constitute a triggering event
under any Employee Benefit Plan, policy, arrangement, statement, commitment or
agreement, whether or not legally enforceable, which (either alone or upon the
occurrence of any additional or subsequent event) will or may result in any
payment (whether of severance pay or otherwise), "parachute payment" (as such
term is defined in Section 280G of the Code), acceleration, vesting or increase
in benefits to any employee or former employee or director of the Company or any
of its Subsidiaries. Except as set forth in Section 4.10(h) of the Company
A-19
Disclosure Letter, no Employee Benefit Plan provides for the payment of
severance, termination, change in control or similar-type payments or benefits.
(i) DOCUMENTS. The Company has delivered or made available or caused to be
delivered to the Purchaser and its counsel true and complete copies of all
material documents in connection with each Employee Benefit Plan, including,
without limitation (where applicable): (i) all Employee Benefit Plans as in
effect on the date hereof, together with all amendments thereto, including, in
the case of any Employee Benefit Plan not set forth in writing, a written
description thereof; (ii) all current summary plan descriptions, summaries of
material modifications, and material communications; (iii) all current trust
agreements, declarations of trust and other documents establishing other funding
arrangements (and all amendments thereto and the latest financial statements
thereof); (iv) the most recent Internal Revenue Service determination letter
obtained with respect to each Employee Benefit Plan intended to be qualified
under Section 401(a) of the Code or exempt under Section 501(a) or 501(c)(9) of
the Code; (v) the annual report on Internal Revenue Service Form 5500-series or
990 for each of the last three years for each Employee Benefit Plan required to
file such form; (vi) the most recently prepared financial statements for each
Employee Benefit Plan for which such statements are required; and (vii) all
contracts and agreements relating to each Employee Benefit Plan, including,
without limitation, service provider agreements, insurance contracts, annuity
contracts, investment management agreements, subscription agreements,
participation agreements, and recordkeeping agreements and collective bargaining
agreements.
Section 4.11 EMPLOYMENT RELATIONS AND AGREEMENT. (a) Except as could not
reasonably be expected to have a Company Material Adverse Effect or as disclosed
in Section 4.11(a) of the Company Disclosure Letter, (i) each of the Company and
its Subsidiaries is, and at all times has been, in compliance with all
applicable federal, state or other applicable laws respecting employment and
employment practices, terms and conditions of employment and wages and hours,
and has not and is not engaged in any unfair labor practice; (ii) no unfair
labor practice complaint against the Company or any of its Subsidiaries is
pending before the National Labor Relations Board; (iii) there is no labor
strike, dispute, slowdown or stoppage actually pending or, to the knowledge of
the Company, threatened against or involving the Company or any of its
Subsidiaries; (iv) no representation question exists respecting the employees of
the Company or any of its Subsidiaries; (v) no grievance exists, no arbitration
proceeding arising out of or under any collective bargaining agreement is
pending and no claim therefor has been asserted; (vi) no collective bargaining
agreement is currently being negotiated by the Company or any of its
Subsidiaries; and (vii) none of the Company or any of its Subsidiaries have
experienced any material labor difficulty during the last three years.
(b) Except for employment agreements with employees with salaries of over
$175,000 or L150,000 per annum (the "Material Employment Agreements") executed
copies or terms of which, as amended, have been delivered or made available to
Parent, and as set forth in Section 4.11(b) of the Company Disclosure Letter,
neither the Company nor any of its Subsidiaries has any Material Employment
Agreement or material severance agreement with any person. The executed copies
of the Material Employment Agreements previously delivered or made available to
Parent are true and correct and such agreements have not since been amended,
modified or rescinded except to the extent disclosed to Parent.
Section 4.12 CONTRACTS. Except as set forth in Section 4.12 of the Company
Disclosure Letter, neither the Company nor its Subsidiaries is a party to, or
has any obligation under, any Contract which contains any covenant currently or
prospectively limiting the freedom of the Company or any of its Subsidiaries to
engage in any line of business or to compete with any entity. All Contracts to
which the Company or any of its Subsidiaries is a party or by which any of their
respective assets is bound are valid and binding, in full force and effect and
enforceable against the parties thereto in accordance with their respective
terms, other than such failures to be so valid and binding, in full force and
effect or enforceable which, could not reasonably be expected to have, either
individually or in the aggregate, a
A-20
Company Material Adverse Effect. There is not under any such Contract any
existing default, or event which, after notice or lapse of time, or both, would
constitute a default, by the Company or any of its Subsidiaries, or to the
Company's knowledge, any other party, except to the extent such default could
not reasonably be expected to have a Company Material Adverse Effect.
Section 4.13 TAXES. (a) The Company and each Subsidiary (i) has timely
filed or will timely file all material Tax Returns required to be filed on or
before the Effective Time, which returns are and will be true and complete in
all material respects; and (ii) the Company and each Subsidiary has timely paid
or has adequately disclosed, and fully provided for as Taxes on the Company
Financial Statements in accordance with United States generally accepted
accounting principles, consistently applied, all Taxes which are due and payable
with respect to all taxable years or periods that end on or before the date of
this Agreement. The Company and each Subsidiary has withheld or collected all
Taxes they were required to withhold and collect, and have timely paid to the
proper authorities such Taxes withheld or collected to the extent due and
payable.
(b) Except as set forth in Section 4.13(b) of the Company Disclosure Letter,
(i) neither the Company nor any Subsidiary has waived any statute of limitations
in respect of Taxes of the Company or any Subsidiary; and (ii) no issues have
been raised by any relevant taxing authority in connection with any review by
such taxing authority of the Tax Returns through a notice or any other written
correspondence from such taxing authority, and neither the Company nor any of
its Subsidiaries is subject to an audit, examination, action, suit, proceeding,
investigation or claim regarding Taxes ("Tax Controversy") by the appropriate
taxing authorities of any nation, state, province or locality that is currently
pending (or scheduled as of the Effective Time to be conducted) or that has been
threatened in writing by any such authority regarding Taxes; and (iii) all
deficiencies asserted or assessments made as a result of any such Tax
Controversy by a taxing authority have been paid in full; and (iv) no liens or
security interests arising in connection with a failure (or alleged failure) to
pay any Taxes have attached to any of the Company's or any of its Subsidiaries'
assets, except for Liens for Taxes not yet due and payable. The Company has
delivered or made available to Parent correct and complete copies of all United
States federal, state and all foreign income Tax Returns (to the extent filed as
of the date hereof or, if not filed, correct and complete copies of extensions
thereof), examination reports, and statements of deficiencies assessed against
or agreed to by the Company and any of its Subsidiaries relating to taxable
years 1996, 1997 and 1998.
(c) For purposes of this Agreement (i) "Tax" (and, with correlative meaning,
"Taxes" and "Taxable") means any material federal, state, local, foreign or
other income, gross receipts, profits, property, sales, use, license, excise,
franchise, employment, payroll, premium, withholding, alternative or added
minimum, ad valorem, transfer stamp, severance, capital gains, capital stock or
excise tax, or any other tax, levy custom, duty, governmental fee or other like
assessment or charge of any kind whatsoever, together with any interest or
penalty, imposed by any governmental authority and shall include any liability
for such amounts as a result either of being a member of a combined,
consolidated, unitary or affiliated group or of a contractual obligation to
indemnify any person or other entity with respect to Taxes, and (ii) "Tax
Return" means any material return, form, report or similar statement required to
be filed with respect to any Tax (including any schedules, related or supporting
information), including, without limitation, any information return, claim for
refund, amended return or declaration of estimated Tax.
(d) Except as set forth in Section 4.13(d) of the Company Disclosure Letter,
none of the Company or any of its Subsidiaries has agreed to any extension of
time with respect to a Tax assessment or deficiency.
(e) Except as set forth in Section 4.13(e) of the Company Disclosure Letter,
neither the Company nor any of its Subsidiaries has been included in any
"consolidated," "unitary" or "combined" Tax Return provided for under the law of
the United States, any foreign jurisdiction or any state, province
A-21
or locality with respect to Taxes for any taxable period for which the statute
of limitations has not expired.
(f) Except as set forth in Section 4.13(f) of the Company Disclosure Letter,
there are no tax sharing, allocation, indemnification or similar agreements in
effect as between the Company or its Subsidiaries or any predecessor or
affiliate thereof and any other party under which Parent or Merger Sub, the
Company or its Subsidiaries could be liable for Taxes or other claims of any
party.
(g) No election under Section 341(f) of the Code has been made or shall be
made prior to the Effective Time to treat the Company or its Subsidiaries as a
consenting corporation, as defined in Section 341 of the Code.
(h) Neither the Company nor any of its Subsidiaries is a "United States real
property holding corporation" within the meaning of Section 897(c)(2) of the
Code.
(i) Except as set forth in Section 4.13(i) of the Company Disclosure Letter,
neither the Company nor any of its Subsidiaries has been required to include in
income any adjustments pursuant to section 481 of the Code by reason of a
voluntary change in accounting method initiated by the Company or any of its
Subsidiaries, and the Internal Revenue Service has not initiated or proposed any
such adjustment or change in accounting period.
Section 4.14 INTELLECTUAL PROPERTY. (a) The Company or its Subsidiaries
owns, free and clear of all Liens, licenses and other restrictions, or is
licensed to use, the worldwide rights to all domestic and foreign patents,
patent applications, registered and unregistered trademarks and service marks,
trade names, company names, copyrights together with any registrations and
applications therefor, Internet domain names, schematics, inventories,
technology, trade secrets, proprietary information, know-how, databases,
inventions, computer software programs or applications including, without
limitation, all object and source codes and tangible or intangible proprietary
information or material that in any material respect are used or necessary in
the business of the Company and any of its Subsidiaries as currently conducted
(the "Intellectual Property"). Section 4.14(a) of the Company Disclosure Letter
sets forth: (i) all material patents, patent applications, registered and
unregistered trademarks and service marks, trade names, company names,
registered copyrights, and any applications therefor, foreign and domestic; and
(ii) all material licenses and other agreements to which the Company or any of
its Subsidiaries is a party (the "Licenses") and pursuant to which the Company
or any of its Subsidiaries is authorized to use any Intellectual Property and
includes the identities of the parties thereto, a description of the nature and
subject matter thereof, the applicable royalty and the term thereof. Neither the
Company nor any of its Subsidiaries is, or as a result of the execution,
delivery or performance of the Company's obligations hereunder will be, in
violation of, or lose any rights pursuant to, any license or agreement set forth
in Section 4.14(a) of the Company Disclosure Letter.
(b) No claims have been asserted or, to the knowledge of the Company, are
threatened by any person or entity nor does the Company or any of its
Subsidiaries know of any grounds for any bona fide claims (i) to the effect that
the manufacture, sale, use, offer for sale, reproduction, distribution or
modification, of any product or process by the Company or any of its
Subsidiaries infringes or within the three (3) year period immediately prior to
the date hereof has infringed any copyright, trade secret, trademark, patent or
other intellectual property right of any person or entity, (ii) that, if
sustained, might adversely effect the interests of the Company or any of its
Subsidiaries in any Intellectual Property, or (iii) challenging the ownership,
validity or enforceability of any of the Intellectual Property. All patents and
all registered trademarks and service marks set forth in Section 4.14(a) of the
Company Disclosure Letter and all copyrights held by the Company or any of its
Subsidiaries are valid, enforceable and subsisting. To the Company's knowledge,
there has not been and there is not any unauthorized use, infringement or
misappropriation of any of the Intellectual Property by any person or entity,
including, without limitation, any employee or former employee.
A-22
(c) The operation of the Company as of the Effective Time shall require no
rights under Intellectual Property other than the rights under Intellectual
Property owned by the Company and rights granted to the Company pursuant to the
Licenses.
Section 4.15 ENVIRONMENTAL LAWS AND REGULATIONS. (a) For purposes of this
section, "Environmental Law" shall mean any federal, state or local law,
statute, rule, regulation, order or other requirement of law relating to the
protection of human health or the environment, or to the manufacture, use,
transport, treatment, storage, disposal, release or threatened release of
petroleum products, asbestos, urea formaldehyde insulation, polychlorinated
biphenyls or any substance listed, classified or regulated as hazardous or
toxic, or any similar term, under such Environmental Law.
(b) Except as could not reasonably be expected to have a Company Material
Adverse Effect, (i) the Company is in compliance with all applicable
Environmental Laws, and has obtained, and is in compliance with, all permits
required under applicable Environmental Laws; (ii) the Company has not received
any notice of any claims, proceedings or actions by any governmental authority
or other person or entity pending or, to the knowledge of the Company,
threatened against the Company under any Environmental Law; and (iii) to the
knowledge of the Company, there are no facts, circumstances or conditions
relating to the business or operations of the Company, or to any real property
at any time owned, leased or operated by the Company, that could reasonably be
expected to give rise to any claim, proceeding or action, or to any liability,
under any Environmental Law.
Section 4.16 VOTING REQUIREMENTS. The affirmative vote of the holders of
at least a majority of the outstanding shares of Company Common Stock (voting as
one class, with each share of Company Common Stock having one (1) vote) entitled
to be cast approving this Agreement and the Merger is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve this Agreement, the Merger and the transactions contemplated by this
Agreement.
Section 4.17 OWNERSHIP OF PARENT STOCK. Neither the Company nor any of its
Subsidiaries beneficially owns any Parent Ordinary Shares or Parent ADSs.
Section 4.18 STATE TAKEOVER STATUTES; CERTAIN CHARTER PROVISIONS. The
Board of Directors of the Company has, to the extent such statute is applicable,
taken all action (including appropriate approvals of the Board of Directors of
the Company) necessary to exempt Parent, its Subsidiaries, their affiliates, the
Merger, this Agreement, the Stockholder Agreements and the transactions
contemplated hereby and thereby from Section 203 of the DGCL. No other state
takeover statutes are applicable to the Merger, this Agreement, the Stockholder
Agreements and the transactions contemplated hereby and thereby.
Section 4.19 YEAR 2000. Except as set forth in Section 4.19 of the Company
Disclosure Letter or except as would not result in a Company Material Adverse
Effect, to the knowledge of the Company, all software material to the business,
finances or operations of the Company ("Software"):
(i) shall accurately and completely process (including but not limited
to calculation, comparison and sequencing, and including without limitation
leap year calculations) date-related data for dates prior to the year 2000,
date-related data for dates after the year 1999, and date-related data for
dates both before the year 2000 and after the year 1999; and
(ii) shall not, as a consequence of the change of centuries or of the
fact that dates from more than one century are being processed, cause an
abnormal termination of execution, an endless loop, incorrect values or
invalid results, or otherwise fail to perform accurately and completely
those functions set forth in the associated user documentation.
Section 4.20 BROKERS. No broker, investment banker or other person or
entity, other than Bear Stearns & Co. Inc., the fees and expenses of which will
be paid by the Company, is entitled to any broker's, finder's or other similar
fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company. A true
and correct copy of the engagement letter of Bear Stearns & Co. Inc. as in
effect on the date hereof has been delivered to Parent.
A-23
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
Parent and Merger Sub represent and warrant to the Company as follows:
Section 5.1 ORGANIZATION AND QUALIFICATION Each of Merger Sub, Parent and
Parent's Material Subsidiaries is a corporation duly incorporated, validly
existing and in good standing (with respect to jurisdictions which recognize the
concept of good standing) under the laws of its jurisdiction of incorporation
and has full corporate power and authority to conduct its business as and to the
extent now conducted and to own, operate and lease its assets and properties,
except for such failures to be so incorporated, existing and in good standing
(with respect to jurisdictions which recognize the concept of good standing) or
to have such power and authority which, individually or in the aggregate, could
not reasonably be expected to have a Parent Material Adverse Effect. Each of
Merger Sub, Parent and Parent's Material Subsidiaries, is duly qualified,
licensed or admitted to do business and is in good standing (with respect to
jurisdictions which recognize the concept of good standing) in each jurisdiction
in which the ownership, use or leasing of its assets and properties, or the
conduct or nature of its business, makes such qualification, licensing,
admission or good standing necessary, except for such failures to be so
qualified (with respect to jurisdictions which recognize the concept of good
standing) which, individually or in the aggregate, could not reasonably be
expected to have a Parent Material Adverse Effect. Parent has previously
delivered or made available to the Company correct and complete copies of the
memorandum and articles of association and bylaws (or other comparable charter
documents) of Merger Sub, Parent and Parent's Material Subsidiaries.
Section 5.2 CAPITAL STOCK. (a) The authorized share capital of Parent
consists solely of (i) 301,000,000 Parent Ordinary Shares, of which 226,858,671
shares were issued and outstanding and 27,266,007 shares are subject to future
issuance pursuant to Parent's share options and incentive schemes as of
September 30, 1999. All of the issued Parent Ordinary Shares are, and all Parent
Ordinary Shares to be issued as the Ordinary Share Consideration and the ADS
Consideration pursuant to Section 2.5(c) will be, upon issuance, duly
authorized, validly issued and fully paid and voting, and no class of shares is
entitled to preemptive rights, except as provided in Section 89 of the Companies
Act of 1985 of the United Kingdom (the "Companies Act").
(b) The authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, par value $.01 per share, all of which are validly issued and
outstanding, fully paid and nonassessable and are owned by Parent free and clear
of all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, charges or other encumbrances of any nature or any other
limitation or restriction (including any restriction on the right to vote or
sell the same, except as may be provided under applicable Federal or State
securities laws) (collectively, "Liens").
(c) Except as disclosed in the Parent SEC Reports filed prior to the date
hereof or Section 5.2(c) of the letter dated the date hereof and delivered by
Parent and Merger Sub to the Company simultaneously with the execution and
delivery of this Agreement (the "Parent Disclosure Letter"), there are no
(i) outstanding Issuance Obligations obligating Merger Sub, Parent or any of
Parent's Subsidiaries to issue or sell any Parent Ordinary Shares or capital
stock of Merger Sub or any of Parent's Material Subsidiaries or to grant, extend
or enter into any such Issuance Obligation, (ii) Voting Debt of the Parent or
any of its Material Subsidiaries, or (iii) voting trusts, proxies or other
commitments, understandings, restrictions or arrangements to which Merger Sub,
Parent or any of Parent's Material Subsidiaries is a party with respect to the
voting of or the right to participate in dividends or other earnings in respect
of any shares of Merger Sub, Parent or any of Parent's Material Subsidiaries.
(d) Except as set forth in the Company SEC Reports or Section 5.2(d) of the
Parent Disclosure Letter, all of the outstanding capital stock of, or ownership
interests in, each Material Subsidiary of
A-24
Parent is owned by Parent, directly or indirectly. All of the issued and capital
stock of each Material Subsidiary is validly existing, fully paid and
non-assessable. Except as set forth in the Company SEC Reports or
Section 5.2(d) of the Parent Disclosure Letter, no Material Subsidiary of Parent
has outstanding Voting Debt and no Material Subsidiary of Parent is bound by,
obligated under, or party to an Issuance Obligation with respect to any security
of Parent or any Material Subsidiary of Parent. Except as set forth in the
Parent SEC Reports or Section 5.2(d) of the Parent Disclosure Letter, all of
such capital stock or ownership interest is owned by Parent, directly or
indirectly, free and clear of all Liens.
Section 5.3 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Merger Sub has full power and authority to enter into this Agreement, and,
subject to obtaining the Parent Shareholders' Approval (as defined in
Section 7.3(a)), to perform its obligations hereunder, and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Merger Sub and the consummation by each of
Parent and Merger Sub of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Parent and Merger Sub. The Board
of Directors of Parent has passed a resolution declaring the advisability of the
Merger and resolving that the Merger be submitted for consideration by the
shareholders of Parent. No other corporate proceedings on the part of Parent or
Merger Sub or their shareholders are necessary to authorize the execution,
delivery and performance of this Agreement by Parent or Merger Sub and the
consummation by Parent and Merger Sub of the transactions contemplated hereby,
other than obtaining the Parent Shareholders' Approval. This Agreement has been
duly and validly executed and delivered by each of Parent and Merger Sub and
constitutes a legal, valid and binding obligation of each of Parent and Merger
Sub enforceable against each of Parent and Merger Sub in accordance with its
terms, except as enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Section 5.4 NON-CONTRAVENTION; APPROVALS AND CONSENTS. (a) The execution
and delivery of this Agreement by each of Parent and Merger Sub do not, and the
performance by each of Parent and Merger Sub of its obligations hereunder and
the consummation of the transactions contemplated hereby will not, conflict
with, result in a violation or breach of, constitute (with or without notice or
lapse of time or both) a default under, result in or give to any person any
right of payment or reimbursement, termination, cancellation, modification or
acceleration of, or result in the creation or imposition of any Lien upon any of
the assets or properties of Parent or any of its Material Subsidiaries under,
any of the terms, conditions or provisions of (i) the memorandum or articles of
association or bylaws (or other comparable charter documents) of Parent or any
of its Material Subsidiaries or (ii) subject to the obtaining of the Parent
Shareholders' Approval and the taking of the actions described in paragraph (b)
of this Section, (x) any Laws or Orders of any Governmental or Regulatory
Authority applicable to Parent or any of its Subsidiaries or any of their
respective assets or properties, or (y) any Contracts to which Parent or any of
its Subsidiaries is a party or by which Parent or any of its Subsidiaries or any
of their respective assets or properties is bound, excluding from the foregoing
clauses (x) and (y) conflicts, violations, breaches, defaults, rights of payment
or reimbursement, terminations, modifications, accelerations and creations and
impositions of Liens which, individually or in the aggregate, could not
reasonably be expected to have a Parent Material Adverse Effect or prevent,
materially impair or materially delay the ability of Parent and Merger Sub to
consummate the transactions contemplated by this Agreement.
(b) Except (i) for the filing of a premerger notification report by Parent
under the HSR Act, (ii) for the filing of the Registration Statement with the
SEC pursuant to the Securities Act, the declaration of the effectiveness of the
Registration Statement by the SEC and filings with various state securities
authorities that are required in connection with the transactions contemplated
by this
A-25
Agreement, (iii) for the filing of the Certificate of Merger and other
appropriate merger documents required by the DGCL with the Secretary of State
and appropriate documents with the relevant authorities of other states in which
the Constituent Corporations are qualified to do business, (iv) for the filings
with, notices to, and approvals of, the LSE and NYSE, (v) the approval of any
jurisdictional state regulating agencies, and (vi) as disclosed in
Section 5.4(b) of the Parent Disclosure Letter, no consent, approval or action
of, filing with or notice to any Governmental or Regulatory Authority or other
public or private third party is necessary or required under any of the terms,
conditions or provisions of any law or order of any Governmental or Regulatory
Authority or any Contract to which Parent or any of its Subsidiaries is a party
or by which Parent or any of its Subsidiaries or any of their respective assets
or properties is bound for the execution and delivery of this Agreement by each
of Parent and Merger Sub, the performance by each of Parent and Merger Sub of
its obligations hereunder or the consummation of the transactions contemplated
hereby other than such consents, approvals, actions, filings and notices which
the failure to make or obtain, as the case may be, individually or in the
aggregate, could not reasonably be expected to have a Parent Material Adverse
Effect or prevent, materially impair or materially delay the ability of Parent
and Merger Sub to consummate the transactions contemplated by this Agreement.
Section 5.5 SEC REPORTS AND FINANCIAL STATEMENTS. Parent has delivered or
made available to the Company a true and complete copy of each form, report,
schedule, registration statement, definitive proxy statement and other document
(together with all amendments thereof and supplements thereto) filed by Parent
or any of its Subsidiaries with the SEC and each biannual report distributed by
Parent to its shareholders since December 1, 1997 (as such documents have since
the time of their filing been amended or supplemented, the "Parent SEC
Reports"), which are all the documents (other than preliminary materials) that
Parent was required to file with the SEC since such date. As of their respective
dates, the Parent SEC Reports (i) complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
(ii) did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The audited consolidated financial statements and unaudited
interim consolidated financial statements (including, in each case, the notes,
if any, thereto) included in the Parent SEC Reports complied in all material
respects with the published rules and regulations of the SEC with respect
thereto, were prepared in accordance with generally accepted accounting
principles in the United Kingdom applied on a consistent basis during the
periods involved (except as may be indicated therein or in the notes thereto and
except with respect to unaudited statements) and fairly present (subject, in the
case of the unaudited interim financial statements, to normal, recurring
year-end audit adjustments (which are not expected to be, individually or in the
aggregate, materially adverse to Parent and its consolidated Subsidiaries)) the
consolidated financial position of Parent and its consolidated Subsidiaries as
at the respective dates thereof and the consolidated results of their operations
and cash flows for the respective periods then ended. The related notes
reconciling to United States generally accepted accounting principles such
consolidated financial statements comply in all material respects with the
requirements of the SEC applicable to such reconciliation.
Section 5.6 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as disclosed in
the Parent SEC Reports filed prior to the date hereof, or Section 5.6 of the
Parent Disclosure Letter, (a) since June 30, 1999 there has not been (i) any
change, event or development having, or that could reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect or
which could reasonably be expected to prevent, hinder or materially delay the
ability of Parent to consummate the Merger; (ii) any material change by Parent
or any of its Material Subsidiaries in its accounting methods, principles or
practices; (iii) any damage, destruction or loss which, individually or in the
aggregate, resulted in or could be reasonably expected to have a Parent Material
Adverse Effect; or (iv) any event pursuant to which Parent or any of its
Subsidiaries has incurred any material liabilities (direct, contingent or
otherwise) or engaged in any material transaction or entered into any material
A-26
agreement, in each case, outside the ordinary course of business which,
individually or in the aggregate, could be reasonably expected to have a Parent
Material Adverse Effect, and (b) between June 30, 1999 and the date hereof,
Parent and its Material Subsidiaries have conducted their respective businesses
only in the ordinary course substantially consistent with past practice.
Section 5.7 ABSENCE OF UNDISCLOSED LIABILITIES. Except for matters
reflected or reserved against in the balance sheet as at June 30, 1999 or as
disclosed in Section 5.7 of the Parent Disclosure Letter, neither Parent nor any
of its Subsidiaries had at such date, or has incurred since that date, any
liabilities or obligations (whether absolute, accrued, contingent, fixed or
otherwise, or whether due or to become due) of any nature that would be required
by generally accepted accounting principles in the United Kingdom to be
reflected on a consolidated balance sheet of Parent and its consolidated
subsidiaries (including the notes thereto), except liabilities or obligations
(i) which were incurred in the ordinary course of business consistent with past
practice or (ii) which have not been, and could not reasonably be expected to
have, individually or in the aggregate, a Parent Material Adverse Effect.
Section 5.8 LEGAL PROCEEDINGS. Except as disclosed in the Parent SEC
Reports filed prior to the date hereof or in Section 5.8 of the Parent
Disclosure Letter, (i) there are no actions, suits, arbitrations or proceedings
pending or, to the knowledge of Parent, threatened against, nor, to the
knowledge of Parent, are there any Governmental or Regulatory Authority
investigations or audits pending or threatened against Parent or any of its
Subsidiaries or any of its assets and properties which, individually or in the
aggregate, could reasonably be expected to have a Parent Material Adverse Effect
or prevent, materially impair or materially delay the ability of Parent and
Merger Sub to consummate the transactions contemplated by this Agreement, and
(ii) neither Parent nor any of its Subsidiaries is subject to any order of any
Governmental or Regulatory Authority which, individually or in the aggregate, is
having or could reasonably be expected to have a Parent Material Adverse Effect
on Parent or prevent, materially impair or materially delay the ability of
Parent and Merger Sub to consummate the transactions contemplated by this
Agreement.
Section 5.9 INFORMATION SUPPLIED. (a) The registration statement on
Form F-4 ("Form F-4") to be filed with the SEC by Parent in connection with the
issuance of Parent Ordinary Shares and Parent ADSs in the Merger, as amended or
supplemented from time to time (as so amended and supplemented, the
"Registration Statement"), and any other documents to be filed by Parent with
the SEC or any other Governmental or Regulatory Authority in connection with the
Merger and the other transactions contemplated hereby will (in the case of the
Registration Statement and any such other documents filed with the SEC under the
Securities Act or the Exchange Act) comply as to form, in all material respects,
with the requirements of the Exchange Act and the Securities Act, respectively,
and will not, on the date of its filing or, in the case of the Registration
Statement, at the time it becomes effective under the Securities Act, or at the
date the Proxy Statement is mailed to stockholders of the Company and at the
time of the Company Stockholders' Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading; provided, however, no
representation is made by Parent or Merger Sub with respect to information
supplied in writing by or on behalf of the Company expressly for inclusion
therein and information incorporated by reference therein from documents filed
by the Company or any of its Subsidiaries with the SEC.
(b) The Parent Disclosure Documents will, at all relevant times, include all
information relating to Parent and its Subsidiaries which is required to enable
the Parent Disclosure Documents and the parties hereto to comply in all material
respects with all United Kingdom statutory and other legal and regulatory
provisions (including, without limitation, the Companies Act, the FSA and the
rules and regulations made thereunder, and the rules and requirements of the
LSE) and all such information contained in such documents will be substantially
in accordance with the facts and will not omit anything material likely to
affect the import of such information.
A-27
(c) Notwithstanding the foregoing provisions of this Section 5.9, no
representation or warranty is made by Parent with respect to statements made or
incorporated by reference in the Registration Statement, the Listing Particulars
or the Circular based on information supplied by the Company expressly for
inclusion or incorporation by reference therein or based on information which is
not made in or incorporated by reference in such documents but which should have
been disclosed pursuant to Section 4.6.
Section 5.10 PERMITS; COMPLIANCE WITH LAWS AND ORDERS. Parent and its
Subsidiaries hold all permits, licenses, franchises, variances, exemptions,
orders and approvals of all Governmental and Regulatory Authorities necessary
for the lawful conduct of their respective businesses (the "Parent Permits"),
except for failures to hold such Parent Permits which, individually or in the
aggregate, are not having and could not reasonably be expected to have a Parent
Material Adverse Effect. Parent and its Subsidiaries are in compliance with the
terms of the Parent Permits, except failures so to comply which, individually or
in the aggregate, could not reasonably be expected to have a Parent Material
Adverse Effect. Except as disclosed in the Parent SEC Reports filed prior to the
date hereof, neither Parent nor its Subsidiaries are in violation of or default
under any law or order of any Governmental or Regulatory Authority, except for
such violations or defaults which, individually or in the aggregate, could not
reasonably be expected to have a Parent Material Adverse Effect.
Section 5.11 COMPLIANCE with Agreements Except as disclosed in the Parent
SEC Reports filed prior to the date hereof or Section 5.11 of the Parent
Disclosure Letter, neither Parent nor any of its Subsidiaries is in breach or
violation of, or in default in the performance or observance of any term or
provision of, and no event has occurred which, with notice or lapse of time or
both, could reasonably be expected to result in a default under, (i) the
memorandum or articles of association (or other comparable charter documents) of
Parent or any of its material Subsidiaries or (ii) any Contract to which Parent
or any of its Subsidiaries is a party or by which Parent or any of its
Subsidiaries or any of its assets or properties is bound, except in the case of
clause (ii) for breaches, violations and defaults which, individually or in the
aggregate, are not having and could not reasonably be expected to have a Parent
Material Adverse Effect.
Section 5.12 VOTE REQUIRED. The only votes of the holders of any class of
shares of Parent required to approve the Merger and the other transactions
contemplated hereby is the affirmative vote of a majority of such ordinary
shareholders of Parent as (being entitled to do so) are present and vote (or, in
the case of a vote taken on a poll, the affirmative vote by shareholders or
their proxies representing a majority of the Parent Ordinary Shares in respect
of which votes were validly exercised) at the Parent Shareholders Meeting in
relation to the approval of the Merger.
Section 5.13 CONTRACTS. Except as set forth in Section 5.13 of the Parent
Disclosure Letter, neither Parent nor its Subsidiaries is a party to, or has any
obligation under, any Contract which contains any covenant currently or
prospectively limiting the freedom of Parent or any of its Subsidiaries to
engage in any line of business or to compete with any entity, except to the
extent such limitations could not reasonably be expected to have a Parent
Material Adverse Effect. All Contracts to which Parent or any of its Material
Subsidiaries is a party or by which any of their respective assets is bound are
valid and binding, in full force and effect and enforceable against the parties
thereto in accordance with their respective terms, other than such failures to
be so valid and binding, in full force and effect or enforceable which could not
reasonably be expected to have, either individually or in the aggregate, a
Parent Material Adverse Effect. There is not under any such Contract any
existing default or event which, after notice or lapse of time, or both, would
constitute a default by Parent or any of its Material Subsidiaries or, to
Parent's knowledge, any other party, except to the extent such default could not
reasonably be expected to have a Parent Material Adverse Effect.
Section 5.14 TAXES. Parent and each Material Subsidiary (i) has timely
filed or will timely file all material Tax Returns required to be filed on or
before the Effective Time, which returns are and will
A-28
be true and complete in all material respects; and (ii) Parent and each Material
Subsidiary has timely paid or has adequately disclosed, and fully provided for
as a liability accrual on the Company Financial Statements in accordance with
United Kingdom generally accepted accounting principles, consistently applied,
all Taxes which are due and payable with respect to all taxable years or periods
that end on or before the date of this Agreement. Parent and each Material
Subsidiary has withheld or collected all Taxes they were required to withhold
and collect, and have timely paid to the proper authorities such Taxes withheld
or collected to the extent due and payable.
Section 5.15 YEAR 2000. Except as set forth in Section 5.15 of the Parent
Disclosure Letter and except as would not result in a Parent Material Adverse
Effect, to the knowledge of Parent, all software material to the business,
finances or operations of Parent ("Software"):
(i) shall accurately and completely process (including but not limited
to calculation, comparison and sequencing, and including, without
limitation, leap year calculations) date-related data for dates prior to the
year 2000, date-related data for dates after the year 1999, and date-related
data for dates both before the year 2000 and after the year 1999; and
(ii) shall not, as a consequence of the change of centuries or of the
fact that dates from more than one century are being processed, cause an
abnormal termination of execution, an endless loop, incorrect values or
invalid results, or otherwise fail to perform accurately and completely
those functions set forth in the associated user documentation.
Section 5.16 OWNERSHIP OF COMPANY COMMON STOCK. Neither Parent nor any of
its Subsidiaries or other affiliates beneficially owns any shares of Company
Common Stock other than pursuant to the Stockholders Agreements.
Section 5.17 BUSINESS OF MERGER SUB. Merger Sub was organized solely for
the purpose of acquiring the Company and engaging in the transactions
contemplated by this Agreement and has not engaged in any business since it was
incorporated which is not in connection with the acquisition of the Company and
this Agreement. During the period from the date of this Agreement through the
Effective Time, Merger Sub shall not engage in any activities of any nature
except as provided in or contemplated by this Agreement.
Section 5.18 BROKERS. No broker, investment banker or other person or
entity, other than Warburg Dillon Read LLC, the fees and expenses of which will
be paid by Parent, is entitled to any broker's, finder's or other similar fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of Parent or Merger Sub.
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 6.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE MERGER. Except
as otherwise expressly contemplated by this Agreement or as described in the
Company Disclosure Letter, during the period from the date of this Agreement
through the Effective Time, the Company shall, and shall cause its Subsidiaries
to carry on their respective businesses in the regular and ordinary course,
preserve intact their current business organizations, and, to the extent
consistent therewith, use its commercially reasonable efforts, keep available
the services of their current officers and employees and preserve their
relationships with customers, suppliers and others having business dealings with
them. Without limiting the generality of the foregoing, and, except as otherwise
expressly contemplated by this Agreement or as described in Section 6.1 of the
Company Disclosure Letter, during the period
A-29
from the date of this Agreement through the Effective Time, the Company shall
not, and shall not permit any of its Subsidiaries to, without the prior written
consent of Parent:
(a) (x) declare, set aside or pay any dividends on, or make any other
actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to stockholders of the Company
in their capacity as such, other than dividends payable to the Company
declared by any of the Company's Subsidiaries, (y) split, combine or
reclassify any of its capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for shares
of its capital stock or (z) purchase, redeem or otherwise acquire any shares
of capital stock of the Company or any of its Subsidiaries or any other
securities thereof or any rights, warrants or options to acquire any such
shares or other securities;
(b) issue, deliver, sell, pledge, dispose of or otherwise encumber any
shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into or exchangeable or exercisable
for, or any rights, warrants or options to acquire, any such shares, voting
securities or convertible securities or equity equivalent (other than, in
the case of the Company, the issuance of Company Common Stock during the
period from the date of this Agreement through the Effective Time upon the
exercise of Stock Options outstanding (as set forth in Section 4.2(a)) on
the date of this Agreement in accordance with their current terms) or enter
into any agreement or contract with respect to the sale or issuance of any
of its securities;
(c) amend its certificate of incorporation or bylaws or amend the
certificate of incorporation and by-laws (or other organizational documents)
of any of its Subsidiaries;
(d) acquire or agree to acquire by merging or consolidating with, or by
purchasing assets of or equity in, or by any other manner, any business or
any corporation, partnership, association or other business organization or
division thereof or otherwise acquire or agree to acquire any assets (other
than in the ordinary course of business consistent with past practice);
(e) sell, lease or otherwise dispose of or agree to sell, lease or
otherwise dispose of, any of its assets that are material, individually or
in the aggregate, to the Company and its Subsidiaries taken as a whole;
(f) incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities or guarantee any debt
securities of others, except for (i) borrowings or guarantees incurred in
the ordinary course of business consistent with past practice for working
capital purposes, (ii) indebtedness of any Subsidiary of the Company to the
Company or to another Subsidiary of the Company, (iii) in replacement for
existing or maturing debt so long as principal amount does not increase or
(iv) other borrowings under existing lines of credit or loans in the
ordinary course of business consistent with past practice, or make any
loans, advances or capital contributions to, or investments in, any other
person or entity, other than to the Company or any wholly owned Subsidiary
of the Company and other than in the ordinary course of business consistent
with past practice;
(g) alter through merger, liquidation, reorganization, restructuring or
in any other fashion the corporate structure or ownership of any Subsidiary
of the Company or adopt any plan with respect to any of the foregoing;
(h) grant any severance or termination pay not currently required to be
paid under existing severance plans or agreements, enter into or adopt, or
amend any existing, severance plan, agreement or arrangement or, other than
in the ordinary course of business or as required by applicable law, enter
into or amend any employee benefit plan (including, without limitation, the
Company Stock Plan), or enter into or amend any employment or consulting
agreement;
A-30
(i) enter into any contract or commitment with respect to capital
expenditures with a value in excess of, or requiring expenditures by the
Company and its Subsidiaries in excess of $100,000, individually, or enter
into contracts or commitments with respect to capital expenditures with a
value in excess of, or requiring expenditures by the Company and its
Subsidiaries in excess of $1,000,000, in the aggregate;
(j) except to the extent required under existing employee and director
benefit plans, agreements or arrangements as in effect on the date of this
Agreement, make any bonus payments to, or increase the compensation or
fringe benefits of any of its directors, officers or employees, provided
that, the Company may (i) increase compensation associated with promotions
and regular reviews in the ordinary course of business consistent with past
practice and (ii) pay bonuses in the ordinary course of business consistent
with past practice; provided, however, that the aggregate amount of such
payments with respect to the employees of the Company's United States
operations other than Falk Communications, Inc., shall not exceed
$1,000,0000;
(k) agree to the settlement of any material claim or litigation;
(l) make or rescind any material tax election or settle or compromise
any material tax liability;
(m) make any material change in its method of accounting;
(n) except as required under the Company Stock Plan and as otherwise
provided in this Agreement, accelerate the payment, right to payment or
vesting of any bonus, severance, profit sharing, retirement, deferred
compensation, stock option, insurance or other compensation or benefits;
(o) pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction (A) of any such claims,
liabilities or obligations in the ordinary course of business and consistent
with past practice or (B) of claims, liabilities or obligations reflected or
reserved against in, or contemplated by, the consolidated financial
statements (or the notes thereto) contained in the Company SEC Reports;
(p) enter into any agreement, understanding or commitment that
restrains, limits or impedes the Company's or any of its Subsidiaries'
ability to compete with or conduct any business or line of business,
including, but not limited to, geographic limitations on the Company's or
any of its Subsidiaries' activities;
(q) materially modify, amend or terminate any material contract to which
it is a party or waive any of its material rights or claims except in the
ordinary course of business consistent with past practice; or
(r) agree, in writing or otherwise, to take any of the foregoing
actions.
Section 6.2 NO SOLICITATION. (a) During the period from the date hereof
through the Effective Time, neither the Company nor any of its Subsidiaries
shall, directly or indirectly, take (and the Company shall not authorize or
permit its, or its Subsidiaries', officers, directors, employees, financial
advisors, attorneys and other advisors, representatives and agents) any action
to (i) solicit, facilitate, initiate or encourage the submission of, any
Takeover Proposal (as hereafter defined) (including, without limitation, the
taking of any action which would make Section 203 of the Delaware General
Corporation inapplicable to a Takeover Proposal), (ii) enter into any agreement
with respect to any Takeover Proposal or enter into any arrangement,
understanding or agreement requiring it to abandon, terminate or fail to
consummate the Merger or any other transaction contemplated by this Agreement,
(iii) unless the Board of Directors of the Company, based upon the advice of its
outside counsel, determines in good faith that the failure to take such action
would result in a breach of its fiduciary
A-31
duties under applicable law, participate in any way in any discussions or
negotiations regarding, or furnish to any person or legal entity (other than
Parent or Merger Sub) any information with respect to any Takeover Proposal or
(iv) take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may reasonably be expected to lead to, any
Takeover Proposal. "Takeover Proposal" shall mean any proposed merger or other
business combination, sale or other disposition of any material amount of
assets, sale of shares of capital stock, tender offer or exchange offer or
similar transactions involving the Company or any of its Subsidiaries.
(b) During the period from the date hereof through the Effective Time,
neither the Board of Directors of the Company nor any committee thereof shall
(i) unless the Board of Directors of the Company, based upon the advice of its
outside counsel, determines in good faith that the failure to take such action
would result in a breach of its fiduciary duties under applicable law, withdraw
or modify, or propose to withdraw or modify, in a manner adverse to Parent or
Merger Sub, the approval or recommendation by such Board of Directors or such
committee of the Merger and this Agreement or (ii) approve or recommend, or
propose to approve or recommend, any Takeover Proposal or (iii) cause the
Company to enter into any letter of intent, agreement in principle, acquisition
agreement or other similar agreement related to any Takeover Proposal.
(c) In addition to the obligations of the Company set forth in paragraphs
(a) and (b) of this Section 6.2, on the date of receipt thereof, if possible,
but no later than twelve (12) hours after receipt thereof, the Company shall
advise Parent in writing of any request for information or any Takeover
Proposal, or any inquiry, proposal, discussions or negotiation with respect to
any Takeover Proposal, the terms and conditions of such request, Takeover
Proposal, inquiry or proposal and the Company shall promptly provide to Parent
copies of any written materials received by the Company in connection with any
of the foregoing, and the identity of the person or entity making any such
Takeover Proposal or such request, inquiry or proposal.
(d) Immediately following the execution of this Agreement, the Company will
cease any existing discussions or negotiations with any parties conducted
heretofore with respect to any Takeover Proposal and request each person which
has heretofore executed a confidentiality agreement in connection with its
consideration of acquiring the Company or any portion thereof to return all
confidential information heretofore furnished to such person or entity by or on
behalf of the Company.
Section 6.3 THIRD PARTY STANDSTILL AGREEMENTS. During the period from the
date of this Agreement through the Effective Time, (i) the Company shall not
terminate, amend, modify or waive any provision of any confidentiality or
standstill agreement to which the Company or any of its Subsidiaries is a party
(other than any involving Parent), and (ii) the Company shall enforce, to the
fullest extent permitted under applicable law, the provisions of any such
agreements, including, but not limited to, where necessary obtaining injunctions
to prevent any breaches of such agreements and to enforce specifically the terms
and provisions thereof in any court of the United States or any state thereof
having jurisdiction.
ARTICLE VII
ADDITIONAL AGREEMENTS
Section 7.1 ACCESS TO INFORMATION. Each of the parties shall, and shall
cause each of their Subsidiaries to, afford to the other party, and to other
party's accountants, counsel, financial advisers and other representatives,
reasonable access and permit them to make such inspections during normal
business hours as they may reasonably request during the period from the date of
this Agreement through the Effective Time to all their respective properties,
books, contracts, commitments and records and, during such period, each of the
parties shall, and shall cause each of its Subsidiaries to, furnish promptly to
the other party (i) a copy of each report, schedule, registration statement and
other
A-32
document filed by it during such period pursuant to the requirements of U.K.,
federal or state laws and (ii) all other information concerning its business,
properties, clients and personnel as the other party may reasonably request.
Section 7.2 PREPARATION OF REGISTRATION STATEMENT AND PROXY STATEMENT. As
soon as practicable after the date of this Agreement, the Company shall, in
cooperation with Parent, prepare the Proxy Statement and Parent shall, in
cooperation with the Company, prepare the Registration Statement, in which the
Proxy Statement will be included as the prospectus. The Company shall, in
cooperation with Parent, file the Proxy Statement with the SEC as its
preliminary Proxy Statement and Parent shall, in cooperation with the Company,
prepare and file with the SEC the Registration Statement in which the Proxy
Statement will be included as the prospectus. Parent and the Company shall use
commercially reasonable efforts to have the Registration Statement declared
effective by the SEC as promptly as practicable after such filing. Parent and
the Company shall also take any action (other than qualifying as a foreign
corporation or taking any action which would subject it to service of process in
any jurisdiction where Parent is not now so qualified or subject) required to be
taken under applicable state blue sky or securities laws in connection with the
issuance of Parent ADSs or Parent Ordinary Shares in connection with the Merger.
If at any time prior to the Effective Time any event shall occur that should be
set forth in an amendment of or a supplement to the Registration Statement,
Parent shall prepare and file with the SEC such amendment or supplement as soon
thereafter as is reasonably practicable. Parent and the Company shall cooperate
with the other party in the preparation of the Registration Statement and the
Proxy Statement and any amendment or supplement thereto, and each shall notify
the other party of the receipt of any comments of the SEC with respect to the
Registration Statement or the Proxy Statement and of any requests by the SEC for
any amendment or supplement thereto or for additional information, and shall
provide to the other party promptly copies of all correspondence between Parent
or the Company, as the case may be, or any of their respective representatives
with respect to the Registration Statement or the Proxy Statement. Parent and
the Company shall give the other party and their respective counsel the
opportunity to review the Registration Statement and the Proxy Statement and all
responses to requests for additional information by and replies to comments of
the SEC before there being filed with, or sent to, the SEC. Each of the Company
and Parent agrees to use commercially reasonable efforts, after consultation
with each other, to respond promptly to all such comments of, and requests by
the SEC and to cause (x) the Registration Statement to be declared effective by,
the SEC at the earliest practicable time and to be kept effective as long as is
necessary to consummate the Merger, and (y) the Proxy Statement to be mailed to
the holders of Company Common Stock entitled to vote at the Company
Stockholder's Meeting at the earliest practicable time.
Section 7.3 APPROVAL OF SHAREHOLDERS. (a) Parent shall, through its Board
of Directors, duly call, give notice of, convene and hold an extraordinary
general meeting of its shareholders (the "Parent Shareholders' Meeting"), for
the purpose of voting to approve the Merger in accordance with this Agreement
and any resolutions necessary or appropriate to enable Parent to implement the
same (the "Parent Shareholders' Approval"). Unless the Board of Directors of
Parent, based upon the advice of their outside counsel, determines in good faith
that making such recommendation, or failing to amend, modify or withdraw any
previously made recommendation, would result in a breach their fiduciary duties
to shareholders under applicable law, Parent shall include in the Circular the
recommendation of the Board of Directors of Parent that the shareholders of
Parent approve such matters, and shall use its commercially reasonable efforts
to obtain such approval. In connection with the Parent Shareholders' Meeting,
subject to applicable law, (i) Parent shall, as soon as practicable after the
date of this Agreement and in accordance with the listing rules of the LSE,
prepare and submit to the LSE for approval the Circular and Listing Particulars,
and shall use its commercially reasonable efforts to have such documents
formally approved by the LSE and shall thereafter publish the Circular and the
Listing Particulars and dispatch the Circular and Listing Particulars to its
shareholders in compliance with all legal requirements applicable to the Parent
Shareholders' Meeting and the listing rules of the LSE and
A-33
(ii) if necessary thereafter, promptly publish or circulate amended,
supplemental or supplemented materials and, if required in connection therewith,
resolicit votes. Parent shall give the Company and its counsel the opportunity
to review the Circular and the Listing Particulars before the same are
published. The Company agrees to cooperate with Parent in the preparation of the
Circular and the Listing Particulars including providing such information with
respect to the Company and its Subsidiaries as may be required to be disclosed
therein.
(b) The Company shall, through its Board of Directors, duly call, give
notice of, convene and hold a meeting of its stockholders (the "Company
Stockholders' Meeting") for the purpose of voting on the approval of the Merger
in accordance with this Agreement (the "Company Stockholders' Approval") as soon
as reasonably practicable after the date hereof. The Company shall, through its
Board of Directors, unless the Board of Directors of the Company, based upon the
advice of its outside counsel, determines in good faith that the taking of such
action would result in a breach of its fiduciary duties under applicable law
(i) include in the Proxy Statement the recommendation of the Board of Directors
of the Company that the stockholders of the Company approve such matters, and
(ii) use its commercially reasonable efforts to obtain such approval. The
Company shall consult and discuss in good faith with Parent regarding the
alternatives available for obtaining the Company Stockholders' Approval.
Section 7.4 COMPANY AFFILIATES. At least thirty (30) days prior to the
Closing Date the Company shall deliver a letter to Parent identifying all
persons who, at the time of the Company Stockholder's Meeting, may, in the
Company's reasonable judgment, be deemed to be "Affiliates" (as such term is
used in Rule 145 under the Securities Act) of the Company ("Company
Affiliates"). The Company shall use commercially reasonable efforts to cause
each Company Affiliate to deliver to Parent on or prior to the Closing Date a
written agreement substantially in the form of Exhibit 1 hereto (an "Affiliate
Agreement"). Parent shall be entitled to place legends as specified in such
Affiliate Agreements on the certificates evidencing any Parent Ordinary Shares
or Parent ADSs to be received by such Company Affiliates parties to an Affiliate
Agreement pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for the Parent ADSs, consistent with
the terms of such Affiliate Agreements.
Section 7.5 AUDITORS' LETTERS. Each of the Company and Parent shall use
its commercially reasonable efforts to cause to be delivered to the other party
and such other party's Board of Directors a letter of its independent auditors,
dated the date on which the Registration Statement shall become effective, and
addressed to the other party and such other party's Board of Directors, in form
and substance customary for "comfort" letters delivered by independent public
accountants in connection with the registration statements on Form F-4.
Section 7.6 STOCK EXCHANGE LISTING. Parent shall use its commercially
reasonable efforts, and the Company shall cooperate in respect thereto, to cause
(a) the Parent Ordinary Shares and Parent ADSs to be issued in the Merger and
under the Company Stock Plan after the Merger in accordance with this Agreement
to be approved for listing on the NYSE, subject to official notice of issuance,
prior to the Closing Date; (b) the Parent Ordinary Shares to be issued in the
Merger (including those Parent Ordinary Shares to be represented by the Parent
ADSs to be issued in the Merger) to be admitted to the Official List of the
London Stock Exchange at the Effective Time and (c) the Parent Ordinary Shares
to be issued under the Company Stock Plan after the Merger in accordance with
this Agreement to be admitted to the Official List of the London Stock Exchange,
at the time of issue.
Section 7.7 FEES AND EXPENSES. (a) Subject to Section 7.7(b) Whether or
not the Merger is consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses, except as otherwise expressly set
forth in this Agreement; provided, however, the costs of any HSR Act filing made
by
A-34
Steven Girgenti or William Leslie Milton, in each case, as may be required in
connection with the Merger shall be paid by the Company.
(b) In the event that this Agreement is terminated and the Merger is not
consummated solely as a result of the failure of Parent to receive the Parent
Shareholders' Approval, Parent shall pay to the Company all documented
reasonable out of pocket costs and expenses (including legal, accounting,
investment banking and other professional fees) incurred by the Company and its
Subsidiaries primarily relating to the transactions contemplated by this
Agreement, which amounts shall be due and payable within 10 business days of
such termination; provided, however, that in no event shall the aggregate
obligation of Parent to pay such fees and expenses exceed $1.5 million.
Section 7.8 COMMERCIALLY REASONABLE EFFORTS. Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties agrees to use
its commercially reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the other party
in doing, all things necessary, proper or advisable to consummate and make
effective, in the most expeditious manner practicable, the Merger, and the other
transactions contemplated by this Agreement, including (a) obtaining all
necessary actions or non-actions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities, including without limitation, all
filings under the HSR Act) and the taking of all reasonable steps as may be
necessary to obtain an approval or waiver from or to avoid an action or
proceeding by any Governmental Entity, (b) obtaining all necessary consents,
approvals or waivers from third parties, (c) defending any lawsuits or other
legal proceedings, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated hereby, including
seeking to have any stay or temporary restraining order entered by any court or
other Governmental Entity vacated or reversed, and (d) executing and delivering
any additional instruments necessary to consummate the transactions contemplated
by this Agreement.
Section 7.9 PUBLIC ANNOUNCEMENTS. Parent, on the one hand, and the
Company, on the other hand, will consult with each other before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by applicable law or regulation.
Section 7.10 INDEMNIFICATION; DIRECTORS AND OFFICERS INSURANCE. (a) From
and after the Effective Time and continuing for a period of not less than six
years after the Effective Time, Parent agrees to, and to cause the Surviving
Corporation to, indemnify and hold harmless all past and present officers,
directors, employees and agents of the Company and of its Subsidiaries to the
full extent such persons have been indemnified by the Company pursuant to the
Company's Certificate of Incorporation and Bylaws as in effect as of the date
hereof for acts and omissions occurring at or prior to the Effective Time and
shall advance reasonable expenses incurred by such persons in connection with
defending any action arising out of such acts or omissions, provided that the
Company receives reasonable affirmations and undertakings from such persons to
repay all amounts advanced if it should be ultimately determined that such
person was not entitled to indemnification. The parties hereto agree that the
officers, directors, employees and agents of the Company and its Subsidiaries
covered by such indemnification are intended to be third-party beneficiaries
under this Section 7.10 and shall have the right to enforce the obligations of
Parent and the Surviving Corporation under this Section 7.10.
(b) Parent will provide, or cause the Surviving Corporation to provide, for
a period of not less than six years after the Effective Time, for the benefit of
the Company's current directors and officers, an insurance and indemnification
policy that provides coverage for events occurring at or prior to the Effective
Time that is no less favorable than the existing policy or, if substantially
equivalent insurance coverage is unavailable, the best available coverage;
PROVIDED, HOWEVER, that Parent and the Surviving Corporation shall not be
required to pay an annual premium for such insurance in excess of 1.50 times the
last annual premium paid prior to the date hereof, but in such case shall
purchase as much such coverage as possible for such amount.
A-35
Section 7.11 COMPLIANCE WITH TREASURY REGULATIONS. In order to avoid the
application of Section 367(a)(1) of the Code, after the Effective Time, Parent
agrees to take all steps required to ensure that the Company will comply with
the reporting requirements described in U.S. Treasury Regulations
Section 1.367(a)-3(c)(6). Parent also agrees to provide to the Company and any
other person that is a holder of Company Common Stock immediately prior to the
Effective Time that may have reporting obligations under Section 6038B of the
Code with respect to any transactions effected pursuant to this Agreement, any
information necessary to comply with the filing requirements of Section 6038B
and the U.S. Treasury Regulations promulgated thereunder.
Section 7.12 NO TRANSFER OF STOCK. Prior to December 31, 2005, Parent will
neither transfer, sell or otherwise dispose of any shares of stock of the
Company, other than a transfer to a Subsidiary or an Affiliate of Parent so long
as such transfer is described in Treasury Regulations Section 1.367(a)-(8(g)(2)
and Parent provides the Shareholder Parties (as defined below) within 15 days of
such transfer with the information necessary to comply with the requirements of
Treasury Regulation Sections 1.367(a)-8(g)(2)(ii) through (iv), nor permit a
"deemed disposition" of any such shares within the meaning of Treasury
Regulations Section 1.367(a)-8(e)(3). Parent agrees to report the breach of any
covenant of this Section 7.12 to any holder of shares of Company Common Stock
that, solely as a result of the receipt of the Merger Consideration at the
Effective Time, becomes the beneficial owner of 5% or more of Parent Shares
(collectively, the "Shareholder Parties") within 15 days of such breach.
Section 7.13 DIVIDENDS, DISTRIBUTIONS AND ISSUANCES. During the period
from the date of this Agreement through the Effective Time, Parent shall not
(i) declare, set aside or pay any dividends on, or make any other distributions
in respect of, any of its capital stock, except for dividends on Parent Ordinary
Shares, (ii) split, combine or reclassify or otherwise alter Parent Ordinary
Shares, or (iii) issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock.
Section 7.14 SECTION 103 CA 1985. Parent shall use its commercially
reasonable efforts and the Company shall cooperate in respect thereto, to cause
(to the extent applicable):
(a) the appointment of an appropriate independent person (who would be
qualified to be the auditor of Parent) to produce a valuation and report in
accordance with Section 103 of the Companies Act 1985;
(b) the appointed independent valuer to produce a report in accordance with
Section 108 of the Companies Act 1985 as soon as practicable following the date
of this Agreement;
(c) the appointed independent valuer's valuation and report to be circulated
to the board of directors of the Company for their review and comment as soon as
practicable after an initial draft is produced to Parent;
(d) the independent valuation and report to be sent to all holders of the
Company Common Stock along with the Proxy Statement.
ARTICLE VIII
CONDITIONS PRECEDENT
Section 8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) STOCKHOLDER APPROVAL. The Company shall have received the Company
Stockholders' Approval and the Parent shall have received the Parent
Shareholders' Approval.
A-36
(b) REGISTRATION STATEMENT; STATE SECURITIES LAWS. The Registration
Statement shall have become effective in accordance with the provisions of the
Securities Act, and no stop order suspending such effectiveness shall have been
issued and remain in effect and no proceeding seeking such an order shall be
pending or threatened, and Parent shall have received all state securities or
"Blue Sky" permits and other authorizations necessary to issue the Parent
Ordinary Shares and Parent ADSs pursuant to this Agreement and under the Company
Stock Plan after the Merger.
(c) EXCHANGE LISTING. The LSE shall have agreed to admit to the Official
List (subject only to allotment) the Parent Ordinary Shares to be issued in
connection with the Merger and such agreement shall not have been withdrawn and
the Parent Ordinary Shares and Parent ADSs issuable to the Company's
stockholders in the Merger and under the Company Stock Plan after the Merger in
accordance with this Agreement shall have been authorized for listing on the
NYSE, subject to official notice of issuance, and such agreement shall not have
been withdrawn.
(d) HSR ACT. Any waiting period (and any extension thereof) applicable to
the consummation of the Merger under the HSR Act shall have expired or been
terminated.
(e) INJUNCTIONS OR RESTRAINTS. No court of competent jurisdiction or other
competent Governmental or Regulatory Authority shall have enacted, issued,
promulgated, enforced or entered any law or order (whether temporary,
preliminary or permanent) which is then in effect and has the effect of making
illegal or otherwise restricting, preventing or prohibiting consummation of the
Merger or the other transactions contemplated by this Agreement.
(f) H.M. TREASURY CONSENT. Parent (as required) shall have received
consent from H.M. Treasury pursuant to Section 765 of the U.K. Income and
Corporation Taxes Act 1988 in respect of the Merger and any other matter
contemplated hereby, or confirmation that no consent is required.
(g) GOVERNMENTAL AND REGULATORY CONSENTS AND APPROVALS. Other than the
filings provided for by Section 2.2, all consents, approvals and actions of,
filings with and notices to any Governmental or Regulatory Authority (including
under the HSR Act) required of Parent, the Company or any of their Subsidiaries
to consummate the Merger and the other matters contemplated hereby shall have
been made or obtained (as the case may be) and become Final Orders (as defined
in this Section below), and such Final Orders shall not, individually or in the
aggregate, contain terms or conditions that would have, or could reasonably be
expected to have, a material adverse effect on Parent, the Surviving Corporation
and their respective Subsidiaries, taken as a whole. A "Final Order" means an
action by the relevant Governmental or Regulatory Authority that has not been
reversed, stayed, enjoined, set aside, annulled or suspended, with respect to
which any waiting period prescribed by applicable law before the transactions
contemplated hereby may be consummated has expired, and as to which all
conditions to the consummation of such transactions prescribed by applicable
law, regulation or order have been satisfied.
(h) UK FAIR TRADING ACT. Any of:
(i) the Office of Fair Trading (the "OFT") shall not have indicated in
writing that the Secretary of State for Trade and Industry (the "SOS") in
the exercise of his powers under the Fair Trading Act 1973 (the "FTA")
intends to refer the Merger or any matter relating thereto to the
Competition Commission ("COC"); or
(ii) in the event of an COC reference, the COC shall have concluded that
the Merger does not or may not be expected to operate against the public
interest; or
(iii) if on a reference the COC shall have concluded that the Merger does
or may be expected to operate against the public interest, the SOS shall
have indicated in writing that it is his intention to approve the Merger,
A-37
PROVIDED that if any indication by the SOS referred to in (i) or (iii) above is
subject to undertakings, assurances, or any other terms or conditions, such
undertakings, assurances, terms or conditions would not have, or could
reasonably be expected not to have, individually or in the aggregate, a Parent
Material Adverse Effect.
(i) OTHER CONSENTS AND APPROVALS. The consent or approval of each person
(other than a Governmental or Regulatory Authority) whose consent or approval is
required of Parent, the Company or any of their Subsidiaries under any Contract
in order to consummate the Merger and the other transactions contemplated hereby
shall have been obtained, except for those consents and approvals which, if not
obtained, would not have, or could not reasonably be expected to have, a
material adverse effect on the Surviving Corporation and its Subsidiaries taken
as a whole or on the ability of Parent or the Company to consummate the
transactions contemplated hereby.
Section 8.2 CONDITIONS TO OBLIGATION OF PARENT AND MERGER SUB TO EFFECT THE
MERGER. The obligation of Parent and Merger Sub to effect the Merger is further
subject to the fulfillment, at or prior to the Effective Time, of each of the
following additional conditions (all or any of which may be waived in whole or
in part by Parent and Merger Sub in their sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by the Company in this Agreement shall be true and correct, in all material
respects, as of the Effective Time as though made as of the Effective Time or,
in the case of representations and warranties made as of a specified date
earlier than the Effective Time on and as of such earlier date, and the Company
shall have delivered to Parent a certificate, dated the Closing Date and
executed in the name and on behalf of the Company by its Chairman of the Board,
President or any Executive or Senior Vice President, to such effect.
(b) PERFORMANCE OF OBLIGATIONS. The Company shall have performed and
complied with, in all material respects, the agreements, covenants and
obligations which are required by this Agreement to be so performed or complied
with by the Company at or prior to the Closing, and the Company shall have
delivered to Parent a certificate, dated the Closing Date and executed in the
name and on behalf of the Company by its Chairman of the Board, President or any
Executive or Senior Vice President, to such effect.
(c) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there shall
not have occurred a Company Material Adverse Effect and no facts or
circumstances arising after the date of this Agreement shall have occurred
which, individually or in the aggregate, could reasonably be expected to have a
Company Material Adverse Effect.
(d) PROCEEDINGS. All proceedings to be taken on the part of the Company in
connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be reasonably satisfactory in form and
substance to Parent, and Parent shall have received copies of all such documents
and other evidences as Parent may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
Section 8.3 CONDITIONS TO OBLIGATION OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger is further subject
to the fulfillment, at or prior to the Effective Time, of each of the following
additional conditions (all or any of which may be waived in whole or in part by
the Company in its sole discretion):
(a) REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by Parent and Merger Sub in this Agreement shall be true and correct, in
all material respects, as of the Effective Time as though made as of the
Effective Time or, in the case of representations and warranties made as of a
specified date earlier than the Effective Time, on and as of such earlier date
and Parent and Merger Sub shall each have delivered to the Company a
certificate, dated the Closing Date and executed in the name and on behalf of
Parent by its Chairman of the Board, President or any
A-38
Executive Officer or any Executive Director, and in the name and on behalf of
Merger Sub by its Chairman of the Board, President or any Vice President, to
such effect.
(b) PERFORMANCE OF OBLIGATIONS. Parent and Merger Sub shall have performed
and complied with, in all material respects, each agreement, covenant and
obligation required by this Agreement to be so performed or complied with by
Parent or Merger Sub at or prior to the Effective Time, and Parent and Merger
Sub shall each have delivered to the Company a certificate, dated the Closing
Date and executed in the name and on behalf of Parent by its Chairman of the
Board, President or any Executive Officer or any Executive Director and in the
name and on behalf of Merger Sub by its Chairman of the Board, President or any
Vice President, to such effect.
(c) TAX OPINION. The Company shall have received an opinion, based on
appropriate representations of the Company, Parent and Merger Sub, of
Rosenman & Colin LLP, counsel to the Company, dated on or about the date on
which the Registration Statement (or the last amendment thereto) shall have
become effective, which opinion shall have been confirmed in writing on and as
of the Closing Date to the effect that the Merger will constitute a
"reorganization" within the meaning of Code Section 368(a) and that no gain or
loss will be recognized for US federal income tax purposes by the stockholders
of the Company who exchange Company Common Stock for Parent ADSs or Parent
Ordinary Shares pursuant to the Merger (except with respect to cash received in
lieu of fractional Parent ADSs or Parent Ordinary Shares).
(d) PROCEEDINGS. All proceedings to be taken on the part of Parent and
Merger Sub in connection with the transactions contemplated by this Agreement
and all documents incident thereto shall be reasonably satisfactory in form and
substance to the Company, and the Company shall have received copies of all such
documents and other evidences as the Company may reasonably request in order to
establish the consummation of such transactions and the taking of all
proceedings in connection therewith.
(e) REGISTRATION OF OPTION SHARES. Pursuant to Section 2.9(b), Parent
shall have filed a registration statement with the SEC, which registration
statement shall be effective at the Effective Time, with respect to the Parent
Ordinary Shares to be issued upon the exercise of Stock Options after the
Effective Time.
(f) MATERIAL ADVERSE EFFECT. Since the date of this Agreement, there shall
not have occurred a Parent Material Adverse Effect where, following such Parent
Material Adverse Effect, the Parent Share Value (without giving effect to the
Exchange Rate) is less than 135p.
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
Section 9.1 TERMINATION. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, at any time prior to the
Effective Time, whether prior to or after the Company Stockholders' Approval or
the Parent Shareholders' Approval:
(a) By mutual written agreement of the parties hereto duly authorized by
action taken by or on behalf of their respective Boards of Directors; or
(b) By either the Company or Parent upon notification to the non-terminating
party by the terminating party:
(i) at any time after May 31, 2000, if the Merger shall not have been
consummated on or prior to such date and such failure to consummate the
Merger is not caused by a breach of this Agreement by the terminating party;
PROVIDED, HOWEVER, that if on such date Parent and the Company and their
respective Subsidiaries have not received all of the approvals required in
order
A-39
to satisfy the conditions set forth in Section 8.1(f), 8.1(g) or 8.1(h) but
all other conditions to effect the Merger shall be fulfilled or shall be
capable of being fulfilled, then, at the option of either Parent or the
Company (which shall be exercised by written notice), the term of this
Agreement shall be extended until August 31, 2000;
(ii) if the Company Stockholders' Approval or the Parent Shareholders'
Approval shall not be obtained by reason of the failure to obtain the
requisite vote upon a vote actually held at a meeting of such stockholders
or shareholders, or any adjournment thereof, called therefor;
(iii) if there has been a material breach of any representation,
warranty, covenant or agreement on the part of the non-terminating party set
forth in this Agreement (determined in all cases as if the terms "material"
or "materially" were not included in any such representation or warranty),
which breach is not curable or, if curable, has not been cured within thirty
(30) days following receipt by the non-terminating party of notice of such
breach from the terminating party which breach, when taken together with any
other breaches of representations, warranties, covenants and agreements of
the non-terminating party contained in this Agreement, has or could
reasonably be expected to have a Company Material Adverse Effect or a Parent
Material Adverse Effect, as the case may be; or
(iv) if any court of competent jurisdiction or other competent
Governmental or Regulatory Authority shall have issued an order making
illegal or otherwise preventing or prohibiting the Merger and such order
shall have become final and nonappealable.
Section 9.2 EFFECT OF TERMINATION. In the event of termination of this
Agreement by either Parent or the Company, this Agreement shall forthwith become
void and, except as set forth in Section 7.7, there shall be no liability
hereunder on the part of the Company, Parent or Merger Sub or their respective
officers or directors, PROVIDED, HOWEVER, that nothing contained in this
Section 9.2 shall relieve any party hereto from any liability for any breach of
this Agreement.
Section 9.3 AMENDMENT. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
at any time before or, to the extent permitted by applicable Law, after any
approval of the Merger by the stockholders of the Company. This Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties hereto.
Section 9.4 WAIVER. At any time prior to the Effective Time, the parties
hereto may (i) extend the time for the performance of any of the obligations or
other acts of the other parties hereto, (ii) waive any inaccuracies in the
representations and warranties contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions contained herein which may legally be waived. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
Section 10.1 NON-SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time; PROVIDED, HOWEVER,
this Section 10.1 shall not limit any covenant or agreement of the parties which
by its terms contemplates performance after the Effective Time.
Section 10.2 NOTICES. All notices and other communications hereunder shall
be in writing and shall be deemed given if delivered personally, sent by
overnight courier or telecopied (with a
A-40
confirmatory copy sent by overnight courier to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to Parent or Merger Sub, to
c /o Cordiant Communications Group plc
121-141 Westbourne Terrace
London, W2 6JR
Attention: Michael Bungey
Facsimile No.: 011-44-171-262-4300
with copies to:
White & Case LLP
1155 Avenue of the Americas
New York, NY 10036
Attention: Timothy B. Goodell, Esq.
Facsimile No.: (212) 354-8113
and:
Macfarlanes
10 Norwich Street London EC4A 1BD
Attention: Mary Leth
Facsimile No.: 011-44-171-831-9607
(b) if to the Company, to
Healthworld Corporation
100 Avenue of the Americas
New York, NY 10010
Attention: Steven Girgenti
Facsimile No.: (212) 966-2743
with a copy to:
Rosenman & Colin LLP
575 Madison Avenue
New York, New York 10022
Attention: Wayne A. Wald, Esq.
Facsimile No.: (212) 940-8776
and:
Rakisons Solicitors
Clements House
14/18 Gresham Street
London EC2V7JE
DX 206 London, England
Attention: Jonathan Polin
Facsimile No.: 011-44-207-367-8001
Section 10.3 INTERPRETATION. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or
A-41
"including" are used in this Agreement, they shall be deemed to be followed by
the words "without limitation."
Section 10.4 COUNTERPARTS. This Agreement may be executed in counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 10.5 ENTIRE AGREEMENT; NO THIRD-PARTY BENEFICIARIES. This
Agreement, including the documents and instruments referred to herein, together
with the Confidentiality Agreement dated August 3, 1999, (a) constitutes the
entire agreement and supersedes all prior agreements and understandings, both
written and oral, among the parties with respect to the subject matter hereof
and (b) is not intended to confer upon any person or entity other than the
parties any rights or remedies hereunder, except (i) pursuant to Section 7.10
and (ii) that Parent agrees to indemnify and hold harmless the Shareholder
Parties against, and to reimburse the Shareholder Parties with respect to, any
and all taxes, interest and penalties arising from Parent's breach of Sections
7.11 and 7.12.
Section 10.6 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof; provided however, that the Merger shall be governed by the laws of
the State of Delaware.
Section 10.7 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
without the prior written consent of the other parties, except that Merger Sub
may assign, in its sole discretion, any of or all its rights, interests and
obligations under this Agreement to Parent or to any direct or indirect wholly
owned subsidiary of Parent, but no such assignment shall relieve Parent or
Merger Sub of any of its obligations hereunder. Subject to the preceding
sentence, this Agreement shall be binding upon, inure to the benefit of, and be
enforceable by, the parties and their respective successors and assigns.
Section 10.8 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in a mutually acceptable manner in
order that the transactions be consummated as originally contemplated to the
fullest extent possible.
Section 10.9 ENFORCEMENT OF THIS AGREEMENT. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof in any court of the United
States or any state having jurisdiction, this being in addition to any other
remedy to which they are entitled at law or in equity.
Section 10.10 INCORPORATION OF EXHIBITS. The Company Disclosure Letter and
all Exhibits and annexes attached hereto and referred to herein are hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
A-42
IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized
all as of the date first written above.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
HEALTHWORLD ACQUISITION CORP.
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
HEALTHWORLD CORPORATION
By: /s/ STEVEN GIRGENTI
-----------------------------------------
Name: Steven Girgenti
Title: President
A-43
APPENDIX B
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER (this "Amendment") dated as
of February 3, 2000, among Cordiant Communications Group plc, a company
organized under the laws of England and Wales ("Parent"), Healthworld
Acquisition Corp., a Delaware corporation and an indirect wholly owned
subsidiary of Parent ("Merger Sub"), and Healthworld Corporation, a Delaware
corporation (the "Company").
RECITALS
A. Parent, Merger Sub and the Company entered into that certain Agreement
and Plan of Merger dated as of November 9, 1999 (the "Agreement").
B. Parent, Merger Sub and the Company desire to amend the Agreement as set
forth in this Amendment.
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereby agree as
follows:
1. Capitalized terms used but not defined in this Amendment shall have the
meanings ascribed to them in the Agreement.
2. Section 1.1 of the Agreement is hereby amended by adding in alphabetical
order therein the following definition:
"BUSH" means Bates U.S. Holdings, Inc., a Delaware corporation."
3. The definition of "Material Subsidiaries" contained in Section 1.1 of
the Agreement is hereby amended to include BUSH by adding the words "and BUSH."
at the end thereof.
4. Section 2.5(b) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"(b) CAPITAL STOCK OF MERGER SUB. Each share of common stock of Merger Sub
outstanding immediately prior to the Effective Time shall be converted into and
become as of the Effective Time one fully paid and nonassessable share of common
stock, par value $.01, per share of the Surviving Corporation."
5. Section 2.5(d) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"(d) In consideration of the issue to Parent by BUSH of additional shares of
capital stock and sterling denominated promissory notes of BUSH, Parent shall
issue, in accordance with Section 2.7, such number of Parent Ordinary Shares as
is equal to the number of shares of Company Common Stock outstanding immediately
prior to the Effective Time multiplied by the Exchange Ratio, to permit (i) the
issuance of Parent ADSs and (ii) if elected by any holder of Company Common
Stock in the manner provided in Section 2.6, the delivery of Parent Ordinary
Shares, in registered form, to the holders of such Company Common Stock for the
purpose of giving effect to the delivery of the Merger Consideration referred to
in Section 2.5(c)."
6. Section 2.6(a) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"(a) Prior to the Effective Time, Parent shall appoint The Bank of New York
or a bank or trust company reasonably acceptable to the Company as exchange
agent (the "Exchange Agent") for the
B-1
purposes of exchanging the Certificates for Parent ADSs or, if and to the extent
elected by a holder of a Certificate, in the manner set forth in this
Section 2.6, for Parent Ordinary Shares in registered form. Promptly after the
Effective Time Parent will send, or will cause the Exchange Agent to send, to
each holder of record of Company Common Stock as of the Effective Time (i) a
letter of transmittal (which shall specify that delivery shall be effected, and
risk of loss and title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such other
provisions as the Surviving Corporation or Parent may reasonably specify)
providing instructions for use in effecting the surrender of Certificates in
exchange for certificates representing Parent ADRs which represent Parent ADSs
or Parent Ordinary Shares and cash in lieu of fractional Parent ADSs or Parent
Ordinary Shares and (ii) an election form and other appropriate materials
(collectively, the "Ordinary Election Form") providing for such holder to elect
to receive the Ordinary Share Consideration with respect to all or any portion
of such holder's shares of Company Common Stock (the "Ordinary Share Election").
Any shares of Company Common Stock with respect to which there shall not have
been effected such election by submission to the Exchange Agent of an effective,
properly completed Ordinary Share Election Form on or prior to the date
specified in such form (the "Election Date") which shall be a date that is not
more than 45 days following the date of the Effective Time, shall be converted
in the Merger into the right to receive the ADS Consideration."
7. Section 2.7(a) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"(a) EXCHANGE AGENT. Within two business days following the Effective Time,
Parent shall (i) allot to the Exchange Agent, as nominee for the benefit of the
holders of Company Common Stock converted into the right to receive the Merger
Consideration, the aggregate number of duly authorized Parent Ordinary Shares to
be issued pursuant to Section 2.5(d) and (ii) deposit with the Exchange Agent an
amount of cash sufficient to permit the Exchange Agent to make the necessary
payments of cash in lieu of fractional Parent ADSs and Parent Ordinary Shares in
accordance with Section 2.7(e) (such cash and Parent Ordinary Shares, together
with any dividends or distributions with respect thereto being hereinafter
referred to as the "Exchange Fund"), to be held for the benefit of and
distributed to the holders of Company Common Stock in accordance with this
Section. The Exchange Agent shall agree to hold such Parent Ordinary Shares and
funds for delivery as contemplated by this Section, and upon such additional
terms as may be agreed upon by the Exchange Agent, the Surviving Corporation and
Parent shall cause the Depositary to issue through and upon the instructions of
the Exchange Agent, for the benefit of the holders of shares of the Company
Common Stock converted into the ADS Consideration in accordance with
Section 2.5(c), Parent ADRs representing the number of Parent ADSs issuable
pursuant to Section 2.5(c). Neither the Company, its affiliates nor the holders
of Company Common Stock shall be responsible for any stamp duty reserve tax
payable in connection with the ADS Consideration. The Exchange Agent shall
invest any cash included in the Exchange Fund as directed by the Surviving
Corporation on a daily basis. Parent and the Surviving Corporation shall replace
any monies lost through an investment made pursuant to this Section 2.7. Any
interest and other income resulting from such investments shall promptly be paid
to the Surviving Corporation. All Parent Ordinary Shares and Parent ADSs to be
issued and delivered to the holders of Company Common Stock in accordance with
this Agreement shall, as of the Effective Time, have been registered under the
Securities Act pursuant to a registration statement on Form F-4 declared
effective by the SEC."
8. Section 2.7(b) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"(b) EXCHANGE PROCEDURES. Upon surrender of a Certificate for cancellation
to the Exchange Agent, together with the letter of transmittal referred to in
Section 2.6(a) duly executed and completed in accordance with its terms, the
holder of such Certificate shall be entitled to receive in exchange therefor
(i) a certificate or certificates representing one or more Parent ADRs
representing, in the
B-2
aggregate, that whole number of Parent ADSs and/or that whole number of Parent
Ordinary Shares elected to be received in accordance with Section 2.6, (ii) the
amount of dividends or other distributions, if any, with a record date on or
after the Effective Time which theretofore became payable with respect to such
Parent ADSs and Parent Ordinary Shares, and (iii) the cash amount payable in
lieu of fractional Parent ADSs and Parent Ordinary Shares in accordance with
Section 2.7(e), in each case which such holder has the right to receive pursuant
to the provisions of this Article II, and the Certificate so surrendered shall
forthwith be canceled. In no event shall the holder of any Certificate be
entitled to receive interest on any funds to be received in the Merger. In the
event of a transfer of ownership of Company Common Stock which is not registered
in the transfer records of the Company, a certificate or certificates
representing that whole number of Parent Ordinary Shares elected to be received
in accordance with Section 2.6 and/or one or more Parent ADRs representing, in
the aggregate, that whole number of Parent ADSs, plus the cash amount payable in
lieu of fractional Parent Ordinary Shares and Parent ADSs in accordance with
Section 2.7(e), may be issued to a transferee if the Certificate representing
such Company Common Stock is presented to the Exchange Agent accompanied by all
documents required to evidence and effect such transfer and by evidence that any
applicable stock transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.7(b) and subject to Section 2.7(c), each
Certificate shall, after the Effective Time, represent for all purposes only the
right to receive the whole number of Parent Ordinary Shares and/or Parent ADSs
into which the number of shares of Company Common Stock shown thereon have been
converted as contemplated by this Article II plus the cash amount payable in
lieu of fractional Parent ADSs and Parent Ordinary Shares in accordance with
Section 2.7(e). Notwithstanding the foregoing, certificates representing Company
Common Stock surrendered for exchange by any Person constituting an "Affiliate"
of the Company for purposes of Section 7.4 shall not be exchanged until Parent
has received an Affiliate Agreement (as defined in Section 7.4) as provided in
Section 7.4."
9. Section 5.2(b) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"(b)(i) The authorized capital stock of Bush consists of 1,000 shares of
common stock, no par value, of which one share is validly issued and
outstanding, fully paid and nonassessable and is owned by Parent free and clear
of all security interests, liens, claims, pledges, options, rights of first
refusal, agreements, charges or other encumbrances of any nature or any other
limitation or restriction (including any restriction on the right to vote or
sell the same, except as may be provided under applicable Federal or State
securities laws) (collectively, "Liens").
(ii) The authorized capital stock of Merger Sub consists of 1,000 shares of
common stock, par value $.01 per share, all of which are validly issued and
outstanding, fully paid and nonassessable and are owned by BUSH free and clear
of all Liens."
10. Section 5.3 of the Agreement is hereby amended by adding at the end
thereof, the following sentence:
"The representations and warranties contained in this Section 5.3 shall
apply to BUSH, to the extent pertinent, with respect to the consummation of the
transactions contemplated hereby."
11. Section 5.4(a) of the Agreement is hereby amended by adding at the end
thereof, the following sentence:
"The representations and warranties contained in this Section 5.4(a) shall
apply to BUSH, to the extent pertinent, with respect to the consummation of the
transactions contemplated hereby."
B-3
12. Section 5.4(b) of the Agreement is hereby amended by adding at the end
thereof, the following sentence:
"The representations and warranties contained in this Section 5.4(b) shall
apply to BUSH, to the extent pertinent, with respect to the consummation of the
transactions contemplated hereby."
13. Section 7.7(a) of the Agreement is hereby amended by deleting the name
"William Leslie Milton" contained in such Section and replacing it with the name
"Spencer A. Falk".
14. Section 7.14(a) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"(a) the appointment of an appropriate independent person (who, subject to
and as provided by Section 108(2) of the Companies Act 1985, would be qualified
to be the auditor of Parent) to produce a valuation and report in accordance
with Section 103 of the Companies Act 1985;"
15. Section 7.14(d) of the Agreement is hereby deleted in its entirety and
replaced with the following:
"(d) the independent valuation report to be delivered to the Exchange Agent
and such other steps, if any, to be taken as may be necessary to comply with the
requirements of Sections 103 and 108 of the Companies Act 1985 in connection
with the Merger, in each case prior to the Effective Time."
16. Section 10.5 of the Agreement is hereby amended by adding at the end
thereof the following sentence:
"Parent agrees that it will specifically comply with the provisions of
Sections 7.11 and 7.12. However, the Shareholder Parties shall be entitled to
damages in the event of a breach by Parent of Sections 7.11 or 7.12 as provided
in this Section 10.5."
17. Parent and Merger Sub shall take all actions necessary to cause BUSH to
comply with the terms of this Amendment.
18. This Amendment may be signed in any number of counterparts, each of
which shall be an original, with the same effect as if the signatures thereto
and to this Amendment were upon the same instrument.
19. Except as expressly provided herein, the Agreement shall remain in full
force and effect.
B-4
IN WITNESS WHEREOF, the parties to this Amendment have caused this Amendment
to be duly executed by their respective authorized officers as of the day and
year first above written.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
HEALTHWORLD ACQUISITION CORP.
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
HEALTHWORLD CORPORATION
By: /s/ STUART DIAMOND
-----------------------------------------
Name: Stuart Diamond
Title: Executive Vice President
B-5
APPENDIX C
STOCKHOLDER AGREEMENT
AGREEMENT dated November 9, 1999, among Cordiant Communications Group plc, a
company organized under the laws of England and Wales ("Cordiant"), Healthworld
Acquisition Corporation, a Delaware corporation and a direct wholly owned
subsidiary of Cordiant ("Sub"), and William Butler (the "Stockholder").
WITNESSETH:
WHEREAS, concurrently herewith, Cordiant, Sub, and Healthworld Corporation,
a Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"), pursuant to which Sub will be merged with and into the
Company and the Company shall continue as the surviving corporation (the
"Merger");
WHEREAS, the Stockholder Beneficially Owns, as of the date hereof, 520,070
shares (the "Shares") of common stock, $.01 par value per share, of the Company
(the "Common Stock"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Cordiant and Sub have required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. Unless other defined herein, all capitalized terms used
herein shall have the meanings given to such terms in the Merger Agreement. For
purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities Beneficially
Owned by all other Persons with whom such Person would constitute a "group" as
within the meanings of Section 13(d)(3) of the Exchange Act.
(b) "Exchange Rate" means the average currency exchange rate of pounds
sterling to US dollars based upon the noon buying rate in the City of New York
for cable transfers in foreign currencies as announced by the Federal Reserve
Bank of New York for customs purposes over the 10 consecutive Trading Days
ending on the day on which the Stock Options are exercised pursuant to
Section 3.
(c) "Parent Share Value" shall mean the product of (x) the average of
the closing middle market quotation of a Parent Share on the LSE as reported in
the Daily Official List of the London Stock Exchange for each of the ten
consecutive Trading Days ending on the day on which the Stock Options are
exercised pursuant to Section 3 multiplied by (y) Exchange Rate.
(d) "Parent Shares" shall mean the ordinary shares, with a nominal value
of U.K. fifty pence each ("Ordinary Shares"), of Cordiant (including any options
or other rights to receive Ordinary Shares) and the American Depositary Shares,
each representing the right to receive five Ordinary Shares ("ADSs").
C-1
(e) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) "Share Value" shall be determined as follows:
(i) if the Parent Share Value is equal to or greater than $2.5054 and
equal to or less than $3.4838, the Share Value shall be $20.00;
(ii) if the Parent Share Value is greater than $3.4838, the Share
Value shall be $23.00; and
(iii) if the Parent Share Value is less than $2.5054, the Share Value
shall be $17.00.
(g) "Trading Day" shall mean any day on which securities are traded,
with respect to ADSs, on the New York Stock Exchange, Inc. and with respect to
Ordinary Shares, on the London Stock Exchange Limited.
2. PROVISIONS CONCERNING COMMON STOCK. (a) The Stockholder hereby agrees
that during the period described in clause (b) below, at any meeting of the
holders of Common Stock of the Company, however called, or in connection with
any written consent of the holders of Common Stock of the Company, the
Stockholder shall vote (or cause to be voted) the Shares of Common Stock of the
Company, (i) in favor of the Merger, the execution and delivery by the Company
of the Merger Agreement and the approval of the terms thereof and each of the
other actions contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (iii) except as otherwise
agreed to in writing in advance by Cordiant, against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of
the Company or its Subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (C) any change in
a majority of the persons who constitute the board of directors of the Company;
(D) any change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation or Bylaws; (E) any other material
change in the Company's corporate structure or business; or (F) any other action
involving the Company or its Subsidiaries which is intended, or could reasonably
be expected, to materially impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by this
Agreement and the Merger Agreement. The Stockholder shall not enter into any
agreement or understanding with any Person the effect of which would be
inconsistent with or violative of the provisions and agreements contained in
this Section 2.
(b) The obligations of the Stockholders under clauses (i), (ii) and
(iii)(C), (D), (E) and (F) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and the termination of the Merger Agreement in
accordance with its terms. The obligations of the Stockholder under
clause (iii)(A) and (B) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and 120 days after the termination of the Merger
Agreement in accordance with its terms (unless the Merger Agreement is
terminated by reason of the failure to obtain Parent Shareholders' Approval in
which case the Stockholder's obligations under this Section 2 shall terminate
simultaneously with the termination of the Merger Agreement).
3. OPTION TO PURCHASE. In order to induce Cordiant and Sub to enter into
the Merger Agreement, the Stockholder hereby grants to Sub an irrevocable option
(the "Stock Options") to purchase, all, and not less than all, of the Shares at
a purchase price per share equal to the Share Value, payable in cash (the
"Purchase Price"), solely upon, and subject to, the terms and conditions set
forth below. The Stock Options may only be exercised if Sub simultaneously
exercises all other options
C-2
held by it to purchase all, and not less than all, of the shares of Common Stock
covered by such options. The Stock Options shall become exercisable solely in
the event that the Merger Agreement is terminated pursuant to
(i) Section 9.1(b)(ii) thereof, but only if the basis for such termination is
the failure to obtain the Company Stockholder Approval or
(ii) Section 9.1(b)(iii) thereof, but only if the basis for such termination is
a breach by the Company, or the Stockholder materially breaches any agreement
contained in this Agreement, in which event the Stock Options shall, in any such
case, become immediately exercisable at any time and from time to time upon such
termination or upon Cordiant and Sub being informed of such breach, as the case
may be, and until the date which is 20 days after the date of such termination
or the date on which Cordiant and Sub are informed of such breach, as the case
may be, provided, that if at the expiration of such 20-day period the Stock
Options cannot be exercised by reason of any preliminary or final injunction or
other order issued by any court or governmental, administrative or regulatory
agency or authority prohibiting the exercise of the Stock Options pursuant to
this Agreement, or because all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), required for the
purchase of the Shares upon such exercise shall not have expired or been waived,
the Stock Options shall be exercisable until 10 business days after the later of
the date on which such impediment to exercise shall have been removed or shall
have become final and not subject to appeal. In all other instances, the Stock
Options shall terminate upon the termination of the Merger Agreement. In the
event that Cordiant wishes to exercise the Stock Options, Cordiant shall send a
written notice (the "Notice") to the Stockholder identifying the place (which
shall be in New York City for each Stockholder who is a resident of the United
States and in London for each Stockholder who is a resident of the United
Kingdom) and date (not less than two business days nor greater than ten business
days from the date of the Notice) for the closing of such purchase. At such
closing, Cordiant shall receive certificates for the Shares, duly endorsed for
transfer, and shall make payment therefor by wire transfer of immediately
available funds.
4. DISPOSITION OF PARENT SHARES.
(a) RESTRICTIONS ON DISPOSITION. The Stockholder hereby agrees, except
as permitted in this Section 4(a) and Section 4(b) below, not to directly or
indirectly, offer to sell, contract to sell, transfer, assign, cause to be
redeemed or otherwise sell or dispose of any of the Parent Shares (collectively
a "Disposition") received by the stockholder in connection with the Merger
without the prior written consent of Cordiant. Notwithstanding anything to the
contrary provided in this Agreement, the Stockholder shall have the right to
transfer Parent Shares (i) to any Family Member, (ii) to the trustee or trustees
of a trust solely (except for remote contingent interests) for the benefit of
the Stockholder and/or one or more Family Members and/or a charitable
organization (a "Family Member Trust"), (iii) to a foundation created or
established by the Stockholder, or any other charitable organization, (iv) to a
corporation of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the outstanding capital stock, (v) to a limited
liability company of which the Stockholder and/or any Family Member and/or any
Family Member Trust owns all of the outstanding membership interests, (vi) to a
partnership of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the partnership interests, (vii) to the executor,
administrator or personal representative of the estate of the Stockholder or any
other Family Member, or (viii) to any guardian, trustee or conservator appointed
with respect to the assets of the Stockholder, provided, that in the case of any
such transfer, the transferee shall execute an agreement to be bound by the
terms of this Agreement (each such transfer, a "Permitted Transfer" and,
collectively, the "Permitted Transfers"). For purposes of this Agreement,
"Family Member" shall mean (a) the Stockholder's spouse, if living with the
Stockholder, (b) any one of the following: the Stockholder's father, mother,
issue, brother or sister, and the issue of a brother or sister, and (c) the
spouse of any Family Member described in (b) above, if the spouse shall be
living with that Family Member. The Stockholder hereby agrees and consents to
the entry of stop transfer instructions with Cordiant's transfer agent against
the transfer of such Parent Shares except in compliance with this Agreement.
Notwithstanding the foregoing, the Stockholder may pledge, hypothecate or
otherwise grant a security interest in all or a
C-3
portion of the Parent Shares beneficially owned by him during the term of this
Agreement; provided, however, that any Person receiving such Parent Shares shall
be subject to all of the restrictions on Disposition of such Parent Shares
imposed by this Agreement to the same extent as the Stockholder.
(b) PERMITTED DISPOSITIONS. The Stockholder may not effect any
Disposition of Parent Shares received by the Stockholder in connection with the
Merger except as follows: (i) during the twelve-month period immediately
following the Effective Time the Stockholder may effect the Disposition of not
more than 15% of the Parent Shares Beneficially Owned by the Stockholder and
(ii) during the twenty-four-month period immediately following the Effective
Time (the "Period"), the Stockholder may effect the Disposition of not more than
55% of the Parent Shares Beneficially Owned by the Stockholder. Upon the
expiration of the Period, the Stockholder may effect the Dispositions of all or
any portion of the Parent Shares Beneficially Owned by him subject to any
applicable restrictions under the Federal Securities Law and restrictions of
general application under English law, the Listing Rules of the London Stock
Exchange, if applicable, and Cordiant's policies made pursuant to such rules
regarding dealings in Parent Shares by directors and relevant employees of
Cordiant and its subsidiaries, if applicable. Notwithstanding anything to the
contrary contained in this Section 4, the Stockholder hereby agrees that for the
period commencing at the Effective Time and ending on the date which is
180 days after the expiration of the Period, the Stockholder shall give Cordiant
1 business day prior written notice of any intended Disposition of Parent Shares
to be made by the Stockholder and at the request of Cordiant agrees to effect
such Disposition through brokers or other financial intermediaries designated by
Cordiant to maintain an orderly trading market for the Parent Shares, provided
that such financial intermediary agrees to effect and does effect the
Disposition in a reasonable period following such notice.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to each of Cordiant and Sub as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record holder of or
Beneficially Owns the Shares. On the date hereof, the Shares constitute all of
the shares of Common Stock owned of record or Beneficially Owned by the
Stockholder (excluding any Stock Options (as defined in the Merger Agreement)
held by the Stockholder). The Stockholder has sole voting power and sole power
to issue instructions with respect to the matters set forth in Section 2 hereof,
sole power of disposition, sole power of conversion, sole power to exercise
dissenters' rights and sole power to agree to all of the matters set forth in
this agreement, in each case with respect to all of the Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal capacity,
power and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Stockholder will not violate any other Agreement to which the Stockholder is a
party including, without limitation, any voting agreement, shareholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of which the
Stockholder is trustee whose consent is required for the execution and delivery
of this agreement or the consummation by the Stockholder of the transactions
contemplated hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this agreement has been duly authorized, executed
and delivered by, and constitutes a valid and binding agreement of, the
Stockholder's spouse, enforceable against such Person in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
C-4
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought.
(c) NO CONFLICTS. Except for filings, permits, authorizations,
consents and approvals under the HSR Act and the Securities Act of 1933, if
applicable, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Stockholder and the consummation by the
Stockholder of the transactions contemplated hereby and (B) none of the
execution and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall, in a manner which would be
material and adverse to the ability of the Stockholder to consummate the
transactions contemplated hereby or to comply with the terms hereof, result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Stockholder is a party or by which the
Stockholder or any of the Stockholder's properties or assets may be bound, or
(3) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to the Stockholder or any of the Stockholder's
properties or assets.
(d) NO ENCUMBRANCES. Except as applicable in connection with the
transactions contemplated hereby or as set forth on Schedule B attached hereto,
the Shares and the certificates representing the Shares are now, and at all
times during the term hereof will be, held by the Stockholder, or by a nominee
or custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements, understandings
or arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder in favor of Cordiant.
(e) NO FINDER'S FEES. No broker, investment banker, financial adviser
or other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Stockholder other
than Bear Stearns & Co. Inc., the fees and expenses of which shall be paid by
the Company.
(f) RELIANCE BY CORDIANT AND SUB. The Stockholder understands and
acknowledges that Cordiant and Sub are entering into the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
6. ADDITIONAL COVENANTS OF THE STOCKHOLDER. The Stockholder hereby
covenants to each of Cordiant and Sub as follows:
(a) NO SOLICITATION. Subject to the provisions contained in
Section 10 of this Agreement, the Stockholder shall not, in his capacity as
such, directly or indirectly, solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by any
Person or entity (other than Cordiant or any affiliate of Cordiant) with respect
to the Company that constitutes a Takeover Proposal. If the Stockholder receives
any such inquiry or proposal, then the Stockholder shall promptly inform
Cordiant of the existence thereof. The Stockholder will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
(b) RESTRICTION ON TRANSFER OF SHARES, PROXIES AND
NON-INTERFERENCE. Beginning on the date hereof and ending on the later to occur
of (A) last date the Stock Options are exercisable pursuant to Section 3 hereof
and (B) the date that all of the Stockholder's obligations under Section 2 have
C-5
terminated, except as contemplated by this Agreement or the Merger Agreement, no
Stockholder shall, directly or indirectly, (i) offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of the Shares or any interest
therein; (ii) except as contemplated by this Agreement, grant any proxies or
powers of attorney, deposit any of the Shares into a voting trust or enter into
a voting agreement with respect to any of the Shares; or (iii) take any action
that would make any representation or warranty of the Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling the
Stockholder from performing the Stockholder's obligations under this Agreement.
Notwithstanding anything to the contrary provided in this Agreement, a
Stockholder shall have the right to make Permitted Transfers of Shares. The
Stockholder agrees with, and covenants to, Sub that beginning on the date hereof
and ending on the last date the Stock Options are exercisable pursuant to
Section 3 hereof, the Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of the Shares, unless such transfer is made in
compliance with this Agreement (including the provisions of Section 2 hereof).
(c) ADDITIONAL SHARES. The Stockholder agrees, while this Agreement is
in effect (i) to notify Cordiant and Sub promptly of the number of any shares of
Common Stock acquired by the Stockholder after the date hereof (the "Additional
Shares") and (ii) to vote such Additional Shares in accordance with Section 2
hereof. Such Additional Shares shall also be subject to the Stock Option granted
to Sub pursuant to Section 3 hereof and the restriction contained in
Section 6(b)(i) and (ii) above.
7. REPRESENTATIONS AND WARRANTIES OF CORDIANT AND SUB. Cordiant and Sub
hereby covenant, represent and warrant to the Stockholder that each of Cordiant
and Sub has the legal capacity, power and authority to enter into and perform
all of such party's obligations under this Agreement; the execution, delivery
and performance of this Agreement by Cordiant and Sub will not violate or result
in a breach of any other material agreement to which Cordiant or Sub is a party;
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (i) have been duly authorized by the board of
directors of Cordiant and Sub, and (ii) do not and will not violate any
provision of the certificate of incorporation or by-laws of Cordiant or Sub; and
this Agreement has been duly and validly executed and delivered by each of
Cordiant and Sub and constitutes a valid and binding agreement of such party,
enforceable against such party in accordance with its terms.
8. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional reasonable documents and take all such further reasonable lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement.
9. TERMINATION; EXPENSES AND FEE. (a) The covenants and agreements
contained herein with respect to the Shares shall terminate (i) in the event the
Merger Agreement is terminated in accordance with its terms, upon such
termination, except that the provisions of Sections 2, 3 and 6(b) hereof shall
survive any such termination solely in accordance with their terms and (ii) in
the event the Merger is consummated, at the Effective Time, except that the
provisions of Section 4 hereof shall survive any such termination, provided, in
each case, that the provisions of Section 12 and Section 13 hereof shall survive
any termination of this Agreement, and provided, further, that no termination of
this Agreement shall relieve any party of liability for a breach hereof.
(b) Each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
C-6
10. STOCKHOLDER CAPACITY. The Stockholder is not executing this Agreement
and does not make any agreement or understanding herein in his or her capacity
as a director or officer of the Company and nothing contained herein shall limit
or affect any actions taken by the Stockholder in his capacity as a director or
officer of the Company to the extent such action is permitted by, or not
prohibited by, the Merger Agreement, and none of such actions in such capacities
shall be deemed to constitute a breach of this Agreement. The Stockholder signs
solely in his capacity as the record and beneficial owner of, or the trustee of
a trust whose beneficiaries are the beneficial owners of, the Shares.
11. SOPHISTICATION. The Stockholder acknowledges that he is an informed
and sophisticated investor and, together with his advisors, has undertaken such
investigation as they have deemed necessary, including the review of the Merger
Agreement and this Agreement, to enable the Stockholder to make an informed and
intelligent decision with respect to the Merger Agreement and this Agreement and
the transactions contemplated thereby and hereby.
12. CONFIDENTIALITY. Each of the parties hereto recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each party hereby agrees not to
disclose or discuss such matters with anyone not a party to this Agreement or
the Merger Agreement (other than such party's counsel and advisors, if any)
without the prior written consent of the other party, except for filings
required pursuant to the Exchange Act and the rules and regulations thereunder
or disclosures such party's counsel advises are necessary in order to fulfill
such party's obligations imposed by law, in which event such party shall give
notice of such disclosure to the other party as promptly as practicable so as to
enable the other party to seek a protective order from a court of competent
jurisdiction with respect thereto.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(b) CERTAIN EVENTS. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, the Stockholder's heirs, guardians, administrators or successors,
provided, that following the Effective Time, this Agreement shall not be binding
on any purchaser of Shares in a transaction made in compliance with
Section 4(b), other than Permitted Transfers. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(c) CHANGE IN CONTROL. In the event that after the Effective Time
(i) any Person or group of Persons acting in concert (as defined in the City
Code on Take-overs and Mergers in the United Kingdom) acquires an interest in
the equity share capital of Cordiant (an "Acquiring Person") and, immediately
following such acquisition, such person, or group, holds shares entitled to
exercise more than 50% of the votes which may be cast at a general meeting of
Cordiant or (ii) a majority of the board of directors of Cordiant immediately
prior to such Person becoming an Acquiring Person, cease to thereafter
constitute a majority of the board of directors of Cordiant (other than through
elections of directors whose nomination for election by the shareholders of
Cordiant were approved by the vote of a majority of directors of Cordiant who
were either directors prior to a Person becoming an Acquiring Person or whose
election or nomination for election was so previously approved), then the
restrictions on Dispositions contained in Section 4, shall terminate without any
action on the part of any party hereto.
C-7
(d) ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party, provided,
that Cordiant or Sub may assign, in its sole discretion, its rights and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Cordiant, but no such assignment shall relieve Cordiant or Sub of its
obligations hereunder if such assignee does not or cannot perform such
obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the party to be
charged thereby or, with respect to termination, as otherwise provided herein.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholder: William Butler
c/o Healthworld Corporation
100 Avenue of the Americas
New York, New York 10010
Facsimile: (212) 966-2743
and
If to Cordiant or Cordiant Communications Group plc
Sub to: 121-141 Westbourne Terrace
London W2 6JR
Deputy Finance Director
Facsimile: +44-171-262-4300
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
Attention: Timothy B. Goodell, Esq.
Facsimile: (212) 354-8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the aggrieved party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the aggrieved
party
C-8
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Court of Chancery in the State of Delaware or the
United States District Court for the Southern District of New York or any court
of the State of New York located in the City of New York in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on forum non conveniens or any other objection to venue
therein); provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this paragraph (1) and shall not be deemed to be a
general submission to the jurisdiction of said Courts or in the States of
Delaware or New York other than for such purposes. Each party hereto hereby
waives any right to a trial by jury in connection with any such action, suit or
proceeding.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
C-9
IN WITNESS WHEREOF, Cordiant, Sub and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
HEALTHWORLD ACQUISITION CORP.
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
/s/ WILLIAM BUTLER
-----------------------------------------
William Butler
C-10
APPENDIX D
STOCKHOLDER AGREEMENT
AGREEMENT dated November 9, 1999, among Cordiant Communications Group plc, a
company organized under the laws of England and Wales ("Cordiant"), Healthworld
Acquisition Corporation, a Delaware corporation and a direct wholly owned
subsidiary of Cordiant ("Sub"), and Herbert Ehrenthal (the "Stockholder").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Cordiant, Sub, and Healthworld Corporation,
a Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"), pursuant to which Sub will be merged with and into the
Company and the Company shall continue as the surviving corporation (the
"Merger");
WHEREAS, the Stockholder Beneficially Owns, as of the date hereof, 313,252
shares (the "Shares") of common stock, $.01 par value per share, of the Company
(the "Common Stock"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Cordiant and Sub have required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. Unless other defined herein, all capitalized terms used
herein shall have the meanings given to such terms in the Merger Agreement. For
purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities Beneficially
Owned by all other Persons with whom such Person would constitute a "group" as
within the meanings of Section 13(d)(3) of the Exchange Act.
(b) "Exchange Rate" means the average currency exchange rate of pounds
sterling to US dollars based upon noon buying rate in the City of New York for
cable transfers in foreign currencies as announced by the Federal Reserve Bank
of New York for customs purposes over the 10 consecutive Trading Days ending on
the day on which the Stock Options are exercised pursuant to Section 3.
(c) "Parent Share Value" shall mean the product of (x) the average of
the closing middle market quotation of a Parent Share on the LSE as reported in
the Daily Official List of the London Stock Exchange for each of the ten
consecutive Trading Days ending on the day on which the Stock Options are
exercised pursuant to Section 3 multiplied by (y) Exchange Rate.
(d) "Parent Shares" shall mean the ordinary shares, with a nominal value
of U.K. fifty pence each ("Ordinary Shares"), of Cordiant (including any options
or other rights to receive Ordinary Shares) and the American Depositary Shares,
each representing the right to receive five Ordinary Shares ("ADSs").
D-1
(e) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) "Share Value" shall be determined as follows:
(i) if the Parent Share Value is equal to or greater than $2.5054 and
equal to or less than $3.4838, the Share Value shall be $20.00;
(ii) if the Parent Share Value is greater than $3.4838, the Share Value
shall be $23.00; and
(iii) if the Parent Share Value is less than $2.5054, the Share Value
shall be $17.00
(g) "Trading Day" shall mean any day on which securities are traded,
with respect to ADSs, on the New York Stock Exchange, Inc. and with respect to
Ordinary Shares, on the London Stock Exchange Limited.
2. PROVISIONS CONCERNING COMMON STOCK. (a) The Stockholder hereby agrees
that during the period described in clause (b) below, at any meeting of the
holders of Common Stock of the Company, however called, or in connection with
any written consent of the holders of Common Stock of the Company, the
Stockholder shall vote (or cause to be voted) the Shares of Common Stock of the
Company, (i) in favor of the Merger, the execution and delivery by the Company
of the Merger Agreement and the approval of the terms thereof and each of the
other actions contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (iii) except as otherwise
agreed to in writing in advance by Cordiant, against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of
the Company or its Subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (C) any change in
a majority of the persons who constitute the board of directors of the Company;
(D) any change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation or Bylaws; (E) any other material
change in the Company's corporate structure or business; or (F) any other action
involving the Company or its Subsidiaries which is intended, or could reasonably
be expected, to materially impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by this
Agreement and the Merger Agreement. The Stockholder shall not enter into any
agreement or understanding with any Person the effect of which would be
inconsistent with or violative of the provisions and agreements contained in
this Section 2.
(b) The obligations of the Stockholders under clauses (i), (ii) and
(iii)(C), (D), (E) and (F) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and the termination of the Merger Agreement in
accordance with its terms. The obligations of the Stockholder under
clause (iii)(A) and (B) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and 120 days after the termination of the Merger
Agreement in accordance with its terms (unless the Merger Agreement is
terminated by reason of the failure to obtain Parent Shareholders' Approval in
which case the Stockholder's obligations under this Section 2 shall terminate
simultaneously with the termination of the Merger Agreement).
3. OPTION TO PURCHASE. In order to induce Cordiant and Sub to enter into
the Merger Agreement, the Stockholder hereby grants to Sub an irrevocable option
(the "Stock Options") to purchase, all, and not less than all, of the Shares at
a purchase price per share equal to the Share Value, payable in cash (the
"Purchase Price"), solely upon, and subject to, the terms and conditions set
forth below. The Stock Options may only be exercised if Sub simultaneously
exercises all other options held by it to purchase all, and not less than all,
of the shares of Common Stock covered by such
D-2
options. The Stock Options shall become exercisable solely in the event that the
Merger Agreement is terminated pursuant to (i) Section 9.1(b)(ii) thereof, but
only if the basis for such termination is the failure to obtain the Company
Stockholder Approval or (ii) Section 9.1(b)(iii) thereof, but only if the basis
for such termination is a breach by the Company, or the Stockholder materially
breaches any agreement contained in this Agreement, in which event the Stock
Options shall, in any such case, become immediately exercisable at any time and
from time to time upon such termination or upon Cordiant and Sub being informed
of such breach, as the case may be, and until the date which is 20 days after
the date of such termination or the date on which Cordiant and Sub are informed
of such breach, as the case may be, provided, that if at the expiration of such
20-day period the Stock Options cannot be exercised by reason of any preliminary
or final injunction or other order issued by any court or governmental,
administrative or regulatory agency or authority prohibiting the exercise of the
Stock Options pursuant to this Agreement, or because all waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), required for the purchase of the Shares upon such exercise shall not have
expired or been waived, the Stock Options shall be exercisable until 10 business
days after the later of the date on which such impediment to exercise shall have
been removed or shall have become final and not subject to appeal. In all other
instances, the Stock Options shall terminate upon the termination of the Merger
Agreement. In the event that Cordiant wishes to exercise the Stock Options,
Cordiant shall send a written notice (the "Notice") to the Stockholder
identifying the place (which shall be in New York City for each Stockholder who
is a resident of the United States and in London for each Stockholder who is a
resident of the United Kingdom) and date (not less than two business days nor
greater than ten business days from the date of the Notice) for the closing of
such purchase. At such closing, Cordiant shall receive certificates for the
Shares, duly endorsed for transfer, and shall make payment therefor by wire
transfer of immediately available funds.
4. DISPOSITION OF PARENT SHARES.
(a) RESTRICTIONS ON DISPOSITION. The Stockholder hereby agrees, except
as permitted in this Section 4(a) and Section 4(b) below, not to directly or
indirectly, offer to sell, contract to sell, transfer, assign, cause to be
redeemed or otherwise sell or dispose of any of the Parent Shares (collectively
a "Disposition") received by the stockholder in connection with the Merger
without the prior written consent of Cordiant. Notwithstanding anything to the
contrary provided in this Agreement, the Stockholder shall have the right to
transfer Parent Shares (i) to any Family Member, (ii) to the trustee or trustees
of a trust solely (except for remote contingent interests) for the benefit of
the Stockholder and/or one or more Family Members and/or a charitable
organization (a "Family Member Trust"), (iii) to a foundation created or
established by the Stockholder, or any other charitable organization, (iv) to a
corporation of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the outstanding capital stock, (v) to a limited
liability company of which the Stockholder and/or any Family Member and/or any
Family Member Trust owns all of the outstanding membership interests, (vi) to a
partnership of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the partnership interests, (vii) to the executor,
administrator or personal representative of the estate of the Stockholder or any
other Family Member, or (viii) to any guardian, trustee or conservator appointed
with respect to the assets of the Stockholder, provided, that in the case of any
such transfer, the transferee shall execute an agreement to be bound by the
terms of this Agreement (each such transfer, a "Permitted Transfer" and,
collectively, the "Permitted Transfers"). For purposes of this Agreement,
"Family Member" shall mean (a) the Stockholder's spouse, if living with the
Stockholder, (b) any one of the following: the Stockholder's father, mother,
issue, brother or sister, and the issue of a brother or sister, and (c) the
spouse of any Family Member described in (b) above, if the spouse shall be
living with that Family Member. The Stockholder hereby agrees and consents to
the entry of stop transfer instructions with Cordiant's transfer agent against
the transfer of such Parent Shares except in compliance with this Agreement.
Notwithstanding the foregoing, the Stockholder may pledge, hypothecate or
otherwise grant a security interest in all or a portion of the Parent Shares
beneficially owned by him during the term of this Agreement; provided,
D-3
however, that any Person receiving such Parent Shares shall be subject to all of
the restrictions on Disposition of such Parent Shares imposed by this Agreement
to the same extent as the Stockholder.
(b) PERMITTED DISPOSITIONS. The Stockholder may not effect any
Disposition of Parent Shares received by the Stockholder in connection with the
Merger except as follows: (i) during the twelve-month period immediately
following the Effective Time the Stockholder may effect the Disposition of not
more than 30% of the Parent Shares Beneficially Owned by the Stockholder and
(ii) during the twenty-four-month period immediately following the Effective
Time (the "Period"), the Stockholder may effect the Disposition of not more than
65% of the Parent Shares Beneficially Owned by the Stockholder. Upon the
expiration of the Period, the Stockholder may effect the Dispositions of all or
any portion of the Parent Shares Beneficially Owned by him subject to any
applicable restrictions under the Federal Securities Law and restrictions of
general application under English law, the Listing Rules of the London Stock
Exchange, if applicable, and Cordiant's policies made pursuant to such rules
regarding dealings in Parent Shares by directors and relevant employees of
Cordiant and its subsidiaries, if applicable. Notwithstanding anything to the
contrary contained in this Section 4, the Stockholder hereby agrees that for the
period commencing at the Effective Time and ending on the date which is
180 days after the expiration of the Period, the Stockholder shall give Cordiant
1 business day prior written notice of any intended Disposition of Parent Shares
to be made by the Stockholder and at the request of Cordiant agrees to effect
such Disposition through brokers or other financial intermediaries designated by
Cordiant to maintain an orderly trading market for the Parent Shares, provided
that such financial intermediary agrees to effect and does effect the
Disposition in a reasonable period following such notice.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to each of Cordiant and Sub as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record holder of or
Beneficially Owns the Shares. On the date hereof, the Shares constitute all of
the shares of Common Stock owned of record or Beneficially Owned by the
Stockholder (excluding any Stock Options (as defined in the Merger Agreement)
held by the Stockholder). The Stockholder has sole voting power and sole power
to issue instructions with respect to the matters set forth in Section 2 hereof,
sole power of disposition, sole power of conversion, sole power to exercise
dissenters' rights and sole power to agree to all of the matters set forth in
this agreement, in each case with respect to all of the Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal capacity,
power and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Stockholder will not violate any other Agreement to which the Stockholder is a
party including, without limitation, any voting agreement, shareholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of which the
Stockholder is trustee whose consent is required for the execution and delivery
of this agreement or the consummation by the Stockholder of the transactions
contemplated hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this agreement has been duly authorized, executed
and delivered by, and constitutes a valid and binding agreement of, the
Stockholder's spouse, enforceable against such Person in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally
D-4
and (ii) is subject to general principles of equity and discretion of the court
before which any proceedings seeking injunctive relief or specific performance
may be sought.
(c) NO CONFLICTS. Except for filings, permits, authorizations,
consents and approvals under the HSR Act and the Securities Act of 1933, if
applicable, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Stockholder and the consummation by the
Stockholder of the transactions contemplated hereby and (B) none of the
execution and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall, in a manner which would be
material and adverse to the ability of the Stockholder to consummate the
transactions contemplated hereby or to comply with the terms hereof, result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Stockholder is a party or by which the
Stockholder or any of the Stockholder's properties or assets may be bound, or
(3) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to the Stockholder or any of the Stockholder's
properties or assets.
(d) NO ENCUMBRANCES. Except as applicable in connection with the
transactions contemplated hereby or as set forth on Schedule B attached hereto,
the Shares and the certificates representing the Shares are now, and at all
times during the term hereof will be, held by the Stockholder, or by a nominee
or custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements, understandings
or arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder in favor of Cordiant.
(e) NO FINDER'S FEES. No broker, investment banker, financial adviser
or other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Stockholder other
than Bear Stearns & Co. Inc., the fees and expenses of which shall be paid by
the Company.
(f) RELIANCE BY CORDIANT AND SUB. The Stockholder understands and
acknowledges that Cordiant and Sub are entering into the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
6. ADDITIONAL COVENANTS OF THE STOCKHOLDER. The Stockholder hereby
covenants to each of Cordiant and Sub as follows:
(a) NO SOLICITATION. Subject to the provisions contained in
Section 10 of this Agreement, the Stockholder shall not, in his capacity as
such, directly or indirectly, solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by any
Person or entity (other than Cordiant or any affiliate of Cordiant) with respect
to the Company that constitutes a Takeover Proposal. If the Stockholder receives
any such inquiry or proposal, then the Stockholder shall promptly inform
Cordiant of the existence thereof. The Stockholder will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
(b) RESTRICTION ON TRANSFER OF SHARES, PROXIES AND
NON-INTERFERENCE. Beginning on the date hereof and ending on the later to occur
of (A) last date the Stock Options are exercisable pursuant to Section 3 hereof
and (B) the date that all of the Stockholder's obligations under Section 2 have
terminated, except as contemplated by this Agreement or the Merger Agreement, no
Stockholder shall,
D-5
directly or indirectly, (i) offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to or consent to the offer for
sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Shares or any interest therein; (ii) except as
contemplated by this Agreement, grant any proxies or powers of attorney, deposit
any of the Shares into a voting trust or enter into a voting agreement with
respect to any of the Shares; or (iii) take any action that would make any
representation or warranty of the Stockholder contained herein untrue or
incorrect or have the effect of preventing or disabling the Stockholder from
performing the Stockholder's obligations under this Agreement. Notwithstanding
anything to the contrary provided in this Agreement, a Stockholder shall have
the right to make Permitted Transfers of Shares. The Stockholder agrees with,
and covenants to, Sub that beginning on the date hereof and ending on the last
date the Stock Options are exercisable pursuant to Section 3 hereof, the
Stockholder shall not request that the Company register the transfer (book-entry
or otherwise) of any certificate or uncertificated interest representing any of
the Shares, unless such transfer is made in compliance with this Agreement
(including the provisions of Section 2 hereof).
(c) ADDITIONAL SHARES. The Stockholder agrees, while this Agreement is
in effect (i) to notify Cordiant and Sub promptly of the number of any shares of
Common Stock acquired by the Stockholder after the date hereof (the "Additional
Shares") and (ii) to vote such Additional Shares in accordance with Section 2
hereof. Such Additional Shares shall also be subject to the Stock Option granted
to Sub pursuant to Section 3 hereof and the restriction contained in
Section 6(b)(i) and (ii) above.
7. REPRESENTATIONS AND WARRANTIES OF CORDIANT AND SUB. Cordiant and Sub
hereby covenant, represent and warrant to the Stockholder that each of Cordiant
and Sub has the legal capacity, power and authority to enter into and perform
all of such party's obligations under this Agreement; the execution, delivery
and performance of this Agreement by Cordiant and Sub will not violate or result
in a breach of any other material agreement to which Cordiant or Sub is a party;
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (i) have been duly authorized by the board of
directors of Cordiant and Sub, and (ii) do not and will not violate any
provision of the certificate of incorporation or by-laws of Cordiant or Sub; and
this Agreement has been duly and validly executed and delivered by each of
Cordiant and Sub and constitutes a valid and binding agreement of such party,
enforceable against such party in accordance with its terms.
8. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional reasonable documents and take all such further reasonable lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement.
9. TERMINATION; EXPENSES AND FEE. (a) The covenants and agreements
contained herein with respect to the Shares shall terminate (i) in the event the
Merger Agreement is terminated in accordance with its terms, upon such
termination, except that the provisions of Sections 2, 3 and 6(b) hereof shall
survive any such termination solely in accordance with their terms and (ii) in
the event the Merger is consummated, at the Effective Time, except that the
provisions of Section 4 hereof shall survive any such termination, provided, in
each case, that the provisions of Section 12 and Section 13 hereof shall survive
any termination of this Agreement, and provided, further, that no termination of
this Agreement shall relieve any party of liability for a breach hereof.
(b) Each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
10. STOCKHOLDER CAPACITY. The Stockholder is not executing this Agreement
and does not make any agreement or understanding herein in his or her capacity
as a director or officer of the Company
D-6
and nothing contained herein shall limit or affect any actions taken by the
Stockholder in his capacity as a director or officer of the Company to the
extent such action is permitted by, or not prohibited by, the Merger Agreement,
and none of such actions in such capacities shall be deemed to constitute a
breach of this Agreement. The Stockholder signs solely in his capacity as the
record and beneficial owner of, or the trustee of a trust whose beneficiaries
are the beneficial owners of, the Shares.
11. SOPHISTICATION. The Stockholder acknowledges that he is an informed
and sophisticated investor and, together with his advisors, has undertaken such
investigation as they have deemed necessary, including the review of the Merger
Agreement and this Agreement, to enable the Stockholder to make an informed and
intelligent decision with respect to the Merger Agreement and this Agreement and
the transactions contemplated thereby and hereby.
12. CONFIDENTIALITY. Each of the parties hereto recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each party hereby agrees not to
disclose or discuss such matters with anyone not a party to this Agreement or
the Merger Agreement (other than such party's counsel and advisors, if any)
without the prior written consent of the other party, except for filings
required pursuant to the Exchange Act and the rules and regulations thereunder
or disclosures such party's counsel advises are necessary in order to fulfill
such party's obligations imposed by law, in which event such party shall give
notice of such disclosure to the other party as promptly as practicable so as to
enable the other party to seek a protective order from a court of competent
jurisdiction with respect thereto.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(b) CERTAIN EVENTS. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, the Stockholder's heirs, guardians, administrators or successors,
provided, that following the Effective Time, this Agreement shall not be binding
on any purchaser of Shares in a transaction made in compliance with
Section 4(b), other than Permitted Transfers. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(c) CHANGE IN CONTROL. In the event that after the Effective Time
(i) any Person or group of Persons acting in concert (as defined in the City
Code on Take-overs and Mergers in the United Kingdom) acquires an interest in
the equity share capital of Cordiant (an "Acquiring Person") and, immediately
following such acquisition, such person, or group, holds shares entitled to
exercise more than 50% of the votes which may be cast at a general meeting of
Cordiant or (ii) a majority of the board of directors of Cordiant immediately
prior to such Person becoming an Acquiring Person, cease to thereafter
constitute a majority of the board of directors of Cordiant (other than through
elections of directors whose nomination for election by the shareholders of
Cordiant were approved by the vote of a majority of directors of Cordiant who
were either directors prior to a Person becoming an Acquiring Person or whose
election or nomination for election was so previously approved), then the
restrictions on Dispositions contained in Section 4, shall terminate without any
action on the part of any party hereto.
(d) ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party, provided,
that Cordiant or Sub may assign, in its
D-7
sole discretion, its rights and obligations hereunder to any direct or indirect
wholly owned subsidiary of Cordiant, but no such assignment shall relieve
Cordiant or Sub of its obligations hereunder if such assignee does not or cannot
perform such obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the party to be
charged thereby or, with respect to termination, as otherwise provided herein.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholder: Herbert Ehrenthal
c/o Healthworld Corporation
100 Avenue of the Americas
New York, New York 10010
Facsimile: (212) 966-2743
and
If to Cordiant or Cordiant Communications Group plc
Sub to: 121-141 Westbourne Terrace
London W2 6JR
Attention: Deputy Finance Director
Facsimile: +44-171-262-4300
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
Attention: Timothy B. Goodell, Esq.
Facsimile: (212) 354-8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the aggrieved party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the aggrieved
party shall be entitled to the remedy of specific performance of such covenants
and agreements and
D-8
injunctive and other equitable relief in addition to any other remedy to which
it may be entitled, at law or in equity.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Court of Chancery in the State of Delaware or the
United States District Court for the Southern District of New York or any court
of the State of New York located in the City of New York in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on forum non conveniens or any other objection to venue
therein); provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this paragraph (1) and shall not be deemed to be a
general submission to the jurisdiction of said Courts or in the States of
Delaware or New York other than for such purposes. Each party hereto hereby
waives any right to a trial by jury in connection with any such action, suit or
proceeding.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
D-9
IN WITNESS WHEREOF, Cordiant, Sub and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
HEALTHWORLD ACQUISITION CORP.
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
/s/ HERBERT EHRENTHAL
-----------------------------------------
Herbert Ehrenthal
D-10
APPENDIX E
STOCKHOLDER AGREEMENT
AGREEMENT dated November 9, 1999, among Cordiant Communications Group plc, a
company organized under the laws of England and Wales ("Cordiant"), Healthworld
Acquisition Corporation, a Delaware corporation and a direct wholly owned
subsidiary of Cordiant ("Sub"), and Spencer Falk (the "Stockholder").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Cordiant, Sub, and Healthworld Corporation,
a Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"), pursuant to which Sub will be merged with and into the
Company and the Company shall continue as the surviving corporation (the
"Merger");
WHEREAS, the Stockholder Beneficially Owns, as of the date hereof, 518,327
shares (the "Shares") of common stock, $.01 par value per share, of the Company
(the "Common Stock"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Cordiant and Sub have required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. Unless other defined herein, all capitalized terms used
herein shall have the meanings given to such terms in the Merger Agreement. For
purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities Beneficially
Owned by all other Persons with whom such Person would constitute a "group" as
within the meanings of Section 13(d)(3) of the Exchange Act.
(b) "Exchange Rate" means the average currency exchange rate of pounds
sterling to US dollars as published in the noon buying rate in the City of New
York for cable transfers in foreign currencies as announced by the Federal
Reserve Bank of New York for customs purposes over the 10 consecutive Trading
Days ending on the day on which the Stock Options are exercised pursuant to
Section 3.
(c) "Parent Share Value" shall mean the product of (x) the average of
the closing middle market quotation of a Parent Share on the LSE as reported in
the Daily Official List of the London Stock Exchange for each of the ten
consecutive Trading Days ending on the day on which the Stock Options are
exercised pursuant to Section 3 multiplied by (y) Exchange Rate.
(d) "Parent Shares" shall mean the ordinary shares, with a nominal value
of U.K. fifty pence each ("Ordinary Shares"), of Cordiant (including any options
or other rights to receive Ordinary Shares) and the American Depositary Shares,
each representing the right to receive five Ordinary Shares ("ADSs").
E-1
(e) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) "Share Value" shall be determined as follows:
(i) if the Parent Share Value is equal to or greater than $2.5054 and
equal to or less than $3.4838, the Share Value shall be $20.00;
(ii) if the Parent Share Value is greater than $3.4838, the Share Value
shall be $23.00; and
(iii) if the Parent Share Value is less than $2.5054, the Share Value
shall be $17.00.
(g) "Trading Day" shall mean any day on which securities are traded,
with respect to ADSs, on the New York Stock Exchange, Inc. and with respect to
Ordinary Shares, on the London Stock Exchange Limited.
2. PROVISIONS CONCERNING COMMON STOCK. (a) The Stockholder hereby agrees
that during the period described in clause (b) below, at any meeting of the
holders of Common Stock of the Company, however called, or in connection with
any written consent of the holders of Common Stock of the Company, the
Stockholder shall vote (or cause to be voted) the Shares of Common Stock of the
Company, (i) in favor of the Merger, the execution and delivery by the Company
of the Merger Agreement and the approval of the terms thereof and each of the
other actions contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (iii) except as otherwise
agreed to in writing in advance by Cordiant, against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of
the Company or its Subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (C) any change in
a majority of the persons who constitute the board of directors of the Company;
(D) any change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation or Bylaws; (E) any other material
change in the Company's corporate structure or business; or (F) any other action
involving the Company or its Subsidiaries which is intended, or could reasonably
be expected, to materially impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by this
Agreement and the Merger Agreement. The Stockholder shall not enter into any
agreement or understanding with any Person the effect of which would be
inconsistent with or violative of the provisions and agreements contained in
this Section 2.
(b) The obligations of the Stockholders under clauses (i), (ii) and
(iii)(C), (D), (E) and (F) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and the termination of the Merger Agreement in
accordance with its terms. The obligations of the Stockholder under
clause (iii)(A) and (B) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and 120 days after the termination of the Merger
Agreement in accordance with its terms (unless the Merger Agreement is
terminated by reason of the failure to obtain Parent Shareholders' Approval in
which case the Stockholder's obligations under this Section 2 shall terminate
simultaneously with the termination of the Merger Agreement).
3. OPTION TO PURCHASE. In order to induce Cordiant and Sub to enter into
the Merger Agreement, the Stockholder hereby grants to Sub an irrevocable option
(the "Stock Options") to purchase, all, and not less than all, of the Shares at
a purchase price per share equal to the Share Value, payable in cash (the
"Purchase Price"), solely upon, and subject to, the terms and conditions set
forth below. The Stock Options may only be exercised if Sub simultaneously
exercises all other options held by it to purchase all, and not less than all,
of the shares of Common Stock covered by such
E-2
options. The Stock Options shall become exercisable solely in the event that the
Merger Agreement is terminated pursuant to (i) Section 9.1(b)(ii) thereof, but
only if the basis for such termination is the failure to obtain the Company
Stockholder Approval or (ii) Section 9.1(b)(iii) thereof, but only if the basis
for such termination is a breach by the Company, or the Stockholder materially
breaches any agreement contained in this Agreement, in which event the Stock
Options shall, in any such case, become immediately exercisable at any time and
from time to time upon such termination or upon Cordiant and Sub being informed
of such breach, as the case may be, and until the date which is 20 days after
the date of such termination or the date on which Cordiant and Sub are informed
of such breach, as the case may be, provided, that if at the expiration of such
20-day period the Stock Options cannot be exercised by reason of any preliminary
or final injunction or other order issued by any court or governmental,
administrative or regulatory agency or authority prohibiting the exercise of the
Stock Options pursuant to this Agreement, or because all waiting periods under
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
ACT"), required for the purchase of the Shares upon such exercise shall not have
expired or been waived, the Stock Options shall be exercisable until 10 business
days after the later of the date on which such impediment to exercise shall have
been removed or shall have become final and not subject to appeal. In all other
instances, the Stock Options shall terminate upon the termination of the Merger
Agreement. In the event that Cordiant wishes to exercise the Stock Options,
Cordiant shall send a written notice (the "Notice") to the Stockholder
identifying the place (which shall be in New York City for each Stockholder who
is a resident of the United States and in London for each Stockholder who is a
resident of the United Kingdom) and date (not less than two business days nor
greater than ten business days from the date of the Notice) for the closing of
such purchase. At such closing, Cordiant shall receive certificates for the
Shares, duly endorsed for transfer, and shall make payment therefor by wire
transfer of immediately available funds.
4. DISPOSITION OF PARENT SHARES.
(a) RESTRICTIONS ON DISPOSITION. The Stockholder hereby agrees, except
as permitted in this Section 4(a) and Section 4(b) below, not to directly or
indirectly, offer to sell, contract to sell, transfer, assign, cause to be
redeemed or otherwise sell or dispose of any of the Parent Shares (collectively
a "Disposition") received by the stockholder in connection with the Merger
without the prior written consent of Cordiant. The parties agree that any Parent
Shares received by the Stockholder with respect to any shares received after the
date hereof under the earn-out payments payable under of the Agreement and Plan
of Merger (the "Agreement") dated as of August 1, 1999, by and between the
Company, HC-Falk Acquisition Corp., Falk Communications Inc., the Stockholder
and the Stockholder, as trustee under the Spencer Falk Grantor Retained Annuity
Trust u/t/a/d March 5, 1999 (the "Subsequent Shares") shall not be subject to
this Section 4 (other than the last sentence of Section 4(b) which shall apply
to the Subsequent shares for a period of 180 days after the Effective Time).
Notwithstanding anything to the contrary provided in this Agreement, the
Stockholder shall have the right to transfer Parent Shares (i) to any Family
Member, (ii) to the trustee or trustees of a trust solely (except for remote
contingent interests) for the benefit of the Stockholder and/or one or more
Family Members and/or a charitable organization (a "Family Member Trust"),
(iii) to a foundation created or established by the Stockholder, or any other
charitable organization, (iv) to a corporation of which the Stockholder and/or
any Family Member and/or any Family Member Trust owns all of the outstanding
capital stock, (v) to a limited liability company of which the Stockholder
and/or any Family Member and/or any Family Member Trust owns all of the
outstanding membership interests, (vi) to a partnership of which the Stockholder
and/or any Family Member and/or any Family Member Trust owns all of the
partnership interests, (vii) to the executor, administrator or personal
representative of the estate of the Stockholder or any other Family Member, or
(viii) to any guardian, trustee or conservator appointed with respect to the
assets of the Stockholder, provided, that in the case of any such transfer, the
transferee shall execute an agreement to be bound by the terms of this Agreement
(each such transfer, a "Permitted Transfer" and, collectively, the "Permitted
Transfers"). For purposes of this Agreement, "Family Member" shall mean (a) the
Stockholder's spouse, if living
E-3
with the Stockholder, (b) any one of the following: the Stockholder's father,
mother, issue, brother or sister, and the issue of a brother or sister, and
(c) the spouse of any Family Member described in (b) above, if the spouse shall
be living with that Family Member. The Stockholder hereby agrees and consents to
the entry of stop transfer instructions with Cordiant's transfer agent against
the transfer of such Parent Shares except in compliance with this Agreement.
Notwithstanding the foregoing, the Stockholder may pledge, hypothecate or
otherwise grant a security interest in all or a portion of the Parent Shares
beneficially owned by him during the term of this Agreement; provided, however,
that any Person receiving such Parent Shares shall be subject to all of the
restrictions on Disposition of such Parent Shares imposed by this Agreement to
the same extent as the Stockholder.
(b) PERMITTED DISPOSITIONS. The Stockholder may not effect any
Disposition of Parent Shares received by the Stockholder in connection with the
Merger except as follows: (i) during the twelve-month period immediately
following the Effective Time the Stockholder may effect the Disposition of not
more than 10% of the Parent Shares Beneficially Owned by the Stockholder and
(ii) during the twenty-four-month period immediately following the Effective
Time (the "Period"), the Stockholder may effect the Disposition of not more than
50% of the Parent Shares Beneficially Owned by the Stockholder. Upon the
expiration of the Period, the Stockholder may effect the Dispositions of all or
any portion of the Parent Shares Beneficially Owned by him subject to any
applicable restrictions under the Federal Securities Law and restrictions of
general application under English law, the Listing Rules of the London Stock
Exchange, if applicable, and Cordiant's policies made pursuant to such rules
regarding dealings in Parent Shares by directors and relevant employees of
Cordiant and its subsidiaries, if applicable. Notwithstanding anything to the
contrary contained in this Section 4, the Stockholder hereby agrees that for the
period commencing at the Effective Time and ending on the date which is
180 days after the expiration of the Period, the Stockholder shall give Cordiant
1 business day prior written notice of any intended Disposition of Parent Shares
to be made by the Stockholder and at the request of Cordiant agrees to effect
such Disposition through brokers or other financial intermediaries designated by
Cordiant to maintain an orderly trading market for the Parent Shares, provided
that such financial intermediary agrees to effect and does effect the
Disposition in a reasonable period following such notice.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to each of Cordiant and Sub as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record holder of or
Beneficially Owns the Shares. On the date hereof, the Shares constitute all of
the shares of Common Stock owned of record or Beneficially Owned by the
Stockholder (excluding any Stock Options (as defined in the Merger Agreement)
held by the Stockholder). The Stockholder has sole voting power and sole power
to issue instructions with respect to the matters set forth in Section 2 hereof,
sole power of disposition, sole power of conversion, sole power to exercise
dissenters' rights and sole power to agree to all of the matters set forth in
this agreement, in each case with respect to all of the Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal capacity,
power and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Stockholder will not violate any other Agreement to which the Stockholder is a
party including, without limitation, any voting agreement, shareholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought. There is no beneficiary or holder
of a voting
E-4
trust certificate or other interest of any trust of which the Stockholder is
trustee whose consent is required for the execution and delivery of this
agreement or the consummation by the Stockholder of the transactions
contemplated hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this agreement has been duly authorized, executed
and delivered by, and constitutes a valid and binding agreement of, the
Stockholder's spouse, enforceable against such Person in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought.
(c) NO CONFLICTS. Except for filings, permits, authorizations,
consents and approvals under the HSR Act and the Securities Act of 1933, if
applicable, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Stockholder and the consummation by the
Stockholder of the transactions contemplated hereby and (B) none of the
execution and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall, in a manner which would be
material and adverse to the ability of the Stockholder to consummate the
transactions contemplated hereby or to comply with the terms hereof, result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Stockholder is a party or by which the
Stockholder or any of the Stockholder's properties or assets may be bound, or
(3) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to the Stockholder or any of the Stockholder's
properties or assets.
(d) NO ENCUMBRANCES. Except as applicable in connection with the
transactions contemplated hereby or as set forth on Schedule B attached hereto,
the Shares and the certificates representing the Shares are now, and at all
times during the term hereof will be, held by the Stockholder, or by a nominee
or custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements, understandings
or arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder in favor of Cordiant.
(e) NO FINDER'S FEES. No broker, investment banker, financial adviser
or other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Stockholder other
than Bear Stearns & Co. Inc., the fees and expenses of which shall be paid by
the Company.
(f) RELIANCE BY CORDIANT AND SUB. The Stockholder understands and
acknowledges that Cordiant and Sub are entering into the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
6. ADDITIONAL COVENANTS OF THE STOCKHOLDER. The Stockholder hereby
covenants to each of Cordiant and Sub as follows:
(a) NO SOLICITATION. Subject to the provisions contained in
Section 10 of this Agreement, the Stockholder shall not, in his capacity as
such, directly or indirectly, solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by any
Person or entity (other than Cordiant or any affiliate of Cordiant) with respect
to the Company that constitutes a Takeover Proposal. If the Stockholder receives
any such inquiry or proposal, then the Stockholder shall promptly inform
Cordiant of the existence thereof. The Stockholder will immediately cease and
cause
E-5
to be terminated any existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing.
(b) RESTRICTION ON TRANSFER OF SHARES, PROXIES AND
NON-INTERFERENCE. Beginning on the date hereof and ending on the later to occur
of (A) last date the Stock Options are exercisable pursuant to Section 3 hereof
and (B) the date that all of the Stockholder's obligations under Section 2 have
terminated, except as contemplated by this Agreement or the Merger Agreement, no
Stockholder shall, directly or indirectly, (i) offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of the Shares or any interest
therein; (ii) except as contemplated by this Agreement, grant any proxies or
powers of attorney, deposit any of the Shares into a voting trust or enter into
a voting agreement with respect to any of the Shares; or (iii) take any action
that would make any representation or warranty of the Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling the
Stockholder from performing the Stockholder's obligations under this Agreement.
Notwithstanding anything to the contrary provided in this Agreement, a
Stockholder shall have the right to make Permitted Transfers of Shares. The
Stockholder agrees with, and covenants to, Sub that beginning on the date hereof
and ending on the last date the Stock Options are exercisable pursuant to
Section 3 hereof, the Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of the Shares, unless such transfer is made in
compliance with this Agreement (including the provisions of Section 2 hereof).
(c) ADDITIONAL SHARES. The Stockholder agrees, while this Agreement is
in effect (i) to notify Cordiant and Sub promptly of the number of any shares of
Common Stock acquired by the Stockholder after the date hereof (the "Additional
Shares") and (ii) to vote such Additional Shares in accordance with Section 2
hereof. Such Additional Shares shall also be subject to the Stock Option granted
to Sub pursuant to Section 3 hereof and the restriction contained in
Section 6(b)(i) and (ii) above.
7. REPRESENTATIONS AND WARRANTIES OF CORDIANT AND SUB. Cordiant and Sub
hereby covenant, represent and warrant to the Stockholder that each of Cordiant
and Sub has the legal capacity, power and authority to enter into and perform
all of such party's obligations under this Agreement; the execution, delivery
and performance of this Agreement by Cordiant and Sub will not violate or result
in a breach of any other material agreement to which Cordiant or Sub is a party;
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (i) have been duly authorized by the board of
directors of Cordiant and Sub, and (ii) do not and will not violate any
provision of the certificate of incorporation or by-laws of Cordiant or Sub; and
this Agreement has been duly and validly executed and delivered by each of
Cordiant and Sub and constitutes a valid and binding agreement of such party,
enforceable against such party in accordance with its terms.
8. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional reasonable documents and take all such further reasonable lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement.
9. TERMINATION; EXPENSES AND FEE. (a) The covenants and agreements
contained herein with respect to the Shares shall terminate (i) in the event the
Merger Agreement is terminated in accordance with its terms, upon such
termination, except that the provisions of Sections 2, 3 and 6(b) hereof shall
survive any such termination solely in accordance with their terms and (ii) in
the event the Merger is consummated, at the Effective Time, except that the
provisions of Section 4 hereof shall survive any such termination, provided, in
each case, that the provisions of Section 12 and Section 13
E-6
hereof shall survive any termination of this Agreement, and provided, further,
that no termination of this Agreement shall relieve any party of liability for a
breach hereof.
(b) Each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
10. STOCKHOLDER CAPACITY. The Stockholder is not executing this Agreement
and does not make any agreement or understanding herein in his or her capacity
as a director or officer of the Company and nothing contained herein shall limit
or affect any actions taken by the Stockholder in his capacity as a director or
officer of the Company to the extent such action is permitted by, or not
prohibited by, the Merger Agreement, and none of such actions in such capacities
shall be deemed to constitute a breach of this Agreement. The Stockholder signs
solely in his capacity as the record and beneficial owner of, or the trustee of
a trust whose beneficiaries are the beneficial owners of, the Shares.
11. SOPHISTICATION. The Stockholder acknowledges that he is an informed
and sophisticated investor and, together with his advisors, has undertaken such
investigation as they have deemed necessary, including the review of the Merger
Agreement and this Agreement, to enable the Stockholder to make an informed and
intelligent decision with respect to the Merger Agreement and this Agreement and
the transactions contemplated thereby and hereby.
12. CONFIDENTIALITY. Each of the parties hereto recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each party hereby agrees not to
disclose or discuss such matters with anyone not a party to this Agreement or
the Merger Agreement (other than such party's counsel and advisors, if any)
without the prior written consent of the other party, except for filings
required pursuant to the Exchange Act and the rules and regulations thereunder
or disclosures such party's counsel advises are necessary in order to fulfill
such party's obligations imposed by law, in which event such party shall give
notice of such disclosure to the other party as promptly as practicable so as to
enable the other party to seek a protective order from a court of competent
jurisdiction with respect thereto.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(b) CERTAIN EVENTS. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, the Stockholder's heirs, guardians, administrators or successors,
provided, that following the Effective Time, this Agreement shall not be binding
on any purchaser of Shares in a transaction made in compliance with
Section 4(b), other than Permitted Transfers. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(c) CHANGE IN CONTROL. In the event that after the Effective Time
(i) any Person or group of Persons acting in concert (as defined in the City
Code on Take-overs and Mergers in the United Kingdom) acquires an interest in
the equity share capital of Cordiant (an "Acquiring Person") and, immediately
following such acquisition, such person, or group, holds shares entitled to
exercise more than 50% of the votes which may be cast at a general meeting of
Cordiant or (ii) a majority of the board of directors of Cordiant immediately
prior to such Person becoming an Acquiring Person, cease to thereafter
constitute a majority of the board of directors of Cordiant (other than through
elections of directors whose nomination for election by the shareholders of
Cordiant were approved by the vote
E-7
of a majority of directors of Cordiant who were either directors prior to a
Person becoming an Acquiring Person or whose election or nomination for election
was so previously approved), then the restrictions on Dispositions contained in
Section 4, shall terminate without any action on the part of any party hereto.
(d) ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party, provided,
that Cordiant or Sub may assign, in its sole discretion, its rights and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Cordiant, but no such assignment shall relieve Cordiant or Sub of its
obligations hereunder if such assignee does not or cannot perform such
obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the party to be
charged thereby or, with respect to termination, as otherwise provided herein.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholder: Spencer Falk
c/o Healthworld Corporation
100 Avenue of the Americas
New York, New York 10010
Facsimile: (212) 966-2743
and
If to Cordiant or Cordiant Communications Group plc
Sub to: 121-141 Westbourne Terrace
London W2 6JR
Attention: Deputy Finance Director
Facsimile: +44-171-262-4300
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
Attention: Timothy B. Goodell, Esq.
Facsimile: (212) 354-8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
E-8
(h) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the aggrieved party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the aggrieved
party shall be entitled to the remedy of specific performance of such covenants
and agreements and injunctive and other equitable relief in addition to any
other remedy to which it may be entitled, at law or in equity.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Court of Chancery in the State of Delaware or the
United States District Court for the Southern District of New York or any court
of the State of New York located in the City of New York in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on forum non conveniens or any other objection to venue
therein); provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this paragraph (1) and shall not be deemed to be a
general submission to the jurisdiction of said Courts or in the States of
Delaware or New York other than for such purposes. Each party hereto hereby
waives any right to a trial by jury in connection with any such action, suit or
proceeding.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
E-9
IN WITNESS WHEREOF, Cordiant, Sub and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
HEALTHWORLD ACQUISITION CORP.
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
/s/ SPENCER FALK
-----------------------------------------
Spencer Falk
E-10
APPENDIX F
STOCKHOLDER AGREEMENT
AGREEMENT dated November 9, 1999, among Cordiant Communications Group plc, a
company organized under the laws of England and Wales ("Cordiant"), Healthworld
Acquisition Corporation, a Delaware corporation and a direct wholly owned
subsidiary of Cordiant ("Sub"), and Michael Garnham (the "Stockholder").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Cordiant, Sub, and Healthworld Corporation,
a Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"), pursuant to which Sub will be merged with and into the
Company and the Company shall continue as the surviving corporation (the
"Merger");
WHEREAS, the Stockholder Beneficially Owns, as of the date hereof, 242,231
shares (the "Shares") of common stock, $.01 par value per share, of the Company
(the "Common Stock"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Cordiant and Sub have required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. Unless other defined herein, all capitalized terms used
herein shall have the meanings given to such terms in the Merger Agreement. For
purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities Beneficially
Owned by all other Persons with whom such Person would constitute a "group" as
within the meanings of Section 13(d)(3) of the Exchange Act.
(b) "Exchange Rate" means the average currency exchange rate of pounds
sterling to US dollars based upon the noon buying rate in the City of New York
for cable transfers in foreign currencies as announced by the Federal Reserve
Bank of New York for customs purposes over the 10 consecutive Trading Days
ending on the day on which the Stock Options are exercised pursuant to
Section 3.
(c) "Parent Share Value" shall mean the product of (x) the average of
the closing middle market quotation of a Parent Share on the LSE as reported in
the Daily Official List of the London Stock Exchange for each of the ten
consecutive Trading Days ending on the day on which the Stock Options are
exercised pursuant to Section 3 multiplied by (y) Exchange Rate.
(d) "Parent Shares" shall mean the ordinary shares, with a nominal value
of U.K. fifty pence each ("Ordinary Shares"), of Cordiant (including any options
or other rights to receive Ordinary Shares) and the American Depositary Shares,
each representing the right to receive five Ordinary Shares ("ADSs").
F-1
(e) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) "Share Value" shall be determined as follows:
(i) if the Parent Share Value is equal to or greater than $2.5054 and
equal to or less than $3.4838, the Share Value shall be $20.00;
(ii) if the Parent Share Value is greater than $3.4838, the Share
Value shall be $23.00; and
(iii) if the Parent Share Value is less than $2.5054, the Share Value
shall be $17.00.
(g) "Trading Day" shall mean any day on which securities are traded,
with respect to ADSs, on the New York Stock Exchange, Inc. and with respect to
Ordinary Shares, on the London Stock Exchange Limited.
2. PROVISIONS CONCERNING COMMON STOCK. (a) The Stockholder hereby agrees
that during the period described in clause (b) below, at any meeting of the
holders of Common Stock of the Company, however called, or in connection with
any written consent of the holders of Common Stock of the Company, the
Stockholder shall vote (or cause to be voted) the Shares of Common Stock of the
Company, (i) in favor of the Merger, the execution and delivery by the Company
of the Merger Agreement and the approval of the terms thereof and each of the
other actions contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (iii) except as otherwise
agreed to in writing in advance by Cordiant, against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of
the Company or its Subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (C) any change in
a majority of the persons who constitute the board of directors of the Company;
(D) any change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation or Bylaws; (E) any other material
change in the Company's corporate structure or business; or (F) any other action
involving the Company or its Subsidiaries which is intended, or could reasonably
be expected, to materially impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by this
Agreement and the Merger Agreement. The Stockholder shall not enter into any
agreement or understanding with any Person the effect of which would be
inconsistent with or violative of the provisions and agreements contained in
this Section 2.
(b) The obligations of the Stockholders under clauses (i), (ii) and
(iii)(C), (D), (E) and (F) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and the termination of the Merger Agreement in
accordance with its terms. The obligations of the Stockholder under
clause (iii)(A) and (B) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and 120 days after the termination of the Merger
Agreement in accordance with its terms (unless the Merger Agreement is
terminated by reason of the failure to obtain Parent Shareholders' Approval in
which case the Stockholder's obligations under this Section 2 shall terminate
simultaneously with the termination of the Merger Agreement).
3. OPTION TO PURCHASE. In order to induce Cordiant and Sub to enter into
the Merger Agreement, the Stockholder hereby grants to Sub an irrevocable option
(the "Stock Options") to purchase, all, and not less than all, of the Shares at
a purchase price per share equal to the Share Value, payable in cash (the
"Purchase Price"), solely upon, and subject to, the terms and conditions set
forth below. The Stock Options may only be exercised if Sub simultaneously
exercises all other options
F-2
held by it to purchase all, and not less than all, of the shares of Common Stock
covered by such options. The Stock Options shall become exercisable solely in
the event that the Merger Agreement is terminated pursuant to
(i) Section 9.1(b)(ii) thereof, but only if the basis for such termination is
the failure to obtain the Company Stockholder Approval or
(ii) Section 9.1(b)(iii) thereof, but only if the basis for such termination is
a breach by the Company, or the Stockholder materially breaches any agreement
contained in this Agreement, in which event the Stock Options shall, in any such
case, become immediately exercisable at any time and from time to time upon such
termination or upon Cordiant and Sub being informed of such breach, as the case
may be, and until the date which is 20 days after the date of such termination
or the date on which Cordiant and Sub are informed of such breach, as the case
may be, provided, that if at the expiration of such 20-day period the Stock
Options cannot be exercised by reason of any preliminary or final injunction or
other order issued by any court or governmental, administrative or regulatory
agency or authority prohibiting the exercise of the Stock Options pursuant to
this Agreement, or because all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), required for the
purchase of the Shares upon such exercise shall not have expired or been waived,
the Stock Options shall be exercisable until 10 business days after the later of
the date on which such impediment to exercise shall have been removed or shall
have become final and not subject to appeal. In all other instances, the Stock
Options shall terminate upon the termination of the Merger Agreement. In the
event that Cordiant wishes to exercise the Stock Options, Cordiant shall send a
written notice (the "Notice") to the Stockholder identifying the place (which
shall be in New York City for each Stockholder who is a resident of the United
States and in London for each Stockholder who is a resident of the United
Kingdom) and date (not less than two business days nor greater than ten business
days from the date of the Notice) for the closing of such purchase. At such
closing, Cordiant shall receive certificates for the Shares, duly endorsed for
transfer, and shall make payment therefor by wire transfer of immediately
available funds.
4. DISPOSITION OF PARENT SHARES.
(a) RESTRICTIONS ON DISPOSITION. The Stockholder hereby agrees, except
as permitted in this Section 4(a) and Section 4(b) below, not to directly or
indirectly, offer to sell, contract to sell, transfer, assign, cause to be
redeemed or otherwise sell or dispose of any of the Parent Shares (collectively
a "Disposition") received by the stockholder in connection with the Merger
without the prior written consent of Cordiant. Notwithstanding anything to the
contrary provided in this Agreement, the Stockholder shall have the right to
transfer Parent Shares (i) to any Family Member, (ii) to the trustee or trustees
of a trust solely (except for remote contingent interests) for the benefit of
the Stockholder and/or one or more Family Members and/or a charitable
organization (a "Family Member Trust"), (iii) to a foundation created or
established by the Stockholder, or any other charitable organization, (iv) to a
corporation of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the outstanding capital stock, (v) to a limited
liability company of which the Stockholder and/or any Family Member and/or any
Family Member Trust owns all of the outstanding membership interests, (vi) to a
partnership of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the partnership interests, (vii) to the executor,
administrator or personal representative of the estate of the Stockholder or any
other Family Member, or (viii) to any guardian, trustee or conservator appointed
with respect to the assets of the Stockholder, provided, that in the case of any
such transfer, the transferee shall execute an agreement to be bound by the
terms of this Agreement (each such transfer, a "Permitted Transfer" and,
collectively, the "Permitted Transfers"). For purposes of this Agreement,
"Family Member" shall mean (a) the Stockholder's spouse, if living with the
Stockholder, (b) any one of the following: the Stockholder's father, mother,
issue, brother or sister, and the issue of a brother or sister, and (c) the
spouse of any Family Member described in (b) above, if the spouse shall be
living with that Family Member. The Stockholder hereby agrees and consents to
the entry of stop transfer instructions with Cordiant's transfer agent against
the transfer of such Parent Shares except in compliance with this Agreement.
Notwithstanding the foregoing, the Stockholder may pledge, hypothecate or
otherwise grant a security interest in all or a
F-3
portion of the Parent Shares beneficially owned by him during the term of this
Agreement; provided, however, that any Person receiving such Parent Shares shall
be subject to all of the restrictions on Disposition of such Parent Shares
imposed by this Agreement to the same extent as the Stockholder.
(b) PERMITTED DISPOSITIONS. The Stockholder may not effect any
Disposition of Parent Shares received by the Stockholder in connection with the
Merger except as follows: (i) during the twelve-month period immediately
following the Effective Time the Stockholder may effect the Disposition of not
more than 20% of the Parent Shares Beneficially Owned by the Stockholder and
(ii) during the twenty-four-month period immediately following the Effective
Time (the "Period"), the Stockholder may effect the Disposition of not more than
60% of the Parent Shares Beneficially Owned by the Stockholder. Upon the
expiration of the Period, the Stockholder may effect the Dispositions of all or
any portion of the Parent Shares Beneficially Owned by him subject to any
applicable restrictions under the Federal Securities Law and restrictions of
general application under English law, the Listing Rules of the London Stock
Exchange, if applicable, and Cordiant's policies made pursuant to such rules
regarding dealings in Parent Shares by directors and relevant employees of
Cordiant and its subsidiaries, if applicable. Notwithstanding anything to the
contrary contained in this Section 4, the Stockholder hereby agrees that for the
period commencing at the Effective Time and ending on the date which is
180 days after the expiration of the Period, the Stockholder shall give Cordiant
1 business day prior written notice of any intended Disposition of Parent Shares
to be made by the Stockholder and at the request of Cordiant agrees to effect
such Disposition through brokers or other financial intermediaries designated by
Cordiant to maintain an orderly trading market for the Parent Shares, provided
that such financial intermediary agrees to effect and does effect the
Disposition in a reasonable period following such notice.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to each of Cordiant and Sub as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record holder of or
Beneficially Owns the Shares. On the date hereof, the Shares constitute all of
the shares of Common Stock owned of record or Beneficially Owned by the
Stockholder (excluding any Stock Options (as defined in the Merger Agreement)
held by the Stockholder). The Stockholder has sole voting power and sole power
to issue instructions with respect to the matters set forth in Section 2 hereof,
sole power of disposition, sole power of conversion, sole power to exercise
dissenters' rights and sole power to agree to all of the matters set forth in
this agreement, in each case with respect to all of the Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal capacity,
power and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Stockholder will not violate any other Agreement to which the Stockholder is a
party including, without limitation, any voting agreement, shareholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of which the
Stockholder is trustee whose consent is required for the execution and delivery
of this agreement or the consummation by the Stockholder of the transactions
contemplated hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this agreement has been duly authorized, executed
and delivered by, and constitutes a valid and binding agreement of, the
Stockholder's spouse, enforceable against such Person in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
F-4
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought.
(c) NO CONFLICTS. Except for filings, permits, authorizations,
consents and approvals under the HSR Act and the Securities Act of 1933, if
applicable, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Stockholder and the consummation by the
Stockholder of the transactions contemplated hereby and (B) none of the
execution and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall, in a manner which would be
material and adverse to the ability of the Stockholder to consummate the
transactions contemplated hereby or to comply with the terms hereof, result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Stockholder is a party or by which the
Stockholder or any of the Stockholder's properties or assets may be bound, or
(3) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to the Stockholder or any of the Stockholder's
properties or assets.
(d) NO ENCUMBRANCES. Except as applicable in connection with the
transactions contemplated hereby or as set forth on Schedule B attached hereto,
the Shares and the certificates representing the Shares are now, and at all
times during the term hereof will be, held by the Stockholder, or by a nominee
or custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements, understandings
or arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder in favor of Cordiant.
(e) NO FINDER'S FEES. No broker, investment banker, financial adviser
or other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Stockholder other
than Bear Stearns & Co. Inc., the fees and expenses of which shall be paid by
the Company.
(f) RELIANCE BY CORDIANT AND SUB. The Stockholder understands and
acknowledges that Cordiant and Sub are entering into the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
6. ADDITIONAL COVENANTS OF THE STOCKHOLDER. The Stockholder hereby
covenants to each of Cordiant and Sub as follows:
(a) NO SOLICITATION. Subject to the provisions contained in
Section 10 of this Agreement, the Stockholder shall not, in his capacity as
such, directly or indirectly, solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by any
Person or entity (other than Cordiant or any affiliate of Cordiant) with respect
to the Company that constitutes a Takeover Proposal. If the Stockholder receives
any such inquiry or proposal, then the Stockholder shall promptly inform
Cordiant of the existence thereof. The Stockholder will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
(b) RESTRICTION ON TRANSFER OF SHARES, PROXIES AND
NON-INTERFERENCE. Beginning on the date hereof and ending on the later to occur
of (A) last date the Stock Options are exercisable pursuant to Section 3 hereof
and (B) the date that all of the Stockholder's obligations under Section 2 have
F-5
terminated, except as contemplated by this Agreement or the Merger Agreement, no
Stockholder shall, directly or indirectly, (i) offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of the Shares or any interest
therein; (ii) except as contemplated by this Agreement, grant any proxies or
powers of attorney, deposit any of the Shares into a voting trust or enter into
a voting agreement with respect to any of the Shares; or (iii) take any action
that would make any representation or warranty of the Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling the
Stockholder from performing the Stockholder's obligations under this Agreement.
Notwithstanding anything to the contrary provided in this Agreement, a
Stockholder shall have the right to make Permitted Transfers of Shares. The
Stockholder agrees with, and covenants to, Sub that beginning on the date hereof
and ending on the last date the Stock Options are exercisable pursuant to
Section 3 hereof, the Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of the Shares, unless such transfer is made in
compliance with this Agreement (including the provisions of Section 2 hereof).
(c) ADDITIONAL SHARES. The Stockholder agrees, while this Agreement is
in effect (i) to notify Cordiant and Sub promptly of the number of any shares of
Common Stock acquired by the Stockholder after the date hereof (the "Additional
Shares") and (ii) to vote such Additional Shares in accordance with Section 2
hereof. Such Additional Shares shall also be subject to the Stock Option granted
to Sub pursuant to Section 3 hereof and the restriction contained in
Section 6(b)(i) and (ii) above.
7. REPRESENTATIONS AND WARRANTIES OF CORDIANT AND SUB. Cordiant and Sub
hereby covenant, represent and warrant to the Stockholder that each of Cordiant
and Sub has the legal capacity, power and authority to enter into and perform
all of such party's obligations under this Agreement; the execution, delivery
and performance of this Agreement by Cordiant and Sub will not violate or result
in a breach of any other material agreement to which Cordiant or Sub is a party;
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (i) have been duly authorized by the board of
directors of Cordiant and Sub, and (ii) do not and will not violate any
provision of the certificate of incorporation or by-laws of Cordiant or Sub; and
this Agreement has been duly and validly executed and delivered by each of
Cordiant and Sub and constitutes a valid and binding agreement of such party,
enforceable against such party in accordance with its terms.
8. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional reasonable documents and take all such further reasonable lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement.
9. TERMINATION; EXPENSES AND FEE. (a) The covenants and agreements
contained herein with respect to the Shares shall terminate (i) in the event the
Merger Agreement is terminated in accordance with its terms, upon such
termination, except that the provisions of Sections 2, 3 and 6(b) hereof shall
survive any such termination solely in accordance with their terms and (ii) in
the event the Merger is consummated, at the Effective Time, except that the
provisions of Section 4 hereof shall survive any such termination, provided, in
each case, that the provisions of Section 12 and Section 13 hereof shall survive
any termination of this Agreement, and provided, further, that no termination of
this Agreement shall relieve any party of liability for a breach hereof.
(b) Each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
F-6
10. STOCKHOLDER CAPACITY. The Stockholder is not executing this Agreement
and does not make any agreement or understanding herein in his or her capacity
as a director or officer of the Company and nothing contained herein shall limit
or affect any actions taken by the Stockholder in his capacity as a director or
officer of the Company to the extent such action is permitted by, or not
prohibited by, the Merger Agreement, and none of such actions in such capacities
shall be deemed to constitute a breach of this Agreement. The Stockholder signs
solely in his capacity as the record and beneficial owner of, or the trustee of
a trust whose beneficiaries are the beneficial owners of, the Shares.
11. SOPHISTICATION. The Stockholder acknowledges that he is an informed
and sophisticated investor and, together with his advisors, has undertaken such
investigation as they have deemed necessary, including the review of the Merger
Agreement and this Agreement, to enable the Stockholder to make an informed and
intelligent decision with respect to the Merger Agreement and this Agreement and
the transactions contemplated thereby and hereby.
12. CONFIDENTIALITY. Each of the parties hereto recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each party hereby agrees not to
disclose or discuss such matters with anyone not a party to this Agreement or
the Merger Agreement (other than such party's counsel and advisors, if any)
without the prior written consent of the other party, except for filings
required pursuant to the Exchange Act and the rules and regulations thereunder
or disclosures such party's counsel advises are necessary in order to fulfill
such party's obligations imposed by law, in which event such party shall give
notice of such disclosure to the other party as promptly as practicable so as to
enable the other party to seek a protective order from a court of competent
jurisdiction with respect thereto.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(b) CERTAIN EVENTS. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, the Stockholder's heirs, guardians, administrators or successors,
provided, that following the Effective Time, this Agreement shall not be binding
on any purchaser of Shares in a transaction made in compliance with
Section 4(b), other than Permitted Transfers. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(c) CHANGE IN CONTROL. In the event that after the Effective Time
(i) any Person or group of Persons acting in concert (as defined in the City
Code on Take-overs and Mergers in the United Kingdom) acquires an interest in
the equity share capital of Cordiant (an "Acquiring Person") and, immediately
following such acquisition, such person, or group, holds shares entitled to
exercise more than 50% of the votes which may be cast at a general meeting of
Cordiant or (ii) a majority of the board of directors of Cordiant immediately
prior to such Person becoming an Acquiring Person, cease to thereafter
constitute a majority of the board of directors of Cordiant (other than through
elections of directors whose nomination for election by the shareholders of
Cordiant were approved by the vote of a majority of directors of Cordiant who
were either directors prior to a Person becoming an Acquiring Person or whose
election or nomination for election was so previously approved), then the
restrictions on Dispositions contained in Section 4, shall terminate without any
action on the part of any party hereto.
F-7
(d) ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party, provided,
that Cordiant or Sub may assign, in its sole discretion, its rights and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Cordiant, but no such assignment shall relieve Cordiant or Sub of its
obligations hereunder if such assignee does not or cannot perform such
obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the party to be
charged thereby or, with respect to termination, as otherwise provided herein.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Michael Garnham
Stockholder: c/o The Milton Group
48 Broadway, Maidenhead,
Berkshire SL6 1LU, UK
Facsimile: 011-44-1628-630-298
and
If to Cordiant or Cordiant Communications Group plc
Sub to: 121-141 Westbourne Terrace
London W2 6JR
Attention: Deputy Finance Director
Facsimile: +44-171-262-4300
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
Attention: Timothy B. Goodell, Esq.
Facsimile: (212) 354-8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the aggrieved party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the aggrieved
party
F-8
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Court of Chancery in the State of Delaware or the
United States District Court for the Southern District of New York or any court
of the State of New York located in the City of New York in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on forum non conveniens or any other objection to venue
therein); provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this paragraph (1) and shall not be deemed to be a
general submission to the jurisdiction of said Courts or in the States of
Delaware or New York other than for such purposes. Each party hereto hereby
waives any right to a trial by jury in connection with any such action, suit or
proceeding.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
F-9
IN WITNESS WHEREOF, Cordiant, Sub and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
HEALTHWORLD ACQUISITION CORP.
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
/s/ MICHAEL GARNHAM
-----------------------------------------
Michael Garnham
F-10
APPENDIX G
STOCKHOLDER AGREEMENT
AGREEMENT dated November 9, 1999, among Cordiant Communications Group plc, a
company organized under the laws of England and Wales ("Cordiant"), Healthworld
Acquisition Corporation, a Delaware corporation and a direct wholly owned
subsidiary of Cordiant ("Sub"), and Steven Girgenti (the "Stockholder").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Cordiant, Sub, and Healthworld Corporation,
a Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"), pursuant to which Sub will be merged with and into the
Company and the Company shall continue as the surviving corporation (the
"Merger");
WHEREAS, the Stockholder Beneficially Owns, as of the date hereof, 2,245,925
shares (the "Shares") of common stock, $.01 par value per share, of the Company
(the "Common Stock"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Cordiant and Sub have required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. Unless other defined herein, all capitalized terms used
herein shall have the meanings given to such terms in the Merger Agreement. For
purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities Beneficially
Owned by all other Persons with whom such Person would constitute a "group" as
within the meanings of Section 13(d)(3) of the Exchange Act.
(b) "Exchange Rate" means the average currency exchange rate of pounds
sterling to US dollars based upon the noon buying rate in the City of New York
for cable transfers in foreign currencies as announced by the Federal Reserve
Bank of New York for customs purposes over the 10 consecutive Trading Days
ending on the day on which the Stock options are exercised pursuant to
Section 3.
(c) "Parent Share Value" shall mean the product of (x) the average of
the closing middle market quotation of a Parent Share on the LSE as reported in
the Daily Official List of the London Stock Exchange for each of the ten
consecutive Trading Days ending on the day on which the Stock Options are
exercised pursuant to Section 3 multiplied by (y) Exchange Rate.
(d) "Parent Shares" shall mean the ordinary shares, with a nominal value
of U.K. fifty pence each ("Ordinary Shares"), of Cordiant (including any options
or other rights to receive Ordinary Shares) and the American Depositary Shares,
each representing the right to receive five Ordinary Shares ("ADSs").
G-1
(e) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) "Share Value" shall be determined as follows:
(i) if the Parent Share Value is equal to or greater than $2.5054 and
equal to or less than $3.4838, the Share Value shall be $20.00;
(ii) if the Parent Share Value is greater than $3.4838, the Share
Value shall be $23.00; and
(iii) if the Parent Share Value is less than $2.5054, the Share Value
shall be $17.00
(g) "Trading Day" shall mean any day on which securities are traded,
with respect to ADSs, on the New York Stock Exchange, Inc. and with respect to
Ordinary Shares, on the London Stock Exchange Limited.
2. PROVISIONS CONCERNING COMMON STOCK. (a) The Stockholder hereby agrees
that during the period described in clause (b) below, at any meeting of the
holders of Common Stock of the Company, however called, or in connection with
any written consent of the holders of Common Stock of the Company, the
Stockholder shall vote (or cause to be voted) the Shares of Common Stock of the
Company, (i) in favor of the Merger, the execution and delivery by the Company
of the Merger Agreement and the approval of the terms thereof and each of the
other actions contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (iii) except as otherwise
agreed to in writing in advance by Cordiant, against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of
the Company or its Subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (C) any change in
a majority of the persons who constitute the board of directors of the Company;
(D) any change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation or Bylaws; (E) any other material
change in the Company's corporate structure or business; or (F) any other action
involving the Company or its Subsidiaries which is intended, or could reasonably
be expected, to materially impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by this
Agreement and the Merger Agreement. The Stockholder shall not enter into any
agreement or understanding with any Person the effect of which would be
inconsistent with or violative of the provisions and agreements contained in
this Section 2.
(b) The obligations of the Stockholders under clauses (i), (ii) and
(iii)(C), (D), (E) and (F) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and the termination of the Merger Agreement in
accordance with its terms. The obligations of the Stockholder under
clause (iii)(A) and (B) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and 120 days after the termination of the Merger
Agreement in accordance with its terms (unless the Merger Agreement is
terminated by reason of the failure to obtain Parent Shareholders' Approval in
which case the Stockholder's obligations under this Section 2 shall terminate
simultaneously with the termination of the Merger Agreement).
3. OPTION TO PURCHASE. In order to induce Cordiant and Sub to enter into
the Merger Agreement, the Stockholder hereby grants to Sub an irrevocable option
(the "Stock Options") to purchase, all, and not less than all, of the Shares at
a purchase price per share equal to the Share Value, payable in cash (the
"Purchase Price"), solely upon, and subject to, the terms and conditions set
forth below. The Stock Options may only be exercised if Sub simultaneously
exercises all other options
G-2
held by it to purchase all, and not less than all, of the shares of Common Stock
covered by such options. The Stock Options shall become exercisable solely in
the event that the Merger Agreement is terminated pursuant to
(i) Section 9.1(b)(ii) thereof, but only if the basis for such termination is
the failure to obtain the Company Stockholder Approval or
(ii) Section 9.1(b)(iii) thereof, but only if the basis for such termination is
a breach by the Company, or the Stockholder materially breaches any agreement
contained in this Agreement, in which event the Stock Options shall, in any such
case, become immediately exercisable at any time and from time to time upon such
termination or upon Cordiant and Sub being informed of such breach, as the case
may be, and until the date which is 20 days after the date of such termination
or the date on which Cordiant and Sub are informed of such breach, as the case
may be, provided, that if at the expiration of such 20-day period the Stock
Options cannot be exercised by reason of any preliminary or final injunction or
other order issued by any court or governmental, administrative or regulatory
agency or authority prohibiting the exercise of the Stock Options pursuant to
this Agreement, or because all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), required for the
purchase of the Shares upon such exercise shall not have expired or been waived,
the Stock Options shall be exercisable until 10 business days after the later of
the date on which such impediment to exercise shall have been removed or shall
have become final and not subject to appeal. In all other instances, the Stock
Options shall terminate upon the termination of the Merger Agreement. In the
event that Cordiant wishes to exercise the Stock Options, Cordiant shall send a
written notice (the "Notice") to the Stockholder identifying the place (which
shall be in New York City for each Stockholder who is a resident of the United
States and in London for each Stockholder who is a resident of the United
Kingdom) and date (not less than two business days nor greater than ten business
days from the date of the Notice) for the closing of such purchase. At such
closing, Cordiant shall receive certificates for the Shares, duly endorsed for
transfer, and shall make payment therefor by wire transfer of immediately
available funds.
4. DISPOSITION OF PARENT SHARES.
(a) RESTRICTIONS ON DISPOSITION. The Stockholder hereby agrees, except
as permitted in this Section 4(a) and Section 4(b) below, not to directly or
indirectly, offer to sell, contract to sell, transfer, assign, cause to be
redeemed or otherwise sell or dispose of any of the Parent Shares (collectively
a "Disposition") received by the stockholder in connection with the Merger
without the prior written consent of Cordiant. Notwithstanding anything to the
contrary provided in this Agreement, the Stockholder shall have the right to
transfer Parent Shares (i) to any Family Member, (ii) to the trustee or trustees
of a trust solely (except for remote contingent interests) for the benefit of
the Stockholder and/or one or more Family Members and/or a charitable
organization (a "Family Member Trust"), (iii) to a foundation created or
established by the Stockholder, or any other charitable organization, (iv) to a
corporation of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the outstanding capital stock, (v) to a limited
liability company of which the Stockholder and/or any Family Member and/or any
Family Member Trust owns all of the outstanding membership interests, (vi) to a
partnership of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the partnership interests, (vii) to the executor,
administrator or personal representative of the estate of the Stockholder or any
other Family Member, or (viii) to any guardian, trustee or conservator appointed
with respect to the assets of the Stockholder, provided, that in the case of any
such transfer, the transferee shall execute an agreement to be bound by the
terms of this Agreement (each such transfer, a "Permitted Transfer" and,
collectively, the "Permitted Transfers"). For purposes of this Agreement,
"Family Member" shall mean (a) the Stockholder's spouse, if living with the
Stockholder, (b) any one of the following: the Stockholder's father, mother,
issue, brother or sister, and the issue of a brother or sister, and (c) the
spouse of any Family Member described in (b) above, if the spouse shall be
living with that Family Member. The Stockholder hereby agrees and consents to
the entry of stop transfer instructions with Cordiant's transfer agent against
the transfer of such Parent Shares except in compliance with this Agreement.
Notwithstanding the foregoing, the Stockholder may pledge, hypothecate or
otherwise grant a security interest in all or a
G-3
portion of the Parent Shares beneficially owned by him during the term of this
Agreement; provided, however, that any Person receiving such Parent Shares shall
be subject to all of the restrictions on Disposition of such Parent Shares
imposed by this Agreement to the same extent as the Stockholder.
(b) PERMITTED DISPOSITIONS. The Stockholder may not effect any
Disposition of Parent Shares received by the Stockholder in connection with the
Merger except as follows: (i) during the twelve-month period immediately
following the Effective Time the Stockholder may effect the Disposition of not
more than 10% of the Parent Shares Beneficially Owned by the Stockholder and
(ii) during the twenty-four-month period immediately following the Effective
Time (the "Period"), the Stockholder may effect the Disposition of not more than
50% of the Parent Shares Beneficially Owned by the Stockholder. Upon the
expiration of the Period, the Stockholder may effect the Dispositions of all or
any portion of the Parent Shares Beneficially Owned by him subject to any
applicable restrictions under the Federal Securities Law and restrictions of
general application under English law, the Listing Rules of the London Stock
Exchange, if applicable, and Cordiant's policies made pursuant to such rules
regarding dealings in Parent Shares by directors and relevant employees of
Cordiant and its subsidiaries, if applicable. Notwithstanding anything to the
contrary contained in this Section 4, the Stockholder hereby agrees that for the
period commencing at the Effective Time and ending on the date which is
180 days after the expiration of the Period, the Stockholder shall give Cordiant
1 business day prior written notice of any intended Disposition of Parent Shares
to be made by the Stockholder and at the request of Cordiant agrees to effect
such Disposition through brokers or other financial intermediaries designated by
Cordiant to maintain an orderly trading market for the Parent Shares, provided
that such financial intermediary agrees to effect the Disposition in a
reasonable period following such notice.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to each of Cordiant and Sub as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record holder of or
Beneficially Owns the Shares. On the date hereof, the Shares constitute all of
the shares of Common Stock owned of record or Beneficially Owned by the
Stockholder (excluding any Stock Options (as defined in the Merger Agreement)
held by the Stockholder). The Stockholder has sole voting power and sole power
to issue instructions with respect to the matters set forth in Section 2 hereof,
sole power of disposition, sole power of conversion, sole power to exercise
dissenters' rights and sole power to agree to all of the matters set forth in
this agreement, in each case with respect to all of the Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal capacity,
power and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Stockholder will not violate any other Agreement to which the Stockholder is a
party including, without limitation, any voting agreement, shareholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of which the
Stockholder is trustee whose consent is required for the execution and delivery
of this agreement or the consummation by the Stockholder of the transactions
contemplated hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this agreement has been duly authorized, executed
and delivered by, and constitutes a valid and binding agreement of, the
Stockholder's spouse, enforceable against such Person in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
G-4
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought.
(c) NO CONFLICTS. Except for filings, permits, authorizations,
consents and approvals under the HSR Act and the Securities Act of 1933, if
applicable, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Stockholder and the consummation by the
Stockholder of the transactions contemplated hereby and (B) none of the
execution and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall, in a manner which would be
material and adverse to the ability of the Stockholder to consummate the
transactions contemplated hereby or to comply with the terms hereof, result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Stockholder is a party or by which the
Stockholder or any of the Stockholder's properties or assets may be bound, or
(3) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to the Stockholder or any of the Stockholder's
properties or assets.
(d) NO ENCUMBRANCES. Except as applicable in connection with the
transactions contemplated hereby or as set forth on Schedule B attached hereto,
the Shares and the certificates representing the Shares are now, and at all
times during the term hereof will be, held by the Stockholder, or by a nominee
or custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements, understandings
or arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder in favor of Cordiant.
(e) NO FINDER'S FEES. No broker, investment banker, financial adviser
or other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Stockholder other
than Bear Stearns & Co. Inc., the fees and expenses of which shall be paid by
the Company.
(f) RELIANCE BY CORDIANT AND SUB. The Stockholder understands and
acknowledges that Cordiant and Sub are entering into the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
6. ADDITIONAL COVENANTS OF THE STOCKHOLDER. The Stockholder hereby
covenants to each of Cordiant and Sub as follows:
(a) NO SOLICITATION. Subject to the provisions contained in
Section 10 of this Agreement, the Stockholder shall not, in his capacity as
such, directly or indirectly, solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by any
Person or entity (other than Cordiant or any affiliate of Cordiant) with respect
to the Company that constitutes a Takeover Proposal. If the Stockholder receives
any such inquiry or proposal, then the Stockholder shall promptly inform
Cordiant of the existence thereof. The Stockholder will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
(b) RESTRICTION ON TRANSFER OF SHARES, PROXIES AND
NON-INTERFERENCE. Beginning on the date hereof and ending on the later to occur
of (A) last date the Stock Options are exercisable pursuant to Section 3 hereof
and (B) the date that all of the Stockholder's obligations under Section 2 have
G-5
terminated, except as contemplated by this Agreement or the Merger Agreement, no
Stockholder shall, directly or indirectly, (i) offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of the Shares or any interest
therein; (ii) except as contemplated by this Agreement, grant any proxies or
powers of attorney, deposit any of the Shares into a voting trust or enter into
a voting agreement with respect to any of the Shares; or (iii) take any action
that would make any representation or warranty of the Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling the
Stockholder from performing the Stockholder's obligations under this Agreement.
Notwithstanding anything to the contrary provided in this Agreement, a
Stockholder shall have the right to make Permitted Transfers of Shares. The
Stockholder agrees with, and covenants to, Sub that beginning on the date hereof
and ending on the last date the Stock Options are exercisable pursuant to
Section 3 hereof, the Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of the Shares, unless such transfer is made in
compliance with this Agreement (including the provisions of Section 2 hereof).
(c) ADDITIONAL SHARES. The Stockholder agrees, while this Agreement is
in effect (i) to notify Cordiant and Sub promptly of the number of any shares of
Common Stock acquired by the Stockholder after the date hereof (the "Additional
Shares") and (ii) to vote such Additional Shares in accordance with Section 2
hereof. Such Additional Shares shall also be subject to the Stock Option granted
to Sub pursuant to Section 3 hereof and the restriction contained in
Section 6(b)(i) and (ii) above.
7. REPRESENTATIONS AND WARRANTIES OF CORDIANT AND SUB. Cordiant and Sub
hereby covenant, represent and warrant to the Stockholder that each of Cordiant
and Sub has the legal capacity, power and authority to enter into and perform
all of such party's obligations under this Agreement; the execution, delivery
and performance of this Agreement by Cordiant and Sub will not violate or result
in a breach of any other material agreement to which Cordiant or Sub is a party;
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (i) have been duly authorized by the board of
directors of Cordiant and Sub, and (ii) do not and will not violate any
provision of the certificate of incorporation or by-laws of Cordiant or Sub; and
this Agreement has been duly and validly executed and delivered by each of
Cordiant and Sub and constitutes a valid and binding agreement of such party,
enforceable against such party in accordance with its terms.
8. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional reasonable documents and take all such further reasonable lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement.
9. TERMINATION; EXPENSES AND FEE. (a) The covenants and agreements
contained herein with respect to the Shares shall terminate (i) in the event the
Merger Agreement is terminated in accordance with its terms, upon such
termination, except that the provisions of Sections 2, 3 and 6(b) hereof shall
survive any such termination solely in accordance with their terms and (ii) in
the event the Merger is consummated, at the Effective Time, except that the
provisions of Section 4 hereof shall survive any such termination, provided, in
each case, that the provisions of Section 12 and Section 13 hereof shall survive
any termination of this Agreement, and provided, further, that no termination of
this Agreement shall relieve any party of liability for a breach hereof.
(b) Each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
G-6
10. STOCKHOLDER CAPACITY. The Stockholder is not executing this Agreement
and does not make any agreement or understanding herein in his or her capacity
as a director or officer of the Company and nothing contained herein shall limit
or affect any actions taken by the Stockholder in his capacity as a director or
officer of the Company to the extent such action is permitted by, or not
prohibited by, the Merger Agreement, and none of such actions in such capacities
shall be deemed to constitute a breach of this Agreement. The Stockholder signs
solely in his capacity as the record and beneficial owner of, or the trustee of
a trust whose beneficiaries are the beneficial owners of, the Shares.
11. SOPHISTICATION. The Stockholder acknowledges that he is an informed
and sophisticated investor and, together with his advisors, has undertaken such
investigation as they have deemed necessary, including the review of the Merger
Agreement and this Agreement, to enable the Stockholder to make an informed and
intelligent decision with respect to the Merger Agreement and this Agreement and
the transactions contemplated thereby and hereby.
12. CONFIDENTIALITY. Each of the parties hereto recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each party hereby agrees not to
disclose or discuss such matters with anyone not a party to this Agreement or
the Merger Agreement (other than such party's counsel and advisors, if any)
without the prior written consent of the other party, except for filings
required pursuant to the Exchange Act and the rules and regulations thereunder
or disclosures such party's counsel advises are necessary in order to fulfill
such party's obligations imposed by law, in which event such party shall give
notice of such disclosure to the other party as promptly as practicable so as to
enable the other party to seek a protective order from a court of competent
jurisdiction with respect thereto.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(b) CERTAIN EVENTS. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, the Stockholder's heirs, guardians, administrators or successors,
provided, that following the Effective Time, this Agreement shall not be binding
on any purchaser of Shares in a transaction made in compliance with
Section 4(b), other than Permitted Transfers. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(c) CHANGE IN CONTROL. In the event that after the Effective Time
(i) any Person or group of Persons acting in concert (as defined in the City
Code on Take-overs and Mergers in the United Kingdom) acquires an interest in
the equity share capital of Cordiant (an "Acquiring Person") and, immediately
following such acquisition, such person, or group, holds shares entitled to
exercise more than 50% of the votes which may be cast at a general meeting of
Cordiant or (ii) a majority of the board of directors of Cordiant immediately
prior to such Person becoming an Acquiring Person, cease to thereafter
constitute a majority of the board of directors of Cordiant (other than through
elections of directors whose nomination for election by the shareholders of
Cordiant were approved by the vote of a majority of directors of Cordiant who
were either directors prior to a Person becoming an Acquiring Person or whose
election or nomination for election was so previously approved), then the
restrictions on Dispositions contained in Section 4, shall terminate without any
action on the part of any party hereto.
G-7
(d) ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party, provided,
that Cordiant or Sub may assign, in its sole discretion, its rights and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Cordiant, but no such assignment shall relieve Cordiant or Sub of its
obligations hereunder if such assignee does not or cannot perform such
obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the party to be
charged thereby or, with respect to termination, as otherwise provided herein.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholder: Steven Girgenti
c/o Healthworld Corporation
100 Avenue of the Americas
New York, New York 10010
Attention: Steven Girgenti
Facsimile: (212) 966-2743
and
If to Cordiant or Cordiant Communications Group plc
Sub to: 121-141 Westbourne Terrace London W2 6JR
Attention: Deputy Finance Director
Facsimile: +44-171-262-4300
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
Attention: Timothy B. Goodell, Esq.
Facsimile: (212) 354-8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the aggrieved party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the aggrieved
party
G-8
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Court of Chancery in the State of Delaware or the
United States District Court for the Southern District of New York or any court
of the State of New York located in the City of New York in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on forum non conveniens or any other objection to venue
therein); provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this paragraph (1) and shall not be deemed to be a
general submission to the jurisdiction of said Courts or in the States of
Delaware or New York other than for such purposes. Each party hereto hereby
waives any right to a trial by jury in connection with any such action, suit or
proceeding.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
G-9
IN WITNESS WHEREOF, Cordiant, Sub and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
HEALTHWORLD ACQUISITION CORP.
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
/s/ STEVEN GIRGENTI
-----------------------------------------
Steven Girgenti
G-10
APPENDIX H
STOCKHOLDER AGREEMENT
AGREEMENT dated November 9, 1999, among Cordiant Communications Group plc, a
company organized under the laws of England and Wales ("Cordiant"), Healthworld
Acquisition Corporation, a Delaware corporation and a direct wholly owned
subsidiary of Cordiant ("Sub"), and Francis Hughes (the "Stockholder").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Cordiant, Sub, and Healthworld Corporation,
a Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"), pursuant to which Sub will be merged with and into the
Company and the Company shall continue as the surviving corporation (the
"Merger");
WHEREAS, the Stockholder Beneficially Owns, as of the date hereof, 207,500
shares (the "Shares") of common stock, $.01 par value per share, of the Company
(the "Common Stock"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Cordiant and Sub have required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. Unless other defined herein, all capitalized terms used
herein shall have the meanings given to such terms in the Merger Agreement. For
purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities Beneficially
Owned by all other Persons with whom such Person would constitute a "group" as
within the meanings of Section 13(d)(3) of the Exchange Act.
(b) "Exchange Rate" means the average currency exchange rate of pounds
sterling to US dollars based upon the noon buying rate in the City of New York
for cable transfers in foreign currencies as announced by the Federal Reserve
Bank of New York for customs purposes over the 10 consecutive Trading Days
ending on the day on which the Stock Options are exercised pursuant to
Section 3.
(c) "Parent Share Value" shall mean the product of (x) the average of
the closing middle market quotation of a Parent Share on the LSE as reported in
the Daily Official List of the London Stock Exchange for each of the ten
consecutive Trading Days ending on the day on which the Stock Options are
exercised pursuant to Section 3 multiplied by (y) Exchange Rate.
(d) "Parent Shares" shall mean the ordinary shares, with a nominal value
of U.K. fifty pence each ("Ordinary Shares"), of Cordiant (including any options
or other rights to receive Ordinary Shares) and the American Depositary Shares,
each representing the right to receive five Ordinary Shares ("ADSs").
H-1
(e) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(p) "Share Value" shall be determined as follows:
(i) if the Parent Share Value is equal to or greater than $2.5054 and
equal to or less than $3.4838, the Share Value shall be $20.00;
(ii) if the Parent Share Value is greater than $3.4838, the Share
Value shall be $23.00; and
(iii) if the Parent Share Value is less than $2.5054, the Share Value
shall be $17.00.
(g) "Trading Day" shall mean any day on which securities are traded,
with respect to ADSs, on the New York Stock Exchange, Inc. and with respect to
Ordinary Shares, on the London Stock Exchange Limited.
2. PROVISIONS CONCERNING COMMON STOCK. (a) The Stockholder hereby agrees
that during the period described in clause (b) below, at any meeting of the
holders of Common Stock of the Company, however called, or in connection with
any written consent of the holders of Common Stock of the Company, the
Stockholder shall vote (or cause to be voted) the Shares of Common Stock of the
Company, (i) in favor of the Merger, the execution and delivery by the Company
of the Merger Agreement and the approval of the terms thereof and each of the
other actions contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (iii) except as otherwise
agreed to in writing in advance by Cordiant, against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of
the Company or its Subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (C) any change in
a majority of the persons who constitute the board of directors of the Company;
(D) any change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation or Bylaws; (E) any other material
change in the Company's corporate structure or business; or (F) any other action
involving the Company or its Subsidiaries which is intended, or could reasonably
be expected, to materially impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by this
Agreement and the Merger Agreement. The Stockholder shall not enter into any
agreement or understanding with any Person the effect of which would be
inconsistent with or violative of the provisions and agreements contained in
this Section 2.
(b) The obligations of the Stockholders under clauses (i), (ii) and
(iii)(C), (D), (E) and (F) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and the termination of the Merger Agreement in
accordance with its terms. The obligations of the Stockholder under
clause (iii)(A) and (B) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and 120 days after the termination of the Merger
Agreement in accordance with its terms (unless the Merger Agreement is
terminated by reason of the failure to obtain Parent Shareholders' Approval in
which case the Stockholder's obligations under this Section 2 shall terminate
simultaneously with the termination of the Merger Agreement).
3. OPTION TO PURCHASE. In order to induce Cordiant and Sub to enter into
the Merger Agreement, the Stockholder hereby grants to Sub an irrevocable option
(the "Stock Options") to purchase, all, and not less than all, of the Shares at
a purchase price per share equal to the Share Value, payable in cash (the
"Purchase Price"), solely upon, and subject to, the terms and conditions set
forth below. The Stock Options may only be exercised if Sub simultaneously
exercises all other options
H-2
held by it to purchase all, and not less than all, of the shares of Common Stock
covered by such options. The Stock Options shall become exercisable solely in
the event that the Merger Agreement is terminated pursuant to
(i) Section 9.1(b)(ii) thereof, but only if the basis for such termination is
the failure to obtain the Company Stockholder Approval or
(ii) Section 9.1(b)(iii) thereof, but only if the basis for such termination is
a breach by the Company, or the Stockholder materially breaches any agreement
contained in this Agreement, in which event the Stock Options shall, in any such
case, become immediately exercisable at any time and from time to time upon such
termination or upon Cordiant and Sub being informed of such breach, as the case
may be, and until the date which is 20 days after the date of such termination
or the date on which Cordiant and Sub are informed of such breach, as the case
may be, provided, that if at the expiration of such 20-day period the Stock
Options cannot be exercised by reason of any preliminary or final injunction or
other order issued by any court or governmental, administrative or regulatory
agency or authority prohibiting the exercise of the Stock Options pursuant to
this Agreement, or because all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), required for the
purchase of the Shares upon such exercise shall not have expired or been waived,
the Stock Options shall be exercisable until 10 business days after the later of
the date on which such impediment to exercise shall have been removed or shall
have become final and not subject to appeal. In all other instances, the Stock
Options shall terminate upon the termination of the Merger Agreement. In the
event that Cordiant wishes to exercise the Stock Options, Cordiant shall send a
written notice (the "Notice") to the Stockholder identifying the place (which
shall be in New York City for each Stockholder who is a resident of the United
States and in London for each Stockholder who is a resident of the United
Kingdom) and date (not less than two business days nor greater than ten business
days from the date of the Notice) for the closing of such purchase. At such
closing, Cordiant shall receive certificates for the Shares, duly endorsed for
transfer, and shall make payment therefor by wire transfer of immediately
available funds.
4. DISPOSITION OF PARENT SHARES.
(a) RESTRICTIONS ON DISPOSITION. The Stockholder hereby agrees, except
as permitted in this Section 4(a) and Section 4(b) below, not to directly or
indirectly, offer to sell, contract to sell, transfer, assign, cause to be
redeemed or otherwise sell or dispose of any of the Parent Shares (collectively
a "Disposition") received by the stockholder in connection with the Merger
without the prior written consent of Cordiant. Notwithstanding anything to the
contrary provided in this Agreement, the Stockholder shall have the right to
transfer Parent Shares (i) to any Family Member, (ii) to the trustee or trustees
of a trust solely (except for remote contingent interests) for the benefit of
the Stockholder and/or one or more Family Members and/or a charitable
organization (a "Family Member Trust"), (iii) to a foundation created or
established by the Stockholder, or any other charitable organization, (iv) to a
corporation of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the outstanding capital stock, (v) to a limited
liability company of which the Stockholder and/or any Family Member and/or any
Family Member Trust owns all of the outstanding membership interests, (vi) to a
partnership of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the partnership interests, (vii) to the executor,
administrator or personal representative of the estate of the Stockholder or any
other Family Member, or (viii) to any guardian, trustee or conservator appointed
with respect to the assets of the Stockholder, provided, that in the case of any
such transfer, the transferee shall execute an agreement to be bound by the
terms of this Agreement (each such transfer, a "Permitted Transfer" and,
collectively, the "Permitted Transfers"). For purposes of this Agreement,
"Family Member" shall mean (a) the Stockholder's spouse, if living with the
Stockholder, (b) any one of the following: the Stockholder's father, mother,
issue, brother or sister, and the issue of a brother or sister, and (c) the
spouse of any Family Member described in (b) above, if the spouse shall be
living with that Family Member. The Stockholder hereby agrees and consents to
the entry of stop transfer instructions with Cordiant's transfer agent against
the transfer of such Parent Shares except in compliance with this Agreement.
Notwithstanding the foregoing, the Stockholder may pledge, hypothecate or
otherwise grant a security interest in all or a
H-3
portion of the Parent Shares beneficially owned by him during the term of this
Agreement; provided, however, that any Person receiving such Parent Shares shall
be subject to all of the restrictions on Disposition of such Parent Shares
imposed by this Agreement to the same extent as the Stockholder.
(b) PERMITTED DISPOSITIONS. The Stockholder may not effect any
Disposition of Parent Shares received by the Stockholder in connection with the
Merger except as follows: during the twelve-month period immediately following
the Effective Time (the "Period") the Stockholder may effect the Disposition of
not more than 30% of the Parent Shares Beneficially Owned by the Stockholder.
Upon the expiration of the Period, the Stockholder may effect the Dispositions
of all or any portion of the Parent Shares Beneficially Owned by him subject to
any applicable restrictions under the Federal Securities Law and restrictions of
general application under English law, the Listing Rules of the London Stock
Exchange, if applicable, and Cordiant's policies made pursuant to such rules
regarding dealings in Parent Shares by directors and relevant employees of
Cordiant and its subsidiaries, if applicable. Notwithstanding anything to the
contrary contained in this Section 4, the Stockholder hereby agrees that for the
period commencing at the Effective Time and ending on the date which is
180 days after the expiration of the Period, the Stockholder shall give Cordiant
1 business day prior written notice of any intended Disposition of Parent Shares
to be made by the Stockholder and at the request of Cordiant agrees to effect
such Disposition through brokers or other financial intermediaries designated by
Cordiant to maintain an orderly trading market for the Parent Shares, provided
that such financial intermediary agrees to effect and does effect the
Disposition in a reasonable period following such notice.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to each of Cordiant and Sub as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record holder of or
Beneficially Owns the Shares. On the date hereof, the Shares constitute all of
the shares of Common Stock owned of record or Beneficially Owned by the
Stockholder (excluding any Stock Options (as defined in the Merger Agreement)
held by the Stockholder). The Stockholder has sole voting power and sole power
to issue instructions with respect to the matters set forth in Section 2 hereof,
sole power of disposition, sole power of conversion, sole power to exercise
dissenters' rights and sole power to agree to all of the matters set forth in
this agreement, in each case with respect to all of the Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal capacity,
power and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Stockholder will not violate any other Agreement to which the Stockholder is a
party including, without limitation, any voting agreement, shareholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of which the
Stockholder is trustee whose consent is required for the execution and delivery
of this agreement or the consummation by the Stockholder of the transactions
contemplated hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this agreement has been duly authorized, executed
and delivered by, and constitutes a valid and binding agreement of, the
Stockholder's spouse, enforceable against such Person in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally
H-4
and (ii) is subject to general principles of equity and discretion of the court
before which any proceedings seeking injunctive relief or specific performance
may be sought.
(c) NO CONFLICTS. Except for filings, permits, authorizations,
consents and approvals under the HSR Act and the Securities Act of 1933, if
applicable, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Stockholder and the consummation by the
Stockholder of the transactions contemplated hereby and (B) none of the
execution and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall, in a manner which would be
material and adverse to the ability of the Stockholder to consummate the
transactions contemplated hereby or to comply with the terms hereof, result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Stockholder is a party or by which the
Stockholder or any of the Stockholder's properties or assets may be bound, or
(3) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to the Stockholder or any of the Stockholder's
properties or assets.
(d) NO ENCUMBRANCES. Except as applicable in connection with the
transactions contemplated hereby or as set forth on Schedule B attached hereto,
the Shares and the certificates representing the Shares are now, and at all
times during the term hereof will be, held by the Stockholder, or by a nominee
or custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements, understandings
or arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder in favor of Cordiant.
(e) NO FINDER'S FEES. No broker, investment banker, financial adviser
or other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Stockholder other
than Bear Stearns & Co. Inc., the fees and expenses of which shall be paid by
the Company.
(f) RELIANCE BY CORDIANT AND SUB. The Stockholder understands and
acknowledges that Cordiant and Sub are entering into the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
6. ADDITIONAL COVENANTS OF THE STOCKHOLDER. The Stockholder hereby
covenants to each of Cordiant and Sub as follows:
(a) NO SOLICITATION. Subject to the provisions contained in
Section 10 of this Agreement, the Stockholder shall not, in his capacity as
such, directly or indirectly, solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by any
Person or entity (other than Cordiant or any affiliate of Cordiant) with respect
to the Company that constitutes a Takeover Proposal. If the Stockholder receives
any such inquiry or proposal, then the Stockholder shall promptly inform
Cordiant of the existence thereof. The Stockholder will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
(b) RESTRICTION ON TRANSFER OF SHARES, PROXIES AND
NON-INTERFERENCE. Beginning on the date hereof and ending on the later to occur
of (A) last date the Stock Options are exercisable pursuant to Section 3 hereof
and (B) the date that all of the Stockholder's obligations under Section 2 have
terminated, except as contemplated by this Agreement or the Merger Agreement, no
Stockholder shall,
H-5
directly or indirectly, (i) offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to or consent to the offer for
sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Shares or any interest therein; (ii) except as
contemplated by this Agreement, grant any proxies or powers of attorney, deposit
any of the Shares into a voting trust or enter into a voting agreement with
respect to any of the Shares; or (iii) take any action that would make any
representation or warranty of the Stockholder contained herein untrue or
incorrect or have the effect of preventing or disabling the Stockholder from
performing the Stockholder's obligations under this Agreement. Notwithstanding
anything to the contrary provided in this Agreement, a Stockholder shall have
the right to make Permitted Transfers of Shares. The Stockholder agrees with,
and covenants to, Sub that beginning on the date hereof and ending on the last
date the Stock Options are exercisable pursuant to Section 3 hereof, the
Stockholder shall not request that the Company register the transfer (book-entry
or otherwise) of any certificate or uncertificated interest representing any of
the Shares, unless such transfer is made in compliance with this Agreement
(including the provisions of Section 2 hereof).
(c) ADDITIONAL SHARES. The Stockholder agrees, while this Agreement is
in effect (i) to notify Cordiant and Sub promptly of the number of any shares of
Common Stock acquired by the Stockholder after the date hereof (the "Additional
Shares") and (ii) to vote such Additional Shares in accordance with Section 2
hereof. Such Additional Shares shall also be subject to the Stock Option granted
to Sub pursuant to Section 3 hereof and the restriction contained in
Section 6(b)(i) and (ii) above.
7. REPRESENTATIONS AND WARRANTIES OF CORDIANT AND SUB. Cordiant and Sub
hereby covenant, represent and warrant to the Stockholder that each of Cordiant
and Sub has the legal capacity, power and authority to enter into and perform
all of such party's obligations under this Agreement; the execution, delivery
and performance of this Agreement by Cordiant and Sub will not violate or result
in a breach of any other material agreement to which Cordiant or Sub is a party;
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (i) have been duly authorized by the board of
directors of Cordiant and Sub, and (ii) do not and will not violate any
provision of the certificate of incorporation or by-laws of Cordiant or Sub; and
this Agreement has been duly and validly executed and delivered by each of
Cordiant and Sub and constitutes a valid and binding agreement of such party,
enforceable against such party in accordance with its terms.
8. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional reasonable documents and take all such further reasonable lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement.
9. TERMINATION; EXPENSES AND FEE. (a) The covenants and agreements
contained herein with respect to the Shares shall terminate (i) in the event the
Merger Agreement is terminated in accordance with its terms, upon such
termination, except that the provisions of Sections 2, 3 and 6(b) hereof shall
survive any such termination solely in accordance with their terms and (ii) in
the event the Merger is consummated, at the Effective Time, except that the
provisions of Section 4 hereof shall survive any such termination, provided, in
each case, that the provisions of Section 12 and Section 13 hereof shall survive
any termination of this Agreement, and provided, further, that no termination of
this Agreement shall relieve any party of liability for a breach hereof.
(b) Each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
10. STOCKHOLDER CAPACITY. The Stockholder is not executing this Agreement
and does not make any agreement or understanding herein in his or her capacity
as a director or officer of the Company
H-6
and nothing contained herein shall limit or affect any actions taken by the
Stockholder in his capacity as a director or officer of the Company to the
extent such action is permitted by, or not prohibited by, the Merger Agreement,
and none of such actions in such capacities shall be deemed to constitute a
breach of this Agreement. The Stockholder signs solely in his capacity as the
record and beneficial owner of, or the trustee of a trust whose beneficiaries
are the beneficial owners of, the Shares.
11. SOPHISTICATION. The Stockholder acknowledges that he is an informed
and sophisticated investor and, together with his advisors, has undertaken such
investigation as they have deemed necessary, including the review of the Merger
Agreement and this Agreement, to enable the Stockholder to make an informed and
intelligent decision with respect to the Merger Agreement and this Agreement and
the transactions contemplated thereby and hereby.
12. CONFIDENTIALITY. Each of the parties hereto recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each party hereby agrees not to
disclose or discuss such matters with anyone not a party to this Agreement or
the Merger Agreement (other than such party's counsel and advisors, if any)
without the prior written consent of the other party, except for filings
required pursuant to the Exchange Act and the rules and regulations thereunder
or disclosures such party's counsel advises are necessary in order to fulfill
such party's obligations imposed by law, in which event such party shall give
notice of such disclosure to the other party as promptly as practicable so as to
enable the other party to seek a protective order from a court of competent
jurisdiction with respect thereto.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(b) CERTAIN EVENTS. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, the Stockholder's heirs, guardians, administrators or successors,
provided, that following the Effective Time, this Agreement shall not be binding
on any purchaser of Shares in a transaction made in compliance with
Section 4(b), other than Permitted Transfers. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(c) CHANGE IN CONTROL. In the event that after the Effective Time
(i) any Person or group of Persons acting in concert (as defined in the City
Code on Take-overs and Mergers in the United Kingdom) acquires an interest in
the equity share capital of Cordiant (an "Acquiring Person") and, immediately
following such acquisition, such person, or group, holds shares entitled to
exercise more than 50% of the votes which may be cast at a general meeting of
Cordiant or (ii) a majority of the board of directors of Cordiant immediately
prior to such Person becoming an Acquiring Person, cease to thereafter
constitute a majority of the board of directors of Cordiant (other than through
elections of directors whose nomination for election by the shareholders of
Cordiant were approved by the vote of a majority of directors of Cordiant who
were either directors prior to a Person becoming an Acquiring Person or whose
election or nomination for election was so previously approved), then the
restrictions on Dispositions contained in Section 4, shall terminate without any
action on the part of any party hereto.
(d) ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party, provided,
that Cordiant or Sub may assign, in its
H-7
sole discretion, its rights and obligations hereunder to any direct or indirect
wholly owned subsidiary of Cordiant, but no such assignment shall relieve
Cordiant or Sub of its obligations hereunder if such assignee does not or cannot
perform such obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the party to be
charged thereby or, with respect to termination, as otherwise provided herein.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholder: Francis Hughes
c/o Healthworld Corporation
100 Avenue of the Americas
New York, New York 10010
Facsimile: (212) 966-2743
and
If to Cordiant or Cordiant Communications Group plc
Sub to: 121-141 Westbourne Terrace
London, W2 6JR
Attention: Deputy Finance Director
Facsimile: 011-44-171-262-4300
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
Attention: Timothy B. Goodell, Esq.
Facsimile: (212) 354-8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the aggrieved party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the aggrieved
party shall be entitled to the remedy of specific performance of such covenants
and agreements and
H-8
injunctive and other equitable relief in addition to any other remedy to which
it may be entitled, at law or in equity.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Court of Chancery in the State of Delaware or the
United States District Court for the Southern District of New York or any court
of the State of New York located in the City of New York in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on forum non conveniens or any other objection to venue
therein); provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this paragraph (1) and shall not be deemed to be a
general submission to the jurisdiction of said Courts or in the States of
Delaware or New York other than for such purposes. Each party hereto hereby
waives any right to a trial by jury in connection with any such action, suit or
proceeding.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
H-9
IN WITNESS WHEREOF, Cordiant, Sub and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
HEALTHWORLD ACQUISITION CORP.
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
/s/ FRANCIS HUGHES
-----------------------------------------
Francis Hughes
H-10
APPENDIX I
STOCKHOLDER AGREEMENT
AGREEMENT dated November 9, 1999, among Cordiant Communications Group plc, a
company organized under the laws of England and Wales ("Cordiant"), Healthworld
Acquisition Corporation, a Delaware corporation and a direct wholly owned
subsidiary of Cordiant ("Sub"), and William Leslie Milton (the "Stockholder").
WITNESSETH:
WHEREAS, concurrently herewith, Cordiant, Sub, and Healthworld Corporation,
a Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"), pursuant to which Sub will be merged with and into the
Company and the Company shall continue as the surviving corporation (the
"Merger");
WHEREAS, the Stockholder Beneficially Owns, as of the date hereof, 1,305,984
shares (the "Shares") of common stock, $.01 par value per share, of the Company
(the "Common Stock"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Cordiant and Sub have required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. Unless other defined herein, all capitalized terms used
herein shall have the meanings given to such terms in the Merger Agreement. For
purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities Beneficially
Owned by all other Persons with whom such Person would constitute a "group" as
within the meanings of Section 13(d)(3) of the Exchange Act.
(b) "Exchange Rate" means the average currency exchange rate of pounds
sterling to US dollars based upon the noon buying rate in the City of New York
for cable transfers in foreign currencies as announced by the Federal Reserve
Bank of New York for customs purposes over the 10 consecutive Trading Days
ending on the day on which the Stock Options are exercised pursuant to
Section 3.
(c) "Parent Share Value" shall mean the product of (x) the average of
the closing middle market quotation of a Parent Share on the LSE as reported in
the Daily Official List of the London Stock Exchange for each of the ten
consecutive Trading Days ending on the day on which the Stock Options are
exercised pursuant to Section 3 multiplied by (y) Exchange Rate.
(d) "Parent Shares" shall mean the ordinary shares, with a nominal value
of U.K. fifty pence each ("Ordinary Shares"), of Cordiant (including any options
or other rights to receive Ordinary Shares) and the American Depositary Shares,
each representing the right to receive five Ordinary Shares ("ADSs").
I-1
(e) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) "Share Value" shall be determined as follows:
(i) if the Parent Share Value is equal to or greater than $2.5054 and
equal to or less than $3.4838, the Share Value shall be $20.00;
(ii) if the Parent Share Value is greater than $3.4838, the Share
Value shall be $23.00; and
(iii) if the Parent Share Value is less than $2.5054, the Share Value
shall be $17.00.
(g) "Trading Day" shall mean any day on which securities are traded,
with respect to ADSs, on the New York Stock Exchange, Inc. and with respect to
Ordinary Shares, on the London Stock Exchange Limited.
2. PROVISIONS CONCERNING COMMON STOCK. (a) The Stockholder hereby agrees
that during the period described in clause (b) below, at any meeting of the
holders of Common Stock of the Company, however called, or in connection with
any written consent of the holders of Common Stock of the Company, the
Stockholder shall vote (or cause to be voted) the Shares of Common Stock of the
Company, (i) in favor of the Merger, the execution and delivery by the Company
of the Merger Agreement and the approval of the terms thereof and each of the
other actions contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (iii) except as otherwise
agreed to in writing in advance by Cordiant, against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of
the Company or its Subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (C) any change in
a majority of the persons who constitute the board of directors of the Company;
(D) any change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation or Bylaws; (E) any other material
change in the Company's corporate structure or business; or (F) any other action
involving the Company or its Subsidiaries which is intended, or could reasonably
be expected, to materially impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by this
Agreement and the Merger Agreement. The Stockholder shall not enter into any
agreement or understanding with any Person the effect of which would be
inconsistent with or violative of the provisions and agreements contained in
this Section 2.
(b) The obligations of the Stockholders under clauses (i), (ii) and
(iii)(C), (D), (E) and (F) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and the termination of the Merger Agreement in
accordance with its terms. The obligations of the Stockholder under
clause (iii)(A) and (B) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and 120 days after the termination of the Merger
Agreement in accordance with its terms (unless the Merger Agreement is
terminated by reason of the failure to obtain Parent Shareholders' Approval in
which case the Stockholder's obligations under this Section 2 shall terminate
simultaneously with the termination of the Merger Agreement).
3. OPTION TO PURCHASE. In order to induce Cordiant and Sub to enter into
the Merger Agreement, the Stockholder hereby grants to Sub an irrevocable option
(the "Stock Options") to purchase, all, and not less than all, of the Shares at
a purchase price per share equal to the Share Value, payable in cash (the
"Purchase Price"), solely upon, and subject to, the terms and conditions set
forth below. The Stock Options may only be exercised if Sub simultaneously
exercises all other options
I-2
held by it to purchase all, and not less than all, of the shares of Common Stock
covered by such options. The Stock Options shall become exercisable solely in
the event that the Merger Agreement is terminated pursuant to
(i) Section 9.1(b)(ii) thereof, but only if the basis for such termination is
the failure to obtain the Company Stockholder Approval or
(ii) Section 9.1(b)(iii) thereof, but only if the basis for such termination is
a breach by the Company, or the Stockholder materially breaches any agreement
contained in this Agreement, in which event the Stock Options shall, in any such
case, become immediately exercisable at any time and from time to time upon such
termination or upon Cordiant and Sub being informed of such breach, as the case
may be, and until the date which is 20 days after the date of such termination
or the date on which Cordiant and Sub are informed of such breach, as the case
may be, provided, that if at the expiration of such 20-day period the Stock
Options cannot be exercised by reason of any preliminary or final injunction or
other order issued by any court or governmental, administrative or regulatory
agency or authority prohibiting the exercise of the Stock Options pursuant to
this Agreement, or because all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), required for the
purchase of the Shares upon such exercise shall not have expired or been waived,
the Stock Options shall be exercisable until 10 business days after the later of
the date on which such impediment to exercise shall have been removed or shall
have become final and not subject to appeal. In all other instances, the Stock
Options shall terminate upon the termination of the Merger Agreement. In the
event that Cordiant wishes to exercise the Stock Options, Cordiant shall send a
written notice (the "Notice") to the Stockholder identifying the place (which
shall be in New York City for each Stockholder who is a resident of the United
States and in London for each Stockholder who is a resident of the United
Kingdom) and date (not less than two business days nor greater than ten business
days from the date of the Notice) for the closing of such purchase. At such
closing, Cordiant shall receive certificates for the Shares, duly endorsed for
transfer, and shall make payment therefor by wire transfer of immediately
available funds.
4. DISPOSITION OF PARENT SHARES.
(a) RESTRICTIONS ON DISPOSITION. The Stockholder hereby agrees, except
as permitted in this Section 4(a) and Section 4(b) below, not to directly or
indirectly, offer to sell, contract to sell, transfer, assign, cause to be
redeemed or otherwise sell or dispose of any of the Parent Shares (collectively
a "Disposition") received by the stockholder in connection with the Merger
without the prior written consent of Cordiant. Notwithstanding anything to the
contrary provided in this Agreement, the Stockholder shall have the right to
transfer Parent Shares (i) to any Family Member, (ii) to the trustee or trustees
of a trust solely (except for remote contingent interests) for the benefit of
the Stockholder and/or one or more Family Members and/or a charitable
organization (a "Family Member Trust"), (iii) to a foundation created or
established by the Stockholder, or any other charitable organization, (iv) to a
corporation of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the outstanding capital stock, (v) to a limited
liability company of which the Stockholder and/or any Family Member and/or any
Family Member Trust owns all of the outstanding membership interests, (vi) to a
partnership of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the partnership interests, (vii) to the executor,
administrator or personal representative of the estate of the Stockholder or any
other Family Member, or (viii) to any guardian, trustee or conservator appointed
with respect to the assets of the Stockholder, provided, that in the case of any
such transfer, the transferee shall execute an agreement to be bound by the
terms of this Agreement (each such transfer, a "Permitted Transfer" and,
collectively, the "Permitted Transfers"). For purposes of this Agreement,
"Family Member" shall mean (a) the Stockholder's spouse, if living with the
Stockholder, (b) any one of the following: the Stockholder's father, mother,
issue, brother or sister, and the issue of a brother or sister, and (c) the
spouse of any Family Member described in (b) above, if the spouse shall be
living with that Family Member. The Stockholder hereby agrees and consents to
the entry of stop transfer instructions with Cordiant's transfer agent against
the transfer of such Parent Shares except in compliance with this Agreement.
Notwithstanding the foregoing, the Stockholder may pledge, hypothecate or
otherwise grant a security interest in all or a
I-3
portion of the Parent Shares beneficially owned by him during the term of this
Agreement; provided, however, that any Person receiving such Parent Shares shall
be subject to all of the restrictions on Disposition of such Parent Shares
imposed by this Agreement to the same extent as the Stockholder.
(b) PERMITTED DISPOSITIONS. The Stockholder may not effect any
Disposition of Parent Shares received by the Stockholder in connection with the
Merger except as follows: during the six-month period immediately following the
Effective Time the Stockholder may effect the Disposition of not more than 30%
of the Parent Shares Beneficially Owned by the Stockholder (the "Period"). Upon
the expiration of the Period, the Stockholder may effect the Dispositions of all
or any portion of the Parent Shares Beneficially Owned by him subject to any
applicable restrictions under the Federal Securities Law and restrictions of
general application under English law, the Listing Rules of the London Stock
Exchange, if applicable, and Cordiant's policies made pursuant to such rules
regarding dealings in Parent Shares by directors and relevant employees of
Cordiant and its subsidiaries, if applicable. Notwithstanding anything to the
contrary contained in this Section 4, the Stockholder hereby agrees that for the
period commencing at the Effective Time and ending on the date which is
180 days after the expiration of the Period, the Stockholder shall give Cordiant
1 business day prior written notice of any intended Disposition of Parent Shares
to be made by the Stockholder and at the request of Cordiant agrees to effect
such Disposition through brokers or other financial intermediaries designated by
Cordiant to maintain an orderly trading market for the Parent Shares, provided
that such financial intermediary agrees to effect and does effect the
Disposition in a reasonable period following such notice.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to each of Cordiant and Sub as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record holder of or
Beneficially Owns the Shares. On the date hereof, the Shares constitute all of
the shares of Common Stock owned of record or Beneficially Owned by the
Stockholder (excluding any Stock Options (as defined in the Merger Agreement)
held by the Stockholder). The Stockholder has sole voting power and sole power
to issue instructions with respect to the matters set forth in Section 2 hereof,
sole power of disposition, sole power of conversion, sole power to exercise
dissenters' rights and sole power to agree to all of the matters set forth in
this agreement, in each case with respect to all of the Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal capacity,
power and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Stockholder will not violate any other Agreement to which the Stockholder is a
party including, without limitation, any voting agreement, shareholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of which the
Stockholder is trustee whose consent is required for the execution and delivery
of this agreement or the consummation by the Stockholder of the transactions
contemplated hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this agreement has been duly authorized, executed
and delivered by, and constitutes a valid and binding agreement of, the
Stockholder's spouse, enforceable against such Person in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally
I-4
and (ii) is subject to general principles of equity and discretion of the court
before which any proceedings seeking injunctive relief or specific performance
may be sought.
(c) NO CONFLICTS. Except for filings, permits, authorizations,
consents and approvals under the HSR Act and the Securities Act of 1933, if
applicable, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Stockholder and the consummation by the
Stockholder of the transactions contemplated hereby and (B) none of the
execution and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall, in a manner which would be
material and adverse to the ability of the Stockholder to consummate the
transactions contemplated hereby or to comply with the terms hereof, result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Stockholder is a party or by which the
Stockholder or any of the Stockholder's properties or assets may be bound, or
(3) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to the Stockholder or any of the Stockholder's
properties or assets.
(d) NO ENCUMBRANCES. Except as applicable in connection with the
transactions contemplated hereby or as set forth on Schedule B attached hereto,
the Shares and the certificates representing the Shares are now, and at all
times during the term hereof will be, held by the Stockholder, or by a nominee
or custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements, understandings
or arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder in favor of Cordiant.
(e) NO FINDER'S FEES. No broker, investment banker, financial adviser
or other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Stockholder other
than Bear Stearns & Co. Inc., the fees and expenses of which shall be paid by
the Company.
(f) RELIANCE BY CORDIANT AND SUB. The Stockholder understands and
acknowledges that Cordiant and Sub are entering into the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
6. ADDITIONAL COVENANTS OF THE STOCKHOLDER. The Stockholder hereby
covenants to each of Cordiant and Sub as follows:
(a) NO SOLICITATION. Subject to the provisions contained in
Section 10 of this Agreement, the Stockholder shall not, in his capacity as
such, directly or indirectly, solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by any
Person or entity (other than Cordiant or any affiliate of Cordiant) with respect
to the Company that constitutes a Takeover Proposal. If the Stockholder receives
any such inquiry or proposal, then the Stockholder shall promptly inform
Cordiant of the existence thereof. The Stockholder will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
(b) RESTRICTION ON TRANSFER OF SHARES, PROXIES AND
NON-INTERFERENCE. Beginning on the date hereof and ending on the later to occur
of (A) last date the Stock Options are exercisable pursuant to Section 3 hereof
and (B) the date that all of the Stockholder's obligations under Section 2 have
terminated, except as contemplated by this Agreement or the Merger Agreement, no
Stockholder shall,
I-5
directly or indirectly, (i) offer for sale, sell, transfer, tender, pledge,
encumber, assign or otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to or consent to the offer for
sale, sale, transfer, tender, pledge, encumbrance, assignment or other
disposition of, any or all of the Shares or any interest therein; (ii) except as
contemplated by this Agreement, grant any proxies or powers of attorney, deposit
any of the Shares into a voting trust or enter into a voting agreement with
respect to any of the Shares; or (iii) take any action that would make any
representation or warranty of the Stockholder contained herein untrue or
incorrect or have the effect of preventing or disabling the Stockholder from
performing the Stockholder's obligations under this Agreement. Notwithstanding
anything to the contrary provided in this Agreement, a Stockholder shall have
the right to make Permitted Transfers of Shares. The Stockholder agrees with,
and covenants to, Sub that beginning on the date hereof and ending on the last
date the Stock Options are exercisable pursuant to Section 3 hereof, the
Stockholder shall not request that the Company register the transfer (book-entry
or otherwise) of any certificate or uncertificated interest representing any of
the Shares, unless such transfer is made in compliance with this Agreement
(including the provisions of Section 2 hereof).
(c) ADDITIONAL SHARES. The Stockholder agrees, while this Agreement is
in effect (i) to notify Cordiant and Sub promptly of the number of any shares of
Common Stock acquired by the Stockholder after the date hereof (the "Additional
Shares") and (ii) to vote such Additional Shares in accordance with Section 2
hereof. Such Additional Shares shall also be subject to the Stock Option granted
to Sub pursuant to Section 3 hereof and the restriction contained in
Section 6(b)(i) and (ii) above.
7. REPRESENTATIONS AND WARRANTIES OF CORDIANT AND SUB. Cordiant and Sub
hereby covenant, represent and warrant to the Stockholder that each of Cordiant
and Sub has the legal capacity, power and authority to enter into and perform
all of such party's obligations under this Agreement; the execution, delivery
and performance of this Agreement by Cordiant and Sub will not violate or result
in a breach of any other material agreement to which Cordiant or Sub is a party;
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (i) have been duly authorized by the board of
directors of Cordiant and Sub, and (ii) do not and will not violate any
provision of the certificate of incorporation or by-laws of Cordiant or Sub; and
this Agreement has been duly and validly executed and delivered by each of
Cordiant and Sub and constitutes a valid and binding agreement of such party,
enforceable against such party in accordance with its terms.
8. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional reasonable documents and take all such further reasonable lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement.
9. TERMINATION; EXPENSES AND FEE. (a) The covenants and agreements
contained herein with respect to the Shares shall terminate (i) in the event the
Merger Agreement is terminated in accordance with its terms, upon such
termination, except that the provisions of Sections 2, 3 and 6(b) hereof shall
survive any such termination solely in accordance with their terms and (ii) in
the event the Merger is consummated, at the Effective Time, except that the
provisions of Section 4 hereof shall survive any such termination, provided, in
each case, that the provisions of Section 12 and Section 13 hereof shall survive
any termination of this Agreement, and provided, further, that no termination of
this Agreement shall relieve any party of liability for a breach hereof.
(b) Each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
10. STOCKHOLDER CAPACITY. The Stockholder is not executing this Agreement
and does not make any agreement or understanding herein in his or her capacity
as a director or officer of the Company
I-6
and nothing contained herein shall limit or affect any actions taken by the
Stockholder in his capacity as a director or officer of the Company to the
extent such action is permitted by, or not prohibited by, the Merger Agreement,
and none of such actions in such capacities shall be deemed to constitute a
breach of this Agreement. The Stockholder signs solely in his capacity as the
record and beneficial owner of, or the trustee of a trust whose beneficiaries
are the beneficial owners of, the Shares.
11. SOPHISTICATION. The Stockholder acknowledges that he is an informed
and sophisticated investor and, together with his advisors, has undertaken such
investigation as they have deemed necessary, including the review of the Merger
Agreement and this Agreement, to enable the Stockholder to make an informed and
intelligent decision with respect to the Merger Agreement and this Agreement and
the transactions contemplated thereby and hereby.
12. CONFIDENTIALITY. Each of the parties hereto recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each party hereby agrees not to
disclose or discuss such matters with anyone not a party to this Agreement or
the Merger Agreement (other than such party's counsel and advisors, if any)
without the prior written consent of the other party, except for filings
required pursuant to the Exchange Act and the rules and regulations thereunder
or disclosures such party's counsel advises are necessary in order to fulfill
such party's obligations imposed by law, in which event such party shall give
notice of such disclosure to the other party as promptly as practicable so as to
enable the other party to seek a protective order from a court of competent
jurisdiction with respect thereto.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(b) CERTAIN EVENTS. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, the Stockholder's heirs, guardians, administrators or successors,
provided, that following the Effective Time, this Agreement shall not be binding
on any purchaser of Shares in a transaction made in compliance with
Section 4(b), other than Permitted Transfers. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(c) CHANGE IN CONTROL. In the event that after the Effective Time
(i) any Person or group of Persons acting in concert (as defined in the City
Code on Take-overs and Mergers in the United Kingdom) acquires an interest in
the equity share capital of Cordiant (an "Acquiring Person") and, immediately
following such acquisition, such person, or group, holds shares entitled to
exercise more than 50% of the votes which may be cast at a general meeting of
Cordiant or (ii) a majority of the board of directors of Cordiant immediately
prior to such Person becoming an Acquiring Person, cease to thereafter
constitute a majority of the board of directors of Cordiant (other than through
elections of directors whose nomination for election by the shareholders of
Cordiant were approved by the vote of a majority of directors of Cordiant who
were either directors prior to a Person becoming an Acquiring Person or whose
election or nomination for election was so previously approved), then the
restrictions on Dispositions contained in Section 4, shall terminate without any
action on the part of any party hereto.
(d) ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party, provided,
that Cordiant or Sub may assign, in its
I-7
sole discretion, its rights and obligations hereunder to any direct or indirect
wholly owned subsidiary of Cordiant, but no such assignment shall relieve
Cordiant or Sub of its obligations hereunder if such assignee does not or cannot
perform such obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the party to be
charged thereby or, with respect to termination, as otherwise provided herein.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholder: William Leslie Milton
c/o The Milton Group
48 Broadway, Maidenhead,
Berkshire SL6 1LU, UK
Facsimile: 011-44-1628-630-298
and
If to Cordiant or Cordiant Communications Group plc
Sub to: 121-141 Westbourne Terrace
London, W2 6JR
Attention: Deputy Finance Director
Facsimile: 011-44-171-262-4300
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
Attention: Timothy B. Goodell, Esq.
Facsimile: (212) 354-8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the aggrieved party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the aggrieved
party shall be entitled to the remedy of specific performance of such covenants
and agreements and
I-8
injunctive and other equitable relief in addition to any other remedy to which
it may be entitled, at law or in equity.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Court of Chancery in the State of Delaware or the
United States District Court for the Southern District of New York or any court
of the State of New York located in the City of New York in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on forum non conveniens or any other objection to venue
therein); provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this paragraph (1) and shall not be deemed to be a
general submission to the jurisdiction of said Courts or in the States of
Delaware or New York other than for such purposes. Each party hereto hereby
waives any right to a trial by jury in connection with any such action, suit or
proceeding.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
I-9
IN WITNESS WHEREOF, Cordiant, Sub and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
HEALTHWORLD ACQUISITION CORP.
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
/s/ WILLIAM LESLIE MILTON
---------------------------------------------
William Leslie Milton
I-10
APPENDIX J
STOCKHOLDER AGREEMENT
AGREEMENT dated November 9, 1999, among Cordiant Communications Group plc, a
company organized under the laws of England and Wales ("Cordiant"), Healthworld
Acquisition Corporation, a Delaware corporation and a direct wholly owned
subsidiary of Cordiant ("Sub"), and Steven Girgenti Grantor Retained Annuity
Trust (the "Stockholder").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Cordiant, Sub, and Healthworld Corporation,
a Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"), pursuant to which Sub will be merged with and into the
Company and the Company shall continue as the surviving corporation (the
"Merger");
WHEREAS, the Stockholder Beneficially Owns, as of the date hereof, 1,000,000
shares (the "Shares") of common stock, $.01 par value per share, of the Company
(the "Common Stock"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Cordiant and Sub have required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. Unless other defined herein, all capitalized terms used
herein shall have the meanings given to such terms in the Merger Agreement. For
purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities Beneficially
Owned by all other Persons with whom such Person would constitute a "group" as
within the meanings of Section 13(d)(3) of the Exchange Act.
(b) "Exchange Rate" means the average currency exchange rate of pounds
sterling to US dollars based upon the noon buying rate in the City of New York
for cable transfers in foreign currencies as announced by the Federal Reserve
Bank of New York for customs purposes over the 10 consecutive Trading Days
ending on the day on which the Stock Options are exercised pursuant to
Section 3.
(c) "Parent Share Value" shall mean the product of (x) the average of
the closing middle market quotation of a Parent Share on the LSE as reported in
the Daily Official List of the London Stock Exchange for each of the ten
consecutive Trading Days ending on the day on which the Stock Options are
exercised pursuant to Section 3 multiplied by (y) Exchange Rate.
(d) "Parent Shares" shall mean the ordinary shares, with a nominal value
of U.K. fifty pence each ("Ordinary Shares"), of Cordiant (including any options
or other rights to receive Ordinary Shares) and the American Depositary Shares,
each representing the right to receive five Ordinary Shares ("ADSs").
J-1
(e) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) "Share Value" shall be determined as follows:
(i) if the Parent Share Value is equal to or greater than $2.5054 and
equal to or less than $3.4838, the Share Value shall be $20.00;
(ii) if the Parent Share Value is greater than $3.4838, the Share
Value shall be $23.00; and
(iii) if the Parent Share Value is less than $2.5054, the Share Value
shall be $17.00
(g) "Trading Day" shall mean any day on which securities are traded,
with respect to ADSs, on the New York Stock Exchange, Inc. and with respect to
Ordinary Shares, on the London Stock Exchange Limited.
2. PROVISIONS CONCERNING COMMON STOCK. (a) The Stockholder hereby agrees
that during the period described in clause (b) below, at any meeting of the
holders of Common Stock of the Company, however called, or in connection with
any written consent of the holders of Common Stock of the Company, the
Stockholder shall vote (or cause to be voted) the Shares of Common Stock of the
Company, (i) in favor of the Merger, the execution and delivery by the Company
of the Merger Agreement and the approval of the terms thereof and each of the
other actions contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (iii) except as otherwise
agreed to in writing in advance by Cordiant, against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of
the Company or its Subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (C) any change in
a majority of the persons who constitute the board of directors of the Company;
(D) any change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation or Bylaws; (E) any other material
change in the Company's corporate structure or business; or (F) any other action
involving the Company or its Subsidiaries which is intended, or could reasonably
be expected, to materially impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by this
Agreement and the Merger Agreement. The Stockholder shall not enter into any
agreement or understanding with any Person the effect of which would be
inconsistent with or violative of the provisions and agreements contained in
this Section 2.
(b) The obligations of the Stockholders under clauses (i), (ii) and
(iii)(C), (D), (E) and (F) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and the termination of the Merger Agreement in
accordance with its terms. The obligations of the Stockholder under
clause (iii)(A) and (B) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and 120 days after the termination of the Merger
Agreement in accordance with its terms (unless the Merger Agreement is
terminated by reason of the failure to obtain Parent Shareholders' Approval in
which case the Stockholder's obligations under this Section 2 shall terminate
simultaneously with the termination of the Merger Agreement).
3. OPTION TO PURCHASE. In order to induce Cordiant and Sub to enter into
the Merger Agreement, the Stockholder hereby grants to Sub an irrevocable option
(the "Stock Options") to purchase, all, and not less than all, of the Shares at
a purchase price per share equal to the Share Value, payable in cash (the
"Purchase Price"), solely upon, and subject to, the terms and conditions set
forth below. The Stock Options may only be exercised if Sub simultaneously
exercises all other options
J-2
held by it to purchase all, and not less than all, of the shares of Common Stock
covered by such options. The Stock Options shall become exercisable solely in
the event that the Merger Agreement is terminated pursuant to
(i) Section 9.1(b)(ii) thereof, but only if the basis for such termination is
the failure to obtain the Company Stockholder Approval or
(ii) Section 9.1(b)(iii) thereof, but only if the basis for such termination is
a breach by the Company, or the Stockholder materially breaches any agreement
contained in this Agreement, in which event the Stock Options shall, in any such
case, become immediately exercisable at any time and from time to time upon such
termination or upon Cordiant and Sub being informed of such breach, as the case
may be, and until the date which is 20 days after the date of such termination
or the date on which Cordiant and Sub are informed of such breach, as the case
may be, provided, that if at the expiration of such 20-day period the Stock
Options cannot be exercised by reason of any preliminary or final injunction or
other order issued by any court or governmental, administrative or regulatory
agency or authority prohibiting the exercise of the Stock Options pursuant to
this Agreement, or because all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), required for the
purchase of the Shares upon such exercise shall not have expired or been waived,
the Stock Options shall be exercisable until 10 business days after the later of
the date on which such impediment to exercise shall have been removed or shall
have become final and not subject to appeal. In all other instances, the Stock
Options shall terminate upon the termination of the Merger Agreement. In the
event that Cordiant wishes to exercise the Stock Options, Cordiant shall send a
written notice (the "Notice") to the Stockholder identifying the place (which
shall be in New York City for each Stockholder who is a resident of the United
States and in London for each Stockholder who is a resident of the United
Kingdom) and date (not less than two business days nor greater than ten business
days from the date of the Notice) for the closing of such purchase. At such
closing, Cordiant shall receive certificates for the Shares, duly endorsed for
transfer, and shall make payment therefor by wire transfer of immediately
available funds.
4. DISPOSITION OF PARENT SHARES.
(a) RESTRICTIONS ON DISPOSITION. The Stockholder hereby agrees, except
as permitted in this Section 4(a) and Section 4(b) below, not to directly or
indirectly, offer to sell, contract to sell, transfer, assign, cause to be
redeemed or otherwise sell or dispose of any of the Parent Shares (collectively
a "Disposition") received by the stockholder in connection with the Merger
without the prior written consent of Cordiant. Notwithstanding anything to the
contrary provided in this Agreement, the Stockholder shall have the right to
transfer Parent Shares (i) to any Family Member, (ii) to the trustee or trustees
of a trust solely (except for remote contingent interests) for the benefit of
the Stockholder and/or one or more Family Members and/or a charitable
organization (a "Family Member Trust"), (iii) to a foundation created or
established by the Stockholder, or any other charitable organization, (iv) to a
corporation of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the outstanding capital stock, (v) to a limited
liability company of which the Stockholder and/or any Family Member and/or any
Family Member Trust owns all of the outstanding membership interests, (vi) to a
partnership of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the partnership interests, (vii) to the executor,
administrator or personal representative of the estate of the Stockholder or any
other Family Member, or (viii) to any guardian, trustee or conservator appointed
with respect to the assets of the Stockholder, provided, that in the case of any
such transfer, the transferee shall execute an agreement to be bound by the
terms of this Agreement (each such transfer, a "Permitted Transfer" and,
collectively, the "Permitted Transfers"). For purposes of this Agreement,
"Family Member" shall mean (a) the Stockholder's spouse, if living with the
Stockholder, (b) any one of the following: the Stockholder's father, mother,
issue, brother or sister, and the issue of a brother or sister, and (c) the
spouse of any Family Member described in (b) above, if the spouse shall be
living with that Family Member. The Stockholder hereby agrees and consents to
the entry of stop transfer instructions with Cordiant's transfer agent against
the transfer of such Parent Shares except in compliance with this Agreement.
Notwithstanding the foregoing, the Stockholder may pledge, hypothecate or
otherwise grant a security interest in all or a
J-3
portion of the Parent Shares beneficially owned by him during the term of this
Agreement; provided, however, that any Person receiving such Parent Shares shall
be subject to all of the restrictions on Disposition of such Parent Shares
imposed by this Agreement to the same extent as the Stockholder.
(b) PERMITTED DISPOSITIONS. The Stockholder may not effect any
Disposition of Parent Shares received by the Stockholder in connection with the
Merger except as follows: (i) during the twelve-month period immediately
following the Effective Time the Stockholder may effect the Disposition of not
more than 10% of the Parent Shares Beneficially Owned by the Stockholder and
(ii) during the twenty-four-month period immediately following the Effective
Time (the "Period"), the Stockholder may effect the Disposition of not more than
50% of the Parent Shares Beneficially Owned by the Stockholder. Upon the
expiration of the Period, the Stockholder may effect the Dispositions of all or
any portion of the Parent Shares Beneficially Owned by him subject to any
applicable restrictions under the Federal Securities Law and restrictions of
general application under English law, the Listing Rules of the London Stock
Exchange, if applicable, and Cordiant's policies made pursuant to such rules
regarding dealings in Parent Shares by directors and relevant employees of
Cordiant and its subsidiaries, if applicable. Notwithstanding anything to the
contrary contained in this Section 4, the Stockholder hereby agrees that for the
period commencing at the Effective Time and ending on the date which is
180 days after the expiration of the Period, the Stockholder shall give Cordiant
1 business day prior written notice of any intended Disposition of Parent Shares
to be made by the Stockholder and at the request of Cordiant agrees to effect
such Disposition through brokers or other financial intermediaries designated by
Cordiant to maintain an orderly trading market for the Parent Shares, provided
that such financial intermediary agrees to effect and does effect the
Disposition in a reasonable period following such notice.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to each of Cordiant and Sub as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record holder of or
Beneficially Owns the Shares. On the date hereof, the Shares constitute all of
the shares of Common Stock owned of record or Beneficially Owned by the
Stockholder (excluding any Stock Options (as defined in the Merger Agreement)
held by the Stockholder). The Stockholder has sole voting power and sole power
to issue instructions with respect to the matters set forth in Section 2 hereof,
sole power of disposition, sole power of conversion, sole power to exercise
dissenters' rights and sole power to agree to all of the matters set forth in
this agreement, in each case with respect to all of the Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal capacity,
power and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Stockholder will not violate any other Agreement to which the Stockholder is a
party including, without limitation, any voting agreement, shareholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of which the
Stockholder is trustee whose consent is required for the execution and delivery
of this agreement or the consummation by the Stockholder of the transactions
contemplated hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this agreement has been duly authorized, executed
and delivered by, and constitutes a valid and binding agreement of, the
Stockholder's spouse, enforceable against such Person in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
J-4
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought.
(c) NO CONFLICTS. Except for filings, permits, authorizations,
consents and approvals under the HSR Act and the Securities Act of 1933, if
applicable, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Stockholder and the consummation by the
Stockholder of the transactions contemplated hereby and (B) none of the
execution and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall, in a manner which would be
material and adverse to the ability of the Stockholder to consummate the
transactions contemplated hereby or to comply with the terms hereof, result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Stockholder is a party or by which the
Stockholder or any of the Stockholder's properties or assets may be bound, or
(3) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to the Stockholder or any of the Stockholder's
properties or assets.
(d) NO ENCUMBRANCES. Except as applicable in connection with the
transactions contemplated hereby or as set forth on Schedule B attached hereto,
the Shares and the certificates representing the Shares are now, and at all
times during the term hereof will be, held by the Stockholder, or by a nominee
or custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements, understandings
or arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder in favor of Cordiant.
(e) NO FINDER'S FEES. No broker, investment banker, financial adviser
or other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Stockholder other
than Bear Stearns & Co. Inc., the fees and expenses of which shall be paid by
the Company.
(f) RELIANCE BY CORDIANT AND SUB. The Stockholder understands and
acknowledges that Cordiant and Sub are entering into the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
6. ADDITIONAL COVENANTS OF THE STOCKHOLDER. The Stockholder hereby
covenants to each of Cordiant and Sub as follows:
(a) NO SOLICITATION. Subject to the provisions contained in
Section 10 of this Agreement, the Stockholder shall not, in his capacity as
such, directly or indirectly, solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by any
Person or entity (other than Cordiant or any affiliate of Cordiant) with respect
to the Company that constitutes a Takeover Proposal. If the Stockholder receives
any such inquiry or proposal, then the Stockholder shall promptly inform
Cordiant of the existence thereof. The Stockholder will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
(b) RESTRICTION ON TRANSFER OF SHARES, PROXIES AND
NON-INTERFERENCE. Beginning on the date hereof and ending on the later to occur
of (A) last date the Stock Options are exercisable pursuant to Section 3 hereof
and (B) the date that all of the Stockholder's obligations under Section 2 have
J-5
terminated, except as contemplated by this Agreement or the Merger Agreement, no
Stockholder shall, directly or indirectly, (i) offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of the Shares or any interest
therein; (ii) except as contemplated by this Agreement, grant any proxies or
powers of attorney, deposit any of the Shares into a voting trust or enter into
a voting agreement with respect to any of the Shares; or (iii) take any action
that would make any representation or warranty of the Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling the
Stockholder from performing the Stockholder's obligations under this Agreement.
Notwithstanding anything to the contrary provided in this Agreement, a
Stockholder shall have the right to make Permitted Transfers of Shares. The
Stockholder agrees with, and covenants to, Sub that beginning on the date hereof
and ending on the last date the Stock Options are exercisable pursuant to
Section 3 hereof, the Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of the Shares, unless such transfer is made in
compliance with this Agreement (including the provisions of Section 2 hereof).
(c) ADDITIONAL SHARES. The Stockholder agrees, while this Agreement is
in effect (i) to notify Cordiant and Sub promptly of the number of any shares of
Common Stock acquired by the Stockholder after the date hereof (the "Additional
Shares") and (ii) to vote such Additional Shares in accordance with Section 2
hereof. Such Additional Shares shall also be subject to the Stock Option granted
to Sub pursuant to Section 3 hereof and the restriction contained in
Section 6(b)(i) and (ii) above.
7. REPRESENTATIONS AND WARRANTIES OF CORDIANT AND SUB. Cordiant and Sub
hereby covenant, represent and warrant to the Stockholder that each of Cordiant
and Sub has the legal capacity, power and authority to enter into and perform
all of such party's obligations under this Agreement; the execution, delivery
and performance of this Agreement by Cordiant and Sub will not violate or result
in a breach of any other material agreement to which Cordiant or Sub is a party;
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (i) have been duly authorized by the board of
directors of Cordiant and Sub, and (ii) do not and will not violate any
provision of the certificate of incorporation or by-laws of Cordiant or Sub; and
this Agreement has been duly and validly executed and delivered by each of
Cordiant and Sub and constitutes a valid and binding agreement of such party,
enforceable against such party in accordance with its terms.
8. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional reasonable documents and take all such further reasonable lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement.
9. TERMINATION; EXPENSES AND FEE. (a) The covenants and agreements
contained herein with respect to the Shares shall terminate (i) in the event the
Merger Agreement is terminated in accordance with its terms, upon such
termination, except that the provisions of Sections 2, 3 and 6(b) hereof shall
survive any such termination solely in accordance with their terms and (ii) in
the event the Merger is consummated, at the Effective Time, except that the
provisions of Section 4 hereof shall survive any such termination, provided, in
each case, that the provisions of Section 12 and Section 13 hereof shall survive
any termination of this Agreement, and provided, further, that no termination of
this Agreement shall relieve any party of liability for a breach hereof.
(b) Each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
J-6
10. STOCKHOLDER CAPACITY. The Stockholder is not executing this Agreement
and does not make any agreement or understanding herein in his or her capacity
as a director or officer of the Company and nothing contained herein shall limit
or affect any actions taken by the Stockholder in his capacity as a director or
officer of the Company to the extent such action is permitted by, or not
prohibited by, the Merger Agreement, and none of such actions in such capacities
shall be deemed to constitute a breach of this Agreement. The Stockholder signs
solely in his capacity as the record and beneficial owner of, or the trustee of
a trust whose beneficiaries are the beneficial owners of, the Shares.
11. SOPHISTICATION. The Stockholder acknowledges that he is an informed
and sophisticated investor and, together with his advisors, has undertaken such
investigation as they have deemed necessary, including the review of the Merger
Agreement and this Agreement, to enable the Stockholder to make an informed and
intelligent decision with respect to the Merger Agreement and this Agreement and
the transactions contemplated thereby and hereby.
12. CONFIDENTIALITY. Each of the parties hereto recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each party hereby agrees not to
disclose or discuss such matters with anyone not a party to this Agreement or
the Merger Agreement (other than such party's counsel and advisors, if any)
without the prior written consent of the other party, except for filings
required pursuant to the Exchange Act and the rules and regulations thereunder
or disclosures such party's counsel advises are necessary in order to fulfill
such party's obligations imposed by law, in which event such party shall give
notice of such disclosure to the other party as promptly as practicable so as to
enable the other party to seek a protective order from a court of competent
jurisdiction with respect thereto.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(b) CERTAIN EVENTS. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, the Stockholder's heirs, guardians, administrators or successors,
provided, that following the Effective Time, this Agreement shall not be binding
on any purchaser of Shares in a transaction made in compliance with
Section 4(b), other than Permitted Transfers. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(c) CHANGE IN CONTROL. In the event that after the Effective Time
(i) any Person or group of Persons acting in concert (as defined in the City
Code on Take-overs and Mergers in the United Kingdom) acquires an interest in
the equity share capital of Cordiant (an "Acquiring Person") and, immediately
following such acquisition, such person, or group, holds shares entitled to
exercise more than 50% of the votes which may be cast at a general meeting of
Cordiant or (ii) a majority of the board of directors of Cordiant immediately
prior to such Person becoming an Acquiring Person, cease to thereafter
constitute a majority of the board of directors of Cordiant (other than through
elections of directors whose nomination for election by the shareholders of
Cordiant were approved by the vote of a majority of directors of Cordiant who
were either directors prior to a Person becoming an Acquiring Person or whose
election or nomination for election was so previously approved), then the
restrictions on Dispositions contained in Section 4, shall terminate without any
action on the part of any party hereto.
J-7
(d) ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party, provided,
that Cordiant or Sub may assign, in its sole discretion, its rights and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Cordiant, but no such assignment shall relieve Cordiant or Sub of its
obligations hereunder if such assignee does not or cannot perform such
obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the party to be
charged thereby or, with respect to termination, as otherwise provided herein.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholder: Steven Girgenti Grantor Retained Annuity Trust
c/o Healthworld Corporation
100 Avenue of the Americas
New York, New York 10010
Attention: Steven Girgenti
Facsimile: (212) 966-2743
and
If to Cordiant or Cordiant Communications Group plc
Sub to: 121-141 Westbourne Terrace
London W2 6JR
Attention: Deputy Finance Director
Facsimile: +44-171-262-4300
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
Attention: Timothy B. Goodell, Esq.
Facsimile: (212) 354-8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the aggrieved party to sustain damages for which it
would not have an adequate remedy at law for money damages, and
J-8
therefore each of the parties hereto agrees that in the event of any such breach
the aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Court of Chancery in the State of Delaware or the
United States District Court for the Southern District of New York or any court
of the State of New York located in the City of New York in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on forum non conveniens or any other objection to venue
therein); provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this paragraph (1) and shall not be deemed to be a
general submission to the jurisdiction of said Courts or in the States of
Delaware or New York other than for such purposes. Each party hereto hereby
waives any right to a trial by jury in connection with any such action, suit or
proceeding.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
J-9
IN WITNESS WHEREOF, Cordiant, Sub and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
HEALTHWORLD ACQUISITION CORP.
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
STEVEN GIRGENTI GRANTOR RETAINED ANNUITY TRUST
By: /s/ STEVEN GIRGENTI
-----------------------------------------
Steven Girgenti
Title: Trustee
J-10
APPENDIX K
STOCKHOLDER AGREEMENT
AGREEMENT dated November 9, 1999, among Cordiant Communications Group plc, a
company organized under the laws of England and Wales ("Cordiant"), Healthworld
Acquisition Corporation, a Delaware corporation and a direct wholly owned
subsidiary of Cordiant ("Sub"), and The Girgenti Family Limited Partnership (the
"Stockholder").
WITNESSETH:
WHEREAS, concurrently herewith, Cordiant, Sub, and Healthworld Corporation,
a Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"), pursuant to which Sub will be merged with and into the
Company and the Company shall continue as the surviving corporation (the
"Merger");
WHEREAS, the Stockholder Beneficially Owns, as of the date hereof, 100,000
shares (the "Shares") of common stock, $.01 par value per share, of the Company
(the "Common Stock"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Cordiant and Sub have required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. Unless other defined herein, all capitalized terms used
herein shall have the meanings given to such terms in the Merger Agreement. For
purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities Beneficially
Owned by all other Persons with whom such Person would constitute a "group" as
within the meanings of Section 13(d)(3) of the Exchange Act.
(b) "Exchange Rate" means the average currency exchange rate of pounds
sterling to US dollars based upon the noon buying rate in the City of New York
for cable transfers in foreign currencies as announced by the Federal Reserve
Bank of New York for customs purposes over the 10 consecutive Trading Days
ending on the day on which the Stock Options are exercised pursuant to
Section 3.
(c) "Parent Share Value" shall mean the product of (x) the average of
the closing middle market quotation of a Parent Share on the LSE as reported in
the Daily Official List of the London Stock Exchange for each of the ten
consecutive Trading Days ending on the day on which the Stock Options are
exercised pursuant to Section 3 multiplied by (y) Exchange Rate.
(d) "Parent Shares" shall mean the ordinary shares, with a nominal value
of U.K. fifty pence each ("Ordinary Shares"), of Cordiant (including any options
or other rights to receive Ordinary Shares) and the American Depositary Shares,
each representing the right to receive five Ordinary Shares ("ADSs").
K-1
(e) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) "Share Value" shall be determined as follows:
(i) if the Parent Share Value is equal to or greater than $2.5054 and
equal to or less than $3.4838, the Share Value shall be $20.00;
(ii) if the Parent Share Value is greater than $3.4838, the Share
Value shall be $23.00; and
(iii) if the Parent Share Value is less than $2.5054, the Share Value
shall be $17.00.
(g) "Trading Day" shall mean any day on which securities are traded,
with respect to ADSs, on the New York Stock Exchange, Inc. and with respect to
Ordinary Shares, on the London Stock Exchange Limited.
2. PROVISIONS CONCERNING COMMON STOCK. (a) The Stockholder hereby agrees
that during the period described in clause (b) below, at any meeting of the
holders of Common Stock of the Company, however called, or in connection with
any written consent of the holders of Common Stock of the Company, the
Stockholder shall vote (or cause to be voted) the Shares of Common Stock of the
Company, (i) in favor of the Merger, the execution and delivery by the Company
of the Merger Agreement and the approval of the terms thereof and each of the
other actions contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (iii) except as otherwise
agreed to in writing in advance by Cordiant, against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of
the Company or its Subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (C) any change in
a majority of the persons who constitute the board of directors of the Company;
(D) any change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation or Bylaws; (E) any other material
change in the Company's corporate structure or business; or (F) any other action
involving the Company or its Subsidiaries which is intended, or could reasonably
be expected, to materially impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by this
Agreement and the Merger Agreement. The Stockholder shall not enter into any
agreement or understanding with any Person the effect of which would be
inconsistent with or violative of the provisions and agreements contained in
this Section 2.
(b) The obligations of the Stockholders under clauses (i), (ii) and
(iii)(C), (D), (E) and (F) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and the termination of the Merger Agreement in
accordance with its terms. The obligations of the Stockholder under
clause (iii)(A) and (B) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and 120 days after the termination of the Merger
Agreement in accordance with its terms (unless the Merger Agreement is
terminated by reason of the failure to obtain Parent Shareholders' Approval in
which case the Stockholder's obligations under this Section 2 shall terminate
simultaneously with the termination of the Merger Agreement).
3. OPTION TO PURCHASE. In order to induce Cordiant and Sub to enter into
the Merger Agreement, the Stockholder hereby grants to Sub an irrevocable option
(the "Stock Options") to purchase, all, and not less than all, of the Shares at
a purchase price per share equal to the Share Value, payable in cash (the
"Purchase Price"), solely upon, and subject to, the terms and conditions set
forth below. The Stock Options may only be exercised if Sub simultaneously
exercises all other options
K-2
held by it to purchase all, and not less than all, of the shares of Common Stock
covered by such options. The Stock Options shall become exercisable solely in
the event that the Merger Agreement is terminated pursuant to
(i) Section 9.1(b)(ii) thereof, but only if the basis for such termination is
the failure to obtain the Company Stockholder Approval or
(ii) Section 9.1(b)(iii) thereof, but only if the basis for such termination is
a breach by the Company, or the Stockholder materially breaches any agreement
contained in this Agreement, in which event the Stock Options shall, in any such
case, become immediately exercisable at any time and from time to time upon such
termination or upon Cordiant and Sub being informed of such breach, as the case
may be, and until the date which is 20 days after the date of such termination
or the date on which Cordiant and Sub are informed of such breach, as the case
may be, provided, that if at the expiration of such 20-day period the Stock
Options cannot be exercised by reason of any preliminary or final injunction or
other order issued by any court or governmental, administrative or regulatory
agency or authority prohibiting the exercise of the Stock Options pursuant to
this Agreement, or because all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), required for the
purchase of the Shares upon such exercise shall not have expired or been waived,
the Stock Options shall be exercisable until 10 business days after the later of
the date on which such impediment to exercise shall have been removed or shall
have become final and not subject to appeal. In all other instances, the Stock
Options shall terminate upon the termination of the Merger Agreement. In the
event that Cordiant wishes to exercise the Stock Options, Cordiant shall send a
written notice (the "Notice") to the Stockholder identifying the place (which
shall be in New York City for each Stockholder who is a resident of the United
States and in London for each Stockholder who is a resident of the United
Kingdom) and date (not less than two business days nor greater than ten business
days from the date of the Notice) for the closing of such purchase. At such
closing, Cordiant shall receive certificates for the Shares, duly endorsed for
transfer, and shall make payment therefor by wire transfer of immediately
available funds.
4. DISPOSITION OF PARENT SHARES.
(a) RESTRICTIONS ON DISPOSITION. The Stockholder hereby agrees, except
as permitted in this Section 4(a) and Section 4(b) below, not to directly or
indirectly, offer to sell, contract to sell, transfer, assign, cause to be
redeemed or otherwise sell or dispose of any of the Parent Shares (collectively
a "Disposition") received by the stockholder in connection with the Merger
without the prior written consent of Cordiant. Notwithstanding anything to the
contrary provided in this Agreement, the Stockholder shall have the right to
transfer Parent Shares (i) to any Family Member, (ii) to the trustee or trustees
of a trust solely (except for remote contingent interests) for the benefit of
the Stockholder and/or one or more Family Members and/or a charitable
organization (a "Family Member Trust"), (iii) to a foundation created or
established by the Stockholder, or any other charitable organization, (iv) to a
corporation of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the outstanding capital stock, (v) to a limited
liability company of which the Stockholder and/or any Family Member and/or any
Family Member Trust owns all of the outstanding membership interests, (vi) to a
partnership of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the partnership interests, (vii) to the executor,
administrator or personal representative of the estate of the Stockholder or any
other Family Member, or (viii) to any guardian, trustee or conservator appointed
with respect to the assets of the Stockholder, provided, that in the case of any
such transfer, the transferee shall execute an agreement to be bound by the
terms of this Agreement (each such transfer, a "Permitted Transfer" and,
collectively, the "Permitted Transfers"). For purposes of this Agreement,
"Family Member" shall mean (a) the Stockholder's spouse, if living with the
Stockholder, (b) any one of the following: the Stockholder's father, mother,
issue, brother or sister, and the issue of a brother or sister, and (c) the
spouse of any Family Member described in (b) above, if the spouse shall be
living with that Family Member. The Stockholder hereby agrees and consents to
the entry of stop transfer instructions with Cordiant's transfer agent against
the transfer of such Parent Shares except in compliance with this Agreement.
Notwithstanding the foregoing, the Stockholder may pledge, hypothecate or
otherwise grant a security interest in all or a
K-3
portion of the Parent Shares beneficially owned by him during the term of this
Agreement; provided, however, that any Person receiving such Parent Shares shall
be subject to all of the restrictions on Disposition of such Parent Shares
imposed by this Agreement to the same extent as the Stockholder.
(b) PERMITTED DISPOSITIONS. The Stockholder may not effect any
Disposition of Parent Shares received by the Stockholder in connection with the
Merger except as follows: (i) during the twelve-month period immediately
following the Effective Time the Stockholder may effect the Disposition of not
more than 10% of the Parent Shares Beneficially Owned by the Stockholder and
(ii) during the twenty-four-month period immediately following the Effective
Time (the "Period"), the Stockholder may effect the Disposition of not more than
50% of the Parent Shares Beneficially Owned by the Stockholder. Upon the
expiration of the Period, the Stockholder may effect the Dispositions of all or
any portion of the Parent Shares Beneficially Owned by him subject to any
applicable restrictions under the Federal Securities Law and restrictions of
general application under English law, the Listing Rules of the London Stock
Exchange, if applicable, and Cordiant's policies made pursuant to such rules
regarding dealings in Parent Shares by directors and relevant employees of
Cordiant and its subsidiaries, if applicable. Notwithstanding anything to the
contrary contained in this Section 4, the Stockholder hereby agrees that for the
period commencing at the Effective Time and ending on the date which is
180 days after the expiration of the Period, the Stockholder shall give Cordiant
1 business day prior written notice of any intended Disposition of Parent Shares
to be made by the Stockholder and at the request of Cordiant agrees to effect
such Disposition through brokers or other financial intermediaries designated by
Cordiant to maintain an orderly trading market for the Parent Shares, provided
that such financial intermediary agrees to effect and does effect the
Disposition in a reasonable period following such notice.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to each of Cordiant and Sub as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record holder of or
Beneficially Owns the Shares. On the date hereof, the Shares constitute all of
the shares of Common Stock owned of record or Beneficially Owned by the
Stockholder (excluding any Stock Options (as defined in the Merger Agreement)
held by the Stockholder). The Stockholder has sole voting power and sole power
to issue instructions with respect to the matters set forth in Section 2 hereof,
sole power of disposition, sole power of conversion, sole power to exercise
dissenters' rights and sole power to agree to all of the matters set forth in
this agreement, in each case with respect to all of the Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal capacity,
power and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Stockholder will not violate any other Agreement to which the Stockholder is a
party including, without limitation, any voting agreement, shareholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of which the
Stockholder is trustee whose consent is required for the execution and delivery
of this agreement or the consummation by the Stockholder of the transactions
contemplated hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this agreement has been duly authorized, executed
and delivered by, and constitutes a valid and binding agreement of, the
Stockholder's spouse, enforceable against such Person in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
K-4
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought.
(c) NO CONFLICTS. Except for filings, permits, authorizations,
consents and approvals under the HSR Act and the Securities Act of 1933, if
applicable, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Stockholder and the consummation by the
Stockholder of the transactions contemplated hereby and (B) none of the
execution and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall, in a manner which would be
material and adverse to the ability of the Stockholder to consummate the
transactions contemplated hereby or to comply with the terms hereof, result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Stockholder is a party or by which the
Stockholder or any of the Stockholder's properties or assets may be bound, or
(3) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to the Stockholder or any of the Stockholder's
properties or assets.
(d) NO ENCUMBRANCES. Except as applicable in connection with the
transactions contemplated hereby or as set forth on Schedule B attached hereto,
the Shares and the certificates representing the Shares are now, and at all
times during the term hereof will be, held by the Stockholder, or by a nominee
or custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements, understandings
or arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder in favor of Cordiant.
(e) NO FINDER'S FEES. No broker, investment banker, financial adviser
or other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Stockholder other
than Bear Stearns & Co. Inc., the fees and expenses of which shall be paid by
the Company.
(f) RELIANCE BY CORDIANT AND SUB. The Stockholder understands and
acknowledges that Cordiant and Sub are entering into the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
6. ADDITIONAL COVENANTS OF THE STOCKHOLDER. The Stockholder hereby
covenants to each of Cordiant and Sub as follows:
(a) NO SOLICITATION. Subject to the provisions contained in
Section 10 of this Agreement, the Stockholder shall not, in his capacity as
such, directly or indirectly, solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by any
Person or entity (other than Cordiant or any affiliate of Cordiant) with respect
to the Company that constitutes a Takeover Proposal. If the Stockholder receives
any such inquiry or proposal, then the Stockholder shall promptly inform
Cordiant of the existence thereof. The Stockholder will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
(b) RESTRICTION ON TRANSFER OF SHARES, PROXIES AND
NON-INTERFERENCE. Beginning on the date hereof and ending on the later to occur
of (A) last date the Stock Options are exercisable pursuant to Section 3 hereof
and (B) the date that all of the Stockholder's obligations under Section 2 have
K-5
terminated, except as contemplated by this Agreement or the Merger Agreement, no
Stockholder shall, directly or indirectly, (i) offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of the Shares or any interest
therein; (ii) except as contemplated by this Agreement, grant any proxies or
powers of attorney, deposit any of the Shares into a voting trust or enter into
a voting agreement with respect to any of the Shares; or (iii) take any action
that would make any representation or warranty of the Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling the
Stockholder from performing the Stockholder's obligations under this Agreement.
Notwithstanding anything to the contrary provided in this Agreement, a
Stockholder shall have the right to make Permitted Transfers of Shares. The
Stockholder agrees with, and covenants to, Sub that beginning on the date hereof
and ending on the last date the Stock Options are exercisable pursuant to
Section 3 hereof, the Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of the Shares, unless such transfer is made in
compliance with this Agreement (including the provisions of Section 2 hereof).
(c) ADDITIONAL SHARES. The Stockholder agrees, while this Agreement is
in effect (i) to notify Cordiant and Sub promptly of the number of any shares of
Common Stock acquired by the Stockholder after the date hereof (the "Additional
Shares") and (ii) to vote such Additional Shares in accordance with Section 2
hereof. Such Additional Shares shall also be subject to the Stock Option granted
to Sub pursuant to Section 3 hereof and the restriction contained in
Section 6(b)(i) and (ii) above.
7. REPRESENTATIONS AND WARRANTIES OF CORDIANT AND SUB. Cordiant and Sub
hereby covenant, represent and warrant to the Stockholder that each of Cordiant
and Sub has the legal capacity, power and authority to enter into and perform
all of such party's obligations under this Agreement; the execution, delivery
and performance of this Agreement by Cordiant and Sub will not violate or result
in a breach of any other material agreement to which Cordiant or Sub is a party;
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (i) have been duly authorized by the board of
directors of Cordiant and Sub, and (ii) do not and will not violate any
provision of the certificate of incorporation or by-laws of Cordiant or Sub; and
this Agreement has been duly and validly executed and delivered by each of
Cordiant and Sub and constitutes a valid and binding agreement of such party,
enforceable against such party in accordance with its terms.
8. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional reasonable documents and take all such further reasonable lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement.
9. TERMINATION; EXPENSES AND FEE. (a) The covenants and agreements
contained herein with respect to the Shares shall terminate (i) in the event the
Merger Agreement is terminated in accordance with its terms, upon such
termination, except that the provisions of Sections 2, 3 and 6(b) hereof shall
survive any such termination solely in accordance with their terms and (ii) in
the event the Merger is consummated, at the Effective Time, except that the
provisions of Section 4 hereof shall survive any such termination, provided, in
each case, that the provisions of Section 12 and Section 13 hereof shall survive
any termination of this Agreement, and provided, further, that no termination of
this Agreement shall relieve any party of liability for a breach hereof.
(b) Each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
K-6
10. STOCKHOLDER CAPACITY. The Stockholder is not executing this Agreement
and does not make any agreement or understanding herein in his or her capacity
as a director or officer of the Company and nothing contained herein shall limit
or affect any actions taken by the Stockholder in his capacity as a director or
officer of the Company to the extent such action is permitted by, or not
prohibited by, the Merger Agreement, and none of such actions in such capacities
shall be deemed to constitute a breach of this Agreement. The Stockholder signs
solely in his capacity as the record and beneficial owner of, or the trustee of
a trust whose beneficiaries are the beneficial owners of, the Shares.
11. SOPHISTICATION. The Stockholder acknowledges that he is an informed
and sophisticated investor and, together with his advisors, has undertaken such
investigation as they have deemed necessary, including the review of the Merger
Agreement and this Agreement, to enable the Stockholder to make an informed and
intelligent decision with respect to the Merger Agreement and this Agreement and
the transactions contemplated thereby and hereby.
12. CONFIDENTIALITY. Each of the parties hereto recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each party hereby agrees not to
disclose or discuss such matters with anyone not a party to this Agreement or
the Merger Agreement (other than such party's counsel and advisors, if any)
without the prior written consent of the other party, except for filings
required pursuant to the Exchange Act and the rules and regulations thereunder
or disclosures such party's counsel advises are necessary in order to fulfill
such party's obligations imposed by law, in which event such party shall give
notice of such disclosure to the other party as promptly as practicable so as to
enable the other party to seek a protective order from a court of competent
jurisdiction with respect thereto.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(b) CERTAIN EVENTS. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, the Stockholder's heirs, guardians, administrators or successors,
provided, that following the Effective Time, this Agreement shall not be binding
on any purchaser of Shares in a transaction made in compliance with
Section 4(b), other than Permitted Transfers. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(c) CHANGE IN CONTROL. In the event that after the Effective Time
(i) any Person or group of Persons acting in concert (as defined in the City
Code on Take-overs and Mergers in the United Kingdom) acquires an interest in
the equity share capital of Cordiant (an "Acquiring Person") and, immediately
following such acquisition, such person, or group, holds shares entitled to
exercise more than 50% of the votes which may be cast at a general meeting of
Cordiant or (ii) a majority of the board of directors of Cordiant immediately
prior to such Person becoming an Acquiring Person, cease to thereafter
constitute a majority of the board of directors of Cordiant (other than through
elections of directors whose nomination for election by the shareholders of
Cordiant were approved by the vote of a majority of directors of Cordiant who
were either directors prior to a Person becoming an Acquiring Person or whose
election or nomination for election was so previously approved), then the
restrictions on Dispositions contained in Section 4, shall terminate without any
action on the part of any party hereto.
K-7
(d) ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party, provided,
that Cordiant or Sub may assign, in its sole discretion, its rights and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Cordiant, but no such assignment shall relieve Cordiant or Sub of its
obligations hereunder if such assignee does not or cannot perform such
obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the party to be
charged thereby or, with respect to termination, as otherwise provided herein.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholder: The Girgenti Family Limited Partnership
c/o Healthworld Corporation
100 Avenue of the Americas
New York, New York 10010
Attention: Steven Girgenti
Facsimile: (212) 966-2743
and
If to Cordiant or Cordiant Communications Group plc
Sub to: 121-141 Westbourne Terrace
London W2 6JR
Attention: Deputy Finance Director
Facsimile: +44-171-262-4300
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
Attention: Timothy B. Goodell, Esq.
Facsimile: (212) 354-8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the aggrieved party to sustain damages for which it
would not have an adequate remedy at law for money damages, and
K-8
therefore each of the parties hereto agrees that in the event of any such breach
the aggrieved party shall be entitled to the remedy of specific performance of
such covenants and agreements and injunctive and other equitable relief in
addition to any other remedy to which it may be entitled, at law or in equity.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Court of Chancery in the State of Delaware or the
United States District Court for the Southern District of New York or any court
of the State of New York located in the City of New York in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on forum non conveniens or any other objection to venue
therein); provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this paragraph (1) and shall not be deemed to be a
general submission to the jurisdiction of said Courts or in the States of
Delaware or New York other than for such purposes. Each party hereto hereby
waives any right to a trial by jury in connection with any such action, suit or
proceeding.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
K-9
IN WITNESS WHEREOF, Cordiant, Sub and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
HEALTHWORLD ACQUISITION CORP.
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
THE GIRGENTI FAMILY LIMITED PARTNERSHIP
By: /s/ STEVEN GIRGENTI
-----------------------------------------
Name: Steven Girgenti
Title: General Partner
K-10
APPENDIX L
STOCKHOLDER AGREEMENT
AGREEMENT dated November 9, 1999, among Cordiant Communications Group plc, a
company organized under the laws of England and Wales ("Cordiant"), Healthworld
Acquisition Corporation, a Delaware corporation and a direct wholly owned
subsidiary of Cordiant ("Sub"), and The Spencer Falk Grantor Retained Annuity
Trust u/t/a/d March 5, 1999 (the "Stockholder").
W I T N E S S E T H:
WHEREAS, concurrently herewith, Cordiant, Sub, and Healthworld Corporation,
a Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"), pursuant to which Sub will be merged with and into the
Company and the Company shall continue as the surviving corporation (the
"Merger");
WHEREAS, the Stockholder Beneficially Owns, as of the date hereof, 57,592
shares (the "Shares") of common stock, $.01 par value per share, of the Company
(the "Common Stock"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Cordiant and Sub have required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. Unless other defined herein, all capitalized terms used
herein shall have the meanings given to such terms in the Merger Agreement. For
purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities Beneficially
Owned by all other Persons with whom such Person would constitute a "group" as
within the meanings of Section 13(d)(3) of the Exchange Act.
(b) "Exchange Rate" means the average currency exchange rate of pounds
sterling to US dollars based upon the noon buying rate in the City of New York
for cable transfers in foreign currencies as announced by the Federal Reserve
Bank of New York for customs purposes over the 10 consecutive Trading Days
ending on the date on which the Stock Options are exercised pursuant to
Section 3.
(c) "Parent Share Value" shall mean the product of (x) the average of
the closing middle market quotation of a Parent Share on the LSE as reported in
the Daily Official List of the London Stock Exchange for each of the ten
consecutive Trading Days ending on the day on which the Stock Options are
exercised pursuant to Section 3 multiplied by (y) Exchange Rate.
(d) "Parent Shares" shall mean the ordinary shares, with a nominal value
of U.K. fifty pence each ("Ordinary Shares"), of Cordiant (including any options
or other rights to receive Ordinary Shares) and the American Depositary Shares,
each representing the right to receive five Ordinary Shares ("ADSs").
L-1
(e) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) "Share Value" shall be determined as follows:
(i) if the Parent Share Value is equal to or greater than $25.054 and
equal to or less than $3.4838, the Share Value shall be $20.00;
(ii) if the Parent Share Value is greater than $3.4838, the Share
Value shall be $23.00; and
(iii) if the Parent Share Value is less than $2.5054, the Share Value
shall be $17.00.
(g) "Trading Day" shall mean any day on which securities are traded,
with respect to ADSs, on the New York Stock Exchange, Inc. and with respect to
Ordinary Shares, on the London Stock Exchange Limited.
2. PROVISIONS CONCERNING COMMON STOCK. (a) The Stockholder hereby agrees
that during the period described in clause (b) below, at any meeting of the
holders of Common Stock of the Company, however called, or in connection with
any written consent of the holders of Common Stock of the Company, the
Stockholder shall vote (or cause to be voted) the Shares of Common Stock of the
Company, (i) in favor of the Merger, the execution and delivery by the Company
of the Merger Agreement and the approval of the terms thereof and each of the
other actions contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (iii) except as otherwise
agreed to in writing in advance by Cordiant, against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of
the Company or its Subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (C) any change in
a majority of the persons who constitute the board of directors of the Company;
(D) any change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation or Bylaws; (E) any other material
change in the Company's corporate structure or business; or (F) any other action
involving the Company or its Subsidiaries which is intended, or could reasonably
be expected, to materially impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by this
Agreement and the Merger Agreement. The Stockholder shall not enter into any
agreement or understanding with any Person the effect of which would be
inconsistent with or violative of the provisions and agreements contained in
this Section 2.
(b) The obligations of the Stockholders under clauses (i), (ii) and
(iii)(C), (D), (E) and (F) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and the termination of the Merger Agreement in
accordance with its terms. The obligations of the Stockholder under
clause (iii)(A) and (B) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and 120 days after the termination of the Merger
Agreement in accordance with its terms (unless the Merger Agreement is
terminated by reason of the failure to obtain Parent Shareholders' Approval in
which case the Stockholder's obligations under this Section 2 shall terminate
simultaneously with the termination of the Merger Agreement).
3. OPTION TO PURCHASE. In order to induce Cordiant and Sub to enter into
the Merger Agreement, the Stockholder hereby grants to Sub an irrevocable option
(the "Stock Options") to purchase, all, and not less than all, of the Shares at
a purchase price per share equal to the Share Value, payable in cash (the
"Purchase Price"), solely upon, and subject to, the terms and conditions set
forth below. The Stock Options may only be exercised if Sub simultaneously
exercises all other options
L-2
held by it to purchase all, and not less than all, of the shares of Common Stock
covered by such options. The Stock Options shall become exercisable solely in
the event that the Merger Agreement is terminated pursuant to
(i) Section 9.1(b)(ii) thereof, but only if the basis for such termination is
the failure to obtain the Company Stockholder Approval or
(ii) Section 9.1(b)(iii) thereof, but only if the basis for such termination is
a breach by the Company, or the Stockholder materially breaches any agreement
contained in this Agreement, in which event the Stock Options shall, in any such
case, become immediately exercisable at any time and from time to time upon such
termination or upon Cordiant and Sub being informed of such breach, as the case
may be, and until the date which is 20 days after the date of such termination
or the date on which Cordiant and Sub are informed of such breach, as the case
may be, provided, that if at the expiration of such 20-day period the Stock
Options cannot be exercised by reason of any preliminary or final injunction or
other order issued by any court or governmental, administrative or regulatory
agency or authority prohibiting the exercise of the Stock Options pursuant to
this Agreement, or because all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), required for the
purchase of the Shares upon such exercise shall not have expired or been waived,
the Stock Options shall be exercisable until 10 business days after the later of
the date on which such impediment to exercise shall have been removed or shall
have become final and not subject to appeal. In all other instances, the Stock
Options shall terminate upon the termination of the Merger Agreement. In the
event that Cordiant wishes to exercise the Stock Options, Cordiant shall send a
written notice (the "Notice") to the Stockholder identifying the place (which
shall be in New York City for each Stockholder who is a resident of the United
States and in London for each Stockholder who is a resident of the United
Kingdom) and date (not less than two business days nor greater than ten business
days from the date of the Notice) for the closing of such purchase. At such
closing, Cordiant shall receive certificates for the Shares, duly endorsed for
transfer, and shall make payment therefor by wire transfer of immediately
available funds.
4. DISPOSITION OF PARENT SHARES.
(a) RESTRICTIONS ON DISPOSITION. The Stockholder hereby agrees, except
as permitted in this Section 4(a) and Section 4(b) below, not to directly or
indirectly, offer to sell, contract to sell, transfer, assign, cause to be
redeemed or otherwise sell or dispose of any of the Parent Shares (collectively
a "Disposition") received by the stockholder in connection with the Merger
without the prior written consent of Cordiant. The parties agree that any Parent
Shares received by the Stockholder with respect to any shares received after the
date hereof under the earn-out payments payable under of the Agreement and Plan
of Merger (the "Agreement") dated as of August 1, 1999, by and between the
Company, HC-Falk Acquisition Corp., Falk Communications Inc., Spencer Falk and
Spencer Falk, as trustee under the Spencer Falk Grantor Retained Annuity Trust
u/t/a/d March 5, 1999 (the "Subsequent Shares") shall not be subject to this
Section 4(other than the last sentence of Section 4(b) which shall apply to the
Subsequent shares for a period of 180 days after the Effective Time).
Notwithstanding anything to the contrary provided in this Agreement, the
Stockholder shall have the right to transfer Parent Shares (i) to any Family
Member, (ii) to the trustee or trustees of a trust solely (except for remote
contingent interests) for the benefit of the Stockholder and/or one or more
Family Members and/or a charitable organization (a "Family Member Trust"),
(iii) to a foundation created or established by the Stockholder, or any other
charitable organization, (iv) to a corporation of which the Stockholder and/or
any Family Member and/or any Family Member Trust owns all of the outstanding
capital stock, (v) to a limited liability company of which the Stockholder
and/or any Family Member and/or any Family Member Trust owns all of the
outstanding membership interests, (vi) to a partnership of which the Stockholder
and/or any Family Member and/or any Family Member Trust owns all of the
partnership interests, (vii) to the executor, administrator or personal
representative of the estate of the Stockholder or any other Family Member, or
(viii) to any guardian, trustee or conservator appointed with respect to the
assets of the Stockholder, provided, that in the case of any such transfer, the
transferee shall execute an agreement to be bound by the terms of this Agreement
(each such transfer, a "Permitted Transfer" and, collectively, the "Permitted
Transfers"). For purposes of this Agreement,
L-3
"Family Member" shall mean (a) the Stockholder's spouse, if living with the
Stockholder, (b) any one of the following: the Stockholder's father, mother,
issue, brother or sister, and the issue of a brother or sister, and (c) the
spouse of any Family Member described in (b) above, if the spouse shall be
living with that Family Member. The Stockholder hereby agrees and consents to
the entry of stop transfer instructions with Cordiant's transfer agent against
the transfer of such Parent Shares except in compliance with this Agreement.
Notwithstanding the foregoing, the Stockholder may pledge, hypothecate or
otherwise grant a security interest in all or a portion of the Parent Shares
beneficially owned by him during the term of this Agreement; provided, however,
that any Person receiving such Parent Shares shall be subject to all of the
restrictions on Disposition of such Parent Shares imposed by this Agreement to
the same extent as the Stockholder.
(b) PERMITTED DISPOSITIONS. The Stockholder may not effect any
Disposition of Parent Shares received by the Stockholder in connection with the
Merger except as follows: (i) during the twelve-month period immediately
following the Effective Time the Stockholder may effect the Disposition of not
more than 10% of the Parent Shares Beneficially Owned by the Stockholder and
(ii) during the twenty-four-month period immediately following the Effective
Time (the "Period"), the Stockholder may effect the Disposition of not more than
50% of the Parent Shares Beneficially Owned by the Stockholder. Upon the
expiration of the Period, the Stockholder may effect the Dispositions of all or
any portion of the Parent Shares Beneficially Owned by him subject to any
applicable restrictions under the Federal Securities Law and restrictions of
general application under English law, the Listing Rules of the London Stock
Exchange, if applicable, and Cordiant's policies made pursuant to such rules
regarding dealings in Parent Shares by directors and relevant employees of
Cordiant and its subsidiaries, if applicable. Notwithstanding anything to the
contrary contained in this Section 4, the Stockholder hereby agrees that for the
period commencing at the Effective Time and ending on the date which is
180 days after the expiration of the Period, the Stockholder shall give Cordiant
1 business day prior written notice of any intended Disposition of Parent Shares
to be made by the Stockholder and at the request of Cordiant agrees to effect
such Disposition through brokers or other financial intermediaries designated by
Cordiant to maintain an orderly trading market for the Parent Shares, provided
that such financial intermediary agrees to effect the Disposition in a
reasonable period following such notice.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to each of Cordiant and Sub as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record holder of or
Beneficially Owns the Shares. On the date hereof, the Shares constitute all of
the shares of Common Stock owned of record or Beneficially Owned by the
Stockholder (excluding any Stock Options (as defined in the Merger Agreement)
held by the Stockholder). The Stockholder has sole voting power and sole power
to issue instructions with respect to the matters set forth in Section 2 hereof,
sole power of disposition, sole power of conversion, sole power to exercise
dissenters' rights and sole power to agree to all of the matters set forth in
this agreement, in each case with respect to all of the Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal capacity,
power and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Stockholder will not violate any other Agreement to which the Stockholder is a
party including, without limitation, any voting agreement, shareholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking
L-4
injunctive relief or specific performance may be sought. There is no beneficiary
or holder of a voting trust certificate or other interest of any trust of which
the Stockholder is trustee whose consent is required for the execution and
delivery of this agreement or the consummation by the Stockholder of the
transactions contemplated hereby. If the Stockholder is married and the
Stockholder's Shares constitute community property, this agreement has been duly
authorized, executed and delivered by, and constitutes a valid and binding
agreement of, the Stockholder's spouse, enforceable against such Person in
accordance with its terms except that such enforceability (i) may be limited by
bankruptcy, insolvency, moratorium or other similar laws relating to the
enforcement of creditors' rights generally and (ii) is subject to general
principles of equity and discretion of the court before which any proceedings
seeking injunctive relief or specific performance may be sought.
(c) NO CONFLICTS. Except for filings, permits, authorizations,
consents and approvals under the HSR Act and the Securities Act of 1933, if
applicable, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Stockholder and the consummation by the
Stockholder of the transactions contemplated hereby and (B) none of the
execution and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall, in a manner which would be
material and adverse to the ability of the Stockholder to consummate the
transactions contemplated hereby or to comply with the terms hereof, result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Stockholder is a party or by which the
Stockholder or any of the Stockholder's properties or assets may be bound, or
(3) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to the Stockholder or any of the Stockholder's
properties or assets.
(d) NO ENCUMBRANCES. Except as applicable in connection with the
transactions contemplated hereby or as set forth on Schedule B attached hereto,
the Shares and the certificates representing the Shares are now, and at all
times during the term hereof will be, held by the Stockholder, or by a nominee
or custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements, understandings
or arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder in favor of Cordiant.
(e) NO FINDER'S FEES. No broker, investment banker, financial adviser
or other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Stockholder other
than Bear Stearns & Co. Inc., the fees and expenses of which shall be paid by
the Company.
(f) RELIANCE BY CORDIANT AND SUB. The Stockholder understands and
acknowledges that Cordiant and Sub are entering into the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
6. ADDITIONAL COVENANTS OF THE STOCKHOLDER. The Stockholder hereby
covenants to each of Cordiant and Sub as follows:
(a) NO SOLICITATION. Subject to the provisions contained in
Section 10 of this Agreement, the Stockholder shall not, in his capacity as
such, directly or indirectly, solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by any
Person or entity (other than Cordiant or any affiliate of Cordiant) with respect
to the Company that constitutes a Takeover Proposal. If the Stockholder receives
any such inquiry or proposal, then the Stockholder shall
L-5
promptly inform Cordiant of the existence thereof. The Stockholder will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing.
(b) RESTRICTION ON TRANSFER OF SHARES, PROXIES AND
NON-INTERFERENCE. Beginning on the date hereof and ending on the later to occur
of (A) last date the Stock Options are exercisable pursuant to Section 3 hereof
and (B) the date that all of the Stockholder's obligations under Section 2 have
terminated, except as contemplated by this Agreement or the Merger Agreement, no
Stockholder shall, directly or indirectly, (i) offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of the Shares or any interest
therein; (ii) except as contemplated by this Agreement, grant any proxies or
powers of attorney, deposit any of the Shares into a voting trust or enter into
a voting agreement with respect to any of the Shares; or (iii) take any action
that would make any representation or warranty of the Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling the
Stockholder from performing the Stockholder's obligations under this Agreement.
Notwithstanding anything to the contrary provided in this Agreement, a
Stockholder shall have the right to make Permitted Transfers of Shares. The
Stockholder agrees with, and covenants to, Sub that beginning on the date hereof
and ending on the last date the Stock Options are exercisable pursuant to
Section 3 hereof, the Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of the Shares, unless such transfer is made in
compliance with this Agreement (including the provisions of Section 2 hereof).
(c) ADDITIONAL SHARES. The Stockholder agrees, while this Agreement is
in effect (i) to notify Cordiant and Sub promptly of the number of any shares of
Common Stock acquired by the Stockholder after the date hereof (the "Additional
Shares") and (ii) to vote such Additional Shares in accordance with Section 2
hereof. Such Additional Shares shall also be subject to the Stock Option granted
to Sub pursuant to Section 3 hereof and the restriction contained in
Section 6(b)(i) and (ii) above.
7. REPRESENTATIONS AND WARRANTIES OF CORDIANT AND SUB. Cordiant and Sub
hereby covenant, represent and warrant to the Stockholder that each of Cordiant
and Sub has the legal capacity, power and authority to enter into and perform
all of such party's obligations under this Agreement; the execution, delivery
and performance of this Agreement by Cordiant and Sub will not violate or result
in a breach of any other material agreement to which Cordiant or Sub is a party;
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (i) have been duly authorized by the board of
directors of Cordiant and Sub, and (ii) do not and will not violate any
provision of the certificate of incorporation or by-laws of Cordiant or Sub; and
this Agreement has been duly and validly executed and delivered by each of
Cordiant and Sub and constitutes a valid and binding agreement of such party,
enforceable against such party in accordance with its terms.
8. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional reasonable documents and take all such further reasonable lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement.
9. TERMINATION; EXPENSES AND FEE. (a) The covenants and agreements
contained herein with respect to the Shares shall terminate (i) in the event the
Merger Agreement is terminated in accordance with its terms, upon such
termination, except that the provisions of Sections 2, 3 and 6(b) hereof shall
survive any such termination solely in accordance with their terms and (ii) in
the event the Merger is consummated, at the Effective Time, except that the
provisions of Section 4 hereof shall
L-6
survive any such termination, provided, in each case, that the provisions of
Section 12 and Section 13 hereof shall survive any termination of this
Agreement, and provided, further, that no termination of this Agreement shall
relieve any party of liability for a breach hereof.
(b) Each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
10. STOCKHOLDER CAPACITY. The Stockholder is not executing this Agreement
and does not make any agreement or understanding herein in his or her capacity
as a director or officer of the Company and nothing contained herein shall limit
or affect any actions taken by the Stockholder in his capacity as a director or
officer of the Company to the extent such action is permitted by, or not
prohibited by, the Merger Agreement, and none of such actions in such capacities
shall be deemed to constitute a breach of this Agreement. The Stockholder signs
solely in his capacity as the record and beneficial owner of, or the trustee of
a trust whose beneficiaries are the beneficial owners of, the Shares.
11. SOPHISTICATION. The Stockholder acknowledges that he is an informed
and sophisticated investor and, together with his advisors, has undertaken such
investigation as they have deemed necessary, including the review of the Merger
Agreement and this Agreement, to enable the Stockholder to make an informed and
intelligent decision with respect to the Merger Agreement and this Agreement and
the transactions contemplated thereby and hereby.
12. CONFIDENTIALITY. Each of the parties hereto recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each party hereby agrees not to
disclose or discuss such matters with anyone not a party to this Agreement or
the Merger Agreement (other than such party's counsel and advisors, if any)
without the prior written consent of the other party, except for filings
required pursuant to the Exchange Act and the rules and regulations thereunder
or disclosures such party's counsel advises are necessary in order to fulfill
such party's obligations imposed by law, in which event such party shall give
notice of such disclosure to the other party as promptly as practicable so as to
enable the other party to seek a protective order from a court of competent
jurisdiction with respect thereto.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(b) CERTAIN EVENTS. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, the Stockholder's heirs, guardians, administrators or successors,
provided, that following the Effective Time, this Agreement shall not be binding
on any purchaser of Shares in a transaction made in compliance with
Section 4(b), other than Permitted Transfers. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(c) CHANGE IN CONTROL. In the event that after the Effective Time
(i) any Person or group of Persons acting in concert (as defined in the City
Code on Take-overs and Mergers in the United Kingdom) acquires an interest in
the equity share capital of Cordiant (an "Acquiring Person") and, immediately
following such acquisition, such person, or group, holds shares entitled to
exercise more than 50% of the votes which may be cast at a general meeting of
Cordiant or (ii) a majority of the board of directors of Cordiant immediately
prior to such Person becoming an Acquiring Person, cease to thereafter
constitute a majority of the board of directors of Cordiant (other than through
elections
L-7
of directors whose nomination for election by the shareholders of Cordiant were
approved by the vote of a majority of directors of Cordiant who were either
directors prior to a Person becoming an Acquiring Person or whose election or
nomination for election was so previously approved), then the restrictions on
Dispositions contained in Section 4, shall terminate without any action on the
part of any party hereto.
(d) ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party, provided,
that Cordiant or Sub may assign, in its sole discretion, its rights and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Cordiant, but no such assignment shall relieve Cordiant or Sub of its
obligations hereunder if such assignee does not or cannot perform such
obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the party to be
charged thereby or, with respect to termination, as otherwise provided herein.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholder: The Spencer Falk Grantor Retained Annuity Trust u/t/a/d
March 5, 1999
c/o Healthworld Corporation
100 Avenue of the Americas
New York, New York 10010
Attention: Spencer Falk
Facsimile: (212) 966-2743
and
If to Cordiant or Cordiant Communications Group plc
Sub to: 121-141 Westbourne Terrace
London W2 6JR
Attention: Deputy Finance Director
Facsimile: +44-141-262-4200
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787
Attention: Timothy B. Goodell, Esq.
Facsimile: (212) 354-8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity,
L-8
illegality or unenforceability will not affect any other provision or portion of
any provision in such jurisdiction, and this Agreement will be reformed,
construed and enforced in such jurisdiction as if such invalid, illegal or
unenforceable provision or portion of any provision had never been contained
herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the aggrieved party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the aggrieved
party shall be entitled to the remedy of specific performance of such covenants
and agreements and injunctive and other equitable relief in addition to any
other remedy to which it may be entitled, at law or in equity.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Court of Chancery in the State of Delaware or the
United States District Court for the Southern District of New York or any court
of the State of New York located in the City of New York in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on forum non conveniens or any other objection to venue
therein); provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this paragraph (1) and shall not be deemed to be a
general submission to the jurisdiction of said Courts or in the States of
Delaware or New York other than for such purposes. Each party hereto hereby
waives any right to a trial by jury in connection with any such action, suit or
proceeding.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
L-9
IN WITNESS WHEREOF, Cordiant, Sub and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
HEALTHWORLD ACQUISITION CORP.
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
THE SPENCER FALK GRANTOR RETAINED ANNUITY TRUST
U/T/A/O MARCH 5, 1999
By: /s/ SPENCER FALK
-----------------------------------------
Name: Spencer Falk
Title: Trustee
L-10
APPENDIX M
STOCKHOLDER AGREEMENT
AGREEMENT dated November 9, 1999, among Cordiant Communications Group plc, a
company organized under the laws of England and Wales ("Cordiant"), Healthworld
Acquisition Corporation, a Delaware corporation and a direct wholly owned
subsidiary of Cordiant ("Sub"), and The Steve Girgenti Charitable Lead Annuity
Trust (the "Stockholder").
WITNESSETH:
WHEREAS, concurrently herewith, Cordiant, Sub, and Healthworld Corporation,
a Delaware corporation (the "Company"), are entering into an Agreement and Plan
of Merger (as such agreement may hereafter be amended from time to time, the
"Merger Agreement"), pursuant to which Sub will be merged with and into the
Company and the Company shall continue as the surviving corporation (the
"Merger");
WHEREAS, the Stockholder Beneficially Owns, as of the date hereof, 66,666
shares (the "Shares") of common stock, $.01 par value per share, of the Company
(the "Common Stock"); and
WHEREAS, as an inducement and a condition to entering into the Merger
Agreement, Cordiant and Sub have required that the Stockholder agree, and the
Stockholder has agreed, to enter into this Agreement;
NOW, THEREFORE, in consideration of the foregoing and the mutual premises,
representations, warranties, covenants and agreements contained herein, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. DEFINITIONS. Unless other defined herein, all capitalized terms used
herein shall have the meanings given to such terms in the Merger Agreement. For
purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any agreement, arrangement
or understanding, whether or not in writing.
Without duplicative counting of the same securities by the same holder,
securities Beneficially Owned by a Person shall include securities Beneficially
Owned by all other Persons with whom such Person would constitute a "group" as
within the meanings of Section 13(d)(3) of the Exchange Act.
(b) "Exchange Rate" means the average currency exchange rate of pounds
sterling to US dollars based upon the noon buying rate in the City of New York
for cable transfers in foreign currencies as announced by the Federal Reserve
Bank of New York for customs purposes over the 10 consecutive Trading Days
ending on the day on which the Stock Options are exercised pursuant to
Section 3.
(c) "Parent Share Value" shall mean the product of (x) the average of
the closing middle market quotation of a Parent Share on the LSE as reported in
the Daily Official List of the London Stock Exchange for each of the ten
consecutive Trading Days ending on the day on which the Stock Options are
exercised pursuant to Section 3 multiplied by (y) Exchange Rate.
(d) "Parent Shares" shall mean the ordinary shares, with a nominal value
of U.K. fifty pence each ("Ordinary Shares"), of Cordiant (including any options
or other rights to receive Ordinary Shares) and the American Depositary Shares,
each representing the right to receive five Ordinary Shares ("ADSs").
M-1
(e) "Person" shall mean an individual, corporation, partnership, limited
liability company, joint venture, association, trust, unincorporated
organization or other entity.
(f) "Share Value" shall be determined as follows:
(i) if the Parent Share Value is equal to or greater than $2.5054 and
equal to or less than $3.4838, the Share Value shall be $20.00;
(ii) if the Parent Share Value is greater than $3.4838, the Share
Value shall be $23.00; and
(iii) if the Parent Share Value is less than $2.5054, the Share Value
shall be $17.00
(g) "Trading Day" shall mean any day on which securities are traded,
with respect to ADSs, on the New York Stock Exchange, Inc. and with respect to
Ordinary Shares, on the London Stock Exchange Limited.
2. PROVISIONS CONCERNING COMMON STOCK. (a) The Stockholder hereby agrees
that during the period described in clause (b) below, at any meeting of the
holders of Common Stock of the Company, however called, or in connection with
any written consent of the holders of Common Stock of the Company, the
Stockholder shall vote (or cause to be voted) the Shares of Common Stock of the
Company, (i) in favor of the Merger, the execution and delivery by the Company
of the Merger Agreement and the approval of the terms thereof and each of the
other actions contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance thereof and hereof; (ii) against any action or
agreement that would result in a breach in any material respect of any covenant,
representation or warranty or any other obligation or agreement of the Company
under the Merger Agreement or this Agreement; and (iii) except as otherwise
agreed to in writing in advance by Cordiant, against the following actions
(other than the Merger and the transactions contemplated by the Merger
Agreement): (A) any extraordinary corporate transaction, such as a merger,
consolidation or other business combination involving the Company or its
Subsidiaries; (B) a sale, lease or transfer of a material amount of assets of
the Company or its Subsidiaries, or a reorganization, recapitalization,
dissolution or liquidation of the Company or its Subsidiaries; (C) any change in
a majority of the persons who constitute the board of directors of the Company;
(D) any change in the present capitalization of the Company or any amendment of
the Company's Certificate of Incorporation or Bylaws; (E) any other material
change in the Company's corporate structure or business; or (F) any other action
involving the Company or its Subsidiaries which is intended, or could reasonably
be expected, to materially impede, interfere with, delay, postpone, or
materially adversely affect the Merger and the transactions contemplated by this
Agreement and the Merger Agreement. The Stockholder shall not enter into any
agreement or understanding with any Person the effect of which would be
inconsistent with or violative of the provisions and agreements contained in
this Section 2.
(b) The obligations of the Stockholders under clauses (i), (ii) and
(iii)(C), (D), (E) and (F) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and the termination of the Merger Agreement in
accordance with its terms. The obligations of the Stockholder under
clause (iii)(A) and (B) of this Section 2 shall terminate on the earlier to
occur of the Effective Time and 120 days after the termination of the Merger
Agreement in accordance with its terms (unless the Merger Agreement is
terminated by reason of the failure to obtain Parent Shareholders' Approval in
which case the Stockholder's obligations under this Section 2 shall terminate
simultaneously with the termination of the Merger Agreement).
3. OPTION TO PURCHASE. In order to induce Cordiant and Sub to enter into
the Merger Agreement, the Stockholder hereby grants to Sub an irrevocable option
(the "Stock Options") to purchase, all, and not less than all, of the Shares at
a purchase price per share equal to the Share Value, payable in cash (the
"Purchase Price"), solely upon, and subject to, the terms and conditions set
forth below. The Stock Options may only be exercised if Sub simultaneously
exercises all other options
M-2
held by it to purchase all, and not less than all, of the shares of Common Stock
covered by such options. The Stock Options shall become exercisable solely in
the event that the Merger Agreement is terminated pursuant to
(i) Section 9.1(b)(ii) thereof, but only if the basis for such termination is
the failure to obtain the Company Stockholder Approval or
(ii) Section 9.1(b)(iii) thereof, but only if the basis for such termination is
a breach by the Company, or the Stockholder materially breaches any agreement
contained in this Agreement, in which event the Stock Options shall, in any such
case, become immediately exercisable at any time and from time to time upon such
termination or upon Cordiant and Sub being informed of such breach, as the case
may be, and until the date which is 20 days after the date of such termination
or the date on which Cordiant and Sub are informed of such breach, as the case
may be, provided, that if at the expiration of such 20-day period the Stock
Options cannot be exercised by reason of any preliminary or final injunction or
other order issued by any court or governmental, administrative or regulatory
agency or authority prohibiting the exercise of the Stock Options pursuant to
this Agreement, or because all waiting periods under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), required for the
purchase of the Shares upon such exercise shall not have expired or been waived,
the Stock Options shall be exercisable until 10 business days after the later of
the date on which such impediment to exercise shall have been removed or shall
have become final and not subject to appeal. In all other instances, the Stock
Options shall terminate upon the termination of the Merger Agreement. In the
event that Cordiant wishes to exercise the Stock Options, Cordiant shall send a
written notice (the "Notice") to the Stockholder identifying the place (which
shall be in New York City for each Stockholder who is a resident of the United
States and in London for each Stockholder who is a resident of the United
Kingdom) and date (not less than two business days nor greater than ten business
days from the date of the Notice) for the closing of such purchase. At such
closing, Cordiant shall receive certificates for the Shares, duly endorsed for
transfer, and shall make payment therefor by wire transfer of immediately
available funds.
4. DISPOSITION OF PARENT SHARES.
(a) RESTRICTIONS ON DISPOSITION. The Stockholder hereby agrees, except
as permitted in this Section 4(a) and Section 4(b) below, not to directly or
indirectly, offer to sell, contract to sell, transfer, assign, cause to be
redeemed or otherwise sell or dispose of any of the Parent Shares (collectively
a "Disposition") received by the stockholder in connection with the Merger
without the prior written consent of Cordiant. Notwithstanding anything to the
contrary provided in this Agreement, the Stockholder shall have the right to
transfer Parent Shares (i) to any Family Member, (ii) to the trustee or trustees
of a trust solely (except for remote contingent interests) for the benefit of
the Stockholder and/or one or more Family Members and/or a charitable
organization (a "Family Member Trust"), (iii) to a foundation created or
established by the Stockholder, or any other charitable organization, (iv) to a
corporation of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the outstanding capital stock, (v) to a limited
liability company of which the Stockholder and/or any Family Member and/or any
Family Member Trust owns all of the outstanding membership interests, (vi) to a
partnership of which the Stockholder and/or any Family Member and/or any Family
Member Trust owns all of the partnership interests, (vii) to the executor,
administrator or personal representative of the estate of the Stockholder or any
other Family Member, or (viii) to any guardian, trustee or conservator appointed
with respect to the assets of the Stockholder, provided, that in the case of any
such transfer, the transferee shall execute an agreement to be bound by the
terms of this Agreement (each such transfer, a "Permitted Transfer" and,
collectively, the "Permitted Transfers"). For purposes of this Agreement,
"Family Member" shall mean (a) the Stockholder's spouse, if living with the
Stockholder, (b) any one of the following: the Stockholder's father, mother,
issue, brother or sister, and the issue of a brother or sister, and (c) the
spouse of any Family Member described in (b) above, if the spouse shall be
living with that Family Member. The Stockholder hereby agrees and consents to
the entry of stop transfer instructions with Cordiant's transfer agent against
the transfer of such Parent Shares except in compliance with this Agreement.
Notwithstanding the foregoing, the Stockholder may pledge, hypothecate or
otherwise grant a security interest in all or a
M-3
portion of the Parent Shares beneficially owned by him during the term of this
Agreement; provided, however, that any Person receiving such Parent Shares shall
be subject to all of the restrictions on Disposition of such Parent Shares
imposed by this Agreement to the same extent as the Stockholder.
(b) PERMITTED DISPOSITIONS. The Stockholder may not effect any
Disposition of Parent Shares received by the Stockholder in connection with the
Merger except as follows: (i) during the twelve-month period immediately
following the Effective Time the Stockholder may effect the Disposition of not
more than 10% of the Parent Shares Beneficially Owned by the Stockholder and
(ii) during the twenty-four-month period immediately following the Effective
Time (the "Period"), the Stockholder may effect the Disposition of not more than
50% of the Parent Shares Beneficially Owned by the Stockholder. Upon the
expiration of the Period, the Stockholder may effect the Dispositions of all or
any portion of the Parent Shares Beneficially Owned by him subject to any
applicable restrictions under the Federal Securities Law and restrictions of
general application under English law, the Listing Rules of the London Stock
Exchange, if applicable, and Cordiant's policies made pursuant to such rules
regarding dealings in Parent Shares by directors and relevant employees of
Cordiant and its subsidiaries, if applicable. Notwithstanding anything to the
contrary contained in this Section 4, the Stockholder hereby agrees that for the
period commencing at the Effective Time and ending on the date which is
180 days after the expiration of the Period, the Stockholder shall give Cordiant
1 business day prior written notice of any intended Disposition of Parent Shares
to be made by the Stockholder and at the request of Cordiant agrees to effect
such Disposition through brokers or other financial intermediaries designated by
Cordiant to maintain an orderly trading market for the Parent Shares, provided
that such financial intermediary agrees to effect and does effect the
Disposition in a reasonable period following such notice.
5. REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDER. The Stockholder
hereby represents and warrants to each of Cordiant and Sub as follows:
(a) OWNERSHIP OF SHARES. The Stockholder is the record holder of or
Beneficially Owns the Shares. On the date hereof, the Shares constitute all of
the shares of Common Stock owned of record or Beneficially Owned by the
Stockholder (excluding any Stock Options (as defined in the Merger Agreement)
held by the Stockholder). The Stockholder has sole voting power and sole power
to issue instructions with respect to the matters set forth in Section 2 hereof,
sole power of disposition, sole power of conversion, sole power to exercise
dissenters' rights and sole power to agree to all of the matters set forth in
this agreement, in each case with respect to all of the Shares, with no
limitations, qualifications or restrictions on such rights, subject to
applicable securities laws and the terms of this Agreement.
(b) POWER; BINDING AGREEMENT. The Stockholder has the legal capacity,
power and authority to enter into and perform all of his obligations under this
Agreement. The execution, delivery and performance of this Agreement by the
Stockholder will not violate any other Agreement to which the Stockholder is a
party including, without limitation, any voting agreement, shareholders
agreement or voting trust. This Agreement has been duly and validly executed and
delivered by the Stockholder and constitutes a valid and binding agreement of
the Stockholder, enforceable against the Stockholder in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought. There is no beneficiary or holder
of a voting trust certificate or other interest of any trust of which the
Stockholder is trustee whose consent is required for the execution and delivery
of this agreement or the consummation by the Stockholder of the transactions
contemplated hereby. If the Stockholder is married and the Stockholder's Shares
constitute community property, this agreement has been duly authorized, executed
and delivered by, and constitutes a valid and binding agreement of, the
Stockholder's spouse, enforceable against such Person in accordance with its
terms except that such enforceability (i) may be limited by bankruptcy,
M-4
insolvency, moratorium or other similar laws relating to the enforcement of
creditors' rights generally and (ii) is subject to general principles of equity
and discretion of the court before which any proceedings seeking injunctive
relief or specific performance may be sought.
(c) NO CONFLICTS. Except for filings, permits, authorizations,
consents and approvals under the HSR Act and the Securities Act of 1933, if
applicable, (A) no filing with, and no permit, authorization, consent or
approval of, any state or federal public body or authority is necessary for the
execution of this Agreement by the Stockholder and the consummation by the
Stockholder of the transactions contemplated hereby and (B) none of the
execution and delivery of this Agreement by the Stockholder, the consummation by
the Stockholder of the transactions contemplated hereby or compliance by the
Stockholder with any of the provisions hereof shall, in a manner which would be
material and adverse to the ability of the Stockholder to consummate the
transactions contemplated hereby or to comply with the terms hereof, result in a
violation or breach of, or constitute (with or without notice or lapse of time
or both) a default (or give rise to any third party right of termination,
cancellation, material modification or acceleration) under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, commitment, arrangement, understanding, agreement or other instrument
or obligation of any kind to which the Stockholder is a party or by which the
Stockholder or any of the Stockholder's properties or assets may be bound, or
(3) violate any order, writ, injunction, decree, judgment, order, statute, rule
or regulation applicable to the Stockholder or any of the Stockholder's
properties or assets.
(d) NO ENCUMBRANCES. Except as applicable in connection with the
transactions contemplated hereby or as set forth on Schedule B attached hereto,
the Shares and the certificates representing the Shares are now, and at all
times during the term hereof will be, held by the Stockholder, or by a nominee
or custodian for the benefit of the Stockholder, free and clear of all liens,
claims, security interests, proxies, voting trusts or agreements, understandings
or arrangements or any other encumbrances whatsoever, except for any such
encumbrances or proxies arising hereunder in favor of Cordiant.
(e) NO FINDER'S FEES. No broker, investment banker, financial adviser
or other person is entitled to any broker's, finder's, financial adviser's or
other similar fee or commission in connection with the transactions contemplated
hereby based upon arrangements made by or on behalf of the Stockholder other
than Bear Stearns & Co. Inc., the fees and expenses of which shall be paid by
the Company.
(f) RELIANCE BY CORDIANT AND SUB. The Stockholder understands and
acknowledges that Cordiant and Sub are entering into the Merger Agreement in
reliance upon the Stockholder's execution and delivery of this Agreement.
6. ADDITIONAL COVENANTS OF THE STOCKHOLDER. The Stockholder hereby
covenants to each of Cordiant and Sub as follows:
(a) NO SOLICITATION. Subject to the provisions contained in
Section 10 of this Agreement, the Stockholder shall not, in his capacity as
such, directly or indirectly, solicit (including by way of furnishing
information) or respond to any inquiries or the making of any proposal by any
Person or entity (other than Cordiant or any affiliate of Cordiant) with respect
to the Company that constitutes a Takeover Proposal. If the Stockholder receives
any such inquiry or proposal, then the Stockholder shall promptly inform
Cordiant of the existence thereof. The Stockholder will immediately cease and
cause to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
(b) RESTRICTION ON TRANSFER OF SHARES, PROXIES AND
NON-INTERFERENCE. Beginning on the date hereof and ending on the later to occur
of (A) last date the Stock Options are exercisable pursuant to Section 3 hereof
and (B) the date that all of the Stockholder's obligations under Section 2 have
M-5
terminated, except as contemplated by this Agreement or the Merger Agreement, no
Stockholder shall, directly or indirectly, (i) offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, or enter into any
contract, option or other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer, tender, pledge, encumbrance,
assignment or other disposition of, any or all of the Shares or any interest
therein; (ii) except as contemplated by this Agreement, grant any proxies or
powers of attorney, deposit any of the Shares into a voting trust or enter into
a voting agreement with respect to any of the Shares; or (iii) take any action
that would make any representation or warranty of the Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling the
Stockholder from performing the Stockholder's obligations under this Agreement.
Notwithstanding anything to the contrary provided in this Agreement, a
Stockholder shall have the right to make Permitted Transfers of Shares. The
Stockholder agrees with, and covenants to, Sub that beginning on the date hereof
and ending on the last date the Stock Options are exercisable pursuant to
Section 3 hereof, the Stockholder shall not request that the Company register
the transfer (book-entry or otherwise) of any certificate or uncertificated
interest representing any of the Shares, unless such transfer is made in
compliance with this Agreement (including the provisions of Section 2 hereof).
(c) ADDITIONAL SHARES. The Stockholder agrees, while this Agreement is
in effect (i) to notify Cordiant and Sub promptly of the number of any shares of
Common Stock acquired by the Stockholder after the date hereof (the "Additional
Shares") and (ii) to vote such Additional Shares in accordance with Section 2
hereof. Such Additional Shares shall also be subject to the Stock Option granted
to Sub pursuant to Section 3 hereof and the restriction contained in
Section 6(b)(i) and (ii) above.
7. REPRESENTATIONS AND WARRANTIES OF CORDIANT AND SUB. Cordiant and Sub
hereby covenant, represent and warrant to the Stockholder that each of Cordiant
and Sub has the legal capacity, power and authority to enter into and perform
all of such party's obligations under this Agreement; the execution, delivery
and performance of this Agreement by Cordiant and Sub will not violate or result
in a breach of any other material agreement to which Cordiant or Sub is a party;
the execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby (i) have been duly authorized by the board of
directors of Cordiant and Sub, and (ii) do not and will not violate any
provision of the certificate of incorporation or by-laws of Cordiant or Sub; and
this Agreement has been duly and validly executed and delivered by each of
Cordiant and Sub and constitutes a valid and binding agreement of such party,
enforceable against such party in accordance with its terms.
8. FURTHER ASSURANCES. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional reasonable documents and take all such further reasonable lawful
action as may be necessary or desirable to consummate and make effective, in the
most expeditious manner practicable, the transactions contemplated by this
Agreement.
9. TERMINATION; EXPENSES AND FEE. (a) The covenants and agreements
contained herein with respect to the Shares shall terminate (i) in the event the
Merger Agreement is terminated in accordance with its terms, upon such
termination, except that the provisions of Sections 2, 3 and 6(b) hereof shall
survive any such termination solely in accordance with their terms and (ii) in
the event the Merger is consummated, at the Effective Time, except that the
provisions of Section 4 hereof shall survive any such termination, provided, in
each case, that the provisions of Section 12 and Section 13 hereof shall survive
any termination of this Agreement, and provided, further, that no termination of
this Agreement shall relieve any party of liability for a breach hereof.
(b) Each party shall bear its own expenses in connection with this
Agreement and the transactions contemplated hereby.
M-6
10. STOCKHOLDER CAPACITY. The Stockholder is not executing this Agreement
and does not make any agreement or understanding herein in his or her capacity
as a director or officer of the Company and nothing contained herein shall limit
or affect any actions taken by the Stockholder in his capacity as a director or
officer of the Company to the extent such action is permitted by, or not
prohibited by, the Merger Agreement, and none of such actions in such capacities
shall be deemed to constitute a breach of this Agreement. The Stockholder signs
solely in his capacity as the record and beneficial owner of, or the trustee of
a trust whose beneficiaries are the beneficial owners of, the Shares.
11. SOPHISTICATION. The Stockholder acknowledges that he is an informed
and sophisticated investor and, together with his advisors, has undertaken such
investigation as they have deemed necessary, including the review of the Merger
Agreement and this Agreement, to enable the Stockholder to make an informed and
intelligent decision with respect to the Merger Agreement and this Agreement and
the transactions contemplated thereby and hereby.
12. CONFIDENTIALITY. Each of the parties hereto recognizes that successful
consummation of the transactions contemplated by this Agreement may be dependent
upon confidentiality with respect to the matters referred to herein. In this
connection, pending public disclosure thereof, each party hereby agrees not to
disclose or discuss such matters with anyone not a party to this Agreement or
the Merger Agreement (other than such party's counsel and advisors, if any)
without the prior written consent of the other party, except for filings
required pursuant to the Exchange Act and the rules and regulations thereunder
or disclosures such party's counsel advises are necessary in order to fulfill
such party's obligations imposed by law, in which event such party shall give
notice of such disclosure to the other party as promptly as practicable so as to
enable the other party to seek a protective order from a court of competent
jurisdiction with respect thereto.
13. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement and the Merger Agreement
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
(b) CERTAIN EVENTS. The Stockholder agrees that this Agreement and the
obligations hereunder shall attach to the Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including, without
limitation, the Stockholder's heirs, guardians, administrators or successors,
provided, that following the Effective Time, this Agreement shall not be binding
on any purchaser of Shares in a transaction made in compliance with
Section 4(b), other than Permitted Transfers. Notwithstanding any transfer of
Shares, the transferor shall remain liable for the performance of all
obligations under this Agreement of the transferor.
(c) CHANGE IN CONTROL. In the event that after the Effective Time
(i) any Person or group of Persons acting in concert (as defined in the City
Code on Take-overs and Mergers in the United Kingdom) acquires an interest in
the equity share capital of Cordiant (an "Acquiring Person") and, immediately
following such acquisition, such person, or group, holds shares entitled to
exercise more than 50% of the votes which may be cast at a general meeting of
Cordiant or (ii) a majority of the board of directors of Cordiant immediately
prior to such Person becoming an Acquiring Person, cease to thereafter
constitute a majority of the board of directors of Cordiant (other than through
elections of directors whose nomination for election by the shareholders of
Cordiant were approved by the vote of a majority of directors of Cordiant who
were either directors prior to a Person becoming an Acquiring Person or whose
election or nomination for election was so previously approved), then the
restrictions on Dispositions contained in Section 4, shall terminate without any
action on the part of any party hereto.
M-7
(d) ASSIGNMENT. This Agreement shall not be assigned by operation of
law or otherwise without the prior written consent of the other party, provided,
that Cordiant or Sub may assign, in its sole discretion, its rights and
obligations hereunder to any direct or indirect wholly owned subsidiary of
Cordiant, but no such assignment shall relieve Cordiant or Sub of its
obligations hereunder if such assignee does not or cannot perform such
obligations.
(e) AMENDMENTS, WAIVERS, ETC. This Agreement may not be amended,
changed, supplemented, waived or otherwise modified or terminated, except upon
the execution and delivery of a written agreement executed by the party to be
charged thereby or, with respect to termination, as otherwise provided herein.
(f) NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Stockholder: The Steve Girgenti Charitable Lead Annuity Trust
c/o Healthworld Corporation
100 Avenue of the Americas
New York, New York 10010
Attention: Steven Girgenti
Facsimile: (212) 966-2743
and
If to Cordiant or Cordiant Communications Group plc
Sub to: 121-141 Westbourne Terrace
London W2 6JR
Attention: Deputy Finance Director
Facsimile: +44-171-262-4300
copy to: White & Case LLP
1155 Avenue of the Americas
New York, New York 10036-2787 Attention: Timothy B. Goodell,
Esq.
Facsimile: (212) 354-8113
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
(g) SEVERABILITY. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
(h) SPECIFIC PERFORMANCE. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the aggrieved party to sustain damages for which it
would not have an adequate remedy at law for money damages, and therefore each
of the parties hereto agrees that in the event of any such breach the aggrieved
party
M-8
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
(i) REMEDIES CUMULATIVE. All rights, powers and remedies provided
under this Agreement or otherwise available in respect hereof at law or in
equity shall be cumulative and not alternative, and the exercise of any thereof
by any party shall not preclude the simultaneous or later exercise of any other
such right, power or remedy by such party.
(j) NO WAIVER. The failure of any party hereto to exercise any right,
power or remedy provided under this Agreement or otherwise available in respect
hereof at law or in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or practice of the parties
at variance with the terms hereof, shall not constitute a waiver by such party
of its right to exercise any such or other right, power or remedy or to demand
such compliance.
(k) NO THIRD PARTY BENEFICIARIES. This Agreement is not intended to be
for the benefit of, and shall not be enforceable by, any person or entity who or
which is not a party hereto.
(l) GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of New York, without giving effect to the
principles of conflicts of law thereof.
(m) JURISDICTION. Each party hereby irrevocably submits to the
exclusive jurisdiction of the Court of Chancery in the State of Delaware or the
United States District Court for the Southern District of New York or any court
of the State of New York located in the City of New York in any action, suit or
proceeding arising in connection with this Agreement, and agrees that any such
action, suit or proceeding shall be brought only in such court (and waives any
objection based on forum non conveniens or any other objection to venue
therein); provided, however, that such consent to jurisdiction is solely for the
purpose referred to in this paragraph (1) and shall not be deemed to be a
general submission to the jurisdiction of said Courts or in the States of
Delaware or New York other than for such purposes. Each party hereto hereby
waives any right to a trial by jury in connection with any such action, suit or
proceeding.
(n) DESCRIPTIVE HEADINGS. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
(o) COUNTERPARTS. This Agreement may be executed in counterparts, each
of which shall be deemed to be an original, but all of which, taken together,
shall constitute one and the same Agreement.
[SIGNATURES BEGIN ON NEXT PAGE]
M-9
IN WITNESS WHEREOF, Cordiant, Sub and the Stockholder have caused this
Agreement to be duly executed as of the day and year first above written.
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
HEALTHWORLD ACQUISITION CORP.
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
THE STEVE GIRGENTI CHARITABLE LEAD ANNUITY
TRUST
By: /s/ STEVEN GIRGENTI
-----------------------------------------
Name: Steven Girgenti
Title: Trustee
M-10
APPENDIX N
[Bear Stearns & Co. Letterhead]
November 8, 1999
The Board of Directors
Healthworld Corporation
100 Avenue of the Americas
New York, NY 10013
Gentlemen:
We understand that Healthworld Corporation ("Healthworld") and Cordiant
Communications Group plc ("Cordiant") are considering entering into an Agreement
and Plan of Merger (the "Agreement"), pursuant to which a newly-formed,
wholly-owned subsidiary of Cordiant would be merged with and into Healthworld in
a stock-for-stock exchange (the "Merger"). You have provided us with a draft
copy of the Agreement in substantially final form. Pursuant to the Merger, each
outstanding share of common stock of Healthworld would be converted into the
right to receive a certain number of ordinary shares of Cordiant. The number of
ordinary shares of Cordiant to be issued in exchange for Healthworld common
shares shall be based on an exchange ratio (the "Exchange Ratio") as provided
for in the Agreement. The Exchange Ratio shall be determined as follows:
(i) if the Cordiant Share Value (referred to as "Parent Share Value" in the
Merger Agreement) is greater than $3.4838, then the Exchange Ratio shall
be determined by dividing $23.00 by the Cordiant Share Value;
(ii) if the Cordiant Share Value is greater than $3.0294 and equal to or
less than $3.4838, then the Exchange Ratio shall be 6.602;
(iii) if the Cordiant Share Value is equal to or greater than $2.9475 and
equal to or less than $3.0294, then the Exchange Ratio shall be
determined by dividing $20.00 by the Cordiant Share Value;
(iv) if the Cordiant Share Value is equal to or greater than $2.5054 and
less than $2.9475, then the Exchange Ratio shall be 6.7854; and
(v) if the Cordiant Share Value is less than $2.5054, then the Exchange
Ratio shall be determined by dividing $17.00 by the Cordiant Share
Value.
In the event that the Cordiant Share Value is equal to or less than $2.2106,
Cordiant shall have the right to terminate the Agreement (the "Walkaway Right").
In the event that Cordiant informs Healthworld that it intends to exercise such
Walkaway Right, Healthworld can elect to accept an Exchange Ratio of 7.6902. If
Healthworld makes such election, Cordiant will not be able to exercise its
Walkaway Right.
In connection with the Merger, we understand that pursuant to a series of
stockholder agreements to be entered into at the time the Agreement is executed
(the "Stockholder Agreements"), certain shareholders owning approximately 63% of
Healthworld's common stock have agreed to vote their shares (i) in favor of the
Merger and (ii) against any potentially competing transaction. We also
N-1
understand that such shareholders have agreed to grant Cordiant an irrevocable
option, exercisable in certain specified circumstances, to acquire their
outstanding shares for 100% cash at a price implied by the Exchange Ratio. You
have provided us with a copy of the Stockholder Agreements in substantially
final form.
You have asked us to render our opinion as to whether the Exchange Ratio is
fair, from a financial point of view, to the public shareholders of Healthworld.
In the course of performing our review and analyses for rendering this
opinion, we have:
- reviewed drafts of the Agreement and the Stockholder Agreement, both
dated November 7, 1999;
- reviewed Healthworld's Annual Reports to Shareholders and Annual
Reports on Form 10-K for the years ended December 31, 1996 through 1998
and its Quarterly Reports on Forms 10-Q for the periods ended
March 31, 1999 and June 30, 1999;
- reviewed certain operating and financial information, including
projections, provided to us by management relating to Healthworld's
business and prospects;
- met with certain members of Healthworld's senior management to discuss
Healthworld's business, operations, historical and projected financial
results and future prospects;
- reviewed Cordiant's Annual Reports to Shareholders and Annual Reports
on Form 20-F for the years ended December 31, 1996 through 1998 and its
Interim Report on Form 6-F for the period ended June 30, 1999;
- reviewed certain operating and financial information, including
projections, provided to us by management relating to Cordiant's
business and prospects;
- met with certain members of Cordiant's senior management to discuss
Cordiant's business, operations, historical and projected financial
results and future prospects;
- reviewed estimates of cost savings and other combination benefits
expected to result from the Merger, jointly prepared and provided to us
by the senior managements of Healthworld and Cordiant;
- reviewed the historical prices, valuation parameters and trading volume
of the common or ordinary shares, as the case may be, of Healthworld
and Cordiant;
- reviewed publicly available financial data, stock market performance
data and valuation parameters of companies which we deemed generally
comparable to Healthworld and Cordiant;
- reviewed the terms of recent acquisitions of companies which we deemed
generally comparable to Healthworld;
- reviewed the pro forma financial results, financial condition and
capitalization of Cordiant, giving effect to the Merger; and
- conducted such other studies, analyses, inquiries and investigations as
we deemed appropriate.
We have relied upon and assumed, without independent verification, the
accuracy and completeness of the financial and other information, including
without limitation the projections and synergy estimates, provided to us by
Healthworld and Cordiant. With respect to Healthworld's and Cordiant's projected
financial results and the potential synergies that could be achieved upon
consummation of the Merger, we have assumed that they have been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the senior managements of
N-2
Healthworld and Cordiant as to the expected future performance of Healthworld
and Cordiant, respectively. We have not assumed any responsibility for the
independent verification of any such information or of the projections and
synergy estimates provided to us, and we have further relied upon the assurances
of the senior managements of Healthworld and Cordiant that they are unaware of
any facts that would make the information, projections and synergy estimates
provided to us incomplete or misleading.
In arriving at our opinion, we have not performed or obtained any
independent appraisal of the assets or liabilities of Healthworld and Cordiant,
nor have we been furnished with any such appraisals. During the course of our
engagement, we were asked by the Board of Directors to solicit indications of
interest from various third parties regarding a transaction with Healthworld,
and we have considered the results of such solicitation in rendering our
opinion. We have assumed that the Merger will qualify as a tax-free
"reorganization" within the meaning of Section 368(a) of the Internal Revenue
Code of 1986, as amended. Our opinion is necessarily based on economic, market
and other conditions, and the information made available to us, as of the date
hereof.
We do not express any opinion as to the price or range of prices at which
the shares of common stock or ordinary stock of Healthworld and Cordiant, as the
case may be, may trade subsequent to the announcement of the Merger or as to the
price or range of prices at which the shares of stock of Cordiant may trade
subsequent to the consummation of the Merger.
We have acted as a financial advisor to Healthworld in connection with the
Merger and will receive a fee for such services. In the ordinary course of
business, Bear Stearns may actively trade the equity and debt securities of
Healthworld and/or Cordiant for our own account and for the account of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
It is understood that this letter is intended for the benefit and use of the
Board of Directors of Healthworld and does not constitute a recommendation to
the Board of Directors of Healthworld or any holders of Healthworld common stock
as to how to vote in connection with the Merger. This opinion does not address
Healthworld's underlying business decision to pursue the Merger. This letter is
not to be used for any other purpose, or reproduced, disseminated, quoted to or
referred to at any time, in whole or in part, without our prior written consent;
provided, however, that this letter may be included in its entirety in any proxy
statement to be distributed to the holders of Healthworld common stock in
connection with the Merger.
Based on and subject to the foregoing, it is our opinion that, as of the
date hereof, the Exchange Ratio is fair, from a financial point of view, to the
public shareholders of Healthworld.
Very truly yours,
BEAR, STEARNS & CO. INC.
By: /s/ KEVIN CLARKE
-------------------------------------------
Senior Managing Director
N-3
APPENDIX O
EMPLOYMENT AGREEMENT
AGREEMENT, dated as of November 9, 1999 between Healthworld Corporation, a
Delaware corporation ("Employer"), and Steven Girgenti ("Executive").
W I T N E S S E T H:
WHEREAS, Employer desires to retain the services of Executive and Executive
desires to be employed by Employer upon the terms and conditions hereinafter set
forth.
WHEREAS, Employer has entered into an Agreement and Plan of Merger dated as
of November 9, 1999, with Cordiant Communications Group plc ("Cordiant"), and
Waterloo Acquisition Corp. (the "Merger Agreement;" terms used herein and not
otherwise defined herein shall have the meaning given to such terms in the
Merger Agreement).
WHEREAS, this Agreement is conditioned and shall commence only upon the
Effective Time (as defined in the Merger Agreement) (the "Effective Date").
NOW, THEREFORE, in consideration of the agreements herein contained, the
parties hereto agree as follows:
1. EMPLOYMENT. Employer hereby employs Executive at its New York City
office (subject to normal travel requirements), and Executive hereby agrees to
serve, as President, Chief Executive Officer and Chairman of Employer during the
Term of Employment (as hereinafter defined). Executive agrees to perform such
services customary to such office as are reasonably required for the operations
of Employer and such other services as shall from time to time be assigned to
Executive by Employer's Board of Directors (the "Board"). Executive shall report
to the Chief Executive Officer of Cordiant. at all times during which Executive
is in the employ of Employer. Executive shall devote substantially all of his
time and attention during normal business hours to the business and affairs of
Employer during the Term of Employment.
2. TERM OF EMPLOYMENT. (a) The employment hereunder shall be for the
period (the "Term of Employment") which shall commence on the Effective Date and
shall end on the second anniversary of the Effective Date (the "Term of
Employment"). Upon the expiration of the Term of Employment, Executive's
employment shall continue upon the terms of and in accordance with this
Agreement until such time as the employment of Executive is ended (i) as set
forth in paragraph 2(b), or (ii) by Executive upon giving 12 months prior
written notice (the "Notice") to Employer of Executive's desire to terminate
this Agreement; PROVIDED, HOWEVER, subject to paragraph 2(b), Executive may not
provide the Notice prior to the expiration of the Term of Employment.
(b) Notwithstanding anything to the contrary contained in this
Agreement, this Agreement will terminate upon the death of Executive. In
addition, this Agreement may be terminated (i) at the option of Employer upon
30 days' prior written notice to Executive, in the event of the Disability (as
defined below) of Executive, (ii) upon the discharge of Executive by Employer
for Cause (as defined below) upon not less than 20 days prior written notice to
Executive specifying in reasonable detail the grounds therefore, (iii) by
Employer other than for Cause upon the payment of the amount contemplated in
paragraph 4(h); or (iv) upon voluntary termination by Executive with Good Reason
(as defined below).
O-1
3. DEFINITIONS. For purposes of this Agreement the following terms shall
have the following meanings:
(a) "CAUSE" shall mean:
(i) Executive's willful failure or refusal, after notice thereof, to
perform specific directives of the Board of Directors of Employer, when
such directives are consistent with the scope and nature of Executive's
duties and responsibilities as set forth in paragraph 1 hereof;
(ii) Willful dishonesty of Executive affecting Employer;
(iii) Drunkenness or use of drugs which interfere with performance of
Executive's obligations under this Agreement, continuing after notice
thereof;
(iv) Executive's conviction of a felony or of any crime involving
moral turpitude or fraud;
(v) Any willful conduct of Executive resulting in substantial loss to
Employer, substantial damage to Employer's reputation or theft or
defalcation from Employer;
(vi) Any material breach (not covered by any of subparagraphs
(i) through (v) above), of any of the provisions of this Agreement if
such breach is not cured within twenty (20) days after written notice
thereof to Executive by Employer.
Any act or failure to act by Executive which is done, or omitted to be done,
by him in good faith and for a purpose of which he reasonably believed to be in
the best interests of Employer shall not be deemed to be willful.
(b) "GOOD REASON" shall mean without Executive's express written
consent, the occurrence of any of the following events:
(i) any of (a) the assignment to Executive of any duties inconsistent
in any material respect with Executive's position(s), duties,
responsibilities or status with Employer during the Term of Employment or
(b) a material change in Executive's reporting responsibilities, titles
or offices with Employer during the Term of Employment;
(ii) a reduction by Employer in Executive's Base Salary during the
Term of Employment or as the same may be increased from time to time
thereafter; or
(iii) (a) a relocation of Executive's work location by more than 25
miles from the location of Employer's offices in New York City during the
Term of Employment (b) travel on Company business to an extent
substantially more burdensome than the travel practices of Executive as
the Chief Executive Officer of Healthworld Corporation prior to the
Effective Time.
(c) "DISABILITY" shall be deemed to have occurred if Executive is
unable, by reason of physical or mental incapacity or disability, to render the
services to be rendered by him pursuant to this Agreement for a continuous
period of one hundred eighty (180) successive days.
4. COMPENSATION.
(a) BASE SALARY. As compensation for services hereunder, during the
Term of Employment, Employer shall pay Executive an annual salary of $500,000
(the "Base Salary"), which shall be payable in appropriate installments to
conform with the regular payroll dates for salaried senior executives of
Employer. Executive shall be entitled to such annual increases in the Base
Salary as may be determined from time to time by Employer's Board of Directors
in a manner no less favorable than that used for other senior executives of
Employer.
(b) BONUS PAYMENTS. In addition to the Base Salary, Employer shall pay
to Executive bonus compensation for the periods and in the amounts set forth on
Schedule A attached hereto, subject to
O-2
satisfaction of the performance targets set forth in Schedule A. Each bonus
shall be payable as and when bonuses are paid by Employer to its employees
generally but in no event later than April 15 after the applicable calendar year
except as otherwise agreed to by Executive and Employer.
(c) STOCK OPTIONS. Executive shall be granted options to purchase up
to 275,000 ordinary shares of Cordiant on the Effective Date of this Agreement
and such options shall vest in accordance with the terms of the Millennium PSOS
Plan established by Cordiant.
(d) EXECUTIVE BENEFIT PLANS. During the Term of Employment, Executive
shall be eligible to participate in those benefit plans which Employer shall
make available to its employees generally, and those which it shall make
available to its senior executive officers generally, according to the terms and
administration of said plans, including, but not limited to health and
disability insurance coverage.
(e) VEHICLE. Employer shall provide Executive, at Employer's expense,
with the use of a leased recent model automobile of Executive's choosing.
Employer shall reimburse Executive for up to $800 per month for lease payments
incurred in connection with leasing an automobile. Such automobile shall be
replaced every three years, provided that Executive continues to be employed by
Employer, with a then recent model vehicle which is at least comparable to the
vehicle being replaced. Employer shall pay for the maintenance and insurance for
such automobile, and shall provide Executive, at Employer's expense, with the
use of a parking space in the vicinity of Employer's offices.
(f) CLUB FEES. During the Term of Employment, Employer shall reimburse
Executive up to $7,000 for each calendar year, for membership dues in a club of
Executive's choosing.
(g) VACATION. Executive shall be entitled to four (4) weeks paid
vacation annually, calculated and taken in accordance with Employer's normal
vacation policies, plus such paid holidays and sick days as are provided by
Employer under its policies applicable to senior executives in effect from time
to time.
(h) PAYMENT UPON EARLY TERMINATION. In the event of early termination
of employment (a "Termination Date") for any reason specified in paragraph 2(b)
(other than clause (iii) or (iv) of the second sentence of paragraph 2(b))
hereof, Employer shall no longer be obligated to make any salary payments of any
kind whatsoever to Executive or Executive's estate. However, any Base Salary
payments earned but not yet paid to the Termination Date, as well as any Bonus
accrued but not yet paid shall be made by Employer to Executive or Executive's
estate as may be applicable. Upon and after termination of employment for
whatever reason specified in paragraph 2 hereof, Executive shall be entitled to
such benefits other than salary payments to which Executive has become entitled,
through and including the last day of his employment, under the terms of any
plan, bonus arrangement or program referred to in this paragraph 4 and
paragraph 8 below. If Executive's employment is terminated without Cause by
Employer or for Good Reason by Executive, Employer shall pay to Executive the
Base Salary for the longer of (i) the remainder of the Term of Employment and
(ii) 12 months following the Termination Date, (iii) a sum equal to the cost
Employer would have incurred in providing Executive with the benefits set forth
above in paragraphs 4(c), (d), (e), (f) and (g) and (iv) any bonuses due to him
pursuant to paragraph 4(b) with respect to the period prior to the Termination
Date together with an amount equal to the bonuses Executive would have received
had the Term of Employment continued for the longer of (i) the remainder of the
Term of Employment and (ii) 12 months after the Termination Date.
5. NON-DISPARAGEMENT. During the Term of Employment and thereafter,
Executive shall not take any action to disparage or criticize to any third
parties any of the products or services of Employer or any of its subsidiaries
or affiliates or to commit any other action that injures or hinders the business
relationship of Employer or any of its subsidiaries or affiliates.
O-3
6. COVENANT NOT TO COMPETE; INTELLECTUAL PROPERTY; CONFIDENTIALITY.
(a) COVENANT NOT TO COMPETE. During the Term of Employment and for one
year after termination of the Employment Agreement, Executive will not, within
any jurisdiction in which Employer or any affiliate is duly qualified to do
business, or within any marketing area, which shall in no event be larger than a
state, in which Employer or any affiliate is doing a substantial amount of
business:
(i) directly or indirectly own, manage, operate, control, be employed
by or participate in the ownership, management, operation or control of,
or be connected in any manner with, any business of the type and
character engaged in and competitive with that conducted by Employer. For
these purposes, Executive's ownership of securities of a public company
not in excess of 2% of any class of such securities shall not be
considered to be competition with Employer;
(ii) attempt in any manner to persuade any client of Employer, which
was a client during Executive's employment with Employer, to cease to do
business with Employer or to reduce the amount of business which any such
client has customarily done or contemplates doing with Employer, whether
or not the relationship with Employer and such client was originally
established in whole or in part through Executive's efforts;
(iii) attempt in any manner to persuade any potential client to which
Employer has made a presentation, or with which Employer has been having
discussions, not to hire Employer, or to hire another agency;
(iv) solicit for Executive or for any other person other than
Employer, the business of any company which is a client of Employer, or
was a client of Employer within twelve (12) months prior to the
termination of Executive's employment;
(v) attempt to persuade any employee of Employer, or any individual
who was its employee during the twelve (12) months prior to Executive's
termination of employment, to leave Employer's employ, or to become
employed by any person other than Employer; or
(vi) (a) render any advertising, marketing or merchandising services
for or in connection with any product, brand or service, which product,
brand or service is competitive with any product, brand or service for
which, or in connection with which, Executive rendered services at any
time during the twelve (12) months immediately preceding the termination
of Executive's employment with Employer, or (b) render any advertising,
marketing or merchandising services, other than on behalf of Employer,
for in connection with any client of Employer for whom Employer rendered
services at any time during the twelve (12) months immediately preceding
the termination of Executive's employment with Employer.
(b) It is the desire and intent of the parties that the provisions of
this paragraph 6 shall be enforced to the fullest extent permissible under the
laws and public policies applied in each jurisdiction in which enforcement is
sought. If any particular provisions or portion of this paragraph 6 shall be
adjudicated to be invalid or unenforceable, this paragraph 6 shall be deemed
amended to delete therefrom such provision or portion adjudicated to be invalid
or unenforceable, such amendment to apply only with respect to the operation of
this paragraph in the particular jurisdiction in which such adjudication is
made.
(c) Since Employer may be irreparably damaged if the provisions of this
paragraph 6 are not specifically enforced, in the event of a breach or
threatened breach of any of the terms of this paragraph 6 by Executive, in
addition to any other remedy that may be available to it, Employer shall be
entitled to injunctive relief without showing that monetary damages will not
provide an adequate remedy.
O-4
7. INTELLECTUAL PROPERTY; CONFIDENTIALITY.
(a) INTELLECTUAL PROPERTY. Executive agrees that all inventions,
innovations, improvements, developments, methods, designs, analyses, drawings,
reports, and all similar or related information which relates to Employer's
actual or anticipated business, research and development or existing or future
products or services and which are conceived, developed or made by Executive
while employed by Employer ("WORK PRODUCT") belong to Employer. Executive will
promptly disclose such Work Product to the Board and perform all actions
reasonably requested by the Board (whether during or after the Term of
Employment) to establish and confirm such ownership (including, without
limitation, assignments, consents, powers of attorney and other instruments).
(b) CONFIDENTIALITY. Executive agrees that he will not divulge to any
one (other than Employer and its affiliates or any persons employed or
designated by Employer or in connection with Executive's duties hereunder) any
knowledge or information of any type whatsoever of a confidential nature
relating to the business of Employer, its clients or any of its affiliates,
including, without limitation, all types of trade secrets (unless readily
ascertainable from public or published information or trade sources). Executive
further agrees not to disclose, publish or make use of any such knowledge or
information of a confidential nature without the prior written consent of
Employer. The provisions of this paragraph 7 shall apply both during the time
that Executive is employed by Employer and thereafter.
8. REIMBURSEMENT OF EXPENSES. Executive shall be entitled to be reimbursed
for travel and other expenses reasonably incurred in connection with Executive's
services to Employer pursuant to and during the term of this Agreement upon a
basis consistent with the published policies of Employer.
9. CONSULTING AGREEMENT. Following the Termination of this Agreement,
other than a termination by Employer for Cause, Executive, at his option, may
enter into a consulting agreement with Employer to provide Employer with certain
consulting services for an annual fee of $50,000 for a period of ten
(10) years.
10. BREACH BY EXECUTIVE. Both parties recognize that the services to be
rendered under this Agreement by Executive are special, unique and extraordinary
in character, and that in the event of a material breach by Executive of the
terms and conditions of this Agreement to be performed by Executive, or in the
event Executive performs services for any person, firm, corporation or other
entity engaged in a competing line of business with Employer, Employer shall be
entitled, if it so elects, to obtain damages for any breach of this Agreement,
or the specific performance thereof by Executive, or to enjoin Executive from
performing services for any such other person, firm, corporation or other
entity.
11. ASSIGNMENT. This Agreement is a personal contract and, except as
specifically set forth herein, the rights and interests of Employer and
Executive herein may not be sold, transferred, assigned, pledged or
hypothecated. The rights and obligations of Employer hereunder shall be binding
upon and run in favor of the successors and assigns of Employer.
12. GOVERNING LAW; CAPTIONS. This Agreement shall be deemed made under and
shall be governed by the substantive laws of the State of New York, excluding
its conflict of laws rules. Paragraph headings are for convenience of reference
only and shall not be considered a part of this Agreement.
13. SEVERABILITY. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability will not affect
any other provision or any other jurisdiction, but this Agreement will be
performed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision had never been contained herein.
O-5
14. AMENDMENTS. This Agreement may not be changed orally, but only by
agreement in writing signed by the party against whom enforcement of any waiver,
change, modification or discharge is sought, and consented to in writing by
Employer.
15. PRIOR AGREEMENTS. This Agreement supersedes and terminates all prior
agreements between the parties relating to the subject matter herein addressed.
16. NOTICES. Any notice to be given concerning this Agreement shall be
given in writing and either: (1) sent by certified or registered mail, postage
prepaid; (2) sent by reputable overnight courier service; or (3) hand delivered
to the recipient personally. In the case of notice sent by mail, the date of the
giving of the notice shall be deemed to be: (1) the date of the postmark if
postmarked by The United States Postal Service; or (2) the date of the actual
receipt if not postmarked by The United States Postal Service. In the case of
notice being sent by overnight courier service, the date of the giving of the
notice shall be deemed to be the date said notice was given to the courier
service as indicated by the records of such courier service. In the case of
notice being hand delivered, a written dated receipt shall be given therefor.
Hand delivery of any notice to Employer shall be delivered to Employer's chief
executive officer personally. Notice by mail or courier service shall be sent as
follows:
If to Executive:
STEVEN GIRGENTI
3312 Judith Drive
Bellmore, New York 11710
If to Employer:
HEALTHWORLD CORPORATION
100 Avenue of the Americas
New York, NY 10013
Attention: Chief Executive Officer
with copies to:
BATES WORLDWIDE, INC.
498 Seventh Avenue
New York, NY 10018
Attention: Chief Executive Officer
and
CORDIANT COMMUNICATIONS GROUP PLC
121-141 Westbourne Terrace
London W2 6JR England
Attention: Company Secretary
By giving notice to the other party, either party may, from time to time,
designate (1) a different address to which notice by mail or courier service to
such party shall be sent and/or (2) a different person to receive notices.
17. WITHHOLDING. The Company shall have the right to withhold from the
Executive's salary and other compensation hereunder all amounts required to be
withheld, including such amounts in respect of any compensation deemed to be
paid to the Executive under federal, state, and local tax laws.
18. ARBITRATION. Except as provided by paragraph 6 of this Agreement, any
dispute or controversy under or in conjunction with this Agreement shall be
settled exclusively by arbitration in New York City by one arbitrator with prior
formal judicial experience in accordance with the rules of JAMS-Endispute, Inc.
then in effect. Judgment may be entered upon the arbitrator's award in any court
having jurisdiction.
O-6
IN WITNESS WHEREOF, Employer has caused its corporate name to be hereunto
subscribed by its officer thereunto duly authorized and Executive has signed
this Agreement, all as of the day and year first above written.
HEALTHWORLD CORPORATION
By: /s/ ARTHUR D'ANGELO
-----------------------------------------
Name: Arthur D'Angelo
Title: President
By: /s/ STEVEN GIRGENTI
-----------------------------------------
Steven Girgenti
Agreed to solely with respect to Paragraph 4(c)
CORDIANT COMMUNICATIONS GROUP PLC
By: /s/ ARTHUR D'ANGELO
----------------------------------------
Name: Arthur D'Angelo
Title: Finance Director
O-7
APPENDIX P
THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. IF YOU ARE
IN ANY DOUBT ABOUT WHAT ACTION YOU SHOULD TAKE, YOU ARE RECOMMENDED TO TAKE YOUR
OWN PERSONAL FINANCIAL ADVICE FROM YOUR STOCKBROKER, BANK MANAGER, SOLICITOR,
ACCOUNTANT OR OTHER PROFESSIONAL ADVISER AUTHORISED UNDER THE FINANCIAL SERVICES
ACT 1986.
If you have sold or transferred all of your CCG Shares you should send this
document together with the accompanying form of proxy to the purchaser or
transferee or to the stockbroker, bank or other agent through whom the sale or
transfer was effected, for transmission to the purchaser or transferee. The
distribution of this document in jurisdictions other than the United Kingdom and
the United States may be restricted by law. Persons into whose possession this
document comes should inform themselves about and observe any such restrictions.
Failure to comply with such restrictions may constitute a violation of the
securities laws of any such jurisdiction.
Copies of this document, which comprises listing particulars relating to the
New CCG Shares in accordance with the Listing Rules made under Section 142 of
the Financial Services Act 1986, have been delivered for registration to the
Registrar of Companies in England and Wales in accordance with Section 149 of
that Act.
- --------------------------------------------------------------------------------
CORDIANT COMMUNICATIONS GROUP plc
(INCORPORATED AND REGISTERED IN ENGLAND NO. 1320869)
CIRCULAR
RELATING TO THE PROPOSED ACQUISITION OF
HEALTHWORLD CORPORATION
AND
LISTING PARTICULARS
RELATING TO THE ISSUE OF NEW CCG SHARES
- --------------------------------------------------------------------------------
Application has been made to the London Stock Exchange for the New CCG
Shares to be admitted to the Official List. Subject to the satisfaction of the
conditions set out in the Merger Agreement, it is expected that such Admission
will become effective and dealings will commence at 8.00 a.m. on 3 March 2000.
The New CCG Shares will only be made available to Healthworld Stockholders and
will not generally be made available or marketed to the public in the United
Kingdom.
Warburg Dillon Read, which is regulated in the UK by The Securities and
Futures Authority Limited, is acting for CCG in connection with the Transaction
and the application for listing of the New CCG Shares and for no-one else and
will not be responsible to anyone other than CCG for providing the protections
afforded to customers of Warburg Dillon Read or for providing advice in relation
to the Transaction.
Notice of an Extraordinary General Meeting of CCG to be held at 121-141
Westbourne Terrace, London W2 6JR at 10.00 a.m. on 1 March 2000 is set out at
the end of this document. A form of proxy is enclosed for use at the Meeting. To
be valid, forms of proxy must be completed and returned in accordance with the
instructions printed thereon to the Company's Registrars, Computershare Services
PLC, Registrar's Department, PO Box 1075, Caxton House, Redcliffe Way, Bristol
BS99 3FA, so as to be received no later than 10.00 a.m. on 28 February 2000.
CONTENTS
PAGE
--------
Expected Timetable of Principal Events................................ 2
Definitions........................................................... 3
Part I Letter from the Chairman.................................... 6
1. Introduction............................................. 6
2. About Healthworld........................................ 7
3. Reasons for the Transaction.............................. 7
4. Terms of the Transaction................................. 9
5. Recent Developments...................................... 11
6. Current Trading and Prospects............................ 11
7. Listing, Settlement and Dealings......................... 11
8. Further Information...................................... 12
9. Extraordinary General Meeting............................ 12
10. Action to be Taken...................................... 12
11. Recommendation.......................................... 12
Part II Information on the CCG Group................................ 13
1. Description of the CCG Group............................. 13
2. Financial Information on the CCG Group................... 13
3. CCG Group Results for the six months ended 30 June
1999........................................................ 52
4. Reconciliation of UK GAAP to US GAAP financial
information................................................. 64
Part III Information on the Healthworld Group........................ 65
1. Description of the Healthworld Group..................... 65
2. Financial Information on the Healthworld Group........... 68
3. Reconciliation of US GAAP to UK GAAP financial
information................................................. 87
4. Healthworld Group Results for the nine months ended
30 September 1999........................................... 94
Part IV Pro forma statement of net assets of the Enlarged Group..... 103
Part V Summary of the terms and conditions of the Transaction...... 107
Part VI Additional Information...................................... 114
1. Responsibility........................................... 114
2. Directors................................................ 114
3. The Company.............................................. 114
4. Share Capital............................................ 114
5. Directors' Details, Interests and Service Agreements..... 120
6. Substantial Shareholdings................................ 131
7. Memorandum and Articles of Association................... 132
8. CCG Share Schemes........................................ 134
9. Taxation................................................. 148
10. Principal Subsidiary and Associated Undertakings........ 151
11. Principal Properties.................................... 152
12. Material Contracts...................................... 152
13. Litigation.............................................. 157
14. Working Capital......................................... 158
15. Significant Changes..................................... 158
16. Employees............................................... 158
17. Risk Factors............................................ 158
P-1
PAGE
--------
18. Forward-looking statements may prove inaccurate......... 160
19. General................................................. 161
20. Documents available for inspection...................... 162
Part VII Summary of Resolutions to be Proposed at the Extraordinary
General Meeting............................................. 163
Notice of Extraordinary General Meeting............................... 165
EXPECTED TIMETABLE OF PRINCIPAL EVENTS
Latest time and date for receipt of forms of proxy.......... 10.00 a.m. on 28 February
CCG Extraordinary General Meeting........................... 10.00 a.m. on 1 March
Healthworld Stockholders' Meeting (New York time)........... 9.00 a.m. on 1 March
Effective Time.............................................. 3.00 p.m. on 2 March
Commencement of Dealings in New CCG Shares.................. 3.00 a.m. on 2 March
Listing of New CCG ADSs on the NYSE effective (New York
time)..................................................... 10.00 a.m. on 2 March
FORWARD LOOKING STATEMENTS
This document contains certain forward-looking statements concerning future
performance, costs, revenues and growth of the CCG Group and the Enlarged Group,
industry and customer growth and operational efficiencies from and benefits of
the Transaction. By their nature, forward-looking statements involve risk and
uncertainty. Many factors could cause actual results and developments to differ
materially from those expressed or implied by these forward-looking statements.
Paragraph 17 of Part VI of this document contains a discussion of some of these
factors.
P-2
DEFINITIONS
The following definitions apply throughout this document, unless the context
otherwise requires:
Companies Act or Act...................... the Companies Act 1985 as amended
CCG or Company............................ Cordiant Communications Group plc
CCG ADS................................... an American Depositary Share of CCG, representing 5 CCG
Shares
CCG Group or Group........................ CCG and its subsidiary undertakings
CCG Shares................................ ordinary shares of 50 pence each in the capital of CCG
CCG Shareholders.......................... holders of CCG Shares
CCG Share Schemes......................... the Equity Participation Plan, the Performance Share
Option Scheme and the Zenith Executive Incentive Plan
(together the ``Current CCG Share Schemes"), together
with the Cordiant plc Executive Share Option Scheme, the
Cordiant plc Executive Share Option Scheme (No 2), the
Cordiant plc Performance Share Option Scheme, the
Cordiantplc 1995 Sharesave Scheme, the Cordiant
Communications Group Demerger Executive Share Option
Scheme (No 1), the Cordiant Communications Group
Demerger Executive Share Option Scheme (No 2), the
Cordiant Communications Group Demerger Performance Share
Option Scheme and the Cordiant Communications Group
Demerger Sharesave Scheme (``the Old CCG Share Schemes")
Demerger.................................. the demerger of the Saatchi & Saatchi businesses from
the CCG Group to Saatchi & Saatchi plc in December 1997
Depositary................................ The Bank of New York as depositary for the CCG ADSs
Diamond................................... Diamond Ad Ltd, a South Korean company
Directors or Board........................ the directors of CCG
Enlarged Group............................ the CCG Group as enlarged by the acquisition of
Healthworld
Effective Time............................ the time at which the Transaction is completed by the
merger of Healthworld Acquisition Corp. into Healthworld
becoming effective pursuant to the Merger Agreement
Equity Participation Plan or EPP.......... the Cordiant Communications Group plc Equity
Participation Plan
Exchange Ratio............................ the number of New CCG Shares to which Healthworld
Stockholders will be entitled for each Healthworld Share
held by them at the Effective Time, determined as
described in paragraph 1 of Part V of this document
Falk...................................... Falk Communications, Inc
Healthworld............................... Healthworld Corporation
Healthworld Group......................... Healthworld and its subsidiary undertakings
P-3
Healthworld Option Plan................... the Healthworld 1997 Stock Option Plan (as amended)
Healthworld Shares........................ shares of common stock, par value $0.01 per share, in
Healthworld
Healthworld Stockholders.................. holders of Healthworld Shares
Healthworld Stock Options................. options outstanding under the Healthworld Option Plan
London Stock Exchange..................... London Stock Exchange Limited
Merger Agreement.......................... the Agreement and Plan of Merger dated as of 9 November
1999, as amended, particulars of which are contained in
Part V of this document
New CCG ADSs.............................. new CCG ADSs proposed to be issued to Healthworld
Stockholders pursuant to the Merger Agreement
New CCG Shares............................ new CCG Shares proposed to be issued to or for the
account of Healthworld Stockholders pursuant to the
Merger Agreement (including CCG Shares comprised in New
CCG ADSs)
NYSE or New York Stock Exchange........... The New York Stock Exchange, Inc.
Official List............................. the Official List of the London Stock Exchange
Performance Share Option Scheme or PSOS... the Cordiant Communications Group plc Performance Share
Option Scheme
Reference Price........................... a price in dollars equal to the average value of the
closing middle market quotations for a CCG Share,
derived from the Official List, over the 10 consecutive
dealing days ending on the third dealing day prior to
the date of the Healthworld Stockholders' meeting to
approve the Transaction, converted into dollars at the
average of the dollars/pounds sterling rate of exchange
during the same period
Securities Act............................ the US Securities Act of 1933, as amended
Transaction............................... the proposed acquisition of Healthworld by CCG pursuant
to the Merger Agreement, as described in this document
UK GAAP................................... generally accepted accounting principles in the UK
United Kingdom or UK...................... the United Kingdom ofGreat Britain and Northern Ireland,
its territories and possessions
United States or US....................... the United States of America, its territories and
possessions, any state of the United States of America
and the District of Columbia
US GAAP................................... generally accepted accounting principles in the United
States
US Registration Statement................. the Registration Statement on Form F-4 filed by CCG with
the US SEC in relation to the Transaction
US SEC.................................... the United States Securities & Exchange Commission
Warburg Dillon Read....................... UBS AG acting through its division Warburg Dillon Read
$ or dollars.............................. US Dollars
KW........................................ South Korean Won
P-4
BASES FOR SHARE CALCULATIONS
Unless otherwise specified, all references in this document to the numbers
of New CCG Shares to be issued pursuant to the Transaction and to percentages of
the enlarged issued share capital of CCG immediately following the Effective
Time are based on the assumptions that:--
(i) the Reference Price for determining the Exchange Ratio at which New CCG
Shares will be issued for Healthworld Shares will be $4.52 (based on the
closing middle market price of 279p per CCG Share on 1 February 2000 (the
latest practicable date prior to the publication of this document),
derived from the Official List and a dollar/pound sterling exchange rate
of $1.62/L1 on that date), producing an Exchange Ratio of 5.09 New CCG
Shares for each Healthworld Share;
(ii) the number of Healthworld Shares in issue immediately prior to the
Effective Time will be 9,064,925 (being the issued share capital of
Healthworld as at 28 January 2000, the latest practicable date prior to
the publication of this document, as enlarged by the issue of 940,624
Healthworld Shares immediately prior to the Effective Time to satisfy
deferred consideration for the acquisition of Falk, as described in
paragraph 4 of Part I of this document);
(iii) the number of CCG Shares in issue immediately prior to the Effective
Time will be 228,793,146 (being the issued share capital of CCG as at 28
January 2000); and, accordingly,
(iv) no further CCG Shares or Healthworld Shares will be issued prior to the
Effective Time, whether on exercise of outstanding options or otherwise,
provided that calculations "on a diluted basis" assume the exercise of
all Healthworld Stock Options outstanding at 28 January 2000
(representing 1,527,039 Healthworld Shares) at an average exercise price
of $12.53 (L7.73) per Healthworld Share, but disregard outstanding
options under the CCG Share Schemes.
Further information in relation to these assumptions is set out in paragraph
4 of Part I of this document.
BASES FOR CURRENCY TRANSLATIONS
The basis of translation of foreign currency amounts for the purposes of
inclusion in the financial information in Parts II, III and IV of this document
is set out therein. Historical information set out elsewhere in this document
which has been extracted therefrom has been translated on the same basis. Where
other foreign currency amounts have been presented with pounds sterling
equivalents in Parts I, V and VI of this document and on pages 4 to 6 hereof,
payments made have been translated at the rates applicable at the time of
payment and other amounts have been translated at the rates published in the
FINANCIAL TIMES on 1 February 2000, the latest practicable date prior to the
publication of this document (being L1=$1.62, in the case of amounts denominated
in dollars.)
P-5
PART I
LETTER FROM THE CHAIRMAN
CORDIANT COMMUNICATIONS GROUP PLC
(REGISTERED IN ENGLAND NO. 1320869)
DIRECTORS: REGISTERED AND HEAD OFFICE:
CHARLES SCOTT (CHAIRMAN) 121-141 WESTBOURNE TERRACE
MICHAEL BUNGEY (CHIEF EXECUTIVE OFFICER) LONDON W2 6JR
ARTHUR D'ANGELO (FINANCE DIRECTOR)
JEAN DE YTURBE
DUDLEY FISHBURN*
PROF. THEODORE LEVITT*
PETER SCHONING
IAN SMITH
DR ROLF STOMBERG*
JAMES TYRRELL*
WILLIAM WHITEHEAD
*NON-EXECUTIVE DIRECTORS
4 February 2000
To the holders of CCG Shares and, for information only, to members of the CCG
Share Schemes
Dear Shareholder
1 INTRODUCTION
On 9 November 1999, your Board announced a definitive agreement under which
CCG will acquire Healthworld, an international communications and contract sales
marketing organisation specialising in the healthcare sector, in exchange for
New CCG Shares. The Transaction is subject to approval by CCG Shareholders and
Healthworld Stockholders and I am writing to explain why your Board is
unanimously recommending CCG Shareholders to vote in favour of the Transaction.
You should read this whole document carefully and not just rely on key or
summarised information.w
Under the terms of the Merger Agreement, each Healthworld Share will be
exchanged for a certain number of New CCG Shares (in the form of New CCG ADSs,
except to the extent Healthworld Stockholders elect to receive New CCG Shares
directly), based on an Exchange Ratio determined by reference to the market
price of CCG Shares and the dollar/pound sterling exchange rate over a specified
period prior to the Healthworld Stockholders' meeting on 1 March 2000 to approve
the Transaction. Based on the assumptions described under ``Bases for Share
Calculations" on pages 5 and 6 of this document, each Healthworld Share would be
exchanged for 5.09 New CCG Shares, valuing each Healthworld Share at $23
(L14.20). Taking account of the 940,624 new Healthworld Shares to be issued
prior to the Effective Time to satisfy deferred consideration, this values the
whole of the issued share capital of Healthworld at approximately
$208.5 million (L128.7 million), or $224.5 million (L138.6 million) on a diluted
basis. Healthworld Stockholders would hold approximately 16.8 per cent. of the
enlarged issued share capital of CCG immediately following the Effective Time
(or 19.1 per cent. on a diluted basis).
P-6
CCG has obtained irrevocable commitments to vote in favour of the
Transaction from certain directors and executive officers of Healthworld and
their affiliates in respect of approximately 63 per cent. of the issued share
capital of Healthworld--well in excess of the required majority. Completion of
the Transaction is subject to certain other conditions, details of which are set
out in Part V of this document.
2 ABOUT HEALTHWORLD
The Healthworld Group is an international communications and contract sales
marketing organisation specialising in the healthcare sector. Healthworld
provides multinational pharmaceutical and healthcare companies with a
comprehensive range of integrated marketing services, including advertising and
promotion, contract sales, consulting, medical education, public relations,
marketing research, publishing, interactive multimedia and database marketing
services. Healthworld offers its clients expertise through its operations in the
United States, France, Spain and the United Kingdom, and through Healthworld
B.V., an international network of affiliated independent marketing and
communications agencies. Healthworld B.V. has affiliates independent of the
Healthworld Group in Canada, Colombia, Denmark, Finland, Germany, Holland,
Hungary, Italy, Japan, Norway, and Sweden. Since its initial public offering in
November 1997, Healthworld has demonstrated strong growth, such that in 1998 it
was the third largest specialist healthcare marketing agency (by worldwide gross
income as by MED AD NEWS).
Healthworld designs marketing programmes, targeted at physicians, nurses and
other healthcare professionals, that aim to accelerate the acceptance of new
products and sustain their growth through the products' life cycle. Medical
education programmes are undertaken to create awareness and generate interest in
new treatments among the healthcare community prior to regulatory approval.
Advertising and promotion campaigns, along with continuing medical education,
seek to maximise product utilisation by healthcare professionals once the
treatment has come to market.
Healthworld is one of the industry leaders in the development of
direct-to-consumer (`DTC') advertising campaigns for prescription drugs in the
United States. These advertisements are designed to stimulate patients to
request particular branded drugs from physicians. Healthworld, which established
its contract sales operation in the US in 1998, also provides contract sales
forces to pharmaceutical companies and consumer products clients.
Healthworld is based in New York. Healthworld Shares are traded on the
Nasdaq Stock Market. Further information about the Healthworld Group is set out
in Part III of this document.
3 REASONS FOR THE TRANSACTION
Your Directors believe that the Transaction will provide CCG with the
following benefits:
- an opportunity to build the leading global healthcare marketing network;
- acceleration in meeting CCG's strategic objectives;
- increased participation in the high growth healthcare marketing sector;
- greater exposure to marketing services;
- further opportunities to grow revenues from multinational clients;
- a larger revenue base in the North American market; and
- earnings enhancement in the first full year of ownership.
P-7
OPPORTUNITY TO BUILD THE LEADING GLOBAL HEALTHCARE MARKETING NETWORK
CCG currently operates healthcare marketing agencies in the United States,
the United Kingdom, Italy and Australia under the Healthcom brand. Healthcom
focuses on marketing products to healthcare professionals. CCG also services
some of the world's largest healthcare companies through Bates Worldwide, its
global advertising network. Bates Worldwide provides expertise in DTC
advertising for prescription drugs in the United States and marketing
over-the-counter products to consumers internationally. During the year ended 31
December 1998, CCG generated revenues relating to healthcare marketing of L19
million.
CCG will align its existing healthcare operations under Healthworld in a new
division of Bates Worldwide. Steve Girgenti, Chairman and CEO of Healthworld,
and other senior members of the Healthworld management team, will continue to
manage the Healthworld business. Following the Transaction, Healthworld's senior
management will be significant shareholders in CCG and have agreed to retain
certain amounts of their shares for certain minimum periods, as described in
paragraph 4 of this letter.
The Transaction will enable the Enlarged Group to:
- combine Healthworld's expertise in professional and consumer channels with
CCG's multinational pharmaceutical experience;
- offer a wider range of services to clients of the Enlarged Group;
- utilise CCG's global network to enhance Healthworld's geographic presence;
and
- provide Healthworld with the resources to expand its specialist healthcare
network.
CCG intends to leverage its enlarged base of healthcare clients by creating
a global healthcare marketing network. CCG currently operates in over 70
countries and will utilise this global platform and office infrastructure to
develop Healthworld internationally.
ACCELERATION IN MEETING CCG'S STRATEGIC OBJECTIVES
Following the Demerger at the end of 1997, CCG set itself three strategic
objectives designed to position its business for profitable growth. By the end
of 2000, it aims to have grown:
- diversified marketing services to 30 per cent. of total revenues (22 per
cent. in 1998);
- multinational clients to 40 per cent. of total revenues (33 per cent. in
1998); and
- North American revenues to 30 per cent. of its business (24 per cent. in
1998).
The acquisition of Healthworld is expected to accelerate the achievement of
these objectives.
It is the Group's longer-term objective to derive 50 per cent. of its total
revenues from high growth marketing services.
INCREASED PARTICIPATION IN THE HIGH GROWTH HEALTHCARE MARKETING SECTOR
The Transaction will increase CCG's exposure to the specialist market for
the promotion of prescription drugs, the growth rate of which in the United
States (18 per cent. (source: Scott Levin)) outstripped the advertising market
as a whole (6.5 per cent.) in 1998 (source: Zenith Media Worldwide). This growth
is being driven by three principal factors: the growth in new products coming to
market; increased drug usage; and the increasing focus of pharmaceutical
companies to maximise return on investment.
P-8
GREATER EXPOSURE TO MARKETING SERVICES
The acquisition of Healthworld will increase CCG's business in marketing
services in both the healthcare sector and in consumer product markets. The
Directors believe that marketing services are growing at a faster rate than
traditional major media advertising, driven by clients' needs to target specific
market segments, to measure returns more effectively and to obtain an integrated
marketing solution.
Healthworld's wholly owned subsidiary, Milton Headcount, is the fifth
largest (by turnover) field marketing company in the United Kingdom (source:
MARKETING), providing major consumer product clients with strategic and tactical
field marketing, merchandising, in-store training, audits and database
management. 141 Worldwide, CCG's marketing services network, has been built over
the last three years into a global business with offices in over 40 countries,
representing 22 per cent. of CCG's total revenues in the year ended 31
December 1998. The combination of Healthworld's expertise in consumer field
marketing with 141 Worldwide's direct marketing and promotion capabilities will
allow CCG to offer an enhanced range of marketing services to clients.
FURTHER OPPORTUNITIES TO GROW REVENUES FROM MULTI-NATIONAL CLIENTS
The Transaction will enhance CCG's multinational client base, and provide
opportunities to offer a wider range of services to clients of the Enlarged
Group. The Directors believe that healthcare marketing is becoming an
increasingly global business as pharmaceutical companies seek to maximise
returns on research by marketing on a worldwide basis. CCG intends to create a
global healthcare marketing network to exploit this trend.
LARGER REVENUE BASE IN THE NORTH AMERICAN MARKET
CCG is currently under-represented in the important North American market,
which represented 24 per cent. of CCG's revenues during the year ended 31
December 1998, compared to 48 per cent. for the advertising industry as a whole
(source: Zenith Media Worldwide). The Transaction will significantly increase
CCG's business in North America. Healthworld generated revenues in North America
of $28 million (L17.3) during the 12 months ended 30 September 1999.
EARNINGS ENHANCEMENT
The acquisition of Healthworld is expected to be earnings enhancing in the
first full year of ownership by CCG. Nothing in this document should be
construed as a profit forecast or be interpreted to mean that the earnings per
share of CCG for the current year or future years will necessarily match or
exceed the historical published earnings per share of CCG and Healthworld.
CCG expects to achieve annual pre-tax cost savings of at least L1.5 million
by combining the Healthworld and existing CCG healthcare agency operations and
by eliminating costs associated with operating Healthworld as a public company.
4 TERMS OF THE TRANSACTION
EXCHANGE RATIO
The number of New CCG Shares issued in exchange for each Healthworld Share
will be calculated using a Reference Price equal to the average of the closing
middle market quotations for a CCG Share, derived from the Official List, over
the 10 consecutive dealing days ending on the third dealing day prior to 1
March 2000 (the date of the Healthworld Stockholders' meeting to approve the
Transaction), multiplied by the average dollar/pound sterling rate of exchange
during the same period.
P-9
The table in paragraph 1 of Part V of this document sets out the manner in
which the Exchange Ratio will be calculated, depending upon the level of the
Reference Price. By way of illustration, on the basis of the assumptions
described under ``Bases for Share Calculations" on pages 5 and 6 of this
document, the Exchange Ratio would be 5.09 New CCG Shares for every Healthworld
Share. On this basis, the Transaction would result in the issue of approximately
46.1 million New CCG Shares in aggregate, representing 16.8 per cent. of the
issued ordinary share capital of CCG as enlarged by the Transaction.
HEALTHWORLD STOCK OPTIONS AND DEFERRED CONSIDERATION
Under the terms of the Merger Agreement and the Healthworld Option Plan,
Healthworld Stock Options will be replaced by equivalent options over CCG
Shares. Based on the assumptions referred to above, these would represent
options over up to 7.8 million CCG Shares in aggregate at an aggregate exercise
price of L11.8 million, 6.8 of which options over 6.8 million CCG Shares would
be immediately exercisable. Taking into account the issue of those shares,
Healthworld Stockholders and the Healthworld Stock Option holders would own
approximately 19.1 per cent. of the enlarged issued share capital of CCG on a
diluted basis.
In August 1999, Healthworld acquired Falk, a healthcare communications
agency located in New York City. Healthworld's initial purchase price, including
expenses related to the acquisition, was approximately $17 million, consisting
of approximately $9 million in cash and 649,111 Healthworld Shares. On 3
February 2000, Healthworld agreed, subject to approval of the Transaction by
Healthworld Stockholders, to issue 940,624 additional Healthworld Shares, valued
as at 3 February, 2000, at $20 million (L12.3 million), to the former
stockholders of Falk immediately prior to the Effective Time, in full
satisfaction of Healthworld's obligation to make earn-out payments based on
Falk's financial results after the acquisition.
INTERESTS OF HEALTHWORLD MANAGEMENT
Certain directors and executive officers of Healthworld and their affiliates
will own in aggregate approximately 11 per cent. of the issued share capital of
CCG as enlarged by the Transaction (or 11.2 per cent. on a diluted basis). These
persons have entered into lock-up arrangements under which they will be entitled
to sell varying amounts of their holdings after certain periods, which in the
aggregate amount to 28.4 per cent. of all such holdings on a diluted basis
immediately following the Effective Time, a further 14.7 per cent. after six
months, a further 27.1 per cent. after one year and the balance after two years.
Further details of these arrangements are set out in paragraph 8 of Part V of
this document.
GENERAL
No fractional CCG Shares or CCG ADSs will be issued in connection with the
Transaction. Healthworld Stockholders who would otherwise have been entitled to
receive a fraction of a CCG Share or CCG ADS will receive, in lieu of such
fraction, cash, without interest, in an amount based on the average closing
price of a CCG Share as recorded by the Official List over a specified period.
The New CCG Shares will rank PARI PASSU in all respects with the CCG Shares
in issue at the EffectiveTime, including the right to all dividends declared,
made or paid after the Effective Time.
Further details of the Merger Agreement and the terms of the Transaction are
set out in Part V of this document.
P-10
5 RECENT DEVELOPMENTS
In November 1999, CCG refinanced and increased the Group's core banking
facilities, entered into an agreement for new committed facilities of $250
million (L154 million) and cancelled its existing core facilities.
On 13 December 1999, CCG announced that it had agreed to acquire from
Hyundai Merchant Marine an 80 per cent. interest in Diamond, the third largest
advertising agency in South Korea, for an initial consideration of KW 27 billion
(L15 million) and possible further payments depending on the results of Diamond
to 31 December 2001. The total consideration, including 80 per cent. of the net
debt in Diamond at the date of completion of the acquisition, is capped at KW
150 billion (L82 million). The acquisition, which was completed late in
December 1999, will enable CCG to capitalise on Diamond's strong position in the
Korean advertising industry, as well as enhancing the CCG Group's long-standing
relationship with many Hyundai clients. Diamond will form the Asian hub of a CCG
network, to be named Diamond, that will service Hyundai and other clients
globally.
On 8 December 1999, CCG announced the acquisition of the Interactive Edge
business, an industry leader in trade and channel marketing communications,
headquartered in New York. The initial consideration of $6.1 million
(L3.8 million) was satisfied largely in CCG Shares. Further consideration of up
to $18.9 million (L11.7), to be satisfied entirely in CCG Shares, may be payable
depending upon the results of the Interactive Edge business to 31
December 2002.
Further details of these acquisitions and the new bank facilities are set
out in paragraph 12.1 of Part VI of this document.
On 31 January 2000, CCG announced the acquisition of the outstanding 10 per
cent interest. in Scholz & Friends GmbH not already held by the CCG Group for a
total cash consideration of DM 8.6 million (L2.7million).
CCG continues to evaluate acquisition opportunities that support its
strategic objectives, while also seeking to maximise the organic growth of its
existing businesses.
6 CURRENT TRADING AND PROSPECTS
CCG continued to perform well in the second half of 1999 and recorded new
business wins of over $420 million (L259 million), in terms of net annualised
billings, for the year as a whole. Healthworld performed well in the fourth
quarter and continued growth is expected in 2000. The Board is also very pleased
with the progress made in integrating Diamond as an important new element of the
Group. The Board believes that the prospects of the Enlarged Group are excellent
and views the future with considerable optimism. CCG's preliminary results for
1999 are expected to be announced on 8 March 2000.
7 LISTING, SETTLEMENT AND DEALINGS
Application has been made to the London Stock Exchange for the New CCG
Shares to be admitted to the Official List. Dealings in the New CCG Shares are
expected to commence at 8.00 a.m. on 3 March 2000. Application will be made for
the New CCG ADSs to be listed on the New York Stock Exchange and the listing of
the New CCG ADSs on the NYSE is expected to become effective at 10.00 a.m. (New
York time) on 2 March 2000. It is a condition to the Transaction becoming
effective that the London Stock Exchange shall have granted permission for the
admission of the New CCG Shares to the Official List and that the New CCG ADSs
be authorised for listing on the New York Stock Exchange.
P-11
8 FURTHER INFORMATION
Your attention is drawn to the further information in Parts II to VII of
this document.
9 EXTRAORDINARY GENERAL MEETING
Set out at the end of this document is a notice convening an Extraordinary
General Meeting of CCG to be held at 121-141 Westbourne Terrace, London W2 6JR
at 10.00 a.m. on 1 March 2000, at which the following resolutions will be
proposed:-
ORDINARY RESOLUTION 1: to approve the Transaction, increase the Company's
authorised share capital to L208,000,000 and authorise the Directors to allot
CCG Shares in amounts sufficient to satisfy the entitlements of Healthworld
Stockholders and optionholders and provide an appropriate level of authority for
general purposes after the Effective Time; and
SPECIAL RESOLUTIONS 2 AND 3: to renew and increase the Directors' general
powers to allot CCG Shares for cash other than in accordance with statutory
pre-emption rights.
Completion of the Transaction is conditional only upon the passing of
Resolution 1. Resolutions 2 and 3 are conditional upon completion of the
Transaction. An explanation of the proposed resolutions is set out in Part VII
of this document and the full text of these resolutions is set out in the Notice
of Meeting at the end of this document.
10 ACTION TO BE TAKEN
CCG Shareholders on the register as at 10.00 a.m. on 28 February 2000 will
be entitled to attend and vote at the Extraordinary General Meeting in person or
by proxy. You will find enclosed with this document a form of proxy for use at
the Meeting. Whether or not you intend to be present at the Meeting, you are
requested to complete the enclosed form of proxy in accordance with the
instructions thereon and return it to the Company's Registrars, Computershare
Services PLC, Registrar's Department, P.O. Box 1075, Caxton House, Redcliffe
Way, Bristol BS99 3FA, so as to be received as soon as practicable and in any
event not later than 10.00 a.m. on 28 February 2000. Returning a completed form
of proxy will not prevent you from attending and voting in person at the Meeting
should you wish to do so.
11 RECOMMENDATION
The Directors, who have been advised by Warburg Dillon Read, consider the
Transaction to be in the best interests of CCG Shareholders as a whole. In
providing advice to the Directors, Warburg Dillon Read has placed reliance on
the Directors' commercial assessment of the Transaction.
Accordingly, your Directors recommend CCG Shareholders to vote in favour of
the resolutions to be proposed at the Extraordinary General Meeting, as they
intend to do in respect of their own beneficial holdings, amounting to 161,705
CCG Shares, representing approximately 0.07 per cent. of the issued ordinary
share capital of the Company.
Yours sincerely
Charles T. Scott
CHAIRMAN
P-12
PART II
INFORMATION ON THE CCG GROUP
1 DESCRIPTION OF THE CCG GROUP
The CCG Group is a global integrated communications group. The Group
comprises: Bates Worldwide, one of the largest advertising and integrated
communications networks in the world; Scholz & Friends, the largest
multinational advertising network headquarters in Germany; HP:ICM, event,
conference and exhibition managers; a 30 per cent. equity stake in The
Facilities Group, a pre-production agency; and a 50 per cent. equity stake in
Zenith Media Worldwide, a global specialist media services and planning agency.
CCG's principal corporate offices are located at 121-141 Westbourne Terrace,
London W2 6JR, CCG's telephone number is (0207) 262-4343. Information about CCG
can be found on the CCG website at www.ccgww.com.
CCG's advertising agencies are principally involved in the creation of
advertising and marketing programs for products, services, brands, companies and
organisations. These programs involve various media such as television,
magazines, newspapers, cinema, radio, outdoor, electronic and interactive media.
The creation of advertising and marketing materials includes the writing,
designing and development of concepts. The agencies often perform a strategic
planning function which involves analysis of the particular product, service,
brand, company or organisation against its competitors and the market.
In line with its strategic objectives, the CCG Group is expanding from its
advertising base and building its total integrated services capacity. Most
notably, in 1997, 141 Worldwide was established as a separately branded network
with special expertise in sales promotion, direct marketing, interactive media,
and associated activities.
2 FINANCIAL INFORMATION ON THE CCG GROUP
NATURE OF FINANCIAL INFORMATION
The financial information contained in this Section 2 does not constitute
CCG's statutory accounts within the meaning of section 240 of the Act. The
information for the three years ended 31 December 1998 is extracted without
material adjustment from the published audited consolidated financial statements
of CCG. CCG's auditors made reports under section 235 of the Act on the
financial statements for each of the three financial years ended 31
December 1998. The consolidated accounts of CCG in respect of the three
financial years ended 31 December 1998 (each of which received an unqualified
audit opinion and did not contain a statement under section 237(2) or (3) of the
Act) have been delivered to the Registrar of Companies in England and Wales. For
the three financial years ended 31 December 1998, KPMG Audit Plc, Chartered
Accountants and Registered Auditor of 8 Salisbury Square, London EC4Y 8BB, was,
and currently is, the auditor of CCG.
The information for the three years ended 31 December 1998 has not been
restated to take account of Financial Reporting Standard 12: Provisions,
Contingent Liabilities and Contingent Assets (FRS12). CCG adopted FRS12 for its
accounting periods ending on or after 23 March 1999. The financial information
for CCG in Section 3 of Part II reflects the adoption of FRS12.
P-13
CORDIANT COMMUNICATIONS GROUP PLC
FINANCIAL STATEMENTS
FOR THE YEARS ENDED 31 DECEMBER 1996--1998
PRINCIPAL ACCOUNTING POLICIES
BASIS OF ACCOUNTING
The financial statements have been prepared under the historical cost
accounting rules and in accordance with applicable accounting standards.
The following paragraphs describe the significant accounting policies used
in the financial statements.
CONSOLIDATION
The consolidated financial statements incorporate the financial statements
of Cordiant Communications Group plc and all its subsidiary undertakings for the
financial years ended 31 December 1996 to 31 December 1998.
DISPOSED OPERATIONS
A business is classified as a disposed operation if it has a material effect
on the nature and focus of the Group's activities, represents a material
reduction in the Group's operating facilities and was either disposed of during
the year or as part of the demerger.
TURNOVER
Turnover comprises amounts billed to clients, excluding sales taxes and
intragroup transactions. Billings are usually rendered upon presentation date
for media advertising and upon the completion of radio, television and print
production.
REVENUE
Revenue represents the fees and commissions, excluding sales taxes, from
services provided to clients, and is recognised generally when work is billed.
PENSION COSTS
Retirement benefits for employees of most companies in the Group are
provided by either defined contribution or defined benefit schemes, which are
funded by contributions from Group companies and employees. The Group's share of
contributions to defined contribution schemes is charged against profits of the
year for which they are payable and the cost of providing defined benefits is
charged against profit, in accordance with the recommendations of independent
actuaries, in such a way as to provide for the liabilities evenly over the
remaining working lives of the employees.
EMPLOYEE SHARE SCHEMES
Payments made by participants to acquire options under the Equity
Participation Plan (the Plan) are credited to capital as `Shares to be issued'.
The estimated cost of awards is expensed as a charge to the profit and loss
account on a straight line basis over the period to which the performance
criteria of the Plan relate. In compliance with UITF abstract 17: `Employee
share schemes', the periodic charge to the profit and loss account is credited
to reserves. On exercise of options under the Plan the cost will be transferred
from reserves to share capital.
P-14
LEASES
Where the Group enters into a lease which entails taking substantially all
the risks and rewards of ownership of an asset, the lease is treated as a
finance lease. The asset is recorded in the balance sheet as a tangible fixed
asset and is depreciated over the shorter of its estimated useful life and the
lease term. Future installments under such leases, net of finance charges, are
included in creditors. Rentals payable are apportioned between the finance
element, which is charged to the profit and loss account as interest, and the
capital element, which reduces the outstanding obligation for future
installments. All other leases are operating leases and the rental charges are
taken to the profit and loss account on a straight line basis over the life of
the lease.
GOODWILL
Purchased goodwill arising in respect of acquisitions before
1 January 1998 (including any additional goodwill estimated to arise from
contingent capital payments), when FRS10 was adopted, was written off to
reserves in the year of acquisition. A charge would be recognised in the Group's
profit and loss account in respect of any permanent diminution in the value of
goodwill previously written off to reserves. Goodwill written off directly to
reserves and not previously charged to the Group's profit and loss account is
included in determining the profit or loss on disposal of a subsidiary.
Purchased goodwill arising from acquisitions on and after 1 January 1998 has
been capitalised as an intangible fixed asset. The Directors are of the opinion
that the intangible fixed assets of the Group have an indefinite economic life
and as such the goodwill related to acquisitions to date is not amortised, but
is subject to annual review for impairment. This is due to the durability of the
Group's brand names, their ability to sustain long-term profitability and CCG's
commitment to develop and enhance their value. The acquisitions of the Group are
intended to enhance the long-term value of the Group's networks. The individual
circumstances of each subsequent acquisition the Group makes will be assessed to
determine the appropriate treatment of any related goodwill. The financial
statements depart from the specific requirement of companies legislation to
amortise goodwill over a finite period in order to give a true and fair view.
The Directors consider this to be necessary for the reasons given above. Because
of the indefinite life of these intangible assets, it is not possible to
quantify the impact of this departure.
FIXED ASSETS
Tangible fixed assets are stated at historical cost less accumulated
depreciation. Additions, improvements and major renewals are capitalised.
Maintenance repairs and minor renewals are expenses as incurred. The cost of
tangible fixed assets less the estimated residual value is written off by equal
annual instalments over the expected useful lives of the assets as follows:
Long leasehold properties: 50 years
Short leasehold properties with terms of less than 50 years: Period of lease
Furniture and equipment: Between 4 and 10 years
Motor vehicles: 4 years
Long-term investments are valued at cost, less amounts provided for any
permanent diminution in value.
JOINT VENTURES AND ASSOCIATED UNDERTAKINGS
The Group's share of the profits less losses of all significant joint
ventures and associated undertakings is included in the Group profit and loss
account on a gross equity and equity accounting basis respectively. The carrying
value of significant joint ventures and associated undertakings in the
P-15
Group balance sheet is calculated by reference to the Group's equity in the net
assets of such undertakings.
WORK IN PROGRESS
Work in progress is valued at the lower of cost and net realisable value,
and comprises mainly outlays incurred on behalf of clients.
DEFERRED TAXATION
Deferred taxation is provided at the anticipated tax rates on timing
differences arising from the inclusion of items of income and expenditure in
taxation computations in periods different from those in which they are included
in the financial statements, to the extent that it is probable that a liability
or asset will crystallise in the foreseeable future. No provision is made for
deferred tax on unremitted overseas earnings unless the Group expects them to be
remitted.
PROPERTY PROVISIONS
Provision is made on an undiscounted basis for the future rent expense and
related costs of leasehold property (net of estimated sublease income) where the
space is vacant or currently not planned to be used for ongoing operations.
FOREIGN CURRENCIES
Profit and loss accounts and cash flow statements in foreign currencies are
translated into sterling at the average rate during the year, with the year end
adjustment to closing rates being taken to reserves. Assets and liabilities in
foreign currencies are translated using the rates of exchange ruling at the
balance sheet date. Gains or losses on translation of the opening net assets of
overseas subsidiaries are taken to reserves. Exchange differences arising from
the retranslation of long-term foreign currency borrowings used to finance
foreign currency investments are also taken to reserves. All other exchange
differences are taken to the profit and loss account. The Group's principal
trading currencies and the exchange rates used against pounds sterling are as
follows:
AVERAGE RATE CLOSING RATE
------------------------------ ------------------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- --------
US Dollar......................................... 1.66 1.64 1.56 1.66 1.65 1.71
French Franc...................................... 9.77 9.55 7.99 9.29 9.90 8.9
Deutschmark....................................... 2.91 2.84 2.35 2.77 2.96 2.64
Australian Dollar................................. 2.64 2.21 2.00 2.71 2.52 2.15
Spanish Peseta.................................... 247 240 198 236 251 223
Italian Lira...................................... 2,877 2,790 2,409 2,743 2,909 2,602
P-16
CONSOLIDATED PROFIT & LOSS ACCOUNT
YEARS ENDED 31 DECEMBER
------------------------------------------------------------------------------------
NOTES 1998 1997 1997 1997 1996 1996 1996
-------- ---------- ---------- ---------- -------- ---------- ---------- --------
ONGOING ONGOING DISPOSED ONGOING DISPOSED
OPERATIONS OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- ---------- -------- ---------- ---------- --------
LM LM LM LM LM LM LM
TURNOVER
Group and share of joint
ventures...................... 1,847.4 1,576.1 2,630.1 4,206.2 1,568.7 2,555.0 4,123.7
Less: Share of joint ventures... (281.8) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
GROUP TURNOVER.................. 1565.6 1,576.1 2,630.1 4,206.2 1,568.7 2,555.0 4,123.7
Cost of sales................... (1,263.8) (1,267.9) (2,202.2) (3,470.1) (1,239.2) (2,129.6) (3,368.8)
REVENUE
Group and share of joint
ventures...................... 316.0 308.2 427.9 736.1 329.5 425.4 754.9
Less: Share of joint ventures... (14.2) -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
GROUP REVENUE................... 1 301.8 308.2 427.9 736.1 329.5 425.4 754.9
Net operating expenses.......... 3 (275.8) (285.8) (394.7) (680.5) (308.1) (415.3) (723.4)
-------- -------- -------- -------- -------- -------- --------
OPERATING PROFIT
Trading profit.................. 1 26.0 24.6 33.2 57.8 21.6 26.4 48.0
Exceptional operating
expenses...................... 1,4 -- (2.2) -- (2.2) (0.2) (16.3) (16.5)
-------- -------- -------- -------- -------- -------- --------
1 26.0 22.4 33.2 55.6 21.4 10.1 31.5
Profit on disposal of
businesses.................... 4 -- 16.5 4.3 20.8 -- 17.8 17.8
Fundamental reorganisation -
demerger........................ 4 -- (970.6) 937.6 (33.0) -- -- --
Share of operating profits:
Joint ventures.................. 1.4 -- -- -- -- -- --
Associated undertakings......... 1.2 -- -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
PROFIT ON ORDINARY ACTIVITIES
BEFORE INTEREST AND
TAXATION...................... 28.6 (931.7) 975.1 43.4 21.4 27.9 49.3
Net interest payable and similar
items......................... 5 (2.7) 3.5 (12.3) (8.8) 5.8 (13.3) (7.5)
-------- -------- -------- -------- -------- -------- --------
PROFIT ON ORDINARY ACTIVITIES
BEFORE TAXATION............... 25.9 (928.2) 962.8 34.6 27.2 14.6 41.8
Tax on ordinary activities...... 6 (9.2) (8.1) (9.4) (17.5) (9.6) (5.2) (14.8)
-------- -------- -------- -------- -------- -------- --------
PROFIT ON ORDINARY ACTIVITIES
AFTER TAXATION................ 16.7 (936.3) 953.4 17.1 17.6 9.4 27.0
Equity minority interests....... (1.7) (1.8) (0.2) (2.0) (2.6) (0.2) (2.8)
-------- -------- -------- -------- -------- -------- --------
PROFIT ATTRIBUTABLE TO ORDINARY
SHAREHOLDERS.................. 15.0 (938.1) 953.2 15.1 15.0 9.2 24.2
-------- -------- -------- -------- -------- -------- --------
Dividend--demerger.............. -- 134.6 --
Dividends--cash................. 7 (3.1) (2.7) (4.4)
-------- -------- --------
RETAINED PROFIT................. 11.9 147.0 19.8
======== ======== ========
Basic earnings per Ordinary
share......................... 8 6.7p 3.4p 5.5p
Diluted earnings per Ordinary
share......................... 8 6.7p 3.4p 5.5p
Headline earnings per Ordinary
share......................... 8 6.8p 6.6p 1.4p
Dividend per Ordinary share..... 7 1.4p 1.2p 2.6p
There is no difference between the total reported result for the year and that
on an historical cost basis.
P-17
CONSOLIDATED CASH FLOW STATEMENT
YEARS ENDED 31 DECEMBER
------------------------------
NOTES 1998 1997 1996
-------- -------- -------- --------
LM LM LM
NET CASH INFLOW FROM OPERATING ACTIVITIES................. 9 19.8 61.7 56.9
NET CASH OUTFLOW ARISING FROM EXTERNAL DEMERGER COSTS..... 10 (8.2) (13.8) --
DIVIDENDS FROM ASSOCIATED UNDERTAKINGS.................... 10 0.2 -- --
RETURNS ON INVESTMENT AND SERVICING OF FINANCE............ 10 (4.9) (12.3) (10.1)
TAXATION PAID............................................. 10 (8.3) (15.1) (9.3)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT.............. 10 (7.4) (22.5) (24.8)
ACQUISITIONS AND DISPOSALS................................ 10 (7.4) (11.6) (13.7)
EQUITY DIVIDENDS PAID..................................... (2.7) (4.4) --
----- ----- -----
CASH OUTFLOW BEFORE FINANCING............................. (18.9) (18.0) (1.0)
----- ----- -----
Issue of ordinary share capita............................ l0.5 0.1 --
External loans drawn less repaid.......................... 8.6 17.3 (11.0)
Other movements........................................... (0.2) (0.3) (0.2)
----- ----- -----
NET CASH INFLOW FROM FINANCING............................ 8.9 17.1 (11.2)
----- ----- -----
DECREASE IN CASH AND OVERDRAFTS FOR THE YEAR.............. (10.0) (0.9) (12.2)
===== ===== =====
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS:
Decrease in cash and overdrafts for the year.............. (10.0) (0.9) (12.2)
Cash inflow from debt..................................... (7.8) (17.0) 11.1
Other movements--demerger................................. -- 84.6 --
Translation difference and non-cash movements............. (2.3) (13.5) 1.3
----- ----- -----
MOVEMENT IN NET FUNDS IN THE YEAR......................... (20.1) 53.2 0.2
NET FUNDS AT BEGINNING OF YEAR............................ 24.7 (28.5) (28.7)
----- ----- -----
NET FUNDS AT END OF YEAR.................................. 11 4.6 24.7 (28.5)
===== ===== =====
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
YEARS ENDED 31 DECEMBER
------------------------------------
1998 1997 1996
NOTES LM LM LM
-------- ---------- ---------- ----------
LM LM LM
(RESTATED) (RESTATED) (RESTATED)
Profit attributable to Ordinary shareholders.............. 15.0 15.1 24.2
Translation adjustment.................................... 23 (1.7) (15.8) 6.8
----- ----- -----
Total recognised gains/(losses) relating to year.......... 13.3 (0.7) 31.0
===== ===== =====
P-18
CONSOLIDATED BALANCE SHEET
31 DECEMBER
------------------------------
NOTES 1998 1997 1996
-------- -------- -------- --------
LM LM LM
FIXED ASSETS
Goodwill.................................................... 13 16.2 -- --
Tangible assets............................................. 14 22.7 24.5 116.4
Investments................................................. 15 4.0 3.5 6.9
------ ------ ------
42.9 28.0 123.3
------ ------ ------
CURRENT ASSETS
Work in progress............................................ 15.4 18.1 35.6
Debtors--DUE WITHIN ONE YEAR................................ 16 246.3 254.3 616.4
Debtors--DUE AFTER ONE YEAR................................. 16 18.3 15.5 11.3
Investments................................................. 17 1.5 0.2 12.1
Cash at bank and in hand.................................... 62.3 61.7 113.7
------ ------ ------
343.8 349.8 789.1
Creditors: AMOUNTS FALLING DUE WITHIN ONE YEAR.............. 18 (313.7) (331.5) (837.6)
------ ------ ------
NET CURRENT ASSETS.......................................... 30.1 18.3 (48.5)
------ ------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES....................... 73.0 46.3 74.8
Creditors: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR..... 18 (73.8) (53.8) (144.0)
PROVISION FOR JOINT VENTURE DEFICIT
Share of gross assets....................................... 83.6 51.6 --
Share of gross liabilities.................................. (98.3) (65.9) --
21 (14.7) (14.3) --
PROVISIONS FOR LIABILITIES AND CHARGES...................... 21 (53.4) (57.8) (138.0)
------ ------ ------
NET LIABILITIES............................................. (68.9) (79.6) (207.2)
====== ====== ======
CAPITAL AND RESERVES
Called up share capital..................................... 22,23 112.7 111.0 230.1
Share premium account....................................... 23 2.3 -- 137.3
Capital redemption reserve.................................. 23 -- -- 86.5
Shares to be issued......................................... 23 1.3 -- --
Special reserve............................................. 23 25.7 25.7 --
Profit and loss account..................................... 23 (213.5) (222.4) (669.2)
------ ------ ------
EQUITY SHAREHOLDERS' DEFICIT................................ (71.5) (85.7) (215.3)
Equity minority interests................................... 2.6 6.1 8.1
------ ------ ------
Total capital employed...................................... (68.9) (79.6) (207.2)
====== ====== ======
The reconciliation of movement in equity shareholders' deficit is given in Note
23.
P-19
NOTES TO THE FINANCIAL STATEMENTS
1. GEOGRAPHICAL ANALYSIS OF REVENUE, PROFIT AND NET LIABILITIES
REVENUE TRADING PROFIT
------------------------------ ------------------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- --------
LM LM LM LM LM LM
UK................................................... 39.8 39.0 38.0 4.5 6.5 3.8
The Americas......................................... 73.5 67.7 77.8 8.2 6.3 4.0
Continental Europe................................... 108.4 105.0 120.7 10.1 8.3 9.1
Asia Pacific......................................... 80.1 96.5 93.0 3.2 3.5 4.7
----- ----- ----- ---- ---- ----
301.8 308.2 329.5 26.0 24.6 21.6
Disposed operations.................................. -- 427.9 425.4 -- 33.2 26.4
----- ----- ----- ---- ---- ----
301.8 736.1 754.9 26.0 57.8 48.0
===== ===== ===== ==== ==== ====
EXCEPTIONAL
OPERATING ITEMS OPERATING PROFIT
------------------------------ ------------------------------
1998 1997 1996 1998 1997 1996
-------- -------- -------- -------- -------- --------
LM LM LM LM LM LM
UK................................................... -- -- -- 4.5 6.5 3.8
The Americas......................................... -- -- (0.2) 8.2 6.3 3.8
Continental Europe................................... -- -- -- 10.1 8.3 9.1
Asia Pacific......................................... -- (2.2) -- 3.2 1.3 4.7
----- ----- ----- ---- ----- ----
-- (2.2) (0.2) 26.0 22.4 21.4
Disposed operations.................................. -- -- (16.3) -- 33.2 10.1
----- ----- ----- ---- ----- ----
-- (2.2) (16.5) 26.0 55.6 31.5
===== ===== =====
Joint ventures and associated undertakings........... 2.6 -- --
Profit on disposal of operations (The Americas)...... -- 20.8 17.8
Fundamental reorganisation--demerger................. -- (33.0) --
---- ----- ----
Profit on ordinary activities before interest and
tax................................................ 28.6 43.4 49.3
==== ===== ====
The Directors do not consider it relevant to apportion the fundamental
reorganisation--demerger cost by geographic region.
GEOGRAPHICAL ANALYSIS OF GROUP SHARE OF JOINT VENTURES AND ASSOCIATED
UNDERTAKINGS OPERATING PROFITS
1998 1997 1996
-------- -------- --------
LM LM LM
UK.......................................................... 2.2 -- --
The Americas................................................ -- -- --
Continental Europe.......................................... 0.1 -- --
Asia Pacific................................................ 0.3 -- --
---- ---- ----
2.6 -- --
==== ==== ====
The geographical analysis of joint ventures and associated undertakings is
based on the geographical location of the respective head office.
P-20
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
1. GEOGRAPHICAL ANALYSIS OF REVENUE, PROFIT AND NET LIABILITIES (CONTINUED)
GEOGRAPHICAL ANALYSIS OF GROUP NET LIABILITIES
1998 1997
-------- --------
LM LM
UK.......................................................... (58.0) (73.1)
The Americas................................................ (10.9) (20.1)
Continental Europe.......................................... 5.9 1.4
Asia Pacific................................................ (12.8) (12.5)
----- ------
Ongoing operations.......................................... (75.8) (104.3)
Disposed operations......................................... -- --
----- ------
(75.8) (104.3)
Net financial items......................................... 4.6 24.7
----- ------
Net liabilities............................................. (71.2) (79.6)
===== ======
Net liabilities are shown after the write off of acquired goodwill relating
to acquisitions prior to 1 January 1998.
Net financial items include cash at bank, cash deposits included in current
asset investments, loan stock, bank loans and overdrafts, other loans and
obligations under finance leases and hire purchase commitments.
Net liabilities of joint ventures primarily relate to the UK.
2. EMPLOYEES
1998 1997 1996
NUMBER NUMBER NUMBER
-------- -------- --------
UK.......................................................... 478 509 574
The Americas................................................ 933 914 1,096
Continental Europe.......................................... 1,634 1,565 1,601
Asia Pacific................................................ 1,772 1,853 1,595
----- ------ ------
Ongoing operations.......................................... 4,817 4,841 4,866
Disposed operations......................................... -- 5,938 5,343
----- ------ ------
Average number of employees of the Group.................... 4,817 10,779 10,209
===== ====== ======
1998 1997 1997 1996 1996
ONGOING ONGOING DISPOSED 1997 ONGOING DISPOSED 1996
OPERATIONS OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- ---------- -------- ---------- ---------- --------
LM LM LM LM LM LM LM
Wages................................. 150.0 156.1 204.5 360.6 162.4 204.9 367.3
Social security costs................. 14.5 15.6 18.7 34.3 17.0 20.2 37.2
Pension costs--see Note 28............ 4.4 4.5 7.9 12.4 5.7 16.2 21.9
----- ----- ----- ----- ----- ----- -----
168.9 176.2 231.1 407.3 185.1 241.3 426.4
===== ===== ===== ===== ===== ===== =====
P-21
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
3. NET OPERATING EXPENSES
1998 1997 1996
-------- -------- --------
LM LM LM
Staff and other associated costs--see Note 2................ 168.9 407.3 426.4
Depreciation of owned fixed assets.......................... 9.5 25.9 25.1
Depreciation of assets held under finance leases............ 0.2 0.3 0.7
Goodwill written off--see Notes 4 & 13...................... 0.2 2.2 16.5
Gain on sale of tangible fixed assets....................... (0.1) (0.8) 0.2
Operating leases--plant and machinery....................... 1.6 2.9 3.1
--leasehold property net of sublease income... 17.2 47.7 48.3
Auditor's remuneration--audit *............................. 1.0 2.6 2.5
--other **.............................. 0.3 0.4 0.9
Other administrative expenses............................... 77.0 192.0 199.7
----- ----- -----
275.8 680.5 723.4
===== ===== =====
- ------------------------
* The Company audit fee was L15,000 (1997: L37,000, 1996: L32,000).
** In 1997 in addition to non-audit fees paid to our Auditor shown above,
additional fees of L6.8 million relating to work in respect of the demerger
are included in non-operating costs. Work performed primarily included due
diligence, work associated with the circular to shareholders relating to the
demerger and the listing particulars of Saatchi & Saatchi, and advice on the
fundamental reorganisation of the Group.
4. EXCEPTIONAL OPERATING AND NON-OPERATING ITEMS
1998 1997 1997 1996 1996
ONGOING ONGOING DISPOSED 1997 ONGOING DISPOSED 1996
OPERATIONS OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- ---------- -------- ---------- ---------- --------
LM LM LM LM LM LM LM
OPERATING ITEMS
Termination of a defined benefits
pension plan--see Note 27............. -- -- -- -- 0.2 8.1 8.3
Property provisions..................... -- -- -- -- -- 8.2 8.2
Goodwill written off.................... -- 2.2 -- 2.2 -- -- --
---- ---- ---- ---- ---- ---- ----
Total exceptional costs included in
operating profit...................... -- 2.2 -- 2.2 0.2 16.3 16.5
==== ==== ==== ==== ==== ==== ====
P-22
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
4. EXCEPTIONAL OPERATING AND NON-OPERATING ITEMS (CONTINUED)
Goodwill was written off prior to the adoption of FRS 10.
1998 1997 1997 1996 1996
ONGOING ONGOING DISPOSED 1997 ONGOING DISPOSED 1996
OPERATIONS OPERATIONS OPERATIONS TOTAL OPERATIONS OPERATIONS TOTAL
---------- ---------- ---------- -------- ---------- ---------- --------
LM LM LM LM LM LM LM
NON-OPERATING ITEMS
Loss on inter-group debt............. -- 875.0 (1,011.8) (136.8) -- -- --
Surplus on transfer of
subsidiaries....................... -- 72.7 64.1 136.8 -- -- --
Amounts payable in relation to the
demerger........................... -- 16.3 3.9 20.2 -- -- --
Head office reorganisation........... -- 6.6 0.1 6.7 -- -- --
Inter-group property provisions...... -- -- 6.1 6.1 -- -- --
Fundamental
reorganisation--demerger........... -- 970.6 (937.6) 33.0 -- -- --
Profit on disposal of operations..... -- (16.5) (4.3) (20.8) -- (17.8) (17.8)
----- ----- -------- ------ ----- ----- -----
Total net exceptional costs outside
operating profit................... -- 954.1 (941.9) 12.2 -- (17.8) (17.8)
===== ===== ======== ====== ===== ===== =====
In order to implement the demerger, inter-group debt and subsidiaries had to
be eliminated. This was carried out by sale, assignment, waiver or other means.
There were surpluses and losses arising from these transactions.
Amounts payable in relation to the demerger includes external advisers'
fees, temporary staff and other costs.
As a result of the demerger, the Cordiant head office was reorganised and
combined with the head offices of Bates Worldwide and Saatchi & Saatchi
Worldwide.
Property provisions arose as a result of the demerger and represented the
difference between rental payable by Saatchi & Saatchi and the amounts
receivable from Zenith for space sublet to them.
The profit on disposal of operations in 1997 arose from the disposal of NRG
(L16.5 million) and the sale of Interpublic Group, Inc. (IPG) stock (L4.3
million), issued to Saatchi & Saatchi, following the acquisition of Draft Direct
(formerly Kobs & Draft Worldwide) by IPG in 1996.
P-23
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
5. NET INTEREST PAYABLE AND SIMILAR ITEMS
1998 1997 1996
-------- -------- --------
LM LM LM
INTEREST PAYABLE AND SIMILAR ITEMS
Bank loans, overdrafts and other loans...................... 3.6 13.4 13.1
Finance leases and hire purchase............................ 0.1 0.1 0.1
Loan stock.................................................. -- 0.4 0.4
Bank fees................................................... 0.7 1.9 1.1
Foreign exchange............................................ 0.3 --
---- ---- ----
4.7 15.8 14.7
---- ---- ----
INTEREST RECEIVABLE AND SIMILAR ITEMS
Cash and deposits........................................... (1.7) (5.3) (6.5)
Note interest............................................... (0.1) (0.3) (0.7)
Foreign exchange............................................ -- (1.4) --
---- ---- ----
(1.8) (7.0) (7.2)
---- ---- ----
GROUP NET INTEREST PAYABLE AND SIMILAR ITEMS................ 2.9 8.8 7.5
Joint ventures.............................................. (0.1) -- --
Associated undertakings..................................... (0.1) -- --
---- ---- ----
NET INTEREST PAYABLE AND SIMILAR ITEMS...................... 2.7 8.8 7.5
==== ==== ====
6. TAXATION
1998 1997 1996
-------- -------- --------
LM LM LM
UK corporation tax at 31 per cent. (1997: 31.5 per cent.;
1996: 33.0 per cent.)..................................... 1.3 0.7 1.1
Less relief for overseas taxation........................... (0.1) (0.5) (0.6)
ACT written off............................................. -- -- 1.1
UK deferred taxation........................................ -- 0.2 (0.5)
---- ---- ----
GROUP UK TAXATION........................................... 1.2 0.4 1.1
Overseas taxation........................................... 5.7 17.9 13.1
Overseas deferred taxation.................................. 1.4 (0.8) 0.6
---- ---- ----
GROUP TAXATION.............................................. 8.3 17.5 14.8
Joint ventures.............................................. 0.5 -- --
Associated undertakings..................................... 0.4 -- --
---- ---- ----
TAX ON ORDINARY ACTIVITIES.................................. 9.2 17.5 14.8
==== ==== ====
In 1996 and 1997 there was no corporate tax effect relating to operating and
non-operating exceptional items.
7. DIVIDEND
In 1998 the Board recommended a dividend of 1.4p per Ordinary share (1997:
1.2p, 1996: 2.0p) at a cost of L3.1 million (1997: L2.7 million, 1996:
L4.4million).
P-24
8. EARNINGS PER SHARE: BASIS OF CALCULATION
1998 1997 1996
--------------- --------------- ---------------
BASIC EPS
Profit attributable to Ordinary shareholders................ L15.0m L15.1m L24.2m
Weighted average shares..................................... 222.4m 443.8m 443.6m
Basic EPS................................................... 6.7p 3.4p 5.5p
DILUTED EPS
Profit attributable to Ordinary shareholders................ L15.0m L15.1m L24.2m
Weighted average shares..................................... 222.4m 443.8m 443.6m
Dilutive effect of options.................................. 0.9m 2.0m 1.7m
--------------- --------------- ---------------
Diluted weighted average shares............................. 223.3m 445.8m 445.3m
--------------- --------------- ---------------
Diluted EPS (1997 and 1996 restated under FRS 14)........... 6.7p 3.4p 5.5p
HEADLINE EPS*
Profit attributable to Ordinary shareholders................ L15.0m L15.1m L24.2m
Adjustments:
Goodwill written off, profit on disposal of operations and
demerger costs............................................ L0.2m L14.4m L(17.8m)
--------------- --------------- ---------------
Headline earnings........................................... L15.2m L29.5m L6.4m
--------------- --------------- ---------------
Diluted weighted average shares............................. 223.3m 445.8m 445.3m
--------------- --------------- ---------------
Headline EPS................................................ 6.8p 6.6p 1.4p
=============== =============== ===============
- ------------------------
* The definition of Headline Earnings is given in the Statement of Investment
Practice No. 1 published by the Institute of Investment Management and
Research (IIMR). This excludes impact of disposals, including related costs,
the cost relating to fundamental reorganisation and items relating to
goodwill and has been disclosed to assist the reader's understanding of the
Group's underlying performance.
9. RECONCILIATION OF GROUP OPERATING PROFIT TO NET CASH INFLOW FROM OPERATING
ACTIVITIES
1998 1997 1996
-------- -------- --------
LM LM LM
Group operating profit...................................... 26.0 55.6 31.5
Depreciation................................................ 9.7 26.2 25.8
(Gain)/loss on sale of tangible fixed assets................ (0.1) (0.8) 0.2
Decrease/(increase) in work in progress..................... 2.0 (5.5) 3.5
(Increase)/decrease in debtors.............................. (1.4) (35.3) 0.2
(Decrease)/increase in creditors............................ (9.6) 38.5 12.6
Utilisation of property provisions.......................... (7.0) (19.2) (16.9)
Non-cash item--goodwill written off......................... 0.2 2.2 --
---- ----- -----
NET CASH INFLOW FROM OPERATING ACTIVITIES................... 19.8 61.7 56.9
==== ===== =====
P-25
10. ANALYSIS OF CASH FLOW ITEMS
1998 1997 1996
-------- -------- --------
LM LM LM
RETURNS ON INVESTMENTS AND SERVICING OF FINANCE
Interest received........................................... 1.9 5.3 7.3
Interest paid............................................... (3.8) (13.6) (15.2)
Interest element of finance leases rental payments.......... (0.1) (0.1) (0.1)
Bank fees................................................... (0.4) (1.9) (0.9)
Dividends paid to minorities................................ (2.5) (2.0) (1.2)
---- ----- -----
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE................................................ (4.9) (12.3) (10.1)
==== ===== =====
TAXATION PAID
UK corporation tax paid..................................... (0.7) -- 0.1
Overseas tax paid........................................... (7.6) (15.1) (9.4)
---- ----- -----
NET TAX PAID................................................ (8.3) (15.1) (9.3)
==== ===== =====
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets........................... (8.7) (25.8) (26.9)
Sale of tangible fixed assets............................... 1.2 2.6 2.9
Purchase of other fixed asset investments................... -- (0.5) (0.9)
Sale of other fixed asset investments....................... 0.1 1.2 0.1
---- ----- -----
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT................................................ (7.4) (22.5) (24.8)
==== ===== =====
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings......................... (7.5) (9.3) (25.3)
Purchase of associated undertakings......................... (0.2) -- --
Cash acquired with subsidiaries............................. 0.7 0.6 1.7
Sale of subsidiary undertakings............................. -- 41.6 9.9
Cash in businesses sold..................................... (0.4) (1.1) --
Cash in businesses demerged................................. -- (43.4) --
---- ----- -----
NET CASH OUTFLOW FROM ACQUISITIONS AND DISPOSALS............ (7.4) (11.6) (13.7)
==== ===== =====
P-26
11. ANALYSIS OF CHANGES IN FUNDS
AT ACQUISITIONS EXCHANGE AT 31
1 JANUARY AND & NON CASH DECEMBER
1998 1998 CASH FLOWS DISPOSALS MOVEMENTS 1998
- ---- --------- ---------- ------------ ---------- --------
LM LM LM LM LM
Cash at bank and in hand................. 61.7 2.6 -- (2.0) 62.3
Cash deposits--current asset
investments............................ -- 0.8 -- -- 0.8
Bank overdrafts.......................... (7.7) (13.4) -- (0.1) (21.2)
----- ----- ---- ----- -----
Cash..................................... 54.0 (10.0) -- (2.1) 41.9
External debt due within one year........ (0.7) 0.7 (0.5) -- (0.5)
External debt due after one year......... (28.4) (9.3) 1.1 0.2 (36.4)
Finance leases........................... (0.2) 0.2 -- (0.4) (0.4)
----- ----- ---- ----- -----
Financing................................ (29.3) (8.4) 0.6 (0.2) (37.3)
----- ----- ---- ----- -----
Net funds................................ 24.7 (18.4) 0.6 (2.3) 4.6
===== ===== ==== ===== =====
AT EXCHANGE AT 31
1 JANUARY & NON CASH DECEMBER
1997 1997 CASH FLOWS DEMERGER MOVEMENTS 1997
- ---- --------- ---------- -------- ---------- --------
LM LM LM LM LM
Cash at bank and in hand................... 113.7 (41.6) -- (10.4) 61.7
Bank overdrafts............................ (47.8) 40.7 -- (0.6) (7.7)
----- ----- ---- ----- -----
Cash....................................... 65.9 (0.9) -- (11.0) 54.0
External debt due within one year.......... (5.0) 3.2 0.6 0.5 (0.7)
External debt due after one year........... (88.9) (20.5) 83.8 (2.8) (28.4)
Finance leases............................. (0.5) 0.3 0.2 (0.2) (0.2)
----- ----- ---- ----- -----
Financing.................................. (94.4) (17.0) 84.6 (2.5) (29.3)
----- ----- ---- ----- -----
Net funds.................................. (28.5) (17.9) 84.6 (13.5) 24.7
===== ===== ==== ===== =====
On 14 December 1997, the net assets of Saatchi & Saatchi and Zenith were
demerged. On demerger, they had net debt of L41.2 million. Net cash amounting to
L43.4 million is shown as an outflow in Note 10; external debt of L84.6 million
is included in the analysis of movement in net debt above.
AT EXCHANGE AT 31
1 JANUARY & NON CASH DECEMBER
1996 1996 CASH FLOWS MOVEMENTS 1996
- ---- --------- ---------- ---------- --------
LM LM LM LM
Cash at bank and in hand............................ 134.5 (9.4) (11.4) 113.7
Bank overdrafts..................................... (48.2) (2.8) 3.2 (47.8)
------ ----- ----- -----
Cash................................................ 86.3 (12.2) (8.2) 65.9
External debt due within 1 year..................... (0.8) (4.8) 0.6 (5.0)
External debt due after 1 year...................... (113.7) 15.8 9.0 (88.9)
Finance leases...................................... (0.5) 0.1 (0.1) (0.5)
------ ----- ----- -----
Financing........................................... (115.0) 11.1 9.5 (94.4)
------ ----- ----- -----
Net debt............................................ (28.7) (1.1) 1.3 (28.5)
====== ===== ===== =====
P-27
12. THE EFFECTS OF THE ACQUISITION AND DISPOSAL OF SUBSIDIARIES IN 1998
ACQUISITIONS DISPOSALS
------------ ---------
LM LM
Goodwill capitalised (net).................................. 16.4 --
Goodwill transferred to reserves............................ 4.6 (2.4)
Tangible fixed assets....................................... 0.7 (0.5)
Work in progress............................................ 0.6 (1.1)
Debtors..................................................... 7.2 (13.3)
Cash in companies disposed of............................... -- (0.4)
Cash received............................................... -- 2.4
---- -----
29.5 (15.3)
==== =====
Loans and finance leases.................................... 0.2 (0.8)
Creditors................................................... 9.0 (15.5)
Provisions for joint venture deficit........................ -- 1.0
Minorities.................................................. (0.7) --
Cost of acquisitions
--cash (net).............................................. 6.8 --
--CCG shares issued....................................... 3.4 --
--investments............................................. 0.4 --
--accruals................................................ 10.4 --
---- -----
29.5 (15.3)
==== =====
The effects of disposals relate mainly to the reclassification of Bates
Japan as a joint venture following a capital restructuring during 1998 which
created neither a profit nor a loss. Goodwill of L4.6 million was written off
directly to reserves in respect of adjustments made to estimates of deferred
consideration on acquisitions made prior to 1 January 1998.
THE EFFECTS OF THE ACQUISITION AND DISPOSAL OF SUBSIDIARIES IN 1997
ACQUISITIONS DISPOSALS
------------ ---------
LM LM
Goodwill capitalised (net).................................. 3.9 --
Tangible fixed assets....................................... 0.5 (0.6)
Work in progress............................................ 0.1 --
Debtors..................................................... (0.3) (7.3)
Investments (current)....................................... -- (0.1)
Sales proceeds:............................................. -- 2.4
-- cash (net)............................................. -- 40.5
-- investments (current).................................. -- (12.5)
---- -----
4.2 20.0
==== =====
ACQUISITIONS DISPOSALS
------------ ---------
LM LM
Loans and finance leases.................................... 0.3 --
Creditors................................................... 3.2 (1.0)
Cost of acquisitions and deferred payments:
-- cash (net)............................................. 8.7 --
-- minorities............................................. (0.3) 0.2
-- accruals (net)......................................... (7.7) --
Net profit on disposals..................................... -- 20.8
---- ----
4.2 20.0
==== ====
P-28
There were no material acquisitions during 1997 and payments were mainly in
respect of costs accrued in previous years. The goodwill arising on acquisitions
included L2.2 million written off in the year.
Proceeds from disposals included L17.1 million in respect of the sale of
current asset investments of L12.5 million which represented the realisation of
shares received as consideration for a prior year disposal.
SAATCHI &
DEMERGER SAATCHI ZENITH
- -------- --------- --------
LM LM
Tangible fixed assets....................................... 84.4 3.4
Fixed asset investment...................................... 4.0 0.1
Work in progress............................................ 20.0 --
Debtors..................................................... 263.4 90.6
Current investments......................................... 0.2 --
Cash........................................................ 57.5 9.1
------ -----
429.5 103.2
====== =====
Loans....................................................... 82.0 2.4
Overdrafts.................................................. 20.8 2.6
Other creditors and provisions.............................. 444.8 126.8
Minority interests.......................................... 2.2 --
------ -----
549.8 131.8
Transfer to Saatchi & Saatchi............................... 14.3 (14.3)
Demerger dividend........................................... (134.6) --
Provision for deficit....................................... -- (14.3)
------ -----
429.5 103.2
====== =====
The Demerger dividend of L134.6 million represented the net liabilities of
Saatchi & Saatchi plc at the time of the demerger.
THE EFFECTS OF THE ACQUISITION AND DISPOSAL OF SUBSIDIARIES IN 1996
ACQUISITIONS DISPOSALS
------------ ---------
LM LM
Goodwill transferred to reserves............................ 17.4 --
Tangible fixed assets....................................... 0.5 --
Property revaluation........................................ 3.6 --
Investments (fixed)......................................... (0.2) (0.8)
Work in progress............................................ 0.1 --
Debtors..................................................... 5.6 (3.4)
Sale proceeds:
-- cash................................................... -- 9.9
-- investments (current).................................. -- 11.8
----- ----
27.0 17.5
===== ====
Creditors................................................... 8.0 (0.3)
Minorities.................................................. (10.9) --
Cost of acquisitions:
cash (net)................................................ 23.6 --
-- CCG shares issued...................................... 0.4 --
-- accruals............................................... 5.9 --
Net profit on disposals..................................... -- 17.8
----- ----
27.0 17.5
===== ====
The net book value of assets acquired is not materially different from their
fair value with the exception of the revaluation of the freehold property in
Saatchi & Saatchi Advertising SA.
P-29
13. GOODWILL
1998 1997
-------- --------
LM LM
COST
Additions................................................... 16.6 --
Write off to profit and loss account........................ (0.2) --
Translation adjustment...................................... (0.2) --
---- --------
At end of year.............................................. 16.2 --
==== ========
14. TANGIBLE FIXED ASSETS
LEASEHOLD LEASEHOLD INFORMATION FURNITURE
PROPERTY PROPERTY TECHNOLOGY AND OTHER MOTOR TOTAL
1998 -- LONG -- SHORT EQUIPMENT EQUIPMENT VEHICLES 1998
- ---- --------- --------- ----------- --------- -------- --------
LM LM LM LM LM LM
COST
At 1 January 1998............................. 0.3 19.2 25.9 32.8 4.7 82.9
Translation adjustment........................ -- -- (0.5) (0.2) -- (0.7)
Additions..................................... -- 1.6 5.2 1.9 0.3 9.0
Companies acquired............................ -- 0.7 0.5 0.8 -- 2.0
Companies disposed of......................... -- -- -- (0.9) -- (0.9)
Disposals..................................... -- (0.6) (2.5) (1.9) (1.4) (6.4)
--- ---- ---- ---- ---- ----
At 31 December 1998........................... 0.3 20.9 28.6 32.5 3.6 85.9
DEPRECIATION
At 1 January 1998............................. 0.2 13.8 17.1 24.3 3.0 58.4
Translation adjustment........................ -- -- (0.3) (0.1) -- (0.4)
Companies acquired............................ -- 0.5 0.3 0.5 -- 1.3
Companies disposed of......................... -- -- -- (0.4) -- (0.4)
Charge for the year........................... -- 2.3 4.5 2.2 0.7 9.7
Disposals..................................... -- (0.4) (2.8) (1.1) (1.1) (5.4)
--- ---- ---- ---- ---- ----
At 31 December 1998........................... 0.2 16.2 18.8 25.4 2.6 63.2
--- ---- ---- ---- ---- ----
NET BOOK VALUE
At 1 January 1998............................. 0.1 5.4 8.8 8.5 1.7 24.5
--- ---- ---- ---- ---- ----
At 31 December 1998........................... 0.1 4.7 9.8 7.1 1.0 22.7
=== ==== ==== ==== ==== ====
Net book value of assets held under finance
leases included above:
At 1 January 1998............................. -- -- -- -- 0.1 0.1
--- ---- ---- ---- ---- ----
At 31 December 1998........................... -- -- 0.3 0.1 -- 0.4
=== ==== ==== ==== ==== ====
Net book value of land and buildings at 31 December 1998 was L4.8 million
(1997: L5.5 million, 1996: L65.6million).
P-30
14. TANGIBLE FIXED ASSETS (CONTINUED)
LEASEHOLD LEASEHOLD FURNITURE
FREEHOLD PROPERTY PROPERTY AND OTHER MOTOR TOTAL
1997 PROPERTY -- LONG -- SHORT EQUIPMENT VEHICLES 1997
- ---- -------- --------- --------- --------- -------- --------
LM LM LM LM LM LM
COST
At 1 January 1997............................. 11.1 1.6 90.5 154.1 10.2 267.5
Translation adjustment........................ (1.2) -- 0.9 (4.5) (0.3) (5.1)
Additions..................................... -- 0.2 5.3 17.8 1.4 24.7
Companies acquired............................ -- 0.1 -- 0.3 -- 0.4
Disposals -- demerger......................... (9.8) (1.4) (75.9) (101.4) (4.0) (192.5)
Disposals -- other............................ (0.1) (0.2) (1.6) (7.6) (2.6) (12.1)
---- ---- ----- ------ ---- ------
At 31 December 1997........................... -- 0.3 19.2 58.7 4.7 82.9
---- ---- ----- ------ ---- ------
DEPRECIATION
At 1 January 1997............................. 2.8 0.5 34.3 106.9 6.6 151.1
Translation adjustment........................ (0.3) -- (0.1) (3.6) (0.3) (4.3)
Charge for the year........................... 0.2 0.1 6.1 18.1 1.7 26.2
Disposals -- demerger......................... (2.7) (0.3) (24.9) (74.1) (2.8) (104.8)
Disposals -- other............................ -- (0.1) (1.6) (5.9) (2.2) (9.8)
---- ---- ----- ------ ---- ------
At 31 December 1997........................... -- 0.2 13.8 41.4 3.0 58.4
---- ---- ----- ------ ---- ------
NET BOOK VALUE
At 1 January 1997............................. 8.3 1.1 56.2 47.2 3.6 116.4
---- ---- ----- ------ ---- ------
At 31 December 1997........................... -- 0.1 5.4 17.3 1.7 24.5
==== ==== ===== ====== ==== ======
Net book value of assets held under finance
leases included above:
At 1 January 1997............................. -- -- -- 0.3 0.1 0.4
---- ---- ----- ------ ---- ------
At 31 December 1997........................... -- -- -- -- 0.1 0.1
==== ==== ===== ====== ==== ======
P-31
15. INVESTMENTS
ASSOCIATED UNDERTAKINGS
--------------------------------
SHARE OF
TANGIBLE LONG-TERM TOTAL
1998 NET ASSETS GOODWILL TOTAL INVESTMENTS 1998
- ---- ---------- -------- -------- ----------- --------
LM LM LM LM LM
COST OR VALUATION
At 1 January 1998.................................. 2.4 -- 2.4 3.6 6.0
Additions.......................................... (0.1) 0.1 -- 0.4 0.4
Disposals.......................................... -- -- -- (3.2) (3.2)
Share of retained profit........................... 0.8 -- 0.8 -- 0.8
---- --- --- ---- ----
At 31 December 1998................................ 3.1 0.1 3.2 0.8 4.0
---- --- --- ---- ----
AMOUNTS WRITTEN OFF
At 1 January 1998.................................. -- -- -- 2.5 2.5
Disposals.......................................... -- -- -- (2.5) (2.5)
---- --- --- ---- ----
At 31 December 1998................................ -- -- -- -- --
---- --- --- ---- ----
NET BOOK VALUE
At beginning 1 January 1998........................ 2.4 -- 2.4 1.1 3.5
---- --- --- ---- ----
At 31 December 1998................................ 3.1 0.1 3.2 0.8 4.0
==== === === ==== ====
All long-term investments are unlisted.
The Group's investments in Zenith and Saatchi & Saatchi Bates Yomiko
(S&SBY), are joint ventures, and are represented by a net deficit and disclosed
as a provision (see Note 21).
ASSOCIATED LONG-TERM WORKS TOTAL
1997 UNDERTAKINGS INVESTMENTS OF ART 1997
- ---- ------------ ----------- -------- --------
LM LM LM LM
COST OR VALUATION
At 1 January 1997........................................ 3.9 10.2 3.7 17.8
Translation adjustment................................... (0.1) (0.1) -- (0.2)
Transfer to investment in subsidiaries................... (0.4) -- -- (0.4)
Loans repaid............................................. (0.2) -- -- (0.2)
Additions................................................ -- 0.1 -- 0.1
Disposals -- demerger.................................... (0.7) (0.8) (3.6) (5.1)
Disposals -- other....................................... -- (5.8) (0.1) (6.0)
---- ---- ---- ----
At 31 December 1997...................................... 2.4 3.6 -- 6.0
---- ---- ---- ----
AMOUNTS WRITTEN OFF
At 1 January 1997........................................ 2.2 8.7 -- 10.9
Disposals -- demerger.................................... (2.2) (0.4) -- (2.6)
Disposals -- other....................................... -- (5.8) -- (5.8)
---- ---- ---- ----
At 31 December 1997...................................... -- 2.5 -- 2.5
---- ---- ---- ----
NET BOOK VALUE
At 1 January 1997........................................ 1.7 1.5 3.7 6.9
---- ---- ---- ----
At 31 December 1997...................................... 2.4 1.1 -- 3.5
==== ==== ==== ====
P-32
15. INVESTMENTS (CONTINUED)
Except where otherwise indicated the Company either directly or indirectly
owned 100 per cent. of each class of the issued shares of the undertakings
listed below. All these undertakings are advertising and marketing services
companies. The country of operation and registration of the principal
undertakings were as follows:
England.............................. Bates Dorland Ltd
The Facilities Group Ltd
(30 per cent. Ordinary)
Zenith Media Holdings Ltd
(50 per cent. Ordinary)
Australia............................ The Communications Group Pty Ltd
Denmark.............................. Bates Gruppen AS
Germany.............................. Scholz & Friends GmbH
Norway............................... Bates Gruppen AS
Spain................................ Grupo Bates SA
US................................... Bates Advertising USA, Inc
In 1997 the results of the Group were principally affected by the above
companies together with the Saatchi & Saatchi network which was demerged from
the Group on 14 December 1997.
In the opinion of the Directors, these undertakings principally affect the
results and assets of the Group. In addition to the companies shown above, the
Group also holds investments in other subsidiaries and associated undertakings.
As provided for in the Zenith shareholders' agreement 75 per cent. of the
distributable profits of Zenith will be distributed to shareholders and divided
between them in part by reference to the proportions in which Zenith receives
revenue from clients of each shareholder. The remainder will be retained in
Zenith.
16. DEBTORS
1998 1997
-------- --------
LM LM
DUE WITHIN ONE YEAR:
Trade debtors............................................... 212.8 219.0
Amounts due from joint ventures and associated
undertakings.............................................. 1.1 0.4
Other debtors............................................... 9.9 16.5
Prepayments and accrued income.............................. 22.5 18.4
----- -----
246.3 254.3
===== =====
DUE AFTER ONE YEAR:
Other debtors............................................... 16.7 14.8
Prepayments and accrued income.............................. 1.6 0.7
----- -----
18.3 15.5
===== =====
Total Group other debtors amount to L26.6 million (1997: L31.3 million).
Total Group prepayments and accrued income amount to L24.1 million (1997: L19.1
million).
P-33
17. CURRENT ASSET INVESTMENTS
1998 1997
-------- --------
LM LM
Cash deposits............................................... 0.8 --
Other--unlisted............................................. 0.7 0.2
Other--listed............................................... -- --
--- ---
1.5 0.2
=== ===
18. CREDITORS
1998 1997
-------- --------
LM LM
DUE WITHIN ONE YEAR:
Bank loans.................................................. 0.5 0.1
Bank overdrafts............................................. 21.2 7.7
Other loans................................................. -- 0.6
Finance leases and hire purchase............................ 0.2 0.1
Tax and social security..................................... 24.0 21.6
Trade creditors............................................. 185.0 194.2
Amounts due to joint ventures and associated undertakings... 7.6 11.3
Proposed dividends--equity shareholders..................... 3.1 2.7
Other creditors............................................. 72.1 93.2
----- -----
313.7 331.5
===== =====
DUE AFTER ONE YEAR:
Bank loans.................................................. 36.4 25.2
Other loans................................................. -- 3.2
Finance leases and hire purchase............................ 0.2 0.1
Tax and social security..................................... 23.9 23.8
Other creditors............................................. 13.3 1.5
----- -----
73.8 53.8
===== =====
At 31 December 1998, the Group had committed core banking facilities
totalling US$108.8 million (L65.6 million), of which US$60.4 million (L36.4
million) were being utilised.
These facilities expire in accordance with the following schedule:
1999 2000 2001 2002
-------- -------- -------- -----------
US$m.......................................... 6.0 15.0 20.0 the balance
Lm............................................ 3.6 9.1 12.1 the balance
Interest is payable on each advance under the facilities at a rate per annum
based on the aggregate of LIBOR and a margin of between 0.75 per cent. and 1.5
per cent. per annum depending upon the ability of the Group to improve certain
financial ratios.
An amount of L0.8 million (1997: L0.1 million) included in bank loans and
overdrafts is secured by charges over assets. In addition an amount of L36.4
million (1997: L25.2 million) of the Group's borrowings is secured by guarantees
from and charges over the assets of the Company and a number of its
subsidiaries. Liabilities under finance leases are secured on the assets leased.
P-34
An amount of L3.5 million (1997: L4.0 million) included in trade creditors
is secured on related trade debtors and cash balances.
19. FINANCE LEASES
1998 1997
-------- --------
LM LM
Gross obligations under finance leases due after more than
one year
From one to two years....................................... -- --
From two to five years...................................... 0.2 0.1
Less: future finance charges................................ -- --
--- ---
0.2 0.1
=== ===
20. GUARANTEES AND CONTINGENT LIABILITIES
As at 31 December 1998, the Company had the following guarantees and
contingent liabilities.
In addition to the amounts described in Note 18, the Company has guaranteed
L1.2 million (1997: L4.5 million) of borrowings of subsidiary undertakings. At
31 December 1998 in total L37.6 million (1997: L29.7 million) of such borrowings
were outstanding.
The Company has guaranteed the operating lease commitments relating to
leasehold property of certain subsidiary undertakings. The leases are for
various periods up to the year 2013 and the total obligations at 31
December 1998 at current rents amounted to L152.9 million (1997: L163.4
million). In addition, the Company has given other guarantees incurred in the
normal course of business of L27.3 million (1997: L26.0 million).
The Company gave guarantees in respect of obligations of Saatchi & Saatchi
companies, which remain in force. Saatchi & Saatchi has undertaken to indemnify
CCG for any liability under these guarantees. These guarantees include operating
lease commitments relating to a leasehold property in New York. The lease
expires in the year 2013 and the total obligations at 31 December 1998 were
L189.5 million (1997: L202.5 million).
The Company and Saatchi & Saatchi have each guaranteed Zenith's bank
facility of L20.5 million and have agreed between themselves to share equally
any liability arising therefrom. Borrowings drawn down under the Zenith facility
at 31 December 1998 were L5.1 million (1997: L2.4 million).
Other guarantees given by Group companies to third parties amounted to L4.9
million at 31 December 1998 (1997: L5.9 million).
On 18 June 1998, Miller Brewing Company (``Miller"), a former client of
Bates Worldwide, commenced an action in the United States District Court for the
Eastern District of Wisconsin against Bates Advertising USA, Inc. and Zenith
Media Services, Inc. (the ``Defendants"). The suit seeks damages in an
unspecified amount, attorney's costs and seeks equitable relief, as necessary,
to cause the Defendants to fulfil their alleged obligations to Miller. The
Company believes that the Defendants have meritorious defences to the
allegations and intends to pursue them vigorously. The Directors believe that in
the event of the claimant being successful the liability of the Group would be
limited to its self-insured retention of US$125,000.
P-35
21. PROVISIONS
PROVISION FOR JOINT VENTURE DEFICIT
1998 1997
-------- --------
LM LM
The Group share of net liabilities of Zenith and S&SBY is as
shown below:
Fixed assets................................................ 1.7 1.8
Current assets.............................................. 81.9 49.8
----- -----
SHARE OF GROSS ASSETS....................................... 83.6 51.6
----- -----
Liabilities due within one year............................. (97.0) (64.3)
Liabilities due after one year.............................. (1.3) (1.6)
----- -----
SHARE OF GROSS LIABILITIES.................................. (98.3) (65.9)
----- -----
SHARE OF JOINT VENTURE NET LIABILITIES...................... (14.7) (14.3)
===== =====
PROVISION FOR LIABILITIES AND CHARGES
PENSIONS AND
SIMILAR
DEFERRED EMPLOYMENT JOINT
1998 TAXATION PROPERTY OBLIGATIONS OTHER TOTAL 1998 VENTURES
- ---- -------- -------- ------------ -------- ---------- ----------
LM LM LM LM LM LM
At 1 January 1998......................... 0.5 40.2 16.6 0.5 57.8 (14.3)
Translation adjustment.................... 0.3 -- -- -- 0.3 --
Company transferred to joint ventures..... -- -- (0.2) -- (0.2) (1.2)
Profit and loss account................... 1.4 -- 1.2 0.3 2.9 0.8
Utilised.................................. -- (7.0) (0.4) -- (7.4) --
--- ---- ---- --- ---- -----
At 31 December 1998....................... 2.2 33.2 17.2 0.8 53.4 (14.7)
--- ---- ---- --- ---- -----
PROVISION FOR LIABILITIES AND CHARGES
PENSIONS AND
SIMILAR
DEFERRED EMPLOYMENT JOINT
1997 TAXATION PROPERTY OBLIGATIONS OTHER TOTAL 1998 VENTURES
- ---- -------- -------- ------------ -------- ---------- ----------
LM LM LM LM LM LM
At 1 January 1997......................... 1.1 105.7 29.6 1.6 138.0 --
Translation adjustment.................... 0.5 3.9 0.6 (0.1) 4.9 --
Company acquired.......................... (0.3) -- -- -- (0.3) --
Profit and loss account................... (0.6) 6.1 3.7 0.9 10.1 --
Utilised.................................. -- (19.2) (1.8) (0.7) (21.7) --
Reclassification from taxation and social
security due within one year............ 1.5 -- -- -- 1.5
Demerger.................................. (1.7) (56.3) (15.5) (1.2) (74.7) (14.3)
---- ----- ----- ---- ----- -----
At 31 December 1997....................... 0.5 40.2 16.6 0.5 57.8 (14.3)
---- ----- ----- ---- ----- -----
Deferred taxation is in respect of various short-term timing differences.
The Group has no material unprovided deferred tax liabilities.
The profit and loss on joint ventures is stated after dividends.
P-36
Analysis of leasehold property provisions by years:
1998 1997
-------- --------
LM LM
Within one year............................................. 4.5 6.0
One to two years............................................ 3.3 5.0
Two to five years........................................... 10.3 9.6
Over five years............................................. 15.1 19.6
---- ----
33.2 40.2
==== ====
22. SHARE CAPITAL
1998 1997
-------- --------
LM LM
Authorised share capital of the Company..................... 150.5 150.5
===== =====
Allotted, called up and fully paid:
225.5 million Ordinary shares of 50p each (1997: 221.9
million).................................................... 112.7 111.0
===== =====
During the year the Company issued 0.6 million Ordinary shares of 50p each
for consideration of L0.5 million pursuant to receipt of notices to exercise
options from employees of the Group. In addition, the Company issued 2.9 million
Ordinary shares of 50p each for a total consideration of 3.5 million in respect
of the acquisition of the 24.9per cent. minority interest in TCG.
23. RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS' FUNDS
PROFIT AND
SHARE SHARE SHARES TO SPECIAL LOSS
1998 CAPITAL PREMIUM BE ISSUED RESERVE* ACCOUNT** TOTAL 1998
- ---- -------- -------- --------- -------- ---------- ----------
LM LM LM LM LM LM
At 1 January 1998.............................. 111.0 -- -- 25.7 (222.4) (85.7)
Issues of Ordinary shares net of expenses...... 1.7 2.3 -- -- -- 4.0
Option payments for employee share schemes..... -- -- 1.3 -- -- 1.3
Goodwill arising on acquisitions made in
previous periods............................. -- -- -- -- (2.2) (2.2)
Profit retained for the year................... -- -- -- -- 11.9 11.9
Reversal of imputed employee share scheme
cost......................................... -- -- -- -- 0.9 0.9
Translation adjustment......................... -- -- -- -- (1.7) (1.7)
----- --- --- ---- ------ -----
At 31 December 1998............................ 112.7 2.3 1.3 25.7 (213.5) (71.5)
===== === === ==== ====== =====
- ------------------------
* Relates to the reduction of capital, which took place as part of the
demerger in 1997. The reserve is non-distributable other than for the
purpose of paying up shares in a bonus issue of fully paid shares.
** The 1997 closing Goodwill reserve has been combined with the Profit and Loss
Account in accordance with FRS10. As at 31 December 1998 the profit and loss
account included goodwill written off directly to reserves of L115.4 million
(1997 L113.2 million).
P-37
CAPITAL
REDEMP- PROFIT
SHARE SHARE TION SPECIAL GOODWILL AND LOSS TOTAL
1997 CAPITAL PREMIUM RESERVE RESERVE RESERVE ACCOUNT 1997
- ---- -------- -------- -------- -------- -------- -------- --------
LM LM LM LM LM LM LM
At 1 January 1997......................... 230.1 137.3 86.5 -- (235.6) (433.6) (215.3)
Issues of Ordinary shares net of
expenses................................ 0.1 -- -- -- -- -- 0.1
Net goodwill arising in year.............. -- -- -- -- (1.7) -- (1.7)
Elimination of goodwill reserves on
disposals............................... -- -- -- -- 124.1 (124.1) --
Profit retained for the year.............. -- -- -- -- -- 147.0 147.0
Translation adjustment.................... -- -- -- -- -- (15.8) (15.8)
Reduction of capital...................... (119.2) (137.3) (86.5) 25.7 -- 317.3 --
------- ------ ----- ---- ------ ------ ------
At 31 December 1997....................... 111.0 -- -- 25.7 (113.2) (109.2) (85.7)
======= ====== ===== ==== ====== ====== ======
24. COMMITMENTS
The Group is committed to make certain capital payments in the form of
deferred consideration and to acquire certain minority interests in
subsidiaries. All commitments, totalling an estimated L10.5 million (1997: L3.7
million), have been accrued in the balance sheet.
At 31 December 1997 and 1998 the Group had the following other commitments
in respect of capital expenditure and non-cancellable operating leases for the
following year:
1998 1997
-------- --------
LM LM
Capital expenditure:
Committed but not provided for.............................. 0.2 0.5
=== ===
NON-CANCELLABLE OPERATING LEASES WHICH EXPIRE:
LAND AND BUILDINGS
-------------------------------- TOTAL TOTAL
GROSS PROVISIONS NET OTHER 1998 1997
-------- ---------- -------- -------- -------- --------
LM LM LM LM LM LM
Within one year............................ 2.6 (0.8) 1.8 0.8 2.6 2.6
Within two to five years................... 9.7 (1.1) 8.6 0.6 9.2 7.6
Over five years............................ 16.3 (2.6) 13.7 -- 13.7 13.3
---- ---- ---- --- ---- ----
28.6 (4.5) 24.1 1.4 25.5 23.5
==== ==== ==== === ==== ====
Of the above operating lease property commitments, an amount of L8.2 million
is recoverable from sub-tenants (1997: L8.1 million).
25. TRANSACTIONS WITH RELATED PARTIES
Contracts of significance which were entered into by the Company during the
following financial years:
1998:
- In November 1998, the Group acquired the remaining 24.9 percent. interest
in The Communications Group (TCG) in Australia, for initial consideration
of A$16.9 million (L6.2 million).
P-38
- In October 1998, the Group acquired a further 75 percent. interest in
Verdino Bates SA of Argentina, for consideration of ARP2.3 million (L1.4
million).
1997:
- In March 1997, the Company made a deferred payment of L0.4 million
relating to the acquisition in 1996 of the minority interest in BSB
Saatchi & Saatchi MC Limited in Poland.
- In July 1997, the Company acquired a 51 percent. interest in the share
capital of Grapple Group 141 (Pty) Ltd for consideration of R1.8 million
(L0.2 million).
- In November 1997, the Company acquired a further 25 percent. minority
interest in the share capital of X/M Harrow Pty Ltd in Australia.
Estimated payments of A$0.6 million (L0.3 million) will be made in 2000.
- In December 1997, the Company acquired a further 33 percent. interest in
Scholz & Friends Dresden GmbH in Germany. Deferred consideration of
L2.2 million is payable in 2000.
- During the financial year 1997, the Company made deferred payments
totalling FFR31.3 million (L2.9 million) relating to the acquisition in
1996 of the minority interest in Saatchi & Saatchi Advertising SA in
France.
- During the financial year 1997, the Company made deferred payments
totalling Pts1,206 million (L5.0 million) relating to the acquisition in
1994 of the minority interest in Grupo Bates SA in Spain.
- In October 1997, the Group sold the National Research Group, Inc., and its
subsidiaries NRG-UK Ltd. and Movie View Inc. (``NRG"). NRG provided
services to the film industry. Consideration of L24.4 million was received
which was after deducting a fee of L8.0 million payable to certain of
NRG's directors under the terms of an agreement entered into in 1995.
1996:
- With effect from 1 January 1996, the Company acquired the 47.4 per cent.
minority interest in the share capital of Saatchi & Saatchi SA in France
held by management. Consideration of FFR140.1 million (L17.5 million) was
paid in cash and additional cash payments totalling FFR48.9 million
(L5.5 million) will be made in 1997 and 1998.
- In February 1996, the Company issued 327,960 Ordinary shares at a price of
L1.09 per share as further consideration to the vendors of Adaptus
International A/S, a Norwegian subsidiary.
- In May 1996, the Company issued 64,522 Ordinary shares at a price of
L1.344 per shares as further consideration to the vendors of Campaign
Palace, Sydney.
- In May 1996, the Company acquired a further 10.7 per cent. minority
interest in the share capital of Scholz & Friends GmbH in Germany.
Consideration of DM5.4 million (L2.3 million) was paid in cash.
- In October 1996, the Company acquired the 49 per cent. minority interest
in the share capital of BSB Saatchi & Saatchi MC Limited in Poland.
Consideration of L1.5 million was paid in cash.
- During the financial year 1996, the Company made deferred payments
totalling Pts233.8 million (L1.3 million) relating to the acquisition in
1994 of the minority interest in Grupo Bates SA in Spain.
P-39
- Transactions in the ordinary course of business with joint ventures and
associated undertakings were as follows:
1998 1997 1996
-------- -------- --------
LM LM LM
Media services........................................... 214.0 30.1 32.0
Production............................................... 9.5 7.8 5.0
----- ---- ----
223.5 37.9 37.0
===== ==== ====
- The year end balances with joint ventures and associated undertakings are
disclosed in notes 16 and 18.
No Director had any material interest in any contracts with the Company or
any of its subsidiaries or owned shares in any subsidiary, except as disclosed
below:
Mr Hamill is a director and shareholder of a trust company, which held a
24.9per cent. interest in the issued share capital of TCG. Mr Hamill was
personally entitled to 11.6per cent. of the outstanding units in the trust. In
November 1998 the Group purchased the remaining 24.9per cent. interest in TCG.
Pursuant to a shareholders' agreement with the Company, TCG Employee Nominee
Pty Limited, as Trustee of the TCG Employee Trust (``the Trust") holds 24.9per
cent. of the issued Ordinary share capital of The Communications Group Pty
Limited, the Company's principal Australian subsidiary (``TCG"). The Trust is a
unit trust set up for the benefit of employees of TCG and its subsidiaries.
MrHamill is a director and shareholder of the Trustee and is personally entitled
to units representing approximately 11.6per cent. of the outstanding units in
the Trust. Westpac Banking Corporation (``Westpac") has agreed to lend the
Trustee up to A$5million to finance loans to employees to purchase units in the
Trust and eventual repurchases of units by the Trust. This loan is secured by a
charge over the shares in TCG held by the Trust. The Company has granted to
Westpac a put option which provides that, if Westpac acquires TCG shares as a
result of enforcing the security, the Company will be obliged to purchase such
shares at a price equivalent to the unpaid amount of the loan. The outstanding
amount of the loan from Westpac to the Trustee was A$1,500,000 as at
1 January 1997 and A$1,300,000 as at 31 December 1997. The Company has also
agreed with the Trustee that in the event that the Company acquires TCG shares
pursuant to the put option, then in certain circumstances the Company will make
payments to the Trustee by reference to the value of the TCG shares in excess of
the amount of the loan.
P-40
26. DIRECTORS' INTERESTS AND EMOLUMENTS
The interests of the Directors in the Company's share capital as appears in
the register maintained by the Company pursuant to Section 325 of the Companies
Act 1985 were as set out below.
CCG SHARE OPTIONS AND EQUITY
BENEFICIALLY OWNED CCG SHARES PARTICIPATION RIGHTS
--------------------------------------- ---------------------------------------
31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER 31 DECEMBER
1998 1997 1996 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
M Bungey...................... 55,990 55,990 56,980 1,537,130 1,537,130 497,020
A D'Angelo.................... 960 960 -- 860,337 922,082 328,681
J de Yturbe................... -- -- -- 854,397 854,397 260,966
D Fishburn.................... -- -- -- -- -- --
A Hamill...................... -- -- -- 922,139 990,744 397,343
T Levitt...................... 18,796 18,796 37,592 -- -- --
P M Schoning.................. -- -- -- 725,827 725,827 132,426
C Scott(1).................... 85,172 85,172 78,430 731,905 787,583 1,219,489
R Stomberg.................... -- --* -- -- --* --
J Tyrrell..................... -- --* -- -- --* --
W Whitehead................... 787 787 -- 829,548 848,757 255,356
Dr Thomas Russell............. -- -- 736,554 -- -- --
Robert Seelert................ -- -- 56,196 -- -- 219,849
Wendy Smyth................... -- -- 10,166 -- -- 504,532
Sir Peter Wax................. -- -- 10,000 -- -- --
Edward Wax.................... -- -- 87,188 -- -- 367,322
- ------------------------
(1) Including options and shares in spouse's name
* On appointment.
PENSION ARRANGEMENTS
For all executive Directors, only basic salary is pensionable. Their pension
arrangements are as follows:
(a) Mr Bungey is a member of the Cordiant Group Pension Scheme. In addition, CCG
contributes 6 per cent. of his salary plus L15,000 per annum to a
self-administered fund.
(b) Mr Hamill is a member of the George Patterson 1993 Holding Board
Superannuation Plan.
(c) Mr D'Angelo is entitled to an annual pension contribution of $7,500 and is
also a member of the Bates Advertising USA Inc. 401k plan.
(d) Mr Whitehead is a member of the Bates Advertising USA Inc. 401k plan and is
also entitled to a pension from the age of 60 from his previous employer,
Bates Canada Inc.
(e) Mr de Yturbe is not a member of any company pension scheme. However,
pursuant to French legislation, his salary is subject to state pension
scheme contributions, which are included in the table on page 42.
(f) Mr Scott receives a Company contribution equivalent to 10 per cent. of his
salary, which is paid into a personal pension scheme.
P-41
DIRECTORS' REMUNERATION
AS LONG TERM TOTAL
PERCENTAGE INCENTIVE BENEFITS IN PENSION ONE-OFF REMUN-
SALARY BONUS OF SALARY PLANS KIND COSTS(3) PAYMENT ERATION
-------- -------- ---------- --------- ----------- -------- -------- --------
L000 L000 L000 L000 L000 L000 L000
YEAR ENDED 31 DECEMBER 1998
EXECUTIVE DIRECTORS
Michael Bungey (CEO)(2)............ 478 120 25 14 89 52(2) -- 753
Arthur D'Angelo.................... 213 48 23 9 7 8 -- 285
Jean de Yturbe..................... 212 48 23 14 32 20 -- 326
Alex Hamill........................ 323 48 15 -- -- 2 -- 373
Peter M Schoning................... 270 232 86 -- 10 -- -- 512
William Whitehead.................. 315 48 15 9 30 3 -- 405
NON-EXECUTIVE DIRECTORS
Charles Scott (Chairman)........... 165 -- -- -- 4 4 -- 173
Dudley Fishburn.................... 31 -- -- -- -- -- -- 31
Professor Theodore Levitt.......... 28 -- -- -- -- -- -- 28
Dr Rolf Stomberg (appointed 1 May
1998).............................. 19 -- -- -- -- -- 19
James Tyrrell (appointed 1 May
1998).............................. 19 -- -- -- -- -- -- 19
YEAR ENDED 31 DECEMBER 1997
EXECUTIVE DIRECTORS
Michael Bungey (CEO)(4)............ 654 197 30 -- 107 58(2) -- 1,016
Arthur D'Angelo(7)................. 8 3 38 -- -- -- -- 11
Jean de Yturbe(7).................. 8 4 50 -- 1 1 -- 14
Alex Hamill(7)..................... 14 7 50 -- -- -- -- 21
Peter M Schoning(7)................ 11 8 72 -- -- -- -- 19
William Whitehead(7)............... 11 5 45 -- 1 -- -- 17
NON-EXECUTIVE DIRECTORS
Charles Scott (Chairman)........... 300 153 51 -- 7 92 404(5) 956
Dudley Fishburn.................... 33 -- -- -- -- -- -- 33
Professor Theodore Levitt.......... 30 -- -- -- -- -- -- 30
FORMER DIRECTORS
The Hon. Clive Gibson(6)........... 28 -- -- -- -- -- -- 28
Dr Thomas Russell(6)............... 28 -- -- -- -- -- -- 28
Robert Seelert(6).................. 487 237 49 -- 35 39 -- 798
Wendy Smyth(6)..................... 158 56 35 -- 13 -- -- 227
Sir Peter Wax(6)................... 31 -- -- -- -- -- -- 31
Edward Wax (resigned 20 May 1997).. 182 93 51 -- 6 7 158(8) 288
Kevin Roberts(6)................... 144 99 69 -- -- -- -- 401
YEAR ENDED 31 DECEMBER 1996
EXECUTIVE DIRECTORS
Michael Bungey..................... 481 249 52 -- 67 84 -- 881
Charles Scott (Chairman)........... 300 174 58 -- 18 43 -- 535
Robert Seelert(6) (Chief Executive
Officer)........................... 513 253 49 -- 31 123 -- 920
Wendy Smyth(6)..................... 165 64 39 -- 13 19 -- 261
Sir Peter Wax(6)................... 25 -- -- -- -- -- -- 25
Edward Wax(6)...................... 497 251 51 -- 21 103 -- 872
P-42
AS LONG TERM TOTAL
PERCENTAGE INCENTIVE BENEFITS IN PENSION ONE-OFF REMUN-
SALARY BONUS OF SALARY PLANS KIND COSTS(3) PAYMENT ERATION
-------- -------- ---------- --------- ----------- -------- -------- --------
L000 L000 L000 L000 L000 L000 L000
NON-EXECUTIVE DIRECTORS
Dudley Fishburn (appointed 8 May
1996).............................. 14 -- -- -- -- -- -- 14
The Hon. Clive Gibson(6)........... 26 -- -- -- -- -- -- 26
Sir Paul Girolami (resigned 18 June
1996).............................. 12 -- -- -- -- -- -- 12
Professor Theodore Levitt.......... 23 -- -- -- -- -- -- 23
Dr Thomas Russell(6)............... 26 -- -- -- -- -- -- 26
- ------------------------
(1) Appointed 1 May 1998.
(2) Mr Bungey and Ms Smyth were members of the Cordiant Group Pension Scheme, a
defined benefit scheme, during the year. In addition to the amounts
disclosed above, the amount of the increase in pension during the year was
for Mr Bungey --L4,337 (1997: L4,303; 1996: Lnil), and for Ms Smyth L2,334.
The total annual accrued pension (including inflation) as at
31 December 1999 was for Mr Bungey L57,160 (1997: L50,308; 1996: Lnil), and
for Ms Smyth L42,264. The accrued benefit is that which would be paid
annually on retirement based on service to the end of the year. The transfer
value (net of members' contributions) of the relevant increase in accrued
benefit is for Mr Bungey L55,456 (1997: 47,460).
(3) The amounts for pension costs disclosed in the executive Directors'
remuneration are based on the cash cost to the employing company of defined
contribution schemes.
(4) Mr Bungey's salary includes an amount of L29,919 (1997: L205,166) as part of
a tax equalisation scheme in respect of tax paid on his remuneration under
US tax law.
(5) Mr Scott was executive Chairman of Cordiant plc in 1997 and his remuneration
above reflects that role. On 30 September 1997, in consideration for the
termination of his former employment contract with the Company, it was
agreed that he would receive a lump-sum payment based on the termination
clauses of that contract.
(6) Resigned 15 December 1997.
(7) Appointed 15 December 1997.
(8) Mr Roberts received a sign-on bonus of L158,000 on appointment as Director
and Chief Executive Officer of Saatchi & Saatchi Advertising Worldwide.
P-43
DIRECTORS' SHARE OPTIONS
ORIGINAL AVERAGE SUBSCRIPTION TOTAL
DATE OF EXERCISE NUMBER OF EXERCISE EXERCISE
GRANT PRICE SHARES PRICE PERIOD
------------------------ -------- ------------ -------- --------------
LM
M Bungey............. May 1995 to Aug 1995 84p In profit* 134,995 113,399 To Aug 2005
Jun 1991 to Apr 1997 128p Out of profit 512,025 657,672 To Apr 2007
A D'Angelo........... May 1995 to Aug 1995 84p In profit* 66,854 56,159 To Aug 2005
Apr 1992 to Apr 1997 124p Out of profit 200,082 249,962 To Apr 2007
J de Yturbe.......... May 1995 to Aug 1995 84p In profit 80,996 68,039 To Aug 2005
Apr 1996 to Apr 1997 130p Out of profit* 180,000 235,350 Apr 1999 to
Apr 2007
A Hamill............. May 1995 to Aug 1995 84p In profit* 93,854 78,840 To Aug 2005
Apr 1992 to Apr 1997 125p Out of profit 234,884 294,349 To Apr 2007
P M Schoning......... May 1995 to Aug 1995 84p In profit* 42,426 35,639 To Aug 2005
Apr 1996 to Apr 1997 130p Out of profit 90,000 117,825 To Apr 2007
C Scott.............. May 1995 73p In profit* 109,926 80,370 May 2000 to
May 2002
Jun 1991 to Apr 1997 129p Out of profit 621,979 804,806 To Dec 2004
W Whitehead.......... May 1995 to Aug 1995 84p In profit* 42,426 35,639 To Aug 2005
Apr 1992 to Apr 1997 129p Out of profit 193,721 250,100 To Apr 2007
- ------------------------
* Option prices below the middle market price of 107p at 31 December 1998.
During the year, C Scott's spouse exercised options over 45,958 shares at
exercise prices between 64.5p and 107.5p per share arising from her previous
employment with the Group. A total of 159,279 options held by the above
Directors lapsed during the year.
Except as disclosed above, no options were granted to, or exercised by, the
above Directors, and no options lapsed during the year in respect of such
Directors.
All exercise prices for the share option schemes have been rounded to the
nearest penny.
The Company's register of Directors' interests contains full details of
Directors' shareholdings and options to subscribe.
DIRECTORS' EQUITY PARTICIPATION PLAN GRANTS
MAXIMUM
NUMBER OF CONTRIBUTION
DATE OF GRANT SHARES PAYABLE VESTING PERIOD*
------------- --------- ------------ ------------------------
LM
M Bungey............................. Dec 1997 890,110 116,827 Dec 2000-Dec 2001
A D'Angelo........................... Dec 1997 593,401 77,884 Dec 2000-Dec 2001
J de Yturbe.......................... Dec 1997 593,401 77,884 Dec 2000-Dec 2001
A Hamill............................. Dec 1997 593,401 77,884 Dec 2000-Dec 2001
P M Schoning......................... Dec 1997 593,401 77,884 Dec 2000-Dec 2001
W Whitehead.......................... Dec 1997 593,401 77,884 Dec 2000-Dec 2001
- ------------------------
* The actual exercise period will be determined once the performance formula
has been applied to the Group's results for the year ending
31 December 2000, when one half of the shares will normally vest. The
remainder may be issued one year later.
P-44
During the year, the Company's Ordinary Shares traded on The London Stock
Exchange opening at 107p, with a high of 136p and a low of 88.5p during the
year, closing at 107p on 31 December 1999.
OWNERSHIP SCHEMES
The Company operated ``ownership schemes" prior to the demerger which
allocated ``network shares" to key executives, the value of the network shares
increasing or decreasing in line with the network's performance against target.
These schemes have been replaced by the Equity Participation Plan and the
Performance Share Option Scheme. On acceptance of the invitation to participate
in these new schemes, the executives' awards under the Ownership Schemes
crystallised at 50 per cent. of the value at 31 December 1997. Benefits will be
paid to the executives in future years in accordance with the terms of the
schemes.
Awards to Directors under the Ownership Schemes were valued as follows:
VALUE AT VALUE AT VALUE AT
31 DECEMBER 31 DECEMBER CRYSTALLISED 1998 CASH 31 DECEMBER
1996 1997 VALUE PAYMENT 1998
----------- ----------- ------------ --------- -----------
L L L L L
M Bungey............................. 103,900 113,936 56,968 14,242 42,726
A D'Angelo........................... 62,340 68,361 34,181 8,545 25,636
J de Yturbe.......................... 103,900 113,936 56,968 14,242 42,726
P M Schoning......................... 103,900 113,936 56,968 -- 56,968
W Whitehead.......................... 62,340 68,361 34,181 8,545 25,636
No awards were made under the schemes during the year.
P-45
27. EMPLOYEE SHARE SCHEMES
Options outstanding at 31 December 1998 under the Company's share option
schemes are shown below:
DATE OF NUMBER EXERCISE
SCHEME GRANT OF SHARES PRICE EXERCISABLE
- ------ ----------- ---------- -------- ---------------------
Number 1 Scheme...................... Apr 1992 501,757* 107p To Apr 1999
Demerger Number 1 Scheme............. Apr 1992 20,925* 107p To Apr 1999
Number 2 Scheme...................... Jun 1991 441,952 134p To Jun 2001
Sep 1991 107,022 134p To Sep 2001
Apr 1992 34,301 107p To Apr 2002
Apr 1992 258,676* 107p To Apr 2002
Demerger Number 2 Scheme............. Jun 1991 363,829 134p To Jun 2001
Apr 1992 78,895 107p To Apr 2002
Apr 1992 13,892* 107p To Apr 2002
Sharesave............................ Jun 1995 1,291,543 64p Jul 2000 to Dec 2000
Performance Option Scheme............ May 1995 300,201 73p May 1998 to May 2005
Aug 1995 550,905 95p Aug 1998 to Aug 2005
Apr 1996 502,500 130p Apr 1999 to Apr 2006
Apr 1996 560,000* 130p Apr 2001 to Apr 2003
Apr 1997 722,500 131p Apr 2000 to Apr 2007
Apr 1997 692,500* 131p Apr 2002 to Apr 2004
Demerger Performance Option Scheme... May 1995 75,210 73p May 1998 to Dec 2004
May 1995 109,926* 73p May 2000 to May 2002
Aug 1995 99,318 95p Aug 1998 to Dec 2004
Apr 1996 122,500 130p Apr 1999 to Dec 2004
Apr 1996 263,750* 130p Apr 2001 to Apr 2003
Apr 1997 195,000 131p Apr 2000 to Dec 2004
Apr 1997 186,250* 131p Apr 2002 to Apr 2004
Performance Share Option Scheme...... Dec 1997 6,427,199 105p Dec 2000 to Dec 2004
May 1998 1,344,941 124p May 2001 to May 2005
Equity Participation Plan............ Dec 1997 11,084,170 105p Dec 2000 to Dec 2004
Zenith Executive Incentive Plan...... Dec 1997 1,078,807 109p Dec 2000 to Dec 2004
The options marked * are super options. Super options cannot be exercised
before the fifth anniversary of the date of grant and only then if the growth in
earnings per share from the date of grant has been sufficient to place CCG in
the top quartile of the FTSE 100 companies ranked by reference to growth in
earnings per share.
Exercise prices have been rounded to the nearest penny.
In the case of the various demerger schemes, the date of grant shown is that
of the original option replaced under the demerger scheme.
P-46
Changes in the number of Ordinary shares issuable under share schemes are as
follows:
1998 1997 1996
---------------------- ---------------------- ----------------------
EXECUTIVE EXECUTIVE EXECUTIVE
SCHEMES SHARESAVE SCHEMES SHARESAVE SCHEMES SHARESAVE
ORDINARY ORDINARY ORDINARY ORDINARY ORDINARY ORDINARY
SHARES SHARES SHARES SHARES SHARES SHARES
---------- --------- ---------- --------- ---------- ---------
At beginning of year............. 28,045,239 1,624,662 12,589,854 1,963,435 10,190,722 2,205,916
Options exercised................ (499,877) (84,612) (159,692) (13,211) (13,722) (9,093)
Options granted.................. 1,523,078 -- 26,037,467 196,117 3,645,000 --
Options lapsed................... (2,931,514) (248,507) (1,064,485) (325,562) (1,232,146) (233,388)
Options cancelled................ -- -- (9,357,905) -- -- --
---------- --------- ---------- --------- ---------- ---------
At end of year................... 26,136,926 1,291,543 28,045,239 1,624,662 12,589,854 1,963,435
========== ========= ========== ========= ========== =========
28. POST RETIREMENT BENEFITS
The Group operates a number of pension schemes throughout the world.
The majority of the schemes are externally funded and the assets are held in
separately administered trusts or are insured.
None of the externally funded schemes holds investments in, or has made
loans to, the company or any of its subsidiary undertakings.
The major schemes, which cover the majority of scheme members, are defined
contribution schemes.
Following the demerger, the Group has only one material defined benefit
scheme with active membership, the Cordiant Group Pension Scheme. This UK scheme
was closed to new members in 1990 with new employees after that date joining a
defined contribution scheme. Employees of Saatchi & Saatchi and Zenith remain
members of the scheme under transitional arrangements. The latest actuarial
valuation, based on the attained age method and assuming an investment return of
9 per cent. and salary increases of 7 per cent., was carried out as at 1 April
1996 when the market value of investments of the scheme were L26.2 million and
the level of funding was 108 per cent.. Employer's contributions to the scheme
in 1998 were L0.3 million. Contributions and expense are based on
recommendations of a qualified actuary.
In addition to pension schemes the Group operates an unfunded deferred
compensation plan under which salary sacrifices are deferred and accrue interest
until the accumulated benefit is fully withdrawn. The cost of this during the
year was L0.3 million (1997: L0.3 million). The accumulated fund at 31
December 1998 was L3.0 million (1997: L2.8 million) which is included in
provisions for pensions and similar employment obligations (Note 21).
The pension expense for the year was as follows:
1998 1997 1996
-------- -------- --------
LM LM LM
Defined benefit schemes................................... 0.3 1.4 10.6
Defined contribution schemes.............................. 4.1 11.0 11.3
--- ---- ----
4.4 12.4 21.9
=== ==== ====
P-47
29. UNITED STATES GENERALLY ACCEPTED ACCOUNTING PRINCIPLES
The consolidated financial statements have been prepared in accordance with
UK generally accepted accounting principles (``UK GAAP") which differ in certain
significant respects from US generally accepted accounting principles (``US
GAAP"). A description of the significant differences between UK GAAP and US GAAP
that are applicable to the Group is set out below:
(A) DIVIDENDS
Under UK GAAP, ordinary dividends proposed are provided for in the year in
respect of which they are recommended by the Board of Directors for approval by
the shareholders. Under US GAAP, such dividends are not provided for until
declared by the Board of Directors.
(B) GOODWILL AND US PURCHASE ACCOUNTING
Under US GAAP, goodwill (which excludes contingent capital payments) and
identifiable intangible assets acquired are capitalised and amortised against
income; intangible assets being amortised over their economic lives which range
from three to 20 years and the remaining goodwill amortised over 40 years. In
addition to systematic amortisation, management also reviews on an annual basis
the carrying value of goodwill and identifiable intangibles for impairment by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognised is measured by the amount by which the carrying
amount of the assets exceed the fair value of the assets.
Under UK GAAP, purchased goodwill arising in respect of acquisitions before
1 January 1998 (including any additional goodwill estimated to arise from
contingent capital payments), when FRS 10 was adopted, was written off to
reserves in the year of acquisition. A charge would be recognized in respect of
any permanent diminution in the value of goodwill previously written off
directly to reserves. Purchased goodwill arising from acquisitions on or after 1
January 1998 has been capitalised as an intangible fixed asset. As the Directors
are of the opinion that the intangible fixed assets of the Group have an
indefinite economic life, the goodwill has not been amortised but is subject to
annual review for impairment by a comparison of the discounted future net cash
flows expected to be generated by the asset.
Under UK GAAP the gain or loss on disposal is calculated after taking
account of goodwill previously written off to reserves for acquisitions prior to
1 January 1998. Under US GAAP the gain or loss on disposal is calculated after
taking account of any related unamortised goodwill and intangible assets. For
acquisitions on or after 1 January 1998 the profit or loss on disposal under
both US and UK GAAP is calculated after taking account of unamortised goodwill
and intangible assets.
(C) PROPERTY LEASES
Under US GAAP, total rental payments, inclusive of increases in rental
charges specified in the lease, are recognised on a straight line basis over the
term of the lease. Under UK GAAP, these increases have been recognised when
payable.
(D) DEFERRED TAXATION
UK GAAP requires that no provision for deferred taxation should be recorded
if there is reasonable evidence that such taxation will not be payable in the
foreseeable future. Deferred tax assets are only recognised when they are
expected to be recoverable without replacement by equivalent deferred tax
assets.
US GAAP requires full provision of deferred taxation liabilities and permits
deferred tax assets to be recognised if their realisation is considered to be
more likely than not. There are no deferred
P-48
taxation differences presented in the reconciliation below because the Company
has net deferred tax assets and considers that it is more likely than not that
they will not be recovered.
(E) COMPENSATION COSTS
Under UK GAAP the Company does not recognise any compensation for certain
performance based share options. Under US GAAP compensation expense is recorded
for all performance based share options over the vesting period for the excess
of the market price of underlying shares over the exercise price.
(F) EMPLOYEE SHARE SCHEMES
The Company has adopted SFAS 123, Accounting for Stock-Based Compensation,
which permits entities to recognise as expense over the vesting period the fair
value of all stock-based awards on the date of grant. Alternatively, SFAS 123
also allows entities to continue to apply the provisions of APB Opinion No. 25
and provide pro forma net income and pro forma earnings per share disclosures
for share option grants made in 1995 and future years as if the fair-value-based
method defined in SFAS 123 had been applied. The Directors have elected to
continue to apply the provisions of APB Opinion No. 25 and provide pro forma
disclosure provisions of SFAS 123. Accordingly, compensation expense is recorded
on the date of grant only if the current market price of the underlying stock
exceeded the exercise price. Under SFAS 123 the calculation of the option value
is made using an acceptable pricing model to include certain expected
parameters.
YEAR ENDED 31 DECEMBER
---------------------------------------------
1998 1997 1996
------------- ------------- -------------
Net profit in Lm million--as reported....................... L4.8 L6.8 L6.9
Net profit in L million--as revised......................... L4.8 L5.5 L6.5
EARNINGS PER SHARE WHICH REFLECT CONSOLIDATION
Earnings per share in pence--as reported.................... 2.2p 1.2p 1.6p
Earnings per share in pence--as revised..................... 2.2p 1.2p 1.5p
If the compensation cost of the options had been determined based on the
fair value at the grant dates for 1998 and 1997 consistent with the method
prescribed by SFAS No. 123, the Company's US GAAP net profit and earnings per
share would have been adjusted to the revised amounts indicated above. The
revised amounts were determined based on employee share scheme awards in 1995 to
1998 only. Compensation cost is recognised over the expected life of the option
(i.e. between 3.5 and 6.5 years). The revised amounts for compensation cost may
not be indicative of the effects on net earnings and earnings per share for
future years. Under SFAS No. 123, the weighted average fair value of each option
grant is estimated to be 34.8p and 33.6p for options granted during the year
ended 31 December 1998 and year ended 31 December 1997, respectively. The fair
values have been estimated using the Black-Scholes option-pricing model with the
following weighted average assumptions used for grants in 1998 and 1997
respectively; dividend yield of nil and nil per cent., expected volatility of 26
per cent. and 22 per cent. in 1998 and 1997 respectively, risk-free interest
rate of 5.8 per cent. and 6.9 per cent. and expected lives of between 3.5 and
6.5 years.
(G) CASH FLOWS
The Consolidated Cash Flow Statement is prepared in accordance with
Financial Reporting Standard No. 1 (revised) "Cash Flow Statements" (``FRS 1").
Its objectives and principles are similar to those set out in SFAS 95. The
principal difference between the standards relates to classification. Under FRS
1, the Group presents its cash flows for: (a) operating activities;
(b) exceptional non-operating items; (c) dividends from associated undertakings;
(d) returns on investments and servicing of finance; (e) taxation: (f) capital
expenditure and financial investment; (g) acquisition and disposals;
P-49
(h) equity dividend paid; and (i) financing. SFAS 95 requires only three
categories of cash flow activity: (a) operating; (b) investing; and
(c) financing. Cash flows from exceptional non-operating items, dividends from
associated undertakings, returns on investments and servicing of finance, and
taxation shown under FRS 1 would be included as operating activities under SFAS
95. The payment of dividends would be included as a financing activity under
SFAS 95. Changes in bank overdrafts are included within cash equivalents under
FRS 1 and would be considered a financing activity under SFAS 95. Had bank
overdrafts been shown as a financing activity in the Consolidated Cash Flow
Statement the overdrafts (drawn) repaid would have been L(13.4) million and
L(40.7) million in the years ended 31 December 1998 and 1997 respectively. The
repayment of L40.7 million in 1997 includes overdrafts of L23.4 million that
were demerged.
(H) PENSION
The Statement of Financial Accounting Standards (``SFAS") No. 88, Employers'
Accounting for Settlements and Curtailment of Defined Benefit Plans and for
Termination Benefits specifies the accounting treatment under US GAAP for
circumstances in which there has been an irrevocable transaction that relieves
the employer of primary responsibility for a pension benefit obligation and
eliminates significant risks related to the obligation and the assets used to
effect the settlement. As a result of the curtailment and termination of the US
scheme during 1996, the related termination liability was accrued in full under
UK GAAP and the additional US GAAP accrual was reversed. Additionally, under US
GAAP, CCG has previously recognised an additional minimum pension liability for
the US underfunded plan, representing the excess of accumulated benefit
obligations over the plan's assets. As result of the curtailment and termination
of the plan during 1996, Cordiant recorded the full termination liability under
UK GAAP and the additional US GAAP accrual was reversed.
(I) LONG-TERM PROPERTY PROVISIONS
Under US GAAP, provisions for properties which are vacant and surplus to
requirements or let at a loss are provided on a discounted basis after allowing
for estimated subrental income, and amortisation of the discount is charged to
interest expenses.
Under UK GAAP, provision has been made on an undiscounted basis for the
future rent expense and related cost of leasehold property (net of estimated
sublease income) where the property is vacant or currently not planned to be
used for ongoing operations.
From 1999 the Company will be required under UK GAAP to discount property
provisions which cover a significant time period.
(J) NEWLY ADOPTED US ACCOUNTING PRINCIPLES
The Group adopted SFAS No. 130, ``Reporting Comprehensive Income" in 1998.
It requires that all items that are required to be recognised under accounting
standards as components of comprehensive income be reported in a financial
statement that is displayed with the same prominence as other financial
statements. It requires that an enterprise (a) classify items of other
comprehensive income by their nature in a financial statement and (b) display
the accumulated balance of other comprehensive income separately from retained
earnings and additional paid-in capital in the equity section of a statement of
financial position. Required disclosures have been made in the Group's financial
statements in the statement of total recognised gains and losses and the
consolidated statements of shareholders deficiency and other share capital and
prior years information has been restated. The effect of adopting SFAS No. 130
was not material.
(K) PROSPECTIVE ACCOUNTING CHANGES
In June 1998, the FASB issued SFAS No. 133, ``Accounting for Derivative
Instruments and Hedging Activities" which establishes standards of accounting
for these transactions. SFAS No. 133 is effective for the Company beginning on 1
July 1999. The Company is currently assessing the effects of SFAS No. 133.
P-50
EFFECTS ON NET EARNINGS OF DIFFERENCES BETWEEN US AND UK GAAP
YEAR ENDED 31 DECEMBER
------------------------------
1998 1997 1996
-------- -------- --------
LM LM LM
Profit for the year in conformity with UK GAAP.............. 15.0 15.1 24.2
US GAAP ADJUSTMENTS:
Amortisation of goodwill and other intangibles.............. (b) (6.3) (9.5) (9.5)
Straight lining of property leases.......................... (c) -- (1.0) (2.4)
Change in long-term property provisions..................... (i) (2.2) 2.5 (7.2)
Pension..................................................... (h) -- -- 1.8
Compensation costs.......................................... (e) (1.7) (0.3) --
----- ----- -----
NET PROFIT APPLICABLE TO ORDINARY SHAREHOLDERS IN CONFORMITY
WITH US GAAP.............................................. 4.8 6.8 6.9
===== ===== =====
Net profit per Ordinary Share -- basic...................... 2.9p 1.5p 1.6p
Average number of Ordinary Shares (in millions)............. 222.4 443.8 443.6
Net profit per Ordinary Share -- diluted.................... 2.9p 1.5p 1.5p
Average number of Ordinary Shares -- diluted (in
millions)................................................. 223.3 445.8 445.3
CUMULATIVE EFFECT ON SHAREHOLDERS' FUNDS/(DEFICIENCY) OF DIFFERENCES BETWEEN US
AND UK GAAP
31 DECEMBER
------------------------------
1998 1997 1996
-------- -------- --------
LM LM LM
Equity shareholders' deficiency in conformity with UK
GAAP...................................................... (71.5) (85.7) (215.3)
US GAAP ADJUSTMENTS:
Dividends................................................... (a) 3.1 2.7 4.4
Goodwill and US purchase accounting in respect of
acquisitions.............................................. (b) 64.0 76.9 198.2
Straight lining of property leases.......................... (c) -- -- (21.9)
Contingent Capital payments................................. (b) 7.4 -- --
Discount on property provisions............................. (i) 7.6 9.9 34.2
------ ------ ------
EQUITY SHAREHOLDERS' FUNDS/(DEFICIENCY) IN CONFORMITY WITH
US GAAP................................................... 10.6 3.8 (0.4)
====== ====== ======
P-51
3 CCG GROUP RESULTS FOR THE SIX MONTHS ENDED 30 JUNE 1999
The interim financial information set out on the following pages for the six
months ended 30 June 1999 and the comparative figures for the six months ended
30 June 1998 do not constitute audited statutory accounts. The comparative
figures for the balance sheet at 31 December 1998 and the profit and loss for
the year ended 31 December 1998 have been extracted from CCG's statutory
accounts for the financial year, subject to the restatement required by FRS 12.
The following information is the full text of CCG's announcement of results
for the half year ended 30 June 1999 which was released on 9 August 1999:
"INTRODUCTION
CCG has made an excellent start to 1999. Strong revenue growth and a 1 per
cent. increase in operating margins have combined to deliver earnings per share
growth in excess of 40 per cent. In addition, the Group continues to win new
business with over $200 million in annualised net billings in the first six
months, following a record year in 1998. CCG remains committed to its financial
objectives of revenue growth ahead of the market, and a 10 per cent. operating
margin for 1999.
COMPARATIVE REPORTING
In accordance with FRS 12 (adopted 1 January 1999) the Group's property
provisions have been discounted to the present value of net future lease
obligations. An imputed interest charge in relation to this discount has been
recognised within net interest payable and similar items. 1998 results have been
restated to reflect the adoption of FRS 12. Currency movements continue to
distort reported results on a regional basis and, as a result operating
performance, where appropriate, has been reviewed at constant exchange rates.
OPERATING PERFORMANCE
Group revenues increased by 8.9 per cent. to L158.6 million ($256.9 million)
on a constant currency basis. Operating profits increased by 30.2 per cent. at
constant exchange rates to L10.7 million ($17.3 million). Operating margins
continue to improve, up to 6.7 per cent. from 5.7 per cent. last year. Headline
earnings per share increased 42.1 per cent. to 2.7p, or 40.2 per cent. on a
constant currency basis.
NORTH AMERICA
North American revenues grew by 18.6 per cent. at constant exchange rates to
L38.0 million ($61.6 million) and operating margins increased to 5.5 per cent.
from 4.7 per cent., supported by new business wins and acquisitions in 1998.
North America is expected to be the Group's best performing region in terms of
both revenue growth and profitability in 1999.
UNITED KINGDOM
Revenues increased by 2 per cent. to L19.9 million ($32.2 million) in the
United Kingdom, broadly in line with the market. During the first six months,
Bates UK was internally restructured into a number of integrated client teams.
Operating margins fell to 13.1 per cent. from 16.4 per cent. last year due to
reorganisation costs and the timing of projects at HP:ICM
CONTINENTAL EUROPE
For Continental Europe as a whole, revenues were up to 16.2 per cent. on a
constant currency basis to L59.1 million ($95.7 million). Operating margins
improved significantly to 8.6 per cent. from 5.2 per cent.
P-52
Revenues at Bates Europe was up 14.5 per cent. at constant exchange rates.
Operating margins increased to 6.3 per cent. from 5.9 per cent. as revenues from
major new assignments came fully on stream. Bates Europe further strengthened
its equity presence in key markets with acquisitions in Sweden, Spain, Belgium
and the Middle East.
Revenues at Scholz & Friends increased by 20.3 per cent. at constant
exchange rates and operating margins were up to 13.9 per cent. from 4.4 per
cent. Scholz & Friends continues to perform well, building a strong franchise
with German-based multinational clients while pursuing the development of its
international operations.
ASIA PACIFIC AND LATIN AMERICA
Revenues in Asia Pacific and Latin America fell by 3.8 per cent. on a
constant currency basis to L41.6 million ($67.4 million) while operating margins
slightly increased to 2.2 per cent. from 2.1 per cent. in 1998.
Approximately 60 per cent. of Asia Pacific revenues are derived from
Australia. Australian revenues fell 3.2 per cent. on a constant currency basis,
with operating margins down to 1.2 per cent. from 6.5 per cent. in 1998.
Spending from new and existing clients will be weighted towards the second half,
with revenues and profits expected to be ahead of 1998 on a full year basis.
Revenues in Asia stablised in the first six months of the year. Management
took early action in restructuring costs in Asia and as a result, the region has
returned to profitability in 1999.
In July, CCG announced the acquisition of Bates Clarion, its Indian
affiliate. Asia Pacific is expected to be an important source of growth in the
future and CCG continues to evaluate opportunities to develop its business in
the region.
JOINT VENTURES & ASSOCIATES
The Group's share of operating profits, primarily from Zenith, The
Facilities Group and Newcomm Bates (Brazil), increased to L2.2 million ($3.6
million) from L1.9 million ($3.1 million) last year.
FINANCIAL ITEMS, TAXATION AND RETURNS ATTRIBUTABLE TO SHAREHOLDERS
Net interest payable and similar items totalled L1.8 million ($2.9 million),
which includes the Group's share of Zenith's interest income and imputed
interest charged in accordance with FRS12. Average net debt for the six months
was L1.3 million (1998: average net cash L10.3 million).
The first half tax charge of L3.9 million ($6.3 million) represents an
effective tax rate of 35 per cent. down from 37 per cent. for the full year to
31 December 1998. Equity minority interests were L0.8 million ($1.3 million) an
increase of 14.3 per cent. on last year.
Earnings attributable to Ordinary shareholders totalled L6.4 million ($10.4
million), an increase of 51.0 per cent. at constant exchange rates. Headline
earnings per share totalled 2.7p (ADS21.7c) compared to 1.9p (ADS15.7c) in 1998,
representing a reported increase of 42.1 per cent. (ADS38.2 per cent.) and 40.2
per cent. on a constant currency basis.
DIVIDEND
It is the Board's policy not to pay an interim dividend.
P-53
CASH FLOW
As at 30 June 1999, the Group had a net debt balance of L8.7 million and
average net debt for the six months of L million. Net operating cash flow for
the Group (defined as operating profit plus depreciation, less financing costs
and taxation paid) totalled L10.7 million (1998: L6.2 million). Capital
expenditure totalled L7.0 million (1998: L3.5 million) and net cash outflows
from acquisitions were L6.9 million (1998: L1.0 million). Utilisation of
property provisions totalled L2.5 million (1998: L3.1 million). Net cash
outflows for the period, before working capital movements and financing flows,
totalled L3.9 million (1998: L10.1 million).
OUTLOOK
The Group continues to demonstrate its ability to deliver solid revenue
growth and enhanced operating margins. With further improvements in operating
performance anticipated on a full year basis, the Group remains committed to its
financial objectives for 1999.
It is CCG's aim to raise its margins to those of its best performing
competitors over the medium term. To that end, the Group has set itself the
objective of a further 1 per cent. improvement in operating margins to 11 per
cent. for 2000. The Group is now looking to accelerate growth and acquisitions
are expected to play an important part in achieving this objective. The outlook
for CCG is one of continued progress and the Board views the future with
considerable optimism.
UNAUDITED CONSOLIDATED PROFIT & LOSS ACCOUNT
SIX MONTHS ENDED
30 JUNE YEAR ENDED
--------------------- 31 DECEMBER
NOTES 1999 1998 1998
-------- -------- ---------- -----------
(AUDITED)
(RESTATED) (RESTATED)
LM LM LM
REVENUE
Group and share of joint ventures........................ 168.6 150.5 316.0
Less: Share of joint ventures............................ (10.0) (6.9) (14.2)
GROUP REVENUE............................................ 2 158.6 143.6 301.8
Net operating expenses................................... (147.9) (135.4) (275.8)
------ ------ ------
GROUP OPERATING PROFIT................................... 3 10.7 8.2 26.0
Share of operating profits
Joint ventures........................................... 1.4 1.4 1.4
Associated undertakings.................................. 0.8 0.5 1.2
------ ------ ------
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST AND TAX.... 12.9 10.1 28.6
Net interest payable and similar items................... 4 (1.2) (1.1) (2.7)
FRS 12 -- finance charge................................. (0.6) (0.6) (1.2)
------ ------ ------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAX................. 11.1 8.4 24.7
Tax on ordinary activities............................... 5 (3.9) (3.5) (9.2)
------ ------ ------
PROFIT ON ORDINARY ACTIVITIES AFTER TAX.................. 7.2 4.9 15.5
Equity minority interests................................ (0.8) (0.7) (1.7)
------ ------ ------
PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS............. 6.4 4.2 13.8
Dividends................................................ -- -- (3.1)
------ ------ ------
Retained profit.......................................... 6.4 4.2 10.7
====== ====== ======
Basic earnings per Ordinary share........................ 6 2.8p 1.9p 6.2p
Diluted earnings per Ordinary share...................... 6 2.7p 1.9p 6.2p
Headline earnings per Ordinary share..................... 6 2.7p 1.9p 6.3p
Ordinary shares dividend per Ordinary share.............. -- -- 1.4p
P-54
UNAUDITED CONSOLIDATED PROFIT & LOSS ACCOUNT
(FIGURES IN US$)
SIX MONTHS ENDED YEAR ENDED
30 JUNE 1999 31 DECEMBER
--------------------- -----------
NOTES 1999 1998 1998
-------- -------- ---------- -----------
US$M (RESTATED) (AUDITED)
US$M (RESTATED)
US$M
REVENUE
Group and share of joint ventures........................ 273.1 248.3 524.6
Less: Share of joint ventures............................ (16.2) (11.4) (23.6)
Group revenue............................................ 256.9 236.9 501.0
Net operating expenses................................... (239.6) (223.4) (457.8)
-- ------ ------ ------
GROUP OPERATING PROFIT................................... 17.3 13.5 43.2
Share of operating profits
Joint ventures........................................... 2.3 2.3 2.3
Associated undertakings.................................. 1.3 0.8 2.0
-- ------ ------ ------
PROFIT ON ORDINARY ACTIVITIES BEFORE INTEREST AND TAX.... 20.9 16.6 47.5
Net interest payable and similar items................... (1.9) (1.8) (4.5)
FRS 12 -- finance charge................................. (1.0) (1.0) (2.0)
-- ------ ------ ------
PROFIT ON ORDINARY ACTIVITIES BEFORE TAX................. 18.0 13.8 41.0
Tax on ordinary activities............................... (6.3) (5.7) (15.3)
-- ------ ------ ------
PROFIT ON ORDINARY ACTIVITIES AFTER TAX.................. 11.7 8.1 25.7
Equity minority interests................................ (1.3) (1.2) (2.8)
-- ------ ------ ------
PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS............. 10.4 6.9 22.9
Dividends -- cash........................................ -- -- (5.1)
-- ------ ------ ------
RETAINED PROFIT.......................................... 10.4 6.9 17.8
== ====== ====== ======
Basic earnings per ADS................................... 23.0c 15.8c 51.5c
Diluted earnings per ADS................................. 21.7c 15.7c 51.3c
Headline earnings per ADS................................ 21.7c 15.7c 51.9c
Ordinary dividend per ADS................................ -- -- 11.6c
Rate of exchange......................................... 1.62 1.65 1.66
== ====== ====== ======
The US$ figures above are provided for convenience purposes only, according to
UK GAAP, and are translated at the rates shown above.
P-55
UNAUDITED CONSOLIDATED CASH FLOW STATEMENT
SIX MONTHS
ENDED
30 JUNE YEAR ENDED
------------------- 31 DECEMBER
NOTES 1999 1998 1998
-------- -------- -------- -----------
(AUDITED)
LM LM LM
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES......... 7 0.8 (13.7) 19.8
NET CASH OUTFLOW ARISING FROM EXTERNAL MERGER COSTS......... -- (8.5) (8.2)
DIVIDENDS FROM ASSOCIATED UNDERTAKINGS...................... 0.6 -- 0.2
DIVIDENDS FROM JOINT VENTURES............................... 1.3 -- --
RETURNS ON INVESTMENT AND SERVICING OF FINANCE.............. 8 (2.8) (2.2) (4.9)
TAXATION PAID............................................... 8 (2.1) (4.4) (8.3)
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT................ 8 (7.0) (3.5) (7.4)
ACQUISITIONS AND DISPOSALS.................................. 8 (6.9) (1.0) (7.4)
EQUITY DIVIDENDS PAID....................................... -- -- (2.7)
----- ----- -----
CASH OUTFLOW BEFORE FINANCING............................... (16.1) (33.3) (18.9)
----- ----- -----
Issue of Ordinary share capital............................. 1.1 0.1 0.5
Capital subscribed by minorities............................ -- 0.2 --
External loans drawn less repaid............................ 3.4 8.6 8.6
Capital element of finance lease rental payments............ -- (0.1) (0.2)
----- ----- -----
NET CASH INFLOW FROM FINANCING.............................. 4.5 8.8 8.9
-- ----- ----- -----
DECREASE IN CASH AND OVERDRAFTS FOR THE PERIOD.............. (11.6) (24.5) (10.0)
===== ===== =====
RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET FUNDS
Decrease in cash and overdrafts for the period.............. (11.6) (24.5) (10.0)
Cash inflow from debt....................................... (3.3) (5.4) (8.4)
Loans in companies acquired/disposed........................ -- -- 0.6
Translation difference and non-cash movements............... 1.6 (2.2) (2.3)
----- ----- -----
MOVEMENT IN NET FUNDS IN THE PERIOD......................... (13.3) (32.1) (20.1)
NET FUNDS AT BEGINNING OF PERIOD............................ 4.6 24.7 24.7
===== ===== =====
NET FUNDS AT END OF PERIOD.................................. 9 (8.7) (7.4) 4.6
===== ===== =====
UNAUDITED CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
SIX MONTHS
ENDED
30 JUNE YEAR ENDED
------------------- 31 DECEMBER
NOTES 1999 1998 1998
-------- -------- -------- -----------
(AUDITED)
LM LM LM
Profit attributable to Ordinary shareholders................ 6.4 4.2 13.8
Translation adjustment...................................... 12 (1.7) (1.3) (1.7)
----- ----- -----
TOTAL RECOGNISED GAINS RELATING TO THE PERIOD............... 4.7 2.9 12.1
===== ===== =====
P-56
UNAUDITED CONSOLIDATED BALANCE SHEET
AT 30 JUNE
--------------------- AT
NOTES 31 DECEMBER
1999 1998 1998
-------- ---------- -----------
(RESTATED) (AUDITED)
(RESTATED)
LM LM LM
FIXED ASSETS
Goodwill................................................ 20.3 0.8 16.2
Tangible assets......................................... 26.1 22.4 22.7
Investments............................................. 9.1 4.0 4.0
------ ------ ------
55.5 27.2 42.9
------ ------ ------
CURRENT ASSETS
Work in progress........................................ 17.5 15.9 15.4
Debtors--DUE WITHIN ONE YEAR............................ 241.9 226.2 246.3
Debtors--DUE AFTER ONE YEAR............................. 22.8 15.0 18.3
Investments............................................. 0.8 0.7 1.5
Cash at bank and in hand................................ 64.8 58.2 62.3
------ ------ ------
347.83 16.03 43.8
CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR.......... 10 (323.7) (295.7) (313.7)
------ ------ ------
NET CURRENT ASSETS...................................... 24.1 20.3 30.1
------ ------ ------
TOTAL ASSETS LESS CURRENT LIABILITIES................... 79.6 47.5 73.0
Creditors: AMOUNTS FALLING DUE AFTER MORE THAN ONE
YEAR.................................................. 10 (72.8) (56.3) (73.8)
PROVISION FOR JOINT VENTURE DEFICIT
Share of gross assets................................... 76.3 49.0 83.6
Share of gross liabilities.............................. (90.9) (62.5) (98.3)
(14.6) (13.5) (14.7)
PROVISIONS FOR LIABILITIES AND CHARGES.................. 11 (45.9) (48.3) (45.8)
------ ------ ------
NET LIABILITIES......................................... (53.7) (70.6) (61.3)
====== ====== ======
CAPITAL AND RESERVES
Called up share capital................................. 12 113.3 111.0 112.7
Share premium account................................... 12 2.8 0.1 2.3
Shares to be issued..................................... 12 1.3 -- 1.3
Special reserve......................................... 12 25.7 25.7 25.7
Profit and loss account................................. 12 (200.2) (213.1) (205.9)
------ ------ ------
EQUITY SHAREHOLDERS' FUNDS.............................. (57.1) (76.3) (63.9)
Equity minority interests............................... 3.4 5.7 2.6
------ ------ ------
TOTAL CAPITAL EMPLOYED.................................. (53.7) (70.6) (61.3)
====== ====== ======
The reconciliations of movements in equity shareholders' funds are given in Note
12 on page 63.
P-57
NOTES
1. ACCOUNTING POLICIES AND PRESENTATION
Neither the interim financial information set out in the previous pages nor
the comparative figures included therein constitute audited statutory accounts.
The comparative figures for the balance sheet at 31 December 1998 and the profit
and loss for the year ended 31 December 1998 are extracts from Cordiant
Communications Group plc's (CCG) statutory accounts for the financial year.
Those accounts have been reported on by CCG's auditor and delivered to the
Registrar of Companies. The audit report was unqualified and did not contain a
statement under Section 237 (2) or (3) of the Companies Act 1985.
The financial statements have been prepared on the basis of accounting
policies set out on pages 58 to 59 of the CCG 1998 Report and Accounts with the
following exception:
The Group has adopted Financial Reporting Standard (FRS) 12
``Provisions, Contingent Liabilities and Contingent Assets". In accordance
with this standard, the Group's property provisions have been discounted to
the present value of future net lease obligations. The recognition of this
change on the brought forward provision has been treated as a restatement of
opening reserves as at 1 January 1998. The periodic unwinding of the
discount is treated as an imputed interest charge and is disclosed under net
financial items.
2. REVENUE BY REGION
SIX MONTHS CHANGE
ENDED CHANGE CONSTANT
30 JUNE REPORTED CURRENCY
------------------- -------- --------
1999 1998 % %
-------- --------
LM LM
United Kingdom.............................................. 19.9 19.5 2.0 2.0
North America............................................... 38.0 31.6 20.3 18.6
Continental Europe.......................................... 59.1 50.2 17.7 16.2
Asia Pacific and Latin America.............................. 41.6 42.3 (1.7) (3.8)
----- ----- ---- ----
TOTAL....................................................... 158.6 143.6 10.4 8.9
===== ===== ==== ====
3. OPERATING PROFIT AND OPERATING MARGIN BY REGION
SIX MONTHS
ENDED
30 JUNE
------------------- MARGIN MARGIN
1999 1998 1999 1998
-------- -------- -------- --------
LM LM % %
United Kingdom.............................................. 2.6 3.2 13.1 16.4
North America............................................... 2.1 1.5 5.5 4.7
Continental Europe.......................................... 5.1 2.6 8.6 5.2
Asia Pacific and Latin America.............................. 0.9 0.9 2.2 2.1
---- --- ---- ----
TOTAL....................................................... 10.7 8.2 6.7 5.7
==== === ==== ====
P-58
4. NET INTEREST PAYABLE AND SIMILAR ITEMS
SIX MONTHS
ENDED
30 JUNE YEAR ENDED
------------------- 31 DECEMBER
1999 1998 1998
-------- -------- -----------
LM LM LM
Group....................................................... (1.4) (1.2) (2.9)
Joint ventures.............................................. 0.1 0.1 0.1
Associated undertakings..................................... 0.1 -- 0.1
---- ---- ----
Total....................................................... (1.2) (1.1) (2.7)
==== ==== ====
5. TAX ON ORDINARY ACTIVITIES
SIX MONTHS
ENDED
30 JUNE YEAR ENDED
------------------- 31 DECEMBER
1999 1998 1998
-------- -------- -----------
LM LM LM
Group....................................................... 3.1 2.9 8.3
Joint ventures.............................................. 0.5 0.6 0.5
Associated undertakings..................................... 0.3 -- 0.4
--- --- ---
Total....................................................... 3.9 3.5 9.2
=== === ===
Tax has been provided for the six months ended 30 June 1999 and 1998 at the
effective rates expected to prevail for the respective years as a whole.
P-59
6. EARNINGS PER SHARE: BASIS OF CALCULATION
SIX MONTHS ENDED
30 JUNE YEAR ENDED
------------------- 31 DECEMBER
1999 1998 1998
-------- -------- -----------
BASIC EPS
Profit attributable to Ordinary shareholders................ L 6.4m L 4.2m L 13.8m
Weighted average shares..................................... 226.1m 222.0m 222.4m
Basic EPS................................................... 2.8p 1.9p 6.2p
DILUTED EPS
Profit attributable to Ordinary shareholders................ L 6.4m L 4.2m L 13.8m
Weighted average shares..................................... 226.1m 222.0m 222.4m
Dilutive effect of options.................................. 13.0m 1.1m 0.9m
------- ------- -------
Diluted weighted average shares............................. 239.1m 223.1m 223.3m
------- ------- -------
Diluted EPS................................................. 2.7p 1.9p 6.2p
HEADLINE EPS*
Profit attributable to Ordinary shareholders................ L 6.4m L 4.2m L 13.8m
Adjustments:
Goodwill written off........................................ -- -- L 0.2m
------- ------- -------
Headline earnings........................................... L 6.4m L 4.2m L 14.0m
------- ------- -------
Diluted weighted average shares............................. 239.1m 223.1m 223.3m
------- ------- -------
Headline EPS................................................ 2.7p 1.9p 6.3p
- ------------------------
* The definition of Headline Earnings is given in the Statement of Investment
Practice No.1 published by the Institute of Investment Management and
Research (IIMR). This excludes items relating to goodwill (but does include
the FRS 12 financial item) and has been disclosed to assist the reader's
understanding of the Group's underlying performance.
P-60
7. RECONCILIATION OF GROUP OPERATING PROFIT TO NET CASH INFLOW/(OUTFLOW) FROM
OPERATING ACTIVITIES
SIX MONTHS
ENDED
30 JUNE YEAR ENDED
------------------- 31 DECEMBER
1999 1998 1998
-------- -------- -----------
LM LM LM
Group operating profit...................................... 10.7 8.2 26.0
Depreciation................................................ 4.9 4.6 9.7
Gain on sale of tangible fixed assets....................... (0.1) (0.2) (0.1)
(Increase)/decrease in work in progress..................... (1.5) 1.4 2.0
Decrease/(increase) in debtors.............................. 9.3 14.4 (1.4)
(Decrease)/increase in creditors............................ (20.0) (39.0) (9.6)
Utilisation of property provisions.......................... (2.5) (3.1) (7.0)
Non cash item--goodwill written off......................... -- -- 0.2
----- ----- ----
NET CASH INFLOW/(OUTFLOW) FROM OPERATING ACTIVITIES......... 0.8 (13.7) 19.8
===== ===== ====
8. ANALYSIS OF CASH FLOW ITEMS
SIX MONTHS
ENDED
30 JUNE YEAR ENDED
------------------- 31 DECEMBER
1999 1998 1998
-------- -------- -----------
LM LM LM
RETURNS ON INVESTMENT AND SERVICING OF FINANCE
Interest received........................................... 0.9 1.0 1.9
Interest paid............................................... (2.9) (2.2) (3.8)
Interest element of finance leases rental payments.......... -- -- (0.1)
Bank fees................................................... (0.2) (0.2) (0.4)
Dividends paid to minorities................................ (0.6) (0.8) (2.5)
---- ---- ----
NET CASH OUTFLOW FROM RETURNS ON INVESTMENTS AND SERVICING
OF FINANCE................................................ (2.8) (2.2) (4.9)
==== ==== ====
TAXATION PAID
UK corporation tax paid..................................... -- -- (0.7)
Overseas tax paid........................................... (2.1) (4.4) (7.6)
---- ---- ----
NET TAX PAID................................................ (2.1) (4.4) (8.3)
==== ==== ====
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Purchase of tangible fixed assets........................... (7.7) (4.3) (8.7)
Sale of tangible fixed assets............................... 0.7 0.7 1.2
Purchase of other fixed asset investments................... -- -- --
Sale of other fixed asset investments....................... -- 0.1 0.1
---- ---- ----
NET CASH OUTFLOW FROM CAPITAL EXPENDITURE AND FINANCIAL
INVESTMENT................................................ (7.0) (3.5) (7.4)
==== ==== ====
ACQUISITIONS AND DISPOSALS
Purchase of subsidiary undertakings......................... (4.9) (0.4) (7.5)
Purchase of associated undertakings......................... (2.5) -- (0.2)
Cash acquired with subsidiaries............................. 0.5 -- 0.7
Sale of subsidiary undertakings............................. -- -- --
Cash in business sold....................................... -- (0.6) (0.4)
---- ---- ----
NET CASH OUTFLOW FROM ACQUISITIONS AND DISPOSALS............ (6.9) (1.0) (7.4)
==== ==== ====
P-61
9. ANALYSIS OF NET FUNDS
EXCHANGE &
AT 1 JANUARY NON CASH AT 30 JUNE
1999 CASHFLOWS MOVEMENTS 1999
------------ --------- ---------- ----------
LM LM LM LM
Cash at bank and in hand.......................... 62.3 (0.2) 2.7 64.8
Cash deposits--current asset investments.......... 0.8 -- -- 0.8
Bank overdrafts................................... (21.2) (11.4) (0.2) (32.8)
----- ----- ---- -----
CASH.............................................. 41.9 (11.6) 2.5 32.8
===== ===== ==== =====
External debt due within one year................. (0.5) (1.3) -- (1.8)
External debt due after one year.................. (36.4) (2.0) (0.9) (39.3)
Finance leases.................................... (0.4) -- -- (0.4)
----- ----- ---- -----
FINANCING......................................... (37.3) (3.3) (0.9) (41.5)
===== ===== ==== =====
NET FUNDS......................................... 4.6 (14.9) 1.6 (8.7)
===== ===== ==== =====
10. CREDITORS
DUE WITHIN ONE YEAR DUE AFTER ONE YEAR
------------------------------ ------------------------------
AT 30 JUNE AT 31 AT 30 JUNE AT 31
------------------- DECEMBER ------------------- DECEMBER
1999 1998 1998 1999 1998 1998
-------- -------- -------- -------- -------- --------
LM LM LM LM LM LM
Loans and overdrafts................................... 34.6 32.2 21.7 39.3 33.6 36.4
Trade creditors........................................ 180.9 166.2 185.0 -- -- --
Taxation and social security........................... 27.0 21.6 24.0 19.1 18.6 23.9
Other creditors........................................ 81.2 75.7 83.0 14.4 4.1 13.5
----- ----- ----- ---- ---- ----
TOTAL.................................................. 323.7 295.7 313.7 72.8 56.3 73.8
===== ===== ===== ==== ==== ====
11. PROVISIONS FOR LIABILITIES AND CHARGES
These include property provisions of L23.8 million (30 June 1998--L28.8
million; 31 December 1998--L25.6 million)
12. RECONCILIATION OF MOVEMENT IN EQUITY SHAREHOLDERS' FUNDS
PROFIT
SHARE SHARE SHARES TO SPECIAL AND LOSS
CAPITAL PREMIUM BE ISSUED RESERVE ACCOUNT TOTAL
-------- -------- --------- -------- -------- --------
LM LM LM LM LM LM
At 1 January 1999................................... 112.7 2.3 1.3 25.7 (205.9) (63.9)
Issues of Ordinary shares net of expenses........... 0.6 0.5 -- -- -- 1.1
Goodwill arising on acquisitions made in previous
periods........................................... -- -- -- -- (0.1) (0.1)
Profit retained for the period...................... -- -- -- -- 6.4 6.4
Reversal of imputed employee share scheme costs..... -- -- -- -- 1.1 1.1
Translation adjustment.............................. -- -- -- -- (1.7) (1.7)
----- --- --- ---- ------ -----
AT 30 JUNE 1999..................................... 113.3 2.8 1.3 25.7 (200.2) (57.1)
===== === === ==== ====== =====
P-62
13. YEAR 2000
The Group remains committed to its Year 2000 compliance programme. Our
corporate goal is to continue to provide our full range of products and services
without significant interruption arising from the Year 2000 problem.
CCG expects to have all internal business critical systems compliant before
the end of 1999. The major risks are expected to come from our dependence on key
suppliers. As part of our compliance effort, all business units are required to
communicate with significant vendors on an ongoing basis to establish the status
of their Year 2000 compliance efforts.
Based on the work carried out so far, CCG beleives that once corrective
action, testing and implementation are complete, internal systems will not give
rise to significant operational problems as a result of the Year 2000 issue.
However, as with even the best run projects, it is possible that the Group
will face some Year 2000 compliance failures. The Group may also be adversely
affected by the inability of third parties to manage the Year 2000 problem."
P-63
4. RECONCILIATION OF UK GAAP TO US GAAP FINANCIAL INFORMATION
The consolidated financial statements have been prepared in accordance with
UK generally accepted accounting principles (UK GAAP) which differ in certain
significant respects from US generally accepted accounting principles (US GAAP).
A description of the significant differences between UK GAAP and US GAAP that
are applicable to the Group is set out in Section 2 of Part II. The financial
information for the six months ended 30 June 1999 relating to CCG has been
extracted without material adjustment from the unaudited interim report filed on
Form 6K with the SEC on 16 December 1999.
SIX MONTHS SIX MONTHS
ENDED ENDED
30 JUNE 30 JUNE
1999 1999
---------- ----------
$M LM
EFFECTS ON NET EARNINGS OF DIFFERENCES BETWEEN US AND UK
GAAP
Profit for the year in conformity with UK GAAP.............. 10.4 6.4
US GAAP ADJUSTMENTS:
Amortization of goodwill and other intangibles.............. (8.9) (5.5)
Compensation costs.......................................... (8.0) (4.9)
------ ------
NET LOSS APPLICABLE TO ORDINARY SHAREHOLDERS IN CONFORMITY
WITH US GAAP.............................................. (6.5) (4.0)
====== ======
NET LOSS PER ORDINARY SHARE--BASIC.......................... $(0.03) (1.8)p
Average number of Ordinary Shares (in millions)............. 226.1 226.1
Net loss per Ordinary Share--diluted........................ $(0.03) (1.7)p
Average number of Ordinary Shares--diluted (in millions).... 239.1 239.1
Period to date average dollar exchange rate of L1:$1.62.
30 JUNE 30 JUNE
1999 1999
-------- --------
$M LM
CUMULATIVE EFFECT ON SHAREHOLDERS' FUNDS/(DEFICIT) OF
DIFFERENCES BETWEEN US AND UK GAAP
Equity shareholders' deficiency in conformity with UK
GAAP...................................................... (90.2) (57.1)
Goodwill and US purchase accounting in respect of
acquisitions.............................................. 100.0 63.3
Contingent capital payments................................. 5.2 3.3
----- -----
EQUITY SHAREHOLDERS' FUNDS IN CONFORMITY WITH US GAAP....... 15.0 9.5
===== =====
Period end dollar exchange rate of L1:$1.58.
P-64
PART III
INFORMATION ON THE HEALTHWORLD GROUP
1. DESCRIPTION OF THE HEALTHWORLD GROUP
OVERVIEW
The Healthworld Group is an international communications and contract sales
marketing organisation specialising in healthcare. Healthworld provides many of
the world's largest pharmaceutical and healthcare companies with a comprehensive
range of integrated strategic marketing services designed to accelerate the
acceptance of new products and to sustain their growth. These integrated
services include advertising and promotion, contract sales, consulting, medical
education, public relations, marketing research, publishing, interactive
multimedia and database marketing services. Healthworld offers its clients
global reach and expertise through its operations in the United States, France,
Spain and the UK, and through Healthworld B.V., an international network of
affiliated independent marketing and communications agencies.
Healthworld was incorporated in Delaware in 1996 and commenced operations in
November 1997, when it acquired Girgenti, Hughes, Butler & McDowell, Inc. and
affiliated entities ("GHB&M") and Milton Marketing Group Limited and its
subsidiaries ("Milton") in exchange for Healthworld Shares and completed an
initial public offering in the United States on the Nasdaq Stock Market. GHB&M
and Milton have been operating in the marketing and communications industry
since 1986 and 1978 respectively.
In July 1998, Healthworld acquired 80 per cent. of HFT, a French holding
company, which owns Torrent SA, a French healthcare communications agency, and
100 per cent. of Colwood House Medical Publications (UK) Limited ("Colwood"), a
UK medical education company. In October 1998, Healthworld acquired CPA Espana,
SL, a healthcare communications agency located in Madrid. In August 1999,
Healthworld acquired Falk Communications, Inc., a healthcare communications
agency located in New York City.
Healthworld's principal executive offices are located in New York City.
Healthworld provides a variety of communications and contract sale services
to its clients, ranging from the execution of a discrete marketing project to
taking responsibility for a client's overall marketing message, which enables
Healthworld to incorporate a wide variety of its services into one integrated
marketing campaign.
Revenues from Healthworld's US operations are derived primarily from
providing advertising and promotion, consulting and medical education services
to its clients. In addition, Healthworld offers other communications services
through its US operations, including public relations, marketing research,
publishing, interactive multimedia and database marketing services. In February
1998, Healthworld's US operations began offering contract sales services to its
healthcare related clients. Revenues from Healthworld's European operations are
derived primarily from providing contract sales services and advertising and
promotion services. As a result of Healthworld's acquisition of Colwood in July
1998, Healthworld's European operations also began providing medical education
services.
COMMUNICATION SERVICES
- ADVERTISING AND PROMOTION
Healthworld's traditional advertising and promotion services include
developing creative concepts to be used in advertising campaigns for
pharmaceutical and other healthcare products and applying such creative
concepts to the development and production of a wide variety of marketing
and promotional materials, hospital displays, convention exhibit panels,
drug sample
P-65
packages and reminder promotional items. Such campaigns are targeted almost
exclusively to physicians, nurses and other healthcare providers as well as
wholesale distributors.
In response to the growth of direct-to-consumer marketing ("DTC") campaigns
during the last five years, GHB&M expanded its advertising and promotion
services to include DTC. Healthworld believes that GHB&M was one of the
first firms to develop a DTC campaign for prescription drugs and has become
an industry leader in developing such DTC campaigns based on the number of
DTC assignments it has performed.
- CONSULTING
Healthworld's consulting services include strategic planning, new product
development, clinical and regulatory affairs and health economics. Clients
retain Healthworld to assist them in the development of strategic and
business plans. Healthworld currently subcontracts clinical and regulatory
affairs and health economics consulting services to independent companies
specialising in such services. Healthworld's European operations currently
do not provide consulting services.
- MEDICAL EDUCATION
Healthworld develops medical education programs, targeted primarily to
healthcare providers, that are tied closely to the strategy and marketing
goals of its pharmaceutical and healthcare clients.
- PUBLIC RELATIONS
Healthworld provides a broad range of public relations services to its
clients, including tactical development, media relations, crisis
management, special events, public sponsorship packages, professional and
patient association liaison, grant and fellowship initiatives, editorial
projects, graphic design and video production.
- MARKETING RESEARCH
Healthworld develops and offers its clients specialised research programs
to measure the "return on investment" ("ROI") of its DTC and other
marketing programs.
- PUBLISHING
Healthworld offers management publications to pharmaceutical companies as a
marketing tool with respect to drugs used for long term therapy for chronic
conditions or illnesses such as asthma, arthritis, ulcers, heart disease,
diabetes and obesity.
- INTERACTIVE MULTIMEDIA
Healthworld may from time to time incorporate interactive multimedia and
other new technologies into its programs and campaigns. Healthworld has
utilised virtually all existing digital formats, including laser disc,
kiosks, on-line and CD-ROM and owns an extensive archive of over 4,000
medical illustrations which it incorporates in such multimedia formats.
Healthworld offers website design and updating, demographics targeting,
statistical measurement and list analysis.
- DATABASE MARKETING
Healthworld employs database technology to develop and implement marketing
campaigns that are targeted to specific audience profiles.
P-66
CONTRACT SALES SERVICES
Healthworld offers a flexible range of contract sales services which are
delivered primarily through dedicated sales teams. Healthworld's contract sales
teams form a network of trained professionals that provides clients with
substantial flexibility in selecting the extent and costs of promoting products
as well as the clients' level of involvement in managing the sales effort.
Dedicated sales teams consist of sales representatives recruited by Healthworld,
in accordance with client specifications, to conduct sales efforts for a
particular client. Dedicated sales teams are managed by Healthworld or report
directly to the client, depending on client preference.
Currently, Healthworld provides its contract sales services in the United
States primarily to healthcare related companies and in the United Kingdom
primarily to consumer product, utility and healthcare related companies.
Healthworld hires sales personnel on a project-by-project basis, with the actual
number of representatives retained contingent upon a particular assignment. As
of 30 September 1999, Healthworld employed, either on a part-time or full-time
basis, approximately 922 contract sales representatives.
Healthworld began providing contract sales services to pharmaceutical and
other healthcare product companies in the United Kingdom in May 1997. In
February 1998, Healthworld began offering contract sales services in the United
States through Headcount LLC. Healthworld owns 85 per cent. of the members'
equity in Headcount LLC and two senior managers own the remaining 15 per cent.
HEALTHWORLD B.V.
Healthworld B.V. is an international network of affiliated independent
marketing and communications agencies which began operating in August 1993.
Healthworld B.V. was organised as a Dutch corporation by Healthworld and two
other founding licensees in response to the founders' belief that pharmaceutical
and other healthcare companies will increasingly seek to retain marketing and
communications companies with international reach and experience. Healthworld
B.V. generally operates as a trade organisation through which its licensed
agencies provide business referrals to one another and, where appropriate, work
with other licensed agencies with respect to projects which require expertise in
other geographic markets. As such, Healthworld B.V. does not generate revenues
from operations and is funded solely by membership fees and royalty payments
from its licensees. Healthworld B.V. enables its member agencies to utilise the
creative talents of other member agencies that have expertise and knowledge of
particular countries or geographic regions to develop consistent and integrated
multinational campaigns for the clients of such member agencies.
Healthworld B.V. currently consists of Healthworld, through GHB&M in the
United States, Milton in the United Kingdom, HFT in France and CPA Espana in
Spain, and other affiliated marketing and communications agencies independent of
the Healthworld Group located in Canada, Colombia, Denmark, Finland, Germany,
Holland, Hungary, Italy, Japan, Norway and Sweden. Healthworld owns 87 per cent.
of the capital stock of Healthworld B.V.
Although to date Healthworld B.V. has neither conducted significant
operations nor contributed materially to Healthworld's operations, Healthworld
believes that Healthworld B.V. has enabled Healthworld to attract additional
clients based upon Healthworld's ability to offer more extensive global reach
and expertise.
CLIENTS
Healthworld's communications clients are primarily pharmaceutical and other
healthcare companies, including healthcare service providers and manufacturers
of diagnostic equipment, medical equipment, medical devices and medical
supplies. Healthworld's major clients include many of the world's largest
pharmaceutical companies and Healthworld has enjoyed long-standing relationships
with
P-67
many of such clients. Healthworld derives a large portion of its revenues from a
small number of clients. Those clients generally do not engage Healthworld on an
exclusive basis and may engage different companies for different services with
respect to their products or with respect to a particular product.
GOVERNMENT REGULATION
The healthcare and pharmaceutical industries are generally subject to a high
degree of government regulation, and the trend is toward regulation of
increasing stringency. US, UK and other laws and regulations affect the
permissible form, content and timing of marketing activities involving
pharmaceutical and other healthcare products. Some of these laws relate to
general considerations such as truthfulness, comparative advertising and the
relative responsibilities of clients and advertising firms. Other laws, such as
the US Food, Drug and Cosmetics Act and the US anti-fraud and abuse laws and
regulations affecting the Medicare, Medicaid and other governmental healthcare
programs, regulate the form, content and/or timing of marketing activities
involving pharmaceutical and other healthcare products, including the
permissible activities Healthworld may undertake to develop markets for its
clients' products. Healthworld has implemented a rigorous review process,
emphasising the importance of compliance with regulatory matters. In addition,
Healthworld's clients generally follow a rigorous internal review process.
The healthcare industry is subject to changing political, economic and
regulatory influences that may affect pharmaceutical and other healthcare
companies, particularly with respect to spending by such companies on marketing
and communications services to promote their products. Numerous governments have
undertaken efforts to control growing healthcare costs through legislation,
regulation and voluntary agreements with medical care providers and
pharmaceutical and other healthcare product companies. Implementation of
government healthcare reform may adversely affect marketing expenditures by
pharmaceutical and other healthcare companies which could decrease the business
opportunities available to Healthworld. It is not possible to predict the
likelihood of healthcare reform legislation being enacted or the effects such
legislation would have on Healthworld or the Enlarged Group.
EMPLOYEES
As of 30 September 1999, Healthworld employed 1356 employees on a full-time
and part-time basis. Healthworld's US operations employed 254 employees, of
which 52 were part-time. The part-time employees worked primarily in contract
sales. Healthworld's European operations employed 1102 employees of which 448
were part-time. Approximately 922 of the 1102 employees were involved in
contract sales.
2. FINANCIAL INFORMATION ON THE HEALTHWORLD GROUP
The financial information for the three years ended 31 December 1998, 1997
and 1996 relating to Healthworld has been extracted without material adjustment
from the audited annual reports filed on Form 10-K with the SEC for the years
ended 31 December 1998 and 31 December 1997. Arthur Andersen LLP have issued
independent auditor's reports in connection with Healthworld's consolidated
financial statements for the three years ended 31 December 1998 that are
required to be included in the annual report on Form 10-K pursuant to
Section 13 or 15(d) of the Securities Exchange Act of 1934. Each such report was
unqualified. A copy of the annual report on Form 10-K for the year ended
31 December 1998 has been filed with the SEC.
P-68
HEALTHWORLD CORPORATION
FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 1998--1996
CONSOLIDATED STATEMENTS OF OPERATIONS
YEAR ENDED 31 DECEMBER
------------------------------
1998 1997 1996
-------- -------- --------
$M $M $M
Revenues.................................................... 63.7 35.3 24.2
Operating expenses:
Salaries and related costs.................................. (47.3) (24.2) (15.7)
General and office expenses................................. (8.5) (5.4) (4.6)
Depreciation and amortisation............................... (1.1) (0.9) (0.6)
----- ----- -----
Income from operations...................................... 6.8 4.8 3.3
Net interest/(expense) income............................... 0.6 0.1 (0.1)
----- ----- -----
Profit before taxation...................................... 7.4 4.9 3.2
Taxation.................................................... (3.0) (0.7) (0.5)
----- ----- -----
Profit after taxation....................................... 4.4 4.2 2.7
Minority interests.......................................... -- (0.2) (0.1)
----- ----- -----
Net Income.................................................. 4.4 4.0 2.6
===== ===== =====
Pro forma per Ordinary Share
--Basic................................................... $0.60 $0.54 $0.37
--Diluted................................................. $0.58 $0.54 $0.37
Net earnings per Ordinary Share
--Basic................................................... $0.60 $0.80 $0.54
--Diluted................................................. $0.58 $0.79 $0.54
P-69
CONSOLIDATED BALANCE SHEET
AT 31 DECEMBER
------------------------------
1998 1997 1996
-------- -------- --------
$M $M $M
ASSETS
Current assets:
Cash and short-term deposits.............................. 6.5 18.1 2.2
Accounts and other receivables, prepayments and accrued
income.................................................. 20.3 15.3 12.3
Billable production....................................... 3.2 1.5 1.6
----- ----- -----
Total current assets........................................ 30.0 34.9 16.1
Restricted cash............................................. 1.9 0.3 --
Property and equipment, net................................. 4.4 2.4 2.1
Goodwill, net............................................... 14.3 3.7 1.8
Other assets................................................ 0.3 0.5 0.5
----- ----- -----
TOTAL ASSETS................................................ 50.9 41.8 20.5
===== ===== =====
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank loans, overdrafts and other loans.................... 0.1 1.3 0.8
Accounts payable.......................................... 4.2 1.8 2.5
Accrued expenses.......................................... 8.2 6.3 2.4
Advanced billings......................................... 8.0 6.5 6.3
----- ----- -----
Total current liabilities 20.5 15.9 12.0
===== ===== =====
Long-term liabilities:
Long-term debt............................................ 0.1 0.2 1.0
Capitalised lease obligations............................. 0.1 0.1 0.1
Minority interests........................................ 0.1 -- 0.1
Deferred rent............................................. 0.9 0.8 0.7
Other liabilities......................................... -- -- 0.2
----- ----- -----
Total long-term liabilities................................. 1.2 1.1 2.1
----- ----- -----
Total liabilities........................................... 21.7 17.0 14.1
===== ===== =====
Stockholders' Equity Allotted, called up and fully paid:
Common stock, $.01 par value; 20,000,000 shares
authorised; and 7,415,167, 7,415,000, and 4,740,983
shares outstanding, respectively...................... 0.1 0.1 --
Additional paid-in capital................................ 22.8 22.8 0.3
----- ----- -----
Retained earnings......................................... 6.3 1.9 6.1
Total stockholders' equity.................................. 29.2 24.8 6.4
----- ----- -----
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. 50.9 41.8 20.5
===== ===== =====
P-70
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY AND OTHER
SHARE CAPITAL
ADDITIONAL
COMMON PAID-IN RETAINED
STOCK CAPITAL EARNINGS TOTAL
-------- ---------- -------- --------
$M $M $M $M
At 1 January 1996.......................................... -- 0.3 4.9 5.2
Net income................................................. -- -- 2.6 2.6
Distributions to stockholders.............................. -- -- (1.4) (1.4)
--- ---- ---- ----
At 31 December 1996........................................ -- 0.3 6.1 6.4
Net income................................................. -- -- 4.0 4.0
Initial public offering of common stock, net............... 0.1 16.4 -- 16.5
Issuance of common stock for acquisition of minority
interests................................................ -- 2.3 -- 2.3
Undistributable earnings in ``S" corporation............... -- 3.8 (3.8) --
Distributions to stockholders.............................. -- -- (4.4) (4.4)
--- ---- ---- ----
At 31 December 1997........................................ 0.1 22.8 1.9 24.8
Net income................................................. -- -- 4.4 4.4
--- ---- ---- ----
At 31 December 1998........................................ 0.1 22.8 6.3 29.2
=== ==== ==== ====
P-71
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED 31 DECEMBER,
------------------------------
1998 1997 1996
-------- -------- --------
$M $M $M
CASH FLOWS FROM OPERATING ACTIVITIES:
NET INCOME.................................................. 4.4 4.0 2.5
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortisation............................. 1.1 0.8 0.6
Deferred rent............................................. 0.1 0.1 --
Deferred income........................................... 0.2 (0.7) 0.1
Minority interests in net earnings of subsidiaries........ -- 0.2 0.1
Changes in operating assets and liabilities, net of effects
from acquisitions of businesses:
Accounts receivable....................................... (2.0) (2.5) (2.1)
Unbilled production charges............................... (1.4) -- 1.6
Other current assets...................................... (0.1) (0.4) --
Other assets.............................................. 0.3 0.1 (0.1)
Accounts payable.......................................... 0.5 (0.6) (0.5)
Advance billings.......................................... 0.9 0.2 0.2
Accrued expenses.......................................... 0.5 4.1 1.0
----- ----- -----
NET CASH PROVIDED BY OPERATING ACTIVITIES................. 4.5 5.3 3.4
----- ----- -----
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures, net................................. (1.0) (1.1) (0.7)
Proceeds from the sale of fixed assets.................... 0.1 0.1 --
Businesses acquired, net of cash received................. (12.3) -- (0.2)
Restricted cash, net...................................... (1.5) -- --
----- ----- -----
Net cash (used in) investing activities..................... (14.7) (1.0) (0.9)
----- ----- -----
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from initial public offering................. -- 16.4 --
Payment of majority stockholder dividends................. -- (0.1) --
Net proceeds from (repayment of) line of credit........... (0.6) (0.4) 0.1
Distributions to stockholders............................. -- (4.2) (1.5)
Proceeds from bank loans.................................. -- 0.3 --
Issuance of bank loans and long-term debt................. -- -- 0.3
Repayment of bank loans and long-term debt................ (0.7) (0.3) (0.3)
Capital lease repayments.................................. (0.1) (0.1) (0.1)
----- ----- -----
Net cash (used in)/provided by financing activities......... (1.4) 11.6 (1.5)
----- ----- -----
NET INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS........ (11.6) 15.9 1.1
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR.............. 18.1 2.2 1.1
----- ----- -----
CASH AND CASH EQUIVALENTS AT END OF YEAR.................... 6.5 18.1 2.2
===== ===== =====
Supplemental disclosure of cash flow information:
Cash paid for:
Taxes..................................................... 2.4 0.9 0.1
===== ===== =====
Interest.................................................. 0.1 0.1 0.1
===== ===== =====
Supplemental schedule of non cash investing activities:
Issuance of stock for acquisition of minority interests... -- 2.3 --
===== ===== =====
The accompanying notes to consolidated financial statements are an integral part
of these statements.
P-72
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANISATION
On 12 November 1997, Healthworld Corporation acquired (the``Consolidation"),
in exchange for shares of its Common Stock, all of the issued and outstanding
common stock of each of (i) Girgenti, Hughes, Butler & McDowell, Inc. and its
affiliated entities (``GHB&M") and (ii) Milton Marketing Group Limited and its
subsidiaries (``Milton"). Unless otherwise indicated, all references herein to
the ``Company" give effect to the Consolidation and include GHB&M, Milton and
each of Healthworld Corporation's other subsidiaries. The Consolidation was
accounted for under the pooling of interests method of accounting. Accordingly,
the Company's consolidated financial statements and notes thereto have been
restated to include the results of GHB&M and Milton for all periods presented.
In July 1998, the Company acquired 80 per cent. of the capital stock of HFT,
a French holding company, which owns 100 per cent. of the capital stock of
Torrent S.A., a French healthcare communications agency, which in turn owns 100
per cent. of the capital stock of Aigue Marine SARL and Katchina Productions
SARL, each a French company (collectively, the ``HFT Group Companies"). In
addition, in July 1998, the Company acquired all of the capital stock of Colwood
House Medical Publications (UK) Limited (``Colwood"), a United Kingdom medical
education company. In October 1998, the Company acquired all of the capital
stock of CPA Espana, S.L. (``CPA Spain"), a healthcare communications agency
located in Madrid, Spain. The acquisitions of the aforementioned companies
(collectively, the ``1998 Acquisitions"), have been accounted for using the
purchase method of accounting, whereby the excess initial purchase price over
the fair value of net assets acquired has been recorded as goodwill (Note 6).
Certain amounts in the financial statements for prior periods have been
reclassified to conform to the current year presentation for comparative
purposes.
NOTE 2. BUSINESS
The Company is an international communications and contract sales marketing
organization specializing in healthcare. The Company provides many of the
world's largest pharmaceutical and healthcare companies with a comprehensive
range of strategic marketing services designed to accelerate acceptance of new
products and to sustain their growth. These integrated services include
advertising and promotion, contract sales, consulting, publishing, medical
education, public relations, interactive multimedia, database marketing and
marketing research services. The Company offers its clients global reach and
expertise through its operations in the United States, the United Kingdom,
France and Spain and through Healthworld B.V., a world-wide network of licensed
independent marketing and communications agencies.
NOTE 3. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its majority and wholly-owned subsidiaries. All intercompany
accounts and transactions have been eliminated in consolidation.
RESTATEMENT
As discussed in Note 1, the Company completed the Consolidation on 12
November 1997, which was accounted for under the pooling of interests method of
accounting. Accordingly, the Company's consolidated financial statements and
notes thereto have been restated to include the results of GHB&M and Milton for
the years ended 31 December 1997 and 1996.
P-73
FISCAL YEAR CHANGE
In December 1997, the Company changed the fiscal year end of Milton from 30
November to 31 December to eliminate the one month lag in reporting. The one
month lag was eliminated during the fourth quarter of 1997 as an adjustment to
retained earnings of $(35).
FOREIGN CURRENCY TRANSLATION
All assets and liabilities of the Company's European subsidiaries are
translated into United States Dollars. Assets and liabilities of Milton and
Colwood are translated from British Pounds Sterling, those of the HFT Group
Companies are translated from French Francs and those of CPA Spain are
translated from Spanish Pesetas at year-end exchange rates. Income and expense
items for the Company's European subsidiaries are translated at average exchange
rates prevailing during each fiscal year. The resulting translation adjustments
are recorded as a separate component of stockholders' equity.
REVENUE RECOGNITION
Revenues and fees are derived from clients for creative concept development,
production of advertising and promotional materials and the supply of long and
short-term personnel for client marketing purposes. For services such as the
production of advertising and promotion materials, fees are recognised when the
production materials are completed. With respect to services such as consulting,
publishing and public relations, the Company is either paid a monthly retainer
or bills on an actual time incurred basis, which, in each case, the Company
recognises as income each month to match its monthly payroll and operating
costs. Revenues associated with contract sales services are recognised as such
services are provided and payroll expenses are incurred.
Accounts receivable includes fees recognised, project costs, and media and
production costs incurred on behalf of clients, which are paid for by the
Company and billed to clients. The Company records gross contract revenues for
contract sales services. The related direct costs are included in salaries and
related costs on the accompanying consolidated statements of income.
CONCENTRATION OF CREDIT RISK
The Company provides services to a range of clients operating mostly in the
healthcare, consumer products and utility industries. For the years ended 31
December 1997 and 1996, the Company had one client which constituted
approximately 18.8 per cent. and 26.9 per cent. of total revenues, respectively,
and for the year ended 31 December 1998, the Company had one client which
accounted for approximately 14.1 per cent. of total revenues. The Company
extends credit to all qualified clients, but does not believe that it is exposed
to any undue concentration of credit risk to any significant degree. At 31
December 1998 and 1997, no single customer accounted for more than 10 per cent.
of the Company's total trade receivables. The Company maintains reserves for
potential credit losses, but has not experienced any material losses from
individual clients or groups of clients.
CASH AND CASH EQUIVALENTS
For purposes of the consolidated balance sheets and consolidated statements
of cash flows, the Company considers all highly liquid instruments purchased
with original maturities of three months or less to be cash equivalents.
P-74
UNBILLED PRODUCTION CHARGES
Unbilled production charges consists principally of costs incurred in
producing marketing communications for clients and field marketing personnel to
be billed. Such amounts will be billed to clients at either a defined stage of
the project or when production is complete.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, net of accumulated depreciation
and amortisation. Depreciation and amortisation are computed using both
accelerated and straight-line methods over the following periods:
Buildings............................ 30 years
Motor vehicles....................... 4-8 years
Furniture and equipment.............. 4-14 years
Leasehold improvements............... Lesser of lease term or useful life
Equipment held under capital Lesser of lease term or useful life
leases.............................
EQUIPMENT HELD UNDER CAPITAL LEASES
Equipment held under capital leases is accounted for in accordance with
Statement of Financial Accounting Standards (``SFAS") No. 13, ``Accounting for
Leases", and is recorded in property and equipment. The present value of the
related liability is included in capitalised lease obligations.
GOODWILL
Goodwill represents the Company's excess purchase price over the fair value
of net assets acquired and is being amortised on a straight-line basis. Amounts
recognised to date have been amortised over 30 years from the original date of
acquisition. Amortisation expense of goodwill for the years ended 31 December
1998, 1997 and 1996 amounted to $0.3 million, $0.1 million and $nil
respectively.
ACCOUNTING FOR LONG-LIVED ASSETS
During 1996, the Company adopted SFAS No. 121, ``Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
This statement requires the Company to review long-lived assets, including
certain intangibles and goodwill, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The provisions of SFAS No. 121 have had no impact on the financial
statements for all periods presented.
ADVANCE BILLINGS
Advance billings consists of progress billings for production jobs that are
not completed, as well as accrued media placements that have been billed to
clients.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
``Accounting for Income Taxes". This statement requires an asset and liability
approach for measuring deferred taxes based on temporary differences between the
financial statement and income tax bases of assets and liabilities existing at
each balance sheet date using enacted rates for the years in which the taxes are
expected to be paid or recovered.
As a result of the Consolidation, the entities comprising GHB&M (other than
Syberactive, Inc., which was already treated as a ``C" corporation) are no
longer treated as ``S" corporations. Deferred tax assets and liabilities were
established in the fourth quarter of 1997 due to the termination of
P-75
GHB&M's ``S"corporation status on 12 November 1997. This resulted in a credit to
the provision for income taxes of $0.4 million for the year ended 31
December 1997 (Note 11).
STOCK-BASED COMPENSATION
In 1997, the Company adopted the provisions of SFAS No. 123, ``Accounting
for Stock-Based Compensation", by continuing to apply the provisions of
Accounting Principles Board (``APB") Opinion No. 25, ``Accounting for Stock
Issued to Employees", while providing the required pro forma disclosures as if
the fair value method had been applied (Note 14).
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company accounts for the fair value of its financial instruments in
accordance with SFAS No. 107, ``Disclosures about Fair Value of Financial
Instruments". The carrying value of all financial instruments reflected in the
accompanying balance sheets approximates fair value at 31 December 1998 and
1997, respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133
``Accounting for Derivative Instruments and Hedging Activities". This statement
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. SFAS No. 133 is effective for all fiscal quarters of fiscal
years beginning after 15 June 1999 and will not require retroactive restatement
of prior period financial statements. This statement requires the recognition of
all derivative instruments as either assets or liabilities in the balance sheet
measured at fair value. Derivative instruments will be recognised as gains or
losses in the period of change. If certain conditions are met where the
derivative instrument has been designated as a fair value hedge, the hedged item
may also be marked to market through earnings thus creating an offset. If the
derivative is designed and qualifies as a cash flow hedge, the changes in fair
valu e of the derivative instrument may be recorded in comprehensive income. The
Company does not presently make use of derivative instruments.
NOTE 4. RESTRICTED CASH
In connection with the Colwood acquisition, the Company deposited an amount
equal to L1.0 million (approximately US$1.7 million) in an interest-bearing
escrow account to be applied towards potential, future earn-out payments. For
1998 and 1997, in connection with the lease for office space, the Company was
required to establish irrevocable standby letters of credit with face amounts of
$0.2 million and $0.3 million, respectively. The Company set aside certificates
of deposit in the amounts of $0.2 million and $0.3 million in 1998 and 1997,
respectively, as collateral for such letters of credit.
P-76
NOTE 5. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
AT 31 DECEMBER
------------------------------
1998 1997 1996
-------- -------- --------
$M $M $M
Land........................................................ 0.3 -- --
Buildings................................................... 0.4 -- --
Motor vehicles.............................................. 0.6 0.3 0.3
Furniture and equipment..................................... 5.0 3.7 3.1
Leasehold improvements...................................... 1.1 0.9 0.6
Equipment held under capital leases......................... 0.2 0.3 0.4
---- ---- ----
7.6 5.2 4.4
Less: accumulated depreciation and amortisation............. (3.2) (2.8) (2.3)
---- ---- ----
4.4 2.4 2.1
==== ==== ====
Depreciation and amortization expense for the years ended 31 December 1998,
1997 and 1996 amounted to approximately $0.9 million, $0.8 million and $0.6
million, respectively.
NOTE 6. ACQUISITIONS OF BUSINESSES
MILTON CATER LIMITED (``MCL")
MCL was formed in April 1996, and the Company acquired 51 per cent. of its
equity in May 1996. The remaining 49 per cent. of MCL's equity was owned by a
key employee and was purchased by the Company on 12 November 1997 for no
consideration pursuant to a prior agreement between Milton and the minority
stockholder.
MILTON MARKETING LIMITED (``MML")
In April 1996, the Company acquired an additional 7.5 per cent. interest in
MML for $0.2 million, which increased the Company's interest in MML to 92.5 per
cent. The acquisition of the 7.5 per cent. interest was accounted for using the
purchase method of accounting. The excess purchase price over the fair value of
the minority share of net assets was $0.2 million and has been recorded as
goodwill. As described above the remaining 7.5 per cent. interest was acquired
on 12 November 1997.
PDM COMMUNICATIONS LIMITED (``PDM")
In November 1996, the Company acquired a 75 per cent. interest in PDM for a
cash purchase price of $32,000. The minority stockholder had a put option and
the Company had a call option with respect to the remaining 25 per cent. of the
shares not owned by the Company. This acquisition was accounted for using the
purchase method of accounting and the purchase price was allocated to the assets
purchased and the liabilities assumed based on their fair values at the date of
acquisition. The excess purchase price over the fair value of the net assets
acquired was $0.5 million and has been recorded as goodwill. On 12
November 1997 the Company exercised its call option as fully described above.
The Company may be required under certain circumstances to remit to a prior PDM
stockholder up to approximately $0.3 million no later than 31 July 1999.
MINORITY INTERESTS
On 12 November 1997, the Company acquired the remaining minority interests
in all Milton subsidiaries. In accordance with the terms of the acquisitions,
the Company issued 259,000 shares of
P-77
common stock in exchange for all minority shareholders' interest in their
respective companies. These acquisitions were accounted for using the purchase
method of accounting. The excess purchase price over the fair value of the
minority interest share of the net assets acquired was $2.0 million and has been
recorded as goodwill.
THE HFT GROUP COMPANIES
In July 1998, the Company acquired 80 per cent. of the capital stock of HFT,
a French holding company, which owns 100 per cent. of the capital stock of
Torrent, a French healthcare communications agency, which in turn owns 100 per
cent. of the capital stock of Aigue Marine SARL and Katchina Productions SARL,
each a French company. The initial cash purchase price paid by the Company was
approximately 20.3 million French Francs (approximately $3.4 million) including
expenses related to the acquisition. Total amounts to be paid in connection with
the acquisition, including potential, future earn-out payments to take place on
or prior to 15 April 2000 and 15 April 2002 based upon (i) a multiple of
operating income of the HFT Group Companies, and (ii) the seller's option to
sell and the Company's option to purchase the remaining 20 per cent. of the
capital stock of HFT, will not exceed 48 million French Francs (approximately
$8.1 million). The acquisition has been accounted for using the purchase method
of accounting, whereby the excess of the initial purchase price over the fair
value of the net assets acquired, 1.6 million French Francs (approximately $0.3
million), after removing minority interests, was recorded as goodwill. Total
goodwill recorded on the purchase was approximately $3.1 million.
COLWOOD
In July 1998, the Company acquired all of the capital stock of Colwood, a
United Kingdom medical education company. The initial cash purchase price paid
by the Company was L4.5 million (approximately $7.5 million) including expenses
related to the acquisition. Total amounts to be paid in connection with the
acquisition, including potential, future earn-out payments to take place in
April 2000 and August 2001 based upon Colwood achieving certain targeted
operating profits, are not to exceed approximately L8.0 million (approximately
$13.3 million). Pursuant to the acquisition agreement, the Company deposited an
amount equal to L1.0 million (approximately $1.7 million) in an interest-bearing
escrow account to be applied towards the potential, future earn-out payments,
and may potentially be required to deposit into such escrow account additional
amounts, based on net operating profits, to be applied towards such payments.
The acquisition has been accounted for using the purchase method of accounting,
whereby the excess of the initial purchase price over the fair value of the net
assets acquired, L0.9 million (approximately $1.5 million), was recorded as
goodwill. Total goodwill recorded on the purchase was L3.6 million
(approximately $6.0 million).
CPA SPAIN
In October 1998, the Company acquired all of the capital stock of CPA Spain,
a healthcare communications agency located in Madrid, Spain. The initial cash
purchase price paid by the Company was approximately 261 million Spanish Pesetas
(approximately US$1.9 million) including expenses related to the acquisition.
Total amounts to be paid in connection with the acquisition, including
potential, future earn-out payments to take place in April 2000 and April 2003
based upon CPA Spain achieving certain targeted operating profits, are not to
exceed approximately 710.0 million Spanish Pesetas (approximately US$5.1
million). The acquisition has been accounted for using the purchase method of
accounting, whereby the excess of the initial purchase price over the fair value
of the net assets acquired, 24.9 million Spanish Pesetas (approximately US$0.2
million), was recorded as goodwill. Total goodwill recorded on the purchase was
$1.7 million.
The results of operations of these acquisitions are included in the
consolidated financial statements from the respective dates of acquisition.
P-78
Summarised below are the unaudited pro forma results of operations for the
years ended 31 December 1998, 1997 and 1996 of the Company as though the
acquisitions of MCL, MML, PDM and the remaining minority interests in certain of
Milton's subsidiaries had occurred at the beginning of 1996, and the
acquisitions of the HFT Group Companies, Colwood and CPA Spain had occurred at
the beginning of 1997. Adjustments have been made for income taxes, amortisation
of goodwill, interest income and minority interests in net earnings of
subsidiaries related to these transactions.
YEAR ENDED 31 DECEMBER
------------------------------
1998 1997 1996
-------- -------- --------
$M $M $M
Pro Forma:
Revenues............................................. 68.7 44.1 24.6
Net income........................................... 4.3 2.7 1.5
====== ====== =====
Basic net income per common share.................... $ 0.58 $ 0.53 $0.31
------ ------ -----
Diluted net income per common share.................. $ 0.56 $ 0.53 $0.31
------ ------ -----
These pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the acquisitions been
made at the beginning of 1998, 1997 or 1996 or of results which may occur in the
future.
NOTE 7. BANK LOANS AND OVERDRAFTS
The Company had the following loans and overdraft facilities outstanding
AT 31 DECEMBER
1998 1997 1996
-------- -------- --------
$M $M $M
Term loan (a)............................................... 0.2 0.3 0.5
Term note/loan (b).......................................... -- 0.1 0.2
Overdraft facility (c)...................................... -- 0.6 0.4
4 per cent. loan notes (d).................................. -- 0.5 0.5
Line of credit (e).......................................... -- -- 0.4
---- ---- ----
0.2 1.5 2.0
Less: current portion....................................... (0.1) (1.3) (1.0)
---- ---- ----
0.1 0.2 1.0
==== ==== ====
- ------------------------
(a) During November 1995, a bank provided a Term Loan of $0.6 million to the
Company which bears interest at the UK base rate (6.25 per cent. as of 31
December 1998) plus 2 per cent. per annum and is payable in instalments of
$0.1 million every May and November with the final instalment due in
November 2000. The Term Loan requires the Company to maintain certain
financial covenants. As of 31 December 1998, the Company was in compliance
with all of the provisions of the Term Loan.
(b) During February 1996, a bank provided a Term Loan of $0.3 million to finance
the construction of additional office space in the United States. This Term
Loan bears interest at 7.75 per cent. per annum and is payable in 36 monthly
instalments commencing March 1996.
(c) The Company has in place an overdraft facility with a bank, which bears
interest at the UK base rate plus 1.75 per cent. per annum. As of 31
December 1998 and 1997 the outstanding balance was approximately $nil and
$0.6 million, respectively, while the overdraft facility limits were
approximately $1.2 million and, $0.8 million respectively.
P-79
NOTE 7. BANK LOANS AND OVERDRAFTS (CONTINUED)
(d) In connection with the Milton Headcount Limited acquisition, the Company
issued a $0.5 million, 4 per cent. unsecured note, which was paid in full in
July 1998.
(e) In January 1996, Chase Manhattan Bank, N.A. approved a $3.5 million Line of
Credit. As of 31 December 1997 and 1996. $mil and $0.4 million were
outstanding, respectively. Borrowing under the Line of Credit are limited to
80 percent of eligible trade receivables, as defined in the agreement. The
Line of Credit, which matured on 31 July 1997, was renewed in October 1997,
bears interest at prime (8.5 per cent, as of 31 December 1997) plus 1 per
cent. per annum and matures on 30 June 1998. All loans under the Line of
Credit are (i) secured by a first priority security interest in GHB&M's
personal property, and (ii) guaranteed by certain officers of the Company.
The Line of Credit requires the Company to maintain certain financial
ratios. As of 31 December 1997, the Company was in compliance with all of
the provisions of the Line of Credit.
At 31 December 1998, maturities of debt were as follows:
$M
--------
1999......................... 0.1
2000......................... 0.1
---
0.2
===
The Company has several credit facilities with various financial
institutions. At 31 December 1998 and 1997, there was $nil and, $0.6 million
respectively, outstanding under the collective Company facilities.
NOTE 8. CAPITALISED LEASE OBLIGATIONS
The Company has entered into capital leases for computer equipment and motor
vehicles. The lease payments are payable monthly on a straight-line basis. The
assets relating to the leases are capitalised and amortised over a period
approximating the lease period.
Minimum future lease payments under capital leases as of 31 December 1998
were:
$M
--------
1999........................................................ 0.1
---
Total minimum lease payments................................ 0.1
Less: amounts representing interest......................... --
---
Present value of minimum lease payments..................... 0.1
===
Interest rates on capitalised leases vary from 11 per cent. to 15 per cent.
and are imputed based on the lessor's implicit rate of return.
P-80
NOTE 9. ACCRUED EXPENSES
Major components of accrued expenses included:
AT 31 DECEMBER
1998 1997 1996
-------- -------- --------
$M $M $M
Salaries and related costs.................................. 2.4 2.9 0.7
Value added tax............................................. 2.0 1.4 0.3
Income taxes................................................ 1.3 0.9 0.6
Other....................................................... 1.7 0.6 0.5
Offering costs.............................................. -- 0.3 --
Acquisition costs........................................... 0.3 -- --
--- --- ---
7.7 6.1 2.1
=== === ===
NOTE 10. COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, ``Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
Other comprehensive income, which consisted of foreign currency translation
adjustments, was immaterial for the years ended 31 December 1998, 1997 and 1996.
No provision for income taxes has been made with respect to foreign currency
translation adjustments because all earnings of foreign subsidiaries are
expected to be permanently reinvested outside the United States.
NOTE 11. INCOME TAXES
Income taxes have been provided for using the liability method in accordance
with SFAS No. 109, ``Accounting for Income Taxes". The provision for income
taxes is recorded at an effective rate of 40.0 per cent. and 14.6 per cent. for
the fiscal years ended 31 December 1998 and 1997, respectively. Prior to the
Consolidation in 1997, certain of the entities comprising GHB&M were treated as
``S" corporations and were not subject to Federal corporate income taxes.
The provision for income taxes comprised:
AT 31 DECEMBER
------------------------------
1998 1997 1996
-------- -------- --------
$M $M $M
Current:
Federal................................................... 1.4 0.3 --
State and local........................................... 0.5 0.7 0.1
Foreign................................................... 0.9 0.3 0.3
--- ---- ---
2.8 1.3 0.4
Deferred:
Federal................................................... 0.1 -- --
State and local........................................... 0.1 (0.2) 0.1
--- ---- ---
0.2 (0.2) 0.1
Deferred taxes resulting from Subchapter ``S" corporation
termination............................................... -- (0.4) --
--- ---- ---
3.0 0.7 0.5
=== ==== ===
P-81
NOTE 11. INCOME TAXES (CONTINUED)
Reconciliation of the statutory Federal income tax rate to the Company's
effective tax rate were as follows:
31 DECEMBER
-------------------
1998 1997
-------- --------
% %
US Federal statutory rate................................... 34.0 34.0
State and local taxes, net of Federal benefit............... 4.5 6.1
Tax effect resulting from foreign operations................ 1.0 0.6
Income from ``S" corporation period taxable to
shareholders.............................................. -- (21.3)
Deferred taxes resulting from subchapter ``S" corporation
termination............................................... -- (8.2)
Non-deductible foreign tax losses........................... -- 1.8
Non-deductible goodwill amortisation........................ 1.2 0.5
Other....................................................... (0.7) 1.1
---- -----
Effective income tax rate................................... 40.0 14.6
==== =====
Significant components of deferred tax assets were as follows:
DECEMBER
-------------------
1998 1997
-------- --------
% %
Current deferred tax assets and liabilities:
Accounts receivable....................................... -- 0.1
----- -----
-- 0.1
Non-current deferred tax assets:
Deferred rent............................................. 0.2 0.3
----- -----
Total deferred tax asset.................................... 0.2 0.4
===== =====
No provision for US income taxes was made for $2.9 million of cumulative
unremitted earnings of foreign subsidiaries at 31 December 1998 because those
earnings were expected to be permanently reinvested outside the United States.
NOTE 12. NET INCOME PER COMMON SHARE
In accordance with SFAS No. 128, ``Earnings Per Share", basic earnings per
common share amounts were computed by dividing net earnings by the weighted
average number of common shares outstanding, excluding any potential dilution.
Diluted earnings per common share amounts were computed by reflecting potential
dilution from the exercise of stock options.
P-82
NOTE 12. NET INCOME PER COMMON SHARE (CONTINUED)
The following chart provides a reconciliation of information used in
calculating the per share amounts:
YEAR ENDED 31
DECEMBER
------------------------------
1998 1997 1996
-------- -------- --------
$M $M $M
Net income.................................................. 4.4 4.0 2.6
Pro forma provision for income taxes........................ -- (1.3) (0.8)
---- ----- -----
Pro forma net income........................................ 4.4 2.7 1.8
==== ===== =====
Basic common shares outstanding............................. 7.4 5.0 4.7
Effect of dilutive securities:
Stock options............................................. 0.2 -- --
---- ----- -----
Diluted shares outstanding.................................. 7.6 5.0 4.7
==== ===== =====
Basic net income per common share........................... 0.60 0.54 0.37
---- ----- -----
Diluted net income per common share......................... 0.58 0.54 0.37
==== ===== =====
NOTE 13. PRO FORMA NET INCOME
Pro forma net income for the twelve month periods ended 31 December 1997 and
1996 includes the pro forma effect of a ``C" corporation income tax provision as
if each of the companies comprising GHB&M (other than Syberactive, Inc., which
was already treated as a ``C" corporation) were treated as ``C"corporations for
the entire period.
NOTE 14.\ STOCK BASED COMPENSATION PLANS
On 13 October 1997, the Board of Directors adopted the 1997 Stock Option
Plan (the ``1997 Plan"). The 1997 Plan authorised the granting of stock options
to purchase up to an aggregate of 710,000 shares of the Company's common stock.
On 10 June 1998, the Board of Directors adopted an amendment to the 1997 Plan to
increase by 700,000 the aggregate number of shares of the Company's common stock
available under the 1997 Plan, which amendment was approved by the Company's
stockholders on 10 June 1998. The awards can take the form of Incentive Stock
Options (``ISOs") and Non-qualified Stock Options (``NQSOs"). Awards may be
granted to key employees, directors and consultants. ISOs and NQSOs are granted
in terms not to exceed ten years and become exercisable as set forth when the
award is granted. Options may be exercised in whole or in part.
The exercise price of the ISOs and NQSOs is the market price of the
Company's common stock on the date of grant. Any plan participant who is granted
ISOs and possesses more than 10 per cent. of the voting rights of the Company's
outstanding common stock must be granted options at an option price of at least
110 per cent. of fair market value on the date of grant and the option must be
exercised within five years from the date of grant. Under the 1997 Plan, ISOs
and NQSOs have been granted to key employees and directors for terms of up to
ten years, at exercise prices ranging from $9.00 to $16.50 and are exercisable
in whole or in part at the stated times from the date of grant up to three years
from the date of grant.
P-83
NOTE 14.\ STOCK BASED COMPENSATION PLANS (CONTINUED)
The following is a summary of stock option activity granted under the 1997
Plan and related information for the years ended 31 December 1998 and 1997:
WEIGHTED
AVERAGE
EXERCISE
NON- PRICE
QUALIFIED QUALIFIED TOTAL $
--------- --------- --------- --------
(ACTUAL AMOUNTS)
Balance at 31 December 1996............................ -- -- -- --
Granted................................................ 361,250 179,500 540,750 9.09
Exercised.............................................. -- -- -- --
Forfeited.............................................. (1,250) -- (1,250) 9.00
------- ------- --------- ------
Balance at 31 December 1997............................ 360,000 179,500 539,500 9.07
Granted................................................ 177,151 349,849 527,000 13.38
Exercised.............................................. (167) -- (167) 11.13
Forfeited.............................................. (17,649) (16,500) (34,149) 10.90
------- ------- --------- ------
Balance at 31 December 1998............................ 519,335 512,849 1,032,184 $11.20
======= ======= ========= ======
The Company accounts for awards granted to employees and directors under APB
No. 25, under which no compensation cost has been recognised for stock options
granted. Had compensation cost for these stock options been determined
consistent with SFAS No. 123, the Company's net income and earnings per share
would have been reduced to the following pro forma amounts:
1998 1997
-------- --------
$M $M
-------- --------
Net income: As reported................................................. 4.4 2.7
Pro Forma................................................... 3.3 2.6
Basic EPS: As reported................................................. 0.60 0.54
Pro Forma................................................... 0.44 0.51
Diluted EPS: As reported................................................. 0.58 0.54
Pro Forma................................................... 0.43 0.51
The fair value of each option is estimated on the date of grant using the
Black Scholes option pricing model with the following weighted-average
assumptions:
1998 1997
-------- --------
Expected life (years)....................................... 4.5 4.4
Remaining contractual life (years).......................... 8.34 8.78
Risk free interest rate..................................... 5.75% 5.79%
Volatility.................................................. 60% 43%
Dividend yield.............................................. 0% 0%
The weighted average fair value of options granted at fair value (market
price) and at an exercise price above the fair market price was $7.09 and $7.72,
respectively, in 1998, and $3.88 and $3.77, respectively, in 1997. The weighted
average exercise price of options granted at fair value (market price) and those
granted at exercise prices above fair market price was $13.32 and $16.50,
respectively, in 1998, and $9.01 and $9.90, respectively, in 1997.
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts as the Company anticipates additional awards in
future years.
P-84
NOTE 15. SEGMENT AND GEOGRAPHIC INFORMATION
The Company has adopted SFAS No. 131, ``Disclosures about Segments of an
Enterprise and Related Information". SFAS No. 131 establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers. The accounting
policies of the operating segments are the same as those described in the
Summary of Significant Accounting Policies.
The Company is organised based on the services that it offers. Under this
organizational structure, the Company operates in two principal operating
segments: communications and contract sales. The Company's communications
operations provides integrated services to clients which includes advertising
and promotion, consulting, medical education, public relations, publishing,
database marketing, interactive media and marketing research services. The
Company's contract sales operations involve forming dedicated sales teams to
provide clients with substantial flexibility in selecting the extent and costs
of promoting products as well as the clients' level of involvement in managing
the sales effort.
Segmental information is as follows:
YEAR ENDED
31 DECEMBER
------------------------------
1998 1997 1996
-------- -------- --------
$M $M $M
Revenues:
Communications.............................................. 30.2 22.0 17.6
Contract Sales.............................................. 33.5 13.3 6.6
---- ---- ----
63.7 35.3 24.2
Income from operations:
Communications.............................................. 6.0 3.5 2.5
Contract Sales.............................................. 0.8 1.3 0.8
---- ---- ----
6.8 4.8 3.3
Interest income/(expense)................................... 0.6 0.1 (0.1)
---- ---- ----
Income before taxes......................................... 7.4 4.9 3.2
==== ==== ====
AT 31 DECEMBER
------------------------------
1998 1997 1996
-------- -------- --------
$M $M $M
Total assets:
Communications.............................................. 40.7 34.2 17.2
Contract Sales.............................................. 10.2 7.6 3.3
---- ---- ----
50.9 41.8 20.5
Expenditure for additions to fixed assets:
Communications.............................................. 0.6 0.9 0.5
Contract Sales.............................................. 0.4 0.2 0.2
---- ---- ----
1.0 1.1 0.7
==== ==== ====
One customer in the communications segment represented $9.0 million, or 14.1
per cent., of the Company's consolidated revenues for the year ended 31
December 1998, and one customer in the
P-85
contract sales segment was responsible for $6.6 million, or 18.8 per cent. of
the Company's consolidated revenues for the year ended 31 December 1997.
Geographic information is as follows:
YEAR ENDED 31
DECEMBER
------------------------------
1998 1997 1996
-------- -------- --------
$M $M $M
Revenues:
Domestic.................................................. 23.2 18.2 14.3
Foreign................................................... 40.5 17.1 9.9
---- ---- ----
63.7 35.3 24.2
Income from operations:
Domestic.................................................. 4.2 3.7 2.2
Foreign................................................... 2.6 1.1 1.1
---- ---- ----
6.8 4.8 3.3
==== ==== ====
AT 31 DECEMBER
------------------------------
1998 1997 1996
-------- -------- --------
$M $M $M
Identifiable assets:
Domestic.................................................. 20.0 31.4 14.0
Foreign................................................... 30.9 10.4 6.5
---- ---- ----
50.9 41.8 20.5
==== ==== ====
NOTE 16. COMMITMENTS AND CONTINGENCIES
LEASES
The Company has entered into various leases for property. All leases are
payable in monthly or quarterly installments, and are accounted for on a
straight-line basis over the term of the lease.
The following is a schedule of the minimum annual lease payments due:
$M
---
1999........................................................ 1.3
2000........................................................ 1.3
2001........................................................ 1.3
2002........................................................ 1.3
2003........................................................ 1.1
Thereafter.................................................. 6.2
Total rent expense incurred for the years ended December 1998, 1997 and 1996
was approximately $1.4 million, $1.2 million and $1.0 million, respectively.
EMPLOYMENT AGREEMENTS
The Company has entered into employment agreements (the ``Agreements") with
certain key employees. The agreements contain provisions for base salary and
incentives dependent upon certain performance measures, and are subject to
termination by either party. The aggregate annual minimum base compensation
required by the Agreements is approximately $2.7 million.
P-86
DEFINED CONTRIBUTION PLANS
The Company has a defined contribution plan (the ``Contribution Plan") that
is intended to qualify under Section 401(k) of the Internal Revenue Code
(``IRC"). All domestic employees, except those who have not attained the age of
21, are eligible to participate in the Contribution Plan. Participants may
contribute, through payroll deductions, up to 15 per cent. of their base
compensation, not to exceed IRC limitations. The Company matches up to 4 per
cent. of salary for participating employees. For the years ended 31 December
1998, 1997 and 1996 the Company contributed $0.2 million, $0.2 million and
$0.1 million, respectively.
The Company makes non-contractual payments into the personal pension plans
of various European senior managers. For the years ended 31 December 1998, 1997
and 1996, the Company contributed $0.1 million, $0.1 million and $nil,
respectively.
LITIGATION
In the normal course of business, the Company is a party to various claims
and/or litigation. Management believes that the settlement of all such claims
and/or litigation, considered in the aggregate will not have a material adverse
effect on the Company's financial position and results of operations.
3 RECONCILIATION OF US GAAP TO UK GAAP FINANCIAL INFORMATION
The following unaudited statements summarise the material adjustments, net
of their tax effect, which reconcile Healthworld's net profit, shareholders'
funds and net assets from that reported under US GAAP to those which would have
been reported had current UK GAAP as adopted by CCE been applied.
P-87
(1) RECONCILIATION OF PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS
YEAR ENDED 31 YEAR ENDED 31 YEAR ENDED 31
DECEMBER 1998 DECEMBER 1997 DECEMBER 1996
------------------------------ ------------------------------ ------------------------------
UK UK UK
GAAP GAAP GAAP
ADJUST- ADJUST- ADJUST-
US MENT UK US MENT UK US MENT UK
GAAP NOTE 1 GAAP GAAP NOTE 1 GAAP GAAP NOTE 1 GAAP
-------- -------- -------- -------- -------- -------- -------- -------- --------
$M $M $M $M $M $M $M $M $M
Revenues....................... 63.7 -- 63.7 35.3 -- 35.2 24.2 -- 24.2
Net operating expenses......... (56.9) (0.5) (57.4) (30.5) (0.5) (30.9) (20.9) (0.6) (21.5)
----- ---- ----- ----- ---- ----- ----- ---- -----
Operating profit............... 6.8 (0.5) 6.3 4.8 (0.5) 4.3 3.3 (0.6) 2.7
Net interest payable and
similar items................ 0.6 -- 0.6 0.1 -- 0.1 (0.1) -- (0.1)
----- ---- ----- ----- ---- ----- ----- ---- -----
Profit on ordinary activities
before tax................... 7.4 (0.5) 6.9 4.9 (0.5) 4.4 3.2 (0.6) 2.6
Tax on ordinary activities..... (3.0) -- (3.0) (0.7) -- (0.7) (0.5) -- (0.5)
----- ---- ----- ----- ---- ----- ----- ---- -----
Profit on ordinary activities
after tax.................... 4.4 (0.5) 3.9 4.2 (0.5) 3.7 2.7 (0.6) 2.1
Equity minority interests...... 0.0 -- 0.0 (0.2) -- (0.2) (0.1) -- (0.1)
----- ---- ----- ----- ---- ----- ----- ---- -----
Profit attributable to ordinary
shareholders................. 4.4 (0.5) 3.9 4.0 (0.5) 3.5 2.6 (0.6) 2.0
===== ==== ===== ===== ==== ===== ===== ==== =====
Net profit per Ordinary
Share--basic (actual
amounts)..................... -- -- 0.53 -- -- 0.70 -- -- 0.43
Average number of Ordinary
Shares (in millions)......... -- -- 7.4 -- -- 5.0 -- -- 4.7
Net profit per Ordinary
Share--diluted (actual
amounts)..................... -- -- 0.51 -- -- 0.70 -- -- 0.43
Average number of Ordinary
Shares--diluted (in
millions).................... -- -- 7.6 -- -- 5.0 -- -- 4.7
NOTE 1
A material adjustment to restate the profit of Healthworld under UK GAAP has
been made in respect of the amortisation of goodwill and other intangibles.
(2) RECONCILIATION OF SHAREHOLDERS' EQUITY
AT 31 DECEMBER
------------------------------
1998 1997 1996
-------- -------- --------
$M $M $M
Equity stockholders' equity in conformity with US GAAP...... 29.2 24.8 6.4
UK GAAP ADJUSTMENTS:
Goodwill and US purchase accounting in respect of
acquisitions.............................................. (4.2) (3.7) (1.8)
---- ---- ----
EQUITY SHAREHOLDERS' EQUITY IN CONFORMITY WITH UK GAAP...... 25.0 21.1 6.6
==== ==== ====
P-88
(3) RECONCILIATION OF NET ASSETS AT 31 DECEMBER 1998
HEALTHWORLD UK GAAP HEALTHWORLD
NOTE US GAAP ADJUSTMENTS UK GAAP
-------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
$M $M $M
FIXED ASSETS
Goodwill............................................. b, c 14.3 1.9 16.2
Tangible assets...................................... 4.4 -- 4.4
Investments.......................................... a 2.2 3.1 5.3
----- ---- -----
20.9 5.0 25.9
CURRENT ASSETS
Work in progress..................................... 3.2 -- 3.2
Debtors--DUE WITHIN ONE YEAR......................... 20.3 -- 20.3
Debtors--DUE AFTER ONE YEAR.......................... -- -- --
Investments.......................................... -- -- --
Cash at bank and in hand............................. 6.5 -- 6.5
----- ---- -----
30.0 -- 30.0
Creditors--AMOUNTS FALLING DUE WITHIN ONE YEAR....... a, c (20.5) (5.7) (26.2)
NET CURRENT ASSETS................................... 9.5 (5.7) 3.8
TOTAL ASSETS LESS CURRENT LIABILITIES................ 30.4 (0.7) 29.7
Creditors--AMOUNTS FALLING DUE AFTER MORE THAN ONE
YEAR............................................... c (1.2) (3.5) (4.7)
Provision for joint venture deficit.................. -- -- --
Provisions for liabilities and charges............... -- -- --
----- ---- -----
NET ASSETS/(LIABILITIES)............................. 29.2 (4.2) 25.0
===== ==== =====
Material adjustments necessary to restate the net assets of Healthworld
under UK GAAP have been made in respect of the following items:
(a) The grossing up of notes payable ($3.1 million) which are netted off against
the corresponding asset on the balance sheet under US GAAP.
(b) The elimination of goodwill ($4.2 million) arising from business
acquisitions prior to 1998 directly against equity, as allowed under
UK GAAP. Under US GAAP, goodwill arising from business acquisitions is
capitalised and amortised over the estimated useful life.
(c) Accounting for the deferred consideration (earn outs) on acquisitions
($6.1 million) post 1997, grossing up goodwill and recording the earn out
payable, as required under UK GAAP. Under US GAAP, the deferred
consideration is only accounted for at the point that it becomes payable.
P-89
(4) RECONCILIATION OF PROFIT ATTRIBUTABLE TO ORDINARY SHAREHOLDERS
NINE MONTHS ENDED
30 SEPTEMBER 1999
------------------------------
UK GAAP
ADJUST-
MENTS
US GAAP NOTE 1 UK GAAP
-------- -------- --------
$M $M $M
Revenues.................................................... 54.8 -- 54.8
Net operating expenses...................................... (48.6) 0.4 (48.2)
----- ---- -----
Operating profit............................................ 6.2 0.4 6.6
Net interest payable and similar items...................... 0.5 -- 0.5
----- ---- -----
Profit on ordinary activities before tax.................... 6.7 0.4 7.1
Tax on ordinary activities.................................. (2.9) -- (2.9)
----- ---- -----
Profit on ordinary activities after tax..................... 3.8 0.4 4.2
Equity minority interests................................... 0.0 -- 0.0
----- ---- -----
Profit attributable to ordinary shareholders................ 3.8 0.4 4.2
Net profit per Ordinary Share--basic (actual amounts)....... -- -- 0.56
Average number of Ordinary Shares (in thousands)............ -- -- 7,568
Net profit per Ordinary Share--diluted (actual amounts)..... -- -- 0.54
Average number of Ordinary Shares--diluted (in thousands)... -- -- 7,729
NINE MONTHS ENDED
30 SEPTEMBER 1999
------------------------------
UK GAAP
ADJUST-
MENTS
US GAAP NOTE 1 UK GAAP
-------- -------- --------
L L L
Revenues.................................................... 34.0 -- 34.0
Net operating expenses...................................... (30.1) 0.2 (29.9)
----- --- -----
Operating profit............................................ 3.8 0.2 4.1
Net interest payable and similar items...................... 0.3 -- 0.3
----- --- -----
Profit on ordinary activities before tax.................... 4.2 0.2 4.4
Tax on ordinary activities.................................. (1.8) -- (1.8)
----- --- -----
Profit on ordinary activities after tax..................... 2.4 0.2 2.6
Equity minority interests................................... 0.0 -- 0.0
----- --- -----
Profit attributable to ordinary shareholders................ 2.4 0.2 2.6
Net profit per Ordinary Share--basic (actual amounts)....... -- -- 34.5p
Average number of Ordinary Shares (in thousands)............ -- -- 7,568
Net profit per Ordinary Share--diluted (actual amounts)..... -- -- 33.8p
Average number of Ordinary Shares--diluted (in thousands)... -- -- 7,729
Period to date average dollar exchange rate of $1:L0.62.
NOTE 1
A material adjustment to restate the profit of Healthworld has been made in
respect of the amortisation of goodwill and other intangibles.
P-90
(5) RECONCILIATION OF SHAREHOLDERS' EQUITY
AT 30
SEPTEMBER
----------------------
1999 1999
-------- --------
LM $M
Equity stockholders' equity in conformity with US GAAP...... 25.1 41.3
UK GAAP ADJUSTMENTS:
Goodwill and US purchase accounting in respect of
acquisitions.............................................. (2.3) (3.7)
---- ----
Equity shareholders' equity in conformity with UK GAAP...... 22.8 37.6
==== ====
Period end dollar exchange rate of $1:L0.61.
(6) RECONCILIATION OF NET ASSETS AT 30 SEPTEMBER 1999
HEALTHWORLD UK GAAP HEALTHWORLD
NOTE US GAAP ADJUSTMENTS UK GAAP
-------- ----------- ----------- -----------
$M $M $M
(UNAUDITED) (UNAUDITED) (UNAUDITED)
FIXED ASSETS
Goodwill............................................ b, c 30.4 22.4 52.8
Tangible assets..................................... 5.1 -- 5.1
Investments......................................... a 2.7 3.1 5.8
----- ----- -----
38.2 25.5 63.7
CURRENT ASSETS
Work in progress.................................... 2.7 -- 2.7
Debtors -- DUE WITHIN ONE YEAR...................... 31.7 -- 31.7
Debtors -- DUE AFTER ONE YEAR....................... -- -- --
Investments......................................... -- -- --
Cash at bank and in hand............................ 6.9 -- 6.9
----- ----- -----
41.3 -- 41.3
Creditors -- AMOUNTS FALLING DUE WITHIN ONE YEAR.... a, c (37.0) (15.9) (52.9)
----- ----- -----
NET CURRENT ASSETS.................................. 4.3 (15.9) 11.6
----- ----- -----
TOTAL ASSETS LESS CURRENT LIABILITIES............... 42.5 9.6 52.1
Creditors -- AMOUNTS FALLING DUE AFTER MORE THAN ONE
YEAR.............................................. c (1.2) (13.3) (14.5)
Provision for joint venture deficit................. -- -- --
Provisions for liabilities and charges.............. -- -- --
----- ----- -----
NET ASSETS/(LIABILITIES)............................ 41.3 (3.7) 37.6
===== ===== =====
Material adjustments necessary to restate the net assets of Healthworld
under UK GAAP have been made in respect of the following items:
(a) The grossing up of notes payable ($3.1 million) which are netted off against
the corresponding asset on the balance sheet under US GAAP.
(b) The elimination of goodwill ($3.7 million) arising from business
acquisitions prior to 1998 directly against equity, as allowed under UK
GAAP. Under US GAAP, goodwill arising from business acquisitions is
capitalised and amortised over the estimated useful life.
(c) Accounting for the deferred consideration (earn outs) on acquisitions
($26.1 million) post 1997, grossing up goodwill and recording the earn out
payable, as required under UK GAAP. Under USGAAP, the deferred consideration
is only accounted for at the point that it becomes payable.
P-91
REPORT BY KPMG AUDIT PLC ON THE RECONCILIATION TO UK GAAP
[LOGO]
The Directors
Cordiant Communications Group plc
121-141 Westbourne Terrace
London W2 6JR
Warburg Dillon Read
A Division of UBS AG
2 Finsbury Avenue
London EC2M 2PP
4 February 2000
Dear Sirs
CORDIANT COMMUNICATIONS GROUP PLC
We refer to the reconciliation set out in Section 3 of Part III of the
Listing Particulars dated 4 February 2000 which would be required to the
consolidated profit and loss account for each of the three years ended
31 December 1998, to the consolidated shareholders' funds at the end of each of
those years, and to consolidated net assets as at 31 December 1998 reported in
the audited financial statements and to the consolidated profit and loss account
for the nine months ended 30 September 1999, to consolidated shareholders' funds
at the end of that period and to the consolidated net assets as at 30 September
1999 reported in the unaudited quarterly report of Healthworld Corporation,
prepared under United States Generally Accepted Accounting Principles, to
restate the information in accordance with the accounting policies of Cordiant
Communications Group plc and UK GAAP (the "reconciliation").
RESPONSIBILITIES
It is the responsibility solely of the Directors of Cordiant Communications
Group plc to prepare the UK GAAP restatements in accordance with paragraph 12.11
of the Listing Rules. It is our responsibility to form an opinion, as required
by the Listing Rules of the London Stock Exchange, on the UK GAAP restatement
and to report our opinion to you.
The reconciliation is based on the audited financial statements of
Healthworld Corporation for the three years ended 31 December 1998 which were
audited by Arthur Andersen LLP and on the unaudited quarterly report of
Healthworld Corporation for the nine months ended 30 September 1999. We express
no opinion on these financial statements.
BASIS OF OPINION
We have reviewed the calculations and basis of preparation for the
reconciliation. We have conducted our work in accordance with Statements of
Investment Circular Reporting Standards issued by the Auditing Practices Board.
Our work has not been carried out in accordance with auditing standards
generally accepted in the United States of America and accordingly should not be
relied upon as if it had been carried out in accordance with those standards.
P-92
OPINION
In our opinion the reconciliation has been properly compiled on the basis
set out therein. Further, in our opinion the adjustments are appropriate for the
purpose of presenting the financial information of Healthworld in accordance
with UK GAAP on a basis consistent in all material respects with the accounting
policies of Cordiant Communications Group plc.
Yours faithfully
KPMG Audit Plc
P-93
4 HEALTHWORLD GROUP RESULTS FOR THE NINE MONTHS ENDED 30 SEPTEMBER 1999
The financial information for the nine months ended 30 September 1999 and
1998 relating to Healthworld has been extracted without material adjustment from
the unaudited quarterly reports filed on Form 10-Q with the SEC for each of the
two periods ended 30 September 1999 and 30 September 1998. Copies of the
quarterly report on Form 10-Q for each of the two periods ended 30 September
1999 were filed with the SEC on 15 November 1999.
QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following is a summary of unaudited quarterly financial information for
the years ended 1997 and 1998:
YEAR ENDED 31 DECEMBER 1997
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues................................................... 6,278 7,473 9,435 12,106
Income from operations..................................... 216 899 1,723 1,992
Net income................................................. 191 762 1,374 1,678
Pro forma information(1):
Pro forma net income..................................... 105 491 914 1,191
Pro forma basic earnings per share(2).................... $ 0.02 $ 0.10 $ 0.19 $ 0.20
Pro forma diluted earnings per share(2).................. $ 0.02 $ 0.10 $ 0.19 $ 0.20
YEAR ENDED 31 DECEMBER 1998
-----------------------------------------
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues................................................ 13,988 14,877 16,919 17,893
Income from operations.................................. 324 1,731 2,511 2,236
Net income.............................................. 304 1,131 1,494 1,497
Basic earnings per share(2)............................. $ 0.04 $ 0.15 $ 0.20 $ 0.20
Diluted earnings per share(2)........................... $ 0.04 $ 0.15 $ 0.20 $ 0.20
- ------------------------
(1) Gives pro forma effect to corporation taxation for GHB&M.
(2) The sum of the quarters does not equal the full year per share amounts
included in the accompanying statement of income due to the effect of the
weighted average number of shares outstanding during the fiscal year as
compared to the quarters.
P-94
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (UNAUDITED)
NINE MONTHS ENDED
30 SEPTEMBER
---------------------
1998 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 6,602 $ 6,851
Accounts receivable, net.................................. 17,405 30,298
Unbilled production charges............................... 3,110 2,738
Other current assets...................................... 1,680 1,426
------- -------
Total current assets........................................ 28,797 41,313
Restricted cash............................................. 1,698 1,972
Property and equipment, net................................. 4,389 5,146
Goodwill, net............................................... 12,440 30,407
Other assets................................................ 1,019 701
------- -------
TOTAL ASSETS................................................ $48,343 $79,539
======= =======
LIABILITIES AND STOCKBROKERS' EQUITY
Current Liabilities:
Current portion of long-term debt......................... $ 165 $ --
Current portion of capitalised lease obligations.......... 90 52
Accounts payable.......................................... 3,580 5,459
Accrued expenses.......................................... 8,583 9,204
Advance billings.......................................... 6,888 20,352
Other current liabilities................................. -- 1,942
------- -------
Total current liabilities................................... 19,306 37,009
Long-term debt.............................................. 178 --
Capitalised lease obligations............................... 72 105
Minority interests.......................................... 95 122
Deferred rent............................................... 841 1,008
Other liabilities........................................... 21 74
------- -------
Total liabilities........................................... $20,513 $38,318
------- -------
Stockholders' Equity:
Preferred stock, $.01 par value; 1,000,000 shares
authorised; no shares outstanding....................... -- --
Common stock, $.01 par value; 20,000,000 shares
authorised; 7,415,000, and 8,098,280 shares outstanding,
respectively............................................ 74 81
Additional paid-in capital................................ 22,746 31,062
Retained earnings......................................... 4,860 10,113
Accumulated other comprehensive income...................... 150 (35)
------- -------
Total stockholders' equity.................................. 27,830 41,221
------- -------
Total liabilities and stockholders' equity.................. $48,343 $79,539
======= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
P-95
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
NINE MONTHS ENDED
30 SEPTEMBER
---------------------
1998 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Revenues.................................................... $45,784 $54,815
------- -------
Operating expenses:
Salaries and related costs................................ 34,747 39,973
General and office expenses............................... 5,702 7,398
Depreciation and amortisation............................. 769 1,247
------- -------
41,218 48,618
Income from operations...................................... 4,566 6,197
Interest income, net........................................ 551 452
------- -------
Income before provision for income taxes and minority
interests................................................. 5,117 6,649
------- -------
Provision for income taxes (Note 2)......................... 2,156 2,875
Minority interests in net earnings of subsidiaries.......... 32 18
------- -------
Net income.................................................. $ 2,929 $ 3,756
======= =======
Per share information (Note 3):
Net income per common share:
Basic................................................... $ 0.40 $ 0.50
======= =======
Diluted................................................. $ 0.39 $ 0.49
======= =======
Common shares used in computing per share amounts:
Basic................................................... 7,415 7,568
======= =======
Diluted................................................. 7,607 7,729
======= =======
The accompanying notes to consolidated financial statements are an integral part
of these statements.
P-96
HEALTHWORLD CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
NINE MONTHS
ENDED
30 SEPTEMBER
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
Cash flows from operating activities:
NET INCOME................................................ $ 2,929 $ 3,756
ADJUSTMENTS TO RECONCILE NET INCOME TO NET CASH
PROVIDED BY OPERATING ACTIVITIES:
Depreciation and amortisation........................... 769 1,247
Deferred rent........................................... 73 66
Deferred income taxes................................... (29) 30
Minority interests in net earnings of subsidiaries...... 32 18
Gain on sale of fixed assets............................ (14) (28)
CHANGES IN OPERATING ASSETS AND LIABILITIES, NET OF
EFFECTS
FROM ACQUISITIONS OF BUSINESSES:
Accounts receivable..................................... (1,363) (8,031)
Unbilled production charges............................. (1,408) 406
Other current assets.................................... (35) 113
Other assets............................................ (117) (154)
Accounts payable........................................ 285 1,124
Advance billings........................................ (227) 10,097
Accrued expenses........................................ 1,344 687
Other liabilities....................................... (12) 57
-------- -------
Net cash provided by operating activities................... 2,227 9,388
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures.................................... (709) (1,012)
Proceeds from the sale of fixed assets.................. 93 193
Businesses acquired, net of cash received............... (10,213) (7,966)
Restricted cash......................................... (1,698) 16
-------- -------
Net cash used in investing activities....................... (12,527) (8,769)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments of line of credit............................ (634) --
Repayment of bank loans and long term debt.............. (588) (243)
Capital lease repayments................................ (104) (102)
Proceeds from exercise of stock options................. -- 156
-------- -------
Net cash used in financing activities....................... (1,326) (189)
-------- -------
Effect of exchange rates on cash............................ 136 (51)
-------- -------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS........ (11,490) 379
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 18,092 6,472
-------- -------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 6,602 $ 6,851
======== =======
Supplemental disclosure of cash flow information:
Cash paid for:
Taxes................................................... $ 1,339 $ 2,690
======== =======
Interest................................................ $ 57 $ 107
======== =======
Supplemental schedule of noncash investing and financing
activities:
Capital leases for new equipment.......................... $ 42 $ 125
======== =======
Common stock issued in connection with the acquisition of
business................................................ $ -- $ 8,165
======== =======
The accompanying notes to consolidated financial statements
are an integral part of these statements.
P-97
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
30 SEPTEMBER 1999 (UNAUDITED)
1. ORGANISATION AND BASIS OF PREPARATION
On 12 November 1997, Healthworld Corporation acquired (the
``Consolidation"), in exchange for shares of its Common Stock, all of the issued
and outstanding common stock of each of (i) Girgenti, Hughes, Butler & McDowell,
Inc. and its affiliated entities (``GHB&M") and (ii) Milton Marketing Group
Limited and its subsidiaries (``Milton"). Unless otherwise indicated, all
references herein to the ``Company" give effect to the Consolidation and include
GHBM, Milton and each of the Company's other subsidiaries. The Consolidation was
accounted for under the pooling of interests method of accounting.
The Company is an international communications and contract sales marketing
organisation specialising in healthcare. The Company provides many of the
world's largest pharmaceutical and healthcare companies with a comprehensive
range of integrated strategic marketing services designed to accelerate the
acceptance of new products and to sustain their growth. These integrated
services include advertising and promotion, contract sales, consulting, medical
education, public relations, marketing research, publishing, interactive
multimedia and database marketing services. The Company offers its clients
global reach and expertise through its operations in the United States, France,
Spain and the United Kingdom and through Healthworld B.V., a world-wide network
of marketing and communications agencies operating under exclusive licensing
agreements.
The accompanying unaudited consolidated financial statements reflect all
adjustments, consisting of normal recurring accruals, which are, in the opinion
of the Company's management, necessary to present fairly the financial position
as of 30 September 1999 and the results of operations and cash flows for the
interim periods ended 30 September 1998 and 1999. Interim results are not
necessarily indicative of results for a full year. For further information,
refer to the consolidated financial statements and the accompanying notes
included in the Company's Annual Report on Form 10-K for the year ended
31 December 1998.
2. INCOME TAXES
Income taxes have been provided using the liability method in accordance
with Statement of Financial Accounting Standards (``SFAS") No. 109, ``Accounting
for Income Taxes". The provision for income taxes (recorded at an effective rate
of 42.6 per cent. for the three months ended 30 September 1998 and 1999, and at
an effective rate of 42.1 per cent. and 43.2 per cent. for the nine months ended
30 September 1998 and 1999, respectively) reflects management's estimation of
the effective tax rate that was and is expected to be applicable for the
respective fiscal years. This estimate is evaluated by management each quarter.
3. NET INCOME PER COMMON SHARE
In accordance with SFAS No. 128, ``Earnings Per Share", basic earnings per
common share amounts were computed by dividing net earnings by the weighted
average number of common shares outstanding, excluding any potential dilution.
Diluted earnings per common share amounts were computed by reflecting potential
dilution from the exercise of stock options.
P-98
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
30 SEPTEMBER 1999 (UNAUDITED)
3. NET INCOME PER COMMON SHARE (CONTINUED)
The following chart provides a reconciliation of information used in
calculating the per share amounts for the nine-month periods ended
30 September 1998 and 1999:
NINE MONTHS
ENDED
30 SEPTEMBER
-------------------
1998 1999
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
Numerator:
Net income................................................ $2,929 $3,756
------ ------
Denominator for basic net income per common share........... 7,415 7,569
Effect of dilutive securities:
Stock options............................................. 192 160
------ ------
Denominator for diluted net income per share................ 7,607 7,729
====== ======
Basic net income per common share........................... $ 0.40 $ 0.50
====== ======
Diluted net income per common share......................... $ 0.39 $ 0.49
====== ======
4. COMPREHENSIVE INCOME
In 1998, the Company adopted SFAS No. 130, ``Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components in a full set of general-purpose financial statements.
Comprehensive income consists of net income and foreign currency translation
adjustments. No provision for income taxes has been made with respect to foreign
currency translation adjustments because all earnings of foreign subsidiaries
are expected to be permanently reinvested outside the United States. These
amounts have been included in the accompanying consolidated balance sheet under
the caption ``Accumulated other comprehensive income".
Comprehensive income is as follows:
NINE MONTHS
ENDED
30 SEPTEMBER
-------------------
1998 1999
-------- --------
(IN THOUSANDS,
EXCEPT PER SHARE
DATA)
Net income.................................................. $2,929 $3,756
Other comprehensive income:
Foreign currency translation adjustments.................. 136 (57)
------ ------
Comprehensive income........................................ $3,065 $3,699
====== ======
P-99
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
30 SEPTEMBER 1999 (UNAUDITED)
5. SEGMENT INFORMATION
In 1998, the Company adopted SFAS No. 131, ``Disclosures about Segments of
an Enterprise and Related Information". SFAS No. 131 establishes standards for
reporting information about operating segments and related disclosures about
products and services, geographic areas and major customers.
The Company is organised based on the services that it offers. Under this
organisational structure, the Company operates in two principal operating
segments: communications and contract sales. The Company's communications
operations provide integrated services to clients which includes advertising and
promotion, consulting, medical education, public relations, marketing research,
publishing, interactive media and database marketing research services. The
Company's contract sales operations involve forming dedicated sales teams which
provide clients with substantial flexibility in selecting the extent and cost of
promoting products as well as the clients' level of involvement in managing its
sales effort.
Segment information is as follows:
NINE MONTHS ENDED
30 SEPTEMBER
-------------------
1998 1999
-------- --------
(IN THOUSANDS)
Revenues:
Communications............................................ $20,788 $28,617
Contract Sales............................................ 24,996 26,198
------- -------
$45,784 $54,815
======= =======
Income from operations:
Communications............................................ $ 3,839 $ 4,945
Contract Sales............................................ 727 1,252
------- -------
$ 4,566 $ 6,197
======= =======
6. ACQUISITION OF BUSINESS
In August 1999, the Company acquired all of the capital stock of Falk
Communications, Inc. (``Falk"), a United States healthcare communications
company. The initial purchase price paid by the Company was $16,952,000
consisting of $9,000,000 in cash, including expenses related to the acquisition,
and Company Common Stock valued at $7,952,000. Total amounts to be paid in
connection with the acquisition, including expenses related to the acquisition
and potential, future earn-out payments to take place in April 2000, 2001, 2002
and 2003, based upon a multiple of operating income of Falk, are not expected to
exceed $37,802,000. However, because the amount of Common Stock to be paid in
connection with additional earn-out payments is based upon a moving average
price of the Common Stock during a 20 day period ending 3 days before the date
payment is made, while such Common Stock paid in connection with the earn-outs
will be valued for accounting purposes based upon its market price on the date
of issuance, it is possible that as a result of market fluctuations in the price
of the Common Stock the value of the aggregate consideration paid to the Falk
shareholders in connection with the merger could exceed $37,802,000. The
acquisition has been accounted for using the purchase method of accounting,
whereby the excess of the initial purchase price over the fair value of
P-100
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
30 SEPTEMBER 1999 (UNAUDITED)
6. ACQUISITION OF BUSINESS (CONTINUED)
the net assets acquired, $500,000, was recorded as goodwill. Total goodwill
recorded on the purchase was $16,452,000. A dividend payable, in the amount of
$1,664,000, is recorded in other current liabilities in the accompanying
consolidated balance sheet. This dividend represents the difference between the
pre-acquisition net assets of Falk and the net assets at the time of the
acquisition.
On 15 September 1999, Healthworld paid $425,000, consisting of $211,000 cash
and $213,000 in Common Stock to the Falk shareholders in exchange for Falk stock
received by the Falk Communications, Inc. Defined Contribution Plan and Trust
u/t/a dated 29 July 1999 as consideration to certain Falk employees. A tax
deduction will be taken on Healthworld's income tax return for the taxable year
ending 31 December 1999 with respect thereto. Upon determination of the final
tax deduction, Healthworld will make a payment of additional consideration paid
to acquire the Falk stock, such payment will be in cash and Common Stock.
The results of operations of the acquisition are included in the
consolidated financial statements from the date of acquisition.
Summarised below are the unaudited pro forma results of operations for the
nine months ended 30 September 1998 and 1999 of the Company as though the Falk
acquisition had occurred at the beginning of the periods presented.
Additionally, the unaudited pro forma results of operations for the nine months
ended 30 September 1998 includes the pro forma effects of the acquisition of
Colwood House Medical Publications (UK) Limited and the acquisition of 80 per
cent. of the capital stock of HFT, a French holding company, which owns 100 per
cent. of the capital stock of Torrent, S.A., a French healthcare communications
agency, which in turn owns 100 per cent. of the capital stock of Aigue Marine
SARL and Katchina Productions SARL, each a French company, as though these
acquisitions had occurred at the beginning of 1998. Adjustments have been made
for income taxes, amortisation of goodwill, salary expense based on employment
agreements and interest income related to these transactions.
NINE MONTHS ENDED
30 SEPTEMBER
---------------------
1998 1999
--------- ---------
(IN THOUSANDS, EXCEPT
PER SHARE DATA)
Pro Forma:
Revenues.................................................. $56,937 $59,364
Net income................................................ 2,757 1,868
======= =======
Basic net income per common share......................... $ 0.34 $ 0.23
======= =======
Diluted net income per common share....................... $ 0.33 $ 0.23
======= =======
Common shares used in computing per share amounts:
Basic..................................................... 8,080 8,094
======= =======
Diluted................................................... 8,272 8,254
======= =======
* Included in the pro forma results of operations for the nine months ended
30 September 1999 is a charge of approximately $2,100,000 to the statement of
income of Falk, which represents the
P-101
HEALTHWORLD CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
30 SEPTEMBER 1999 (UNAUDITED)
6. ACQUISITION OF BUSINESS (CONTINUED)
compensation expense related to the issuance in July 1999 of 78 shares of Falk's
common stock to certain of its key employees. Excluding the effect of this stock
issuance, pro forma net income would be $3,023,000 and basic and diluted pro
forma earnings per share would be $0.37.
These pro forma results of operations are not necessarily indicative of the
actual results of operations that would have occurred had the acquisitions been
made at the beginning of the periods presented or of results, which may occur in
the future.
7. RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
``Accounting for Derivative Instruments and Hedging Activities". The statement
establishes accounting and reporting standards requiring that every derivative
instrument (including certain derivative instruments embedded in other
contracts) be recorded on the Balance Sheet as either an asset or liability
measured at its fair value. The statement requires that changes in the
derivative's fair value be recognised currently in earnings unless specific
hedge accounting criteria are met. Special accounting for qualifying hedges
allows a derivative's gains and losses to offset related results on the hedged
item in the income statement, and requires that a company must formally
document, designate and assess the effectiveness of transactions that receive
hedge accounting.
Pursuant to SFAS No. 137, ``Accounting for Derivative Instruments and
Hedging Activities--Deferral of the Effective Date of FASB Statement No. 133--An
Amendment of FASB Statement No. 133", issued in June 1999, SFAS No. 133 is
effective for fiscal years beginning after 15 June 2000. While the Company
operates in international markets, it does so presently without the use of
derivative instruments and therefore SFAS No. 133 is not currently applicable."
P-102
PART IV
PRO FORMA STATEMENT OF NET ASSETS OF THE ENLARGED GROUP
The following unaudited pro forma net asset statement reflects the proposed
acquisition of the Healthworld Group by CCG.
The pro forma statement as at 30 June 1999 has been prepared as if the
Transaction had occurred on that date and combines the historical consolidated
net assets of the CCG Group at 30 June 1999 with the historical consolidated net
assets of the Healthworld Group at 30 September 1999. No adjustments have been
made to take account of the trading or changes in the financial position of the
CCG Group after 30 June 1999 or the Healthworld Group after 30 September 1999,
any restructuring costs that could result from the Transaction or any other
transaction subsequent to the balance sheet dates.
The unaudited pro forma net asset statement has been prepared for
illustrative purposes only and, because of its nature, may not give a true
picture of the financial position of the Enlarged Group or of the net assets
that would have been reported if the Transaction had occurred on such date.
UNAUDITED PRO FORMA STATEMENT OF NET ASSETS OF THE ENLARGED GROUP
ADJUSTMENTS
---------------------------------
HEALTHWORLD HEALTHWORLD
UK GAAP UK GAAP
NOTE CCG ADJUSTMENTS TOTAL
-------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
LM $M LM LM LM
FIXED ASSETS
Goodwill............................... 8 20.3 52.8 32.0 111.8 164.1
Tangible assets........................ 26.1 5.1 3.1 -- 29.2
Investments............................ 9.1 5.8 3.5 -- 12.6
------ ----- ------- ----- ------
55.5 63.7 38.6 111.8 205.9
------ ----- ------- ----- ------
CURRENT ASSETS
Work in progress....................... 17.5 2.7 1.6 -- 19.1
Debtors--DUE WITHIN ONE YEAR........... 241.9 31.7 19.2 -- 261.1
Debtors--DUE AFTER ONE YEAR............ 22.8 -- -- -- 22.8
Investments............................ 0.8 -- -- -- 0.8
Cash at bank and in hand............... 8(vi) 64.8 6.9 4.2 11.6 80.6
------ ----- ------- ----- ------
347.8 41.3 25.0 11.6 384.4
Creditors: AMOUNTS FALLING DUE WITHIN
ONE YEAR............................. 3,4 (323.7) (52.9) (32.0) (1.8) (357.5)
------ ----- ------- ----- ------
NET CURRENT ASSETS..................... 24.1 11.6 (7.0) 7.9 26.9
------ ----- ------- ----- ------
Total assets less current
liabilities.......................... 79.6 52.1 31.6 121.6 232.8
Creditors: amounts falling due after
more than one year................... 4 (72.8) (14.5) (8.8) 6.0 (75.6)
Provision for joint venture deficit.... (14.6) -- -- -- (14.6)
Provisions for liabilities and
charges.............................. (45.9) -- -- -- (45.9)
------ ----- ------- ----- ------
Net (liabilities)/assets............... (53.7) 37.6 22.8 127.6 96.7
====== ===== ======= ===== ======
P-103
NOTES
1. Information on the CCG Group has been extracted without material adjustment
from the financial information set out in Section 3 of Part II of this
document.
2. Information on the Healthworld Group has been extracted without material
adjustment from the unaudited UK GAAP financial information set out in
Section 3 of Part III of this document and has been translated into pounds
sterling at L1:$1.65 being the noon buying rate at 30 September 1999.
Certain Healthworld balance sheet classifications have been adjusted to
conform with the financial statement presentation of CCG.
3. A pro forma accrual of L8 million has been made to show the effect of the
estimated costs and expenses payable by the Enlarged Group in connection
with the Transaction.
4. The pro forma adjustment to creditors of L12.2 million (L6.2 million
creditors: amounts falling due within one year, L6.0 million creditors:
amounts falling due after more than one year) represents the settlement of
deferred consideration for the Falk acquisition by Healthworld in the form
of share capital. This has the effect of increasing the net assets of
Healthworld used in the calculation of the pro forma goodwill. The pro forma
accrual of L8 million set out in Note 3 had been offset against the
L6.2 million adjustment noted above to give an overall pro forma adjustment
to creditors: amounts falling due within one year of L1.8 million.
5. No adjustment has been made to reflect any other transactions subsequent to
30 June 1999 for the CCG Group or 30 September 1999 for the Healthworld
Group. The acquisition of Falk by Healthworld took place in August 1999, and
has therefore been adjusted for, including the settlement of deferred
consideration prior to the Effective Time.
6. The precise exchange ratio of Healthworld Shares to CCG Shares or CCG ADSs
cannot be determined until the Transaction takes place. For illustrative
purposes only, the assumed purchase consideration used for the preparation
of the pro forma statement of net assets has been based on the closing CCG
share price and sterling dollar exchange rates as at 28 January 2000.
7. The total consideration assumed for the Transaction is L150.5 million and in
addition costs and fees are estimated at L8 million. The total consideration
will be met in full by the issue of CCG Shares.
8. The calculation to determine pro forma goodwill, which is based on the
example set out in the table below, is for illustrative pro forma purposes
only. Actual fair values will be based on results of studies to be carried
out after the Effective Time. The precise exchange ratio of Healthworld
Shares to New CCG Shares or New CCG ADS's cannot be determined until the
Transaction takes
P-104
place and therefore the amount shown below is derived from initial
management estimates. The preliminary allocation is as follows:
Healthworld Shares issued for Falk ($20million divided by
$21.27)................................................... 1.0 million
Healthworld Shares outstanding at 28 January 2000........... 8.1 million
Healthworld Stock Options outstanding at 28 January 2000.... 1.5 million
--------------
10.6 million(a)
Exchange Ratio (i).......................................... 5.090:1(b)
CCG Shares assumed to be issuable (equals (a) multiplied by
(b))...................................................... 53.9 million(c)
CCG closing mid price per share at 1 February 2000.......... L2.790(d)
Total assumed purchase consideration (iii) (equals (c)
multiplied by (d))........................................ L150.4 million(e)
Costs and fees of transaction............................... L8.0 million(f)
Less:
Book value of Healthworld's tangible net assets (v)......... L(9.2) million(g)
Proceeds from exercising Healthworld Stock Options (vi)..... L11.6 million(h)
Issue of Healthworld Shares for Falk (refer Note 4)......... L12.2 million(i)
Comprises:
Healthworld's U.K. GAAP goodwill (per reconciliation on page
100)...................................................... L32.0 million
Pro forma goodwill adjustment............................... L 111.8
million
Total goodwill (equals (e) plus (f), less (g), less (h),
less (i))................................................. L143.8 million
(i) The Exchange Ratio is calculated by taking $23.00 (see Section 1 of
Part V for Reference Price table), converting this into sterling per
(ii) below, then dividing this by CCG's share price, per (d) above.
(ii) Closing price sterling/US dollar exchange rate at 28 January 2000 L1:
$1.6195.
(iii) The assumed purchase consideration is expressed on a diluted basis. The
pro forma financial data does not give effect to any restructuring
costs, nor any potential cost savings or other synergies that could
result from the Transaction.
(iv) Goodwill has been capitalised as an intangible fixed asset and is
expected to be amortised over its useful economic life. Management are
of the opinion that, based on a preliminary review, the goodwill has an
indefinite economic life. The goodwill is not expected to be amortised
but will be subject to annual review for impairment by a comparison
with the discounted future cashflows expected to be generated by the
asset.
(v) The book value of Healthworld's tangible net assets is calculated by
taking the net assets per column 3 of the pro forma statement in this
Part IV of L22.8 million, and deducting the value of goodwill from the
same table of L32.0 million.
(vi) The proceeds from exercising Healthworld's options outstanding at
28 January 2000, are calculated by taking the number of options,
1.5 million, multiplied by the average exercise price of $12.53, and
converting that at the closing sterling/dollar exchange rate at
28 Janaury 2000.
P-105
[LETTERHEAD]
The Directors
Cordiant Communications Group plc
121-141 Westbourne Terrace
London W2 6JR
Warburg Dillon Read
A Division of UBS AG
2 Finsbury Avenue
London EC2M 2PP
4 February 2000
Dear Sirs
CORDIANT COMMUNICATIONS GROUP PLC
We report on the pro forma financial information set out in Part IV of the
Listing Particulars dated 4 February 2000, which has been prepared, for
illustrative purposes only, to provide information about how the transaction
might have affected the financial information presented.
RESPONSIBILITIES
It is the responsibility solely of the Directors of Cordiant Communications
Group plc to prepare the pro forma financial information in accordance with
paragraph 12.29 of the Listing Rules.
It is our responsibility to form an opinion, as required by the Listing Rules of
the London Stock Exchange, on the pro forma financial information and to report
our opinion to you. We do not accept any responsibility for any reports
previously given by us on any financial information used in the compilation of
the pro forma financial information beyond that owed to those to whom those
reports were addressed by us at the dates of their issue.
BASIS OF OPINION
We conducted our work in accordance with the Statements of Investment Circular
Reporting Standards and Bulletin 1998/8 "Reporting on pro forma financial
information pursuant to the Listing Rules" issued by the Auditing Practices
Board. Our work, which involved no independent examination of the underlying
financial information, consisted primarily of comparing the unadjusted financial
information with the source documents, considering the evidence supporting the
adjustments and discussing the pro forma financial information with the
Directors of Cordiant Communications Group plc. Our work has not been carried
out in accordance with auditing standards generally accepted in the United
States of America and accordingly should not be relied upon as if it had been
carried out in accordance with those standards.
OPINION
In our opinion:
- the pro forma net assets statement has been properly compiled on the basis
stated;
- such basis is consistent with the accounting policies of Cordiant
Communications Group plc; and
- the adjustments are appropriate for the purposes of the pro forma net
assets statement as disclosed pursuant to paragraph 12.29 of the Listing
Rules of the London Stock Exchange.
Yours faithfully
KPMG AUDIT PLC
P-106
PART V
SUMMARY OF THE TERMS AND CONDITIONS OF THE TRANSACTION
The terms and conditions of the Transaction are set out in an Agreement and
Plan of Merger dated as of 9 November 1999 made between CCG, Healthworld
Acquisition Corp., a Delaware corporation which is a wholly-owned subsidiary of
CCG, and Healthworld, as amended by an agreement dated as of 3 February 2000
made between the same parties (``the Merger Agreement"). In addition CCG and
Healthworld Acquisition Corp. have entered into 11 separate Stockholder
Agreements, each dated as of 9 November 1999, with certain directors and
executive officers of Healthworld and their affiliates (``the Stockholder
Agreements") holding in aggregate approximately 63 per cent. of the issued share
capital of Healthworld. Pursuant to the Merger Agreement, Healthworld
Acquisition Corp. will merge into Healthworld, with Healthworld surviving as a
wholly-owned subsidiary of CCG.
Set out below is a summary of the principal provisions of the Merger
Agreement and the Stockholder Agreements:
1 EXCHANGE RATIO
The number of New CCG Shares issued in exchange for each Healthworld Share
will be calculated using a dollar Reference Price equal to the average of the
closing middle market quotations for a CCG Share, derived from the Official
List, over the 10 consecutive dealing days ending on the third dealing day prior
to 1 March 2000, the date of the Healthworld Stockholders meeting to approve the
Transaction, multiplied by the average dollar/pound sterling rate of exchange
during the same period. The table below sets out the manner in which the
Exchange Ratio will be determined, depending upon the level of the Reference
Price:
CCG SHARE PRICE
(IN PENCE FOR
REFERENCE PRICE ILLUSTRATIVE PURPOSES EXCHANGE RATIO FOR EXCHANGE RATIO FOR
(US DOLLARS) ONLY*) NEW CCG SHARES NEW CCG ADS'S
- --------------------- --------------------- --------------------- ---------------------
Less than Less than $17 divided by the $17 divided by 5x the
$2.5054 155p Reference Price Reference Price
Greater than or equal Greater than or equal 6.7854 New CCG 1.3571 New CCG
to $2.5054 to 155p Shares for each ADSs for each
but less than but less than Healthworld Share Healthworld Share
$2.9475 182p
Greater than or equal Greater than or equal $20 divided by the $20 divided by 5x the
to $2.9475 to 182p Reference Price Reference Price
but less than or but less than or
equal equal to 187p
to $3.0294
Greater than Greater than 187p 6.602 New CCG Shares 1.3204 New CCG
$3.0294 but less than or for each Healthworld ADSs for each
but less than or equal to 215p Share Healthworld Share
equal to $3.4838
Greater than Greater than $23 divided by the $23 divided by 5x the
$3.4838 215p Reference Price Reference Price
- ------------------------
* A dollars/pounds sterling exchange rate of $1.62/L1 has been used in the
table above for illustrative purposes only. The Reference Price levels are
defined in the Merger Agreement in dollars, and the sterling equivalents are
therefore subject to change.
P-107
If the Reference Price is equal to or less than $2.2106 (136p), CCG will
have the option to terminate the Merger Agreement unless the board of directors
of Healthworld elects to fix the Exchange Ratio at 7.6902 New CCG Shares for
each Healthworld Share.
2 REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains a number of customary representations and
warranties made by CCG and Healthworld.
3 CONDUCT OF HEALTHWORLD PENDING THE MERGER; OTHER ACTIONS
During the period from the signing of the Merger Agreement until the
Effective Time, unless CCG agrees otherwise, Healthworld has agreed, for itself
and its subsidiaries, that, among other things, it will carry on its businesses
in the ordinary course, preserve its business organisation, and, to the extent
consistent therewith, use commercially reasonable efforts to keep available the
services of their current officers and employees and preserve their
relationships with customers, suppliers and others intact.
In addition, Healthworld has agreed as to itself and its subsidiaries that
before the Effective Time it will not take certain actions outside of the
ordinary course of business or the parameters specified in the Merger Agreement.
Healthworld has agreed to use its best efforts to cause each person who may
be considered an affiliate of Healthworld under Rule 145 of the Securities Act
to execute an affiliate agreement restricting the disposition of the affiliate's
New CCG ADSs or New CCG Shares received in the Transaction. Neither CCG nor the
Depositary will register any transfers of CCG Shares or CCG ADSs by any person
who has executed an affiliate agreement unless the transfer is in compliance
with the restrictions contained in the affiliate agreement.
CCG has agreed to take certain actions, including refraining from disposing
of Healthworld Shares for a period of six years, required for the Transaction to
be tax-free to those Healthworld stockholders in the US who will beneficially
own 5 per cent. or more of CCG's issued ordinary shares as a result of the
Transaction. CCG has agreed to indemnify such stockholders for any breach of
this covenant.
The Merger Agreement also provides for CCG to arrange for the issue of a
valuation report in accordance with Section 103 of the Companies Act, which
provides that a public company may not, subject to certain limited exceptions,
issue shares for a consideration other than cash unless the consideration
received by the public company for the share issue has been independently valued
as required by that Act.
4 TAKEOVER PROPOSALS
Healthworld has agreed that neither it nor any of its subsidiaries nor any
of its or their officers and directors will:--
4.1 solicit, facilitate, initiate or encourage the submission of any third party
takeover proposal (as defined in the Merger Agreement);
P-108
4.2 enter into any agreement with respect to any takeover proposal or enter into
any arrangement, understanding or agreement requiring it to abandon,
terminate or fail to consummate the Transaction or any other transaction
contemplated by the Merger Agreement;
4.3 participate in any way in any discussions or negotiations regarding, or
furnish to any person or legal entity any information with respect to, any
takeover proposal;
4.4 take any other action to facilitate any inquiries or the making of any
proposal that constitutes, or may be reasonably expected to lead to, any
takeover proposal; or
4.5 approve or recommend, or propose to approve or recommend, any takeover
proposal.
However, if, based upon the advice of its outside counsel, Healthworld's
board of directors determines in good faith that the failure to take such
action would result in a breach of its fiduciary duties under applicable law,
Healthworld and its board of directors shall have the right to participate in
discussions or negotiations regarding, or furnish to any person or legal
entity any information with respect to, any takeover proposals or withdraw or
modify the approval or recommendation by Healthworld's board of directors of
the Transaction and the Merger Agreement.
5 HEALTHWORLD STOCK OPTIONS AND OTHER EMPLOYEE BENEFITS
In accordance with the terms of the Healthworld Option Plan, the Merger
Agreement provides that all outstanding and unexercised Healthworld Stock
Options, whether vested or unvested, will be assumed by CCG at the Effective
Time. Such options will become immediately vested and exercisable (other than
options to purchase 200,000 Healthworld Shares granted to Stuart Diamond,
Healthworld's Chief Financial Officer, on 8November 1999). Further details of
the Healthworld Option Plan are set out in paragraph 8.4 of Part VI of this
document.
After the Effective Time the number of CCG Shares which may be acquired upon
exercise of each Healthworld Stock Option shall be equal to the number of
Healthworld Shares that were purchasable under such option immediately prior to
the Effective Time, multiplied by the Exchange Ratio. The exercise price per CCG
Share under each option will be obtained by dividing the per share exercise
price of each option by the Exchange Ratio, and then dividing the result by the
applicable dollar/ pounds sterling exchange rate, provided that the number of
CCG Shares and the exercise price per CCG Share of each Healthworld Stock Option
that is intended to be an ``incentive stock option", as defined by applicable US
tax legislation, will be adjusted as required by such legislation.
6 INDEMNIFICATION AND INSURANCE
After the Effective Time, CCG will, and will cause Healthworld to, indemnify
the directors, officers, employees and agents of Healthworld and its
subsidiaries for any losses they incur because they acted as directors,
officers, employees or agents of Healthworld or its subsidiaries before the
Effective Time, to the same extent they are indemnified on the date of the
Merger Agreement and CCG has agreed to maintain certain liability insurance for
them.
7 CONDITIONS TO COMPLETION OF THE TRANSACTION
Completion of the Transaction is subject to satisfaction or waiver of the
following conditions:
P-109
7.1 SHAREHOLDER APPROVALS
7.1.1 The approval of the Merger Agreement by the holders of a majority of
the Healthworld Shares entitled to vote.
7.1.2 The passing by CCG Shareholders of Resolution 1 set out in the Notice
of Extraordinary General Meeting at the end of this document.
7.2 REGULATORY APPROVALS
Termination or expiration of the waiting period under the US
Hart-Scott-Rodino Antitrust Improvements Act 1976, as amended, and all other
consents, approvals and actions of, filings with and notices to governmental
or regulatory authorities having been made or obtained without being subject
to conditions or restrictions that would have a material adverse effect on
CCG, Healthworld and their respective subsidiaries, taken as a whole.
7.3 NO LAWS OR ORDERS
No laws or orders having been enacted or issued that restrain, enjoin, or
prohibit the completion of the Transaction.
7.4 EFFECTIVE US REGISTRATION STATEMENT
The US Registration Statement having become effective and there being no stop
order regarding the registration and the SEC not having initiated or
threatened any proceedings for that purpose.
7.5 STOCK EXCHANGE LISTINGS
7.5.1 The London Stock Exchange having agreed to admit the New CCG Shares to
the Official List subject only to allotment and such agreement not
having been withdrawn; and
7.5.2 the New CCG ADSs having been authorised for listing on the NYSE,
subject to official notice of issuance.
7.6 CONSENTS UNDER AGREEMENTS RECEIVED
Consent or approval having been obtained from each person whose consent or
approval is required in connection with the consummation of the transactions
contemplated by the Merger Agreement under any agreement to which CCG or
Healthworld or any of their respective subsidiaries is a party, except where
the failure to obtain the consent or approval, individually or in the
aggregate, would not reasonably be expected to have a material adverse effect
on CCG or Healthworld or materially impair the transactions contemplated by
the Merger Agreement.
Under the terms of the Merger Agreement, any of the conditions described
above may be waived by mutual agreement, however the practical ability of the
parties to waive such conditions is limited by applicable laws and
regulations.
7.7 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF CCG
The obligations of CCG to effect the Transaction are also subject to the
satisfaction, or waiver by CCG, of conditions relating to the accuracy of
Healthworld's representations and warranties,
P-110
performance by Healthworld of its obligations and the absence of material
adverse effects (as defined by the Merger Agreement) on the Healthworld
Group.
7.8 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF HEALTHWORLD
The obligations of Healthworld to effect the Transaction are also subject to
the satisfaction, or waiver by Healthworld, of conditions relating to the
accuracy of CCG's representations and warranties, performance by CCG of its
obligations and the absence of material adverse effects (as defined by the
Merger Agreement) on the CCG Group and the delivery of a legal opinion on the
tax-free status of the transaction for US shareholders of Healthworld. For
the purpose of the conditions a material adverse effect on the CCG Group is
limited to one following which the pound sterling equivalent of the Reference
Price would be less than 135p per CCG Share.
7.9 TERMINATION AND EFFECTS OF TERMINATION
CCG or Healthworld may terminate the Merger Agreement at any time prior to
the Effective Time provided that it has not breached the Merger Agreement in
a way that has contributed to the failure of the Transaction to be
consummated, if:-
7.9.1 the Transaction is not completed by 31 May 2000, except that if at
that time all material governmental authorisations have not been
obtained but all other conditions to the closing have been fulfilled
or are capable of being fulfilled, the directors of either CCG or
Healthworld may elect to extend the termination date to 31
August 2000;
7.9.2 a court order permanently prohibiting completion of the Transaction
becomes final and non-appealable; or
7.9.3 either of the requisite shareholder approvals is not obtained.
In addition, either party may terminate the Merger Agreement at any time prior
to the Effective Time, by action of its board, if the other party materially
breaches any representation, warranty, covenant or agreement contained in the
Merger Agreement which, unless cured, when taken together with any other
breaches, has or could reasonably be expected to have a material adverse effect
(as defined by the Merger Agreement).
7.10 FEES AND EXPENSES
Whether or not the Transaction is completed, all costs and expenses incurred
in connection with the Transaction will be paid by the party incurring the
expense, except that:-
7.10.1 Healthworld has paid the costs of the Hart-Scott-Rodino filing(s)
made by Steven Girgenti and Spencer Falk which were required in
connection with the Transaction, and
7.10.2 if the Merger Agreement is terminated solely as a result of the
failure to obtain the necessary approval of CCG Shareholders, then
CCG will be required to pay to Healthworld all documented reasonable
out-of-pocket expenses incurred by Healthworld in connection with the
Transaction not to exceed a total amount of $1,500,000.
P-111
8 STOCKHOLDER AGREEMENTS
8.1 In connection with the Merger Agreement, each of William Butler, Herbert
Ehrenthal, Spencer Falk, Michael Garnham, The Steven Girgenti, Francis
Hughes, William Leslie Milton, Steven Girgenti Grantor Retained Annuity
Trust, The Girgenti Family Limited Partnership, The Spencer Falk Grantor
Retained Annuity Trust, and The Steve Girgenti Charitable Lead Annuity Trust
(each a ``principal stockholder"), being at that time and as at 29 January
2000 the holders of 5,108,382 Healthworld Shares and options over a further
302,500 Healthworld Shares in aggregate, entered into a Stockholder
Agreement with CCG and its wholly owned subsidiary, Healthworld Acquisition
Corp., dated 9 November 1999, in which each principal stockholder agreed,
among other things, to vote in favour of the Transaction and the approval of
the terms of the Merger Agreement. Following the issue immediately prior to
the Effective Time of 813,640 additional Healthworld Shares in aggregate to
Spencer Falk and The Spencer Falk Grantor Retained Annuity Trust as payment
of deferred consideration for the acquisition of Falk, the total holdings on
a diluted basis of the principal stockholders will represent 6,224,522
Healthworld Shares.
8.2 Each principal stockholder agreed to vote against at any Healthworld
Stockholders meeting or in response to any proposed written consent of the
Healthworld Stockholders, in which there are submitted to the Healthworld
Stockholders for their vote any action involving Healthworld or its
subsidiaries which is intended, or could reasonably be expected, to
materially adversely affect the Transaction.
8.3 Each principal stockholder granted to Healthworld Acquisition Corp. an
irrevocable option (subject to certain limited exceptions as set out in the
Stockholder Agreements) to purchase all the shares of Healthworld common
stock owned by such principal stockholder under his or its Stockholder
Agreement for a cash purchase price per share based upon the valuation
formula contained in the Merger Agreement. The option may be exercised for
all of the Healthworld Shares held by all of the principal stockholders, at
any time within 20 days after the occurrence of any of the following events:
(1) Healthworld fails to obtain the requisite stockholder approval for the
Transaction, (2) the termination of the Merger Agreement due to a breach by
Healthworld, or (3) any violation by a principal stockholder of any term
under the Stockholder Agreements.
8.4 Each principal stockholder agreed:--
8.4.1 except for certain permitted transfers (as defined in the Stockholder
Agreements) not, directly or indirectly, to sell any or all of the
Healthworld Shares or any interest therein;
8.4.2 except for certain permitted transfers (as defined in the Stockholder
Agreements) for a period specified in the relevant Stockholder
Agreements after the Effective Time not, directly or indirectly, to
sell, or otherwise dispose of any CCG Shares or CCG ADSs received in
connection with the Transaction without the prior written consent of
CCG. Each principal stockholder is permitted to dispose of up to a
certain percentage (which varies from stockholder to stockholder) of
the CCG Shares and/or CCG ADSs received by such stockholder in
connection with the Transaction immediately and after the expiration
of specified periods following the Effective Time. The aggregate
percentage of the CCG Shares and/or CCG ADSs received by all the
principal stockholders in connection with the Transaction (including
CCG Shares issuable upon exercise of Healthworld Stock Options) which
is permitted to be disposed of under the Stockholder Agreements is:
P-112
28.4 per cent. immediately;
14.7 per cent. after 6 months;
27.1 per cent. after 12 months; and
the balance after 24 months.
8.4.3 Each principal stockholder also agreed that, for the period commencing
upon the Effective Time and ending 180 days after the expiration of
such stockholder's holding period, such stockholder will:
8.4.3.1 give CCG one business day's prior written notice of any intended
disposition of CCG Shares or CCG ADSs; and
8.4.3.2 at the request of CCG effect such disposition through brokers or
other financial intermediaries designated by CCG to maintain an
orderly trading market for the CCG Shares or CCG ADSs, provided
that such financial intermediary agrees to effect and does
effect the disposition in a reasonable period following such
notice.
8.4.4 Each principal stockholder agreed not, directly or indirectly, to
solicit or respond to any inquiries or the making of any proposal of a
takeover proposal;
8.4.5 promptly to notify CCG if such stockholder receives any inquiry or
proposal relating to a takeover proposal.
8.5 Each Stockholder Agreement shall terminate, and no party shall have any
rights or obligations thereunder, upon the earlier of:--
8.5.1 the termination of the Merger Agreement; and
8.5.2 the Effective Time,
except that (1) the voting obligations of such principal stockholder to
vote against any merger, business combination or other similar
transaction with a third party shall terminate on the earlier to occur
of the Effective Time and 120 days after the termination of the Merger
Agreement (unless the Merger Agreement is terminated by reason of the
failure to obtain the requisite approval of CCG shareholders in which
case such stockholder's obligations under such clause shall terminate
simultaneously with the termination of the Merger Agreement); (2) the
option to purchase the Healthworld Shares owned by such principal
stockholder shall survive for a period of 20 days following the
termination of such Stockholder Agreement under the circumstances set
out in each Stockholder Agreement; and (3) the restrictions on disposal
of CCG Shares following the Effective Time shall continue thereafter
for the period specified in each Stockholder Agreement.
8.6 The Stockholder Agreements contain a number of customary and general
representations and warranties made by the parties to each other.
P-113
PART VI
ADDITIONAL INFORMATION
1 RESPONSIBILITY
The Directors, whose names are set out in paragraph 2 of this Part VI,
accept responsibility for the information contained in this document. To the
best of the knowledge and belief of the Directors (who have taken all reasonable
care to ensure that such is the case), the information contained in this
document is in accordance with the facts and does not omit anything likely to
affect the import of such information.
2 DIRECTORS
2.1 The full names of the Directors are:
DIRECTOR FUNCTION
- -------- --------
Charles Thomas Scott Executive Chairman
Michael Bungey Chief Executive Officer
Arthur D'Angelo Finance Director
Jean de Yturbe Director
John Dudley Fishburn Non-executive Director
Professor Theodore Levitt Non-executive Director
Peter Martin Schoning Director
Ian Lindsay Smith Director
Doctor Rolf Wilhelm Heinrich Stomberg Non-executive Director
James Michael Tyrrell Non-executive Director
William James Whitehead Director
Further details of the Executive Directors' functions within the CCG Group
are set out in paragraph 5.1 of this Part VI.
2.2 The business address of the Directors is 121-141 Westbourne Terrace, London
W2 6JR, which is the registered office and head office of the Company.
3 THE COMPANY
The Company was incorporated and registered in England and Wales with
registered no. 1320869 on 11 July 1977 as a private company limited by shares
under the Companies Acts 1948 to 1976 with the name Antholin No. Six Limited.
The Company was re-registered as a public limited company on 22 February 1982
with the name Saatchi & Saatchi Company plc. The Company's name was changed to
Cordiant plc on 16 March 1995 and to Cordiant Communications Group plc on 15
December 1997. The principal legislation under which the Company operates is the
Companies Act and the regulations made thereunder.
4 SHARE CAPITAL
4.1 The following table shows the authorised and issued share capital of CCG as
at 28 January 2000 (the latest practicable date prior to the publication of
this document) and as it is expected (based
P-114
on the assumptions described in paragraph 4 of Part I of this document) to
be immediately following the Effective Time:--
PRESENT FOLLOWING THE EFFECTIVE TIME
------------------------- -----------------------------
NOMINAL NOMINAL
NUMBER VALUE NUMBER VALUE
----------- ----------- ------------- -------------
(L) (L)
authorised Ordinary Shares of 50p
each................................ 301,000,000 150,500,000 416,000,000 208,000,000
issued and fully paid Ordinary Shares
of 50p each......................... 228,793,146 114,396,573 274,933,614 137,466,807
4.2 Details of changes to the issued share capital of the Company during the
period from 1 February 1997 to 28 January 2000 (the latest practicable date
prior to the publication of this document) are set out below:-
4.2.1 The authorised share capital of the Company on 1 February 1997 was
269,729,907.60, divided into 602,000,000 ordinary shares of 25p each
(``25p Ordinary Shares"), of which 443,682,881 25p Ordinary Shares
had been issued credited as fully paid, and 2,384,598,152 Deferred
Shares of 5p each (``Deferred Shares"), all of which were in issue
and fully paid.
4.2.2 Pursuant to a special resolution passed on 23 October 1997 and
confirmed by an order of the High Court, all of the Deferred Shares
were cancelled by means of a reduction of capital which took effect
on 28 November 1997.
4.2.3 During the period from 1 February 1997 to and including 14
December 1997, 171,105 25p Ordinary Shares in aggregate were issued
pursuant to exercises of options under the CCG Share Schemes. Details
of such issues are set out below:
TRANSACTION NO. OF SHARES OPTION
DATE ISSUED PRICE CCG SHARE SCHEME
- ----------- ------------- -------- ----------------------
21/04/97.. 134,995 102.7 Executive No. 2 Scheme
02/06/97.. 20,581 107.5 Executive No. 2 Scheme
28/07/97.. 1,534 64.5p 1995 SAYE Scheme
19/09/97.. 5,999 64.5p 1995 SAYE Scheme
16/10/97.. 2,082 64.5p 1995 SAYE Scheme
21/10/97.. 4,116 107.5p Executive No. 2 Scheme
17/11/97.. 1,79 864.5p 1995 SAYE Scheme
4.2.4 On 15 December 1997, pursuant to a special resolution passed on 23
October 1997, the 25p Ordinary Shares were consolidated on a
one-for-two basis, such that immediately following the consolidation
the authorised share capital of CCG was L150,500,000, divided into
301,000,000 CCG Shares (of 50p each), of which 221,926,993 CCG Shares
were in issue credited as fully paid.
4.2.5 On 23 November 1998, the Company issued 2,949,562 CCG Shares for an
aggregate consideration valued at Australian $9,000,000 in connection
with the acquisition by a wholly-owned subsidiary of CCG of all of
the shares in The Communications Group Pty Limited not already owned
by the CCG Group. Pursuant to the acquisition agreement, which is
described in paragraph 12.1.5 of Part VI of this document, additional
CCG Shares may be required to be issued in November 2000 in respect
of deferred consideration of up to Australian $3,375,000.
P-115
4.2.6 On 3 December 1999, the Company issued 1,655,380 CCG Shares in
connection with the acquisition by a wholly-owned subsidiary of CCG
of the Interactive Edge business pursuant to the agreements described
in paragraph 12.1.4 of this Part VI.
4.2.7 During the period from 15 December 1997 to and including
28 January 2000, 2,261,211 CCG Shares in aggregate were issued
pursuant to exercises of options under the CCG Share Schemes. Details
of such issues are set out below:
TRANSACTION NO. OF SHARES OPTION
DATE ISSUED PRICE CCG SHARE SCHEME
- ------------- ------------- -------- -----------------------------------------------------------
05/01/98.. 1,798 64.5p 1995 SAYE Scheme
16/01/98.. 19,947 64.5p 1995 SAYE Scheme
28/01/98.. 2,065 64.5p 1995 SAYE Scheme
12/03/98.. 9,180 64.5p 1995 SAYE Scheme
27/03/98.. 4,141 64.5p 1995 SAYE Scheme
08/04/98.. 10,828 64.5p 1995 SAYE Scheme
21/05/98.. 5,645 64.5p 1995 SAYE Scheme
12/06/98.. 42,534 107.5p Executive No. 2 Scheme
15/06/98.. 34,302 107.5p Executive No. 2 Scheme
18/06/98.. 19,209 107.5p Demerger Executive No. 1 Scheme
18/06/98.. 13,500 73.1p Demerger Performance Share Option Scheme
26/06/98.. 26,613 64.5p 1995 SAYE Scheme
08/07/98.. 48,024 107.5p Executive No. 2 Scheme
15/07/98.. 3,075 64.5p 1995 SAYE Scheme
07/10/98.. 26,999 73.1p Performance Share Option Scheme
27/10/98.. 140,498 73.1p Performance Share Option Scheme
27/10/98.. 40,498 94.9p Performance Share Option Scheme
30/10/98.. 46,213 73.1p Performance Share Option Scheme
04/11/98.. 77,494 73.1p Performance Share Option Scheme
04/11/98.. 1,320 64.5p 1995 SAYE Scheme
14/12/98.. 10,606 73.1p Demerger Performance Share Option Scheme
07/01/99.. 13,721 107.5p Executive No. 1 Scheme
12/01/99.. 26,999 94.9p Performance Share Option Scheme
19/01/99.. 21,213 94.9p Performance Share Option Scheme
04/02/99.. 150,000 94.9p Performance Share Option Scheme
10/02/99.. 52,493 94.9p Performance Share Option Scheme
11/03/99.. 87,472 107.5p Executive No. 1 Scheme
11/03/99.. 29,499 134.8p Executive No. 2 Scheme
11/03/99.. 39,448 107.5p Executive No. 2 Scheme
11/03/99.. 21,213 73.1p Performance Share Option Scheme
11/03/99.. 31,820 94.9p Performance Share Option Scheme
12/03/99.. 17,637 107.5p Executive No. 1 Scheme
16/03/99.. 17,151 134.8p Demerger Executive No. 2 Scheme
16/03/99.. 4,116 107.5p Demerger Executive No. 2 Scheme
16/03/99.. 20,249 73.1p Demerger Performance Share Option Scheme
16/03/99.. 20,249 94.9p Demerger Performance Share Option Scheme
17/03/99.. 22,543 107.5p Executive No. 1 Scheme
17/03/99.. 21,213 73.1p Performance Share Option Scheme
17/03/99.. 34,712 94.9p Performance Share Option Scheme
23/03/99.. 41,506 107.5p Executive No. 1 Scheme
31/03/99.. 72,528 107.5p Executive No. 1 Scheme
06/04/99.. 32,930 107.5p Executive No. 1 Scheme
P-116
TRANSACTION NO. OF SHARES OPTION
DATE ISSUED PRICE CCG SHARE SCHEME
- ------------- ------------- -------- -----------------------------------------------------------
07/04/99.. 88,760 107.5p Executive No. 1 Scheme
09/04/99.. 115,838 107.5p Executive No. 1 Scheme
30/04/99.. 1,544 107.5p Demerger No. 2 Scheme
11/05/99.. 61,745 134.8p Executive No. 2 Scheme
11/05/99.. 34,302 107.5p Executive No. 2 Scheme
26/05/99.. 15,000 130.0p Performance Share Option Scheme
08/07/99.. 45,000 130.0p Performance Share Option Scheme
13/08/99.. 13,499 73.1p Demerger Performance Share Option Scheme
13/08/99.. 13,500 94.9p Demerger Performance Share Option Scheme
13/08/99.. 15,000 130.0p Demerger Performance Share Option Scheme
17/08/99.. 30,000 130.0p Performance Share Option Scheme
26/08/99.. 15,093 134.8p Executive No. 2 Scheme
27/08/99.. 15,000 130.0p Demerger Performance Share Option Scheme
15/09/99.. 37,390 107.5p Executive No. 2 Scheme
15/09/99.. 26,06 9134.8p Executive No. 2 Scheme
27/09/99.. 10,290 134.8p Executive No. 2 Scheme
27/09/99.. 37,390 107.5p Executive No. 2 Scheme
04/10/99.. 2,885 64.5p 1995 SAYE Scheme
14/10/99.. 8,750 130.0p Demerger Performance Share Option Scheme
19/10/99.. 25,000 130.0p Performance Share Option Scheme
26/10/99.. 6,860 134.8p Executive No. 2 Scheme
10/11/99.. 34,301 107.5p Executive No. 2 Scheme
10/11/99.. 130,350 134.8p Executive No. 2 Scheme
11/11/99.. 21,810 64.5p 1995 SAYE Scheme
30/11/99.. 82,327 134.8p Executive No. 2 Scheme
05/01/00.. 10,307 64.5p 1995 SAYE Scheme
4.2.8 Save as disclosed in this paragraph 4.2, during the period from
1 February 1997 to 28 January 2000, there have been no changes in the
amount of the issued capital of CCG and no material changes in the
amount of the issued capital of any other member of the CCG Group or
in the number and classes of which such capital is composed, other
than intra-group issues by wholly owned subsidiaries, pro rata issues
by partly owned subsidiaries and changes in the capital structure of
subsidiaries which have remained wholly owned throughout this period.
P-117
4.3 Details of the options outstanding under the CCG Share Schemes as at 28
January 2000 are set out below:
EXERCISABLE
GRANT ------------------------------------- OPTION NO. OF
TYPE OF OPTION DATE CURRENTLY FROM TO PRICE SHARES
- -------------- ----------- --------- ----------- ----------- -------- ----------
Executive No. 2 Scheme............................ 18-Jun-91 Yes 18-Jun-94 18-Jun-01 134.828 155,869
Executive No. 2 Scheme............................ 06-Sep-91 Yes 06-Sep-94 06-Sep-01 134.828 34,302
Executive No. 2 Scheme............................ 10-Apr-92 Yes 10-Apr-95 10-Apr-02 107.498 0
Executive No. 2 Scheme............................ 10-Apr-92 Yes 10-Apr-97 10-Apr-02 107.498* 112,204
Demerger No. 2 Scheme............................. 18-Jun-91 Yes 18-Jun-94 18-Jun-01 134.828 343,248
Demerger No. 2 Scheme............................. 10-Apr-92 Yes 10-Apr-95 10-Apr-02 107.498 78,895
Demerger No. 2 Scheme............................. 10-Apr-92 Yes 10-Apr-97 10-Apr-02 107.498* 6,174
Performance Option Scheme......................... 03-May-95 Yes 03-May-98 03-May-05 73.113 257,775
Performance Option Scheme......................... 11-Aug-95 Yes 11-Aug-98 11-Aug-05 94.892 257,774
Performance Option Scheme......................... 19-Apr-96 Yes 19-Apr-99 19-Apr-06 130.000 365,000
Performance Option Scheme......................... 19-Apr-96 No 19-Apr-01 19-Apr-03 130.000* 515,000
Performance Option Scheme......................... 23-Apr-97 No 23-Apr-00 23-Apr-07 131.500 722,500
Performance Option Scheme......................... 23-Apr-97 No 23-Apr-02 23-Apr-04 131.500* 692,500
Demerger Performance Scheme....................... 03-May-95 Yes 03-May-98 16-Dec-04 73.113 41,462
Demerger Performance Scheme....................... 03-May-95 No 03-May-00 03-May-02 73.113* 109,926
Demerger Performance Scheme....................... 11-Aug-95 Yes 11-Aug-98 16-Dec-04 94.892 41,463
Demerger Performance Scheme....................... 19-Apr-96 Yes 19-Apr-99 16-Dec-04 130.000 98,750
Demerger Performance Scheme....................... 19-Apr-96 No 19-Apr-01 19-Apr-03 130.000* 248,750
Demerger Performance Scheme....................... 23-Apr-97 No 23-Apr-00 16-Dec-04 131.500 195,000
Demerger Performance Scheme....................... 23-Apr-97 No 23-Apr-02 22-Apr-04 131.500* 186,250
1995 SAYE Scheme 30-Jun-95 No 01-Jul-00 31-Dec-00 0.645 1,080,256
Performance Share Option Scheme (PSOS)............ 18-Dec-97 No 31-Dec-00 31-Dec-04 105.0 5,962,254
Performance Share Option Scheme (PSOS)............ 14-May-98 No 31-Dec-00 31-Dec-04 123.5 1,294,468
Performance Share Option Scheme (PSOS)............ 11-Mar-99 No 31-Dec-01 31-Dec-05 164.5 1,714,471
Performance Share Option Scheme (PSOS)............ 11-Aug-99 No 31-Dec-01 31-Dec-05 176.5 155,805
Equity Participation Plan......................... 18-Dec-97 No 31-Dec-00 31-Dec-04 105.0 11,034,720
Equity Participation Plan......................... 11-Mar-99 No 31-Dec-01 31-Dec-05 105.0 80,029
Zenith Executive Incentive Plan................... 16-Dec-97 No 31-Dec-00 31-Dec-04 109.0 1,047,984
Zenith Executive Incentive Plan................... 13-Apr-99 No 31-Dec-01 31-Dec-05 160.5 61,646
----------
Total Options..................................... 26,894,475
==========
- ------------------------------
* Super options, further details of which are set out under ``Employee Share
Schemes" in Note 27 to the financial statements in paragraph 2 of Part II of
this document.
Details of the CCG Share Schemes are set out in paragraph 8 of this Part VI
of this document.
4.4 As at 28 January 2000, the latest practicable date prior to the publication
of this document, options over 1,527,039 Healthworld Shares were outstanding
under the Healthworld Option Plan. Pursuant to the Merger Agreement and the
terms of the Healthworld Option Plan, outstanding Healthworld Stock Options
will be converted at the Effective Time into options over the corresponding
number of CCG Shares, based on the Exchange Ratio. Further details of these
arrangements are set out in paragraph 5 of Part V of this document.
4.5 Additional CCG Shares may be required to be issued in future in respect of
the acquisition by the CCG Group of the Interactive Edge business and the
acquisition by Healthworld of Falk Communications, Inc., pursuant to the
agreements described in paragraphs 12.1.4 and 12.2.2 respectively of this
Part VI of this document.
4.6 Save as disclosed in this paragraph 4, no share or loan capital of CCG or
any of its subsidiary undertakings is under option or agreed conditionally
or unconditionally to be put under option.
P-118
4.7 By a special resolution passed on 18 June 1996, the Directors were generally
and unconditionally authorised pursuant to Section 80 of the Companies Act
to allot relevant securities (as defined by Section 80(2) of the Companies
Act) up to an aggregate nominal amount of L39,597,683.75, such authority to
expire (unless previously revoked, varied or renewed), on 17 June 2001, save
that the Directors may before such entry make an offer or agreement which
would or might require relevant securities to be allotted after such entry
and the Directors may allot relevant securities in pursuance of such offer
or agreement as if the authority conferred had not expired.
P-119
4.7 By a special resolution passed on 18 June 1996, the Directors were generally
and unconditionally authorised pursuant to Section 880 of the Companies Act
to allot relevant securities (as defined by Section 80(2) of the Companies
Act) up to an aggregate nominal amount of L39,597,683.75. such authority to
expire (unless previously revoked, varied or renewed) on June 17 2001, save
that the Directors may before such expiry make an offer or agreement which
would or might require relevant securities to be allotted after such expiry
and the Directors may allot relevant securities in pursuance of such offer
or agreement as if the authority conferred had not expired.
4.8 By a special resolution passed on 8 July 1999:--
4.8.1 the Directors were empowered pursuant to Section 95(1) of the
Companies Act to allot equity securities (as defined by Section
94(2) of the Companies Act) pursuant to the authority referred to in
paragraph 4.7 above as if sub-section (1) of Section 89 of the
Companies Act did not apply to such allotment, provided that:--
(a) this power was limited to the allotment of equity securities in
connection with or pursuant to (i) an offer by way of rights to the
holders of ordinary shares and other persons entitled to participate
therein, in proportion (as nearly as may be) to such holders'
holdings of such ordinary shares (or, as appropriate, to the numbers
of such shares which such other persons are for those purposes deemed
to hold) subject only to such exclusions or other arrangements as the
Directors may feel necessary or expedient to deal with fractional
entitlements or legal or practical problems under the laws of, or the
requirements of any recognised regulatory body in, any territory or
otherwise; and (ii) any employee share scheme or incentive scheme
approved by shareholders of the Company in general meeting; and
(b) this power, unless previously revoked, varied or renewed, will expire
on the date of the Annual General Meeting of the Company held in
2000, or on 7 October 2000, if earlier, except that the Directors may
make an offer or agreement before the expiry of this power which
would or might require equity securities to be allotted after such
expiry and the Directors may allot equity securities in pursuance of
such offer or agreement as if the said power had not expired; and
4.8.2 in addition to the power referred to in paragraph 4.8.1 above, the
Directors were empowered pursuant to Section 95(1) of the Companies
Act to allot equity securities pursuant to the authority referred to
in paragraph 4.7 above as if sub-section (1) of Section 89 of that Act
did not apply to such allotment, provided that:
(a) this power was limited to the allotment of equity securities up to an
aggregate nominal amount of L5,600,000; and
(b) this power will expire on the date of the Annual General Meeting of
the Company held in 2000, or on 7 October 2000, if earlier, except
that the Directors may make an offer or agreement before the expiry
of this power which would or might require equity securities to be
allotted after such expiry and the Directors may allot equity
securities in pursuance of such offer or agreement as if the said
power had not expired.
4.9 At the Extraordinary General Meeting of the Company to be held on
1 March 2000, the Resolutions set out in the Notice of Meeting at the end of
this document will be proposed. Conditionally upon the Merger Agreement
becoming unconditional, Resolution 1 will increase the authorised share
capital of the Company and authorise the Directors to allot CCG Shares,
replacing the general authority conferred by the resolution referred to in
paragraph 4.7 above. Subject to completion of the Transaction, the general
powers to allot equity securities for cash conferred by Resolutions 2 and 3
set out in the Notice of Meeting will replace those referred to in
P-119
paragraph 4.8 above, to the extent not already utilised. A summary of the
proposed Resolutions is set out in Part VII of this document.
4.10 Section 89 of the Companies Act confers on the holders of CCG Shares
preferential rights in respect of equity securities (as defined in section
94(2) of the Act) of the Company issued wholly for cash and applies to the
balance of the authorised but unissued share capital of the Company to the
extent not disapplied under the resolutions referred to in paragraph 4.8 or
4.9 of this Part VI.
4.11 The existing CCG Shares are, and the New CCG Shares will be, in registered
form. The New CCG Shares will be credited as fully paid and rank PARI PASSU
in all respects with CCG Shares in issue as at the Effective Time, including
the right to all dividends and other distributions declared, made or paid on
CCG Shares after the Effective Time.
4.12 The existing issued CCG Shares have been admitted to the Official List. The
existing issued CCG ADSs are listed on the New York Stock Exchange.
Application has been made to the London Stock Exchange for the New CCG
Shares to be admitted to the Official List.
The New CCG Shares will be received by Healthworld Stockholders in the form
of New CCG ADSs, except to the extent that they validly elect to receive New
CCG Shares directly. UK stamp duty reserve tax at the rate of 1.5 per cent.
of the value of the New CCG Shares comprised in New CCG ADSs will by payable
by CCG. CCG Shares may be held in certificated or uncertificated form.
Former Healthworld Stockholders who elect to receive New CCG Shares will be
able to elect whether to receive them in certificated or uncertificated
form. Further details will be provided to them with the election forms
mentioned below. New CCG ADSs will be represented by definitive American
Depositary Receipts. No temporary documents of title will be issued pursuant
to the Transaction.
Healthworld Stockholders who would otherwise have been entitled to receive a
fraction of a New CCG Share or New CCG ADS will receive, in lieu of such
fraction, cash, without interest, in an amount based on the average closing
price of a CCG Share as recorded by the Official List over the ten
consecutive trading days immediately preceding the date the Transaction
becomes effective.
Promptly after the Effective Time, the Bank of New York, as Exchange Agent
for purposes of the Transaction, will send holders of record of Healthworld
Shares appropriate transmittal materials and instructions advising them of
the exchange effected by the Transaction and the procedure to be used for
the surrender of the certificates representing Healthworld Shares, in
exchange for the New CCG ADSs and/or New CCG Shares to which they are
entitled under the Merger Agreement. Certificates representing New CCG ADSs
and/or new CCG Shares will be delivered to the Healthworld Stockholders as
promptly as practicable after proper delivery of the applicable Healthworld
certificates and transmittal materials to the Exchange Agent. The New CCG
Shares and New CCG ADSs will be entitled to all dividends or other
distributions declared, made or paid on CCG Shares after the Effective Time,
but neither these nor cash payments in lieu of fractional entitlements will
be paid to the holder of any unsurrendered Healthworld certificate until the
Healthworld certificate is duly surrendered.
4.13 None of the New CCG Shares have been or will be made available to the
public in whole or in part in conjunction with the application for listing
of those shares.
5 DIRECTORS' DETAILS, INTERESTS AND SERVICE AGREEMENTS
5.1 Details of the Directors are set out below. Details of their other
directorships and partnerships are set out in paragraph 5.12 of this Part
VI:--
CHARLES SCOTT (50) CHAIRMAN: joined the Board as Finance Director in January
1990. He was promoted to Chief Operating Officer in July 1991 and Chief
Executive Officer in April 1993. In
P-120
January 1995 he was appointed Chief Executive Officer and Acting Chairman,
and in July 1995 was appointed Chairman. He is a non-executive director of
several companies.
MICHAEL BUNGEY (60) CHIEF EXECUTIVE OFFICER: became Chairman and Chief
Executive Officer of Bates Dorland and Bates Europe in 1988. He was
appointed President and Chief Operating Officer of Bates Worldwide in 1993,
Chief Executive Officer in April 1994 and Chairman in December 1994. He was
appointed to the Board as Chief Executive Officer of CCG in December 1997.
ARTHUR D'ANGELO (48) FINANCE DIRECTOR: joined Saatchi & Saatchi Holdings USA
in 1987 and joined Bates USA in April 1994 as Executive Vice President and
Chief Financial Officer. He was named Chief Financial Officer of Bates North
America later that year, and was appointed Chief Financial Officer of Bates
Worldwide in July 1995. He was appointed to the Board as Finance Director in
December 1997.
JEAN DE YTURBE (52) DIRECTOR: appointed President of HDM Europe from 1985 to
1990 and Chief Executive Officer of Eurocom Advertising Worldwide from 1990
to 1992. He joined Bates in July 1993 as Chief Executive Officer of Bates
France and was named Chairman of Bates Europe in January 1995. He was
appointed to the Board in December 1997.
DUDLEY FISHBURN (53) NON-EXECUTIVE DIRECTOR: is Associate Editor of The
Economist, Treasurer of the National Trust, Chairman of the Trustees of the
Open University, Chairman of HFC Bank plc, a director of Philip Morris Inc.
and a Trustee of the Prison Reform Trust. He was previously Member of
Parliament for Kensington and Executive Editor of The Economist. He was
appointed to the Board in May 1996.
PROFESSOR THEODORE LEVITT (74) NON-EXECUTIVE DIRECTOR: Edward W. Carter
Professor of Business Administration, Emeritus, of the Harvard Business
School, and formerly Editor of the Harvard Business Review. He serves on the
board of seven Sanford C. Bernstein Funds, is a retired director of eight
New York Stock Exchange companies, and author of numerous articles and books
on economics, management and marketing. Professor Levitt was appointed to
the Board in March 1990.
PETER SCHONING (54) DIRECTOR: joined Scholz & Friends in 1984 as Managing
Director. He was named Managing Partner in 1987. In 1993 he was appointed
Chief Executive Officer of Scholz & Friends, and since 1995 he has led the
agency as Chairman and Chief Executive Officer. He was appointed to the
Board in December 1997.
IAN SMITH (44) DIRECTOR: joined George Patterson Bates in 1989 and was named
General Manager and New Business Director in 1990. He became National Client
Services Director in 1993 and Managing Director in 1996. He was appointed to
the newly-created position of President, International, Bates Worldwide in
March 1998 and was appointed to the Board on 1 January 2000.
DR ROLF STOMBERG (59) NON-EXECUTIVE DIRECTOR: worked for The British
Petroleum Company plc from 1970 to 1997 where he was Chief Executive Officer
for B.P. Oil International and a B.P. Group Managing Director. He is
Chairman of John Mowlem & Company PLC and serves on a number of UK and
continental boards. He is also a Visiting Professor at Imperial College
Management School, London and the Business School of Institut Francais du
Petrole in Paris. He was appointed to the Board in May 1998.
JAMES TYRRELL (59) NON-EXECUTIVE DIRECTOR: was Group Finance Director of
London International Group until November 1997, and executive director until
August 1998. Previously he was Group Finance Director of Abbey National Plc,
prior to which he was Managing Director of HMV Shops Limited. He was
appointed to the Board in May 1998.
P-121
WILLIAM WHITEHEAD (53) DIRECTOR: named Executive Director of Worldwide
Client Services at Bates Worldwide and Regional Director of Latin America
for Bates Worldwide in May 1994. In December 1994 he was appointed Chief
Operating Officer for Bates North America. He became President and Chief
Operating Officer of Bates USA in September 1995. In July 1996 he became
Chief Executive Officer of Bates North America. He was appointed to the
Board in December 1997.
5.2 The interests of the Directors (all of which, unless otherwise stated, are
beneficial), in the issued share capital of the Company which have been
notified to the Company pursuant to section 324 or 328 of the Companies Act,
or are required to be entered in the register to be maintained under the
provisions of section 325 of the Companies Act, or which are interests of a
person connected with a Director (within the meaning of section 346 of the
Companies Act) which interests, if such connected persons were Directors,
would be required to be disclosed pursuant to section 324 or 328 or entered
into the register under section 325 and the existence of which is known or
could, with reasonable diligence, be ascertained by the Directors, as at 28
January 2000 (the latest practicable date prior to the publication of this
document), were as follows:--
CCG
SHARES
---------
C Scott(1).................................................. 85,172
M Bungey.................................................... 55,990
A D'Angelo.................................................. 960
J de Yturbe................................................. --
D Fishburn.................................................. --
T Levitt.................................................... 18,796
P M Schoning................................................ --
I Smith(2).................................................. 1,106,094
R Stomberg.................................................. --
J Tyrrell................................................... --
W Whitehead................................................. 787
- ------------------------
(1) Includes shares in spouse's name.
(2) For disclosure purposes, Mr Smith is deemed to be interested in all of the
1,106,094 CCG Shares held by TCG Employee Investment Pty Ltd. His beneficial
interest is limited to approximately 8.9 per cent. of the shares held by TCG
Employee Investment Pty Ltd at any given time.
P-122
5.3 Assuming no further exercises of Directors' options prior to the Effective
Time, there are expected to have been no changes to the interests of the
Directors in the issued share capital of the Company set out in paragraph
5.2 above or their share options and equity participation rights and
Ownership Scheme entitlements set out in paragraph 5.4 below immediately
following the Effective Time.
5.4 As at 28 January 2000 (the latest practicable date prior to the publication
of this document), the following Directors had options to subscribe for CCG
Shares and grants under the Equity Participation Plan as set out below:
5.4.1 Options
ORIGINAL EXERCISE SUBSCRIPTION TOTAL
DATE OF PRICE NUMBER OF EXERCISE EXERCISE
GRANT PENCE SHARES PRICE PERIOD
---------- -------- ------------ ------------------- --------------
C Scott..................... 03/05/1995 73.113 109,926 L80,370.20 May 00-May 02
10/04/1992 107.498 68,605 L73,749.00 Apr 95-Apr 02
10/04/1992 107.498 10,290 L11,061.54 Apr 95-Apr 02
19/04/1996 130 150,000 L195,000.00 Apr 01-Apr 03
23/04/1997 131.5 75,000 L98,625.00 Apr 00-Dec 04
23/04/1997 131.5 75,000 L98,625.00 Apr 02-Dec 04
18/06/1991 134.828 222,502 L299,995.00 Jun 94-Jun 01
18/06/1991 134.828 20,582 L27,750.30 Jun 94-Jun 01
M Bungey.................... 03/05/1995 73.113 67,498 L49,349.81 May 98-May 05
11/08/1995 94.892 67,497 L64,049.25 Aug 98-Aug 05
18/06/1991 134.828 137,211 L184,998.85 Jun 94-Jun 01
10/04/1992 107.498 74,814 L80,423.55 Apr 97-Apr 02
19/04/1996 130 150,000 L195,000.00 Apr 01-Apr 03
23/04/1997 131.5 75,000 L98,625.00 Apr 02-Apr 04
23/04/1997 131.5 75,000 L98,625.00 Apr 00-Apr 07
A D'Angelo.................. 03/05/1995 73.113 33,427 L24,439.48 May 98-May 05
11/08/1995 94.892 33,427 L31,719.55 Aug 98-Aug 05
19/04/1996 130 37,500 L48,750.00 Apr 99-Apr 06
19/04/1996 130 37,500 L48,750.00 Apr 01-Apr 03
23/04/1997 131.5 37,500 L49,312.50 Apr 02-Apr 04
23/04/1997 131.5 37,500 L49,312.50 Apr 00-Apr 07
J de Yturbe................. 03/05/1995 73.113 40,498 L29,609.30 May 98-May 05
11/08/1995 94.892 40,498 L38,429.36 Aug 98-Aug 05
19/04/1996 130 45,000 L58,500.00 Apr 99-Apr 06
19/04/1996 130 45,000 L58,500.00 Apr 01-Apr 03
23/04/1997 131.5 45,000 L59,175.00 Apr 02-Apr 04
23/04/1997 131.5 45,000 L59,175.00 Apr 00-Apr 07
P Schoning.................. 03/05/1995 73.113 21,213 L15,509.46 May 98-May 05
11/08/1995 94.892 21,213 L20,129.44 Aug 98-Aug 05
19/04/1996 130 17,500 L22,750.00 Apr 99-Apr 06
19/04/1996 130 17,500 L22,750.00 Apr 01-Apr 03
23/04/1997 131.5 27,500 L36,162.50 Apr 02-Apr 04
23/04/1997 131.5 27,500 L36,162.50 Apr 00-Apr 07
P-123
ORIGINAL EXERCISE SUBSCRIPTION TOTAL
DATE OF PRICE NUMBER OF EXERCISE EXERCISE
GRANT PENCE SHARES PRICE PERIOD
---------- -------- ------------ ------------------- --------------
I Smith..................... 23/04/1997 131.5 17,500 L23,012.50 Apr 02-Apr 04
23/04/1997 131.5 17,500 L23,012.50 Apr 00-Apr 07
11/08/1995 94.892 21,213 L20,129.44 Aug 98-Aug 05
19/04/1996 130 45,000 L58,500.00 Apr 99-Apr 06
19/04/1996 130 45,000 L58,500.00 Apr 01-Apr 03
23/04/1997 131.5 45,000 L59,175.00 Apr 02-Apr 04
23/04/1997 131.5 45,000 L59,175.00 Apr 00-Apr 07
5.4.2 Equity Participation Plan Grants
MAXIMUM CONTRIBUTION
DATE OF NUMBER OF PAID BY VESTING
GRANT SHARES DIRECTOR PERIOD*
--------- --------- ------------ --------------------
L
M Bungey........................... Dec 1997 890,110 116,827 Dec 2000--Dec 2001
A D'Angelo......................... Dec 1997 593,401 77,884 Dec 2000--Dec 2001
J de Yturbe........................ Dec 1997 593,401 77,884 Dec 2000--Dec 2001
P M Schoning....................... Dec 1997 593,401 77,884 Dec 2000--Dec 2001
I Smith............................ Dec 1997 415,382 54,519 Dec 2000--Dec 2001
W Whitehead........................ Dec 1997 593,401 77,884 Dec 2000--Dec 2001
* The actual exercise period will be determined once the performance formula
has been applied to the CCG Group's results for the year ending 31
December 2000, when one half of the shares will normally vest. The remainder
may be issued one year later.
All exercise prices for the CCG Share Schemes have been rounded to the
nearest penny.
Further details of the CCG Share Schemes are set out at paragraph 8 of this
PartVI of this document.
5.5 Ownership Schemes
5.5.1 The Company operated ``Ownership Schemes" prior to 1998 which
allocated ``network shares" to key executives, the value of the
network shares increasing or decreasing in line with the network's
performance against target. These schemes have been replaced by the
Equity Participation Plan and the Performance Share Option Scheme. On
acceptance of the invitation to participate in these new schemes, the
executives' awards under the ownership schemes crystallised at 50 per
cent. of the value at 31 December 1997. Benefits will be paid to the
executives in future years in accordance with the terms of the
schemes.
P-124
5.5.2 Awards to Directors under the Ownership Schemes were valued as
follows:
VALUE AT
31 DECEMBER
DIRECTOR 1999
- -------- -----------
L
M Bungey.................................................... 28,481
A D'Angelo.................................................. 17,090
J de Yturbe................................................. 28,484
P M Schoning................................................ 28,484
I Smith..................................................... 10,221
W Whitehead................................................. 17,090
5.6 Save as disclosed above, none of the Directors, nor any member of their
immediate families or person connected with them, has any interest in the
share capital of the Company or any of its subsidiaries, nor will any such
person have any such interest immediately following the Effective Time.
5.7 In November 1998, the CCG Group purchased the 24.9 per cent. shareholding in
The Communications Group Pty Limited not already owned by it pursuant to a
share purchase agreement further details of which are set out in paragraph
12.1.5 of this Part VI of this document. The seller, TCG Employee Investment
Pty Limited, held the shares for the account of the TCG Employee Trust. Mr
Smith was and is a beneficiary of the TCG Employee Trust, with a beneficial
entitlement representing approximately 8.9 per cent. of the outstanding
units in the TCG Employee Trust.
5.8 Save as disclosed in paragraph 5.7 (above), no Director has, or has had, any
interest in any transaction which is or was unusual in its nature or
conditions or is or was significant to the business of the CCG Group and
which was effected by any member of the CCG Group during the current or
immediately preceding financial year or during an earlier financial year and
which remains in any respect outstanding or unperformed.
5.9 No loans or guarantees have been granted or provided to, or for the benefit
of, any of the Directors by any member of the CCG Group.
5.10 Directors' Service Agreements
Details of the service agreements of the Directors are set out below. Copies
of the Directors' service agreements will be available for inspection in
accordance with paragraph 20of this Part VI of this document.
5.10.1 Executive Directors
CHARLES SCOTT
Charles Scott is employed under a service agreement with CCG dated 17
February 1999 as Executive Chairman of CCG. His current salary is
L200,000 per annum. His service agreement may be terminated on 12 months'
notice given by either party to the other. If there is a change of
control of CCG, his employment may be terminated by CCG without notice
within two years of such change of control. In these circumstances
(except in the case of termination for breach of contract or disability),
he is entitled to payment of a sum equivalent to two years' basic salary
and benefits.
In addition, he is entitled to certain other benefits in kind, including
the provision of a fully expensed motor car, medical insurance,
disability insurance, life assurance and contributions towards pension
schemes.
P-125
MICHAEL BUNGEY
Michael Bungey is employed under a service agreement with CCG dated
30 September 1997 as Chief Executive Officer of CCG and the Bates
Worldwide Network.
Mr Bungey's current salary is $750,000 (L463,000) per annum. His service
agreement may be terminated on 12 months' notice given by either party to
the other. If there is a change of control of CCG the Company may
terminate his employment without notice within two years of the change of
control. Except where termination is for cause or disability, he is
entitled to payment of a sum equivalent to the aggregate of two years'
basic salary, target bonuses, benefits and pension contributions.
Mr Bungey is entitled to participate in annual discretionary bonus
arrangements based on revenue growth and margin performance targets in
the year in question and calculated by reference to a bonus matrix which
is determined each year by the Remuneration Committee. For the financial
year ended 31 December 1999, his target bonus is 85 per cent. of his
gross basic salary, based on the performance of CCG as determined by the
Remuneration Committee. In addition, he is entitled to certain other
benefits in kind, including the provision of a fully expensed motor car,
medical, disability and life assurance and travel allowances for his
children.
Mr Bungey's period of pension accrual under the Cordiant Group Pension
Scheme ceased with effect from 31 December 1999 and he has subsequently,
with the consent of the Trustees, taken a transfer value of his benefits
under the Scheme into a private pension arrangement. He remains a member
of a small self-administered pension scheme to which CCG contributes a
sum equal to six per cent. of his salary plus L15,000 each year. Mr
Bungey is tax resident in the US and, as a result, incurs a tax charge in
the US in respect of such pension contributions. CCG makes a payment to
him to compensate him for such tax liability.
ARTHUR D'ANGELO
Arthur D'Angelo is engaged under a service agreement with Bates
Advertising USA, Inc. (``Bates USA") dated 22 September 1997. He is
Finance Director of CCG and Chief Administrative Officer of Bates USA and
Chief Financial Officer of Bates Worldwide Inc. His current salary is
$400,000 (L247,000) per annum. His contract provides that he may
terminate his employment on 12 months' notice to Bates USA. If Bates USA
terminates his employment for any reason other than cause, or his
employment is terminated by his death or disability, then he will be
entitled to receive a lump sum payment equal to 150 per cent. of his
annual salary.
If there is a change of control of CCG, Mr D'Angelo's employment may be
terminated by Bates USA, or by Mr D'Angelo for ``good reason" (as
described below), in each case within two years of the change of control.
In the case of termination by Bates USA in these circumstances (except
where termination is for cause, death or disability), he is entitled to
payment of a sum equivalent to 24 months' basic salary, target bonuses
and benefits, including pension contributions. If he terminates his
employment within two years following a change of control of CCG, as a
result of material changes being made to his duties, responsibilities or
position, a reduction in his salary, a change of his place of work or
substantially increased travel requirements, he will be entitled to the
same payment.
Mr D'Angelo is entitled to participate in annual bonus arrangements based
on satisfaction of performance targets in the year in question and
calculated by reference to a bonus matrix which is determined each year
by the Remuneration Committee. For the financial year ended 31 December
1999, his target bonus is 60 per cent. of his basic salary.
P-126
In addition, Mr D'Angelo is entitled to the provision of a fully expensed
motor car and other benefits including an annual pension contribution of
$7,500 (L4,600), the payment of health, disability and life insurance
contributions and health club membership fees. He is also a member of the
Bates USA 401k pension plan.
PETER SCHONING
Peter Schoning is engaged under a service agreement with Scholz & Friends
GmbH (``Scholz") dated 14 April 1999 (as amended with effect from
1 January 2000) as its managing director. His current salary is DM800,000
(L246,914) per annum. His employment may be terminated by either party on
at least 12 months' notice expiring at the end of a calendar year but it
may not be terminated by either party before 31 December 2002 unless any
one of three named managing directors is removed from office in which
case Peter Schoning may terminate the agreement by three months' notice
from the date when such removal from office becomes known.
Mr Schoning is entitled to an annual bonus calculated as a percentage
between 2.45 per cent. and 10 per cent. of the consolidated net income of
all the companies in the Scholz group (consolidated net income consists
of profits before tax, bonus, CCG operating charges and amortisation of
goodwill for all investments by the Scholz group prior to 1999). In
addition he is entitled to an annual bonus of 5 per cent. of the sum of
all profits before tax from the annual accounts of non-German Scholz &
Friends companies and to the provision of a fully expensed motor car.
IAN SMITH
Ian Smith is engaged under a service contract with Bates USA dated
1 March 1998. He is the President/International of Bates Worldwide Inc.
His current salary is $450,000 (L278,000) per annum. His employment may
be terminated on notice. If Bates USA terminates his employment for any
reason other than death, total disability or cause then he will be
entitled to receive a sum equal to one year's salary plus 70 per cent. of
his bonus.
The salary element is payable in instalments over a period of one year
and the bonus to be paid as a lump sum when the Company usually pays
bonuses. If the termination follows a change of control of CCG then the
payment is increased so that he receives one and a half year's salary
(paid over one and a half years) and 100 per cent. of his bonus. These
payments are conditional on him entering into a termination agreement and
not breaching certain covenants in the agreement.
Mr Smith is entitled to participate in annual bonus arrangements based on
satisfaction of certain revenue and profit goals for Bates Worldwide. The
annual bonus will equal 45 per cent. of his salary in those years in
which Bates Worldwide achieves its revenues and profit targets.
In addition Mr Smith is entitled to participate in other benefit plans
available to employees generally, is entitled to the provision of a fully
expensed leased motor car, reimbursement of annual membership dues for a
health club of his choosing of up to $2,000 per annum and certain
relocation expenses (including the cost of relocation to Australia if
Bates USA terminates his employment for a reason other than cause and he
does not immediately secure employment with another company owned or
controlled by CCG).
WILLIAM WHITEHEAD
William Whitehead is employed under a service agreement with Bates USA
dated 30 September 1997 as Chief Executive Officer of Bates USA. His
current salary is $550,000 (L339,500) per annum.
P-127
His service agreement may be terminated on 12 months' notice given by
either party to the other provided that, if Bates USA gives such notice,
he will then have 15 days in which to exercise an option to terminate his
employment immediately and be entitled to receive a lump sum payment
equivalent to 12 months' gross basic salary, target bonuses and benefits.
If Mr Whitehead gives notice of termination, he may terminate his
employment at any time during such notice period on 60 days' notice. If
his employment is terminated by reason of his death or disability he is
also entitled to receive a lump sum payment equivalent to 12 months'
gross basic salary and target bonuses.
If there is a change of control of CCG, Mr Whitehead's employment may be
terminated by Bates USA within two years of the change of control. In
these circumstances, except where termination is for cause, death or
disability, he is entitled to payment of a sum equivalent to 18 months'
basic salary, target bonuses and benefits.
Mr Whitehead is entitled to participate in annual discretionary bonus
arrangements based on revenue growth and margin performance targets in
the year in question and calculated by reference to a bonus matrix which
is determined each year by the Remuneration Committee. For the financial
year ended 31 December 1999, his target bonus is 55 per cent. of his
gross basic salary, based partly on the performance of CCG and partly on
the performance of Bates North America, as determined by the Remuneration
Committee.
In addition, he is entitled to certain other benefits in kind, including
the provision of two fully expensed motor cars, life, health and
disability insurance, health club membership and contribution to his
mortgage of 4,000 Canadian dollars a month.
Mr Whitehead is a member of the Bates USA 401k pension plan. He is also
entitled to a pension from the age of 60 from his previous employer,
Bates Canada, Inc.
JEAN DE YTURBE
Jean de Yturbe is engaged by Bates France SA as Chief Executive Officer
of Bates Europe pursuant to letters dated 15 June 1993, 13 March 1995 and
19 September 1997.
His current annual salary is L272,154. His employment may be terminated
on 12 months' notice given by either party to the other. If there is a
change of control of CCG his employment may be terminated by Bates France
SA within two years of the change of control. In these circumstances,
except where termination is for cause, he is entitled to payment of a sum
equivalent to 18 months' basic salary, target bonuses and benefits.
Mr de Yturbe is entitled to participate in annual discretionary bonus
arrangements based on the revenue growth and margin performance targets
of CCG and Bates Europe in the year in question and calculated by
reference to a bonus matrix which is determined each year by the
Remuneration Committee. In addition, he is entitled to certain other
benefits in kind, including the provision of a fully expensed motor car
and an annual travel allowance of FFR 150,000 (L13,799).
5.10.2 Non-executive Directors
DUDLEY FISHBURN
Dudley Fishburn was appointed a non-executive Director, Chairman of the
Remuneration Committee and a member of the Audit Committee by a letter
dated 17 September 1997. The appointment was for a term of three years,
renewable for a further period of three years at the Board's discretion.
He is paid annual fees of L20,000 in accordance with the provisions of
the Company's Articles of Association.
P-128
PROFESSOR THEODORE LEVITT
Professor Theodore Levitt was appointed a non-executive Director and a
member of the Remuneration and Audit Committees by a letter dated
16 September 1997. The appointment was for a term of one year, renewable
at the Board's discretion. He is paid annual fees of L20,000 in
accordance with the provisions of the Company's Articles of Association.
His appointment was renewed by the Board on the same terms by a letter
dated 6 January 1999.
DR ROLF STOMBERG
Dr Rolf Stomberg was appointed a non-executive Director and a member of
the Remuneration Committee and Audit Committee by a letter dated
31 March 1999. The appointment was for a term of three years, renewable
at the Board's discretion for a further period of three years. He is paid
annual fees of L20,000 in accordance with the provisions of the Company's
Articles of Association.
JAMES TYRELL
James Tyrell was appointed a non-executive Director and a member of the
Remuneration and Audit Committees by a letter dated 8 April 1999. The
appointment was for a term of three years, renewable for a further period
of three years at the Board's discretion. He is paid annual fees of
L20,000 in accordance with the provisions of the Company's Articles of
Association.
Under the Company's Articles of Association, the non-executive Directors
are entitled to allowances of up to L600 per Director for each meeting of
the Directors, or any committee of the Directors, at which they attend in
person, L500 per Director for each such meeting attended by telephone and
L250 per calendar quarter for acting as chairman of any committee of the
Directors.
5.11 The total aggregate of the remuneration paid and benefits in kind granted
to the Directors by any member of the CCG Group during the financial year
ended 31 December 1998 was L2.924 million. The total emoluments received by
the Directors will not be increased as a consequence of the Transaction,
although the acquisition of Healthworld may indirectly affect the amount of
performance-based remuneration received by the Directors.
5.12 The following table shows in respect of each of the Directors the names of
all companies and partnerships outside the CCG Group of which he is, or has
been at any time in the five years prior to the date of this document, a
director or partner, as appropriate (excluding subsidiaries of any such
companies):--
DIRECTOR COMPANY STATUS
-------- ------------------------------------------ --------
Charles Scott Adidas-Salomon AG Current
Emcore Corporation Current
Massive Limited Current
Robert Walters plc Resigned
Saatchi & Saatchi plc Resigned
TBI plc Current
Topnotch Limited Current
William Hill Limited Current
Michael Bungey None
Arthur D'Angelo None
Jean de Yturbe None
Dudley Fishburn Business Post plc Resigned
Euclidian plc Resigned
First NIS Fund Current
HFC Bank plc Current
P-129
DIRECTOR COMPANY STATUS
-------- ------------------------------------------ --------
Household International Inc Current
LUT Accommodation 1-4 plc Resigned
Philip Morris Inc Current
Principal Portfolios 1-4 plc Resigned
TR Smaller Companies
Investment Trust plc Current
University College London
Accommodation plc Resigned
Prof. Theodore Levitt Sandford C Bernstein Funds Current
Peter Schoning None
Ian Smith None
Dr. Rolf Stomberg British Petroleum Company plc Resigned
Dresdner Bank AG Current
Elsevier VN Current
Gerling Konzern Current
Hoyer GmbH Current
Institut Francais du Petrole Resigned
John Mowlem & Company plc Current
Proudfoot plc Current
Reed International Current
Ruhrgas AG Resigned
Scania AB Current
Smith & Nephew plc Current
Stinnes AG Current
TPG Group Current
Unipoly SA Current
James Tyrrell B C Developments Limited Current
Ferguson International plc Resigned
London International Group plc Resigned
MasterCommunications Limited Resigned
Point Group Limited Current
William Whitehead None
P-130
5.12.1 None of the Directors:--
5.12.2 has any unspent convictions in relation to indictable offences;
5.12.3 has been declared bankrupt or has entered into any individual
voluntary arrangement;
5.12.4 has been a director with an executive function of any company within a
twelve month period preceding any receivership, compulsory
liquidation, creditors voluntary liquidation, administration, company
voluntary arrangement or any composition or arrangement with such
company's creditors generally or any class of creditors of such
company;
5.12.5 has been partner of any partnership within a twelve month period
preceding any compulsory liquidation, administration or partnership
voluntary arrangement of such partnership;
5.12.6 has held assets which have been the subject of a receivership;
5.12.7 has been partner of any partnership within a twelve month period
preceding any receivership of the assets of such partnership;
5.12.8 has been publicly criticised by statutory or regulatory authorities
(including recognised professional bodies); or
5.12.9 has been disqualified by a Court from acting as a director of any
company or from acting in the management or conduct of the affairs of
any company.
6 SUBSTANTIAL SHAREHOLDINGS
6.1 The Directors are aware of the following interests (within the meaning of
Part VI of the Companies Act) which represent three per cent. or more of the
issued share capital of the Company, directly or indirectly, on 28 January
2000 (the latest practicable date prior to the publication of this
document):--
PERCENTAGE
OF ISSUED
NO. OF CCG
SHARES HELD SHARES
----------- ----------
Phillips & Drew............................................. 31,209,869 13.64%
M & G Investment Management................................. 19,433,752 8.49%
Fidelity Investment Services................................ 16,580,404 7.25%
Henderson Investors......................................... 11,277,030 4.93%
Legal & General Investment Management....................... 9,272,270 4.05%
Hill Samuel Asset Management................................ 7,729,801 3.38%
6.2 Immediately following the Effective Time, the following persons are expected
to have interests in three per cent. or more of the enlarged issued share
capital of the Company, directly or indirectly held, assuming that there are
no changes to the interests already notified to CCG and Healthworld as at
28 January 2000:-
PERCENTAGE
OF ISSUED
NO. OF CCG
SHARES SHARES
---------- ----------
Phillips & Drew............................................. 31,209,869 11.35%
M & G Investment Management................................. 19,433,752 7.07%
Fidelity Investment Services................................ 16,580,404 6.03%
Henderson Investors......................................... 11,277,030 4.10%
Steven Girgenti and Family.................................. 11,177,258 4.07%
Legal & General Investment Management....................... 9,272,270 3.37%
P-131
6.3 Save as disclosed in this paragraph 6, the Directors are not aware of any
person who is or will be immediately following the Effective Time, directly
or indirectly, interested in three per cent or more of the issued s hare
capital of the Company, or of any other person who can, will or could,
directly or indirectly, jointly or severally, exercise control over the
Company.
7 MEMORANDUM AND ARTICLES OF ASSOCIATION
7.1 The principal objects of the Company are set out in Clause 4 of its
Memorandum of Association and are, inter alia, to carry on the businesses of
a holding company and of advertising consultants.
7.2 The Articles of Association of the Company (``the Articles") contain
provisions, inter alia, to the following effect:--
7.2.1 Rights of CCG Shares
7.2.1.1 as to voting: subject to disenfranchisement in the event of
(a) non-payment of calls or other monies due and payable in
respect of CCG Shares and (b) non-compliance with a statutory
notice requiring disclosure as to beneficial ownership, and
subject to any special terms as to voting upon which any
shares may for the time being be held (as to which there are
none at present), upon a show of hands every member present in
person or (in the case of a corporate member) by
representative shall have one vote and upon a poll every
member present in person, by representative (in the case of a
corporate member) or by proxy shall have one vote for every
share held by him;
7.2.1.2 as to dividends: subject to the Statutes (as defined in the
Articles) and to the rights of the holders of any shares
entitled to any priority, preference or special privileges and
the terms of issue of any shares, all dividends shall be
declared and paid to the members in proportion to the amounts
paid up or credited as paid up on the shares held by them
respectively;
7.2.1.3 as to return of capital: on a winding-up, the assets remaining
after payment of the debts and liabilities of the Company and
the costs of the liquidation, shall, subject to the rights of
the holders of shares (if any) issued upon special conditions,
be applied first in repaying to the members the amounts paid
up on such shares held by them, and the balance (if any) shall
be distributed amongst the members in proportion to the number
of shares held by them.
7.2.2 Modification of share rights
If at any time the capital is divided into different classes of
shares, the rights attached to any class or any of such rights (unless
otherwise provided by the terms of issue of the shares of that class)
may, subject to the provisions of the Act, be modified, abrogated or
varied with the consent in writing of the holders of three-fourths of
the issued shares of that class or with the sanction of an
extraordinary resolution passed at a separate general meeting of the
holders of the shares of that class, but not otherwise.
7.2.3 Changes in share capital
The Company may by ordinary resolution increase its capital by the
creation of new shares, consolidate its share capital, cancel any
unissued shares and sub-divide its shares. The Company may by special
resolution reduce its share capital, any capital redemption reserve
and any share premium account in any manner authorised by law.
P-132
7.2.4 Transfer of shares: certificated
All transfers of certificated shares must be in writing in the usual
common form or in any other form permitted by the Stock Transfer Act
1963 or approved by the Directors. The instrument of transfer must be
signed by or on behalf of the transferor and, if the shares being
transferred are not fully paid, by or on behalf of the transferee. The
Directors may in their absolute discretion and without giving any
reason refuse to register any transfer of certificated shares which
are not fully paid or on which the Company has a lien, provided that
where any such shares are admitted to the Official List, the Directors
may impose only such restrictions on transfer as are permitted by the
London Stock Exchange.
7.2.5 Transfers of shares: uncertificated
Subject to the Uncertificated Securities Regulations 1995 (SI 1995
No.95/3272) and the Articles, a member may transfer uncertificated
shares in any manner which is permitted by the Statutes (as defined in
the Articles) and is from time to time approved by the Directors. The
Directors may, in their absolute discretion and without giving any
reason, refuse to register a transfer of uncertificated shares.
7.2.6 Unclaimed dividends
Any dividend unclaimed after a period of 12 years from the date such
dividend became due for payment shall be forfeited and shall revert to
the Company.
7.2.7 Untraced shareholders
Subject to the provision of the Statutes (as defined in the Articles),
the Company may, after advertising its intention and fulfilling
various other requirements, sell at the best price reasonably
obtainable any shares of a member or person entitled to those shares
by transmission provided that, for a period of 12 years during which
period the Company has paid at least three dividends none of which has
been claimed, no cheque or warrant sent by the Company to such member
has been cashed and the Company has not received any communication
from the member in question or the person so entitled during that 12
year period and during the further period of three months after the
date of the advertisement. Upon such sale, the Company shall be
regarded as indebted to the former member or to any other person so
entitled to an amount equal to the net proceeds of sale.
7.2.8 Non-UK shareholders
There are no limitations in the Memorandum or Articles of Association
on the rights of non-UK shareholders to hold or exercise voting rights
attaching to CCG Shares. However, a member who has no registered
address within the United Kingdom and has not given notice to the
Company to register such an address shall not be entitled to receive
any notices from the Company.
7.2.9 Restrictions on shareholders
The Company may disenfranchise any holder of shares of the Company if
the Company has not received the information required in any notice
issued by the Company requiring the disclosure of interests in the
shares specified in the notice within 14 days after service from such
holder or any other person appearing to be interested in those shares.
If shareholders holding 0.25 per cent. or more in nominal value of
such shares have not complied with the notice within 14 days after
service, the Company may impose restrictions on them which include not
only disenfranchisement but also the withholding of the right to
receive dividends or other monies payable and, subject to the
Statutes, restrictions on the transfer of the shares
P-133
in question. For shareholders holding less than 0.25 per cent. in
nominal value of such shares, disenfranchisement is the only
restriction which the Company may impose.
8 CCG SHARE SCHEMES
8.1 Current CCG Share Schemes
8.1.1 The Equity Participation Plan
The EPP was adopted at an Extraordinary General Meeting held on 23
October 1997 and amended by a Board Resolution dated 16 December 1997 and
at an Extraordinary General Meeting held on 20 November 1998. It enables
participants to acquire CCG Shares. The principal terms of the EPP are set
out below.
(i) Administration
The EPP operates in conjunction with the Cordiant Communications
Group Employee Benefit Trust (the ``Trust") which was established on
16 December 1997. The Trustee of the Trust will, in exercising its
discretion, take into account the recommendations of the Remuneration
Committee. Further details of the Trust are set out in paragraph
8.1.3 below.
(ii) Eligibility
Employees and executive Directors of CCG, who are required to devote
substantially all their working time to the business of any company
in CCG, are eligible to participate in the EPP.
(iii) Participation in the EPP
The Trustee may invite selected eligible employees and Directors to
pay a certain amount of money (not exceeding L150,000) to enable them
to participate in the EPP. The payment made by participants to the
Trust, which must be made within 120 days of the award being made, is
non-refundable. Normally, awards to participants will only be made
within the period of 42 days following the announcement of CCG's
results for any period or at any time if the Trustee determines that
exceptional circumstances (such as the recruitment of a senior
employee or executive director) so warrant. The maximum number of CCG
Shares which participants may become entitled to acquire will be
eight times the number that could have been bought with the original
investment at market value on the day preceding the date of award.
The exact number of CCG Shares which may be acquired will be
determined by the Performance Formula described below.
(iv) Performance Formula and number of shares vesting
With the exception of Directors of CCG, the number of CCG Shares that
a participant may acquire will be determined by measuring the growth
in earnings per share (``EPS") of CCG over a three year period (``EPS
Performance"). EPS will be the fully diluted EPS calculated on the
basis of ``headline earnings" using the Institute of Investment
Management and Research guidelines (although the Trustee will have
the ability to adjust this figure if the Trustee considers it
appropriate to exclude exceptional items or other significant
non-recurring items).
If EPS Performance is less than the annual percentage growth in the
UK Retail Price Index plus two per cent. (the ``Hurdle Rate") then
the participant will be entitled to acquire 10 CCG Shares.
If EPS Performance is equal to or greater than the Hurdle Rate then:
P-134
(a) where EPS Performance is 5 per cent. per annum, 12.5 per cent. of the
award vests, which is the same number of CCG Shares which the
participant could have bought with his original investment;
(b) where EPS Performance is 15 per cent. per annum, 40 per cent. of the
award vests, so the participant will be entitled to acquire 3.2 times
the number of CCG Shares which he could have bought with his original
investment; and
(c) where EPS Performance is 25 per cent. per annum, all of the award
vests, so the participant will be entitled to acquire eight times the
number of CCG Shares which he could have bought with his original
investment. The percentage of the award that vests for EPS
Performance between 5 per cent. per annum and 15 per cent. per annum
and for EPS Performance between 15 per cent. per annum and 25 per
cent. per annum increases on a straight-line basis.
For participants who are Directors, only one half of their awards
will vest based on EPS Performance. The other half of their awards
will vest based on the total shareholder return (``TSR") of CCG over
a three year period (``TSR Performance") relative to the TSR of a
group of major publicly traded advertising groups (the ``Comparator
Group") over the same period. Initially the Comparator Group will
consist of the following 10 groups: CCG, GGT Group, Grey Advertising,
Havas Advertising, Omnicom Group, Publicis, Saatchi & Saatchi, The
Interpublic Group of Companies, True North Communications and WPP
Group.
The percentage of the award that vests will be determined by
reference to the ranking attained by CCG as follows:--
PERCENTAGE
OF AWARD
THAT VESTS
RANKING (%)
------- ----------
1st or 2nd.................................................. 100
3rd......................................................... 75
4th......................................................... 50
5th......................................................... 25
6th......................................................... 18.75
7th......................................................... 12.5
8th......................................................... 9.375
9th......................................................... 3.125
10th........................................................ nil
(v) Acquisition of CCG Shares
P-135
Once the Performance Formula has been applied and the number of CCG
Shares determined, a participant may acquire one half of the vested
number of CCG Shares. The remaining half may only be acquired after the
fourth anniversary of the date the award was made. CCG Shares cannot be
acquired after the seventh anniversary of the date of the award.
(vi) Takeover
In the event of a takeover of CCG prior to the announcement of CCG's
results for its financial year ending in 2000 (the ``2000 results"), a
participant who received an award prior to the announcement of CCG's
results for its financial year ending in 1998 (the ``1998 results") will
be entitled to acquire the number of CCG Shares determined in accordance
with the following provisions:
(a) if the takeover occurs after the announcement of the 1998 results
but before the announcement of CCG's results for its financial year
ending in 1999 (the ``1999 results"), the participant may acquire:
(i) one third of the maximum possible number of CCG Shares; plus
(ii) one third of the number of CCG Shares which would have
vested if the EPS Performance (and, if appropriate, TSR
Performance) for CCG's 1998 financial year had been achieved
over the full three years of the performance measurement
period; and
(b) if the takeover occurs after the announcement of the 1999 results
but before the announcement of the 2000 results, the participant
may acquire:
(i) one third of the maximum possible number of CCG Shares; plus
(ii) two thirds of the number of CCG Shares which would have
vested if the EPS Performance (and, if appropriate, TSR
Performance) over CCG's two financial years 1998 and 1999
had been achieved over the full three years of the
performance measurement period.
Equivalent provisions will apply for participants who receive or have
received an award after the announcement of the 1998 results.
(vii) Cessation of employment
If a participant ceases to be employed by CCG or a subsidiary of CCG
before the award vests because of injury, disability, ill health, death,
redundancy, retirement, because the company which employs him or with
which he holds office leaves the CCG Group or because the business to
which his office or employment relates is transferred outside the CCG
Group, or other circumstances at the Trustee's discretion, the
participant will be entitled to acquire a proportion of the maximum
number of CCG Shares which would ultimately have been receivable. For
the purpose of determining the proportion of the award that vests, the
cessation of employment will be treated as occurring on the next day on
which CCG announces its results for its financial year. The Performance
Formula will then be applied as if the EPS Performance (and, if
appropriate, the TSR Performance) had been achieved over the full three
years of the performance measurement period.
A participant who was granted an award prior to the announcement of the
1998 results will be able immediately following such determination to
acquire:
(a) one third of the number of CCG Shares so determined, if cessation
occurs on or before the announcement of the 1998 results;
P-136
(b) two thirds of the number of CCG Shares so determined, if cessation
occurs after the announcement of the 1998 results but on or before
the announcement of the 1999 results; and
(c) all of the CCG Shares so determined, if cessation occurs after the
announcement of the 1999 results.
Equivalent provisions will apply for participants who receive an award
after the announcement of the 1998 results.
However, if a participant ceases employment for other reasons, he will
only be entitled to receive 10 CCG Shares, with the result that he will
effectively lose his initial investment.
(viii) Variation of share capital
The rights of participants following any rights issue or capitalisation
issue or other variation of share capital will be adjusted in such
manner as the Trustee may determine subject to written confirmation from
CCG's auditors that such adjustment is in their opinion fair and
reasonable.
(ix) Limits on the EPP
An aggregate of not more than 9.5 per cent. of the issued ordinary share
capital of CCG from time to time may be issued or become issuable
pursuant to the EPP and the Performance Share Option Scheme.
(x) Amendments to the Scheme
The Board has the power to administer, interpret and, with the
concurrence of the Trustee, amend the provisions of the EPP. However, no
amendment may be made to provisions relating to:
(a) the eligibility conditions;
(b) the limit rules;
(c) the calculation of a participant's entitlement under the EPP;
(d) the terms of the awards or the CCG Shares received pursuant to
them; or
(e) the variation of share capital rule
to the advantage of participants without the prior approval of the
shareholders in general meeting (except for minor amendments to benefit
the administration of the EPP, to take account of a change in
legislation or to obtain or maintain favourable tax, exchange control or
regulatory treatment for participants or for CCG or for subsidiaries of
CCG).
No amendment to the limits mentioned above may be made without prior
approval of the shareholders. No amendment may be made which adversely
affects a participant's rights under an award made prior to the date of
such amendment without the participant's consent.
(xi) Pension
The benefits received under the Equity Participation Plan are not
pensionable.
(xii) Termination
The Trustee will invite no further participation in the Equity
Participation Plan after 15 December 2000 and the Board may terminate it
at any time, but the rights of existing participants will not thereby be
affected.
P-137
8.1.2 The Performance Share Option Scheme
The PSOS was adopted at an Extraordinary General Meeting held on 23
October 1997 and amended by a Board Resolution dated 16 December 1997
and at an Extraordinary General Meeting held on 20 November 1998. The
principal terms of the Performance Option Scheme are set out below,
(i) Administration
The PSOS normally operates in conjunction with the Trust. The Trustee
will, in exercising its discretion, take into account the
recommendations of the Remuneration Committee.
However, the rules provide that the PSOS may also be operated by CCG, in
which case references to the Trust and the Trustee in this summary
should be read as being references to CCG and the Remuneration Committee
as appropriate.
Further details of the Trust are set out in paragraph 8.1.3 below.
(ii) Eligibility
Employees and executive Directors of CCG who are required to devote
substantially all their working time to the business of any company in
the CCG Group will be eligible to participate in the PSOS. However,
participants in the EPP will not be eligible to be granted options under
the PSOS.
Participants in the PSOS will be selected at the discretion of the
Trustee.
(iii) Exercise price
The exercise price for an option will be determined by the Trustee but
may not be less than the higher of the nominal value of a CCG Share (if
the option is an option to subscribe for CCG Shares) and its market
value. Market value will be taken to be the middle market quotation of a
CCG Share on the dealing day of the London Stock Exchange immediately
preceding the date of grant as derived from the Daily Official List of
the London Stock Exchange.
(iv) Grant of options
Normally, options may only be granted by the Trustee within the period
of 42 days following the announcement of CCG's results and at any time
if the Trustee determines that exceptional circumstances (such as the
recruitment of a senior employee or Executive Director) so warrant.
Options will lapse unless the option holder agrees within 120 days of
the grant of the option to sacrifice an aggregate amount of salary
and/or bonus (not exceeding L50,000) over a period not exceeding three
years equal to one eleventh of the aggregate exercise price of the CCG
Shares under option. The amount so sacrificed is not offset against the
exercise price payable.
(v) Performance Formula and number of shares vesting
The number of CCG Shares to be acquired on exercise will be determined
by measuring EPS Performance, as for the EPP. The EPS Performance and
the Hurdle Rate for the PSOS will be the same as for the EPP.
If EPS Performance is less than the Hurdle Rate then the option holder
will not be entitled to acquire any CCG Shares and the option will
lapse.
If EPS Performance is equal to or greater than the Hurdle Rate then:
(a) where EPS Performance is 5 per cent. per annum, the option holder
may exercise his
P-138
option in respect of 30 per cent. of the number of CCG Shares under
option;
(b) where EPS Performance is 15 per cent. per annum, the option holder
may exercise his option in respect of 65 per cent of the number of
CCG Shares under option; and
(c) where EPS Performance is 25 per cent. per annum, the option holder
may exercise his option in full.
The percentage of CCG Shares over which the option holder may exercise
his option for EPS Performance between 5 per cent. per annum and 15 per
cent. per annum and for EPS Performance between 15 per cent. per annum
and 25 per cent. per annum increases on a straight line basis.
(vi) Exercise of options
Once the Performance Formula has been applied an option holder may
exercise his option over one half of the number of CCG Shares determined
by the Performance Formula. The remaining half may only be acquired
after the fourth anniversary of the date of grant.
Options may not be exercised in any event more than seven years after
the date of grant.
(vii) Takeover
In the event of a takeover of CCG prior to the announcement of CCG's
results for its financial year ending in 2000 (the ``2000 results"), an
option holder who was granted an option prior to the announcement of
CCG's results for its financial year ending in 1998 (the ``1998
results") will be entitled to exercise his option in accordance with the
following provisions:
(a) if the takeover occurs after the date of the award but before the
announcement of the 1998 results, the option holder may exercise
his option in respect of one third of the number of CCG Shares
under option;
(b) if the takeover occurs after the announcement of the 1998 results
but before the announcement of CCG's results for its financial year
ending in 1999 (the ``1999 results"), the option holder may
exercise his option in respect of:
(i) one third of the number of CCG Shares under option; plus
(ii) one third of the number of CCG Shares in respect of which he
could have exercised his option if the EPS Performance for
CCG's 1998 financial year had been achieved over the full
three years of the performance measurement period; and
(c) if the takeover occurs after the announcement of the 1999 results
but before the announcement of the 2000 results, the option holder
may exercise his option in respect of:
(i) one third of the number of CCG Shares under option; plus
(ii) two thirds of the number of CCG Shares in respect of which
he could have exercised his option if the EPS Performance
over CCG's two financial years 1998 and 1999 had been
achieved over the full three years of the performance
measurement period.
Equivalent provisions will apply for option holders who are granted
options after the announcement of the 1998 results.
(viii) Cessation of employment
If an option holder ceases to be employed by CCG or a subsidiary of CCG
before his option
P-139
may be exercised because of injury, disability, ill health, death,
redundancy, retirement, because the company which employs him or with
which he holds office leaves the CCG Group or because the business to
which his office or employment relates is transferred outside the CCG
Group, or other circumstances at the Trustee's discretion, the option
holder will be entitled to exercise his option in respect of a
proportion of the number of CCG Shares under option. For the purpose of
determining the number of CCG Shares in respect of which the option
holder may exercise his option, the cessation of employment will be
treated as occurring on the next day on which CCG announces its results
for its financial year. The Performance Formula will then be applied as
if the EPS Performance had been achieved over the full three years of
the performance measurement period.
An option holder who was granted an option prior to the announcement of
the 1998 results will be able immediately following such determination
to exercise his option in respect of.
(a) one third of the number of CCG Shares so determined, if cessation
occurs on or before the announcement of the 1998 results;
(b) two thirds of the number of CCG Shares so determined, if cessation
occurs after the announcement of the 1998 results but on or before
the announcement of the 1999 results; and
(c) all of the CCG Shares so determined, if cessation occurs after the
announcement of the 1999 results.
Equivalent provisions will apply for option holders who are or have
been granted options after the announcement of the 1998 results.
However, if a participant ceases employment for other reasons, his
option will lapse.
(ix) Variation of share capital
On a variation of CCG's share capital by way of capitalisation or rights
issue, sub-division, consolidation or a reduction, the exercise price
and the number of shares comprised in an option can be varied at the
discretion of the Trustee subject to certification from CCG's auditors
that in their opinion the variation is fair and reasonable.
(x) Limits on the Performance Option Scheme
An aggregate of not more than 9.5 per cent. of the issued ordinary share
capital of CCG from time to time may be issued or become issuable
pursuant to the PSOS and the EPP.
(xi) Amendments to the PSOS
The Board has power to administer, interpret and, with the approval of
the Trustee, amend the PSOS. No amendment may be made to provisions
relating to:
(a) the eligibility conditions;
(b) the limit rules;
(c) the variation of share capital rule;
(d) the rules governing the terms of the options or shares to be
received by option holders; or
the rules governing the calculation of the option holder's
(e) entitlements under the PSOS to the advantage of option holders
without the prior approval of shareholders in general meeting
(except for minor amendments to benefit the administration of the
PSOS or to take account of a change in legislation or to obtain or
maintain favourable tax, exchange control or regulatory treatment
for option holders, CCG or subsidiaries of CCG).
P-140
No amendment may be made which adversely affects an option holder's
rights under options granted to him prior to the date of such amendment
without his consent.
(xii) Pension
The benefits received under the PSOS are not pensionable.
(xiii) Termination
The Trustee will grant no further options under the PSOS after 15
December 2000 and the Board may terminate it at any time, but the rights
of existing option holders will not thereby be affected.
8.1.3 The Cordiant Communications Group Employee Benefit Trust (the ``Trust")
On 16 December 1997 two trusts (together the ``Trust") were established
(one for Australia and the other for the rest of the world). The
principal terms of the Trust are as set out below.
(i) The Trust is a discretionary employee benefit trust of which all
employees of the CCG Group are potential beneficiaries.
(ii) The trustee of the Trust (the ``Trustee") is a corporate trustee.
Executive Directors of CCG will not be directors of, nor have a direct
or indirect interest in, the trustee company.
(iii) The main purpose of the Trust is to operate the EPP and the PSOS. Having
considered recommendations received from the Remuneration Committee, the
Trustee may make awards (which may or may not be in the form of options)
under which participants will be entitled to acquire CCG Shares.
Alternatively the Trustee may agree to deliver CCG Shares following the
exercise of awards made by CCG.
The Trustee may purchase CCG Shares in the market for the purpose of
(iv) awards made under the EPP and the PSOS. Alternatively, CCG may grant to
the Trustee one or more options to subscribe for CCG Shares. This is the
route which has been followed in respect of awards which have been made
to date under the EPP and PSOS. The exercise price under such options
will not be less than the middle market quotation of CCG Shares as
derived from the London Stock Exchange Daily Official List for the
dealing day preceding the date of grant.
(v) The Trustee is not permitted to purchase CCG Shares in the market
without prior shareholder approval if such purchase would result in the
Trust holding (excluding any CCG Shares which the Trustee subscribed
for) more than five per cent. of CCG.
(vi) The Trustee will fund the acquisition of CCG Shares through one or more
of the following:
(a) by non-recourse loan or loans from CCG Group companies;
(b) by contributions from CCG Group companies; and
(c) by payments from the participants in the EPP and the PSOS.
(vii) The Trustee is required to waive its right to any dividends on CCG
Shares whilst they are held within the Trust.
P-141
8.2 Zenith Scheme
8.2.1 The Zenith Executive Incentive Plan (the ``Zenith Incentive Plan")
The Zenith Incentive Plan was approved at the Extraordinary General
Meeting held on 23 October 1997. It enables participants to acquire CCG
Shares and ordinary shares in Saatchi & Saatchi (the ``Saatchi &
Saatchi Shares") through the exercise of options and/or in certain
circumstances to be paid a cash bonus. The principal terms of the
Zenith Incentive Plan are as set out below.
(i) Administration
The Zenith Incentive Plan will be operated in conjunction with the
Zenith Employee Benefit Trust (the ``Zenith Trust"), the Trustee of
which will, in exercising its discretion, take into account the
recommendations of the non-executive directors of Zenith.
Further details of the Zenith Trust are set out in paragraph 8.2.2
below.
(ii) Eligibility
Employees and executive directors of the Zenith Media Holdings
Limited and its subsidiaries (``Zenith Group"), who are required
to devote substantially all their working time to the business of
any company in the Zenith Group, are eligible to participate in
the Zenith Incentive Plan.
(iii) Limits on the Zenith Incentive Plan
The aggregate maximum entitlement of all participants in the
Zenith Incentive Plan, determined when awards are made, may not
exceed L3.6 million. An aggregate of not more than 0.5 per cent.
of the ordinary share capital of each of CCG and Saatchi & Saatchi
from time to time may be issued or become issuable pursuant to the
Zenith Incentive Plan.
(iv) Participation in the Zenith Incentive Plan
The Trustee may invite selected eligible employees and directors
to invest a certain amount of money (not exceeding L70,000) to
enable them to participate in the Zenith Incentive Plan. Awards
will lapse unless such investment is, at the discretion of the
Trustee, either made by a payment to the Trustee within 120 days
of the award being made or is made by the participant agreeing to
sacrifice that amount of salary and/or bonus over a period not
exceeding three years. The investment is non-refundable and is not
offset against the exercise price payable.
Normally, awards to participants will only be made within 42 days
following the announcement of the later of CCG's and Saatchi &
Saatchi's results for any financial year or at any time if the
Trustee determines that special circumstances (such as the
recruitment of a senior employee or executive director) so
warrant.
The non-refundable investment to be provided by participants who
wish to participate in the Zenith Incentive Plan shall be one
sixteenth of a participant's maximum entitlement under the Zenith
Incentive Plan. An award will comprise:
(a) an option over the same proportion of the total number of CCG
Shares available for the Zenith Incentive Plan as the
participant's maximum entitlement bears to L3.6 million being the
aggregate maximum entitlement for all participants available
under the Zenith Incentive Plan (the ``CCG Option");
P-142
(b) an option over the same number of Saatchi & Saatchi Shares as the
number of CCG Shares under the participant's CCG Option (the
``Saatchi & Saatchi Option"); and
(c) a contingent cash award of up to a participant's maximum
entitlement.
The exercise price for the CCG Option and the Saatchi & Saatchi
Option will be the middle market quotation of the underlying
shares on the day preceding the date the options are granted.
The exact number of shares which may be acquired and/or the cash
award payable will be determined by the Performance Formula
described in paragraph (v) below.
(v) Performance Formula and determination of participant's entitlement
to be delivered in shares and/or cash
A participant's maximum entitlement will be reduced proportionately
if one month after the end of the third year of the performance
period the FTSE 100 Index is lower than on the date the award was
made. A participant's actual entitlement will be determined by
measuring the growth in Operating Profit (as defined in the
rules of the Zenith Incentive Plan) over a three year period, with
the base year being the year ending 31 December 1997 for the initial
awards (``Operating Profit Performance") as follows:
(a) if Operating Profit Performance is less than five per cent. per
annum, an award lapses;
(b) if Operating Profit Performance is five per cent. per annum, a
participant's entitlement will be determined as 12.5 per cent. of
his maximum entitlement;
(c) if Operating Profit Performance is 15 per cent. per annum, a
participant's entitlement will be determined as 40 per cent. of
his maximum entitlement; and
(d) if Operating Profit Performance is equal to or exceeds 25 per
cent. per annum, a participant's entitlement will be determined
as 100 per cent. of the maximum entitlement.
A participant's entitlement in respect of Operating Profit
Performance between five per cent. per annum and 15 per cent. per
annum and between 15 per cent. per annum and 25 per cent. per annum
increases on a straight line basis.
Awards will be satisfied so far as possible by the CCG Options and
Saatchi & Saatchi Options becoming exercisable to the same extent.
The balance, if any, of a participant's entitlement will be satisfied
by the payment of cash by the Zenith Trust or any company in the
Zenith Group.
(vi) Timing of acquisition of CCG Shares and Saatchi & Saatchi Shares
and payment of cash
Once the Performance Formula has been applied, the extent of
vesting of the CCG Option and the Saatchi & Saatchi Option
determined and the cash sum, if any, quantified, a participant
will be entitled to receive one half of his entitlement. The
remaining half can only be acquired after the fourth anniversary
of the date the award was made. The award will lapse on the
seventh anniversary of the date of grant.
(vii) Cessation of employment
If a participant ceases to be employed by Zenith or a subsidiary
of Zenith before the end of the performance period because of
injury, disability, ill health, death, redundancy, retirement or
because the company which employs him or with which he holds
office leaves the Zenith Group or because the business to which
his office or employment
P-143
relates is transferred outside the Zenith Group or other
circumstances at the Trustee's discretion, the participant will be
entitled to receive a proportion of his maximum entitlement. This
proportion will be determined as if the cessation of employment
occurred on the next day on which the directors of Zenith approve
its accounts for a financial year. The Performance Formula will
then be applied as if the Operating Profit Performance had been
achieved over the full three years of the performance measurement
period.
The entitlement of a participant who was granted an award prior to
the approval of Zenith's accounts for its financial year ending in
1998 (the ``1998 results") will be:
(a) one third of his actual entitlement so determined, if cessation
occurs on or before the approval of the 1998 results;
(b) two thirds of his actual entitlement so determined, if cessation
occurs after the approval of the 1998 results but on or before
the approval of Zenith's accounts for its financial year ending
in 1999 (the "1999 results"), and
(c) all of his actual entitlement so determined, if cessation occurs
after the approval of the 1999 results.
This entitlement will be satisfied immediately following such
determination. Equivalent provisions will apply for participants who
receive an award after the approval of the 1998 results.
However, if a participant ceases employment for other reasons, his
award will lapse immediately.
(viii) Takeover
Special rules apply following a change of control of either or
both of CCG or Saatchi & Saatchi. Broadly, a change of control
triggers an early exercise of a proportion of the award by
reference to the number of years (or part years) since the award
was made and the Operating Profit Performance achieved. The gain,
if any, on the balance of the relevant option not exercisable by
the participant will remain in the Zenith Trust to enable the
balance of a participant's entitlement to be determined and
satisfied so far as possible in the normal way by reference to
Operating Profit Performance at the end of the three year period.
(ix) Change of shareholdings in Zenith
If a company other than CCG or Saatchi & Saatchi acquires at least
50 per cent. of the issued ordinary share capital of Zenith, a
participant's entitlement will be determined immediately on the
same basis as if there had been a takeover of both CCG and Saatchi
& Saatchi as set out in paragraph (viii) above.
If Zenith becomes a 100 per cent. subsidiary of either CCG or
Saatchi & Saatchi, a proportion of a participant's award will be
determined immediately on the same basis as if the company which
disposed of its interest had been taken over as set out in
paragraph (viii) above.
If there is a change in the shareholdings in Zenith which does not
trigger the provisions set out in the previous paragraphs, the
options granted by the Zenith Trust may be varied and/or
additional options granted to reflect the changes in the
shareholdings in Zenith provided that the maximum entitlement of
participants and the limit set out at paragraph (iii) above cannot
be changed as a result. Such an event will not trigger early
vesting of awards.
P-144
(x) Variation of share capital
The rights of participants following any rights issue or other
variation of share capital will be adjusted in such manner as the
Trustee may determine subject to written confirmation from Zenith's
auditors that such adjustment is in their opinion fair and
reasonable.
(xi) Amendments to the Plan
The provisions follow the approach summarised at paragraph
8.2.1(x) above in relation to the Equity Participation Plan except
that the approval of both the shareholders of CCG and Saatchi &
Saatchi is required for amendments to the provisions outlined in
sub-paragraphs (a) to (c) of that paragraph.
No amendment may be made which adversely affects a participant's
rights under an award made prior to the date of such amendment
without a participant's consent.
(xii) Pension
The benefits received under the Zenith Incentive Plan are not
pensionable.
(xiii) Termination
The Trustee will make no further awards under the Zenith Incentive
Plan after 15December 2000 and the non-executive directors of
Zenith may terminate it at any time, but the rights of existing
participants will not thereby be affected.
8.2.2 The Zenith Employee Benefit Trust (the ``Zenith Trust")
The Zenith Trust was established by a Trust Deed dated 16
December 1997. The principal terms of the Zenith Trust are as follows:
(i) The Zenith Trust is a discretionary employee benefit trust of which
all employees of the Zenith Group are potential beneficiaries.
(ii) The trustee of the Zenith Trust (the ``Trustee") is a corporate
trustee. Executive directors of Zenith are not directors of, nor
have a direct or indirect interest in, the trustee company. The
directors of the trustee company may comprise non-executive
directors of Zenith, which may include one or more executive
directors of CCG and Saatchi & Saatchi.
(iii) The main purpose of the Zenith Trust is to operate the Zenith
Incentive Plan.
(iv) The Trustee may enter into an option arrangement to subscribe for
shares in CCG or Saatchi & Saatchi. The exercise price under such
options will not be less than the middle market quotation of the
relevant shares as derived from the London Stock Exchange Daily
Official List for the dealing day preceding the date of grant.
(v) The Trustee will fund the acquisition of CCG Shares and Saatchi &
Saatchi Shares and the payment of cash bonuses (if the bonuses are
not paid by Zenith Group companies) through one or more of the
following:
(a) by non-recourse loan or loans from Zenith Group companies;
(b) by contributions from Zenith Group companies; and
(c) by payments from the participants in the Zenith Incentive Plan.
(vi) The Trustee is required to waive its right to any dividend on CCG
Shares or Saatchi & Saatchi Shares whilst they are held within the
Trust.
P-145
8.3 Old CCG Share Schemes
CCG has various savings-related and executive share option schemes which
either pre-date the demerger or were established in connection with the
demerger. No further options may be granted under these schemes, but certain
options remain outstanding under certain of them (except for the No 1 Scheme
and the Demerger Executive Share Option Scheme (No 1) under which options
have been exercised in the last three years but no options remain
outstanding). Details of the old CCG Share Schemes are set out below.
8.3.1 The Cordiant plc Executive Share Option Scheme (``the No 1 Scheme")
The No 1 Scheme expired on 10 December 1994. It was not approved by
the Inland Revenue. Full time employees and executive directors of the
CCG Group were eligible to participate in the No 1 Scheme. Subject to
meeting the performance target, options are normally exercisable after
the third anniversary of the date of grant. The No 1 Scheme allowed
for the grant of super options which could only be exercisable after
the fifth anniversary of the date of grant. The rules also provide for
early exercise in certain cases such as death, injury, disability,
redundancy, retirement or the sale of the employing company out of the
group. In the event of a change of control of the Company in certain
circumstances the options become exercisable. They may also be
exchanged for options over shares in the acquiring company if the
acquiring company agrees.
Further details of the No 1 Scheme are set out under ``Employee Share
Schemes" in Note 27 to the financial statements in paragraph 2 of Part
II of this Document.
8.3.2 The Cordiant Communications Group Demerger Executive Share Option
Scheme (No 1) (``the Demerger Executive Share Option Scheme (No 1)")
This scheme was modelled on the No 1 Scheme. It was used to grant
replacement options over shares in CCG for employees of Zenith Media
Worldwide and The Facilities Group and for certain other employees who
left the CCG Group as a result of the Demerger in exchange for the
cancellation of their options under the No 1 Scheme. The original
No 1 Scheme options for these employees were replaced on the basis of
one CCG Share under this demerger scheme and one Saatchi & Saatchi
share under the equivalent Saatchi & Saatchi demerger scheme for every
two shares under option under the No 1 Scheme.
8.3.1 The Cordiant plc Executive Share Option Scheme (No 2) (``the No 2
Scheme")
This scheme also expired on 10 December 1994. It was approved by the
Inland Revenue. Its principal terms were similar to those of the No 1
Scheme except that it applied to employees who worked at least 20
hours per week and to executive directors who worked at least 25 hours
per week.
8.3.2 The Cordiant Communications Group Demerger Executive Share Option
Scheme (No 2)
This scheme was not approved by the Inland Revenue. Like the Demerger
Executive Share Option Scheme No 1, it was used to grant replacement
options for employees of Zenith Media Worldwide and The Facilities
Group and certain other employees who left the CCG Group as a result
of the Demerger in exchange for the cancellation of their options
under the No 2 Scheme. It was modelled on the No 2 Scheme.
8.3.3 The Cordiant plc Performance Share Option Scheme
This Scheme was approved by CCG Shareholders on 16 March 1995. Part of
the Scheme was approved by the Inland Revenue and part was unapproved.
This Scheme replaced the Executive Share Option Schemes which expired
in December 1994. Under this scheme
P-146
options were granted for nil consideration and its material provisions
are similar to those of the No 1 Scheme.
8.3.4 The Cordiant Communications Group Demerger Performance Share Option
Scheme
As with the other demerger schemes this scheme was used to grant the
replacement options for employees of Zenith Media Worldwide and The
Facilities Group and certain other employees who left the CCG Group as
a result of the Demerger in exchange for the cancellation of their
options under the Performance Share Option Scheme. This scheme was
modelled on the Performance Share Option Scheme described in paragraph
8.3.5 above.
8.3.5 The Cordiant plc 1995 Sharesave Scheme
This scheme was approved by CCG Shareholders on 16 March 1995. It was
approved by the Inland Revenue. It enabled participants to acquire
shares on the exercise of an option linked to a special savings
contract. In the normal course options under this scheme will become
exercisable in July 2000. In the event of a change of control of the
Company in certain circumstances the options become exercisable. They
may also be exchanged for options over shares in the acquiring company
if the acquiring company agrees. Under this scheme options were
granted for nil consideration. Further details of this scheme are set
out in note 27 to the financial statements in paragraph 2 of Part II
of this document under ``Employee Share Schemes".
8.3.6 The Cordiant Communications Group Demerger Sharesave Scheme
This scheme is not approved by the Inland Revenue. It was established
to govern the terms of parallel options granted for nil consideration
to employees of Zenith Media Worldwide and The Facilities Group in
case their options under the 1995 Sharesave Scheme were to lapse
before July 2000. Options granted under the Demerger Sharesave Scheme
effectively mirrored the options granted under the 1995 Sharesave
Scheme (except that they would continue until July 2000 even if the
approved options under the 1995 Sharesave Scheme did not).
8.4 Healthworld Option Plan
The Healthworld Option Plan provides for the grant of (i) options that are
intended to qualify as incentive stock options (``ISOs") within the meaning
of Section 422 of the US Internal Revenue Code to certain employees
(including officers and directors who are employees) and (ii) options not
intended to so qualify (``NQSOs") to the Healthworld Group's employees,
officers, directors and consultants. Options over a total of 1,527,039
Healthworld Shares were outstanding under the Healthworld Option Plan as at
28 January 2000. Provided that the Transaction becomes effective, no further
options are intended to be granted under the Healthworld Option Plan.
The Healthworld Option Plan is administered by the Compensation Committee of
Healthworld's board of directors and the Chief Executive Officer and Chief
Financial Officer of Healthworld. The exercise price of all options granted
under the Healthworld Option Plan was required to be at least equal to the
fair market value of the Healthworld Shares on the date of grant. With
respect to any participant who owned Healthworld Shares possessing more than
10 per cent. of the voting rights of Healthworld's outstanding capital
stock, the exercise price of any ISO could not be less than 110 per cent. of
the fair market value on the date of grant. The term of each option was
established by the Compensation Committee; provided that the maximum term of
each ISO granted pursuant to the Healthworld Option Plan is ten years, or
five years for any ISO granted to a participant who owned Healthworld Shares
possessing more than 10 per cent. of the total combined voting power of all
classes of Healthworld's outstanding capital stock. Options are subject to
earlier termination upon termination of employment. Except as otherwise
provided by
P-147
the Compensation Committee at the times of grant, options become exercisable
rateably over three years commencing on the first anniversary of the date of
grant.
In the event of a change of control of Healthworld, each option granted
under the Healthworld Option Plan which has not previously expired or been
cancelled shall become immediately exercisable in full, provided that the
option over 200,000 Healthworld Shares granted to Healthworld's chief
financial officer on 8 November 1999 will only become exercisable after 17
months from the date of grant (in respect of the first 100,000 Healthworld
Shares) and 24 months thereafter (in respect of the remaining 100,000
Healthworld Shares).
The Healthworld Option Plan provides for the substitution of shares of an
acquiring company for Healthworld Shares upon exercise of Healthworld Stock
Options following a change of control and the Merger Agreement gives effect
to this provision, by providing for Healthworld Stock Options to be replaced
by equivalent options over CCG Shares at the Effective Time, as described in
paragraph 4 of Part I of this document.
9 TAXATION
UK TAXATION
The following summary is only intended as a brief and general guide to the
main aspects of current UK tax law and Inland Revenue practice applicable to the
holding and disposal of CCG Shares (which may change in the future). It is not
intended to provide specific advice and no action should be taken or omitted to
be taken in reliance upon it. It is addressed to ordinary investors who are the
absolute beneficial owners of CCG Shares held as investments and not, therefore,
to special classes of CCG Shareholder such as financial institutions.
Accordingly, its applicability will depend upon the particular circumstances of
individual CCG Shareholders.
The summary is not exhaustive and does not generally consider tax reliefs or
exemptions. Any prospective CCG Shareholder who is in any doubt as to his UK tax
position in relation to the Company should consult his UK professional adviser
and prospective CCG Shareholders who are resident or otherwise subject to
taxation in a jurisdiction other than the UK should in addition obtain
professional advice about their tax position in relation to the Company in their
own countries of citizenship, residence or domicile.
P-148
9.1 Dividends
UK RESIDENT INDIVIDUAL CCG SHAREHOLDERS
When the Company pays a dividend in respect of the CCG Shares, a CCG
Shareholder who is a UK resident individual will be entitled to a tax credit
equal to one-ninth of the dividend paid to him and will be treated for UK
income tax purposes as having taxable income equal to the aggregate of the
dividend paid to him and the tax credit (the ``gross equivalent of the
dividend") (the tax credit being equal to 10 per cent. of the gross
equivalent of the dividend). A UK resident individual CCG Shareholder who is
a lower or basic rate taxpayer will be liable to income tax on the gross
equivalent of the dividend at the ``Sch F ordinary" rate for dividend income
of 10 per cent. This liability will be fully discharged by the 10 per cent.
tax credit and, accordingly, he will have no further income tax to pay on
the dividend. A UK resident individual CCG Shareholder who is a higher rate
taxpayer will be liable to income tax on the gross equivalent of the
dividend at the ``Sch F upper" rate for dividend income of 32.5 per cent.
The tax credit will discharge 10/32.5 of this liability, leaving the CCG
Shareholder with income tax still to pay of an amount equal to 22.5 per
cent. of the gross equivalent of the dividend. Accordingly, a higher rate
taxpayer who receives a dividend of L90 (gross equivalent: L100) will have
an income tax liability of L32.50 of which L10 will be treated as having
been discharged by the tax credit, leaving him with a liability of L22.50
still to pay. For these purposes dividend income is treated as the top slice
of an individual's income. A UK resident individual CCG Shareholder whose
income does not exceed his personal allowances will not be entitled to claim
to have the tax credit paid to him in cash.
However, a UK resident individual CCG Shareholder who holds his CCG Shares
in a PEP or an ISA will be exempt from income tax on dividends paid on such
CCG Shares and, during a transitional period ending on 5 April 2004, the 10
per cent. tax credit attaching to such dividends will be paid in cash to the
PEP or ISA.
UK RESIDENT CORPORATE CCG SHAREHOLDERS
A CCG Shareholder which is a company resident in the UK for tax purposes
will generally not be liable to corporation tax on any dividend received
from the Company. Although the same 10 per cent. tax credit will attach to
the dividend as in the case of a UK resident individual CCG Shareholder, the
corporate CCG Shareholder will not be entitled to any payment in respect of
the tax credit. The dividend and associated tax credit are known as franked
investment income.
NON-UK RESIDENT CCG SHAREHOLDERS
CCG Shareholders who are not resident in the UK will generally not be
entitled to the tax credit to which UK resident individual CCG Shareholders
are entitled in respect of a dividend from the Company, nor will they
generally be liable to UK income tax at the 10 per cent. ``Sch F ordinary"
rate for dividend income on such a dividend. Where there is no entitlement
to a tax credit, a non-resident individual CCG Shareholder who is a higher
rate taxpayer may be liable to UK income tax on a dividend from the Company
at a rate equivalent to the excess of the 32.5 per cent. ``Sch F upper" rate
for dividend income over the 10 per cent. ``Sch F ordinary" rate for
dividend income on an amount which, if reduced by income tax at the ``Sch F
ordinary" rate, would be equal to the amount of the dividend actually paid.
However, a non-resident CCG Shareholder's liability to UK income tax may be
limited by the provisions of any double tax treaty between the UK and the
country in which he is resident or by the provisions of section 128 of the
Finance Act 1995. In addition, the non-resident CCG Shareholder may be
entitled, under the provisions of some of the UK's double tax treaties, to
claim payment in cash from the Inland Revenue of a proportion of the tax
credit to which a UK resident individual CCG Shareholder would be entitled
in respect of a
P-149
dividend paid by the Company. However, with the tax credit at the rate of 10
per cent., the amount which can be claimed in cash is likely to be nil or
only a tiny fraction of the tax credit.
9.2 Capital gains
UK RESIDENT OR ORDINARILY RESIDENT INDIVIDUAL CCG SHAREHOLDERS
An individual CCG Shareholder who is resident or ordinarily resident in the
UK (whether or not domiciled there) (including, in some cases, a CCG
Shareholder who is only temporarily non-UK resident) may be liable to
capital gains tax on any chargeable gain accruing to him on the disposal or
deemed disposal of CCG Shares. He may be entitled to ``taper" relief against
any such liability, the availability of which depends on the number of years
for which he held the shares. (An indexation allowance may also be available
to reduce or eliminate such a gain but only for periods up to April 1998).
He may also be entitled to set all or part of his gains against his annual
capital gains tax exemption (L7,100 for 1999-2000).
However, a UK resident individual CCG Shareholder who holds his CCG Shares
in a PEP or an ISA will be exempt from capital gains tax on any gain
accruing to him on the disposal or deemed disposal of such CCG Shares.
UK RESIDENT CORPORATE CCG SHAREHOLDERS
A corporate CCG Shareholder which is resident in the UK for tax purposes may
be liable to corporation tax on any chargeable gain accruing to it on the
disposal or deemed disposal of CCG Shares. An indexation allowance may be
available to reduce or eliminate such a gain but not to create or increase
an allowable loss.
NON-UK RESIDENT CCG SHAREHOLDERS
A CCG Shareholder who is neither resident nor ordinarily resident in the UK
will not normally be liable to UK tax on capital gains accruing to him on
the disposal or deemed disposal of CCG Shares, except where he holds the CCG
Shares in connection with a trade, profession or vocation carried on by him
in the UK through a branch or agency or he falls within certain
anti-avoidance provisions relating to temporary non-UK residence.
9.3 Inheritance tax
A gift of CCG Shares by a CCG Shareholder or the death of a CCG Shareholder
may give rise to a liability to inheritance tax, even if the CCG Shareholder
is neither domiciled in the UK, nor deemed to be domiciled there under
special rules relating to long residence or previous domicile in the UK. For
these purposes, a transfer of CCG Shares at less than their full market
value may be treated as a gift.
9.4 Stamp duty and SDRT
A transfer of CCG Shares may be liable to stamp duty generally at the rate
of 0.5 per cent. of the amount or value of the consideration for the
transfer (with rounding up to the nearest multiple of L5). An agreement to
transfer CCG Shares may be liable to stamp duty reserve tax (``SDRT")
generally at the rate of 0.5 per cent. of the amount or value of the
consideration for the transfer, unless the appropriate stamp duty is paid on
an instrument of transfer of the CCG Shares within certain time limits.
Stamp duty and SDRT are generally payable by the purchaser.
The electronic transfer system known as CREST permits shares to be held in
uncertificated form and to be transferred without a written instrument. The
absence of a written instrument of transfer results in such paperless
transfers generally being liable to SDRT rather than stamp duty. Special
rules apply to the collection of SDRT on paperless transfers settled within
CREST.
P-150
A transfer of CCG Shares for no consideration whatsoever is not chargeable
to ad valorem stamp duty or SDRT, nor would it normally give rise to the
fixed stamp duty of L5 per instrument of transfer.
10 PRINCIPAL SUBSIDIARY AND ASSOCIATED UNDERTAKINGS
The Company is the holding company of the CCG Group. The following table shows
the principal subsidiary and associated undertakings of the Company, being those
which are considered by the Company to be likely to have a significant effect on
the assessment of the Company's assets and liabilities, financial position or
profits and losses. Save where stated otherwise, each of these companies is
wholly-owned by a member of the CCG Group and the issued share capital is fully
paid :
PLACE OF REGISTERED OR
SUBSIDIARY INCORPORATION PRINCIPAL OFFICE PRINCIPAL ACTIVITY
- ---------- ------------- ---------------------- -------------------
Bates UK Limited England 121-141 Westbourne Advertising and
Terrace integrated
London W2 6JR communications
The Facilities Group England Whitfield House Production services
Limited (30 per cent.) 81 Whitfield Street
London W1A 4XA
Zenith Media Holdings Ltd England Bridge House Media services
(50 per cent.) 63-65 North Wharf Road
London W2 1LA
The Communications Group Pty Ltd Australia 107 Mount Street Advertising and
North Sydney integrated
NSW 2060 communications
Australia
Bates Gruppen AS Denmark Landermarket 29 Advertising and
DK-1119 Copenhagen K integrated
Denmark communications
Scholz & Friends GmbH Germany Steinhoft 9 Advertising and
20459 Hamburg integrated
Germany communications
Bates Gruppen AS Norway Hoffsveien 1 Advertising and
PO Box 282 Skoyen integrated
0212 Oslo communications
Norway
Bates Advertising Holding SA Spain Goya 8, 1st Floor Advertising and
28001 Madrid integrated
Spain communications
Bates Advertising USA, Inc USA 498 Seventh Avenue Advertising and
New York integrated
NY 10018 communications
USA
Diamond Ad Ltd. (80 per cent.) S. Korea Korea Chemical Advertising and
Building integrated
27-8 Chamwon-Dong communications
Seocho-ku
Seoul
Korea
P-151
11 PRINCIPAL PROPERTIES
The CCG Group leases all its premises.The principal operating premises leased by
CCG are as follows:
ANNUAL
BASE RENTAL NEXT RENT EXPIRATION OF
LOCATION AREA (SQ. FT) (MILLIONS) REVIEW DATE LEASE
- -------- ------------- ----------- ----------- -------------
498 Seventh Avenue
New York....................................... 204,000 $6.0 2004 2014
121-141 Westbourne Terrace
London......................................... 62,500 L1.5 -- 2003
In addition, the CCG Group leases 103,000 square feet in Landsdowne House,
Berkeley Square, London, at an annual rental of L6.5 million which is sublet for
mainly coterminous periods at an average annualised rental of approximately L6.1
million during 1998. A further 72,000 square feet at an annual rental of L3.1
million is sublet on a short-term basis at an average annualized rental of
approximately L1.9 million during 1998.
At 31 December 1998, L33.2 million had been reserved by the CCG Group for
potential costs of surplus space, primarily in London and New York City.
12 MATERIAL CONTRACTS
12.1 The following contracts (not being contracts entered into in the ordinary
course of business) (a) have been entered into by the Company or another
member of the CCG Group within the two years immediately preceding the date
of this document and are, or may be, material; or (b) have been entered into
by the Company or another member of the CCG Group more than two years
preceding the date of this document and contain provisions under which any
member of the CCG Group has any obligation or entitlement which is, or may
be, material to the CCG Group as at the date of this document:-
12.1.1 The Merger Agreement and Stockholder Agreements, the principal terms
of which are summarised in Part V of this document.
12.1.2 A Stock Purchase Agreement dated 11December 1999 made between Hyundai
Merchant Marine Co. Ltd. (``Hyundai"), J.S. Chung, M.H. Chung (together
``the Seller"), Bates Deutschland Holding GmbH, a wholly-owned
subsidiary of CCG (``the Purchaser") and CCG, pursuant to which the
Purchaser acquired an 80 per cent. shareholding in Diamond Ad Ltd.
(``Diamond"). Pursuant to the agreement, an initial cash payment of KW27
billion (L15 million) was made at completion. Additional consideration
may be payable in an aggregate amount equal to 80 per cent. of Diamond's
audited operating profit after tax, averaged over the 42 months ending
31 December 2001 (the earn-out period), multiplied by nine, less the
initial consideration and 80 per cent. of Diamond's net debt as at
completion of the acquisition (estimated at approximately KW22 billion
(L12 million)). Deferred consideration payments are scheduled for 2000,
2001 and 2002. CCG guaranteed the Purchaser's obligations under the
agreement.
The agreement required the Seller to cause Diamond to transfer or
otherwise dispose of certain non-advertising assets at book value,
without recourse to Diamond, by no later than 31 December 2000 and to
take steps to ensure that Diamond met certain working capital and net
asset requirements at the time of completion. Pursuant to this
agreement, agency agreements between Diamond and certain major Hyundai
group clients were entered into prior to completion.
P-152
The agreement contains certain representations, warranties and
indemnities by the parties to each other. There are also certain
undertakings by CCG as to the operation of Diamond and referral of
business to it during the earn-out period and restrictions on transfer
of shares in Diamond by the Purchaser during that period and the
agreement further provides that, in the event of certain fundamental
breaches of the agreement by the Purchaser or certain insolvency events
affecting the Purchaser or CCG, during the earn-out period, the Seller
has the right to rescind the agreement and re-purchase the Diamond
shares. The agreement provides rights of first refusal in favour of the
Purchaser and Seller respectively upon a proposed disposal of the other
party's shares in Diamond after expiration of the earn-out period.
12.1.3 A Loan Agreement dated 8 November 1999 pursuant to which certain
banks led by The Bank of New York and HSBC Investment Bank Plc as
Arrangers agreed to advance to the Company and certain of its
subsidiaries loan facilities of up to $250 million to be used for the
purposes of refinancing existing facilities, general corporate purposes
and paying costs and expenses incurred in connection with the
acquisition of Healthworld. $125 million of the loan facilities are
available for a term of five years and the remaining $125 million of the
loan facilities are available for a term of 364 days, subject to an
option to convert such amount into a term loan facility for a further
year. The Loan Agreement contains standard covenants, representations
and warranties and events of default. Interest is payable at a rate
equal to 1 per cent. over LIBOR or Federal Funds Rate, subject to a
margin ratchet which is dependant upon compliance with certain financial
covenants.
12.1.4 An Agreement and Plan of Reorganisation dated as of 3 December 1999
made between CCG, a new wholly owned Delaware subsidiary of CCG called
Interactive Edge, Inc. (``IEI"), the stockholders of Interactive Edge,
Inc., a New York corporation (``Edge NY"), together with an Agreement
and Plan of Reorganisation of the same date between CCG, IEI, the
stockholders of Interactive Edge, Inc., a Connecticut corporation
(``Edge CT") and Edge CT and an Asset Purchase Agreement dated the same
date between CCG, IEI, the members of Interactive Edge, LLC (``Edge LLC"
and together with Edge NY and Edge CT the ``Edge Companies") and Edge
LLC, pursuant to which IEI acquired the business and assets of the Edge
Companies.
The initial consideration of $6.1 million (L3.8 million), comprised
$600,000 (L370,370) and 1,655,380 CCG Shares in the form of CCG ADSs.
Additional consideration of up to $18.9 million (L11.6 million), to be
satisfied by the issue of additional CCG Shares in ADS form, may be
payable in 2003, depending upon the revenues and operating margins of
the Interactive Edge business during the three years ending 31 December
2002 (the earn-out period). The agreement provides for certain
adjustments to the amount of the initial consideration and any deferred
consideration if the average market price of CCG Shares over the six
months following each payment is more than 20per cent. greater or less
than the reference price used to calculate the number of consideration
shares issued. Any resulting increase in the consideration would be
satisfied by an issue of additional CCG shares. The selling stockholders
agreed not to dispose of the CCG ADSs issued to them as initial or
deferred consideration for 12 months after issue and thereafter to
inform CCG of any proposed sale.
The agreement contains certain representations, warranties and
indemnities from the parties to each other. There are also undertakings
from CCG/IEI relating to the operation of the acquired business during
the earn-out period and requiring CCG to contribute up to $2.5 million
(L1.5 million) of capital to the business during that period. CCG
guaranteed the obligations of IEI under the agreement.
P-153
12.1.5 A share purchase agreement dated 25 September 1998 made between TCG
Employee Investment Pty Limited (``TCG Investment"), TCG Employee
Nominee Pty Limited, Cordiant Communications (Australia) Pty Limited,
TCG, the Company and Chafma BV (``the TCG Agreement"), which was
approved by CCG Shareholders at an Extraordinary General Meeting held on
20 November 1998. Initial consideration comprising A$7,867,335 (L2.9
million) in cash and A$9,000,000 (L3.3 million) in CCG Shares was paid
at completion of the acquisition. The seller, TCG Investment, held the
shares for the account of the TCG Employee Trust (``the Trust").
Pursuant to this agreement, the CCG Group purchased the 24.9 per cent.
shareholding in The Communications Group Pty Limited (``TCG") not
already owned by it. Deferred consideration of up to A$3,375,000 (L1.3
million), to be satisfied by the issue of new CCG Shares at the election
of the TCG Investment or CCG, may become payable in November 2000,
depending upon the operating profits of TCG for the two financial years
ended on 31 December 1999. In the event of a change of control of CCG
prior to the due date for the deferred consideration, TCG Investment
will become entitled to the full A$5,375,000. Certain restrictions on
transfer of the CCG Shares issued as initial consideration remain in
effect until November 2000.
12.1.6 A Demerger Agreement dated 30 September 1997 as amended on 12
December 1997 (``the Demerger Agreement") between CCG, Saatchi & Saatchi
plc (``Saatchi"), Saatchi & Saatchi Holdings Limited (``SSH") and Zenith
Media Holdings Limited (``Zenith"), pursuant to which the businesses
comprising the Saatchi & Saatchi advertising agency and certain related
businesses and assets (``the Saatchi Group") were transferred to SSH by
members of the CCG Group and the entire issued share capital of SSH was
transferred to Saatchi in consideration for the issue of shares in
Saatchi to CCG Shareholders (the ``Demerger"). Saatchi thereby became an
independent public company.
In addition to setting out the conditions to and procedures for
implementation of the Demerger, the Demerger Agreement contains certain
transitional provisions relating to certain joint ventures between
members of the CCG Group and the Saatchi Group, shared premises and
services, pension schemes in which employees of both groups participated
and similar matters. The Demerger Agreement provided for CCG and the
Saatchi Group each to hold 50 per cent. of the shares in Zenith and for
the shares in The Facilities Group Limited to be owned as to 70 per
cent. by the Saatchi Group and 30 per cent. by CCG.
No warranties were given by Saatchi, CCG or Zenith in connection with
the Demerger other than as to title to shares or assets transferred. The
Demerger Agreement provides that, following the Demerger, each of CCG,
Saatchi and Zenith will indemnify or procure that its relevant
subsidiaries indemnify the members of each other group, subject to
certain other limitations, against certain actual and contingent
liabilities associated with the business of the indemnifying group. They
cover a range of matters, including certain cross-guarantees of
obligations under property leases, certain tax liabilities and
litigation involving members of more than one group. In addition, if
liabilities are incurred in relation to past disposals of subsidiaries
not operated as part of the business of the Saatchi Group or the CCG
Group at the time of the Demerger, in excess of the amounts contemplated
by the arrangements for dividing the pre-Demerger group borrowings
between CCG, Saatchi and Zenith, or certain other types of liabilities,
these will be shared equally by CCG and Saatchi.
12.1.7 A Shareholders Agreement dated 11 December 1997 made between CCG,
Saatchi, SSH and Zenith (together with Zenith's articles of association
``the Zenith Shareholders Agreement"), which regulates the relationship
between CCG and SSH as holders of 50 per cent. each of the issued share
capital of Zenith following the Demerger.
P-154
The Zenith Shareholders Agreement provides for the operation of Zenith,
including the composition of its board of directors. Certain matters
require the consent of both shareholders, including alterations to the
capital structure of Zenith, its annual business plan and contracts
outside the ordinary course of business or not on arm's length terms.
75 per cent. of the distributable profits of Zenith are to be
distributed to shareholders and divided between them in part by
reference to the proportions in which Zenith receives revenue from
clients of each shareholder. The remaining 25 per cent. is to be
retained by Zenith unless otherwise agreed.
Transfer of shares in Zenith is prohibited, except in certain limited
circumstances. After 14 December 2000, a shareholder will be entitled to
transfer all of its shares, subject to a right of first refusal in
favour of the other shareholder. There are also options whereby one
shareholder is entitled to acquire all of the Zenith shares of the other
in the event that:--(1) the other shareholder becomes insolvent;
(2) the other shareholder experiences a change of control, following
which there is a material breach of any of the terms of the media
services agreement (described below) to which that shareholder is a
party, which either is not capable of remedy or is not remedied within a
certain period; or (3) the other shareholder terminates its media
services agreement. The price paid on exercise will be based on the
market value of the Zenith shares in the circumstances mentioned in
(1) above and otherwise on the net asset value of Zenith.
In the event that a dispute arises in relation to certain matters of
fundamental importance which cannot be resolved then either shareholder
is entitled to offer a price at which the other shareholder must either
sell its own shares or buy those of the offering shareholder.
The Zenith Shareholders Agreement provides for both shareholders to give
an unlimited guarantee of Zenith's bank facilities of up to L21.5
million and permits them to charge their shares in Zenith to secure
their obligations under their own respective group bank facilities.
12.1.8 A Media Services Agreement dated 11 December 1997 between CCG and
Zenith, pursuant to which CCG agreed to appoint Zenith as the exclusive
supplier of media buying, media planning and certain related services
for all of its clients, subject to certain exceptions. Saatchi entered
into a similar agreement at the same time. The media services agreements
will terminate on 31 December 2001, or on any subsequent anniversary of
that date, upon either party giving not less than 12 months' written
notice of such termination to the other.
12.1.9 A shareholders agreement dated 11 December 1997 made between CCG,
Cordiant (Central Services) Limited (``CSL", now called Saatchi &
Saatchi (Central Services) Limited), Saatchi and The Facilities Group
Limited (``FGL") (together with the articles of association of FGL ``the
FGL Shareholders Agreement"), which regulates the relationship between
CCG and CSL as holders of 30 per cent. and 70 per cent., respectively,
of the issued share capital of FGL following the Demerger. The FGL
Shareholders Agreement makes provision for the operation of FGL,
including the composition of the board of directors and restrictions on
transfer of shares. It provides that the distributable profits of FGL
will be divided between shareholders in the proportions in which FGL
receives revenues from clients of each shareholder or, if not
attributable to either shareholder, in proportion to each shareholder's
equity stake. There are options which permit either shareholder to
acquire all of the shares in FGL owned by the other if the other becomes
insolvent or undergoes a change of control, at a price based upon the
market value of the FGL shares.
12.2 The following contracts (not being contracts entered into in the ordinary
course of business) have been entered into by Healthworld or another member
of the Healthworld Group within the two years immediately preceding the date
of this document and are, or may be, material. No such contracts entered
into by Healthworld or another member of the Healthworld Group more than
P-155
two years preceding the date of this document contain provisions under which
any member of the Healthworld Group has any obligation or entitlement which
is, or may be, material to the Healthworld Group as at the date of this
document:-
12.2.1 The Merger Agreement
12.2.2 An Agreement and Plan of Merger dated 1 August 1999 between
Healthworld, HC-Falk Acquisition Corporation, Falk Communications Inc.
(``Falk"), Spencer Falk and the Spencer Falk Grantor Retained Annuity
Trust, under which Healthworld acquired 100 per cent. of the capital
stock of Falk (the ``Falk Agreement"). The initial purchase price,
including expenses related to the acquisition, was approximately
$17 million (L10.5 million) consisting of $9 million (L5.6 million) in
cash and 649,111 Healthworld Shares. On 3 February 2000, Healthworld
agreed, subject to approval of the Transaction by Healthworld
Stockholders, to issue 940,624 additional Healthworld Shares, valued at
as at 3 February 2000 $20 million (L12.3 million), to the former
stockholders of Falk immediately prior to the Effective Time and subject
to consummation of the Transaction in full satisfaction of Healthworld's
obligation to make earn-out payments based on Falk's financial results
after the acquisition. Healthworld remains obligated to make a payment
relating to certain tax benefits in September 2000 to Falk's prior
stockholders in an amount currently estimated to be $400,000 (L246,914),
payable in shares and cash.
P-156
12.2.3 A share purchase agreement dated 23 July 1998, between Dominique Agostini
and Healthworld International Holdings Inc., a wholly-owned subsidiary of
Healthworld (``HIH"), under which HIH acquired 80 per cent. of the
capital stock of HFT (a French holding company which owns 100 per cent.
of the capital stock of Torrent, S.A. (``Torrent"), a French healthcare
communications agency, which in turn owns 100 per cent. of the capital
stock of each of Aigue Marine SARL (``Aigue") and Katchina Productions
SARL (``Katchina"), each a French company) from Dominique Agostini, the
founder of Torrent, for a cash purchase price, exclusive of expenses, of
15,271,000 French francs, in addition to amounts to be paid in cash on or
prior to 15 April 2000 and 15 April 2002 (such amounts, together, not be
exceed 19,000,000 French francs (L1.7 million) to be based upon future
consolidated operating profits of HFT, Torrent, Aigue and Katchina
(together, the ``HFT Group Companies").
Beginning on 1 January 2002, Mr Agostini shall have the option to sell the
remaining 20 per cent. of the capital stock of HFT owned by him (the
``Remaining Shares") to HIH, and beginning 1 January 2006, HIH shall have
the option to purchase the Remaining Shares from MrAgostini, in each case
at a price not to exceed 11,000,000 French francs (L1.0 million) based
upon the value of the assets and operating profits of the HFT Group
Companies at the end of and for the two years immediately preceding the
year in which such option is exercised. The aggregate purchase price to be
paid by HIH to MrAgostini for 100 per cent. of the capital stock of HFT is
not to exceed 45,271,000 French francs (L4.2 million).
12.2.4 A sale and purchase agreement dated 6 October 1998 among JAIDICO S.A.,
Annic de Rochefort, Enrique Alda Campillo, CPA Espa+a, S.L., HIH and
Healthworld, under which HIH acquired all of the capital stock of CPA
Espana, S.L., a healthcare communications agency located in Madrid,
Spain. The Company's initial cash payment was approximately 212 million
Spanish pesetas (L0.8 million) including expenses related to the
acquisition. Total amounts to be paid in connection with the acquisition,
including potential subsequent earn-out payments to take place in
April 2000 and April 2003 based upon CPA Espana achieving certain
targeted operating profits, are not to exceed approximately 661 million
Spanish pesetas (L2.4 million).
12.2.5 An acquisition agreement dated 24 July 1998 and made between Clive
Davies, Stephen Cantle, Lesley Davies and Alison Cantle (1) and
Healthworld Holdings Limited, a UK company and a wholly-owned subsidiary
of Healthworld (2) (the ``Colwood Agreement"). Under the Colwood
Agreement Healthworld Holdings Limited acquired 100 per cent. of the
issued share capital of Colwood House Medical Publications (UK) Limited
(``Colwood"). The initial consideration of L3,240,000 was satisfied as to
L1,367,800 in cash and as to L1,872,200 in loan notes of Healthworld
Holdings Limited. This amount was, however, subject to an adjustment
calculated by reference to the value of Colwood's net assets. The Colwood
Agreement also provides for deferred consideration, in two additional
contingent payments, to be satisfied in loan notes of Healthworld
Holdings Limited payable in April 2000 and August 2001 up to a maximum
aggregate amount of L3,482,000. The Colwood Agreement provides that the
aggregate total amount of the consideration shall not exceed L6,722,000.
13 LITIGATION
13.1 Since December 1998, the action brought against Bates Advertising USA, Inc.
and Zenith Media Services, Inc. by the Miller Brewing Company has been
settled. The majority of the settlement will be paid under the terms of the
Group's insurance policies. The allocation between Bates Advertising USA,
Inc. and Zenith Media Services, Inc. of the uninsured element is yet to be
determined. However, the Directors believe that the liability of the Group
will not exceed $600,000 (L370.370).
13.2 No member of the CCG Group is or has been involved in any legal or
arbitration proceedings nor, as far as CCG is aware, are any such
proceedings pending or threatened, which may have, or
P-157
have had within the 12 months prior to the date of this document, a
significant effect on the CCG Group's financial position.
13.3 No member of the Healthworld Group is or has been involved in any legal or
arbitration proceedings nor, as far as CCG is aware, are any such
proceedings pending or threatened which may have, or have had within the
previous 12 months, a significant effect on the Healthworld Group's
financial position.
14 WORKING CAPITAL
CCG is of the opinion that, taking into account available bank facilities,
the Enlarged Group has sufficient working capital for its present requirements,
that is for at least the 12 months from the date of this document.
15 SIGNIFICANT CHANGES
15.1 As at 31 December 1999, the indebtedness of the CCG Group had reduced by
approximately L9.2 million since 30 June 1999. This reflects the normal
annual working capital cycle and is stated net of the initial payment of
L14.8 million made in December 1999 for the acquisition of an 80 percent
interest in Diamond, and net of the indebtedness of Diamond of
L3.5 million at 31 December 1999. The acquisition of Healthworld will not
contribute materially to the indebtedness of the Enlarged Group.
15.2 Save as set out in paragraph 15.1 above there has been no significant
change in the financial or trading position of the CCG Group since 30
June 1999, the date to which the last unaudited interim results of the CCG
Group were published.
15.3 There has been no significant change in the financial or trading position
of the Healthworld Group since 30 September 1999, the date to which the
last unaudited quarterly results of the Healthworld Group were published.
16 EMPLOYEES
Set out below is the average number of employees employed by the CCG Group
over the last three financial years:--
1996: 10209
1997: 10598
1998: 4817
The Directors consider that there is only one continuing business activity,
namely advertising and marketing services.
17 RISK FACTORS
The following text has been extracted from the Prospectus/Proxy Statement
despatched to Healthworld Stockholders, which forms part of the US Registration
Statement. It is addressed to Healthworld Stockholders, but contains information
which may be of interest to CCG Shareholders. References to the ``combined
company" mean the Enlarged Group.
``RISK FACTORS RELATING TO THE MERGER
EXPECTED BENEFITS FROM THE CCG/HEALTHWORLD COMBINATION MAY NOT BE REALISED
CCG and Healthworld entered into the merger agreement with the expectation
that the merger would result in cost savings and revenue enhancements. There can
be no assurance that the combined
P-158
company will realise these anticipated benefits in full or at all. If the
expected benefits are not realised, the price of the CCG ADSs and the CCG
ordinary shares could be adversely affected.
CORDIANT'S AND HEALTHWORLD'S BUSINESSES MAY NOT BE SUCCESSFULLY COMBINED
The merger involves the combining of Businesses that have previously
operated separately. This involves a number of risks, including:
- demands on management related to the significant increase in size of CCG
after the merger, including the combining of operations resulting from
Cordiant's and Healthworld's recent acquisitions;
- the diversion of management's attention to the combining of operations;
- difficulties in the combining of operations and systems;
- difficulties in the assimilation and retention of employees;
- challenges in keeping clients; and potential adverse short-term effects on
operating results.
THE COMBINED COMPANY MAY FACE HURDLES WITH RESPECT TO MANAGEMENT OF GROWTH AND
ACQUISITION RISKS
The combined company's growth will depend on a number of factors, including
the combined company's ability to:
- maintain the high quality of the services it provides to customers;
- increase the number of services it provides to existing clients;
- recruit, motivate and retain skilled creative, technical and marketing
personnel in a highly competitive market for qualified personnel in the
marketing and communications industry; and
- grow through the acquisition of other communications businesses in an
environment of increased competition for acquisition candidates.
There can be no assurance that the combined company will be able to
successfully achieve all or any of these strategies for growth.
THE COMBINED COMPANY WILL BE DEPENDENT ON CERTAIN KEY CLIENTS
Each of Cordiant's and Healthworld's revenues are dependent upon the
advertising, sales and marketing expenditures of a number of key clients.
......... , the five largest clients of the combined company are expected to
account for approximately 23 per cent. of the combined company's revenues. The
merger may cause these major clients to reassess their relationship with CCG or
Healthworld, as the case may be. Results of operations of the combined company
could be materially adversely affected by the loss of one or more of its major
clients.
THE COMBINED COMPANY MAY FOREGO POTENTIAL REVENUES DUE TO CLIENT CONFLICTS OF
INTEREST
Client conflicts of interest are inherent in the marketing and
communications industry due to the proprietary nature of such clients' products.
The combined company's ability to compete for new clients and assignments will
be limited by the combined company's general practice, and the practice followed
by many of the combined company's competitors, of not representing clients with
competing product lines. In addition, the combined company will often be
contractually precluded from representing companies with competing products. As
a result, the combined company may not be retained by existing, new or potential
clients with respect to certain products if the combined company provides
marketing or communications services for competing products.
P-159
THE COMBINED COMPANY WILL FACE SIGNIFICANT COMPETITION AND INCREASING INDUSTRY
CONSOLIDATION
The marketing and communications industry is highly competitive. The
combined company will compete with other marketing and communications firms,
including international and local full-service and special marketing and
communications firms and other contract sales and marketing organisations. A
number of the combined company's competitors will have substantially greater
financial resources, personnel and facilities than the combined company. In
addition, if the current trend toward consolidation continues, the combined
company may face greater competition for clients. Although CCG and Healthworld
believe that the combined company will be able to compete on the basis of the
quality of its creative product, service, reputation and personal relationships
with clients, there can be no assurance that the combined company will be able
to maintain its competitive position in the industry.
THE COMBINED COMPANY WILL BE DEPENDENT ON KEY PERSONNEL
The combined company will be dependent on the efforts and abilities of its
senior management. The loss of the services of any of these key employees could
have a material adverse effect on the combined company. In addition, while a
number of executive officers of CCG and Healthworld have entered into employment
agreements and confidentiality and non-solicitation agreements with its
respective company, there is no assurance that the combined company would be
able to prevent the unauthorised disclosure or use of its knowledge, practices,
procedures or client lists.
HEALTHWORLD'S EXECUTIVE OFFICERS AND DIRECTORS HAVE INTERESTS IN THE MERGER IN
ADDITION TO THOSE OF HEALTHWORLD'S STOCKHOLDERS
You should be aware that the executive officers of Healthworld and members
of the Healthworld board of directors may have interests in the merger that are
in conflict with, are different from, or in addition to, yours as a Healthworld
stockholder. These interests include employment agreements, stock options and a
continuation as directors and executive officers of the combined company. ...
For example, all of the executive officers and directors of Healthworld hold
stock options which will become immediately vested and exercisable, along with
all other stock options held by Healthworld's employees, as a result of the
merger. ... the employment agreement of Stuart Diamond, the chief financial
officer of Healthworld, provides for significant payments and other benefits
(including, except as noted in the next sentence, vesting of all of his
Healthworld stock options) if Mr. Diamond's employment with Healthworld is
terminated under certain circumstances following the merger. In addition, on
November 8, 1999, Healthworld granted to Mr. Diamond stock options to purchase
200,000 shares of its common stock, which will not vest as a result of the
merger. ..., the employment agreement of Steven Girgenti, chairman and chief
executive officer of Healthworld, which will become effective at the time of the
merger, provides for, among other things, a base salary of $500,000 per annum,
annual bonuses based upon the achievement of certain performance targets, and
the grant at the time of the merger of 275,000 options under Cordiant's
Performance Share Option Scheme."
18 FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE
Forward-looking statements have been made in this document concerning future
performance, costs, revenues and growth of CCG, Healthworld and/or the Enlarged
Group, industry and customer growth and statements regarding operational
efficiencies from and benefits of the Transaction. These statements may
generally, but not always, be identified by the use of words such as
``anticipates," ``should," ``expects" or ``believes." By their nature,
forward-looking statements involve risk and uncertainty because they relate to
events and depend on circumstances that will occur in the future. Many factors
could cause actual results and developments to differ materially from those
expressed or implied by these forward-looking statements. These factors include:
P-160
- the risk that the combined company will not achieve anticipated cost
savings or revenue enhancements or that integration costs will exceed
expectations,
- changes in the economic conditions in markets served by the operations of
CCG and/or Healthworld which would adversely affect the level of demand
for the services provided;
- material differences in actual advertising expenditures from the estimates
contained herein depending on, among other things, regional, national and
international political and economic conditions, technological changes,
the availability of media and regulatory regimes in the world's
advertising markets,
- material differences in actual results from those anticipated depending
on, among other things, gains to or losses from its client base, the
amount of revenue derived from clients, CCG's exposure to changes in the
exchange rates of major currencies against the pound sterling (because a
substantial portion of its revenues are derived and costs incurred outside
of the UK), the general level of advertising expenditures in CCG's markets
referred to above, and the overall level of economic activity in CCG's
major markets as discussed above.
19 GENERAL
19.1 Certain financial projections for Healthworld are referred to in the US
Registration Statement. None of CCG or its financial advisers or any
other party accepts responsibility for the accuracy, reasonableness,
validity or completeness of such financial projections or the estimates
and assumptions that underlie them. CCG Shareholders should not rely on
such financial projections when considering the Transaction.
19.2
19.3 No person has been authorised to give any information or to make any
representations other than those contained in this document and, if given
or made, such information or representations must not be relied upon as
having been authorised. This document does not constitute an offer to
sell or the solicitation of an offer to buy any securities in any
circumstances in which such offer or solicitation is unlawful.
19.4 KPMG Audit Plc, 1 Puddle Dock, Blackfriars, London EC4V 3PD, has given
and not withdrawn its written consent to (i) the inclusion of its letter
on the pro forma financial information set out in PartIV of this
document; and (ii) all references thereto and to its name in the form and
context in which they appear and has authorised the contents of those
parts of this document for the purposes of Section 152(1)(e) of the
Financial Services Act 1986.
19.5 Warburg Dillon Read, which is regulated in the United Kingdom by The
Securities and Futures Authority Limited has given and has not withdrawn
its written consent to the issue of this document with the inclusion
herein of the references to its name in the form and context in which
they appear.
19.6 The total costs (exclusive of any value added tax and stamp duty reserve
tax (SDRT) on the issue of New CCG ADSs) of and in connection with the
Transaction are estimated to amount to L5.7 million. The SDRT payable as
a result of the issue of American depositary receipts evidencing New CCG
ADSs issued in connection with the Transaction will be 1.5 per cent. of
the value of the underlying New CCG Shares at the time such New CCG
Shares are transferred to the Depositary, or its nominee. Healthworld
Stockholders may elect to take their entitlements under the Merger
Agreement in the form of CCG Shares; however if no such elections are
made and all Healthworld Stockholders receive their consideration in the
form of CCG ADSs, the estimated SDRT payable would be L2.3 million, based
on the assumptions set out in paragraph 4 of Part I of this document.
P-161
19.7 The Directors are not aware of any arrangement under which future
dividends are waived or agreed to be waived.
19.8 The CCG Group undertook work on implementation of the changes required to
enhance the capability of its management information systems to ensure
that critical systems would be millennium compliant. No problems have
been encountered post 1 January 2000, but the situation will continue to
be closely monitored.
The Healthworld Group undertook work on implementation of the changes
required to enhance the capability of its management information systems
to ensure that critical systems would be millennium compliant. No problems
have been encountered post 1 January 2000, but the situation will continue
to be closely monitored.
19.9 CCG's registrars and paying agents are Computershare Services PLC, PO Box
1075, Caxton House, Redcliffe Way, Bristol BS99 3FA.
19.10 The financial information contained in this document in relation to CCG
does not constitute statutory accounts within the meaning of section 240
of the Act, but constitutes non-statutory accounts within the meaning of
that section. The auditors of CCG are KPMG Audit Plc of 1 Puddle Dock,
Blackfriars, London EC4V 3PD, who have audited CCG's consolidated
accounts for the three financial years ended 31 December 1998 in
accordance with auditing standards and have made reports under section
235 of the Act in respect of each set of statutory accounts and each such
report was unqualified and did not contain a statement under section
237(2) or (3) of the Act.
20 DOCUMENTS AVAILABLE FOR INSPECTION
Copies of the following documents will be available for inspection at the
registered office of the Company and at the offices of Macfarlanes, 10 Norwich
Street, London EC4A 1BD, during normal business hours on any weekday (Saturdays,
Sundays and public holidays excepted) from the date of this document up to and
including 1March 2000:-
20.1 the Memorandum and Articles of Association of CCG;
20.2 the audited consolidated accounts of CCG for the three financial years
ended 31 December 1998 and the unaudited interim results of CCG for the
six months ended 30 June 1999;
20.3 the audited consolidated financial statements of Healthworld and its
subsidiaries for the three financial years ended 31 December 1998 and the
unaudited results of Healthworld for the nine months ended 30
September 1999;
20.4 the Accountants' report on the restatement to UK GAAP set out in paragraph
3 of Part III;
20.5 the Report on the Pro Forma net asset statement set out in Part IV;
20.6 the material contracts referred to in paragraph 12of this Part VI;
20.7 the written consents referred to in paragraphs 19.4 and 19.5of this Part
VI;
20.8 the service contracts and letters of appointment referred to in paragraph
5.9 of this Part VI;
20.9 the rules of the CCG Share Schemes and the trust deed constituting the
trusts referred to in paragraphs 8.1.3 and 8.2.2 of this Part VI;
20.10 the Healthworld Option Plan;
20.11 the US Registration Statement.
This document has been prepared in accordance with the rules of the
London Stock Exchange for distribution to CCG Shareholders. However it
will be available in the US. It is not subject to, and has not been
prepared in accordance with the rules of the US SEC.
P-162
PART VII
SUMMARY OF RESOLUTIONS TO BE PROPOSED
AT THE EXTRAORDINARY GENERAL MEETING OF CCG
The full text of the resolutions to be proposed at the Extraordinary General
Meeting of CCG to be held on 1 March 2000 is set out in the Notice of Meeting
which follows this Part VII. A summary explanation of these resolutions is set
out below. Completion of the Transaction is conditional only upon the passing of
Resolution 1.
RESOLUTION 1
This is an Ordinary Resolution:
1. to approve the Transaction and authorise the Directors to give effect to the
Merger Agreement;
2. subject to the Merger Agreement becoming unconditional and not having been
terminated in accordance with its terms:--
(i) to increase the authorised share capital of the Company from
L150,500,000 to L208,000,000, by the creation of an additional
115,000,000 CCG Shares, representing an increase of approximately 38.2
per cent. in the authorised share capital of the Company; and
(ii) to give the Directors general authority to allot ``relevant securities"
(as defined by the Companies Act, this includes principally CCG Shares
and rights to subscribe for CCG Shares) up to a maximum aggregate
nominal amount of L93,603,427. This is equivalent to 187,206,854 CCG
Shares, representing approximately 81.8 per cent. of the issued
ordinary share capital of CCG as at 28 January 2000, the latest
practicable date prior to the publication of this document.
Based on the assumptions described under ``Bases for Share Calculations" on
page 5 of this document, approximately 46,140,000 New CCG Shares will be issued
under this authority to satisfy the entitlements of Healthworld Stockholders
under the Merger Agreement. After reserving approximately 34,670,000 CCG Shares
which may be required to satisfy outstanding options under the CCG Share Schemes
and the Healthworld Option Plan, this would leave the Directors with general
authority, after the Effective Time, to allot relevant securities up to
approximately L53,200,000 in nominal value, which is equivalent to 106,400,000
CCG Shares and represents approximately 38.8 per cent. of the issued ordinary
share capital of CCG as enlarged by the Transaction, based on the assumptions
referred to above.
It is the Directors' intention, to limit exercise of this authority to
grants of options pursuant to the CCG Share Schemes, allotments to satisfy
deferred consideration obligations in respect of acquisitions made by the
Enlarged Group prior to the date of this document, and further allotments in an
aggregate nominal amount not exceeding one-third of the nominal amount of the
actual issued share capital of CCG immediately following the Effective Time.
However, because the number of CCG Shares actually required to be issued
pursuant to the Merger Agreement cannot yet be determined, the numbers of New
CCG Shares to be created and authorised to be allotted by Resolution 1 has been
calculated so as to allow a margin for possible changes in the CCG Share price
and/or the dollar/pound sterling exchange rate prior to the date the Exchange
Ratio is fixed.
RESOLUTION 2
This is a Special Resolution, conditional upon completion of the
Transaction, to give the Directors power to allot ``equity securities" (as
defined by the Companies Act this includes primarily CCG Shares and rights to
subscribe for CCG Shares) for cash:
(i) by means of a rights issue made other than in accordance with statutory
pre-emption rights;
P-163
(ii) for the purposes of employee share and incentive schemes approved by CCG
Shareholders and the Healthworld Option Plan; and
(iii) to satisfy consideration payable in CCG Shares in respect of acquisitions
by subsidiaries of CCG where the consideration received by CCG for the
allotment of CCG Shares consists of cash paid by, or obligations to pay cash
of, a subsidiary.
In relation to paragraph (ii) above, statutory pre-emption rights normally
do not apply to allotments of shares pursuant to employee share schemes but the
power is proposed to be taken for the avoidance of doubt because certain schemes
may not fall within the statutory definition of an ``employee share scheme"
because employees of associated companies such as Zenith Media Holdings Limited
and its subsidiaries are allowed to participate.
RESOLUTION 3
This is a Special Resolution, conditional upon completion of the
Transaction. It will give the Directors power, in addition to the powers
conferred by Resolution 2, to allot equity securities for cash other than in
accordance with statutory pre-emption rights, up to an aggregate nominal amount
of L6,737,000 (equivalent to 13,474,000 CCG Shares, representing approximately
4.9 per cent. of the issued ordinary share capital of CCG as enlarged by the
Transaction, based on the assumptions referred to above). The Directors intend
to limit exercise of this authority to allotments in an aggregate nominal amount
not exceeding five per cent. of the nominal amount of the actual issued share
capital of CCG immediately following the Effective Time.
The allotment authority and powers proposed to be conferred by Resolutions
1, 2 and 3 described above will replace the Directors' existing general
allotment authority and powers, to the extent not already utilised. They will
expire on the date of the Annual General Meeting of the Company held in 2000, or
on 7 October 2000, if earlier, unless previously revoked, varied or renewed, and
except that allotments may be made after the time of expiry pursuant to
agreements entered into prior to that time.
CCG continues to evaluate acquisition opportunities that support its
strategic objectives, including acquisitions which may involve the issue of
additional CCG Shares as consideration. Except for issues of CCG Shares and
grants of options over CCG Shares pursuant to the Merger Agreement, the CCG
Share Scheme and the Healthworld Option Scheme and for issues of CCG Shares to
satisfy consideration payable in respect of past or possible future
acquisitions, the Directors have no present intention of exercising such
authority and powers, but consider it prudent to maintain flexibility for the
future.
P-164
CORDIANT COMMUNICATIONS GROUP PLC
(REGISTERED IN ENGLAND NO. 1320869)
NOTICE OF EXTRAORDINARY GENERAL MEETING
NOTICE IS HEREBY GIVEN that an Extraordinary General Meeting of Cordiant
Communications Group plc (``the Company") will be held at 121-141 Westbourne
Terrace, London W2 6JR at 10.00a.m. on 1 March 2000 for the purpose of
considering and, if thought fit, passing the following Resolutions, of which
Resolution 1 will be proposed as an Ordinary Resolution and Resolutions 2 and 3
will be proposed as Special Resolutions:
1 THAT:--
1.1 the acquisition of Healthworld Corporation (``the Transaction") upon and
subject to the terms and conditions of the Agreement and Plan of Merger
dated as of November 9, 1999 between the Company, Healthworld Acquisition
Corp. and Healthworld Corporation, as amended by an agreement dated
3 February 2000 (``the Merger Agreement") and as described in the Circular
to Shareholders of the Company dated 4 February 2000 (copies of the Merger
Agreement and such Circular, signed by the Chairman for the purpose of
identification, being produced to the Meeting), be and is hereby approved
and the Directors be and are hereby authorised to take such steps as they
deem necessary or appropriate to implement the same, subject to and
including such non-material amendments, waivers, variations or extensions of
such terms and conditions as the Directors think fit (and references herein
to the Merger Agreement include any such amendments, waivers, variations or
extensions approved by the Directors);
1.2 subject to and with effect from the Merger Agreement becoming unconditional
and not having been terminated in accordance with its terms:--
1.2.1 the authorised share capital of the Company be and is hereby increased
from L150,500,000 to L208,000,000 by the creation of an additional
115,000,000 Ordinary Shares of 50p each in the capital of the Company;
and
1.2.2 in substitution for the authority conferred on the Directors at the
Extraordinary General Meeting of the Company held on 18 June 1996 (to
the extent the same remains unexercised), the Directors be and are
hereby generally and unconditionally authorised for the purposes of
section 80 of the Companies Act 1985 (``the Companies Act") to
exercise all of the powers of the Company to allot relevant securities
(as defined by section 80(2) of the Companies Act) up to an aggregate
nominal amount of L93,603,427, provided that such authority (unless
previously revoked, varied or renewed) will expire at the conclusion
of the next Annual General Meeting of the Company (or on 7
October 2000 if earlier), except that the Company may before such
expiry make an offer or agreement which would or might require
relevant securities to be allotted after such expiry and the Directors
may allot relevant securities in pursuance of such an offer or
agreement as if the authority conferred hereby had not expired.
2 THAT, conditionally upon and with effect from the merger of Healthworld
Acquisition Corp. into Healthworld Corporation becoming effective in
accordance with the Merger Agreement, the Directors be and are hereby
empowered, pursuant to section 95(1) of the Companies Act, to allot equity
securities (as defined by section 94(2) of the Companies Act) pursuant to
the authority set out in sub-paragraph 1.2.2 of Resolution 1 in this Notice,
as if section 89(1) of the Companies Act did not apply to any such
allotment, provided that:
2.1 this power shall be limited to the allotment of equity securities:--
2.1.1 in connection with or pursuant to an offer by way of rights to the
holders of ordinary shares and other persons entitled to participate
therein, in proportion (as nearly as may be) to such holders' holdings
of such ordinary shares (or, as appropriate, to the numbers of such
shares
P-165
which such other persons are for those purposes deemed to hold)
subject only to such exclusions or other arrangements as the Directors
may feel necessary or expedient to deal with fractional entitlements
or legal or practical problems under the laws of, or the requirements
of any recognised regulatory body in, any territory, or otherwise;
2.1.2 in connection with or pursuant to any employee share scheme or
incentive scheme approved by shareholders of the Company in general
meeting or the Healthworld 1997 Stock Option Plan (as amended); and
2.1.3 to satisfy consideration payable by the issue of ordinary shares in
the capital of the Company (whether directly or in the form of
American Depositary Shares representing such shares) in respect of
acquisitions by subsidiaries of the Company where the consideration
received by the Company for the allotment of shares consists of cash
paid or undertakings to pay cash by a subsidiary of the Company (the
term ``subsidiary" having for the purpose of this paragraph 2.1.3 the
meaning set out in Section 736 of the Companies Act); and
2.2 this power, unless previously revoked, varied or renewed, shall expire at
the conclusion of the next Annual General Meeting of the Company or on 7
October 2000, if earlier, except that the Directors may make an offer or
agreement before the expiry of this power which would or might require
equity securities to be allotted after such expiry and the Directors may
allot equity securities in pursuance of such offer or agreement as if the
said power, had not expired.
3 THAT, pursuant to section 95(1) of the Companies Act and in addition to the
power conferred by Resolution 2 above, the Directors be and are hereby
empowered to allot equity securities (as defined by section 94(2) of the
Companies Act) pursuant to the authority conferred by paragraph 1.2.2 of
Resolution 1 in the Notice of this Meeting, as if sub-section (1) of section
89 of the Companies Act did not apply to such allotment, provided that:--
3.1 this power shall be limited to the allotment of equity securities up to
an aggregate nominal amount of L6,737,500; and
3.2 this power shall expire at the conclusion of the next Annual General
Meeting of the Company or on 7 October 2000, if earlier, except that
the Directors may make an offer or agreement before the expiry of this
power which would or might require equity securities to be allotted
after such expiry and the Directors may allot equity securities in
pursuance of such offer or agreement as if the said power had not
expired.
Registered Office:
121-141 Westbourne Terrace By Order of the Board
London Stuart Howard
W2 6JR Secretary
4 February 2000
Notes
1 A member entitled to attend and vote at the Meeting may appoint one or more
proxies to attend and, on a poll, vote instead of him. A proxy need not also
be a member of the Company. A form of proxy is enclosed.
2 The form of proxy and the power of attorney or other authority under which
it is signed (if any) or a certified copy of such authority or power of
attorney, must be lodged with the Company's Registrars, Computershare
Services PLC, Registrar's Department, PO Box 1075, Caxton House, Redcliffe
Way, Bristol BS99 3FA, so as to be received not less than 48 hours before
the time fixed for holding the Meeting.
3 Completing and returning the form of proxy will not preclude a member from
attending in person at the meeting and voting should he wish to do so.
4 In the case of a corporation the form of proxy must be executed under its
common seal or under the hand of some officer or attorney duly authorised.
5 For the purposes of determining who is entitled to attend or vote (whether
on a show of hands or a poll) at the Meeting, a person must be entered on
the register of members not later than 48 hours before the time fixed for
the Meeting or any adjournment thereof.
P-166
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 310 of the Companies Act 1985 of Great Britain provides:
"(1) This section applies to any provision, whether contained in a company's
articles or in any contract with the company or otherwise, for exempting any
officer of the company or any person (whether an officer or not) employed by
the company as auditor from, or indemnifying him against, any liability
which by virtue of any rule of law would otherwise attach to him in respect
of any negligence, default, breach of duty or breach of trust of which he
may be guilty in relation to the company.
"(2) Except as provided by the following subsection, any such provision is void.
"(3) This section does not prevent a company
(a) from purchasing and maintaining for any such officer or auditor
insurance against any such liability, or
(b) from indemnifying any such officer or auditor against any liability
incurred by him
(i) in defending any proceedings (whether civil or criminal) in which
judgment is given in his favour or he is acquitted, or
(ii) in connection with any application under section 144(3) or
(4) (acquisition of shares by innocent nominee) or section 727 (general
power to grant relief in case of honest and reasonable conduct) in which
relief is granted to him by the court."
Section 727 of the Companies Act 1985 of Great Britain provides:
"(1) If in any proceedings for negligence, default, breach of duty or breach of
trust against an officer of a company or a person employed by a company as
auditor (whether he is or is not an officer of the company) it appears to
the court hearing the case that that officer or person is or may be liable
in respect of the negligence, default, breach of duty or breach of trust,
but that he has acted honestly and reasonably, and that having regard to all
the circumstances of the case (including those connected with his
appointment) he ought fairly to be excused for the negligence, default,
breach of duty or breach of trust, that court may relieve him, either wholly
or partly, from his liability on such terms as it thinks fit.
"(2) If any such officer or person as above-mentioned has reason to apprehend
that any claim will or might be made against him in respect of any
negligence, default, breach of duty or breach of trust, he may apply to the
court for relief; and the court on the application has the same power to
relieve him as under this section it would have had if it had been a court
before which proceedings against that person for negligence, default, breach
of duty or breach of trust had been brought.
"(3) Where a case to which subsection (1) applies is being tried by a judge with
a jury, the judge, after hearing the evidence, may, if he is satisfied that
the defendant or defender ought in pursuance of that subsection to be
relieved either in whole or in part from the liability sought to be enforced
against him, withdraw the case in whole or in part from the jury and
forthwith direct judgment to be entered for the defendant or defender on
such terms as to costs or otherwise as the judge may think proper."
II-1
Article 156 of the Articles of Association of Cordiant provides:
"Subject to the provisions of The Companies Act 1985, and every statutory
modification or re-enactment thereof for the time being in force and every other
Act or statutory instrument for the time being in force concerning limited
companies and affecting the Company (including, without limitation, Part V of
the Criminal Justice Act 1993 and the Companies Consolidation (Consequential
Provisions) Act 1985), every President, Director, Auditor, Secretary or other
officer of the Company shall be entitled to be indemnified by the Company
against all costs, charges, losses, expenses and liabilities incurred by him in
the execution and discharge of his duties or in relation thereto. The Directors
may purchase and maintain insurance for the benefit of any Director or other
officer or auditor to the extent permitted by the statutes described above."
Cordiant maintain Directors' and Officers' liability insurance which
provides for payments on behalf of the Directors and Officers of all losses of
such persons (other than matters uninsurable under the law) arising from claims,
including claims arising under the Securities Act, for acts or omissions by such
persons while acting as Directors or Officers of Cordiant.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENTS AND SCHEDULES.
(a) The following Exhibits are filed herewith unless otherwise indicated:
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
2(a) Agreement and Plan of Merger dated as of November 9, 1999,
among Cordiant Communications Group plc, Healthworld
Acquisition Corp. and Healthworld Corporation (included as
Appendix A to the proxy statement/prospectus which is part
of this registration statement).
2(b) Amendment No. 1 to Agreement and Plan of Merger dated as of
February 3, 2000, among Cordiant Communications Group plc,
Healthworld Acquisition Corp. and Healthworld Corporation
(included as Appendix B to the proxy statement/prospectus
which is part of this registration statement)
3 Memorandum and Articles of Association of Cordiant
Communications Group plc (incorporated herein by reference
to Exhibit 2.1 to Form 20-F filed with the Securities and
Exchange Commission on June 29, 1998 (Reg. No. 333-02130).
4(a) Deposit Agreement dated as of November 15, 1983, as amended
and restated as of April 1, 1991, as amended as of July 16,
1991, and as further amended as of December 10, 1997,
between Cordiant Communications Group plc, The Bank of New
York, as Depositary, and holders from time to time of
Cordiant Communications Group plc American Depositary
Receipts (incorporated herein by reference to Exhibit A1,
Exhibit A2 and Exhibit A3 as Form F-6 filed with the
Securities and Exchange Commission on December 8, 1997,
(Reg. No. 333-2130).
5 Opinion of Macfarlanes regarding validity of the securities
being registered.
8 Opinion of Rosenman & Colin LLP regarding United States tax
consequences of the merger.
4(b) See Exhibit 3 for provisions of Memorandum and Articles of
Association of Cordiant Communications Group plc defining
rights of holders of Cordiant ordinary shares.
23(a) Consent of KPMG Audit PLC.
23(b) Consent of Arthur Andersen LLP
23(c) Consent of Bear Stearns & Co. (included in the opinion filed
as Exhibit 99(a) to this Registration Statement and
incorporated herein by reference).
II-2
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
23(d) Consent of Rosenman & Collin LLP (included in the opinion
filed as Exhibit 8 to this Registration Statement and
incorporated herein by reference).
23(e) Consent of Macfarlane (included in the opinion filed as
Exhibit 5 to this Registration Statement and incorporated
herein by reference).
24 Powers of Attorney (included in the signature page of this
registration statement).
99(a) Opinion of Bear Stearns & Co. (included as Appendix N to the
proxy statement/ prospectus which is part of this
registration statement).
99(b) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and William Butler (included as
Appendix C to the proxy statement/prospectus which is part
of this registration statement).
99(c) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and Herbert Ehrenthal (included as
Appendix D to the proxy statement/prospectus which is part
of this registration statement).
99(d) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and Spencer Falk (included as
Appendix E to the proxy statement/prospectus which is part
of this registration statement).
99(e) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and Michael Garnham (included as
Appendix F to the proxy statement/prospectus which is part
of this registration statement).
99(f) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and Steven Girgenti (included as
Appendix G to the proxy statement/prospectus which is part
of this registration statement).
99(g) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and Frances Hughes (included as
Appendix H to the proxy statement/prospectus which is part
of this registration statement).
99(h) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and William Leslie Milton (included
as Appendix I to the proxy statement/prospectus which is
part of this registration statement).
99(i) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and Steven Girgenti Grantor Retained
Annuity Trust (included as Appendix J to the proxy
statement/ prospectus which is part of this registration
statement).
99(j) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and The Girgenti Family Limited
Partnerships (included as Appendix K to the proxy
statement/prospectus which is part of this registration
statement).
99(k) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and The Spencer Falk Grantor
Retained Annuity Trust u/t/a/d March 5, 1999 (included as
Appendix L to the proxy statement/prospectus which is part
of this registration statement).
II-3
EXHIBIT NO. DESCRIPTION
- ----------- ------------------------------------------------------------
99(l) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and The Steve Girgenti Charitable
Lead Annuity Trust (included as Appendix M to the proxy
statement/ prospectus which is part of this registration
statement).
99(m) Employment Agreement dated as of November 9, 1999 between
Healthworld Corporation and Steven Girgenti (included as
Appendix O to the proxy statement/ prospectus which is part
of this registration statement).
99(n) Form of Proxy Card of Healthworld Corporation.
(b) Financial Statement Schedules. Schedule II, "Valuation and
Qualifying Amounts," in Cordiant Communications Group plc. Annual Report on
Form 20-F for the year ended December 31, 1998 is hereby incorporated by
reference; other schedules are omitted because they are either not required,
are not applicable or because equivalent information has been included in
the financial statements, the notes thereto or elsewhere herein.
(c) Reports, Opinions and Appraisals. Included as Appendix M to the
proxy statement/ prospectus which is part of this registration statement.
ITEM 22. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement. Notwithstanding the foregoing, any increase
or decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering
range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in
volume and price represent no more than 20 percent change in the maximum
aggregate offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment will be deemed to
be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time will be deemed to be the
initial BONA FIDE offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) To file a post-effective amendment to the registration statement to
include any financial statements required by Rule 3-19 of Regulation S-X at
the start of any delayed offering or throughout a continuous offering.
II-4
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 that is incorporated by reference in the registration
statement will be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
will be deemed to be the initial BONA FIDE offering thereof.
(c) (1) The undersigned registrant hereby undertakes as follows: that prior
to any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other items of the applicable form.
(2) The undersigned registrant hereby undertakes that every prospectus:
(i) that is filed pursuant to paragraph (1) immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415, will be filed as
a part of an amendment to the registration statement and will not be used until
such amendment is effective, and that, for purposes of determining any liability
under the Securities Act of 1933, each such post-effective amendment will be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time will be deemed to be
the initial BONA FIDEoffering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
(e) The undersigned registrant hereby undertakes: (i) to respond to requests
for information that is incorporated by reference into the prospectus pursuant
to Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means; and (ii) to arrange or provide for a facility in the
U.S. for the purpose of responding to such requests. This includes information
contained in documents filed subsequent to the effective date of the
registration statement through the date of responding to the request.
(f) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-5
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of London, England, on
February , 2000.
CORDIANT COMMUNICATIONS GROUP
PLC
By: /s/ DAVID F. HAM
-----------------------------------------
Name: David F. Ham
TITLE: GROUP CONTROLLER
II-6
POWER OF ATTORNEY
Each of the undersigned hereby constitutes and appoints and his true and
lawful attorneys-in-fact, each with power of substitution, in his name, place
and stead, in any and all capacities, to sign any or all amendments, including
post-effective amendments, and supplements this registration statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, hereby ratifying and
confirming all that said attorneys-in-fact, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the following
capacities on February 4, 2000.
NAME TITLE
- --------------------------------------------- ---------------------------------------------
/s/ MICHAEL BUNGEY Director and Chief Executive Officer
- --------------------------------------------
Michael Bungey
/s/ ARTHUR D`ANGELO Finance Director
- --------------------------------------------
Arthur D`Angelo
/s/ JEAN DE YTURBE Director, Chairman, Bates Europe
- --------------------------------------------
Jean de Yturbe
/s/ IAN SMITH Director, Chief Executive Officer,
- -------------------------------------------- President/International Bates World Wide,
Ian Smith Inc. Pacific
/s/ PETER M. SCHONING Director, Chairman and Chief Executive
- -------------------------------------------- Officer,
Peter M. Schoning Scholz & Friends
/s/ BILL WHITEHEAD Director, Chief Executive Officer, Bates
- -------------------------------------------- North America
Bill Whitehead
/s/ CHARLES SCOTT Executive Chairman
- --------------------------------------------
Charles Scott
/s/ DUDLEY FISHBURN Non-executive director
- --------------------------------------------
Dudley Fishburn
Non-executive director
- --------------------------------------------
Professor Theodore Levitt
/s/ JAMES TYRRELL Non-executive director
- --------------------------------------------
James Tyrrell
/s/ DR. ROLF STOMBERG Non-executive director
- --------------------------------------------
Dr. Rolf Stomberg
/s/ MICHAEL KOPCSAK Authorized Representative in the United
- -------------------------------------------- States
Michael Kopcsak Gould & Wilkie LLP
II-7
EXHIBIT INDEX
PAGINATION BY
SEQUENTIAL
EXHIBIT NO. DESCRIPTION NUMBERING
- ----------- ------------------------------------------------------------ -------------
2(a) Agreement and Plan of Merger dated as of November 9, 1999,
among Cordiant Communications Group plc, Healthworld
Acquisition Corp. and Healthworld Corporation (included as
Appendix A to the proxy statement/prospectus which is part
of this registration statement).
2(b) Amendment No. 1 to Agreement and Plan of Merger dated as of
February 3, 2000, among Cordiant Communications Group plc,
Healthworld Acquisition Corp. And Healthworld Corporation
(included as Appendix B to the proxy statement/prospectus
which is part of this registration statement)
3 Memorandum and Articles of Association of Cordiant
Communications Group plc (incorporated herein by reference
to Exhibit 2.1 to Form 20-F filed with the Securities and
Exchange Commission on June 29, 1998 (Reg. No. 333-02130).
4(a) Deposit Agreement dated as of November 15, 1983, as amended
and restated as of April 1, 1991, as amended as of July 16,
1991, and as further amended as of December 10, 1997,
between Cordiant Communications Group plc, The Bank of New
York, as Depositary, and holders from time to time of
Cordiant Communications Group plc American Depositary
Receipts (incorporated herein by reference to Exhibit A1,
Exhibit A2 and Exhibit A3 as Form F-6 filed with the
Securities and Exchange Commission on December 8, 1997,
(Reg. No. 333-2130).
5 Opinion of Macfarlanes regarding validity of the securities
being registered.
8 Opinion of Rosenman & Colin regarding United States tax
consequences of the merger.
4(b) See Exhibit 3 for provisions of Memorandum and Articles of
Association of Cordiant Communications Group plc defining
rights of holders of Cordiant ordinary shares.
23(a) Consent of KPMG Audit PLC.
23(b) Consent of Arthur Andersen LLP
23(c) Consent of Bear Stearns & Co. (included in the opinion filed
as Exhibit 99(a) to this Registration Statement and
incorporated herein by reference).
23(d) Consent of Rosenman & Collin LLP (included in the opinion
filed as Exhibit 8 to this Registration Statement and
incorporated herein by reference).
23(e) Consent of Macfarlanes (included in the opinion filed as
Exhibit 5 to this Registration Statement and incorporated
herein by reference).
24 Powers of Attorney (included in the signature page of this
registration statement).
PAGINATION BY
SEQUENTIAL
EXHIBIT NO. DESCRIPTION NUMBERING
- ----------- ------------------------------------------------------------ -------------
99(a) Opinion of Bear Stearns & Co. (included as Appendix N to the
proxy statement/prospectus which is part of this
registration statement).
99(b) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and William Butler (included as
Appendix C to the proxy statement/prospectus which is part
of this registration statement).
99(c) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and Herbert Ehrenthal (included as
Appendix D to the proxy statement/prospectus which is part
of this registration statement).
99(d) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and Spencer Falk (included as
Appendix E to the proxy statement/prospectus which is part
of this registration statement).
99(e) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and Michael Garnham (included as
Appendix F to the proxy statement/prospectus which is part
of this registration statement).
99(f) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and Steven Girgenti (included as
Appendix G to the proxy statement/prospectus which is part
of this registration statement).
99(g) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and Frances Hughes (included as
Appendix H to the proxy statement/prospectus which is part
of this registration statement).
99(h) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and William Leslie Milton (included
as Appendix I to the proxy statement/prospectus which is
part of this registration statement).
99(i) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and Steven Girgenti Grantor Retained
Annuity Trust (included as Appendix J to the proxy
statement/prospectus which is part of this registration
statement).
99(j) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and The Girgenti Family Limited
Partnerships (included as Appendix K to the proxy
statement/prospectus which is part of this registration
statement).
99(k) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and The Spencer Falk Grantor
Retained Annuity Trust u/t/ a/d March 5, 1999 (included as
Appendix L to the proxy statement/ prospectus which is part
of this registration statement).
PAGINATION BY
SEQUENTIAL
EXHIBIT NO. DESCRIPTION NUMBERING
- ----------- ------------------------------------------------------------ -------------
99(l) Stockholder Agreement dated as of November 9, 1999, by and
among Cordiant Communications Group plc, Healthworld
Acquisition Corporation and The Steve Girgenti Charitable
Lead Annuity Trust (included as Appendix M to the proxy
statement/prospectus which is part of this registration
statement).
99(m) Employment Agreement dated as of November 9, 1999 between
Healthworld Corporation and Steven Girgenti (included as
Appendix O to the proxy statement/prospectus which is part
of this registration statement).
99(n) Form of Proxy Card of Healthworld Corporation.