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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
DATA BROADCASTING CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
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DATA BROADCASTING CORPORATION
3490 CLUBHOUSE DRIVE
JACKSON, WYOMING 83014
To our Stockholders:
You are cordially invited to attend the annual meeting of our stockholders
to be held at the Continental Insurance Building, 180 Maiden Lane, New York, New
York on February 23, 2000 at 10:00 a.m. New York City time. The meeting will
take place in the Ricker Auditorium on the Mezzanine Level.
At the annual meeting, you will be asked to consider and vote on several
proposals relating to the merger of Interactive Data Corporation, a wholly owned
subsidiary of Pearson Longman, Inc. and Data Broadcasting Corporation. As a
result of the merger, we will become the owner of 100% of Interactive Data, and
Pearson Longman will acquire approximately 60% of our stock. Pearson Longman is
a wholly-owned subsidiary of Pearson plc, the international media company, which
owns, among other well known brands, The Financial Times, one of the world's
leading sources of financial information. You are being asked to approve the
merger agreement, approve the related issuance of 56,423,949 shares of our
common stock to Pearson Longman, approve an amendment to our certificate of
incorporation to increase the number of authorized shares of our common stock
and elect 10 members to our board of directors. In addition, you are being asked
to vote to approve our 2000 long-term incentive plan, to ratify the appointment
of PricewaterhouseCoopers LLP as our independent auditor for the fiscal year
ending June 30, 2000 and to grant our board of directors discretionary authority
to postpone or adjourn the annual meeting.
The merger brings together our "pre-trade" expertise and Interactive Data's
"post-trade" expertise to create one of the world's top providers of must-have,
time-sensitive financial information. Our market-leading BondEdge and eSignal
products are used by investors for research and analysis to help them determine
which securities to trade and when to trade. Interactive Data's market-leading
products are used by investors to value and track their securities every day
after the trade. Together, our respective products can offer powerful end-
to-end solutions for institutional and individual investors.
From a financial point of view, we expect that the merger will triple our
revenues and increase our cash flow by more than five times, while increasing
our total outstanding shares by only 2.6 times. Accordingly, we expect that cash
flow per share will almost double. We also believe the merger will give us
size -- we expect annual revenues over $320 million and annual cash flow over
$70 million -- and the financial power to accelerate product development, to
accelerate our Internet incubation strategy, and to make strategic acquisitions.
In addition, the merged company will have no long-term debt.
From a market recognition point of view, we expect that we will stand out
among the competition in the marketplace and the Wall Street investment
community because of the strong brand recognition of us, Interactive Data and
The Financial Times, and as a result of our relationships with Pearson plc,
MarketWatch.com and CBS Broadcasting, as illustrated by the recently announced
joint venture between MarketWatch.com and the Financial Times Group.
The diagrams following this letter illustrate the steps that will take
place in the merger and the ownership of our company after the merger.
After careful consideration, your board of directors concluded that the
merger is in the best interests of Data Broadcasting and its stockholders and
approved the merger agreement and the related issuance of shares to Pearson
Longman, the amendment to our certificate of incorporation to increase our
authorized shares of common stock, and the other proposals noted above and
described more fully in the proxy statement accompanying this letter. YOUR BOARD
OF DIRECTORS THEREFORE RECOMMENDS THAT YOU VOTE TO APPROVE THE MERGER AGREEMENT,
THE ISSUANCE OF SHARES TO PEARSON LONGMAN, THE AMENDMENT TO OUR CERTIFICATE OF
INCORPORATION AND THE OTHER PROPOSALS DESCRIBED IN THE PROXY STATEMENT.
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Whether or not you plan to attend our annual meeting in person, we urge you
to complete, date, sign and promptly return the enclosed proxy card in the
enclosed postage pre-paid envelope to ensure that your shares will be
represented at the annual meeting. Additionally, this year, registered
stockholders can vote their shares by using a toll-free telephone number or via
the Internet. Instructions for using these convenient new services are set forth
on the enclosed proxy card. Your proxy is revocable and will not affect your
right to vote in person if you decide to attend the meeting. YOUR VOTE IS VERY
IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
The proxy statement accompanying this letter provides you with detailed
information about the merger proposal and matters related to the merger
(including financial and business information about us and Interactive Data) and
our 2000 long-term incentive plan. We encourage you to read the documents
carefully.
Thank you, and we look forward to seeing you at the annual meeting.
Sincerely,
/s/ Mark F. Imperiale
Mark F. Imperiale
Chief Executive Officer
Jackson, Wyoming
January 11, 2000
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DIAGRAM OF THE MERGER
[DIAGRAM OF THE MERGER FLOW CHART]
DATA BROADCASTING'S OWNERSHIP UPON
COMPLETION OF THE MERGER
[DATA BROADCASTING'S OWNERSHIP FLOW CHART]
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DATA BROADCASTING CORPORATION
3490 CLUBHOUSE DRIVE
JACKSON, WYOMING 83014
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON FEBRUARY 23, 2000
To Our Stockholders:
YOU ARE HEREBY NOTIFIED that the annual meeting of our stockholders will be
held at the Continental Insurance Building, 180 Maiden Lane, New York, New York
on February 23, 2000 at 10:00 a.m. New York City time, in the Ricker Auditorium
on the Mezzanine Level, for the purpose of considering and voting on the
following proposals:
1. Approval of the Agreement and Plan of Merger, dated as of November 14,
1999, and amended as of January 10, 2000, among us, Interactive Data,
Pearson Longman and Detective Merger-Sub, and the related issuance of
56,423,949 shares of our common stock to Pearson Longman in the merger.
2. Approval of an amendment to our certificate of incorporation to increase
the number of authorized shares of our common stock to 200,000,000
shares.
3. Election of 10 members to our board of directors, whose terms shall
commence immediately upon the completion of the merger and who will
serve until our next annual meeting or until their successors have been
duly elected and qualified or their earlier death, resignation or
removal.
4. Granting to our board of directors discretionary authority to postpone
or adjourn the annual meeting in order to solicit additional votes to
approve any matters in paragraphs 1, 2 or 3.
5. Approval of our 2000 long-term incentive plan.
6. Ratification of the appointment of PricewaterhouseCoopers LLP as our
independent auditor for the fiscal year ending June 30, 2000.
7. To transact any other business as may properly be brought before our
annual meeting or any adjournment or postponement thereof.
The merger agreement, the amendment to our certificate of incorporation,
our 2000 long-term incentive plan and the other proposals listed above are
described in the accompanying proxy statement which you are urged to read
carefully and in its entirety. A copy of our Annual Report on Form 10-K for our
fiscal year ended June 30, 1999 is attached as Appendix A to this proxy
statement. A copy of the merger agreement, and its amendment, are attached as
Appendix B. A copy of the option agreement entered into by us in connection with
the merger agreement is attached as Appendix C. A copy of the opinion we
received from our financial advisor in the merger, Hambrecht & Quist, is
attached as Appendix D. A copy of the 2000 long-term incentive plan is attached
as Appendix E. A copy of the amendment to our certificate of incorporation is
attached as Appendix F.
In the event that the merger agreement is not approved by our stockholders,
our current board will continue to serve until a special meeting of our
stockholders which will be held as soon as practicable, and our certificate of
incorporation will not be amended. If sufficient votes are received to approve
our 2000 long-term incentive plan or to ratify the appointment of
PricewaterhouseCoopers LLP as our independent auditor for our fiscal year ending
June 30, 2000, such proposal will be approved or ratified independently of the
vote received on any other proposals before the stockholders.
Our board of directors has fixed the close of business on January 10, 2000
as the record date for the determination of the holders of common stock entitled
to notice of, and to vote at, the annual meeting or any adjournment or
postponement thereof. A list of such stockholders will be available for review
at our principal administrative offices located at 7050 Union Park Center, Suite
600, Midvale, Utah 84047 and at our offices at
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498 Seventh Avenue, 19th floor, New York, New York 10018 during normal business
hours for a period of 10 days prior to the meeting and will be available at the
meeting.
By Order of the Board of Directors
LOGO
Susan A. Mulligan, Secretary
Jackson, Wyoming
January 11, 2000
YOUR VOTE IS IMPORTANT. TO VOTE YOUR SHARES, PLEASE COMPLETE, SIGN AND DATE
THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED RETURN ENVELOPE OR
SUBMIT YOUR PROXY BY TELEPHONE OR VIA THE INTERNET. DO NOT SEND ANY STOCK
CERTIFICATES WITH YOUR PROXY CARD.
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DATA BROADCASTING CORPORATION
PROXY STATEMENT
FOR
ANNUAL MEETING OF STOCKHOLDERS
We have agreed to a merger of our wholly owned subsidiary with Interactive
Data Corporation, a Delaware corporation and wholly owned subsidiary of Pearson
Longman, Inc., a Delaware corporation. Pearson Longman is a wholly-owned
subsidiary of Pearson plc, a company organized under the laws of England and
Wales. The merger is upon the terms and subject to the conditions contained in
the Agreement and Plan of Merger, dated as of November 14, 1999, and amended as
of January 10, 2000, among us, Interactive Data, Pearson Longman and Detective
Merger-Sub, Inc., a Delaware corporation and our wholly owned subsidiary.
Pursuant to the merger agreement, Detective Merger-Sub will be merged with and
into Interactive Data, with Interactive Data being the surviving corporation and
becoming our wholly owned subsidiary. At the closing of the merger, we will
issue Pearson Longman 56,423,949 shares of our common stock, which will
represent approximately 60% of our issued and outstanding common stock on a
fully diluted basis.
In order to complete the merger, our stockholders must (1) approve the
merger agreement and the related issuance of 56,423,949 shares of our common
stock to Pearson Longman, (2) approve an amendment to our certificate of
incorporation to increase the number of shares of our common stock we are
authorized to issue to 200,000,000 shares and (3) elect 10 members to our board
of directors whose terms will commence immediately after the completion of the
merger. In connection with the annual meeting, we are also asking stockholders
to grant our board of directors discretionary authority to postpone or adjourn
the annual meeting in order to solicit additional votes to approve any of the
foregoing matters and discretionary authority to transact any other business as
may properly be brought before our annual meeting, or any adjournment or
postponement thereof. We also are seeking approval of our 2000 long-term
incentive plan and ratification of the appointment of PricewaterhouseCoopers LLP
as our independent auditor for our fiscal year ending June 30, 2000.
Our board of directors has called the annual meeting of our stockholders to
vote on the above matters. The meeting will be held on February 23, 2000. Our
board of directors is soliciting proxies to be used at the meeting through this
proxy statement. The above matters are discussed in detail in this proxy
statement. We urge you to read and consider carefully this entire proxy
statement.
Our common stock is presently quoted on The NASDAQ National Market System.
We intend to apply for inclusion of the newly issued securities on The NASDAQ
National Market System. On January 10, 2000, the latest practicable trading day
before the printing of this proxy statement, the closing price per share on The
NASDAQ National Market System for our common stock was $9.
A STOCKHOLDER MAY REVOKE ANY PROXY AT ANY TIME BEFORE IT IS VOTED AT THE
ANNUAL MEETING BY MAILING OR DELIVERING WRITTEN NOTICE OF SUCH REVOCATION TO OUR
SECRETARY; BY PROVIDING A PROXY PROPERLY SIGNED AND DATED SUBSEQUENT TO AN
EARLIER PROXY; BY SUBMITTING A NEW PROXY VIA TELEPHONE OR THE INTERNET; OR BY
REVOKING A WRITTEN PROXY IN PERSON AT THE ANNUAL MEETING OF STOCKHOLDERS. IF NOT
SO REVOKED, THE SHARES REPRESENTED BY THE PROXY WILL BE VOTED IN ACCORDANCE WITH
THE INSTRUCTIONS ON THE PROXY CARD.
In the event that the merger agreement is not approved by our stockholders,
our current board will continue to serve until a special meeting of our
stockholders which will be held as soon as practicable, and our certificate of
incorporation will not be amended. If sufficient votes are received to approve
our 2000 long-term incentive plan or to ratify the appointment of
PricewaterhouseCoopers LLP as our independent auditor for our fiscal year ending
June 30, 2000, such proposal will be approved or ratified independently of the
vote received on any other proposals before the stockholders.
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We are bearing all costs of soliciting proxies, and expressly reserve the
right to solicit proxies otherwise than by mail. The solicitation of proxies by
mail may be followed by telephone or other personal solicitations of certain of
our stockholders and brokers by one or more of our directors, by our officers or
employees or by third parties contracted to do so on our behalf. We may
reimburse banks and brokers or other similar agents or fiduciaries the expenses
incurred by such agents or fiduciaries in mailing the proxy statement to
beneficial owners of our common stock. We have retained Georgeson Shareholder
Communications Inc. to assist us in soliciting proxies. We estimate that we will
pay Georgeson $35,000 plus expenses for its services in connection with such
solicitations.
Only our stockholders of record as of the close of business on January 10,
2000 will be entitled to vote at the meeting. Representation of a majority of
our shares of common stock outstanding on such date, either in person or by
proxy, constitutes a quorum for the meeting. As of the record date, we had
34,509,210 shares of common stock issued and outstanding, with each share
entitled to one vote. Provided a quorum is present at the meeting, in person or
by proxy, the merger agreement, including the related issuance of 56,423,949
shares of our common stock, and the amendment to our certificate of
incorporation to increase the number of authorized shares of our common stock,
must be approved by the affirmative vote of over 50% of the outstanding shares
of our common stock. You may cast for each directorship the number of votes
equal to the number of our shares you hold. The nominees receiving the greatest
number of votes, up to the number of directors to be elected, will be our new
directors. For each other proposal, the affirmative vote of a majority of the
shares present in person or represented by proxy and entitled to vote on the
proposal is required for approval.
This proxy statement, notice of the meeting, and proxy card are first being
mailed on or about January 13, 2000 to our stockholders eligible to vote at the
meeting. A copy of our 1999 Annual Report on Form 10-K is included as Appendix
A.
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TABLE OF CONTENTS
PAGE
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AVAILABLE INFORMATION....................................... 1
QUESTIONS AND ANSWERS ABOUT THE MERGER...................... 2
SUMMARY..................................................... 5
THE MARKET FOR OUR SECURITIES AND DIVIDEND INFORMATION...... 11
Dividend Policy........................................... 11
SELECTED CONSOLIDATED HISTORICAL AND UNAUDITED PRO FORMA
COMBINED FINANCIAL DATA................................... 12
Our Selected Consolidated Historical Financial
Information............................................ 12
Selected Combined Historical Financial Information of
Interactive Data....................................... 13
Selected Unaudited Pro Forma Condensed Combined Financial
Information............................................ 14
FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT.......... 15
THE ANNUAL MEETING.......................................... 16
Purpose................................................... 16
Date, Time and Place...................................... 16
Record Date............................................... 16
Stockholders Entitled to Vote............................. 16
Votes Required; Voting at the Meeting..................... 16
Voting of Proxies......................................... 17
Solicitation of Proxies................................... 17
Rights of Dissenting Stockholders......................... 17
Recommendation of Our Board of Directors.................. 18
THE MERGER.................................................. 19
General Description of the Merger......................... 19
Background of the Merger.................................. 20
Opinion of Hambrecht & Quist.............................. 21
Our Relationship with Hambrecht & Quist................... 26
Our Reasons for the Merger................................ 27
Recommendation of Our Board of Directors.................. 27
Accounting Treatment...................................... 28
Listing of Our Common Stock............................... 28
Federal Securities Law Consequences....................... 28
Regulatory Approvals...................................... 28
Material Federal Income Tax Consequences.................. 29
Interests of Certain Persons in the Merger................ 29
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PAGE
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THE MERGER AGREEMENT........................................ 30
The Merger................................................ 30
Reorganization of Interactive Data........................ 30
Representations and Warranties............................ 31
Conduct of Businesses Pending the Closing................. 33
Additional Agreements..................................... 34
No Solicitation of Other Transactions..................... 35
Termination............................................... 36
Termination Fee........................................... 37
Director and Officer Indemnification...................... 37
Conditions to the Merger.................................. 37
Amendment and Waiver...................................... 38
OTHER AGREEMENTS............................................ 39
Stock Option Agreement.................................... 39
Voting Agreements......................................... 39
Registration Rights Agreement............................. 40
Termination of Employment Agreements...................... 40
INFORMATION ABOUT DATA BROADCASTING......................... 41
INFORMATION ABOUT INTERACTIVE DATA.......................... 42
Description of Interactive Data's Business................ 42
Interactive Data's Management Discussion and Analysis of
Financial Condition and Results of Operations.......... 47
ELECTION OF DIRECTORS....................................... 52
Nominees.................................................. 52
Board Committees and Meetings............................. 54
Security Ownership of Directors, Officers, Associates and
Certain Other Persons.................................. 55
Directors and Executive Compensation...................... 57
Stock Option Grants....................................... 57
Option Exercises and Fiscal Year-End Values............... 57
Compensation of Directors................................. 58
Employment Contracts and Termination of Employment and
Change of Control Arrangements......................... 58
Compensation Committee Interlocks and Insider
Participation.......................................... 59
Compliance with Section 16(a) of the Exchange Act......... 60
Compensation Committee Report on Executive Compensation... 60
Stock Performance Graph................................... 61
Stockholder Nomination of Directors....................... 61
PROPOSAL TO AMEND OUR CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF OUR COMMON
STOCK TO 200,000,000...................................... 62
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PAGE
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PROPOSAL TO ADOPT OUR 2000 LONG-TERM INCENTIVE PLAN......... 63
Description of the 2000 Long-Term Incentive Plan.......... 63
Federal Tax Consequences.................................. 64
PROPOSAL TO RATIFY THE APPOINTMENT OF AUDITOR............... 66
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL
INFORMATION............................................... 67
DESCRIPTION OF OUR CAPITAL STOCK............................ 75
General................................................... 75
Common Stock.............................................. 75
Registrar and Transfer Agent.............................. 75
INDEPENDENT ACCOUNTANTS..................................... 76
STOCKHOLDER PROPOSALS....................................... 77
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE........... 78
INDEX TO COMBINED FINANCIAL STATEMENTS...................... F-1
Appendices
Appendix A 1999 Annual Report on Form 10-K
Appendix B Agreement and Plan of Merger
Appendix C Stock Option Agreement
Appendix D Hambrecht & Quist Opinion
Appendix E 2000 Long-Term Incentive Plan
Appendix F Amendment to our Certificate of Incorporation
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AVAILABLE INFORMATION
We are subject to the informational requirements of the Securities Exchange
Act of 1934, as amended, and, in accordance therewith, file reports, proxy
statements, and other information with the Securities and Exchange Commission.
Such reports, proxy statements, and other information may be inspected and
copied at the offices of the SEC, Room 1024, Judiciary Plaza, 450 Fifth Street,
N.W., Washington, D.C. 20549, and the Regional Offices of the SEC in Chicago,
Illinois at Citicorp Center, 500 W. Madison, Suite 1400, Chicago, Illinois
60661-2511 and in New York, New York at 7 World Trade Center, Suite 1300, New
York, New York 10048. Copies of such materials may be obtained from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street,
N.W.,Washington, D.C. 20549 at prescribed rates. The SEC maintains a site on the
world wide web that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the SEC
(http://www.sec.gov). Our securities are listed on The NASDAQ National Market
System and the reports, proxy statements and our other information described
above may also be inspected at The NASDAQ Stock Market, Inc., 1735 K Street,
Washington, D.C. 20006. A copy of our 1999 Annual Report on Form 10-K has been
included with this proxy statement as Appendix A.
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QUESTIONS AND ANSWERS ABOUT THE MERGER
Q: WHY AM I RECEIVING THESE MATERIALS?
A: We have agreed to merge with Interactive Data. As a result of the merger,
Interactive Data will become our wholly owned subsidiary and we will issue
56,423,949 shares of our common stock to Pearson Longman. Those 56,423,949
shares will represent approximately 60% of our outstanding common stock on a
fully diluted basis. Our board of directors has approved the merger
agreement and the related transactions. To accomplish the merger, we need to
obtain your approval.
Q: WHO ARE PEARSON LONGMAN AND INTERACTIVE DATA?
A: Pearson Longman is a wholly owned, indirect subsidiary of Pearson plc, the
international media company. Pearson also owns The Financial Times, which
publishes one of the world's leading financial newspapers; Pearson
Education, the world's largest educational publishing company, which
includes Prentice Hall and Addison Wesley Longman; Pearson Television, one
of the world's leading international independent television production
companies; the Penguin group, one of the world's leading English-language
publishers; and Recoletos, one of Spain's leading media companies.
Pearson Longman owns Interactive Data. Interactive Data is part of Pearson
plc's Financial Times Asset Management division, which also includes the
companies listed on page 30 of this proxy statement. Prior to the closing of
the merger, the Financial Times Asset Management companies will become
wholly-owned subsidiaries of Interactive Data. References to Interactive
Data in this proxy statement refer to the businesses we are acquiring
(unless the context indicates otherwise).
Interactive Data is a leading provider of financial data. It collects,
maintains and models global data on over 3.5 million securities, including a
wide range of equities, commodities, derivative instruments and fixed income
securities that are traded in numerous national and international markets.
Interactive Data delivers data to its customers, which include many of the
world's leading financial services institutions, through a range of
proprietary products and services designed to provide customers with
customized data access that is convenient, timely and reliable. In 1998,
Interactive Data generated pro forma revenues of approximately $200 million.
See "Information About Interactive Data."
Q: WHY ARE WE PROPOSING THE MERGER?
A: We believe that the merger represents a unique opportunity to create one of
the world's leading providers of securities pricing and time-sensitive
financial information. The merger brings together our "pre-trade" expertise
and Interactive Data's "post-trade" expertise to create one of the world's
top providers of must-have, time-sensitive financial information. Our
market-leading BondEdge and eSignal products are used by investors for
research and analysis to help them determine which securities to trade and
when to trade. Interactive Data's market-leading products are used by
investors to value and track their securities every day after the trade.
Together, our respective products can offer powerful end-to-end solutions
for institutional and individual investors.
From a financial point of view, we expect that the merger will triple our
revenues and increase our cash flow by more than five times, while
increasing our total outstanding shares by only 2.6 times. We believe the
merger will give us size -- we expect annual revenues over $320 million and
annual cash flow over $70 million -- and the financial power to accelerate
product development, to accelerate our Internet incubation strategy, and to
make strategic acquisitions. In addition, the merged company will have no
long-term debt.
From a market recognition point of view, we expect that we will stand out
among the competition in the marketplace and the Wall Street investment
community because of the strong brand recognition of us, Interactive Data
and The Financial Times, and our relationships with Pearson plc,
MarketWatch.com and CBS Broadcasting, as illustrated by the recently
announced joint venture between Marketwatch.com and the Financial Times
Group. See "The Merger; Our Reasons for the Merger."
Q: WHEN DO WE EXPECT THE MERGER TO BE COMPLETED?
A: We expect the merger to be completed shortly following approval by our
stockholders at the annual meeting scheduled for February 23, 2000 and upon
receipt of necessary governmental approvals and third party consents.
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Q: HOW WILL THE MERGER AFFECT MY OWNERSHIP OF SHARES OF OUR COMMON STOCK?
A: You will have the same number of shares of our common stock as you had
before the merger, with the same rights you now hold. Our common stock will
continue to be traded on The NASDAQ National Market System under the symbol
"DBCC". In exchange for our acquiring Interactive Data and its subsidiaries,
Pearson Longman will own approximately 60% of our common stock, on a fully
diluted basis, which will permit Pearson Longman, among other things, to
appoint members to our board of directors and control our strategic and
operational direction. Thus, your same number of shares will represent a
smaller percentage of our common stock after the merger. Although
representing a smaller percentage, those shares will represent ownership in
a significantly larger company, which we believe will be three times our
current size in revenue with cash flow per share almost double today's and
will have thousands of additional clients worldwide.
Q: DOES OUR BOARD RECOMMEND VOTING IN FAVOR OF THE MERGER?
A: Our board of directors determined that the merger is fair to and in the best
interests of our stockholders, and recommends that stockholders vote FOR the
approval of the merger agreement and the related transactions.
Q: WILL THE MERGER AFFECT OUR OWNERSHIP OF MARKETWATCH.COM?
A: No, we currently own 4.5 million shares of Marketwatch.com which the merger
will not change.
Q: HOW WILL THE MERGER AFFECT eSIGNAL?
A: We are continuing to evaluate our business and financial strategy with
respect to eSignal, which may include a strategic partnership or an initial
public offering.
Q: WHAT ARE THE TAX CONSEQUENCES OF THE MERGER TO ME?
A: There are no tax consequences to you as a result of the merger.
Q: WHEN AND WHERE IS THE MEETING?
A: The meeting will be held at the Continental Insurance Building, 180 Maiden
Lane, New York, New York, on February 23, 2000, at 10:00 a.m. New York City
time, in the Ricker Auditorium on the Mezzanine Level.
Q: WHO CAN VOTE ON THE PROPOSALS PRESENTED IN THIS PROXY?
A: Holders of our common stock at the close of business on January 10, 2000,
the record date relating to the meeting, may vote.
Q: WHAT WILL HAPPEN IF THE MERGER AGREEMENT IS NOT APPROVED BY OUR
STOCKHOLDERS?
A: If the merger agreement is not approved by our stockholders, our current
directors will continue to serve until a special meeting of our stockholders
which will be held as soon as practicable, and our certificate of
incorporation will not be amended.
Q: WHAT VOTE IS REQUIRED?
A: The merger agreement, including the related issuance of 56,423,949 shares of
our common stock, and the amendment to our certificate of incorporation to
increase the number of authorized shares of our common stock, must be
approved by the affirmative vote of over 50% of the outstanding shares of
our common stock. For each directorship, you may cast a number of votes
equal to the number of our shares you hold. The nominees receiving the
greatest number of votes, up to the number of directors to be elected, will
be our new directors. For each other proposal, the affirmative vote of a
majority of the shares present in person or represented by proxy and
entitled to vote on the proposal is required for approval. Our former
co-chief executive officers and current co-chairmen of the board of
directors have agreed to vote their shares in favor of the proposals set
forth in this proxy statement. These stockholders own a total of 2,740,690
shares, or approximately 7.9%, of the total number of shares of our common
stock outstanding on the record date. See "Other Agreements; Voting
Agreements."
Q: WHAT DO I NEED TO DO NOW?
A: Read this proxy statement and the attached appendices. Then, if you choose
to vote by proxy, you can (i) complete your proxy card and indicate how you
want to vote or (ii) vote your shares either by telephone or via the
Internet, the instructions for which are set forth on the proxy card. Voting
by
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telephone or via the Internet eliminates the need to return the proxy card.
If you decide to vote by mail, sign and mail the proxy card in the enclosed
return envelope as soon as possible. You should complete, sign and return
your proxy card or vote by telephone or via the Internet even if you
currently expect to attend the meeting and vote in person. Mailing in a
proxy card or voting by telephone or Internet now will not prevent you from
later canceling or "revoking" your proxy right up to the day of the meeting,
and you will ensure that your shares get voted if you later find you are
unable to attend. If you sign and send in the proxy card and do not indicate
how you want to vote, your proxy will be voted FOR the approval of the
merger agreement, including the related issuance of shares of our common
stock, FOR the amendment to our certificate of incorporation to increase the
number of authorized shares of our common stock, FOR the election of the
nominees to our board of directors, FOR the approval of our 2000 long-term
incentive plan, FOR the ratification of PricewaterhouseCoopers LLP as our
independent auditor for our fiscal year ending June 30, 2000, and FOR the
grant of discretionary authority to our board of directors to postpone or
adjourn the annual meeting. IF YOU DO NOT VOTE BY SENDING IN YOUR PROXY
CARD, VOTING BY TELEPHONE, VOTING VIA THE INTERNET OR VOTING IN PERSON AT
THE MEETING, IT WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE APPROVAL OF
THE MERGER AGREEMENT, THE RELATED ISSUANCE OF SHARES OF OUR COMMON STOCK AND
THE AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF OUR COMMON STOCK. THIS IS WHY IT IS VERY IMPORTANT THAT
YOU VOTE BY RETURNING YOUR PROXY CARD, OR BY TELEPHONE OR INTERNET, AS SOON
AS POSSIBLE.
Q: IF MY BROKER HOLDS MY SHARES IN "STREET NAME," WILL MY BROKER VOTE MY SHARES
FOR ME?
A: Your broker will vote your shares only if you instruct the broker how to
vote. To do so, follow the directions your broker provides. Without
instructions, your broker will not vote your shares. However, your broker
will not require instructions from you to vote for the election of directors
or for the ratification of the appointment of PricewaterhouseCoopers LLP as
our independent auditor for the fiscal year ending June 30, 2000.
Q: CAN I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD?
A: Yes. You can change your vote at any time before your proxy is voted at the
annual meeting by delivering a signed notice of revocation, by delivering a
later dated signed proxy card to our corporate secretary, by submitting a
new proxy by telephone or via the Internet or by attending the stockholder
meeting and voting.
Q: SHOULD I SEND IN MY STOCK CERTIFICATES AT THIS TIME?
A: No. You will continue to own your shares of our common stock after the
merger and should continue to hold your stock certificates.
Q: WHERE CAN I FIND MORE INFORMATION ABOUT DATA BROADCASTING?
A: We file reports and other information with the Securities and Exchange
Commission. You may read and copy this information at the SEC's public
reference facilities. Please call the SEC at 1-800-SEC-0330 for information
about these facilities. The reports and information also are available at
the Internet site the SEC maintains at http://www.sec.gov. You should review
the appendices attached to this proxy statement which include our Annual
Report on Form 10-K for our fiscal year ended June 30, 1999. You also can
request copies of these documents from us at no charge to you.
Q: WHO CAN I CALL WITH QUESTIONS?
A: If you have questions, you should contact:
Georgeson Shareholder Communications Inc.
17 State Street
New York, NY 10004
1-800-223-2064
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SUMMARY
This summary only highlights selected information from this proxy statement
and may not contain all of the information that is important to you. To fully
understand the merger agreement, the amendment to our certificate of
incorporation, our 2000 long-term incentive plan and the election of the
directors to the board and for a description of the legal terms of the merger,
you should read carefully this entire proxy statement, our 1999 Annual Report on
Form 10-K which is included as Appendix A to this proxy and the other documents
to which we have referred you. See "Where can I find more information about Data
Broadcasting?" on page 4. The merger agreement is attached to this document as
Appendix B and is incorporated in its entirety into this document by reference.
THE COMPANIES
DATA BROADCASTING CORPORATION (SEE PAGE 41)
Data Broadcasting Corporation
7050 Union Park Center
Suite 600
Midvale, Utah 84047
801-562-2252
www.dbc.com
We distribute real-time financial and business information on a
subscription basis to a broad range of individual and professional investors and
businesses. We specialize in meeting the needs of individual investors and
professional traders by providing news, real-time streaming quote services,
analytical tools and investment models. We operate in two business segments: (1)
the Market Information segment and (2) the BondEdge segment. The principal
services of Market Information are eSignal, BMI MarketCenter, Quotrek, InSite,
BondVu, Global Treasury Information Services, Federal News Service and various
sports services. Historically, this business included the agribusiness service
of AgCast, which was sold on May 20, 1999. BondEdge is delivered by our Capital
Management Sciences division which provides a comprehensive database of fixed
income securities, analytical tools and models for institutional investors. In
addition to these two groups, we own approximately 32% of the outstanding common
stock of MarketWatch.com, Inc., (NASDAQ Trading Symbol "MKTW") which provides an
Internet business information site for individual investors, business
professionals and the general public.
PEARSON PLC
Pearson plc
3 Burlington Gardens
London W1X ILE
England
011-44-171-411-2000
www.pearson.com
Pearson plc is an international media company which also owns The Financial
Times, which publishes one of the world's leading financial newspapers; Pearson
Education, the world's largest educational publishing company; Pearson
Television, one of the world's leading international independent television
production companies; the Penguin group, one of the world's leading
English-language publishers; and Recoletos, one of Spain's leading media
companies.
PEARSON LONGMAN, INC.
c/o Pearson Inc.
1330 Avenue of the Americas, 7th Floor
New York, NY 10019
212-641-2400
Pearson Longman is an indirect wholly owned subsidiary of Pearson plc.
Pearson Longman, Inc. owns Interactive Data.
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INTERACTIVE DATA CORPORATION (SEE PAGE 42)
Interactive Data Corporation
22 Crosby Drive
Bedford, MA 01730
781-687-8800
www.interactivedata.com
Interactive Data Corporation is a leading provider of financial data. It
collects, maintains and models global data on over 3.5 million securities,
including a wide range of equities, commodities, derivative instruments and
fixed income securities that are traded in numerous national and international
markets. Interactive Data delivers data to its customers, which include many of
the world's leading financial services institutions, through a range of
proprietary products and services designed to provide customers with customized
data access that is convenient, timely and reliable. In 1998, Interactive Data
generated pro forma revenues of approximately $200 million.
Interactive Data is a member of Pearson plc's Financial Times Asset
Management division. Prior to the completion of the merger, the business of
Interactive Data will be reorganized to include the Financial Times Asset
Management division companies as its wholly-owned subsidiaries and all
references to Interactive Data in this proxy statement refer to the reorganized
company including its subsidiaries (unless the context indicates otherwise). See
"The Merger Agreement; Reorganization of Interactive Data."
DETECTIVE MERGER-SUB, INC.
c/o Data Broadcasting Corporation
7050 Union Park Center
Suite 600
Midvale, Utah 84047
801-562-2252
Detective Merger-Sub is our wholly owned direct subsidiary and is a
Delaware corporation formed expressly for use in the merger. This is the only
purpose of Detective Merger-Sub.
THE REORGANIZATION OF INTERACTIVE DATA (SEE PAGE 30)
On or prior to the effective time of the merger, Interactive Data will
become the holder of 100% of the capital stock of each of the companies making
up Pearson plc's Financial Times Asset Management division. References to
Interactive Data in this proxy statement assume that the reorganization has
already taken place (unless the context indicates otherwise).
MATTERS TO BE CONSIDERED AT THE ANNUAL MEETING (SEE PAGE 16)
We, Interactive Data, Pearson Longman and Detective Merger-Sub have entered
into an agreement to merge Detective Merger-Sub, our wholly owned subsidiary,
into Interactive Data, with Interactive Data being the surviving company.
Interactive Data will become our wholly owned subsidiary. In connection with the
merger, we will issue 56,423,949 shares of our common stock to Pearson Longman,
which represents approximately 60% of our outstanding common stock on a fully
diluted basis. Our board has approved the merger agreement and the transactions
contemplated by it.
In order for us to accomplish the merger, our stockholders' must approve
(1) the merger agreement and the related issuance of 56,423,949 shares of our
common stock to Pearson Longman, (2) the amendment to our certificate of
incorporation to increase the number of shares of our common stock we are
authorized to issue and (3) the election of 10 members to our board of directors
having terms commencing immediately after the completion of the merger. We are
also asking stockholders to grant our board of directors discretionary authority
to postpone or adjourn the annual meeting in order to solicit additional votes
to approve any of the foregoing matters and discretionary authority to transact
any other business as may properly be brought before the meeting. We are also
seeking approval for our 2000 long-term incentive plan and the
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ratification of the appointment of PricewaterhouseCoopers LLP as our independent
auditor for our fiscal year ending June 30, 2000.
In the event that the merger agreement is not approved by our stockholders,
our current directors will continue to serve until a special meeting of our
stockholders which will be held as soon as practicable, and our certificate of
incorporation will not be amended. If sufficient votes are received to approve
our 2000 long-term incentive plan or to ratify the appointment of
PricewaterhouseCoopers LLP as our independent auditor for the fiscal year ending
June 30, 2000, such proposal will be approved or ratified independently of the
vote received on any other proposals before the stockholders.
We are sending you these materials to help you decide whether to approve
the merger agreement and the other proposals discussed in this proxy statement.
DATE, TIME AND PLACE OF THE ANNUAL MEETING (SEE PAGE 16)
The meeting will be held at the Continental Insurance Building, 180 Maiden
Lane, New York, New York, on February 23, 2000, at 10:00 a.m. New York City
time, in the Ricker Auditorium on the Mezzanine Level.
STOCKHOLDERS ENTITLED TO VOTE AT THE ANNUAL MEETING; VOTE REQUIRED (SEE PAGE 16)
The close of business on January 10, 2000 is the record date for the annual
meeting. Only our stockholders on the record date are entitled to notice of, and
to vote at, our annual meeting. On the record date, there were 34,509,210 shares
of our common stock outstanding. Each share of our common stock will be entitled
to vote on each matter to be acted upon at our annual meeting.
The merger agreement, the related issuance of 56,423,949 shares of our
common stock, and the amendment to our certificate of incorporation to increase
the number of authorized shares of our common stock must be approved by the
affirmative vote of over 50% of the outstanding shares of our common stock. You
may cast for each directorship the number of votes equal to the number of our
shares you hold. The nominees receiving the greatest number of votes, up to the
number of directors to be elected, will be our new directors. For each other
proposal, the affirmative vote of a majority of the shares present in person or
represented by proxy and entitled to vote on the proposal is required for
approval.
THE MERGER (SEE PAGE 19)
The merger agreement provides that we will acquire Interactive Data as a
result of the merger of Detective Merger-Sub, Inc., our wholly owned subsidiary,
into Interactive Data. Upon completion of the merger, Interactive Data will
become our wholly owned subsidiary. In connection with the merger, we will issue
to Pearson Longman 56,423,949 shares of our common stock which will represent
approximately 60% of our issued and outstanding common stock on a fully diluted
basis. As a result of the merger, Pearson Longman will own a controlling
interest in us.
We expect the merger to be completed shortly following approval by our
stockholders at the meeting scheduled on February 23, 2000 and upon receipt of
necessary governmental approvals and third party consents. We urge you to read
carefully and in its entirety the merger agreement included as Appendix B to
this proxy statement. It is the legal document that governs the merger.
BACKGROUND OF THE MERGER (SEE PAGE 20)
For a description of the events leading to the approval of the merger
agreement by our board of directors, see "The Merger; Background of the Merger."
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RECOMMENDATION OF OUR BOARD OF DIRECTORS; REASONS FOR THE MERGER (SEE PAGE 27)
Our board of directors has unanimously (with one abstention) determined
that the terms and conditions of the merger are fair and in the best interests
of our stockholders. Accordingly, our board of directors recommends that you
vote FOR all of the proposals set forth in this proxy statement.
OPINION OF OUR FINANCIAL ADVISOR (SEE PAGE 21)
In deciding to approve the merger, our board of directors considered an
opinion from our financial advisor, Hambrecht & Quist, that the merger
consideration is fair, from a financial point of view, to our stockholders. The
full text of this opinion is attached to this proxy statement as Appendix D and
is incorporated by reference in this proxy statement in its entirety. We
encourage you to read this opinion. The opinion sets forth assumptions made,
matters considered and limitations of the review undertaken in connection with
Hambrecht & Quist's opinion. The opinion is directed to our board of directors
and does not constitute a recommendation to any of our stockholders as to how to
vote their shares of our common stock.
ACCOUNTING TREATMENT (SEE PAGE 28)
We expect the merger to be accounted for as a reverse acquisition in
accordance with United States generally accepted accounting principles. Because
Pearson Longman will own approximately 60% of our shares after the merger, the
merger will be recorded as if Interactive Data had acquired our common stock on
the closing date. Under this method of accounting, the purchase price will be
based on the market value of our shares currently outstanding and will be
allocated to our assets and liabilities based on their estimated fair values.
The pro forma statement of stockholders' equity reflects the shares to be issued
by us in connection with the closing of the merger. Our results of operations
will be included in the consolidated financial results of operations of
Interactive Data commencing on the closing date of the merger. See "Unaudited
Pro Forma Condensed Combined Financial Statements."
INTERESTS OF CERTAIN PERSONS (SEE PAGE 29)
You should note that certain of our directors and executive officers may
have different interests in approving the merger from your interests as
stockholders. As of January 10, 2000, all of our executive officers and
directors, as a group, beneficially owned approximately 11.63% of the shares of
our common stock entitled to vote at our annual meeting.
CONDITIONS TO THE MERGER (SEE PAGE 37)
Completion of the merger is subject to certain customary conditions,
including, among others described in more detail in this proxy statement:
- the approval of the merger agreement, which includes the related issuance
of shares of our common stock to Pearson Longman, and the amendment to
our certificate of incorporation to increase the number of our authorized
shares of our common stock, and the election of the ten nominees to our
board of directors;
- the receipt of all necessary consents from U.S. and foreign government
authorities, regulators and certain third parties;
- the average closing price per share of our common stock for the 10-day
period ending on the day prior to the closing date of the merger being
not less than $6.50;
- the capitalization and business of MarketWatch.com experiencing no
material change;
- the representations and warranties of the parties being true in all
material respects at the closing; and
- the expiration or termination of any applicable Hart-Scott-Rodino Act
waiting period.
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NO SOLICITATION (SEE PAGE 35)
The merger agreement prevents us and our directors and officers from
soliciting any proposals or offers for, or participating in any discussions with
respect to, a merger, consolidation, or other business combination with a third
party prior to the closing of the merger or termination of the merger agreement.
However, if we receive an unsolicited offer for a merger, consolidation or other
business combination that is superior to the proposed merger, we may participate
in discussions regarding the offer in order to evaluate whether it is in the
best interests of our stockholders to withdraw or modify the board's
recommendation of the proposed merger (although the board cannot terminate the
merger agreement in such circumstances).
TERMINATION OF THE MERGER AGREEMENT (SEE PAGE 36)
We and Interactive Data can agree to terminate the merger agreement without
completing the merger, and either of us can terminate the merger agreement if:
- the merger is not completed by May 31, 2000, unless the terminating party
failed to perform its obligations resulting in a delay of the closing
date;
- a government authority or court of competent jurisdiction permanently
prohibits the merger;
- our stockholders fail to approve the merger agreement and the proposals
related to the merger in this proxy statement; or
- the non-terminating party materially breaches any representation or
warranty or any covenant in the merger agreement, and does not cure the
breach.
In addition, Interactive Data may terminate the merger agreement if we breach
our non-solicitation agreements or the board withdraws its recommendation of the
merger.
Upon termination, all costs and expenses will be paid by the party
incurring them, without any liability or obligation of one party to another
party, except that in certain circumstances we must pay Pearson Longman a $25.5
million termination fee. See "The Merger Agreement; Termination Fee" and "Other
Agreements; Stock Option Agreement."
Expenses related to this proxy statement will be paid by us.
TERMINATION FEE; STOCK OPTION AGREEMENT (SEE PAGES 37 AND 39)
We will be required to pay Pearson Longman a $25.5 million termination fee
following the termination of the merger under certain circumstances.
In connection with the execution of the merger agreement, we granted
Interactive Data an option to purchase up to 6,889,293.63 shares of our common
stock at $7.65 per share. This share number represents 19.9% of the shares of
our common stock outstanding on November 14, 1999.
Interactive Data may exercise the option only under circumstances in which
the termination fee is payable. Otherwise, the option will terminate and may not
be exercised by Interactive Data. The option limits Interactive Data's potential
profit from the sale of the shares underlying the option to $3.6 million.
Interactive Data required us to grant the stock option as a prerequisite to
entering into the merger agreement. The stock option, the termination fee and
the non-solicitation provisions of the merger agreement may discourage third
parties from seeking a significant stake in us and are intended by Interactive
Data to increase the likelihood that the merger will be completed. A copy of the
option agreement is attached to this proxy statement as Appendix C and is
incorporated in its entirety into this proxy statement by reference.
REGULATORY APPROVALS (SEE PAGE 28)
The merger is subject to the prior approval of the U.S. Department of
Justice and the Federal Trade Commission under applicable antitrust laws and to
certain filings with respect to the National Association of Securities Dealers,
certain state securities departments and foreign regulatory authorities.
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CONSEQUENCES OF THE MERGER TO OUR STOCKHOLDERS (SEE PAGE 3)
As a result of the merger, our stockholders will incur substantial dilution
in their aggregate ownership in us. After the merger, our stockholders will own
approximately 40% of the shares of our outstanding common stock. Those shares
will represent ownership in a significantly larger company, which we believe
will be three times our current size in revenue with per share cash flow almost
double today's and will have thousands of additional clients worldwide. Our
stockholders will not receive any additional shares or other consideration in
connection with the merger.
NO APPRAISAL OR DISSENTERS' RIGHTS (SEE PAGE 17)
Under Delaware law, our stockholders have no dissenters' rights or
appraisal rights with respect to the merger.
THE VOTING AND STANDSTILL AGREEMENTS (SEE PAGE 39)
As a condition to the signing of the merger agreement, Interactive Data
entered into separate Voting and Standstill Agreements with (i) ART/FGT Family
Partners Ltd and the Tessler Family Trust and (ii) the Alan J. Hirschfield
Living Trust, which, as of January 10, 2000, collectively own approximately
2,740,690 shares, or 7.9%, of our common stock. These stockholders have granted
a proxy to Interactive Data to vote for the approval of the merger agreement,
and the related issuance of shares of our common stock to Pearson Longman, and
in favor of the other proposals described in this proxy statement.
The granting of this proxy by these stockholders does not assure that the
proposals described in this proxy statement will be approved by our
stockholders.
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THE MARKET FOR OUR SECURITIES AND DIVIDEND INFORMATION
We have two classes of authorized stock: 75,000,000 shares of common stock,
$0.01 par value, of which 34,509,210 shares were outstanding as of January 10,
2000, and 5,000,000 shares of preferred stock, $0.01 par value, none of which
have been issued.
Our common stock trades on The Nasdaq National Market System under the
symbol DBCC. We began trading under this symbol on June 29, 1992.
The range of high and low bid quotations for our common stock as reported
by The Nasdaq National Market System for each quarterly period during the fiscal
years ended June 30, 1999 and June 30, 1998 is shown below.
HIGH LOW
---- ---
Fiscal Year 2000:
(in dollars)
First Quarter (7/1/99 to 9/30/99)......................... 11 7/16 6 1/8
Second Quarter (10/1/99 to 12/31/99)...................... 14 1/2 7
Fiscal Year 1999:
(in dollars)
First Quarter (7/1/98 to 9/30/98)......................... 7 1/2 4
Second Quarter (10/1/98 to 12/31/98)...................... 18 9/16 2 9/16
Third Quarter (1/1/99 to 3/31/99)......................... 46 1/8 12 7/8
Fourth Quarter (4/1/99 to 6/30/99)........................ 22 3/8 8 3/4
Fiscal Year 1998:
(in dollars)
First Quarter (7/1/97 to 9/30/97)......................... 7 1/4 4 3/4
Second Quarter (10/1/97 to 12/31/97)...................... 8 5/16 4 7/8
Third Quarter (1/1/98 to 3/31/98)......................... 6 5/8 4 1/4
Fourth Quarter (4/1/98 to 6/30/98)........................ 9 1/8 5
As of November 12, 1999, the last trading day before the announcement of
the proposed merger, the high and low bid quotations for our common stock were
$14.375 and $13.25, respectively. On January 10, 2000, the latest practicable
day before the printing of this proxy statement, our closing price per share was
$9. Because the market price for our common stock is subject to fluctuation, the
market value of our shares that Pearson Longman will receive in the merger may
increase or decrease prior to and following the merger.
There were approximately 2,150 holders of record and 40,000 beneficial
owners of our common stock as of the record date.
DIVIDEND POLICY
We have paid no dividends and do not anticipate paying dividends on our
common stock in the foreseeable future.
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SELECTED CONSOLIDATED HISTORICAL AND UNAUDITED
PRO FORMA COMBINED FINANCIAL DATA
The following tables show selected historical financial data for us and
Interactive Data and pro forma information for the combined company. This
information is only a summary and should be read in conjunction with the
historical financial statements and related notes of us and Interactive Data
included elsewhere in this proxy statement and incorporated by reference into
this proxy statement.
OUR SELECTED CONSOLIDATED HISTORICAL FINANCIAL INFORMATION
The following selected historical consolidated financial information,
insofar as it relates to each of the years 1995 to 1999, has been derived from
audited financial statements, including the consolidated balance sheets at June
30, 1995, 1996, 1997, 1998 and 1999 and the related consolidated statements of
operations and of cash flows for the five years ended June 30, 1999 and notes
thereto. The data for the three months ended September 30, 1998 and 1999 has
been derived from unaudited financial statements from our Quarterly Report on
Form 10-Q, incorporated by reference into this proxy statement, and which, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair statement of the results for the
unaudited interim periods. No cash dividends have been declared or paid on the
common stock.
THREE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED JUNE 30,
--------------------- ----------------------------------------------------
1999 1998 1999 1998 1997 1996 1995
UNAUDITED UNAUDITED AUDITED AUDITED AUDITED AUDITED AUDITED
--------- --------- -------- -------- -------- -------- --------
(IN THOUSANDS) (IN THOUSANDS)
Revenues (1)...................... $ 27,738 $ 25,670 $108,294 $102,613 $105,702 $ 94,164 $ 86,743
Income (Loss) From Operations..... 440 763 (1,016) 5,434 9,174 12,432 8,245
Equity in Losses of
MarketWatch.com Inc. ........... (5,643) (923) (6,500) (576) -- -- --
Income (Loss) From Continuing
Operations (2).................. (2,969) 71 (4,189) 2,993 5,396 9,088 16,365
Net Income (Loss)................. (2,969) 71 (4,189) (4,763) (18,279) 8,871 16,365
EBITDA (3)........................ $ 3,625 $ 4,804 $ 13,920 $ 20,980 $ 22,758 $ 23,003 $ 23,877
Basic Income (Loss) Per Share
Income (Loss) From Continuing
Operations.................... $ (.09) $ .00 $ (.12) $ .09 $ .17 $ .30 $ .73
Net Income (Loss)............... $ (.09) $ .00 $ (.12) $ (.15) $ (.56) $ .29 $ .73
Diluted Income (Loss) Per Share
Income (Loss) From Continuing
Operations.................... $ (.09) $ .00 $ (.12) $ .09 $ .16 $ .28 $ .67
Net Income (Loss)............... $ (.09) $ .00 $ (.12) $ (.14) $ (.54) $ .27 $ .67
Weighted Average Shares
Basic......................... 34,579 32,967 33,902 32,841 32,526 30,599 22,497
Diluted....................... 35,111 33,586 34,760 33,447 33,676 32,734 24,350
Total Assets...................... $183,886 $123,510 $188,492 $126,464 $134,183 $153,967 $163,020
Long Term Debt, Less Current
Portion......................... -- 250 -- 500 1,500 2,558 8,903
Stockholders' Equity.............. $149,395 $101,477 $154,158 $102,525 $105,853 $116,097 $ 96,715
- ---------------
(1) Exchange fees have been reclassified as revenues and expenses in all
periods.
(2) Income (loss) from continuing operations includes equity in losses of
MarketWatch.com, interest income (expense), gain on the sale in 1995 of
Shark Information Services Corp. and other items.
(3) EBITDA represents earnings of the companies before interest, income taxes,
depreciation, amortization expense, equity in losses of MarketWatch.com and
proceeds from CNBC. We believe that EBITDA is a widely accepted financial
indicator used by investors and analysts to analyze and compare companies on
the basis of operating performance. EBITDA is not intended to represent cash
flows for the periods
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presented, nor has it been presented as an alternative to operating income
or as an indicator of operating performance. You should not consider EBITDA
in isolation or as a substitute for measures of performance prepared in
accordance with generally accepted accounting principles. We understand
that, while EBITDA is frequently used by securities analysts in the
evaluation of companies, EBITDA is not necessarily comparable to other
similarly titled measures of other companies due to potential
inconsistencies in the methods of calculation.
SELECTED COMBINED HISTORICAL FINANCIAL INFORMATION OF INTERACTIVE DATA
The following selected historical combined financial information, insofar
as it relates to each of the years 1997 and 1998 and the nine months ended
September 30, 1999, has been derived from audited financial statements,
including the combined balance sheets at December 31, 1997 and 1998 and
September 30, 1999 and the related combined statements of operations and
Comprehensive Income and of cash flows for the nine months ended September 30,
1999 and each of the two years ended December 31, 1998 and 1997 and notes
thereto included in this proxy statement. The data for the years ended December
31, 1995, and 1996 and the nine months ended September 30, 1998 has been derived
from unaudited financial statements which, in the opinion of management, include
all adjustments, consisting only of normal recurring adjustments, necessary for
a fair statement of the results for the unaudited interim periods.
NINE MONTHS ENDED
SEPTEMBER 30, YEAR ENDED DECEMBER 31, DECEMBER 31,
-------------------- ------------------------------- ------------
1999 1998 1998 1997 1996 1995(1)
AUDITED UNAUDITED AUDITED AUDITED UNAUDITED UNAUDITED
-------- --------- -------- -------- --------- ------------
(IN THOUSANDS) (IN THOUSANDS)
Revenues................................. $132,811 $113,471 $156,437 $143,294 $133,968 $ 78,942
Net Income (Loss)........................ 8,310 (4,952) (3,215) (6,944) (5,178) 56
EBITDA(2)................................ 42,531 25,218 36,160 30,750 30,830 20,828
Total Assets............................. 501,023 295,620 295,048 288,687 332,625 338,707
Long Term Debt, Less Current Portion..... -- 20,000 20,000 35,299 37,702 42,176
Stockholders' Equity..................... $377,981 $213,004 $221,736 $214,695 $250,907 $251,460
- ---------------
(1) Certain operations of Interactive Data were acquired by Pearson plc in
August 1995.
(2) EBITDA represents earnings of the companies before interest, income taxes,
depreciation and amortization expense. We believe that EBITDA is a widely
accepted financial indicator used by investors and analysts to analyze and
compare companies on the basis of operating performance. EBITDA is not
intended to represent cash flows for the periods presented, nor has it been
presented as an alternative to operating income or as an indicator of
operating performance. You should not consider EBITDA in isolation or as a
substitute for measures of performance prepared in accordance with generally
accepted accounting principles. We understand that, while EBITDA is
frequently used by securities analysts in the evaluation of companies,
EBITDA is not necessarily comparable to other similarly titled measures of
other companies due to potential inconsistencies in the methods of
calculation.
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SELECTED UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
The following selected unaudited pro forma condensed combined financial
information presents our historical information and the historical information
of Interactive Data adjusted to give effect to the assumed merger. The
information presented below has been extracted from the unaudited pro forma
condensed combined statements of operations for the nine months ended September
30, 1999 and the year ended December 31, 1998 which give effect to the assumed
merger of Data Broadcasting and Interactive Data and the acquisition of Muller
Data and the assets of Muniview and Valorinform by Interactive Data on July 29,
1999, as if each had occurred on January 1, 1998. The unaudited pro forma
balance sheet information is presented as of September 30, 1999, as if the
merger occurred on that date. This information is only a summary and should be
read in conjunction with the unaudited pro forma condensed combined financial
information included elsewhere in this proxy statement (beginning at page 67).
NINE MONTHS YEAR ENDED
ENDED SEPTEMBER 30, DECEMBER 31,
1999 1998
------------------- --------------
UNAUDITED UNAUDITED
(IN THOUSANDS) (IN THOUSANDS)
Revenues............................................. $ 244,471 $306,878
Net loss............................................. (51,461) (73,568)
EBITDA(1)............................................ $ 52,892 $ 63,296
Loss per share
Basic and diluted.................................. $ (.56) $ (.82)
Weighted average shares
Basic and diluted.................................. 91,246 89,319
Total assets......................................... $1,025,500
Long term debt, less current portion................. --
Stockholders' equity................................. $ 788,362
- ---------------
(1) EBITDA represents earnings of the companies before interest, income taxes,
depreciation, amortization expenses and equity in losses of MarketWatch.com.
We believe that EBITDA is a widely accepted financial indicator used by
investors and analysts to analyze and compare companies on the basis of
operating performance. EBITDA is not intended to represent cash flows for
the periods presented, nor has it been presented as an alternative to
operating income or as an indicator of operating performance. You should not
consider EBITDA in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles. We
understand that, while EBITDA is frequently used by securities analysts in
the evaluation of companies, EBITDA is not necessarily comparable to other
similarly titled measures of other companies due to potential
inconsistencies in the methods of calculation.
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FORWARD-LOOKING STATEMENTS IN THIS PROXY STATEMENT
This proxy statement and the documents incorporated by reference into this
proxy statement contain forward-looking statements within the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995 with respect
to our and Interactive Data's financial condition, results of operations and
business, technological developments, business prospects and initiatives,
research and development activities, new products and the expected impact of the
merger on our and Interactive Data's financial performance and certain other
matters. Words such as "anticipates," "expects," "intends," "plans," "believes,"
"seeks," "estimates" and similar expressions, indicate forward-looking
statements. These forward-looking statements are not guarantees of future
performance and are subject to risks and uncertainties that could cause our and
Interactive Data's actual results to differ materially from the results
contemplated by the forward-looking statements; including, among other things,
the actions of competitors with greater financial resources or technological
capacities, changes in technology which could affect the competitiveness of our
products and services, the failure of customers or suppliers to have
successfully completed their year 2000 projects, developments in the securities
markets which might lower demand for our products, consolidation in the
financial services industry, which could erode our customer base, the inability
to retain key employees after the merger and the inherent possibility of events
causing unanticipated technology performance interruptions.
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THE ANNUAL MEETING
PURPOSE
We are furnishing this proxy statement to our stockholders in connection
with the solicitation of proxies by our board of directors. Our board of
directors will use the proxies at the annual meeting of our stockholders to be
held on February 23, 2000 and at any adjournment or postponement thereof for the
purpose of considering and voting on the following proposals:
- Approval of the Agreement and Plan of Merger, dated as of November 14,
1999, and amended as of January 10, 2000, among us, Interactive Data,
Pearson Longman and Detective Merger-Sub and the related issuance of
56,423,949 shares of our common stock to Pearson Longman in the merger.
- Approval of an amendment to our certificate of incorporation to increase
the number of authorized shares of our common stock to 200,000,000
shares.
- Election of 10 members to our board of directors, whose terms shall
commence immediately upon the completion of the merger and who will serve
until our next annual meeting or until their successors have been duly
elected and qualified or their earlier death, resignation or removal.
- Granting our board of directors discretionary authority to postpone or
adjourn the annual meeting in order to solicit additional votes to
approve any matters set forth in the three proposals above.
- Approval of our 2000 long-term incentive plan.
- Ratification of the appointment of PricewaterhouseCoopers LLP as our
independent auditor for our fiscal year ending June 30, 2000.
- Transacting any other business as may properly be brought before our
annual meeting or any adjournment or postponement thereof.
DATE, PLACE AND TIME
The annual meeting of our stockholders will be held on February 23, 2000,
at the Continental Insurance Building, 180 Maiden Lane, New York, New York at
10:00 a.m. New York City time. The meeting will take place in the Ricker
Auditorium on the Mezzanine Level.
RECORD DATE
Our board of directors fixed the close of business on January 10, 2000 as
the record date for the annual meeting. Accordingly, only holders of our common
stock of record at the close of business on January 10, 2000, will be entitled
to notice of, and to vote at, the annual meeting.
STOCKHOLDERS ENTITLED TO VOTE
As of the close of business on January 10, 2000, there were 34,509,210
shares of our common stock outstanding, and such shares of common stock were
held by approximately 2,150 holders of record and by 40,000 beneficial owners.
Each share of our common stock entitles the holder thereof to one vote. As of
January 10, 2000, directors and executive officers may be deemed to be
beneficial owners of 11.63% of the outstanding shares of our common stock.
VOTE REQUIRED; VOTING AT THE MEETING
Representation of a majority of our shares of common stock outstanding on
the record date, either in person or by proxy, constitutes a quorum for the
meeting. The proposals concerning the merger agreement, including the issuance
of the shares of our common stock and an amendment to our certificate of
incorporation to increase the number of authorized shares of our common stock,
will require the affirmative vote of more than 50% of the outstanding shares of
our common stock for approval. You may cast for each directorship the number of
votes equal to the number of our shares you hold. The nominees receiving the
greatest number of
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votes, up to the number of directors to be elected, will be elected as our new
directors. For each other proposal, the affirmative vote of a majority of the
shares present in person or represented by proxy and entitled to vote on the
proposal will be required for approval.
In the event that the merger agreement is not approved by our stockholders,
our current directors will continue to serve until a special meeting of our
stockholders which will be held as soon as practicable, and our certificate of
incorporation will not be amended. If sufficient votes are received to approve
our 2000 long-term incentive plan or to ratify the appointment of
PricewaterhouseCoopers LLP as our independent auditor for our fiscal year ending
June 30, 2000, such proposal will be approved or ratified independently of the
vote received on any other proposals before the stockholders.
The Alan J. Hirschfield Living Trust, the ART/FGT Family Partners Ltd. and
the Tessler Family Partnership, who, as of January 10, 2000, together own 7.9%
of the outstanding shares of our common stock, have agreed to vote their shares
in favor of the proposals set forth in this proxy statement.
VOTING OF PROXIES
All properly executed proxies, and all proxies properly submitted by
telephone or via the Internet, received before the vote at the annual meeting,
and not revoked, will be voted in accordance with the instructions indicated on
the proxies or indicated by telephone or Internet, as applicable. If no
instructions are indicated on a returned proxy, such proxies will be voted FOR
the approval of the merger agreement and the related issuance of 56,423,949
shares of our common stock, FOR the amendment of our certificate of
incorporation to increase our authorized shares of common stock, FOR election of
the nominated slate of directors, FOR the approval of our 2000 long-term
incentive plan, FOR the ratification of the appointment of
PricewaterhouseCoopers LLP as our independent auditor for our fiscal year ending
June 30, 2000, and FOR the grant of discretionary authority to our board of
directors to adjourn or postpone the annual meeting.
A stockholder who has given a proxy solicited by our board of directors may
revoke it by
- giving written notice of revocation to our Secretary;
- delivering a later dated proxy to our Secretary;
- submitting a new proxy by telephone or via the Internet; or
- attending the annual meeting and voting in person.
Any written notice of revocation or subsequent proxy must be sent to Data
Broadcasting Corporation, 7050 Union Park Center, Suite 600, Midvale, Utah
84047, Attention: Joanne Douglas so as to be delivered at or before the taking
of the vote at the annual meeting.
SOLICITATION OF PROXIES
In addition to solicitation by mail, our directors, officers, and employees
may solicit proxies from stockholders by telephone or in person. These persons
will not receive additional compensation for soliciting proxies but may be
reimbursed reasonable out-of-pocket expenses. Arrangements will also be made
with brokerage houses and other custodians, nominees and fiduciaries to forward
solicitation material to our stockholders. We may reimburse these custodians,
nominees and fiduciaries for their reasonable out-of-pocket expenses incurred.
We have engaged Georgeson Shareholder Communications Inc. to represent us in
connection with the solicitation of proxies at a cost of approximately $35,000,
plus expenses.
We will pay for all of the expenses of the solicitation of proxies for the
annual meeting.
RIGHTS OF DISSENTING STOCKHOLDERS
Under Delaware law, our stockholders have no dissenters' rights or
appraisal rights with respect to the merger.
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RECOMMENDATION OF OUR BOARD OF DIRECTORS
Our board of directors has unanimously (with one abstention) determined
that the terms of the merger are in our and our stockholders' best interests.
Our board of directors recommends that our stockholders vote FOR the approval of
the merger agreement and the related issuance of 56,423,949 shares of our common
stock to Pearson Longman, FOR the amendment to our certificate of incorporation
to increase our authorized shares of common stock, FOR the election of the
nominated slate of directors, FOR the approval of our 2000 long-term incentive
plan, FOR the ratification of the appointment of PricewaterhouseCoopers LLP as
our independent auditor for our fiscal year ending June 30, 2000, and FOR the
grant of discretionary authority to our board of directors to adjourn or
postpone the annual meeting.
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THE MERGER
The following information describes material aspects of the merger. This
description is only a summary of the terms and conditions of the merger
agreement, the Voting and Standstill Agreements between Interactive Data and the
Alan J. Hirschfield Living Trust, ART/FGT Family Partners Ltd. and Tessler
Family Limited Partnership, dated as of November 14, 1999, the Option Agreement
between us and Interactive Data, dated as of November 14, 1999, and the letter
agreements between us and Allan Tessler, Alan Hirschfield and Mark Imperiale,
dated as of November 14, 1999 (collectively, these agreements and documents are
referred to in this proxy statement as the ancillary agreements). This
description is qualified in its entirety by the Appendices hereto, including the
text of the merger agreement, which is attached as Appendix B to this proxy
statement. You are also urged to read the Appendices in their entirety.
GENERAL DESCRIPTION OF THE MERGER
Our board of directors has unanimously (with one abstention) approved the
merger agreement, the ancillary agreements and the transactions contemplated by
them. The merger agreement provides that Detective Merger-Sub, our wholly owned
subsidiary created for the purpose of effecting the merger, will merge with
Interactive Data, a wholly owned subsidiary of Pearson Longman, with Interactive
Data as the surviving entity of the merger. As a result of the merger,
Interactive Data will be our wholly owned subsidiary. In connection with the
merger, we will issue 56,423,949 shares of our common stock to Pearson Longman,
which represents approximately 60% of our issued and outstanding common stock on
a fully diluted basis after the merger. In connection with the merger, Mr. Allan
Tessler, Mr. Alan Hirschfield, Mr. Donald Greenberg and Mr. Carl Spielvogel will
remain on our board of directors and six new board members will be designated by
Pearson Longman. The following diagrams illustrate the steps that will take
place in the merger and the ownership structure of the Company after the merger.
DIAGRAM OF THE MERGER
[DIAGRAM OF THE MERGER FLOW CHART]
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DATA BROADCASTING'S OWNERSHIP UPON
COMPLETION OF THE MERGER
[DATA BROADCASTING'S OWNERSHIP FLOW CHART]
In order to issue shares of our common stock to Pearson Longman and for
other general corporate purposes, we need to amend our certificate of
incorporation to authorize 200,000,000 shares of common stock for issuance, an
increase of 125,000,000 shares over the existing number of shares currently
authorized. Pursuant to the terms of the merger agreement, our stockholders must
approve the amendment. In addition, under the rules and regulations of The
NASDAQ National Market System, we are required to obtain stockholder approval of
the issuance of the additional shares of our common stock to Pearson Longman.
You Will Not Receive Any Common Stock as a Result of the Merger.
We are issuing additional common stock to Pearson Longman as consideration
for the acquisition of Interactive Data. You will not receive any payment in
cash or securities for your shares of our common stock. However, after the
merger, your shares will represent ownership in a significantly larger company,
which we believe will be three times our current size in revenue with cash flow
per share almost double today's and will have thousands of additional clients
worldwide.
BACKGROUND OF THE MERGER
In February 1999, at a strategic planning meeting of our board of
directors, the idea of a potential transaction with Interactive Data was
discussed. Mr. Spielvogel, a member of our board of directors, who also serves
on The Financial Times outside advisory committee on business matters, arranged
for an exploratory meeting in New York City, which was held on March 12, 1999,
with our representatives, and representatives from Marketwatch.com and
Interactive Data.
On May 10, 1999, Stephen Hill of The Financial Times Group visited our
offices in Hayward, California, and Marketwatch.com's offices in San Francisco,
California. In July 1999, at a meeting in New York attended by Messrs. Tessler,
Spielvogel and Imperiale, on our behalf, and Mr. Hill and Mr. John Davis of the
Financial Times Group, on behalf of Interactive Data, a possible business
combination was proposed. Shortly thereafter, a confidentiality agreement was
executed, and selected descriptive and financial information with respect to
each company was exchanged by the parties.
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On August 4, 1999, we discussed the possible transaction with
representatives of Hambrecht & Quist. Also on that date, Messrs. Hill and
Imperiale met in London to discuss their respective businesses. On September 3,
1999, Messrs. Tessler, Imperiale and Davis met to discuss a timetable for moving
forward on a potential transaction. Additional terms were discussed at a meeting
held in New York on September 21, 1999, attended by representatives of both
companies. At such meeting, certain proposed terms of the transaction were
orally, preliminarily agreed to in principle. We met with Hambrecht & Quist in
Jackson, Wyoming on September 29, 1999 to further discuss our evaluation of the
possible combination. On October 1, 1999, Mr. Davis visited us and
Marketwatch.com.
On October 4 and October 5, 1999, we met in New York with representatives
of CBS to discuss the impact of a possible transaction on Marketwatch.com. On
October 6, 1999, we and Interactive Data each gave general business
presentations in New York, which were attended by senior level management of
each company, as well as representatives of Goldman Sachs & Co.,
PricewaterhouseCoopers LLP and Morgan, Lewis & Bockius LLP, as advisors to
Interactive Data, and Hambrecht & Quist, Camhy Karlinsky & Stein LLP, and
PricewaterhouseCoopers LLP, as our advisors.
On October 7, 1999, the parties met to outline a detailed due diligence
schedule. During the week of October 12, 1999, Interactive Data and its advisors
performed on site due diligence in Hayward, San Francisco, Salt Lake City, Los
Angeles and New York. During the week of October 19, 1999, we and our advisors
performed on site due diligence in Bedford, Waltham, Boston, New York and
London. On October 26, 1999, a meeting was held in New York, which was attended
by Messrs. Imperiale and Davis, Mr. Stuart Clark of Interactive Data and
representatives of Goldman Sachs and Hambrecht & Quist, who each reported
satisfactory results of on site due diligence reviews. At that meeting an
understanding was reached that Interactive Data would direct its counsel to
draft a merger agreement. From November 4 through November 11, 1999, the parties
and their advisors negotiated the merger agreement and the related documents and
prepared the applicable schedules.
On November 7, 1999, our board of directors met in New York to discuss the
proposed merger. At that meeting, a detailed presentation was given by our
management and by Hambrecht & Quist. Our counsel reported on the significant
terms of the transaction, including the structure, the non-solicitation
provision, the conditions to closing, the break-up fees, the voting agreements,
the option agreement and the applicable regulatory requirements. Our counsel
also reported on the results of legal due diligence and advised the directors as
to their duties in considering a transaction such as the one contemplated.
Management reported on the results of business due diligence and Hambrecht &
Quist began their detailed presentation regarding the transaction. The meeting
reconvened on November 9, 1999, and Hambrecht & Quist continued their
presentation and advised our board of directors that, subject to review of the
final documentation, they were prepared to issue their opinion that the
transaction was fair from a financial point of view to our stockholders. Our
board of directors unanimously (with one abstention) approved the merger.
Because of his role in arranging the introduction of the parties, and his
compensation arrangement with us for doing so, Mr. Spielvogel did not vote.
On November 11, 1999, the merger agreement was finalized pending final
approval of our board and mutual approval of press releases. On November 12,
1999, our board of directors approved the final merger agreement. On November
14, 1999 the press releases were agreed to and the merger agreement was
executed. On January 10, 2000, the merger agreement was amended as reflected in
Appendix B.
OPINION OF HAMBRECHT & QUIST
We engaged Hambrecht & Quist to act as our exclusive financial advisor in
connection with the merger and to render an opinion that the issuance of our
common stock to Pearson Longman in the merger was fair, from a financial point
of view, to our stockholders. Hambrecht & Quist was selected by us based on
Hambrecht & Quist's qualifications, expertise and reputation, as well as the
past investment banking relationship and familiarity that certain employees of
Hambrecht & Quist have with us. On November 14, 1999, Hambrecht & Quist rendered
its oral opinion, subsequently confirmed in writing, to us that as of that date,
the proposed transaction was fair, from a financial point of view, to our
stockholders.
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The full text of the opinion delivered by Hambrecht & Quist to us, dated
November 14, 1999 which sets forth the assumptions made, general procedures
followed, matters considered, and limitations on the scope of the review
undertaken by Hambrecht & Quist in rendering its opinion, is attached as
Appendix D to this proxy statement and is incorporated herein by reference. The
Hambrecht & Quist opinion does not constitute a recommendation to any of our
stockholders as to how such stockholders should vote with respect to the merger.
The summary of the Hambrecht & Quist opinion set forth below is qualified in its
entirety by reference to the full text of the fairness opinion. Our stockholders
are urged to read the opinion carefully in its entirety.
In reviewing the merger, and in arriving at its opinion, Hambrecht & Quist,
among other things:
(i) discussed the business, financial condition and prospects of
Interactive Data and us with certain members of senior management of
Interactive Data and us;
(ii) reviewed our publicly available consolidated financial statements
for recent years and interim periods to date and certain other relevant
financial and operating data of Interactive Data and us made available to
Hambrecht & Quist from published sources and from the internal records of
Interactive Data and us;
(iii) reviewed certain internal and financial operating information,
including certain projections, relating to Interactive Data and us prepared
by our management and the management of Interactive Data;
(iv) reviewed the recent reported prices and trading activity for our
common stock and compared such information and certain financial
information for Interactive Data and us with similar information for
certain other companies engaged in businesses with characteristics
Hambrecht & Quist considered comparable;
(v) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(vi) reviewed the merger agreement and the related agreements; and
(vii) performed such other analyses and examinations and considered
such other information, financial studies, analyses and investigations and
financial, economic and market data as Hambrecht & Quist deemed relevant.
In addition, in rendering its opinion, Hambrecht & Quist assumed and relied
on the accuracy and completeness of all of the information concerning
Interactive Data and us it considered in connection with its review of the
proposed transactions. Hambrecht & Quist did not assume any responsibility for
independent verification of this information. Hambrecht & Quist did not prepare
any independent valuation or appraisal of any of the assets or liabilities of
Interactive Data or us, nor did it conduct a physical inspection of the
properties and facilities of Interactive Data or us. Hambrecht & Quist assumed
that the financial forecasts and projections made available to it and used in
its analysis reflected the best currently available estimates and judgments of
the expected future financial performance of Interactive Data and us. For
purposes of its opinion, Hambrecht & Quist assumed that neither Interactive Data
nor we were a party to any pending transactions, including external
recapitalizations or material merger discussions, other than the proposed
transactions and activities undertaken in the ordinary course of conducting
their respective businesses. Hambrecht & Quist's opinion is based on market,
economic, financial and other conditions as they existed and could be evaluated
as of the date of the opinion, and any change in these conditions would require
a reevaluation of the opinion. Hambrecht & Quist expressed no opinion as to the
price at which our common stock will trade following the merger. Hambrecht &
Quist assumed that the proposed transactions would be consummated substantially
on the terms discussed in the merger agreement and related agreements, without
any waiver of any material terms or conditions by any of the parties to the
merger agreement and related agreements.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. The summary
of the Hambrecht & Quist analyses below is not a complete description of the
presentation by Hambrecht & Quist to us. In arriving at its opinion, Hambrecht &
Quist did
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not attribute any particular weight to any analyses or factors it considered,
but rather made qualitative judgments as to the significance and relevance of
each analysis and factor. Hambrecht & Quist believes that its analyses and the
summary set forth below must be considered as a whole and that selecting
portions of its analyses or of the following summary, without considering all
factors and analyses, could create an incomplete view of the processes
underlying the analyses. In performing its analyses, Hambrecht & Quist made
numerous assumptions about industry performance, general business and economic
conditions and other matters, many of which are beyond Interactive Data's and
our control. The analyses summarized below are not necessarily indicative of
actual values or future results, which may be significantly more or less
favorable than suggested by the analyses. Additionally, analyses relating to the
values of businesses do not purport to be appraisals or to reflect the prices at
which businesses actually may be acquired.
No company or transaction used in the below analyses is identical to
Interactive Data or us or the proposed transactions. Accordingly, an analysis of
the results of the below analyses is not mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading values of the companies or company to which they are
compared.
Because the effect of the merger will be Pearson Longman's acquisition of a
majority of our stock, Hambrecht & Quist evaluated the merger as a sale of Data
Broadcasting, where the consideration to be received by our stockholders was the
public market trading value of the combined company. Accordingly, Hambrecht &
Quist applied a public market valuation analysis to us and Interactive Data
assuming completion of the merger, and then compared this analysis to a public
and private market analysis of us on a stand alone basis. These analyses were
supplemented by an analysis of the effect on such valuations of an initial
public offering (IPO) of eSignal.
The following discussion summarizes financial analyses performed by
Hambrecht & Quist in connection with its written opinion. The summary of
financial analyses includes information presented in tables. You should read
these tables together with the text of each summary.
Valuation Analysis of Us
Public Market Analysis. Hambrecht & Quist compared both Interactive Data
and our non-Internet businesses with selected financial information services
companies. This analysis included three comparable companies in the financial
information services industry as well as six other companies to consider in the
financial information services industry.
TABLE A
SELECTED FINANCIAL INFORMATION SERVICES COMPARABLE COMPANIES
- - BARRA, Inc. - Dialog Corporation plc
- - Primark Corporation
SELECTED OTHER COMPANIES TO CONSIDER IN THE FINANCIAL INFORMATION SERVICES
INDUSTRY
- - Advent Software, Inc. - Factset Research Systems
- - Reuters Group plc - The Thomson Corporation
- - Omega Research, Inc. - Value Line, Inc.
In examining these companies, Hambrecht & Quist analyzed, among other
things, the multiples of enterprise value (defined as the market value of a
company's publicly traded equity plus debt less cash and cash equivalents) to
estimated EBITDA for these companies for the calendar year period ending
December 31, 2000.
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Hambrecht & Quist compared our MarketWatch.com holdings with selected
Internet content companies. This analysis included eight comparable companies in
the Internet content industry.
TABLE B
SELECTED INTERNET CONTENT COMPANIES
- - CNET, Inc. - EarthWeb Inc.
- - Ivillage, Inc. - Dr.Koop.com, Inc.
- - Launch Media, Inc. - TheStreet.com, Inc.
- - SportsLine.com, Inc.
- - ZDNet
In examining these companies, Hambrecht & Quist analyzed, among other
things, the multiples of market value (defined as the market value of a
company's publicly traded equity) to estimated revenue for these companies for
the calendar year period ending December 31, 2000.
By applying the range of EBITDA multiples so obtained to the estimated
EBITDA for the calendar year period ending December 31, 2000 for our
non-Internet businesses, and by applying the revenue multiples so obtained to
the estimated revenue for the calendar year period ending December 31, 2000 for
our MarketWatch.com holdings, Hambrecht & Quist calculated a range of our equity
value per share implied by this analysis of $5.49 to $11.41.
Private Market Analysis. Hambrecht & Quist analyzed the estimated proceeds
from selling our holdings in MarketWatch.com. This analysis included 24
follow-on offerings by companies in the Internet industry. In examining each of
these offerings, Hambrecht & Quist examined the change in stock price from the
initial filing of the registration statement to the public offer price. By
applying these changes in stock price to the market value of our holdings in
MarketWatch.com, Hambrecht & Quist calculated a range of equity value which
might be received for selling our holdings in MarketWatch.com but without
discounting this amount to take account of restrictions in the stockholder
agreements relating to our holdings in MarketWatch.com.
Hambrecht & Quist also compared the proposed transaction with selected
mergers and acquisitions transactions. This analysis included fourteen
transactions involving companies in the financial information services industry.
TABLE C
SELECTED TRANSACTIONS IN THE FINANCIAL INFORMATION SERVICES INDUSTRY
- - Pearson / TFSM - Bridge Information Systems / Dow Jones
- - MAID plc / Knight-Ridder Info Markets
- - Welsh Carson / KRF - Universal Stores / Experian Information
- - Pearson / Interactive Data - THLC/Bain / Experian Information
- - Welsh Carson / Bridge Info. Systems - Primark Corp. / Disclosure, Inc.
- - West Publishing / Info. America - Reed Elsevier / Mead Data General
- - Dow Jones / Telerate Inc. - HBO & Co. / IBAX Health Systems
- Knight-Ridder / Dialog Information.
Services
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In examining these transactions, Hambrecht & Quist analyzed, among other
things, the multiples of enterprise value to revenue and EBITDA for the last
twelve-month period of the target companies preceding the relevant transactions.
By applying these multiples to our estimated revenues and EBITDA for the year
ending December 31, 1999 for our non-Internet businesses and adding these values
to a range of values which might be received in a public offering of our
MarketWatch.com holdings, Hambrecht & Quist calculated a range of our per share
equity value implied by this analysis of $7.48 to $8.97.
Valuation Analysis of the Combined Company
Public Market Analysis. Hambrecht & Quist also compared both Interactive
Data and our non-Internet businesses with the selected financial information
services companies listed in Table A. In examining these companies, Hambrecht &
Quist analyzed, among other things, the multiples of enterprise value to
estimated EBITDA for these companies for the calendar year period ending
December 31, 2000 and the multiples of stock price to estimated "cash" earnings
per share (defined as earnings excluding amortization and the losses due to
MarketWatch.com) for these companies for the the calendar year period ending
December 31, 2000.
Hambrecht & Quist again compared our MarketWatch.com holdings with the
selected Internet content companies listed in Table B. In examining these
companies, Hambrecht & Quist analyzed, among other things, the multiples of
market value to estimated revenue for these companies for the calendar year
period ending December 31, 2000.
By applying the EBITDA and price to cash earnings per share multiples so
obtained to the estimated EBITDA and earnings per share for the calendar year
period ending December 31, 2000 for Interactive Data and our non-Internet
businesses following the merger, and by applying the revenue multiples to the
estimated revenue for the calendar year period ending December 31, 2000 for our
MarketWatch.com holdings, Hambrecht & Quist calculated the following range of
our equity value per share implied by this analysis:
EBITDA multiple: $8.33 to $11.72
Price / Cash earnings per share multiple: $9.48 to $15.16
Impact of a Possible IPO of eSignal
Because we have been considering an IPO of a portion of the common stock of
eSignal and have been taking measures to position eSignal for that purpose,
Hambrecht & Quist also considered our value should such an IPO be successfully
undertaken.
Initial Public Offering Valuation Analysis. Using Hambrecht & Quist
research and published Wall Street estimates, Hambrecht & Quist compared, among
other things, the market values based on revenue multiples at the time of
filing, at the time of offering and at current trading prices, of companies
conducting their initial public offerings in the Internet financial services
industry.
SELECTED INTERNET FINANCIAL INFORMATION SERVICES COMPANIES
- - AmeriTrade Holding Corp. - DLJ direct
- - E*Trade Group, Inc. - EDGAR Online, Inc.
- - Multex.com, Inc.
Hambrecht & Quist determined the average revenue multiples at filing, at
offering and at current trading prices of these companies. By applying these
multiples to eSignal's projected calendar year 2000 revenues, Hambrecht & Quist
calculated a range of equity values of eSignal implied by this analysis.
In this analysis, Hambrecht & Quist also examined the requirements for a
successful IPO of eSignal including the following: (i) the IPO market generally,
and for Internet financial services companies
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specifically, must remain positive; (ii) investors must receive eSignal
positively; (iii) eSignal's business must continue its rapid growth and maintain
positive prospects; (iv) a management team (CEO and CFO) must be hired; and (v)
investors must agree that eSignal is comparable to other Internet financial
services companies selected above. Hambrecht & Quist also noted that these
factors could change and were to a significant extent not within the control of
us or the combined company following the merger with the result that there was
inherent uncertainty as to the ability to realize the estimated value of an IPO
of eSignal, which uncertainly could not readily be quantified.
Public Market Analysis. By (i) applying the public market analysis
described above with respect to our non-Internet businesses and our
MarketWatch.com holdings and (ii) adding the potential equity value of our
holdings in eSignal after a possible IPO, Hambrecht & Quist calculated a range
of our equity value per share implied by this analysis of $9.07 to $16.03.
Private Market Analysis. By (i) applying the private market analysis
described above with respect to our non-Internet businesses and our
MarketWatch.com holdings and (ii) adding the potential equity value of our
holdings in eSignal after an IPO, Hambrecht & Quist calculated a range of our
per share equity value implied by this analysis of $10.35 to $12.89.
Hambrecht & Quist also reported that, again subject to the above-described
uncertainties relating thereto, a possible IPO of eSignal following the merger
could have a positive effect on the valuation of our business combined with
Interactive Data, at that time.
Contribution Analysis
Hambrecht & Quist analyzed the contributions of Interactive Data and us to
the projected equity value of the combined company. Hambrecht & Quist compared
the estimated equity value of us to the estimated equity value of Interactive
Data as determined by the public market valuation and the private market
valuation analyses. Hambrecht & Quist observed that based on the equity values
of Interactive Data and us implied by these analyses, the following ranges of
percentage of our contribution:
Private Market Valuation: 25.6% to 54.0%
Public Market Valuation: 25.2% to 47.3%
No company or transaction used in the above analyses is identical to
Interactive Data or us or the proposed transactions. Accordingly, an analysis of
the results of the foregoing analysis is not mathematical; rather it involves
complex considerations and judgments concerning differences in financial and
operating characteristics of the companies and other factors that could affect
the public trading values of the companies or company to which they are
compared.
OUR RELATIONSHIP WITH HAMBRECHT & QUIST
Hambrecht & Quist, as part of its investment banking services, is regularly
engaged in the valuation of businesses and their securities in connection with
mergers and acquisitions, strategic transactions, corporate restructurings,
negotiated underwritings, secondary distributions of listed and unlisted
securities, private placements, and valuations for corporate and other purposes.
Hambrecht & Quist has acted as the exclusive financial advisor to us in
connection with the proposed transaction.
In an engagement letter dated November 5, 1999, we agreed to pay Hambrecht
& Quist a fee of $350,000 in connection with the delivery of the fairness
opinion given on November 14, 1999. We also agreed to pay Hambrecht & Quist,
upon consummation of the proposed transaction, a fee of $1,500,000, less any
fees previously paid. We also agreed to reimburse Hambrecht & Quist for its
reasonable out-of-pocket expenses and to indemnify Hambrecht & Quist against
specific liabilities, including liabilities under the federal securities laws or
relating to or arising out of Hambrecht & Quist's engagement as our financial
advisor.
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OUR REASONS FOR THE MERGER
We believe the combination of our business with that of Interactive Data
creates the opportunity for us to become a top-tier provider of financial
information globally. The merger brings together our "pre-trade" expertise and
Interactive Data's "post-trade" expertise to create one of the world's top
providers of must-have, time-sensitive financial information. Our market leading
BondEdge and eSignal products are used by investors for research and analysis to
help them determine what securities to trade and when to trade them. Interactive
Data's market leading products are used by investors to value and track their
securities every day after the trade. Together, our respective products can
offer powerful end-to-end solutions for institutional and individual investors.
Some of the other key benefits we expect from the merger are as follows:
- Interactive Data's existing client base consists of thousands of clients
worldwide. We believe the existing client base provides an outstanding
opportunity for cross-marketing our BondEdge, InSite and eSignal products
to Interactive Data's clients.
- For our fiscal year ended June 30, 1999, cash flow as measured by
earnings before interest taxes, depreciation, amortization expense and
equity in losses of Marketwatch.com was $14.1 million.
- Interactive Data's existing presence in London, Melbourne, Singapore,
Hong Kong, Edinburgh, Luxembourg, Dublin and other European cities will
give us the opportunity to aggressively market our products on a global
basis.
- Interactive Data maintains databases on more than 3.5 million securities,
including international securities, historical pricing, corporate action
and dividend information which should give us significant competitive
advantages when offering our products to our customers.
- From a market recognition point of view, we expect that we will stand out
among the competition in the marketplace and the Wall Street investment
community because of the strong brand recognition of us, Interactive Data
and The Financial Times.
- We believe the merger will pave the way for greater cooperation among us,
The Financial Times, MarketWatch.com, ft.com, Pearson plc, and CBS.
RECOMMENDATION OF OUR BOARD OF DIRECTORS
Our board of directors believes that the terms of the merger with
Interactive Data are fair from a financial point of view to, and in the best
interests of, our stockholders. Our board of directors has unanimously (with one
abstention) approved the merger, the merger agreement and the related issuance
of 56,423,949 shares of our common stock to Pearson Longman in the merger, the
amendment to the certificate of incorporation increasing our authorized shares
of common stock, the election of the 10 persons nominated to serve on our board
of directors after the completion of the merger and the grant of discretionary
authority to the board to postpone or adjourn the meeting. Our board of
directors has unanimously approved the 2000 long-term incentive plan and the
ratification of the appointment of PricewaterhouseCoopers LLP as our independent
auditor for the fiscal year ending June 30, 2000.
In reaching its determination to approve the merger agreement and the
transactions contemplated by it, our board of directors considered the
information presented to it by our management and our professional advisors. The
principal factors considered by our board of directors are summarized below:
- Structure of the merger; terms of the merger agreement. Our board
considered the terms of the merger agreement and its legal, financial and
tax implications, including the requirement that the merger be submitted
to a vote of the stockholders and the board's inability to terminate the
merger agreement to accept a competing proposal. They also considered the
voting agreements entered into by certain of our stockholders, as well as
the value of the stock being issued to Pearson Longman.
- Value of the assets acquired. Our board considered the businesses of
Interactive Data, the value of Interactive Data's businesses and the
effect on us of owning the combined assets.
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- Increase in Size of the Combined Company. Our board considered the
projected increases in revenue and cash flow of the combined companies
together with their potential to expand product development and grow
through strategic acquisitions.
- Brand Recognition. Our board considered the opportunities to improve our
market recognition on Wall Street and the brand recognition of our
products as a result of our new relationship with Interactive Data, The
Financial Times and Pearson plc.
- Unique Strategic Fit. Our board considered the unique, strategic fit
between our business and Interactive Data's business.
- Opinion of financial advisor. Hambrecht & Quist, our financial advisor
in the merger, delivered its written opinion to our board of directors,
dated November 14, 1999, to the effect that, as of the date of such
opinion and based upon and subject to the assumptions, limitations and
qualifications set forth therein, the consideration to be issued in the
merger was fair to our stockholders from a financial point of view.
- Countervailing considerations. Our board of directors also considered
certain factors which may be characterized as countervailing
considerations, including:
- dilution of existing holders of our common stock by issuing Pearson
Longman our common stock and the resulting change of control;
- the risk that the potential benefits of the merger may not be
realized, including integration issues and the potential loss of our
customers and key personnel; and
- the possibility that the market price of our common stock could
decline.
The foregoing discussion of the information and factors considered by our
board of directors is not intended to be exhaustive but is believed to include
all material factors considered. In reaching its determination to approve the
merger agreement and the transactions contemplated by it, our board of directors
did not assign any relative or specific weights to the foregoing factors, and
individual directors may have given differing weights to differing factors.
ACCOUNTING TREATMENT
We expect the merger to be accounted for as a reverse acquisition in
accordance with United States generally accepted accounting principles. Because
Pearson Longman will own approximately 60% of our shares after the merger, the
merger will be recorded as if Interactive Data had acquired our common stock on
the closing date. Under this method of accounting, the purchase price will be
allocated to our assets and liabilities based on their estimated fair values.
The pro forma statement of stockholders' equity reflects the shares to be issued
by us in connection with the closing of the merger. Our results of operations
will be included in the consolidated financial results of operations of
Interactive Data commencing on the closing date of the merger. See "Unaudited
Pro Forma Condensed Combined Financial Statements."
LISTING OF OUR COMMON STOCK
We are required, as a condition of the merger, to list our common stock to
be issued to Pearson Longman on The NASDAQ National Market System.
FEDERAL SECURITIES LAW CONSEQUENCES
All of the common stock received by Pearson Longman in the merger will be
restricted, subject to the terms of a registration rights agreement.
REGULATORY APPROVALS
Antitrust. Transactions such as our proposed merger are reviewed by the
Antitrust Division of the United States Department of Justice and the United
States Federal Trade Commission to determine whether
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they comply with applicable antitrust laws. Under the provisions of the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, the merger
could not be consummated until such time as the applicable waiting period
requirements of the HSR Act had been satisfied. The applicable filings were made
following the signing of the merger agreement and the waiting periods satisfying
the requirements of the HSR Act have either expired or have been granted early
termination.
NASD and State Filings. The National Association of Securities Dealers may
require that we file a Form 1018 in connection with the change of control of DBC
Securities, Inc., our wholly-owned subsidiary. In addition, we may be required
to obtain approvals from certain state regulators.
Foreign Filings. The transaction contemplated by the merger agreement may
also require regulatory filings in certain foreign jurisdictions. We and
Interactive Data are in the process of evaluating the need to make these
filings. It is not expected that any such filings will materially affect the
merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
There are no tax consequences to the holders of our common stock.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
When considering the recommendation of our board of directors, our
stockholders should be aware that certain of our officers and directors may have
interests in the merger that differ from, or are in addition to, those of our
stockholders. These interests were disclosed to our board of directors, which
considered them when evaluating the merger.
As of January 10, 2000, our executive officers and directors held options
to purchase a total of 2,005,034 shares of our common stock, at exercise prices
ranging from $1.218 to $8.625 per share. This includes 650,000 options to Mark
F. Imperiale, of which 616,667, with a weighted average price of $7.83, which
are not vested. Mr. Imperiale's unvested options would vest in connection with
the merger and the termination of his employment agreement within six-months of
closing. In addition, in accordance with agreements with two other employees,
97,000 unvested options, with a weighted average price of $6.97, will vest in
connection with the merger.
As of January 10, 2000, all of our executive officers and directors, as a
group, beneficially owned approximately 11.63% of the shares of our common stock
entitled to vote at our annual meeting.
Our board of directors has also authorized the issuance of 70,000 shares of
our common stock to our director Carl Spielvogel as a fee for services he
provided to us in connection with the merger. Mr. Spielvogel's fee is contingent
upon closing the merger. Accordingly, Mr. Spielvogel abstained from voting on
the merger. Mr. Spielvogel also serves on The Financial Times outside advisory
committee on business matters.
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THE MERGER AGREEMENT
The following summarizes the material terms of the merger agreement, a copy
of which is attached as Appendix B to this proxy statement and is incorporated
herein by reference. This summary is qualified in its entirety by reference to
the merger agreement. We urge you to read the merger agreement in its entirety
for a more complete description of the terms and conditions of the merger.
THE MERGER
Following the approval of the merger agreement and the other proposals set
forth in this proxy statement by our stockholders and the satisfaction of the
other conditions to the merger, Detective Merger-Sub will be merged into
Interactive Data, with Interactive Data being the surviving corporation and
becoming our wholly owned subsidiary. In connection with the merger, we will
issue 56,423,949 shares of our common stock to Pearson Longman, which represents
approximately 60% of our issued and outstanding common stock on a fully diluted
basis after the merger.
If the merger is approved, the closing of the merger will take place as
soon as practicable after all conditions to the closing have been satisfied or
waived. On the date the merger closes, the parties will file a certificate of
merger with the Secretary of State of Delaware. The merger will become effective
when the certificate of merger is duly filed with the Secretary of State of
Delaware (or at such later time as is agreed to by the parties and specified in
the certificate of merger).
REORGANIZATION OF INTERACTIVE DATA
Prior to the closing of the merger, Pearson Longman and Interactive Data
will engage in a series of intercompany reorganizations, which will result in
each of the companies making up Pearson plc's Financial Times Asset Management
division becoming a wholly-owned subsidiary of Interactive Data. Specifically,
prior to the closing of the merger, Interactive Data will hold all of the
capital stock or issued share capital of each of the following companies:
- Muller Data Corporation, a Delaware corporation;
- Interactive Data Canada Inc., a company organized under the laws of the
Province of Ontario, Canada;
- Financial Times Information (H.K.) Limited, a company organized under the
laws of Hong Kong;
- Financial Times Information (Australia) Pty Limited, a company organized
under the laws of Victoria, Australia;
- Financial Times Information (Singapore) Pte Ltd., a company organized
under the laws of Singapore;
- FT Information (Ireland) Ltd, a company organized under the laws of
Ireland;
- Exshare Financial Limited, a company organized under the laws of England
and Wales;
- Exshare Computing Ltd., a company organized under the laws of England and
Wales;
- The Exchange Telegraph Company, a company organized under the laws of
England and Wales;
- Exshare Financial (US) Ltd., a company organized under the laws of
England and Wales;
- W&W Ltd, a company organized under the laws of England and Wales;
- Exshare Statistical Services Ltd., a company organized under the laws of
England and Wales; and
- Exshare Financial Inc., a Delaware corporation.
The merger agreement provides that certain assets and properties of the
reorganized companies will not be transferred to Interactive Data and that the
reorganization will be subject to our reasonable satisfaction. Interactive Data
and those other companies will be transferred substantially cash free, and
inter-company indebtedness with non-affiliates are required to be contributed to
capital or eliminated (except for a $19,224,000 intercompany receivable from
Rycade Capital Corporation to Interactive Data and a $20,000,000
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intercompany payable from Interactive Data to Pearson plc). The historical
financial statements included elsewhere in this proxy statement reflect the
reorganization. The reorganized companies will enter into certain contracts to
specify operating procedures and/or trade practices with certain affiliates of
Pearson plc and Pearson Longman, which may provide for charges for goods and
services.
For the purposes of this proxy statement, we have assumed that the
reorganization of these businesses into subsidiaries of Interactive Data has
already taken place. All references to Interactive Data in this proxy statement
refer to the reorganized company including its subsidiaries (unless the context
indicates otherwise).
REPRESENTATIONS AND WARRANTIES
The merger agreement contains customary representations and warranties made
by us, Interactive Data, Pearson Longman and Detective Merger-Sub regarding
aspects of their respective businesses, financial condition, structure and other
facts pertinent to the merger, which each company relied on when agreeing to the
merger and will rely on when closing the merger. Pearson Longman's and
Interactive Data's representations and warranties relate to the following
topics:
- the due authorization, execution, delivery and enforceability of the
merger agreement, the ancillary agreements to the merger agreement and
the transactions contemplated thereby;
- Interactive Data's and its subsidiaries' organization, valid existence
and qualification to do business, and their respective corporate power
and authority to own, operate and lease their assets and to carry on
their business as currently conducted;
- the capital structure of Interactive Data and its subsidiaries, including
the number of shares of capital stock authorized, issued and outstanding;
- the merger agreement, the ancillary agreements and the transactions
contemplated by these agreements do not conflict with charter documents,
material contracts, or applicable licenses, or statutes or orders;
- the required consents and approvals for the merger;
- the accuracy of the financial statements of Interactive Data and it
subsidiaries;
- absence of material adverse events or changes;
- absence of litigation;
- compliance with laws;
- government licenses and permits;
- real and tangible personal properties;
- intellectual property and Year 2000 issues;
- employee benefit matters;
- taxes and tax returns;
- environmental matters;
- material agreements, contracts and commitments;
- brokers or finders;
- absence of questionable payments;
- no distributive intent with respect to our common stock; and
- exclusivity of representations.
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The representations and warranties given by us and Detective Merger-Sub
relate to the following topics:
- the due authorization, execution, delivery and enforceability of the
merger agreement and the ancillary agreements to the merger agreement by
us and Detective Merger-Sub and the transactions contemplated by those
agreements;
- our organization, valid existence and qualification to do business, and
our corporate power and authority to enter into the merger agreement and
the ancillary agreements to the merger agreement;
- the organization, valid existence and qualification to do business of our
subsidiaries and their authority to conduct their businesses and use and
lease their assets and properties;
- our capital structure and the capital structure of our subsidiaries and
MarketWatch.com, including the number of shares of capital stock
authorized, issued and outstanding, free and clear of all liens, and the
number of outstanding options, warrants and convertible securities
obligating us and our subsidiaries to issue shares of their respective
common stock;
- the merger agreement, the ancillary agreements and the transactions
contemplated by those agreements do not conflict with charter documents,
material contracts or applicable licenses, statutes or orders;
- the required consents and approvals for the merger;
- the timeliness and accuracy of all of our documents and financial
statements, and the documents and financial statements of our
subsidiaries and of MarketWatch.com, filed or to be filed with the
Securities and Exchange Commission;
- absence of material adverse events or changes;
- absence of litigation;
- compliance with laws;
- government licenses and permits;
- real and tangible personal properties;
- intellectual property and Year 2000 issues;
- employee benefit matters;
- taxes and tax returns;
- environmental matters;
- material agreements, contracts and commitments;
- brokers or finders;
- insurance;
- registration rights;
- NASD matters;
- state anti-takeover statutes and anti-takeover defenses;
- stockholder vote required to approve the merger agreement;
- opinion of financial advisors;
- absence of questionable payments;
- certain representations as to MarketWatch.com; and
- exclusivity of representations.
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CONDUCT OF BUSINESSES PENDING THE CLOSING
Unless otherwise agreed by us and Interactive Data or contemplated by the
terms of the merger agreement, from the date of the execution of the merger
agreement until the closing of the merger or the termination of the merger
agreement, we and Interactive Data will and will cause our respective
subsidiaries to, operate our respective businesses in the ordinary course, use
commercially reasonable efforts to retain our respective employees, operate our
respective businesses in compliance with law, and continue to pay our respective
bills in the ordinary course of business. In addition to these covenants, and
without limiting them, we and Interactive Data will not, and will cause our
respective subsidiaries not to:
- grant any liens (other than permitted liens);
- establish or materially increase any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other
employee benefit plan, or otherwise materially increase the compensation
payable to or to become payable to any officers or key employees except
for salary increases in the ordinary course of business or as may be
required by law or an applicable employment agreement or a collective
bargaining agreement;
- enter into any employment agreement with any person whose annual
compensation exceeds $75,000 or enter into any severance agreement
outside of the ordinary course of business or as contemplated by the
merger agreement;
- sell, assign, transfer, lease or otherwise dispose of any assets, except
in the ordinary course of business;
- acquire any corporation, partnership or other business organization or
division thereof or incur any indebtedness (other than certain
intercompany debt by Interactive Data to an affiliate of Interactive
Data) or make any loans, advances or distributions of cash or guarantee
or otherwise become responsible for, the obligations of any person;
- take any action with respect to accounting policies and procedures that
are not consistent with past practice and in the ordinary course of
business;
- other than certain intercompany transfers between Interactive Data and
its affiliates, pay, discharge or satisfy any material claim, liability
or obligation, other than payments of liabilities as reflected in
financial statements or arising in the ordinary course of business and
consistent with past practice;
- make any material state, local or foreign tax election or settle or
compromise any material state, local or foreign tax liability;
- issue or sell any additional shares of capital stock or other equity
interests or securities convertible into capital stock or equity
interests, or issue or grant any options, warrants, calls, subscription
rights or other rights of any kind to acquire additional shares of
capital stock or other equity interests (other than as permitted by the
merger agreement);
- amend a certificate of incorporation, other constitutive documents or
by-laws, other than as required by the merger agreement;
- other than permitted dividends and distributions by Interactive Data or
its affiliates to affiliates of Interactive Data, declare, set aside or
pay any dividends on, or make any other distributions, split, combine or
reclassify any capital stock or issue any other securities in respect of
capital stock, or purchase, redeem or otherwise acquire, directly or
indirectly, any shares of their own respective capital stock or any
rights, warrants or options related thereto (other than as permitted by
the merger agreement);
- make or agree to make any new capital expenditure or expenditures except
in the ordinary cause of business consistent with past practice;
- except as required by law or contemplated by the merger agreement, enter
into, adopt or amend in any material respect or terminate any employee
benefit plan, collective bargaining agreement, employment
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agreement, deferred compensation agreement, consulting agreement,
severance agreement, termination agreement, indemnification agreement or
any other agreement, plan or policy involving one or more of our
respective current or former directors, officers or employees, or change
any actuarial or other assumption used to calculate funding obligations
with respect to any pension plan, or change the manner in which
contributions to any pension plan are made or the basis on which such
contributions are determined;
- transfer or license to any person or entity or otherwise extend, amend or
modify any rights to intellectual property or licensed intellectual
property other than in the ordinary course of business consistent with
past practice;
- enter into any material contract, agreement, obligation, commitment,
arrangement or understanding with any affiliate;
- take any action that would cause any condition relating to the
exercisability or full enjoyment of any option or other award to purchase
common stock to lapse in whole or in part;
- take or agree or commit to take or agree or commit to omit any action
that would make any representation or warranty in the merger agreement or
the ancillary agreements to the merger agreement inaccurate in any
material respect; or take any action or course of action inconsistent
with compliance with their respective covenants or agreements under these
agreements; or
- authorize or commit or agree to take any of the foregoing actions.
The merger agreement further requires us, our affiliates and Interactive
Data to implement and remain in compliance with our respective Year 2000 plans
and not to amend or modify those plans without the prior written consent of the
other party. We and Interactive Data will provide each other with written
progress reports as reasonably requested and shall permit each of our respective
agents, representatives and advisors reasonable access in order to monitor the
status of the Year 2000 plan and the progress made in addressing the Year 2000
problem.
The merger agreement also provides that, from the date of the merger
agreement until the closing of the merger, except as required by the merger
agreement, we shall not call or hold any meeting of our stockholders other than
in connection with the election of members of our board of directors or other
routine matters in the ordinary course of business consistent with past
practice.
ADDITIONAL AGREEMENTS
Agreements by Us, Detective Merger-Sub and Interactive Data
The merger agreement provides that we, Detective Merger-Sub and Interactive
Data will:
- give each party reasonable access to all of our respective offices,
properties, books and records and financial operating data;
- abide by the terms of a confidentiality agreement previously executed by
the parties and not disclose any confidential information unless
otherwise permitted by that agreement;
- make appropriate filing under the HSR Act or any other filing required
under any antitrust law or by an antitrust authority;
- use commercially reasonable efforts to obtain all consents and approvals
in connection with the merger agreement and ancillary agreements to the
merger agreement;
- pay our respective expenses associated with the merger, except in the
event of a willful breach or if a termination fee is due to Pearson
Longman;
- on the closing date execute and deliver the certificate of merger and the
registration rights agreement and, from and after the closing date, take
such further actions as may be reasonably required to carry out the
provisions of the merger agreement and the ancillary agreements;
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- develop a joint communications plan and use reasonable best efforts to
ensure press releases and public statements with respect to the merger
are consistent with the plan and to consult with each other prior to
issuing press releases or other public statements concerning the merger;
- use best efforts to qualify the merger as a reorganization under Section
368(a) of the Internal Revenue Code of 1986; and
- advise the other party of any representation or warranty becoming untrue
or inaccurate in any material respect or of any material failure to
comply with or satisfy any covenant, condition or agreement under the
merger agreement or any of the ancillary agreements to the merger
agreement and of any change or event having, or likely to have, a
material adverse effect on the truth of any representations or warranties
or the ability to satisfy any of the conditions contained in the merger
agreement or any of the ancillary agreements.
Our Agreements
The merger agreement provides that we will:
- use our commercially reasonable efforts to promptly obtain all
authorizations, consents, orders and approvals of all governmental
authorities necessary for the performance of our obligations in
connection with the merger agreement and the ancillary agreements to the
merger agreement, and not take any action that would have the effect of
delaying, impairing or impeding the receipt of any required approvals;
- promptly make a Section 1018 filing with the NASD, if necessary, and file
any required notices with, and obtain any required approvals from, state
securities regulators in connection with the change of control of our
wholly-owned subsidiary, DBC Securities, Inc.;
- promptly hold a stockholders meeting for the purpose of approving the
merger and the issuance of the shares of our common stock and the other
matters contemplated by the merger agreement, including, among others,
the amendment to our certificate of incorporation, and the election of
the post-closing directors to our board of directors;
- prepare and file with the Securities and Exchange Commission and mail to
our stockholders proxy materials to be used in connection with the
stockholder meeting;
- prior to the closing of the merger, cause our common stock issued in
connection with the merger to be approved for listing on The Nasdaq
National Market System;
- use our best efforts to ensure that our board of directors is comprised
of 10 members following the merger, consisting of Allan R. Tessler, Alan
J. Hirschfield, Donald Greenberg and Carl Spielvogel, and six persons
designated by Interactive Data;
- obtain, at the request of Interactive Data, the resignations, effective
at any time as of or after the effective time, of our representatives on
the board of directors of MarketWatch.com; and
- prior to the effective time of the merger, repay each of our outstanding
obligations pursuant to our loan from Society National Bank and any other
material loan.
NO SOLICITATION OF OTHER TRANSACTIONS
Until the merger is consummated or the merger agreement has been
terminated, we have agreed not to, directly or indirectly:
- solicit, initiate, encourage (including by way of furnishing information)
or take any other action designed to facilitate, any inquiries or the
making of any proposal that constitutes, a takeover proposal; or
- participate in any discussions or negotiations (including by way of
furnishing information) regarding any takeover proposal.
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A takeover proposal means:
- any bona fide inquiry, proposal or offer to acquire 20% or more of the
net revenues, net income or assets of us or our subsidiaries, taken as
a whole, or any class of equity securities of us or any of our
subsidiaries; or
- any tender offer or exchange offer that would result in any person
owning 20% or more of any class of equity securities of us or any of
our subsidiaries; or
- any merger, consolidation or other similar transaction not
contemplated by the merger agreement.
Our board also is prohibited from (i) withdrawing or modifying its
recommendation or approval of the merger and the other transactions contemplated
by the merger agreement except as required by law, and except that the board
may, if it believes it is in the best interest of our stockholders, withdraw or
modify such recommendation, and (ii) entering into any acquisition agreement in
respect of a takeover proposal.
Notwithstanding the foregoing, our board of directors is not prohibited
from taking and disclosing to our stockholders a position with respect to a
tender offer or exchange offer under Rules 14d-9 and 14e-2(a) promulgated under
the Exchange Act not made in violation of the merger agreement. We have agreed
to immediately advise Interactive Data of the details of any takeover proposal
we receive. In addition, we may participate in discussions with respect to an
unsolicited superior proposal to determine whether the board is required by law
to withdraw or modify the board's recommendation of the merger and the other
transactions contemplated by the merger agreement. The board cannot terminate
the merger agreement in such circumstances and must submit it to a vote of our
stockholders at the annual meeting.
We have agreed to give notice and detailed information of any superior
proposal we receive to Interactive Data no less than 48 hours prior to
participating in any such discussions.
A superior proposal means any offer not solicited by us made by a third
party to consummate a tender offer, exchange offer, merger, consolidation or
similar transaction which would result in the third party owning more than 50%
of our shares or all or substantially all of the assets of us and our
subsidiaries, taken together, on terms which our board of directors determines
in good faith to be reasonably likely to obtain our stockholder approval and to
provide consideration to our stockholders with a greater value than the
consideration to be exchanged pursuant to the merger agreement.
TERMINATION
We and Interactive Data can agree to terminate the merger agreement without
completing the merger, and either of us can terminate the merger agreement if:
- the merger is not completed by May 31, 2000, unless the terminating party
failed to perform its obligations resulting in a delay of the closing
date;
- a government authority or court of competent jurisdiction permanently
prohibits the merger;
- our stockholders fail to approve the merger agreement and the proposals
related to the merger in this proxy statement; or
- the non-terminating party materially breaches any representation or
warranty or any covenant in the merger agreement, and does not cure the
breach.
In addition, Interactive Data may terminate the merger agreement if we
breach our non-solicitation agreements or our board withdraws its recommendation
of the merger.
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TERMINATION FEE
Whether or not the merger is consummated, all fees and expenses incurred in
connection with the merger agreement will be paid by the party incurring them,
except that we have agreed to pay Pearson Longman a $25.5 million fee under
certain circumstances, which are as follows:
- if we breach our non-solicitation agreements or our board withdraws its
recommendation of the merger and Interactive Data terminates the merger
agreement as a result (which it has the right to do), we are obligated to
pay Pearson Longman the termination fee on the date of that termination;
- if a takeover proposal has been made and the merger agreement is
terminated because (i) the merger has not occurred by May 31, 2000, (ii)
we were unable to obtain the approval of our stockholders or (iii) we
breached or failed to perform in any material respect any of our
agreements under the merger agreement or any ancillary documents (in each
such case, Interactive Data has the right to terminate the merger
agreement), then we are obligated to pay Pearson Longman the termination
fee if we enter into an agreement with respect to, or if we consummate,
any takeover proposal within 12 months of the date the merger is
terminated.
Any circumstance obligating us to pay the termination fee would also give
Interactive Data the ability to exercise its rights under the option agreement.
See "Other Agreements; Stock Option Agreement."
DIRECTOR AND OFFICER INDEMNIFICATION
The merger agreement provides that our current and former directors and
officers and those of our subsidiaries will continue to receive all rights to
indemnification for acts or omissions occurring at or prior to the merger, as
provided in our and our subsidiaries' respective certificates of incorporation.
Any indemnification agreements will also survive the merger and continue in full
force and be maintained by us. In the event that we merge in the future and are
not the surviving corporation or we sell all or substantially all of our assets,
the merger agreement requires our successors or assigns to assume these
indemnification obligations.
Following the merger, we will maintain for six years our current policies
of directors' and officers' liability insurance, or policies of at least the
same coverage and amounts containing terms and conditions which are, in the
aggregate, no less favorable to the insured, with respect to claims arising from
facts or events that occurred on or before the merger. We may also substitute
policies of Pearson Longman or its subsidiaries with respect to policies no less
favorable to our and our subsidiaries' directors or officers. In no event,
however, will we be required to spend in any one year an amount more than 200%
of the aggregate annual premiums currently paid by us for this insurance.
CONDITIONS TO THE MERGER
The merger is subject to satisfaction or waiver of certain conditions. The
following conditions must be satisfied or waived before any of the parties to
the merger agreement or the ancillary agreements to the merger agreement is
obligated to effect the merger:
- the holders of a majority of the outstanding shares of our common stock
shall approve the merger agreement and the issuance of our common stock
in the merger, the amendment to our certificate of incorporation, and
vote for the election of the 10 post-closing directors to our board;
- any applicable Hart-Scott-Rodino Act waiting period shall have expired or
been terminated and any necessary consents or approvals under any foreign
antitrust laws shall have been obtained;
- all consents and approvals by the National Association of Securities
Dealers and the Securities and Exchange Commission shall have been
obtained;
- Interactive Data shall have received all consents and approvals required
for the merger;
- no court of competent jurisdiction, government entity or regulatory body
shall have taken any action which has the effect of making the merger
illegal or otherwise prohibits the merger and no action has been taken or
threatened by a government entity or regulatory body which prevents the
transactions
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contemplated by the merger agreement and the ancillary agreements, or is
likely to have a material adverse effect on the business of Interactive
Data, us, our subsidiaries or MarketWatch.com or its subsidiaries; and
- the reorganization of Interactive Data, as contemplated by the merger
agreement, will have taken place and all necessary tax clearances and
consents will have been received.
The obligation of Interactive Data to effect the merger is subject to the
satisfaction or waiver of the following additional conditions:
- our representations and warranties and the representations and warranties
of Detective Merger-Sub set forth in the merger agreement must be true
and correct in all material respects as of the date of the merger
agreement and as of the closing of the merger, except for representations
and warranties with respect to MarketWatch.com, which shall be true and
correct on the earlier of the date of the merger agreement or the date
they are expressly made, and Interactive Data shall have received a
certificate signed on our behalf by our chief executive officer to that
effect;
- we and Detective Merger-Sub shall have performed and complied with, in
all material respects, all obligations required to be performed by us
under the merger agreement and the ancillary agreements to the merger
agreement at or prior to the closing of the merger, and Interactive Data
shall have received a certificate signed on our behalf by our chief
executive officer to that effect;
- the shares of our common stock to be issued in the merger shall have been
authorized for listing on The Nasdaq National Market System, subject to
official notice of issuance;
- the average daily closing price per share of our common stock for the
10-trading-day period preceding the closing date shall be equal to or
greater than $6.50;
- Interactive Data shall have received evidence, in a form reasonably
satisfactory to Interactive Data, of our repayment of the loan from
Society National Bank or any other material loan and the release of all
liens in connection with such loans;
- receipt by Interactive Data and Pearson Longman of an opinion from tax
counsel that the merger will be treated as a "reorganization" under
Section 368(a) of the Internal Revenue Code, in a form reasonably
acceptable to them;
- Without Interactive Data's prior consent, none of the following shall
have occurred:
- a change in the authorized or outstanding capital stock of
MarketWatch.com since June 30, 1999 other than pursuant to common
stock options, bonuses or awards to employees, consultants or
directors in an amount not exceeding 3% of the outstanding common
stock of MarketWatch.com as of June 30, 1999;
- any material adverse effect (as defined in the merger agreement)
with respect to MarketWatch.com since June 30, 1999;
- any entry by MarketWatch.com into any new line of business; or
- any acquisition by MarketWatch.com of any partnership or joint
venture with any other party, in each case involving payments or
contributions by MarketWatch.com in excess of $5 million.
AMENDMENT AND WAIVER
The merger agreement may be amended by the parties at any time before the
effective time of the merger to the extent permitted by applicable law. However,
certain amendments may by law require further stockholder approval. Amendments
must be in a written document signed by each of the parties.
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OTHER AGREEMENTS
The following summarizes the material terms of the material ancillary
agreements to the merger, copies of which have been filed as exhibits in our
filings on Form 8-K or Form 10-Q. Such summaries are qualified in their entirety
by reference to such agreements.
STOCK OPTION AGREEMENT
Interactive Data required us to enter into a stock option agreement as a
prerequisite to entering into the merger agreement. Interactive Data did not pay
any monetary consideration in exchange for the stock option agreement. A copy of
the stock option agreement is attached as Appendix C to this proxy statement and
is incorporated by reference in this proxy statement. The stock option agreement
grants Interactive Data the irrevocable option to purchase up to 6,889,293.63
shares of our common stock, at an exercise price of $7.65 per share. This share
number represents 19.9% of the shares of common stock outstanding on November
14, 1999. Interactive Data may exercise the option, in whole or in part, at any
time during the 12-month period following the termination of the merger
agreement in any of the circumstances that entitle Pearson Longman to the
payment of the $25.5 million termination fee. If the merger agreement terminates
and Pearson Longman is not then entitled to the termination fee, but could later
be entitled to the termination fee upon the occurrence of specified events, then
the exercise period of the option will be extended until the later of (i) 12
months following the time the termination fee becomes payable and (ii) the
expiration of the period during which events could occur that would give rise to
a termination fee.
Interactive Data is restricted under the agreement to profits not exceeding
$3.6 million (excluding the termination fee payable under the merger agreement).
In the event its profits would exceed this amount, Interactive Data in its sole
discretion, shall either:
- reduce the number of shares of our common stock to be subject to the
option;
- pay cash to us;
- deliver to us for cancellation shares of our common stock that
Interactive Data previously purchased; or
- take any combination of the above actions in order to limit its profits
to $3.6 million in the aggregate.
At any time while the option is exercisable, upon demand, Interactive Data
is entitled to receive for each share of our common stock subject to the option,
an amount equal to the difference between the 10-day average per-share closing
price of our common stock during the period beginning on the 12th trading day
preceding its exercise notice, less the exercise price of $7.65.
Within two years of any exercise of its option, Interactive Data may by
written notice to us request that we register under the Securities Act all or
any part of Interactive Data's shares acquired under the stock option agreement,
as long as Interactive Data intends to offer at least 10% of the shares
underlying the option. Interactive Data may also include, during that same
two-year period, shares of our common stock acquired by it under the option in
any registration we make of our common stock to be sold for our account.
The option is intended to increase the likelihood that the merger will be
completed. Consequently, aspects of the stock option agreement may have the
effect of discouraging persons who might now or at any time prior to the merger
be interested in acquiring all or a significant interest in us or our assets
before completion of the merger.
VOTING AGREEMENTS
In connection with the merger, each of the Alan J. Hirschfield Living
Trust, the ART/FGT Family Partners Ltd and the Tessler Family Limited
Partnership have entered into a voting agreement with Interactive Data. The
terms of the agreement provide that the stockholders will vote all shares of our
common stock beneficially owned by them, or any new shares of our stock they may
acquire, in favor of the matters presented in this proxy statement. The
agreement also requires those stockholders to vote against any of the following:
- any extraordinary corporate transaction, including, without limitation, a
merger, consolidation or other business combination involving us or any
of our subsidiaries;
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- a sale, lease or transfer of a material amount of our assets or of any of
our subsidiaries or a reorganization, recapitalization, dissolution or
liquidation of us or any of our subsidiaries;
- any change in the majority of our board of directors (other than as
contemplated by the merger agreement);
- any change in our present capitalization or any amendment of our
Certificate of Incorporation or by-laws (other than as contemplated by
the merger agreement);
- any other change in our corporate structure or business;
- any other action which is intended, or could reasonably be expected, to
impede, interfere with, delay, postpone, discourage or materially
adversely affect the merger or the transactions contemplated by the
merger agreement or the related agreements; or
- any action or agreement that would result in our breach of the merger
agreement or any of the related agreements.
In connection with the voting agreements, each of these stockholders has
executed an irrevocable proxy to vote their shares in favor of the approval of
the merger agreement and the issuance of the 56,423,949 shares of our common
stock to Pearson Longman in connection with the merger, the amendment to our
certificate of incorporation, the election of the slate of directors presented
in this proxy statement, the approval of the 2000 long-term incentive plan and
the ratification of the appointment of PricewaterhouseCoopers LLP as our
independent auditor for our fiscal year ending June 30, 2000. As of January 10,
2000, the stockholders who entered into the voting agreements collectively held
2,740,690 shares of our common stock which represented approximately 7.9% of our
outstanding common stock. None of the stockholders who are parties to the voting
agreements were paid additional consideration in connection with the voting
agreements.
REGISTRATION RIGHTS AGREEMENT
Our stock to be issued to Pearson Longman in connection with the merger
will not be registered under federal or state securities laws. Accordingly, we
have entered into a registration rights agreement with Pearson Longman. Under
the registration rights agreement, Pearson Longman can require us to register
under federal and applicable state securities laws the shares of our common
stock issued to it in connection with the merger in certain circumstances.
TERMINATION OF EMPLOYMENT AGREEMENTS
Interactive Data required us to terminate our existing employment
agreements with Messrs. Hirschfield and Tessler and Mr. Mark F. Imperiale, our
chief executive officer, as one of the conditions to the closing of the merger.
We therefore entered into termination agreements, which take effect on the
closing of the merger, with each of these executives. Each executive agreed to
certain minor modifications with regard to the benefits he was already entitled
to under his current contract, and each agreed to provide certain services to us
after the merger.
In connection with such termination, Messrs. Hirschfield and Tessler will
each receive $1,125,000 (3 times 150% of their respective base salaries) over
the three-year period commencing on the effective time. Each also has agreed to
continue to serve on our board of directors after the merger and to provide
consulting services to us during that three-year period for no additional fees.
In accordance with the terms of his current contract, Mr. Imperiale will
receive a payment of $2.7 million (3 times 150% of his base salary). This
payment will be made on the earlier of November 30, 2000 or the six-month
anniversary of the closing of the merger. Vesting of all of Mr. Imperiale's
unvested options also will occur as of that time. Mr. Imperiale also has agreed
to provide us with consulting services to assist in the management of our
post-merger business until the earlier of November 30, 2000 or the six month
anniversary of the closing of the merger, for $75,000 per month. Mr. Imperiale
will also receive a pro-rated bonus for fiscal 2000 equal to 50% of his base
salary paid through the closing of the merger and medical coverage for himself
and his family until he attains age 65.
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INFORMATION ABOUT DATA BROADCASTING
The information contained in this section summarizes certain information
about us contained in our 1999 Annual Report filed on Form 10-K which is
included with this proxy statement. All information provided is qualified in its
entirety by the information and financial statements (including notes thereto)
appearing in our 1999 Annual Report on Form 10-K. We strongly encourage you to
read the enclosed 1999 Annual Report on Form 10-K.
We distribute real-time financial and business information, directly and
through our subsidiaries on a subscription basis to a broad range of individual
and professional investors and businesses. We operate in two business segments:
(1) the Market Information segment and (2) the BondEdge segment. The principal
services of the market information segment are eSignal, BMI MarketCenter,
Quotrek, InSite, BondVu, Global Treasury Information Services, Federal News
Service and various sports services. Historically, this segment included the
agribusiness service of AgCast, which was sold on May 20, 1999. BondEdge, which
is delivered by our Capital Management Sciences division, provides a
comprehensive database of fixed income securities, analytical tools and models
for institutional investors. In addition to these two segments, we own
approximately 32% of the outstanding common stock of MarketWatch.Com, Inc.,
which provides an Internet business information site for individual investors,
business professionals and the general public.
Market Information sells access to its networks which provide real-time
financial market and sports information, primarily to individual investors. This
includes stock and commodity market quotes, equity analytics, financial and
sports news and information, access to historical databases, customizable
portfolio tracking, exclusive news coverage and commentary and historical and
technical charting. Market Information also provides government transcripts and
foreign exchange data. BondEdge distributes fixed income portfolio analytics to
a broad base of institutional investment managers including banks, insurance
companies, brokerage firms and investment management companies for valuation and
risk management purposes. We distribute our services via the Internet or
communication devices that rely on FM subcarriers, satellite transmission, cable
television systems or telephone lines. For our broadcast services, we provide
subscribers with proprietary equipment and software needed to access our
networks and databases. Subscribers to Internet-delivered services download the
software directly to their computers without the need for proprietary equipment.
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INFORMATION ABOUT INTERACTIVE DATA
DESCRIPTION OF INTERACTIVE DATA'S BUSINESS
Interactive Data is a leading provider of financial data. It collects,
maintains and models global data on over 3.5 million securities, including a
wide range of equities, commodities, derivative instruments and fixed income
securities that are traded in numerous national and international markets.
Interactive Data delivers data to its customers, which include many of the
world's leading financial services institutions, through a range of proprietary
products and services designed to provide customers with customized data access
that is convenient, timely and reliable.
Interactive Data's customers are primarily large institutions that have
leading positions in the financial services industry. There is strong demand for
financial information in this industry, and these institutions use its data to
support their businesses. For example, Interactive Data's proprietary databases
and delivery systems:
- provide customers with daily closing prices for numerous securities,
enabling them to value their holdings and process securities trades more
easily and perform day-to-day securities administration which includes
collection of dividend income and the processing of bond redemptions;
- include a wide range of current and historical securities pricing data,
which underlies its customers' research activities and investment
decisions; and
- enable Interactive Data's customers to better pursue their specific
investment objectives by providing customized analysis and configuration
of large amounts of financial data.
Thus, Interactive Data plays an important supporting role in many areas of
the financial information market, including:
- post-transaction portfolio evaluation where customers focus on valuing
recently traded securities;
- post-transaction back office functions, in which purchases and sales of
securities are finalized and customers prepare account statements for
themselves and their clients; and
- product research, which helps customers determine when to buy and sell
securities.
Organization. Interactive Data's global business is managed from its
worldwide headquarters in Bedford, Massachusetts, with regional headquarters in
London, England and Melbourne, Australia. In order to best meet its customers'
needs for comprehensive international service, Interactive Data operates in
three main geographic regions: North America, Asia/Pacific and United
Kingdom/Europe. As discussed earlier, upon consummation of the reorganization,
the companies that comprise Pearson plc's Financial Times Asset Management
division will become subsidiaries of Interactive Data. These companies fit
within Interactive Data's three operating regions as follows:
NORTH AMERICA:
Interactive Data Corporation
Muller Data Corporation
Exshare Financial Inc.
Interactive Data Canada, Inc.
ASIA/PACIFIC:
Financial Times Information (Australia) Pty Limited
Financial Times Information (H.K.) Limited
Financial Times Information (Singapore) Pte Ltd.
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UNITED KINGDOM/EUROPE:
Exshare Financial Limited
FT Information (Ireland) Ltd.
Exshare Computing Ltd.
The Exchange Telegraph Company
Exshare Financial (US) Ltd.
W & W Ltd
Exshare Statistical Services Ltd.
After the reorganization, Interactive Data will continue to operate
primarily under the brand names Interactive Data and Muller Data in North
America and Financial Times Information and Valorinform in United Kingdom/Europe
and Asia/Pacific.
As of September 30, 1999, Interactive Data had approximately 1,200
employees worldwide, with a breakdown by geographical operating group as
follows: North America, approximately 750; Asia/Pacific, approximately 25; and
United Kingdom/Europe, approximately 430. Data collection and production
activities take place in Bedford; Edinburgh, Scotland; Dublin, Ireland;
Melbourne; and New York, New York. Information is processed at data centers
located in London; Melbourne and Waltham, Massachusetts. Customer service
telephone centers are located in Bedford; London; New York; Singapore and
Melbourne. Sales offices are located in Boston, Massachusetts; Chicago,
Illinois; Hong Kong; London; Newport Beach, California; Luxembourg; Melbourne;
New York and Singapore.
Interactive Data's technological infrastructure is designed to service the
needs of its customers. Mainframe processors located in Waltham and London are
used to process securities history and daily pricing data. Fault-tolerant
processors located in Waltham, London, Melbourne, and Hong Kong process
real-time feeds from securities exchanges around the world. UNIX machines
located in each data center are used to collect and deliver data. Also, at each
data center, Interactive Data uses what it believes to be state-of-the-art disk
storage devices that are configured to provide optimum speed and reliability.
Market and Customer Base. As discussed above, Interactive Data's business
focuses on collecting, reformatting, and delivering data to its customers. In
particular, it concentrates on the post-transaction segment of the financial
information market, where it believes it has established a leading position. In
this area, customers use its proprietary databases and delivery systems to value
securities, process trades and prepare account statements for themselves and
their clients.
Interactive Data believes that its strength in the post-trade segment of
the financial information market is due in part to its ability to be a "full
service provider" of data. Being a full service data provider allows Interactive
Data to price most, if not all, securities that are central to its customers'
businesses, not just one type of security or those that are widely traded. For
example, it supplies data for both listed and non-listed domestic and
international equity and fixed-income securities. With respect to fixed-income
instruments, it also provides extensive data regarding U.S. taxable and tax
exempt securities as well as non-U.S. taxable issues. Moreover, Interactive Data
believes that its extensive network of market contacts and its proprietary
valuation models allow it to provide its customers with qualitative data that
they cannot receive from another source.
Interactive Data believes that its position as a leading provider of
financial data is also the result of its ability to supply timely, reliable
data. And, importantly, Interactive Data strives to deliver, and believes it is
perceived as providing, top-quality customer service while fulfilling its
customers' varied data needs.
Interactive Data supplies data to several thousand separate organizations
including major banks, brokerage firms and investment management firms. Most of
its customers purchase its data to support their own operational needs. In North
America, these "end-user" data customers include: 49 of the top 50 North
American banks, 49 of the top 50 U.S. brokerage firms, 40 of the top 50 fund
sponsors, 43 of the top 50 U.S. insurance companies, 50 of the top 50 U.S. money
management firms, and 50 of the top 50 U.S. mutual fund groups (each as measured
by total assets under management). In Asia/Pacific, Interactive Data services
approximately 250 customers, including leading banks, asset managers, custodians
and insurance groups. In
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Asia/Pacific "end user" data customers include 10 of the top 30 custodians and
trustees and 42 of the top 60 fund managers. In Japan, the Company services
leading fund managers, banks and insurance companies through its redistributor
NTT Data Corporation. In the U.K. the Company services 29 of the top 30 fund
managers and 28 of the top 30 investment managers.
Interactive Data also delivers data to redistributors who extend its reach
to smaller institutional and individual investors. Unlike the end-user customers
described above, these redistributors use their delivery systems, or serve as
the interface between their clients and Interactive Data's delivery systems, to
redistribute Interactive Data's data to service the needs of their clients. In
this manner, Interactive Data broadens its market from large institutional
customers to smaller institutional and individual investors. As of December 1,
1999, Interactive Data had relationships with approximately 200 such
redistributors.
Interactive Data also operates within the securities research segment of
the financial information market, providing securities index data to the global
investment markets. Stockbrokers, trustees, fund managers and consultants use
this data to conduct benchmarking, risk analysis, fund tracking, performance
measurement and attribution and trading activities.
Products and Services. As discussed above, Interactive Data compiles,
delivers, models and analyzes a large volume of data on a daily basis in support
of a wide range of customer activity within the financial information market.
These services are sold to the same customer base. Specific services include:
Data Compilation
- Fixed-income valuation: Interactive Data is a leader in pricing taxable
fixed-income securities including hard-to-price issues. With the recent
acquisition of Muller Data and the assets of Muniview and Valorinform,
its data products now include tax-exempt securities as well. Interactive
Data believes that the inclusion of its valuations in important industry
benchmark fixed-income securities indices is indicative of its strong
position in this area. Daily valuations for active U.S. and Canadian
corporate, government, and agency fixed-income instruments include: U.S.
pass-through securities (Government National Mortgage Association,
Federal National Mortgage Association, Federal Home Loan Mortgage
Corporation, Small Business Administration); U.S. structured finance
securities (collateralized mortgage obligations and asset backed
securities); and U.S. municipal issues. Interactive Data also uses
proprietary models and methodologies, securities terms and conditions
databases, broker quotes, extensive quality control programs and
historical data to enable its customers to better evaluate the securities
data it provides. To meet the needs of its customers, who are both
investing and expanding their operations globally, it has expanded this
product range to include daily valuations for actively traded
international fixed-income securities (convertible securities,
debentures, Eurobonds, government bonds, and corporate bonds) denominated
in the Euro and in local currencies. Historical data is also maintained.
- Global equities pricing: Interactive Data compiles daily closing prices
for equity securities from U.S. and Canadian exchanges, plus major and
emerging markets around the world. It collects, edits and maintains data
on numerous securities, which it receives directly from various
securities exchanges and other authoritative sources. In addition to
securities prices, it collects descriptive data and corporate action data
(e.g., stock dividends, stock splits and reorganization data). Historical
data is also maintained.
- Other global data: Interactive Data also collects on a daily basis other
global data which includes foreign exchange rates, indices, futures &
options and unitized fund values such as mutual fund net asset values.
Historical data is also maintained.
Delivery of Data
Interactive Data provides data to customers using various delivery
applications that include:
- FundRun 2000(TM), which delivers a comprehensive range of North American,
international, and global security pricing and announcement data services
customized to meet the unique needs of mutual funds,
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fund custodians, and unit investment trusts. These services provide
pricing and pricing-related data designed to meet NASD deadlines for net
asset value calculations. Data is available online, via mainframe to
mainframe transmission and via mainframe to PC download.
- IDSI(TM), which bulk-delivers U.S. and Canadian securities pricing,
valuations, and announcement data. Data includes North American exchange
pricing, pricing for taxable and non-taxable debt instruments, and
corporate actions data including dividend, called bond, and bond interest
announcements. This data is used by large financial institutions, mainly
to value their securities portfolios on a daily basis.
- InteractiveData.com(TM), which is a web-based tool providing convenient
desktop access to pricing, corporate action, news stories, and
descriptive data. Fund accountants use this data to better understand the
underlying information affecting their securities' valuations. It allows
customers to view the latest pricing, pricing history, detailed
descriptive data, earnings, shares, volatility, and corporate actions
(with history), with cross referencing capability, for over 3.5 million
global securities. In addition, customers can use InteractiveData.com to
review domestic and international news stories related to specific
securities, and to identify holidays for global markets.
- MuniView(R), which is a fully automated method for delivering and
updating descriptive information on more than 2.5 million municipal
bonds. MuniView delivers this descriptive data in a customized, easily
readable form that supports post-transaction asset setup, trade
settlement, and accounting functions performed to meet regulatory and
customer service requirements. For example, mutual funds, banks,
insurance companies, and brokerage firms use this product to maintain and
update their master securities portfolio files, which allows them to
conduct daily accounting activities essential to their businesses. An
interface developed between the Government Finance Officers' Association
Mun-Ease software and MuniView allows customers to customize their own
database of municipal bond information. SIRS(TM) (Securities Information
Retrieval Service) performs the same function for a different set of
securities. It covers a broad range of publicly traded, taxable
securities.
- RemotePlus(TM), which is a financial data server for Windows(R), UNIX(R),
and DOS workstations, creates a direct connection between applications
(e.g., Microsoft(R) Excel) and Interactive Data's systems, allowing its
customers to look up and retrieve global financial and securities
research data. This product makes it easy for customers to download data
into their PC's and to perform customized data analysis. It thus provides
desk top access to an enormous range of current and historical securities
information including historical pricing, descriptive, and corporate
action data.
- EXSHARE(TM), which is a leading database of international securities
market data used by financial institutions around the world. EXSHARE
provides access to over 350,000 securities, delivering over 1000 daily
updated data items including pricing, descriptive and corporate actions
data. This data comes from 150 of the world's developed and emerging
markets and covers a wide range of financial instruments, measurements
and products including equities, indices, foreign exchange rates,
international and domestic bonds, warrants, traded options and unit
trusts.
- FTS(TM), based on third party proprietary software that was developed in
support of our proprietary EXSHARE database, provides an interface with
the EXSHARE database's end-of-day data. In addition, FTS provides access
to intra-day pricing and month-end history. Using FTS, customers can
easily view online information, access value added reports and download
data to their PC-based applications.
Securities Research. Interactive Data also provides its customers with
research resources with which to analyze financial data. These research
resources include:
- Interactive Data's Business Information Products unit, which produces
specialist information for financial professionals. Products are divided
into five main categories. Credit Ratings -- which provides credit
ratings for more than 20,000 issuers located in 100 countries and 70
emerging markets. FINSTAT -- which is a comprehensive data feed
delivering prices and related information direct from The Financial Times
newspaper. FINSTAT is used by a wide range of organizations including
investment banks, fund managers, independent financial advisers,
solicitors, corporate and national
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newspaper groups. Securities & Taxation -- which provides information on
U.K. based securities including dividends and capital events for use in
calculating U.K. capital gains tax. The data is available either in hard
copy or machine-readable formats, and London Stock Exchange publications.
The Stock Exchange Daily Official List -- which summarizes all trading
activity carried out through the London Stock Exchange on the previous
day of business. The Stock Exchange Weekly Official Intelligence -- which
provides an overview of all Stock Exchange announcements, including news
and dividends.
- Interactive Data's Portfolio Analytics unit, which is a leading provider
of index and constituent data to the global investment markets. The
indices are used by stockbrokers, trustees, fund managers and consultants
and are used for benchmarking, risk analysis, fund tracking, performance
measurement, attribution, and trading. Portfolio Analytics is independent
of any index owner and supplies a wide range of indices. It provides data
in one format and in just one data feed. Portfolio Analytics provides
value-added data eliminating a customer's need to perform lengthy
calculations.
Current Initiatives. To grow Interactive Data's business, and to meet
customers' changing needs, Interactive Data is currently focusing on several
product development initiatives, which include:
- Investment in Fixed Income Content: Interactive Data is investing in
staff, systems and data sources to strengthen its position as the premier
full service provider of fixed income valuations and supporting data.
Interactive Data expects these investments to result in increased market
share and an acceleration in its revenue growth.
- Continental European Growth: Interactive Data plans to leverage its
existing data, brand recognition and web-based delivery tools to expand
its presence in continental Europe. Further promotion and expansion of
its fixed income evaluation service in Europe will support this
initiative. Due to the fragmented nature of the European marketplace,
Interactive Data also intends to establish a series of local alliances in
targeted countries to allow faster and deeper market penetration.
- Internet Based Online Desktop Data Access: Online data access factors
heavily in Interactive Data's growth plans. Interactive Data already
employs three products (FTS, InteractiveData.com and ExpressNet) which
use web-browser technology to deliver extensive data to the desktop
computers employed by back-office personnel in conducting
post-transaction activities. Interactive Data is currently expanding data
content and data distribution capabilities in connection with its
proprietary fixed income pricing data products to expand its desktop
presence. Industry sources believe that financial institutions' top
priorities for new investment are Internet technologies and Internet
based products and services.
- Information For Risk Management Applications: Risk management activities
involve the analysis of financial data in order to maximize the
risk-reward profile of customers' securities portfolios. In order to
perform optimum risk management analyses, customers need high quality
data that can be customized to work within their individual portfolio
profiles. In approaching this market, Interactive Data plans to leverage
its ability to price illiquid securities and its ability to provide
historical data on specific securities. In the future, Interactive Data
also plans to offer its risk management customers customized intra-day
pricing information so that they can refine their individual risk-reward
profiles throughout the trading day. The increasing amount of available
financial data, linked with rising demand for positive investment returns
and heightened regulation of investment activities globally, is fueling
this growth.
- Growth in Asia/Pacific: Through emphasis on a strong alliance with NTT
Data Corporation, a leading market data corporation, Interactive Data
plans to achieve growth gains in the Japanese market, which is currently
undergoing significant deregulation. See "The Merger; Our Reasons for the
Merger" for further discussion of possible post-merger initiatives.
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INTERACTIVE DATA'S MANAGEMENT DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion is based upon and should be read in conjunction
with the combined financial statements and the notes thereto of Interactive Data
included elsewhere herein. The following table sets forth certain combined
financial data of Interactive Data. This data is presented to reflect the
comparative periods discussed in the following analysis.
RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
($ THOUSANDS)
YEAR ENDED NINE MONTHS ENDED
DECEMBER 31 SEPTEMBER 30
-------------------- --------------------
1998 1997 1999 1998
-------- -------- -------- --------
REVENUES
North America................................... $ 98,338 $ 89,024 $ 86,768 $ 71,074
UK/Europe....................................... 53,978 51,090 42,755 39,490
Asia/Pacific.................................... 4,121 3,180 3,288 2,907
-------- -------- -------- --------
156,437 143,294 132,811 113,471
-------- -------- -------- --------
COSTS AND EXPENSES
Cost of services................................ 47,992 44,403 37,963 34,917
Selling, general and administrative ("SG&A").... 68,421 63,705 52,263 50,493
-------- -------- -------- --------
Depreciation expense............................ 5,293 5,066 4,301 4,033
Amortization expense............................ 31,114 31,036 20,135 23,453
Restructuring expense........................... 3,647 4,457 -- 2,753
-------- -------- -------- --------
Income (loss) from Operations................... $ (30) $ (5,373) $ 18,149 $ (2,178)
======== ======== ======== ========
Net income (loss)............................... $ (3,215) $ (6,944) $ 8,310 $ (4,952)
======== ======== ======== ========
EBITDA(1)....................................... $ 36,160 $ 30,750 $ 42,531 $ 25,218
======== ======== ======== ========
- ---------------
(1) EBITDA represents earnings before interest, income taxes, depreciation and
amortization expense. We believe that EBITDA is a widely accepted financial
indicator used by investors and analysts to analyze and compare companies on
the basis of operating performance. EBITDA is not intended to represent cash
flows for the periods presented, nor has it been presented as an alternative
to operating income or as an indicator of operating performance. You should
not consider EBITDA in isolation or as a substitute for measures of
performance prepared in accordance with generally accepted accounting
principles. We understand that, while EBITDA is frequently used by
securities analysts in the evaluation of companies, EBITDA is not
necessarily comparable to other similarly titled measures of other companies
due to potential inconsistencies in the methods of calculation.
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KEY BUSINESS METRICS
In reviewing the ongoing performance of its business, Interactive Data
focuses on revenue growth, cash generation and controlling expenses. The key
metrics that Interactive Data reviews on a regular basis to measure its
performance in these areas are revenue growth, EBITDA, the EBITDA margin
(EBITDA/Revenues), and the ratio of the two key cost categories (cost of
services and selling, general and administrative expenses) to revenue. The
following table outlines these metrics:
YEAR ENDED DECEMBER 31 NINE MONTHS ENDED SEPTEMBER 30
------------------------------ ------------------------------
1998 1997 % CHANGE 1999 1998 % CHANGE
------- ------- -------- ------- ------- --------
Revenue ($000s)............... 156,437 143,294 9.2% 132,811 113,471 17.0%
EBITDA ($000s)................ 36,160 30,750 17.6% 42,531 25,218 68.7%
EBITDA Margin................. 23.1% 21.5% 7.4% 32.0% 22.2% 44.1%
Cost of services to Revenue... 30.7% 31.0% -1.0% 28.6% 30.8% -7.1%
SG&A to Revenue............... 43.7% 44.5% -1.8% 39.4% 44.5% -11.5%
NINE MONTHS ENDED SEPTEMBER 30, 1999 VERSUS NINE MONTHS ENDED SEPTEMBER 30, 1998
Revenue. Revenue for the nine months ended September 30, 1999 compared to
revenue for the nine months ended September 30, 1998 grew by $19.3 million
(17.0%) including $7.8 million representing two months from the 1999
acquisitions. Excluding revenues from the 1999 acquisitions, core revenues
increased by $11.5 million (10.2%).
North American revenues grew in total by $15.7 million (22.1%) of which
$7.4 million related to the 1999 acquisitions. Excluding this, core revenue grew
by 11.6%. UK/Europe revenues grew by $3.3 million (8.3%) over 1998 levels;
while, Asia/Pacific revenues increased by $0.4 million (13.1%) over 1998 levels.
The main drivers of core revenue growth across all three regions were new
sales of data products to end users and redistributors, growth from existing
redistributors and from volume related business where customers pay on a
variable basis. This revenue growth was driven by both increased sales to
current customers and new sales to new customers. Increased revenue was also
driven by moderate price increases.
Expenses. Cost of services increased by $3.0 million (8.7%), mainly as a
result of the inclusion of two months of costs from the businesses acquired in
1999. Excluding costs for businesses acquired in 1999, costs increased by 1.3%
over 1998, reflecting a firm control of cost growth during the year. This can
also be seen from the decline in the percentage of revenues expended on cost of
services from 30.7% in September 1998 to 28.6% in 1999. SG&A costs increased by
$1.8 million (3.5%), but excluding the 1999 acquisitions, the costs decreased by
$1.7 million (-3.4%), due mainly to the elimination of infrastructure related
costs in the UK. This decrease can also be seen in the reduction in the
proportion of revenues dedicated to SG&A from 44.5% of revenues in 1998 to 39.4%
in 1999.
Amortization declined by $3.3 million to $20.1 million, mainly as a result
of the ending of amortization of certain non-compete contracts associated with
the acquisition of the original Interactive Data Corporation in 1995.
Amortization amounts also include goodwill associated with the acquisition of
the Extel business in the UK in 1993, the acquisition of Information Express in
Australia in 1994 and the 1995 Interactive Data acquisition. The 1999 decline
was partially offset by increased amortization charges relating to goodwill and
intangibles created in the 1999 acquisition of Muller Data and the assets of
Muniview and Valorinform.
Income from operations was $18.1 million compared with a loss of $2.2
million for the comparable period in 1998. EBITDA increased from $25.2 million
in 1998 to $42.5 million in 1999.
Interactive Data recognized income tax expense of $10.4 million for the
nine months ended September 30, 1999 compared to an income tax expense of $3.0
million for the same period in 1998. The effective income tax rate for the nine
months ended September 30, 1999 was 55.5%. The primary difference between the
U.S. statutory tax rate and Interactive Data's effective tax rate in 1999
resulted from amortization deducted for financial reporting purposes but which
is non-deductible for US federal and state tax purposes.
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As a result of the factors described above, the net income for the nine
months ended September 30, 1999 compared to the nine months ended September 30,
1998 increased from a loss of $4.9 million to net income of $8.3 million.
YEAR ENDED DECEMBER 31, 1998 VERSUS YEAR ENDED DECEMBER, 31, 1997.
Revenue. Overall revenue in 1998 grew by $13.1 million (9.2%).
North American revenues grew in total by $9.3 million (10.5%), UK/Europe
revenues grew by $2.9 million (5.7%) and Asia/Pacific revenues increased by $0.9
million (29.6%).
The principle generators of revenue growth across all three regions were
new sales of data products to end users and redistributors, growth from existing
redistributors and from volume related business where customers pay on a data
packet basis, and from modest price increases.
Expenses. Cost of services increased by $3.6 million (8.1%), although as
a percentage of revenue the proportion expended dropped from 31% to 30.7%. SG&A
increased by $4.7 million (7.4%). Again, the proportion of revenue spent in this
cost category decreased from 44.5% in 1997 to 43.7% in 1998.
Amortization was flat between the two years. Amortization relates to the
acquisition of the Extel business in the UK in 1993, the acquisition of
Information Express in Australia in 1994, and the acquisition of the original
Interactive Data in the US in 1995.
As a result of the improvement in expense margins, EBITDA increased from
$30.8 million in 1997 to $36.2 million in 1998.
Loss from operations was $30,000 compared with a loss of $5.4 million for
the comparable period in 1997.
Interactive Data recognized income tax expense of $3.6 million for 1998
compared to an income tax expense of $2 million for 1997. The primary difference
between the U.S. statutory tax rate and Interactive Data's effective tax rate in
1998 and 1997 resulted from amortization deducted for financial reporting
purposes but which was non-deductible for federal and state tax purposes.
As a result of the factors discussed above, the net loss decreased from
$6.9 million in 1997 to $3.2 million in 1998.
LIQUIDITY AND CAPITAL RESOURCES
Interactive Data's treasury functions are managed centrally by its parent,
Pearson plc. Pearson provides all lines of credit.
Cash provided by operating activities was $35.1 million for the nine months
ended September 30 1999, and $38.0 million and $24.2 million for the years ended
1998 and 1997 respectively. The increase in 1999 was primarily due to the
generation of net income of $8.3 million for the nine-month period ended
September 30, 1999 compared to a loss of $3.2 million in the prior fiscal year.
The increase from 1997 to 1998 was due to a lower net loss and favorable changes
among several working capital components.
Interactive Data's capital expenditure needs have been fairly low and
constant in 1997 and 1998. Capital expenditure requirements increased in 1999,
and are expected to increase further as Interactive Data integrates the
businesses acquired in 1999 and purchases capital assets to enable it to utilize
a common technology across its entire operations.
In 1999, Interactive Data acquired Muller Data and the assets of
Valorinform and Muniview for $147.5 million which was funded by Pearson.
Approximately 34.7%, 37.1%, and 37.9% of Interactive Data's revenues were
derived from overseas operations in the nine months ended September 30, 1999 and
each of the years ending December 31, 1998 and 1997. Interactive Data does not
hedge its foreign currency exposure.
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Management believes that the cash generated by operating activities are
sufficient to meet the short- and long-term needs of the current operations of
Interactive Data.
INCOME TAXES
Interactive Data's US operations are included in Pearson Inc.'s
consolidated US federal income tax return and certain state income tax returns.
For financial reporting purposes, Interactive Data calculates federal and state
income taxes as if it files its income tax returns on a stand-alone basis and is
required to pay to Pearson, Inc. that amount. Similarly, Interactive Data's
foreign tax operations are responsible for their income taxes computed on a
stand-alone basis.
Deferred taxes are recorded for differences between the financial
statements and tax basis of assets and liabilities using tax rates in effect for
the year in which the differences are expected to reverse.
INFLATION
Inflation has not had a material effect on the results of Interactive
Data's operations but there can be no assurances that results of operations will
not be affected by inflation in the future.
YEAR 2000
Interactive Data has substantially completed a comprehensive review of its
products, information systems and critical suppliers to identify those that may
have been affected by the Year 2000 issue. Interactive Data's Year 2000 status
is as follows:
- Interactive Data's products are Year 2000 ready. In some instances, new
products were created while other products were "decommissioned" and
clients were notified of migration paths to Year 2000 ready products. The
majority of the Year 2000 effort at Interactive Data was completed by the
end of 1998, with remaining efforts and client migration efforts
continuing in 1999. Some Year 2000 effort was continuing at the
businesses acquired by Interactive Data in 1999, but this activity has
since been completed.
- Interactive Data has sought Year 2000 readiness statements from each of
its significant suppliers, most of which have provided positive
assurances regarding their readiness.
- Interactive Data's administrative systems have also been reviewed and,
where necessary, made Year 2000 ready.
Interactive Data has spent a total of approximately $6.4 million to date on
ensuring that systems are Year 2000 ready, and this expense has been recorded in
the income statement in the appropriate period.
Based upon currently available information, Interactive Data's management
believes that Interactive Data has met its readiness goals and does not
anticipate that there will be any material impact on its financial condition,
results of operations or liquidity.
FORWARD LOOKING STATEMENTS
The foregoing description of Interactive Data's business contains
forward-looking statements that are covered by the Private Securities Litigation
Reform Act of 1995. See "Forward-Looking Statements in This Proxy Statement."
The risks and uncertainties that may affect the operations, performance,
development and results of Interactive Data's business include the following:
- The presence of competitors with greater financial resources or
technological capacities and their strategic response to Interactive
Data's services which could result in Interactive Data's failure to grow
its business as planned.
- Changes in technology which could affect the competitiveness of
Interactive Data's products and services.
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- Interactive Data's failure or the failure of material third parties to
have successfully completed their year 2000 projects.
- A decline in activity levels in the securities markets which could lower
demand for Interactive Data's products and services.
- Consolidation of financial services. This consolidation has two forms:
consolidations within an industry (such as banking) and across industries
(such as consolidations of insurance, banking and brokerage companies).
Such consolidation could lower demand for Interactive Data's products and
services.
- Retention of key employees assigned to work associated with the
integration of the recently acquired businesses with Interactive Data.
Loss of these employees could result in a delay in integration work
designed to provide operational synergies and product enhancements.
- Prolonged outage at one of Interactive Data's data centers. While
Interactive Data employs high reliability hardware at its London,
Melbourne and Waltham data centers, a prolonged outage at either the
London, Melbourne or Waltham data center could have a material impact on
revenues.
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ELECTION OF DIRECTORS
At our annual meeting, 10 directors are to be elected, each to hold office
(subject to our by-laws) commencing upon the completion of the merger until the
next annual meeting of our stockholders and until a respective successor has
been elected and qualified or until the respective director's earlier death,
resignation or removal. If any nominee listed in the table below should become
unavailable for any reason, which management does not anticipate, the proxy will
be voted for any substitute nominee or nominees who may be selected by the board
of directors prior to or at the annual meeting or, if no substitute is selected
by the board of directors prior to or at the annual meeting, for a motion to
reduce the membership of the board to the number of nominees available.
Shares represented by executed proxies will be voted, if authority to do so
is not withheld, for the election of the 10 nominees named below. Shares may not
be voted cumulatively. In the event that any nominee should be unavailable for
election as a result of an unexpected occurrence, such shares will be voted for
the election of such substitute nominee as the board of directors may propose.
Each person nominated for election has agreed to serve if elected, and we have
no reason to believe that any nominee will be unable to serve.
Pursuant to our by-laws, the 10 candidates receiving the greatest number of
votes shall be elected as directors. Pursuant to our by-laws, any record
stockholder who desires to nominate candidates for election to the board of
directors must deliver written notice to our Secretary no later than 60 days in
advance of our annual meeting or 10 days after the date on which notice of our
annual meeting is given, whichever is later.
In the event the merger is not approved by our stockholders, our current
board of directors will continue to serve until our next meeting.
NOMINEES
Our nominees for director following the merger are as follows:
NAME AGE(1) OFFICE TO BE HELD
- ---- ------ -----------------
Robert Berkley......................................... 40 Director
Stuart Clark........................................... 52 Director
John Fallon............................................ 37 Director
Donald P. Greenberg.................................... 65 Director
Stephen Hill........................................... 39 Chairman of the Board
Alan J. Hirschfield.................................... 64 Director
Philip J. Hoffman...................................... 41 Director
John Makinson.......................................... 45 Director
Carl Spielvogel........................................ 71 Director
Allan R. Tessler....................................... 63 Director
- ---------------
(1) As of December 31, 1999
ROBERT BERKLEY has been nominated to serve as one of our directors. Since
May 1999, Mr. Berkley has served as executive vice president and chief
information officer of Pearson Technology Centre, a division of Pearson plc.
From December 1998 until May 1999, Mr. Berkley was senior vice president and
chief information officer for Pearson Technology Centre. From December 1997 to
December 1998, Mr. Berkley was senior vice president -- advanced technology and
operations of Simon & Schuster, Inc. and from November 1995 to December 1997 he
was vice president -- architecture and advanced technology of Simon & Schuster,
Inc. Prior thereto, Mr. Berkley was vice president -- technology strategic
planning for Bankers Trust, Inc.
STUART CLARK has been nominated to serve as one of our directors. Since
1998, Mr. Clark has been head of Financial Times Asset Management. Mr. Clark is
also a member of the management board of Pearson plc's Financial Times Group.
From 1995 to 1998, Mr. Clark was president of the original Interactive Data.
Prior thereto, Mr. Clark was director for market data services of Financial
Times Information.
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JOHN FALLON has been nominated to serve as one of our directors. He is
communications director for Pearson plc. Mr. Fallon is responsible for that
company's global investor relations, media relations, employee communications,
and strategic positioning. He joined Pearson plc in October 1997 from PowerGen
plc, an international energy group, where he served as communications director.
DONALD P. GREENBERG has been a professor at Cornell University, Ithaca, New
York, for the past 31 years. He is the Jacob Gould Sherman professor of computer
graphics and the director of the computer graphics program at Cornell
University. In 1987, Dr. Greenberg received the ACM SIGGRAPH Steven A. Coons
award for outstanding creative contributions to computer graphics and in 1991
was named a member of the National Academy of Engineering. He is the founding
director of the National Science Foundation's Science and Technology Center for
Computer Graphics and Scientific Visualization. Dr. Greenberg currently serves
on the board of directors of Chyron Corporation, a designer and manufacturer of
digital equipment for the broadcast industry.
STEPHEN HILL has been nominated to serve as one of our directors. Since
1998, he has served as chief executive officer of the Financial Times Group, and
he is a member of the management board of Pearson plc. From 1996 to 1998, Mr.
Hill was chief executive officer of The Financial Times, and from 1995 to 1996
was chief executive officer of the Westminster Press Ltd, a newspaper publishing
subsidiary of Pearson plc. Mr. Hill joined Pearson plc in 1987 as head of
strategy, and was heavily involved in Pearson's expansion into satellite
television broadcasting.
ALAN J. HIRSCHFIELD serves as co-chairman of the board and served as our
co-chief executive officer during the last seven years until November 29, 1999.
Prior to becoming our co-chief executive officer in June, 1992, Mr. Hirschfield
served as managing director of Schroder Wertheim & Co. Inc. and as a consultant
to the entertainment and media industry. He formerly served as chief executive
officer of Twentieth Century Fox Film Corp. and Columbia Pictures Inc. from 1980
to 1985 and 1973 to 1978, respectively. Mr. Hirschfield currently serves on the
boards of MarketWatch.com, Cantel Industries, Inc., a distributor of medical and
scientific equipment and Chyron Corporation, a designer and manufacturer of
digital equipment for the broadcast industry.
PHILIP J. HOFFMAN has been nominated to serve as one of our directors.
Since January 1999, Mr. Hoffman has served as president of Pearson Inc. From
January 1, 1997 to December 31, 1998, Mr. Hoffman was executive vice president,
chief financial and administrative officer for The Penguin Group. Prior thereto,
Mr. Hoffman held various executive positions at Pearson Inc., including vice
president -- finance from June 1, 1995 to December 31, 1996, and prior thereto,
as vice president, company secretary and director of taxation from January 1,
1995.
JOHN MAKINSON has been nominated to serve as one of our directors. Since
April 1996, Mr. Makinson has been the Pearson plc group finance director. Prior
thereto, Mr. Makinson was the managing director of The Financial Times. Mr.
Makinson currently also serves as a non-executive director of George Weston
Limited in Canada.
CARL SPIELVOGEL is chairman and chief executive officer of Carl Spielvogel
Associates, Inc. and also served as the chairman and chief executive officer of
the United Auto Group, Inc., a publicly traded operator of multiple-franchise
auto dealerships until April 1997. Mr. Spielvogel was associated with Backer
Spielvogel Bates Worldwide, Inc., an advertising and marketing communications
company, from July 1987 until January 1, 1994. He served in various positions
with Backer Spielvogel Bates Worldwide, including chairman and chief executive
officer. He was vice chairman and a member of the board of directors of
Interpublic Group of Companies, Inc. for approximately 20 years. Mr. Spielvogel
is a member of the boards of directors of Hasbro, Inc., a designer and
manufacturer of toys, and Barney's, Inc., a clothing retailer. Mr. Spielvogel
also serves on The Financial Times outside advisory committee on business
matters.
ALLAN R. TESSLER serves as co-chairman of the board and served as our
co-chief executive officer during the last seven years until November 29, 1999.
In addition to serving as co-chief executive officer since June 1992, Mr.
Tessler has been chairman of the board and chief executive officer of
International Financial Group, Inc., an international merchant banking firm,
since 1987. He is also chairman of the board of Enhance Financial
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Services Group Inc., a municipal bond reinsurer, and Jackpot Enterprises, Inc.,
a gaming machine route operator. From 1989 to 1996 he was chairman of the board
of Great Dane Holdings, Inc., a diversified holding company. Since January 1997,
Mr. Tessler has also served as chairman of Checker Holdings Corp. IV, a private
holding company. From December 1991 through September 1993 Mr. Tessler was
chairman of the board and chief executive officer of Ameriscribe Inc., a
national provider of facilities management services. Mr. Tessler also serves on
the boards of MarketWatch.com, The Limited, Inc., a specialty retailer, and
Allis-Chalmers Corporation, a machine repair business.
There are no family relationships among our directors or executive
officers. Information regarding our executive officers is located under the
heading "Executive Officers of the Registrant" included in Part I of our 1999
Annual Report on Form 10-K and is incorporated by reference into this proxy
statement.
These individuals will be placed in nomination for election to the board of
directors. THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF EACH OF
THE NOMINEES FOR DIRECTOR.
The shares represented by the proxy cards returned will be voted FOR
election of these nominees unless an instruction to the contrary is indicated on
the proxy card.
BOARD COMMITTEES AND MEETINGS
During the fiscal year ended June 30, 1999, our board of directors held
four meetings and took one action by written consent. Our board of directors has
an audit committee, a compensation committee and a stock option committee. Our
board of directors does not have a nominating committee, such matters are
discussed by our board as a whole. All of the current nominees who were
directors attended the meetings of the board of directors and of the committees
of the board of directors on which they served during the fiscal year ended June
30, 1999.
The audit committee may take any and all actions which may be taken by our
board of directors to review and supervise our financial controls, including
recommending to our board of directors the selection of our independent auditor,
reviewing our financial statements, reviewing the scope and results of external
audits, acting upon recommendations of the auditor, reviewing our proposed
budgets, reporting to our board of directors any considerations or
recommendations the audit committee may have with respect to such matters and
taking such further actions as the committee deems necessary. During the fiscal
year ended June 30, 1999, the audit committee, composed of Charles M. Diker,
David R. Markin and Herbert S. Schlosser, met once.
The compensation committee may take any and all actions which may be taken
by our board of directors to review and approve executive and senior management
compensation. During the fiscal year ended June 30, 1999, the compensation
committee, composed of Charles M. Diker, David R. Markin and Herbert S.
Schlosser, met once and its actions were subsequently ratified by the full board
of directors. However, Mr. Schlosser excluded himself from certain actions
because he was serving as a consultant to us during a portion of such period.
The stock option committee was established to serve as administrator of our
stock option plan, however, with respect to actions related to executive
officers the stock option committee only acted at the direction of the
compensation committee. As plan administrator, the stock option committee has
full and final authority to select employees to be granted options and to
determine the number of shares and terms of any options granted. The stock
option committee also considers and recommends to our board of directors whether
grants to officers, directors and employees, other than pursuant to the
long-term incentive plan, should be made. The stock option committee, composed
of Alan J. Hirschfield and Allan R. Tessler through January 1999, met two times
during the fiscal year ended June 30, 1999, and took two actions by written
consent.
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SECURITY OWNERSHIP OF DIRECTORS, OFFICERS, ASSOCIATES AND CERTAIN OTHER
PERSONS(1)
The following table sets forth as of January 10, 2000, certain information
regarding the shares of our common stock beneficially owned by (i) each
beneficial holder of more than 5% of the outstanding shares of our common stock,
(ii) each named director, (iii) each named director nominee (iv) each named
executive and (v) all of our directors, nominees for director and executive
officers as a group.
BENEFICIAL OWNERSHIP
----------------------------------------
AMOUNT AND NATURE OF PERCENT OF
BENEFICIAL OWNER BENEFICIAL OWNERSHIP TOTAL(2)
- ---------------- -------------------------- ----------
Robert Berkley........................................... 0 *
Director Nominee
Stuart Clark............................................. 0 *
Director Nominee
Charles M. Diker......................................... 220,900 -- Direct(3) *
Director 45,500 -- Indirect(4)
Dwight H. Egan........................................... 25,330 -- Direct(5) *
Director
Executive Vice President -- Sales and Marketing
John Fallon.............................................. 0 *
Director Nominee
Financial Times Television Limited....................... 107 -- Direct(6) *
Affiliate of Interactive Data and Pearson Longman
Donald P. Greenberg...................................... 35,000 -- Direct(7) *
Director
Stephen Hill............................................. 0 *
Director Nominee
Alan J. Hirschfield...................................... 1,487,145 -- Indirect(8) 4.28%
Co-Chairman of the Board
Philip J. Hoffman........................................ 0 *
Director Nominee
Mark F. Imperiale........................................ 49,999 -- Direct(7) *
President and Chief Executive Officer
James A. Kaplan.......................................... 5,667 -- Direct(9) *
Director
Vice Chairman of the Board
John Makinson............................................ 0 *
Director Nominee
David R. Markin.......................................... 210,000 -- Direct(7) 1.14%
Director 185,000 -- Indirect(10)
Herbert S. Schlosser..................................... 45,070 -- Direct(11) *
Director
Carl Spielvogel.......................................... 23,000 -- Direct(12) *
Director
Allan R. Tessler(13)..................................... 1,803,545 -- Indirect(14) 5.18%
Co-Chairman of the Board
All current directors, nominees and executive officers as
a group (16 persons)................................... 4,136,156(15) 11.63%
- ---------------
* Less than 1%
(1) The table in this section is based upon information supplied by officers,
directors, director nominees and principal stockholders of the Company and
information set forth on any statements filed with the Securities and
Exchange Commission, pursuant to Sections 13(d) or 13(g) of the Exchange
Act. Unless otherwise indicated in the footnotes to the table and subject
to the community property laws where applicable, each of the stockholders
named in this table has sole voting and investment power with respect to
the shares shown as beneficially owned by him.
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(2) Applicable percentage of ownership for the officers and directors is based
on 34,509,210 shares of common stock (37,490,560 shares of common stock,
which were outstanding on January 10, 2000, less 2,981,350 treasury
shares).
(3) Includes 110,000 shares which may be acquired upon exercise of presently
exercisable options. See "Director and Executive Compensation; Compensation
of Directors."
(4) Includes 34,500 shares in investment accounts managed by Mr. Diker, over
which he exercises shared investment power. Includes 11,000 shares in an
investment account held by Mr. Diker's wife, over which he exercises shared
investment power.
(5) Includes 25,000 shares which may be acquired upon exercise of presently
exercisable options. See "Election of Directors; Compensation of
Directors."
(6) Excludes 2,740,690 shares, voting power in respect of which has been
granted to Interactive Data, an affiliate of Financial Times Television
Limited, subject to the voting agreements referenced in notes 8 and 14
below.
(7) Represents shares which may be acquired upon exercise of presently
exercisable options. See "Election of Directors; Compensation of
Directors."
(8) Held of record directly by Alan J. Hirschfield Living Trust. Includes
275,000 shares which may be acquired upon exercise of presently exercisable
options. Voting power in respect of these shares has been granted to
Interactive Data. See "Other Agreements; Voting Agreements."
(9) Includes 667 shares which may be acquired upon exercise of presently
exercisable options. See "Election of Directors; Compensation of
Directors."
(10) Includes 180,000 shares held by Sophie Limited Partnership, an entity in
which Mr. Markin has shared voting control, and 5,000 shares in an
investment account held by Mr. Markin's wife, over which he exercises
shared investment power.
(11) Includes 40,000 shares which may be acquired upon exercise of presently
exercisable options. See "Executive Compensation and Other Information;
Compensation to Directors."
(12) Includes 20,000 shares which may be acquired upon exercise of presently
exercisable options. See "Election of Directors; Stock Option Grants," and
"The Merger; Interests of Certain Persons in the Merger". Excludes 70,000
shares to be issued upon completion of the contemplated merger.
(13) Owner's address is in care of Karla Tessler, 4020 Moose-Wilson Road, P. O.
Box 11749, Jackson, Wyoming 83002.
(14) Includes 983,545 shares held by ART/FGT Family Partners Ltd. and 545,000
shares held by Tessler Family Limited Partnership. Includes 275,000 shares
which may be acquired upon exercise of presently exercisable options.
Voting power in respect of these shares has been granted to Interactive
Data. See "Other Agreements; Voting Agreements."
(15) Includes 1,040,666 shares which may be acquired upon exercise of presently
exercisable options or options which may be exercised within 60 days of the
effective date of this table. See "Executive Compensation and Other
Information -- Stock Option Grants" and "Executive Compensation and Other
Information -- Compensation of Directors".
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DIRECTOR AND EXECUTIVE COMPENSATION
The following table sets forth certain summary information concerning
compensation paid or accrued to or on behalf of our co-chief executive officers
and our four other most highly compensated executive officers whose total annual
salary and bonus exceeded $100,000 for the fiscal years ended June 30, 1999,
1998, and 1997.
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
FISCAL --------------------- ------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY($) BONUS($) OPTIONS(#) COMPENSATION($)(1)
- --------------------------- ------ --------- -------- ------------ ------------------
Alan J. Hirschfield........... 1999 $375,000 $500,000 -- --
Co-Chairman of the Board and 1998 $337,500 -- -- --
Co-Chief Executive Officer 1997 $324,000 -- 125,000 --
Allan R. Tessler.............. 1999 $375,000 $500,000 -- --
Co-Chairman of the Board and 1998 $337,500 -- -- --
Co-Chief Executive Officer 1997 $324,000 -- 125,000 --
James A. Kaplan............... 1999 $475,008 -- -- $3,300
President -- CMS 1998 $475,008 -- 100,000 $3,300
Vice-Chairman of the Board 1997 $454,168 -- -- $3,135
Mark F. Imperiale............. 1999 $312,500 $375,000 -- $3,300
President, Chief Operating
Officer and 1998 $287,508 $175,000 50,000 $3,300
Chief Financial Officer 1997 $261,470 $125,000 100,000 $3,135
Dwight H. Egan................ 1999 $240,576 -- -- $3,300
Director, Executive Vice 1998 $230,715 -- -- $3,300
President -- Sales &
Marketing 1997 $229,392 -- -- $3,135
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(1) Matching contribution to our 401(k) plan.
STOCK OPTION GRANTS
There were no stock options granted to executive officers for the fiscal
year ended June 30, 1999.
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table provides information concerning the exercise of stock
options during the last fiscal year and unexercised stock options held as of the
end of the fiscal year by the named executive officers.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
NUMBER OF DOLLAR VALUE OF
UNEXERCISED UNEXERCISED IN-THE-MONEY
SHARES DOLLAR OPTIONS AT FY-END OPTIONS AT FY-END
ACQUIRED VALUE --------------------------- ---------------------------
NAME OR EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---- ----------- --------- ----------- ------------- ----------- -------------
Alan J. Hirschfield..... 0 0 233,333 41,667 1,418,616 132,709
Allan R. Tessler........ 0 0 233,333 41,667 1,418,616 132,709
Dwight H. Egan.......... 339,858 6,892,308 25,000 0 100,000 0
James A. Kaplan......... 66,000 930,561 667 33,333 3,168 158,332
Mark F. Imperiale....... 233,333 4,931,022 0 66,667 0 279,002
The value of unexercised options at fiscal year-end is the difference
between the option exercise price and the average of the high ask and low bid
price for our common stock as reported by The NASDAQ National Market System for
June 30, 1999, which was $10 1/8. These amounts have not been, and may never be,
realized.
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Actual amounts realized will depend on the value of our common stock if and when
options become exercisable and are exercised.
COMPENSATION OF DIRECTORS
Effective February 1, 1999, the annual fee for directors was raised to
$12,000, with the chairmen of the audit and compensation committees receiving a
$3,000 premium. During fiscal year 1999, all of our non-employee directors
received fees of $7,500 and reimbursement for travel expenses for service to the
board of directors. The chairmen of the audit and compensation committees
received an additional $1,250 during fiscal year 1999. No employee director
received compensation for service to the board of directors.
Each of our non-employee directors holding such position on the third
business day after we publicly announce our summary fiscal year-end statement of
sales and earnings shall, at the discretion of the stock option committee,
receive an option to acquire 10,000 shares of common stock with an exercise
price equal to the fair market value of the stock on such date. On September 13,
1999, each non-employee director was granted options for 10,000 shares of our
common stock at an exercise price of $8.625, which become exercisable on the
date of grant. Each option terminates, to the extent not exercised prior
thereto, upon the earlier of (i) the tenth anniversary of the grant or (ii) the
first anniversary of the cessation of the optionee's service as a director.
Effective September 15, 1996, we entered into a consulting agreement with
Mr. Herbert S. Schlosser, one of our directors. The consulting agreement
provides for: (i) a three-year term; (ii) payment for consulting services of
$250,000 payable in installments of approximately $21,000 per quarter; and (iii)
the grant of options to purchase 25,000 shares of our common stock. Our
aggregate consulting fee payments during the fiscal year ended June 30, 1999
were $83,333.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE OF CONTROL
ARRANGEMENTS
We entered into employment agreements with Messrs. Hirschfield and Tessler
effective as of October 1, 1999 which continue until October 31, 2003 and are
renewable for successive one-year terms. Each agreement provides for a base
salary of $250,000 and a performance based bonus of up to 100% of the base
salary as determined by the compensation committee upon an evaluation of our
performance and the performance of the executive during the previous fiscal
year. In the event of certain involuntary terminations or in the event of a
change of control wherein we or our successor exercise our right to terminate
the agreement, the executive will receive a lump sum payment equal to 150% of
base salary for a period of three years. In the event the executive exercises
his right to terminate the agreement upon a change of control, the executive
will receive a lump sum payment equal to 150% of his base salary for a period of
one year. In each case, (i) the executive's issued but unvested options will
vest immediately and may be exercised over a period equal to the lesser of the
option expiration date or three years, and (ii) the period under which the
executive is subject to a covenant not to compete with us will be reduced to one
year.
Our board of directors approved the election of Mark Imperiale as president
and chief executive officer effective July 1, 1999 at its meeting in February
1999. By mutual agreement such election was deferred until Mr. Imperiale's
replacement as chief financial officer joined us. Accordingly, we executed an
employment agreement with Mr. Imperiale effective October 1, 1999. The agreement
provides for a four-year term automatically renewable for four successive
one-year terms, a base salary of $600,000 with scheduled increases in future
years and a performance-based bonus of up to 100% of the base salary as
determined by the compensation committee upon an evaluation of our performance
and the performance of the executive during the previous fiscal year. In
addition, the executive was granted 600,000 options to purchase our common
stock, 300,000 of which are contingent upon approval by our stockholders of the
2000 long-term incentive plan. If stockholder approval is not obtained, the
executive will receive additional compensation equal to the appreciation of the
300,000 shares underlying the contingent options. In the event of certain
involuntary terminations or in the event of a change of control wherein we or
our successor exercise our right to terminate the agreement, (i) the executive
will receive a lump sum payment equal to 150% of base salary for the greater of
a period of three years or the remainder of his employment term, (ii) all of the
executive's issued but
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unvested options will vest immediately and may be exercised over a period equal
to the lesser of the option expiration date or three years, and (iii) the period
under which the executive is subject to a covenant not to compete with us will
be reduced to one year. Under Mr. Imperiale's employment agreement he may borrow
up to $1,000,000 for open market purchases of our common stock, secured by the
stock, at the prime rate of interest, payable no later than five years from the
date of the loan. In the event the executive exercises his right to terminate
the agreement upon a change of control, (i) the executive will receive a lump
sum payment equal to 200% of his base salary for a period of one year, (ii) all
of the executive's issued but unvested options which are not conditional options
will vest immediately and may be exercised over a period equal to the lesser of
the option expiration date or three years, and (iii) the period under which the
executive is subject to a covenant not to compete with us will be reduced to one
year.
The employment agreements for each of Messrs. Hirschfield, Tessler and
Imperiale provide for "gross-up" payments if any excise taxes are incurred by
any of them pursuant to the "golden parachute" rules contained in the tax code.
In connection with the merger, the employment of Messrs. Hirschfield,
Tessler and Imperiale will terminate. See "Other Agreements; Termination of
Employment Agreements" and "The Merger; Interests of Certain Persons in the
Merger."
We entered into an employment agreement with Mr. Kaplan, President of
Capital Management Sciences, effective April 29, 1994. The agreement provided
for a three-year term of employment and base salaries of $400,000, $425,000 and
$450,000, respectively, in each of the years. The agreement was extended in
April of 1997 for two years from its scheduled termination, but Mr. Kaplan was
only required to be available 80% of his time and was granted options to
purchase 100,000 shares of our common stock. His salary was increased to
$475,000 for the extension years. Mr. Kaplan continued to work under the terms
of his extension until his retirement on June 30, 1999. The agreement also
provides for a subsequent three-year consultancy period during which Mr. Kaplan
will be paid annual payments of $333,333 for part-time consulting services and
non-compete restrictions. Mr. Kaplan is prohibited from competing with us during
the entire term of the agreement. Mr. Kaplan's right to receive the compensation
specified in the latter three-year period is subject only to his continuing
compliance with the non-compete restrictions. The first of these payments was
made on July 1, 1999.
We entered into an employment agreement with Mr. Crane, our chief financial
officer, on October 15, 1999. The term of his agreement commenced on November
29, 1999 and continues until June 30, 2002 unless automatically extended to June
30, 2003 if a change of control occurs prior to December 31, 2000. The agreement
provides for a base salary of a minimum of $300,000 annually through June 30,
2001, and an increase thereafter to $325,000. Mr. Crane is also entitled to
receive a performance based bonus of up to 100% of his base salary subject to
the discretion of the compensation committee of our board of directors. For
fiscal 2000 Mr. Crane is guaranteed a bonus of 50% of his base salary. In
addition, Mr. Crane was granted an option to acquire 120,000 shares of common
stock and an option to purchase an additional 60,000 shares on the first
anniversary of the agreement, each vesting over a three-year period. Mr. Crane
is prohibited from competing with us during the entire term of the agreement and
for two years after its termination. In the event of certain involuntary
terminations (i) Mr. Crane will receive a lump sum payment equal to 150% of his
base salary for a period of the greater of one year or the balance of his
employment term and (ii) the period under which Mr. Crane is subject to a
covenant not to compete with us will be reduced to one year. In the event of a
change of control and the termination of Mr. Crane, any of Mr. Crane's issued
but unvested options will vest immediately.
We currently have no other compensation plan or arrangement with respect to
any of the executive officers named on the Summary Compensation Table, which
results or will result from the resignation, retirement, or other termination of
such individual's employment with us or from a change in our control or a change
in the individual's responsibilities following a change in control.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Until January 1999, Messrs. Hirschfield and Tessler served on the stock
option committee, however, the actions with respect to executive officers were
taken at the direction of the compensation committee.
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Mr. Markin, chairman of our compensation committee, was, during the fiscal
year, President of Checker Holdings, an entity which does not have a
compensation committee. Mr. Tessler, our co-chief executive officer, was a
member and chairman of the board of directors of Checker Holdings.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16 of the Securities Exchange Act of 1934, as amended, requires our
directors and executive officers, and any person who owns more than 10% of a
registered class of our equity securities, to file with the SEC and us, initial
reports of ownership and reports of changes in ownership of common stock and our
other equity securities. Based upon the information supplied it by such persons,
we are required to report any known failure to file these reports within the
period specified by the instructions to the reporting forms. To our knowledge,
based upon a review of the Section 16(a) reports furnished to us and the written
representations of officers and directors, all these filing requirements were
satisfied by our directors and executive officers.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
Decisions regarding compensation of our executive officers are made by the
compensation committee, except that decisions as to the granting of options
under our stock option plan are made by the stock option committee of our board
of directors. In making decisions on compensation, the compensation committee
solicits and receives the recommendations of the co-chief executive officers,
with recommendations relating to the grant of options being considered by the
compensation committee prior to being referred to the stock option committee.
Compensation Policies For Executive Officers
The compensation committee desires to set compensation at levels and
through arrangements that will attract and retain managerial talent desired by
us, reward employees for past contributions and motivate managerial efforts
consistent with corporate growth, strategic progress and the creation of
stockholder value. The compensation committee believes that a mix of salary,
incentive bonus and stock options will achieve those objectives.
Relationship of Performance to Executive Compensation
The base salaries of Messrs. Kaplan and Imperiale for the 1999 fiscal year
were set by terms of their employment agreements which were negotiated to
attract and retain them. The compensation committee believes these salaries are
competitive and represent a fair estimate of the value of the services rendered
by Messrs. Kaplan and Imperiale to us.
The compensation committee awarded Mr. Imperiale a bonus of $175,000 for
the 1999 fiscal year that was based upon our results of operations. He received
a separate bonus of $200,000 related to the successful completion of the initial
public offering of MarketWatch.com, which contributed significantly to our
market value.
Mr. Egan's base salary was set coincident with the acquisition of BII and a
grant of options made at that time. His compensation package was structured to
induce him to remain with us following the acquisition.
Basis For the Compensation of the Co-Chief Executive Officers
The base salaries of the co-chief executive officers for the 1999 fiscal
year were set at a level consistent with other chief executives at comparable
companies considering our financial performance. The co-chief executive officers
received bonuses related to the successful completion of the initial public
offering of MarketWatch.com, which contributed significantly to our market
value.
Respectfully submitted,
COMPENSATION COMMITTEE
David R. Markin, Chairman Charles M. Diker Herbert S. Schlosser
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STOCK PERFORMANCE GRAPH
The graph presented below compares our cumulative total return, the NASDAQ
U.S. market index and the NASDAQ Non-Financial index from June 30, 1994 through
June 30, 1999. Total return is based on an assumed investment of $100 on June
30, 1994 and reinvestment of dividends through June 30, 1999.
FIVE YEAR TOTAL RETURN
DBC NASDAQ U.S. NASDAQ NON-FINANCIAL
--- ----------- --------------------
6/94 100 100 100
6/95 117 134 137
6/96 188 171 174
6/97 93 208 205
6/98 124 275 269
6/99 206 394 394
STOCKHOLDER NOMINATION OF DIRECTORS
Nominations other than those made by our directors must be in writing and
be delivered to our Secretary at our principal executive offices at 3490
Clubhouse Drive, Jackson, Wyoming 83014 not less than 10 days after the date on
which notice of the annual or special meeting is first given to the
stockholders, or more than 60 days prior to any annual or special meeting,
whichever is later. Such nominations must include the information regarding the
person advancing the nomination as well as information about the nominee as
required by our bylaws. Nominations not made according to these procedures will
be disregarded.
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PROPOSAL TO AMEND OUR CERTIFICATE OF INCORPORATION
TO INCREASE THE NUMBER OF AUTHORIZED
SHARES OF OUR COMMON STOCK TO 200,000,000
Our board of directors has unanimously approved, and recommended to our
stockholders that they approve, an amendment to our certificate of incorporation
to increase our authorized number of shares of common stock to 200,000,000. A
copy of the amendment to our certificate of incorporation is attached as
Appendix F.
Our certificate of incorporation authorizes us to issue 75,000,000 shares
of common stock, $.01 par value per share, of which, as of January 10, 2000,
34,509,210 shares were issued and outstanding, 2,981,350 shares were held as
treasury stock and 3,026,023 were reserved for issuance pursuant to outstanding
options and warrants. Assuming the merger with Interactive is consummated, we
must issue 56,423,949 shares of common stock. In the event that the merger is
not approved, we will not amend our certificate of incorporation to increase the
number of authorized shares of common stock.
We do not have a sufficient number of shares of common stock available for
issuance in the merger. Accordingly, our certificate of incorporation must be
amended to provide for the necessary authorized stock to permit issuance of
those shares. The issuance of additional shares of our common stock will be
determined in the board of directors' sole discretion with no further
authorization by security holders required for the creation and issuance
thereof, subject to the requirements of The NASDAQ National Market System that
stockholder approval be obtained for certain issuances of additional shares of
our common stock.
Our board of directors is required to make any determination to issue
shares of common stock based on its judgment as to the best interests of the
stockholders and us. The issuance of new shares will also have a dilutive effect
on the voting power of existing holders of our common stock and on earnings per
share and could be used to dilute the stock ownership of a person or entity
seeking to obtain control of us should our board of directors consider the
action of such entity or person not to be in the best interest of stockholders
and us.
OUR BOARD OF DIRECTORS UNANIMOUSLY (WITH ONE ABSTENTION) RECOMMENDS THAT
OUR STOCKHOLDERS VOTE "FOR" THE AMENDMENT TO OUR CERTIFICATE OF INCORPORATION TO
INCREASE THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK TO 200,000,000.
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PROPOSAL TO ADOPT OUR 2000 LONG-TERM INCENTIVE PLAN
Our board of directors has adopted the 2000 long-term incentive plan. The
2000 long-term incentive plan is intended to replace our existing stock option
plan. Under our existing plan, no further option grants may be made as the limit
contained in that plan has been reached. Adoption of the 2000 long-term
incentive plan will enable us to continue to use stock options (and other
stock-based awards) as a means to attract, retain and motivate our key
personnel. Our board's adoption of the 2000 long-term incentive plan and all
awards granted under the 2000 long-term incentive plan is conditional upon
stockholder approval. If the 2000 long-term incentive plan is approved, our
existing stock option plan will terminate except that the terms of our existing
plan will continue to govern options that remain outstanding under that plan. As
of January 10, 2000, a total of 2,606,023 shares of our common stock were
subject to options outstanding under our existing plan.
DESCRIPTION OF THE 2000 LONG-TERM INCENTIVE PLAN
The 2000 long-term incentive plan is set forth as Appendix E to this Proxy
Statement, and the description of the 2000 long-term incentive plan contained
herein is qualified in its entirety by reference to Appendix E.
The purpose of the 2000 long-term incentive plan is to provide a means to
attract, retain, motivate and reward our directors, officers, employees and
consultants by increasing their ownership interests in us. Awards under the 2000
long-term incentive plan may be granted by the stock option committee of our
board of directors and may include: (i) options to purchase shares of our common
stock, including incentive stock options ("ISOs"), non-qualified stock options
or both; (ii) stock appreciation rights ("SARs"), whether in conjunction with
the grant of stock options or independent of such grant, or stock appreciation
rights that are only exercisable in the event of a change in control or upon
other events; (iii) restricted stock, consisting of shares that are subject to
forfeiture based on the failure to satisfy employment-related restrictions; (iv)
deferred stock, representing the right to receive shares of stock in the future;
(v) bonus stock and awards in lieu of cash compensation; (vi) dividend
equivalents, consisting of a right to receive cash, other awards, or other
property equal in value to dividends paid with respect to a specified number of
shares of common stock, or other periodic payments; or (vii) other awards not
otherwise provided for, the value of which are based in whole or in part upon
the value of the common stock. Awards granted under the 2000 long-term incentive
plan are generally not assignable or transferable except by the laws of descent
and distribution.
The flexible terms of the 2000 long-term incentive plan are intended to,
among other things, permit the stock option committee to impose performance
conditions with respect to any award, thereby requiring forfeiture of all or
part of any award if performance objectives are not met, or linking the time of
exercisability or settlement of an award to the achievement of performance
conditions. For awards intended to qualify as "performance-based compensation"
within the meaning of Section 162(m) of the Internal Revenue Code, such
performance objectives shall be based solely on (i) annual return on capital;
(ii) annual earnings or earnings per share; (iii) annual cash flow provided by
operations; (iv) changes in annual revenues; (v) stock price and/or (v)
strategic business criteria, consisting of one or more objectives based on
meeting specified revenue, market penetration, geographic business expansion
goals, cost targets, and goals relating to acquisitions or divestitures.
The stock option committee, which will administer the 2000 long-term
incentive plan, will have the authority, among other things, to: (i) select the
directors, officers and other employees and consultants entitled to receive
awards under the 2000 long-term incentive plan; (ii) determine the form of
awards, or combinations of awards, and whether such awards are to operate on a
tandem basis or in conjunction with other awards; (iii) determine the number of
shares of common stock or units or rights covered by an award; and (iv)
determine the terms and conditions of any awards granted under the 2000
long-term incentive plan, including any restrictions or limitations on transfer,
any vesting schedules or the acceleration of vesting schedules and any
forfeiture provision or waiver of same. The exercise price at which shares of
common stock may be purchased pursuant to the grant of stock options under the
2000 long-term incentive plan is to be determined by the option committee at the
time of grant in its discretion, which discretion includes the ability to set an
exercise price that is below the fair market value of the shares of common stock
covered by such grant at the time of grant.
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The number of shares of our common stock that may be subject to outstanding
awards granted under the 2000 long-term incentive plan (determined immediately
after the grant of any award), when added to the number of shares subject to
options then outstanding under our existing plan, may not exceed 20% of the
aggregate number of shares of our common stock then outstanding. In addition, no
individual may receive awards in any one calendar year relating to more than
1,000,000 shares of common stock.
The 2000 long-term incentive plan may be amended, altered, suspended,
discontinued, or terminated by our board of directors without stockholder
approval unless such approval is required by law or regulation or under the
rules of any stock exchange or automated quotation system on which our common
stock is then listed or quoted. Thus, stockholder approval will not necessarily
be required for amendments which might increase the cost of the plan or broaden
eligibility. Stockholder approval will not be deemed to be required under laws
or regulations that condition favorable tax treatment on such approval, although
the board of directors may, in its discretion, seek stockholder approval in any
circumstances in which it deems such approval advisable.
Pursuant to Mr. Imperiale's employment agreement, he was granted an option
under the 2000 long-term incentive plan to purchase 300,000 shares of our common
stock at a price per share of $7.91. This option may be terminated if the
stockholders do not approve an increase in the number of shares allowed under
our option plans by April 30, 2000. Mr. Imperiale's employment agreement
provides that he will be entitled to receive, upon his exercise, a cash payment
equal to the appreciation on 300,000 shares of our common stock. No other awards
have been granted pursuant to the 2000 long-term incentive plan. Awards that may
in the future be received by or allocated to the chief executive officer, the
four other most highly compensated executive officers, or to such other groups
of persons, cannot be determined at this time.
FEDERAL TAX CONSEQUENCES
The following is a brief description of the federal income tax consequences
generally arising with respect to awards that may be granted under the 2000
long-term incentive plan. This discussion is intended for the information of
stockholders considering how to vote at the annual meeting and not as tax
guidance to individuals who participate in the 2000 long-term incentive plan.
The grant of an option or SAR (including a stock-based award in the nature
of a purchase right) will create no tax consequences for the grantee or us. A
grantee will not have taxable income upon exercising an ISO (except that the
alternative minimum tax may apply) and we will receive no deduction at that
time. Upon exercising an option other than an ISO (including a stock-based award
in the nature of a purchase right), the participant must generally recognize
ordinary income equal to the difference between the exercise price and fair
market value of the freely transferable and nonforfeitable stock received. In
each case, we will generally be entitled to a deduction equal to the amount
recognized as ordinary income by the participant.
A participant's disposition of shares acquired upon the exercise of an
option, SAR or other stock-based award in the nature of a purchase right
generally will result in capital gain or loss measured by the difference between
the sale price and the participant's tax basis in such shares (or the exercise
price of the option in the case of shares acquired by exercise of an ISO and
held for the applicable ISO holding periods). Generally, there will be no tax
consequences to us in connection with a disposition of shares acquired upon
exercise of an option or other award, except that we will generally be entitled
to a deduction (and the participant will recognize ordinary taxable income) if
shares acquired upon exercise of an ISO are disposed of before the applicable
ISO holding periods have been satisfied.
With respect to awards granted under the 2000 long-term incentive plan that
may be settled either in cash or in stock or other property that is either not
restricted as to transferability or not subject to a substantial risk of
forfeiture, the participant must generally recognize ordinary income equal to
the cash or the fair market value of stock or other property received. We will
generally be entitled to a deduction for the same amount. With respect to awards
involving stock or other property that is restricted as to transferability and
subject to a substantial risk of forfeiture, the participant must generally
recognize ordinary income equal to the fair market value of the shares or other
property received at the first time the shares or other property become
transferable or not subject to a substantial risk of forfeiture, whichever
occurs earlier. We will generally be entitled to a
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deduction in an amount equal to the ordinary income recognized by the
participant. A participant may elect to be taxed at the time of receipt of
shares or other property rather than upon lapse of restrictions on
transferability or substantial risk of forfeiture, but if the participant
subsequently forfeits such shares or property he would not be entitled to any
tax deduction, including a capital loss, for the value of the shares or property
on which he previously paid tax. Such election must be made and filed with the
Internal Revenue Service within thirty days of the receipt of the shares or
other property.
Section 162(m) of the Internal Revenue Code generally disallows a public
company's tax deduction for compensation to the chief executive officer and the
four other most highly compensated executive officers in excess of $1 million.
Compensation that qualifies as "performance-based compensation" is excluded from
the $1 million deductibility cap, and therefore remains fully deductible by the
company that pays it. Assuming the 2000 long-term incentive plan is approved at
the annual meeting, we believe that options granted with an exercise price at
least equal to 100% of the fair market value of the underlying stock at the date
of grant, and other awards the settlement of which is conditioned upon
achievement of performance goals (based on performance criteria described
above), will qualify as such "performance-based compensation," although other
awards under the 2000 long-term incentive plan may not so qualify.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE
"FOR" THE APPROVAL OF THE ADOPTION OF THE COMPANY'S 2000 LONG-TERM INCENTIVE
PLAN.
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PROPOSAL TO RATIFY THE APPOINTMENT OF AUDITOR
Our Audit Committee has recommended, and our Board of Directors has
selected, the firm of PricewaterhouseCoopers LLP, independent public
accountants, to audit our financial statements for the fiscal year ending June
30, 2000, subject to ratification by the stockholders. PricewaterhouseCoopers
LLP has acted as our independent auditor since fiscal year 1995. Representatives
of PricewaterhouseCoopers LLP, the auditors of our 1999 financial statements,
are expected to be present at this annual meeting with the opportunity to make a
statement, if they so desire, and they are expected to be available to respond
to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT OUR STOCKHOLDERS VOTE
"FOR" THE APPROVAL OF THE RATIFICATION OF THE APPOINTMENT OF
PRICEWATERHOUSECOOPERS LLP AS OUR INDEPENDENT AUDITOR
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UNAUDITED PRO FORMA CONDENSED
COMBINED FINANCIAL INFORMATION
The following unaudited pro forma condensed combined financial information
presents our historical information incorporated by reference in this proxy
statement and the historical information of Interactive Data included in this
proxy statement, as adjusted to give effect to the events noted below. The
unaudited pro forma condensed combined balance sheet as of September 30, 1999
gives effect to the assumed merger between us and Interactive Data, including a
preliminary estimated purchase price allocation, as if the merger occurred on
September 30, 1999. The unaudited pro forma condensed combined statements of
operations for the nine months ended September 30, 1999 and the year ended
December 31, 1998 give effect to (a) the acquisition of Muller Data and the
assets of Muniview and Valorinform by Interactive Data on July 29, 1999 and (b)
the assumed merger between Data Broadcasting and Interactive Data, as if each
had occurred on January 1, 1998.
The following information is not necessarily indicative of the financial
position or operating results that would have occurred had the events referred
to above been consummated on the dates, or at the beginning of the periods, for
which the consummation of such events is being given effect. Since Interactive
Data's stockholder will own approximately 60% of the shares of the merged entity
after closing of the assumed merger, the merger will be recorded as if
Interactive Data had acquired our common stock on the closing date. For purposes
of preparing consolidated financial statements of the merged entity, Interactive
Data will establish a new accounting basis for our assets and liabilities based
upon the fair values thereof and our purchase price, including the costs of the
merger. A final determination of required purchase accounting adjustments,
including the allocation of the purchase price to the assets acquired and
liabilities assumed based on their respective fair values, has not yet been
made. Accordingly, the purchase accounting adjustments made in connection with
the development of the pro forma condensed combined financial information
appearing in this proxy statement are preliminary and have been made solely for
purposes of developing such pro forma condensed combined financial information.
Interactive Data will continue its study to determine the fair value of certain
of our assets and liabilities and will make appropriate purchase accounting
adjustments upon completion of that study. Assuming the consummation of the
merger, the actual financial position and results of operations will differ,
perhaps significantly, from the pro forma amounts reflected herein because of a
variety of factors, including access to additional information, changes in
values and changes in operating results between the dates of the pro forma
financial data and the date on which the merger is consummated.
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DATA BROADCASTING CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(IN THOUSANDS)
(A)/(B) (A) PRO FORMA
HISTORICAL HISTORICAL MERGER COMBINED
IDC DBC ADJUSTMENTS COMPANY
---------- ---------- ----------- ----------
Cash and cash equivalents.................. $ 44,432 $ 39,900 $ (250)(C)
(43,656)(D) $ 40,426
Accounts receivable, net................... 45,820 10,914 56,734
Income tax receivable...................... 6,173 6,173
Related party receivables.................. 19,224 19,224
Other current assets....................... 8,530 1,462 9,992
-------- -------- --------- ----------
Total current assets............. 118,006 58,449 (43,906) 132,549
Property and equipment, net................ 20,369 16,121 36,490
Goodwill, net.............................. 235,584 44,800 (44,800)(F)
190,562(F) 426,146
Investment in MarketWatch.com, Inc......... 41,331 (41,331)(F)
212,625(F) 212,625
Other intangibles.......................... 126,037 3,355 (3,355)(F)
84,700(F) 210,737
Other assets............................... 1,027 5,926 6,953
-------- -------- --------- ----------
Total assets..................... $501,023 $169,982 $ 354,495 $1,025,500
======== ======== ========= ==========
Accounts payable and accrued liabilities... $ 44,306 $ 13,724 $ 3,500(E)
4,950(F)
1,500(F) $ 67,980
Deferred tax liabilities................... 6,531 6,531
Income tax payable......................... 12,769 (12,769)(D)
Related party payable...................... 20,000 20,000
Deferred revenue........................... 27,765 8,824 36,589
Other current liabilities.................. 3,703 (250)(C) 3,453
-------- -------- --------- ----------
Total current liabilities........ 104,840 32,782 (3,069) 134,553
Deferred tax liabilities................... 18,202 (13,904) 67,747(F)
(1,957)(F)
(1,384)(E)
32,172(F) 100,876
Other non-current liabilities.............. 1,709 1,709
-------- -------- --------- ----------
Total liabilities................ 123,042 20,587 93,509 237,138
Stockholders' equity....................... 377,981 149,395 (147,279)(F)
(30,887)(D)
(3,500)(E)
1,384(E)
3,000(F)
438,268(F) 788,362
-------- -------- --------- ----------
Total liabilities and stockholders'
equity................................... $501,023 $169,982 $ 354,495 $1,025,500
======== ======== ========= ==========
See accompanying notes to Unaudited Pro Forma Condensed Combined Balance Sheet.
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DATA BROADCASTING CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
SEPTEMBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(A) The unaudited pro forma condensed combined balance sheet of the merged
entity is based on our historical financial position and that of Interactive
Data as of September 30, 1999. Since Interactive Data shareholders will own
approximately 60% or 56,423,949 shares of the shares of the merged entity
after closing of the assumed merger, the merger will be recorded, as
described in the notes below, as if Interactive Data had acquired our common
stock.
(B) Historical Interactive Data reflects the capitalization of Interactive Data
inter-company indebtedness with non Interactive Data companies within the
Pearson group, except for a $19,224 receivable from Rycade Capital Corp. and
a $20,000 payable to Pearson, in accordance with the terms of the merger
agreement.
(C) To record repayment of our outstanding bank debt prior to the closing date,
as required by the merger agreement.
(D) To record a dividend payment to the Pearson group of Interactive Data's cash
balance, except for $776, and capitalization of Interactive Data's income
tax payable of $12,769 prior to the closing date.
(E) To record our estimated transaction costs of $3,500 as an expense, and the
associated deferred tax asset at our statutory tax rate, prior to the
closing date.
(F) To record the merger of Data Broadcasting and Interactive Data in exchange
for the merger consideration described below:
Value of shares of Data Broadcasting common stock........... $419,631(i)
Value of options to purchase Data Broadcasting common
stock....................................................... 18,637(i)
--------
Purchase price before transaction and severance costs....... 438,268
Severance costs............................................. 4,950
Estimated transaction costs of Interactive Data............. 4,500(ii)
--------
Total estimated purchase price.......................... 447,718
(Less): estimated fair value of tangible net assets of Data
Broadcasting.............................................. (57,793)(iii)
--------
Excess of purchase price over estimated fair value of
tangible net assets....................................... 389,925
Allocation of excess purchase price:
Estimated fair value of investment in MarketWatch.com....... (212,625)(iv)
Identifiable intangible assets.............................. (84,700)(v)
Deferred tax adjustments:
Severance costs........................................... (1,957)
MarketWatch.com........................................... 67,747(iv)
Identifiable intangible assets............................ 32,172(v)
--------
Goodwill.................................................... $190,562
========
(i) The adjustments reflecting the consummation of the merger are based upon
the purchase method of accounting and include the value of 34,509,210
shares of our common stock and 1,532,662 options to purchase our common
stock. The estimated value associated with our shares of common stock is
calculated using our market value of common stock of $12.16 per share, the
average closing price of our common stock for the five-day period including
the date of the announcement of the signing of the merger agreement and the
two days preceding and succeeding such date. The value of the options to
purchase our common stock is calculated using the treasury stock method
based on an assumed market value of our common stock of $12.16, calculated
as noted above.
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(ii) To record $3,000 of the estimated transaction costs of Interactive Data as
a capital contribution, as the Pearson group will pay such expenses, and
$1,500 of the costs as accounts payable as Interactive Data will pay such
expenses.
(iii) Estimated fair value of tangible net assets of Data Broadcasting is
assumed to approximate historical net tangible assets as of September 30,
1999 which has been determined as follows:
Historical net tangible and intangible assets of Data
Broadcasting.............................................. $149,395
(Less) transaction costs of Data Broadcasting............... (3,500)
Plus deferred tax on Data Broadcasting transaction costs.... 1,384
--------
Adjusted historical net tangible and intangible assets of
Data Broadcasting......................................... 147,279
Less: Data Broadcasting goodwill............................ 44,800
Data Broadcasting carrying value of MarketWatch.com... 41,331
Data Broadcasting carrying value of other
intangibles............................................... 3,355
--------
Estimated fair value of tangible net assets of Data
Broadcasting.............................................. $ 57,793
========
Interactive Data will continue its study to determine the fair value of our
assets and liabilities and will make appropriate purchase accounting
adjustments upon completion of that study.
(iv) The value assigned to our investment in MarketWatch.com is based on our
holding of 4,500,000 shares of common stock at a price of $47.25, the
closing price of MarketWatch.com common stock on September 30, 1999. This
value exceeds our share of the underlying net assets of MarketWatch.com by
$158,340.
The value assigned to deferred tax liabilities is based on the incremental
write-up of our investment in MarketWatch.com, from $41,331 to $212,625
tax-affected at our statutory tax rate.
(v) To record estimated fair value of identifiable intangible assets
attributable to the assumed merger. Our identifiable intangible assets
include estimates of fair value for the acquired customer lists, assembled
workforce and core technology databases. Interactive Data will continue its
study to determine the fair value of our identifiable intangibles and will
make appropriate purchase accounting adjustments upon completion of that
study.
The value assigned to deferred tax liabilities is based on the incremental
write-up of our identifiable intangible assets, from $3,355 to $84,700,
tax-affected at our statutory tax rate.
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DATA BROADCASTING CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA PRO FORMA
(A) (A)/(B) COMBINED (A)/(C) COMBINED
HISTORICAL HISTORICAL ACQUISITION IDC/MULLER HISTORICAL MERGER IDC/DBC
IDC MULLER ADJUSTMENTS COMPANY DBC ADJUSTMENTS COMPANY
---------- ---------- ----------- ---------- ---------- ----------- ---------
Revenues................. $132,811 $28,756 $161,567 $ 82,904 $244,471
Costs and expenses
Costs of services...... 37,963 9,435 47,398 43,612 91,010
Selling, general and
administrative....... 52,263 17,206 69,469 31,100 100,569
Amortization........... 20,135 1,812 (1,812)(D) 4,507 (4,503)(I)
19,227(E) 39,362 25,769(J) 65,135
Depreciation........... 4,301 1,228 (614)(F) 4,915 5,685 10,600
-------- ------- -------- -------- -------- --------- --------
Total costs and
expenses............. 114,662 29,681 16,801 161,144 84,904 21,266 267,314
-------- ------- -------- -------- -------- --------- --------
Income (loss) from
operations............. 18,149 (925) (16,801) 423 (2,000) (21,266) (22,843)
Equity in losses of
MarketWatch.com...... (10,054) (39,585)(K) (49,639)
Other income (expense),
net.................. 540 (591) 591(G) 540 1,103 1,643
-------- ------- -------- -------- -------- --------- --------
Income before income
taxes.................. 18,689 (1,516) (16,210) 963 (10,951) (60,851) (70,839)
Provision (benefit) for
income taxes......... 10,379 118 (6,245)(H) 4,252 (3,810) (19,820)(L) (19,378)
-------- ------- -------- -------- -------- --------- --------
Net income (loss)........ $ 8,310 $(1,634) $ (9,965) $ (3,289) $ (7,141) $ (41,031) $(51,461)
======== ======= ======== ======== ======== ========= ========
EBITDA................... $ 8,192(M) $ 52,892(M)
Net income (loss) per
share
Basic.................. $ (0.21) $ (0.56)
Diluted................ $ (0.21) $ (0.56)
Weighted average shares
Basic.................. 34,822 91,246(N)
Diluted................ 34,822 91,246(N)
See accompanying notes to Unaudited Pro Forma Condensed Combined Statement of
Operations.
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DATA BROADCASTING CORPORATION
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1998
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PRO FORMA PRO FORMA
(A) (A) COMBINED (A)/(C) COMBINED
HISTORICAL HISTORICAL ACQUISITION IDC/MULLER HISTORICAL MERGER IDC/DBC
IDC MULLER ADJUSTMENTS COMPANY DBC ADJUSTMENTS COMPANY
---------- ---------- ----------- ---------- ---------- ----------- ---------
Revenues..................... $156,437 $47,194 $203,631 $103,247 $306,878
Costs and expenses
Costs of services.......... 47,992 14,921 62,913 49,815 112,728
Selling, general and
administrative........... 68,421 23,612 92,033 35,174 127,207
Restructuring expense...... 3,647 3,647 3,647
Amortization............... 31,114 3,240 (3,240)(D) 6,262 (6,206)(I)
32,960(E) 64,074 34,358(J) 98,488
Depreciation............... 5,293 2,223 (1,112)(F) 6,404 9,836 16,240
-------- ------- -------- -------- -------- -------- --------
Total costs and
expenses............ 156,467 43,996 28,608 229,071 101,087 28,152 358,310
-------- ------- -------- -------- -------- -------- --------
Income (loss) from
operations................. (30) 3,198 (28,608) (25,440) 2,160 (28,152) (51,432)
Equity in losses of
MarketWatch.com.......... (2,670) (52,780)(K) (55,450)
Other income (expense),
net...................... 382 (3,205) 3,205(G) 382 1,014 1,396
-------- ------- -------- -------- -------- -------- --------
Income before income taxes... 352 (7) (25,403) (25,058) 504 (80,932) (105,486)
Provision (benefit) for
income taxes............. 3,567 1,293 (10,706)(H) (5,846) 229 (26,301)(L) (31,918)
-------- ------- -------- -------- -------- -------- --------
Net income (loss)............ $ (3,215) $(1,300) $(14,697) $(19,212) $ 275 $(54,631) $(73,568)
======== ======= ======== ======== ======== ======== ========
EBITDA....................... $ 18,258(M) $ 63,296(M)
Net income (loss) per share
Basic...................... $ 0.01 $ (0.82)
Diluted.................... $ 0.01 $ (0.82)
Weighted average shares
Basic...................... 32,895 89,319(N)
Diluted.................... 33,559 89,319(N)
See accompanying notes to Unaudited Pro Forma Condensed Combined Statements of
Operations.
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DATA BROADCASTING CORPORATION
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999
AND THE YEAR ENDED DECEMBER 31, 1998
(DOLLARS IN THOUSANDS)
(A) The unaudited pro forma condensed combined statements of operations are
based on our historical results and those of Interactive Data and Muller
Data and the assets of Muniview and Valorinform for the periods presented as
further described in Note (B) and (C) below. As discussed in Note (A) to the
unaudited pro forma condensed combined balance sheet, for accounting
purposes, the merger of Interactive Data and Data Broadcasting will be
treated as if Interactive Data had acquired our common stock. For pro forma
purposes, both the acquisition of Muller Data and the assets of Muniview and
Valorinform by Interactive Data and the merger of Interactive Data and Data
Broadcasting are presented as if the events occurred on January 1, 1998.
(B) Historical Muller for the nine months ended September 30, 1999 includes the
historical results of operations of Muller Data and the assets of Muniview
and Valorinform for the seven months ended July 31, 1999, the closing date
for Interactive Data's acquisition of Muller Data and the assets of Muniview
and Valorinform. Thereafter such information is included in Historical
Interactive Data.
(C) Historical DBC included in the unaudited pro forma condensed combined
statement of operations for the nine months ended September 30, 1999 has
been derived by adding the quarter ended September 30, 1999 to fiscal year
ended June 30, 1999 and deducting the quarters ended September 30 and
December 31, 1998. Historical DBC included in the unaudited pro forma
condensed combined statement of operations for the year ended December 31,
1998 has been derived by adding the quarters ended September 30 and December
31, 1998 to the fiscal year ended June 30, 1998 and deducting the quarters
ended September 30 and December 31, 1997.
(D) To reverse the historical amortization of Muller Data goodwill.
(E) To record the amortization of identifiable intangibles and goodwill
attributable to the acquisition of Muller Data and the assets of Muniview
and Valorinform by Interactive Data based on estimated useful lives of the
identifiable intangibles ranging from 2 to 14 years and goodwill of 10
years.
(F) To record the pro forma adjustment for depreciation relating to a write down
of fixed assets to estimated fair value at the time of the acquisition of
Muller Data and the assets of Muniview and Valorinform by Interactive Data.
(G) To record the pro forma adjustment to eliminate interest expense that would
not have been incurred had the acquisition occurred on January 1, 1998.
(H) To record the income tax effect, at the statutory rates during the periods
presented, of book/tax basis differences that result from the pro forma
adjustments.
(I) To reverse the historical amortization of Data Broadcasting goodwill.
(J) To record the amortization of identifiable intangibles and goodwill
attributable to the merger of Interactive Data and Data Broadcasting based
on estimated useful lives of the identifiable intangibles ranging from 2 to
11 years and goodwill of 10 years. See Note (F) to the pro forma condensed
combined balance sheet.
(K) To record the amortization of the value assigned to the merged entity's
investment in MarketWatch.com in excess of its share of the underlying net
equity of MarketWatch.com. The excess of $158,340 is being amortized over
three years. See Note (F)(iii) to the unaudited proforma condensed combined
balance sheet.
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(L) To record the income tax effect, at the statutory rates during the periods
presented, of book/tax basis differences that result from the pro forma
adjustments. Such amounts represent the tax effect that results from
amortizing (i) the excess of the merged entity's investment in
MarketWatch.com compared to its share in the underlying net equity of
MarketWatch.com. and (ii) the incremental write-up of Data Broadcasting's
identifiable intangible assets.
Goodwill amortization associated with the merger of Interactive Data and
Data Broadcasting is assumed to be non-deductible for tax purposes.
(M) EBITDA represents earnings of the companies before interest, income taxes,
depreciation, amortization expense and equity in losses of MarketWatch.com.
We believe that EBITDA is a widely accepted financial indicator used by
investors and analysis to analyze and compare companies on the basis of
operating performance. EBITDA is not intended to represent cash flows for
the periods presented, nor has it been presented as an alternative to
operating income or as an indicator of operating performance. You should not
consider EBITDA in isolation or as a substitute for measures of performance
prepared in accordance with generally accepted accounting principles. We
understand that, while EBITDA is frequently used by securities analysts in
the evaluation of companies, EBITDA is not necessarily comparable to other
similarly titled measures of other companies due to potential
inconsistencies in the methods of calculation.
(N) The number of shares used to compute both basic and diluted earnings per
share is based upon the historical weighted average shares outstanding
adjusted for the effect of the assumed issuance of 56,423,949 shares of our
common stock. Historical DBC and Pro Forma Combined IDC/DBC Company and for
the nine months ended September 30, 1999 and Pro Forma Combined IDC/DBC
Company for the year ended December 31, 1998 are in a loss position for the
periods then ended. Therefore basic and diluted earnings per share are
identical since the securities which could have a dilutive effect on
earnings per share are anti-dilutive.
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DESCRIPTION OF OUR CAPITAL STOCK
GENERAL
Our authorized capital stock currently consists of 75,000,000 shares of
common stock, par value $.01 per share, and 5,000,000 shares of preferred stock,
par value $.01 per share.
It is anticipated that there will be approximately 91,500,000 shares of our
common stock outstanding following completion of the merger. No shares of
preferred stock have been issued, although our board is authorized to issue and
designate the rights of such shares.
COMMON STOCK
Each holder of common stock of record is entitled to one vote for each
outstanding share owned by him on every matter properly submitted to the
stockholders for their vote. The shares of common stock do not have cumulative
voting rights in the election of directors, subject to the rights of any
preferred stock that could be issued from time to time, holders of common stock
are entitled to any dividends declared by our board of directors out of any
legally available funds and are entitled to receive on a pro rata basis all of
our assets available for distribution to the stockholders in the event of
liquidation, dissolution, or the winding up of our business. Common stockholders
do not have any pre-emptive right to become subscribers or purchasers of
additional shares of any class of our capital stock in any subsequent offering.
REGISTRAR AND TRANSFER AGENT
The registrar and transfer agent for our common stock is American Stock
Transfer and Trust Company.
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INDEPENDENT ACCOUNTANTS
Our financial statements incorporated in this proxy statement by reference
to our Annual Report on Form 10-K for the year ended June 30, 1999, and included
in the proxy statement as of June 30, 1999 and 1998 and for each of the three
years in the period ended June 30, 1999 have been so incorporated in reliance on
the report of PricewaterhouseCoopers LLP, independent accountants, given on the
authority of said firm as experts in auditing and accounting.
The financial statements of Interactive Data as of September 30, 1999 and
December 31, 1998 and for the nine months ended September 30, 1999 and for each
of the two years in the period ended December 31, 1998 included in this proxy
statement have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
Representatives of PricewaterhouseCoopers LLP will attend the annual
meeting and will have an opportunity to make a statement and to respond to
appropriate questions from stockholders.
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STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at our next
annual meeting of stockholders must be received by us at our principal executive
offices at 3490 Clubhouse Drive, Jackson, Wyoming 83014, Attn: Corporate
Secretary not later than June 30, 2000 in order to be considered for inclusion
in our next proxy statement. Pursuant to our by-laws, any record stockholder who
desires to submit a proposal for the approval of our stockholders must deliver
written notice to our Secretary no later than the close of business 60 days in
advance of the annual meeting or 10 days after the date on which notice of the
special meeting is given, whichever is later.
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INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
We incorporate herein by reference the following documents filed by us with
the SEC (File No. 0-20311) pursuant to the Exchange Act:
1. our Annual Report on Form 10-K for the year ended June 30, 1999;
2. our Amended Annual Report on Form 10-K/A for the year ended June 30,
1999;
3. our Current Report on Form 8-K, dated November 14, 1999; and
4. our Quarterly Report on Form 10-Q for the period ended September 30,
1999.
All documents filed by us pursuant to Section 13(a), 13(c), 14, or 15(d) of
the Exchange Act subsequent to the date of this proxy statement and prior to the
date of the annual meeting shall be deemed to be incorporated by reference in
this proxy statement and to be part hereof from the date of filing of such
documents. All information appearing in this proxy statement is qualified in its
entirety by the information and financial statements (including notes thereto)
appearing in the documents incorporated by reference herein.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be modified or superseded, for purposes
of this proxy statement, to the extent that a statement contained herein or in
any subsequently filed document that is deemed to be incorporated herein
modifies or supersedes any such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this proxy statement.
This proxy statement incorporates documents by reference that are not
presented herein or delivered herewith. We hereby undertake to provide, by first
class mail or other equally prompt means within one business day of receipt of a
request, without charge, to each person to whom a copy of this proxy statement
has been delivered, upon the written or oral request of any such person, a copy
of any and all of the documents referred to above that have been or may be
incorporated into this proxy statement by reference, other than exhibits to such
documents (unless such exhibits are specifically incorporated by reference into
such documents). Documents relating to us are available upon request from us at
7050 Union Park Center, Suite 600, Midvale, Utah 84047, attention: Joanne
Douglas, telephone number (801) 562-2252. In order to ensure timely delivery of
the documents, any request should be made by February 14, 2000.
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INTERACTIVE DATA CORPORATION
INDEX TO COMBINED FINANCIAL STATEMENTS
Report of Independent Accountants........................... F-2
Combined Balance Sheet...................................... F-3
Combined Statement of Operations and Comprehensive Income... F-4
Combined Statement of Stockholder's Equity.................. F-5
Combined Statement of Cash Flows............................ F-6
Notes to Combined Financial Statements...................... F-7
Combined Statement of Operations and Comprehensive Income
for the nine months ended September 30, 1998
(unaudited)............................................... F-18
Combined Statement of Cash Flows for the nine months ended
September 30, 1998 (unaudited)............................ F-19
Notes to Unaudited Interim Financial Information............ F-20
F-1
91
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Interactive Data Corporation
In our opinion, the accompanying combined balance sheet and the related
combined statements of operations and comprehensive income, of stockholder's
equity and of cash flows present fairly, in all material respects, the combined
financial position of Interactive Data Corporation at September 30, 1999 and
December 31, 1998, and the combined results of their operations and their cash
flows for the nine months ended September 30, 1999 and each of the years ended
December 31, 1998 and 1997 in conformity with accounting principles generally
accepted in the United States. 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 of these
statements in accordance with auditing standards generally accepted in the
United States, which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
PRICEWATERHOUSECOOPERS LLP
Boston, MA
December 10, 1999
F-2
92
INTERACTIVE DATA CORPORATION
COMBINED BALANCE SHEET
(DOLLARS IN THOUSANDS)
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
ASSETS
Current assets:
Cash and cash equivalents................................. $ 15,037 $ 44,432
Accounts receivable, net of sales allowance of $1,587 and
$3,134................................................. 23,577 45,820
Receivable from affiliate................................. 19,224 19,224
Prepaid expense and other assets.......................... 3,927 2,251
Deferred income taxes..................................... 5,554 6,279
-------- --------
Total current assets.............................. 67,319 118,006
-------- --------
Goodwill, net of accumulated amortization of $46,566 and
$56,161................................................... 181,141 235,584
Other intangible assets, net................................ 19,070 126,037
Fixed assets, net........................................... 17,927 20,369
Deferred income taxes....................................... 8,578 --
Other assets................................................ 1,013 1,027
-------- --------
Total assets...................................... $295,048 $501,023
======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
Current liabilities:
Accounts payable, trade................................... $ 9,964 $ 5,141
Deferred revenue.......................................... 6,772 27,765
Accrued data charges...................................... 4,393 4,467
Promissory note payable to affiliate...................... -- 20,000
Income taxes payable...................................... 9,614 12,769
Other current liabilities and accrued expenses............ 21,795 34,698
-------- --------
Total current liabilities......................... 52,538 104,840
-------- --------
Promissory note payable to affiliate...................... 20,000 --
Deferred tax liabilities.................................. 774 18,202
-------- --------
Total liabilities................................. 73,312 123,042
-------- --------
Commitments and contingencies (Note 10)
Stockholder's equity
Parent's investment....................................... 244,609 392,306
Accumulated other comprehensive income.................... (705) (467)
Accumulated deficit....................................... (22,168) (13,858)
-------- --------
Total stockholder's equity........................ 221,736 377,981
-------- --------
Total liabilities and stockholder's equity........ $295,048 $501,023
======== ========
The accompanying notes are an integral part of these combined financial
statements.
F-3
93
INTERACTIVE DATA CORPORATION
COMBINED STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME
(DOLLARS IN THOUSANDS)
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1997 1998 1999
-------- -------- -------------
Revenue.................................................. $143,294 $156,437 $132,811
Costs and expenses:
Cost of services....................................... 44,403 47,992 37,963
Selling, general and administrative.................... 63,705 68,421 52,263
Amortization expense................................... 31,036 31,114 20,135
Depreciation expense................................... 5,066 5,293 4,301
Restructuring expense.................................. 4,457 3,647 --
-------- -------- --------
Total costs and expenses....................... 148,667 156,467 114,662
-------- -------- --------
Income (loss) from operations............................ (5,373) (30) 18,149
Interest income, net..................................... 434 599 594
Other income (expense), net.............................. 21 (217) (54)
-------- -------- --------
Income (loss) before income taxes........................ (4,918) 352 18,689
Provision for income taxes............................... 2,026 3,567 10,379
-------- -------- --------
Net income (loss)........................................ $ (6,944) $ (3,215) $ 8,310
-------- -------- --------
Other comprehensive income:
Foreign currency translation adjustment................ (200) 19 238
-------- -------- --------
Comprehensive income (loss).............................. $ (7,144) $ (3,196) $ 8,548
======== ======== ========
The accompanying notes are an integral part of these combined financial
statements.
F-4
94
INTERACTIVE DATA CORPORATION
COMBINED STATEMENT OF STOCKHOLDER'S EQUITY
(DOLLARS IN THOUSANDS)
OTHER TOTAL
PARENT'S COMPREHENSIVE ACCUMULATED STOCKHOLDER'S
INVESTMENT INCOME DEFICIT EQUITY
---------- ------------- ----------- -------------
Balance, December 31, 1996................ $250,342 $(524) $(12,009) $237,809
Distribution to Parent.................... (15,970) (15,970)
Other comprehensive income................ (200) (200)
Net loss.................................. (6,944) (6,944)
-------- ----- -------- --------
Balance, December 31, 1997................ 234,372 (724) (18,953) 214,695
Investment by Parent...................... 10,237 10,237
Other comprehensive income................ 19 19
Net loss.................................. (3,215) (3,215)
-------- ----- -------- --------
Balance, December 31, 1998................ 244,609 (705) (22,168) 221,736
Investment by Parent...................... 147,697 147,697
Other comprehensive income................ 238 238
Net income................................ 8,310 8,310
-------- ----- -------- --------
Balance, September 30, 1999............... $392,306 $(467) $(13,858) $377,981
======== ===== ======== ========
The accompanying notes are an integral part of these combined financial
statements.
F-5
95
INTERACTIVE DATA CORPORATION
COMBINED STATEMENT OF CASH FLOWS
(DOLLARS IN THOUSANDS)
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
-------------------- -------------
1997 1998 1999
-------- -------- -------------
Cash flows from operating activities:
Net income (loss)........................................ $ (6,944) $ (3,215) $ 8,310
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization....................... 36,102 36,407 24,436
(Gain) on disposal of fixed assets.................. (641) (15) --
Write-down of fixed assets.......................... 1,591 -- --
Deferred income taxes............................... (7,065) (6,878) (1,552)
Changes in assets and liabilities:
Accounts receivable............................... 1,548 725 (11,551)
Prepaid expenses and other current assets......... 6,083 912 2,604
Accounts payable, trade........................... 7,235 2,072 (3,096)
Other current liabilities and accrued expenses.... (13,082) 7,902 6,033
Deferred revenue.................................. (675) 94 9,896
-------- -------- ---------
Net cash provided by operating activities...... 24,152 38,004 35,080
Cash flows from investing activities:
Purchases of fixed assets.............................. (4,917) (4,812) (6,272)
Acquisition of business................................ -- -- (147,500)
Proceeds from sale of fixed assets..................... 734 431 --
-------- -------- ---------
Net cash used in investing activities.......... (4,183) (4,381) (153,772)
Cash flows from financing activities
Contribution (distribution) of capital from/to
parent.............................................. (15,970) 10,237 147,697
Advances to/from affiliate............................. 480 (35,438) --
-------- -------- ---------
Net cash (used) provided by financing
activities................................... (15,490) (25,201) 147,697
-------- -------- ---------
Effect of exchange rate on cash.......................... (102) (88) 390
-------- -------- ---------
Net increase in cash and cash equivalents................ 4,377 8,334 29,395
Cash and cash equivalents, beginning of period........... 2,326 6,703 15,037
-------- -------- ---------
Cash and cash equivalents, end of period................. $ 6,703 $ 15,037 $ 44,432
======== ======== =========
Supplemental disclosure of cash flow information:
Cash paid for taxes.................................... $ (431) $ 1,214 $ (4,611)
Cash paid for interest................................. $ (2,681) $ (2,594) $ (453)
The accompanying notes are an integral part of these combined financial
statements.
F-6
96
INTERACTIVE DATA CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Interactive Data Corporation is a wholly-owned subsidiary of Pearson
Longman, Inc. Pearson Longman, Inc., through a series of other entities, is
wholly-owned by Pearson plc (a U.K. Corporation). Interactive Data Corporation
provides financial data, including securities, commodities, and derivatives
information, to its customers in the United States, Europe and Asia. The data
includes pricing, descriptive and related financial data and corporate action
data. This information is used to support securities operations, fund pricing,
research and portfolio management within banks, brokerage firms and investment
managers.
On November 14, 1999, Pearson Longman, Inc. and Interactive Data entered
into an agreement and plan of merger, which was subsequently amended on January
10, 2000, with Data Broadcasting Corporation ("DBC"), a publicly traded
corporation, whereby DBC will issue 56,424 shares of its stock to Pearson
Longman, Inc. for all of the stock of Interactive Data Corporation. As a result
of this transaction, Pearson Longman, Inc. will own approximately 60% of the
then outstanding common stock of DBC. The transaction is subject to approval by
a vote of the majority of the DBC common shares currently outstanding.
The merger agreement with DBC provides that, prior to consummation of the
transaction between Pearson Longman, Inc. and DBC, Pearson plc will undertake a
reorganization which will result in the capital stock of certain other Pearson
plc subsidiaries being transferred to Interactive Data Corporation. These
subsidiaries are engaged in businesses similar to Interactive Data Corporation.
In connection with this reorganization, certain inter-company balances with
other Pearson plc entities are required to be contributed to capital or
eliminated and certain assets and liabilities are required to be conveyed to
other Pearson plc subsidiaries. The capital stock of the following Pearson plc
entities will be reorganized into Interactive Data Corporation.
- Interactive Data Canada Inc., a company organized under the laws of the
Province of Ontario, Canada
- Financial Times Information (H.K.) Limited, a company organized under the
laws of Hong Kong
- Financial Times Information (Australia) Pty Limited, a company organized
under the laws of Victoria, Australia
- Financial Times Information (Singapore) Pte Ltd., a company organized
under the laws of Singapore
- FT Information (Ireland) Ltd., a company organized under the laws of
Ireland
- Exshare Financial Limited, a company organized under the laws of England
and Wales
- Exshare Computing Ltd., a company organized under the laws of England and
Wales
- The Exchange Telegraph Company, a company organized under the laws of
England and Wales
- Exshare Financial (US) Ltd., a company organized under the laws of
England and Wales
- W&W Ltd, a company organized under the laws of England and Wales
- Exshare Statistical Services Ltd., a company organized under the laws of
England and Wales
- Exshare Financial Inc., a Delaware corporation
These combined financial statements include Interactive Data Corporation
and the entities listed above (collectively "Interactive Data" or the
"Company"). The combined financial statements of Interactive Data have been
prepared assuming the reorganization described above. Deemed capital
contributions/distributions arising from the assumed reorganization are
reflected in the Combined Statement of Cash Flows and the Combined Statement of
Changes in Stockholder's Equity.
F-7
97
INTERACTIVE DATA CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (IN THOUSANDS) -- (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and cash equivalents
Cash and cash equivalents include cash on hand and short-term investments
with an original maturity of three months or less.
Fair value of financial instruments
The carrying amount of cash, cash equivalents, trade receivables and trade
payables approximates their fair value because of the short maturity of these
financial instruments.
Intercompany Transactions
All significant transactions and balances between the businesses listed in
Note 1 have been eliminated in combination.
Revenue Recognition
Revenues are recognized over contractual periods as services are performed.
The Company accounts for subscription revenues received in advance by deferring
such amounts until the related services are performed.
Accounts Receivable, Concentration of Credit Risk and Uncertainties
The Company is subject to credit risk through trade receivables. Credit
risk with respect to trade receivables is mitigated by the diversification of
the Company's operations, as well as its large client base and its geographical
dispersion. No single customer accounts for more than 10% of revenues or more
than 10% of accounts receivable for any period presented. Ongoing credit
evaluations of customers' financial condition are performed and collateral is
not required. The Company maintains reserves for potential credit losses and
such losses, in the aggregate, have not exceeded management's expectations.
Income Taxes
In accordance with Statement of Financial Accounting Standards ("SFAS") No.
109, "Accounting for Income Taxes," deferred tax assets and liabilities are
determined based on differences between the financial reporting and the tax
basis of assets and liabilities and are measured by applying enacted tax rates
and laws to taxable years in which such differences are expected to reverse. The
Company's practice is to provide currently for taxes that will be payable upon
remittance of foreign earnings of subsidiaries and affiliates to the extent that
such earnings are not considered to be reinvested indefinitely.
Goodwill
Goodwill of $63,276 and $228,469 at September 30, 1999 was recorded in
connection with business acquisitions and is being amortized on a straight-line
basis over ten or twenty years, respectively. Goodwill represents the excess
purchase price over the fair value of identifiable net assets at the acquisition
date. The Company reviews the recoverability of goodwill based on estimated
undiscounted future cash flows from operating activities.
Other Intangible Assets
Other intangible assets include securities databases, computer software,
covenants not to compete, customer lists and work forces arising principally
from acquisitions. Such intangibles are valued on the acquisition dates based on
a combination of replacement cost and comparable purchase methodologies by a
third party appraiser and are amortized over periods ranging from two to
fourteen years. The carrying amount
F-8
98
INTERACTIVE DATA CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (IN THOUSANDS) -- (CONTINUED)
of these balances is evaluated periodically in relation to the operating
performance and estimated undiscounted future cash flows of the underlying
businesses. Adjustments are made if the sum of expected future net cash flows is
less than book value.
Fixed Assets
Fixed assets are recorded at cost. Equipment is depreciated using the
straight-line method over its estimated useful life of one and one-half to eight
years. Leasehold improvements are amortized using the straight-line method over
the terms of the respective leases or useful lives, whichever is shorter.
Maintenance and repairs are charged to operations as incurred. Retirements,
sales and disposals of assets are recorded by removing the cost and accumulated
depreciation from the asset and accumulated depreciation accounts.
Translation of Foreign Currencies
The functional currency of certain businesses within the combined financial
statements is the local currency. Assets and liabilities of foreign companies
are translated into U.S. dollars at exchange rates in effect at the balance
sheet date; income and expense items and cash flows are translated at average
exchange rates for the period. Cumulative net translation adjustments are
included in stockholder's equity as other comprehensive income. Gains and losses
resulting from foreign currency transactions, not significant in amount, are
included in the results of operations as other income (expense).
Use of Estimates
The preparation of the Combined Financial Statements in conformity with
generally accepted accounting principles requires the extensive use of
management's estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the combined financial statements date. Actual results could differ from those
estimates.
3. ACQUISITION
On July 29, 1999, the Company acquired 100% of the outstanding capital
stock of Muller Data Corporation ("Muller Data") and the assets of Muniview and
Valorinform (collectively, the "Acquired Businesses"). The Acquired Businesses
were under common control at the time of the acquisition, and primarily engaged
in the business of the collection, analysis, marketing and distribution of
financial information relating to certain securities. The price paid for the
Acquired Businesses was $147.5 million and was funded via a capital contribution
from Pearson Longman, Inc. In addition, the Company incurred acquisition costs
of $2.5 million, including $1.1 million for the termination of certain
employees.
The acquisition was accounted for using the purchase method of accounting.
Accordingly, the purchase price assigned to the assets acquired and liabilities
assumed was based on the fair market value on the acquisition date. The excess
of the consideration paid over the estimated fair value of net tangible assets
acquired has been recorded as goodwill and intangibles. Goodwill is being
amortized over a period of ten years and intangibles are being amortized over
periods ranging from two to fourteen years. The Company's combined financial
statements include the results of operations subsequent to the acquisition date.
F-9
99
INTERACTIVE DATA CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (IN THOUSANDS) -- (CONTINUED)
The purchase price allocation for the Acquired Businesses was as follows:
ASSETS
Accounts receivable, net.................................... $ 10,360
Fixed assets................................................ 1,409
Other assets................................................ 1,199
Goodwill.................................................... 63,276
Intangibles:
Non-compete agreement..................................... 37,500
Customer lists............................................ 68,200
Workforce................................................. 4,600
Municipal bond database................................... 7,500
--------
$194,044
LIABILITIES
Accounts payable and accrued expenses....................... 5,977
Deferred revenue............................................ 10,864
Accrued acquisition costs................................... 2,500
Deferred tax liabilities.................................... 27,203
--------
46,544
--------
Total Purchase Price........................................ $147,500
========
The following unaudited pro forma financial information reflects the
transaction as if it occurred on January 1, 1998:
UNAUDITED
UNAUDITED PRO FORMA
PRO FORMA RESULTS FOR THE
RESULTS FOR THE NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
--------------- ---------------
Revenue................................................... $203,631 $161,567
Net income................................................ $(18,951) $ (3,136)
4. FIXED ASSETS
Fixed assets consist of the following:
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
Computer equipment......................................... $ 39,147 $ 43,410
Leasehold improvements..................................... 12,965 13,025
Furniture and fixtures..................................... 5,906 7,537
-------- --------
58,018 63,972
-------- --------
Less: accumulated depreciation............................. (40,091) (43,603)
-------- --------
$ 17,927 $ 20,369
======== ========
F-10
100
INTERACTIVE DATA CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (IN THOUSANDS) -- (CONTINUED)
5. INTANGIBLE ASSETS
Intangible assets consist of the following:
USEFUL DECEMBER 31, SEPTEMBER 30,
LIFE 1998 1999
---------- ------------ -------------
Non-compete agreements....................... 2-3 1/2 $ 50,000 $ 87,500
years
Securities databases......................... 3-5 years 2,656 10,156
Computer software............................ 7 years 35,775 35,482
Workforce.................................... 9 years -- 4,600
Customer lists............................... 14 years -- 68,200
---------- -------- --------
88,431 205,938
Less: accumulated amortization........................... (69,361) (79,901)
-------- --------
$ 19,070 $126,037
======== ========
6. ACCRUED EXPENSES
Accrued expenses consists of the following:
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
Accrued bonus.............................................. $ 4,329 $ 3,866
Accrued payroll taxes...................................... 70 1,721
Accrued employee related costs............................. 4,616 7,119
Accrued commissions........................................ 1,040 768
Accrued professional services.............................. 1,943 5,179
Accrued acquisition costs.................................. -- 2,500
Accrued data center costs.................................. 3,547 4,211
Accrued property costs..................................... 998 1,235
Accrued travel costs....................................... 1,331 1,718
Accrued royalties.......................................... 582 659
Accrued sales taxes........................................ 1,683 1,773
Accrued other.............................................. 1,656 3,949
------- -------
$21,795 $34,698
======= =======
7. RESTRUCTURING
During 1997 the Company commenced a restructuring of operations in the
United Kingdom. The purpose of the restructuring was to reduce costs and
streamline operations. The restructuring charge recorded in 1997 consisted of
$2,866 of severance costs and $1,591 of asset writedowns. The 1998 restructuring
charge consisted of severance costs of $3,647. All of the costs associated with
each year's restructuring were paid prior to the end of the applicable year.
8. RELATED PARTY TRANSACTIONS
Each of the combining companies has its own corporate management structure
and does not incur significant intercompany costs from Pearson plc. Since the
combined financial statements do not include allocations of expenses incurred by
any Pearson plc companies for corporate management and administrative
F-11
101
INTERACTIVE DATA CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (IN THOUSANDS) -- (CONTINUED)
functions pertaining to the combining companies, the combined financial
statements may not be indicative of the financial results which would have been
achieved if the Company were not a wholly-owned subsidiary.
The Company has entered into a $75,000 revolving demand loan with Rycade
Capital Corporation ("Rycade"), a Pearson plc. subsidiary, and a $20,000
promissory note with Pearson plc.
The Company promises to pay Rycade, on demand, all of the unpaid principal
amount of all revolving loans. The Company generally applies excess cash against
this note. Interest accrues daily on any principal outstanding under this loan
at an interest rate equal to either the three-month LIBOR plus 0.75% or, if less
than this rate, the maximum legal rate of interest from August 31, 1995 through
the date on which such principal becomes due. To the extent that cash is applied
in excess of the outstanding borrowings, the Company earns interest at an
equivalent rate. At December 31, 1998 and September 30, 1999, the Company had
applied cash in excess of its outstanding borrowings, and, therefore, had a note
receivable from affiliate of $19,224 with an interest rate of 5.81% and 6.10%,
respectively.
Related to the promissory note, the Company promises to pay Pearson plc
$20,000 on demand on any day after August 31, 2000, and to pay interest at a
rate of 9.20% through August 31, 2000 and, thereafter, at a rate equal to
three-month LIBOR plus 3.00%. Such interest is payable semiannually in arrears
beginning December 31, 1995 and quarterly beginning September 30, 2000.
The Company and its businesses engage in various activities with other
Pearson plc businesses. The related transactions are recorded at fair value. To
the extent that payables or receivables with affiliates arising from such
transactions have not been settled by period end, they have been accounted for
as deemed capital contributions/distributions, unless there is a specific
agreement that they will be settled in the future.
9. RETIREMENT PLANS
Pearson, Inc. Savings and Investment Plan
The Company's U.S employees are eligible to participate in a Pearson plc
subsidiary's U.S. 401(k) Plan (the "401(k) Plan"). The 401(k) Plan allows all
employees to make contributions of a specified percentage of their compensation
which is subject to a 50% employer match. The 401(k) Plan additionally allows
employees to contribute amounts above the specified percentage which are not
subject to any employer match. Contributions made by the Company for the 401(k)
Plan are determined as a percentage of covered salary and amounted to $588 for
the nine months ended September 30, 1999, and $655 and $618 for the years ended
December 31, 1998 and 1997, respectively.
Pearson, Inc. Pension Plan
Pearson, Inc., a Pearson plc U.S. subsidiary, sponsors a defined benefit
plan (the "Plan") for Pearson's U.S. employees, including substantially all of
the Company's U.S. employees. Pension costs are actuarially determined and
Pearson, Inc.'s policy is to fund pension costs accrued to the extent allowable
under IRS regulations.
F-12
102
INTERACTIVE DATA CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (IN THOUSANDS) -- (CONTINUED)
Presented below is certain financial information relating to the Company's
U.S. retirement plan for the periods indicated:
NINE MONTHS
YEAR ENDED ENDED
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
Change in benefit obligation:
Benefit obligation at beginning of period................... $ 2,050 $ 3,004
Service cost................................................ 808 807
Interest cost............................................... 133 153
Amendments.................................................. (388) --
Actuarial loss (gain)....................................... 401 (132)
Benefits paid............................................... -- (372)
------- -------
Benefit obligation at end of period......................... $ 3,004 $ 3,460
======= =======
Change in plan assets:
Fair value of plan assets at beginning of period............ $ 315 $ 1,264
Actual return on plan assets................................ 104 206
Employer contribution....................................... 845 --
Benefits paid............................................... -- (372)
------- -------
Fair value of plan assets at end of period.................. $ 1,264 $ 1,098
======= =======
Reconciliation of Funded Status:
Benefit obligation at end of year........................... $ 3,004 $ 3,460
Fair value of plan assets at end of period.................. 1,264 1,098
------- -------
Funded status at end of period.............................. (1,740) (2,362)
Unrecognized prior service cost............................. (364) (255)
Unrecognized net actuarial loss............................. 1,041 792
------- -------
Accrued benefit cost........................................ $(1,063) $(1,825)
======= =======
Weighted Average Assumptions:
Discount rate............................................... 6.75% 7.25%
Expected return on plan assets.............................. 9.00% 9.00%
Rate of compensation increase............................... 4.50% 4.50%
======= =======
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------ SEPTEMBER 30,
1997 1998 1999
---- ---- -------------
Components of Net Periodic Benefit Cost:
Service cost................................................ $725 $808 $807
Interest cost............................................... 70 133 153
Expected return on plan assets.............................. (10) (48) (60)
Amortization of prior service costs......................... -- (24) (18)
---- ---- ----
Net periodic benefit cost................................... $785 $869 $882
==== ==== ====
F-13
103
INTERACTIVE DATA CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (IN THOUSANDS) -- (CONTINUED)
Foreign Pension Plans
Pearson plc and its subsidiaries maintain certain pension plans for
non-U.S. employees, including the non-U.S. employees of Interactive Data.
Information relating to Interactive Data's portion of the actuarial value of
plan benefits, asset values, and other pension disclosures pertaining to these
other Pearson plc plans are not separately determinable. No pension expense was
incurred by Interactive Data related to these plans in 1997, 1998 or 1999 due to
their overfunded position.
10. COMMITMENTS AND CONTINGENCIES
The Company has obligations under noncancelable operating leases for real
estate and equipment which include renewal options and escalation clauses. Real
estate leases are for the Company's corporate headquarters, sales offices, and
data center. Approximate annual future commitments under noncancelable operating
leases with lease terms in excess of one year are as follows (in thousands):
1999........................................................ $ 2,458
2000........................................................ 5,677
2001........................................................ 5,733
2002........................................................ 5,724
Thereafter.................................................. 31,350
-------
Total minimum lease payments................................ $50,942
=======
In 1989, the Company acquired certain assets under a ten-year royalty
agreement. Under the agreement, royalty payments are calculated as a percentage
of earnings generated by the acquired assets. Royalty payments are contingent
upon the future earnings of those assets. The Company's policy is to expense
royalty obligations as incurred. Total payments under the agreement cannot
exceed $7,000 over the ten years. They have aggregated $3,560 through September
30, 1999.
Various claims, generally incidental to the conduct of normal business, are
pending or threatened against the Company. The Company intends to vigorously
defend against these claims. While ultimate liability, if any, arising from any
such claims is presently undeterminable, it is management's opinion that the
ultimate resolution of these claims will not have a material adverse effect on
the financial condition or results of operations of the Company.
11. INCOME TAXES
The U.S operations of Interactive Data are included in the Pearson, Inc.
consolidated U.S. federal income tax return and certain state income tax
returns. However, the Company calculates federal and state income taxes as if it
files its income tax returns on a stand-alone basis and remits such amounts to
Pearson, Inc. Similarly, the Company's foreign operations are responsible for
their income taxes computed on a stand-alone basis.
The components of (loss) income before income taxes are as follows:
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------ SEPTEMBER 30,
1997 1998 1999
------- ------- -------------
Domestic........................................... $(5,113) $(3,517) $ 8,062
Foreign............................................ 195 3,869 10,627
------- ------- -------
Total.............................................. $(4,918) $ 352 $18,689
======= ======= =======
F-14
104
INTERACTIVE DATA CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (IN THOUSANDS) -- (CONTINUED)
The provision for income taxes consists of the following:
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
------------------ SEPTEMBER 30,
1997 1998 1999
------- ------- -------------
Current:
Federal............................................ $ 4,018 $ 7,327 $ 6,817
State............................................ 580 1,407 1,340
Foreign.......................................... 4,794 3,148 4,158
------- ------- -------
9,392 11,882 12,315
------- ------- -------
Deferred:
Federal.......................................... (3,571) (7,327) (2,309)
State............................................ (531) (1,089) (208)
Foreign.......................................... (3,264) 101 581
------- ------- -------
(7,366) (8,315) (1,936)
------- ------- -------
$ 2,026 $ 3,567 $10,379
======= ======= =======
Deferred taxes are recorded for differences between the financial statement
and tax basis of assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to reverse. The components of the
Company's deferred income taxes recognized in the Combined Financial Statements
at September 30, 1999 are as follows:
DECEMBER 31, SEPTEMBER 30,
1998 1999
------------ -------------
Deferred tax assets:
Accrued expenses........................................... $ 2,804 $ 5,126
Covenant not to compete.................................. 14,676 15,716
Other.................................................... 3,072 1,238
------- --------
Gross deferred tax assets........................ 20,552 22,080
------- --------
Deferred tax liabilities:
Customer lists........................................... -- 27,090
Other intangible assets.................................. 7,183 6,572
Depreciation............................................. 11 341
------- --------
Gross deferred tax liabilities................... 7,194 34,003
------- --------
Net deferred tax assets (liabilities).................... $13,358 $(11,923)
======= ========
It is expected that the Company's deferred tax assets will be realized from
future taxable income.
F-15
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INTERACTIVE DATA CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (IN THOUSANDS) -- (CONTINUED)
Income taxes computed using the federal statutory income tax rate differ
from the Company's effective tax rate primarily due to the following:
YEAR ENDED NINE MONTHS
DECEMBER 31, ENDED
---------------- SEPTEMBER 30,
1997 1998 1999
----- ------- -------------
Statutory U.S. federal tax rate...................... (35.0%) 35.0% 35.0%
State taxes, net of federal tax benefit.............. 1.0 260.6 4.5
Foreign income taxed at different statutory rates.... 11.0 324.0 8.6
Nondeductible goodwill............................... 47.6 668.2 9.7
Other, net........................................... 16.6 (274.5) (2.3)
----- ------- ----
Effective tax rate................................... 41.2% 1,013.3% 55.5%
===== ======= ====
12. SEGMENT REPORTING
Interactive Data operates in one industry segment; providing financial
data, including securities, commodities, and derivatives information to
customers. The data includes pricing, descriptive and related financial data and
corporate action data. This information is used to support securities
operations, fund pricing, research and portfolio management within banks,
brokerage firms and investment managers.
Business segments are defined as components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker, or decision making group, in deciding how to
allocate resources and in assessing performance. Interactive Data's chief
operating decision maker and decision making group is primarily comprised of the
President and Chief Financial Officer of the Company along with executives from
Pearson plc.
The Company's business units have been aggregated into three reportable
segments: North America, UK/Europe and Asia/Pacific. Each of these segments have
separate management teams and infrastructures. The lead executive for each
business segment manages the profitability and cash flow of each respective
segment. Interactive Data has a diversified customer base with no individual
customer accounting for greater than 10% of the Company's sales in any period
presented.
The accounting policies of the reportable segments are the same as those
described in Note 2 except the disaggregated financial results for Interactive
Data's business segments have been prepared using a management approach, which
is consistent with the basis and manner in which management internally
disaggregates financial information for the purposes of assisting in making
internal operating decisions. The Company evaluates the performance of its
business segments based on sales, operating income and total assets.
F-16
106
INTERACTIVE DATA CORPORATION
NOTES TO COMBINED FINANCIAL STATEMENTS (IN THOUSANDS) -- (CONTINUED)
Summarized financial information concerning the Company's reportable
business segments is shown in the following table.
YEARS ENDED NINE MONTHS
DECEMBER 31, ENDED
-------------------- SEPTEMBER 30,
1997 1998 1999
-------- -------- -------------
Revenues:
North America.................................... $ 89,024 $ 98,338 $ 86,768
UK/Europe...................................... 51,090 53,978 42,755
Asia/Pacific................................... 3,180 4,121 3,288
-------- -------- --------
$143,294 $156,437 $132,811
======== ======== ========
Income (loss) from operations:
North America.................................. $ (2,373) $ (1,260) $ 9,180
UK/Europe...................................... (2,400) 1,120 8,383
Asia/Pacific................................... (600) 110 586
-------- -------- --------
$ (5,373) $ (30) $ 18,149
======== ======== ========
Total assets:
North America.................................. $190,407 $335,996
UK/Europe...................................... 99,355 158,899
Asia/Pacific................................... 5,286 6,128
-------- --------
$295,048 $501,023
======== ========
F-17
107
INTERACTIVE DATA CORPORATION
CONDENSED COMBINED STATEMENT OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED
SEPTEMBER 30, 1998
------------------
(UNAUDITED)
Revenue..................................................... $113,471
Costs and expenses:
Cost of services.......................................... 34,917
Selling, general and administrative....................... 50,493
Depreciation expense...................................... 4,033
Amortization expense...................................... 23,453
Restructuring expense..................................... 2,753
--------
Total Costs and expenses.......................... 115,649
--------
(Loss) from operations...................................... (2,178)
Interest income, net........................................ 270
Other expense, net.......................................... (90)
--------
(Loss) before income taxes.................................. (1,998)
Provision for income taxes.................................. 2,954
--------
Net (Loss).................................................. $ (4,952)
--------
Other comprehensive income
Foreign currency translation adjustment................... --
--------
Comprehensive income........................................ $ (4,952)
--------
F-18
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INTERACTIVE DATA CORPORATION
CONDENSED COMBINED STATEMENT OF CASH FLOWS
(IN THOUSANDS OF DOLLARS)
NINE MONTHS ENDED
SEPTEMBER 30,
1998
-----------------
(UNAUDITED)
Cash flows from operating activities:
Net (loss).................................................. $ (4,952)
Depreciation and amortization............................. 27,486
Changes in operating assets and liabilities............... 28,224
--------
Net cash provided by operating activities.............. 50,758
Cash flows from investing activities:
Purchases of fixed assets................................. (3,360)
--------
Net cash used in investing activities.................. (3,360)
Cash flows from financing activities:
Contribution of capital from parent......................... 3,261
Dividend to parent.......................................... (34,523)
--------
Net cash used in financing activities.................. (31,262)
--------
Net increase in cash and cash equivalents................... 16,136
Cash and cash equivalents, beginning of period.............. 6,703
--------
Cash and cash equivalents, end of period.................... $ 22,839
========
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INTERACTIVE DATA CORPORATION
NINE MONTHS ENDING SEPTEMBER 30, 1998
NOTES TO UNAUDITED COMBINED CONDENSED FINANCIAL INFORMATION
1. INTERIM FINANCIAL INFORMATION
The Combined Statement of Operations and Comprehensive Income and Statement
of Cash Flows presented for the nine months ended September 30, 1998 are
unaudited and, in the opinion of management, include all adjustments (consisting
of normal and recurring adjustments) necessary for a fair presentation of
results for these interim periods. Certain information and footnote disclosures
normally included in the Company's annual combined financial statements have
been condensed or omitted. The results of operations for the interim period
ended September 30, 1998 are not necessarily indicative of the results to be
expected for future periods or the entire year and have been derived from
Interactive Data's audited historical financial statements. This interim
financial information should be read in conjunction with the historical
financial statements and notes thereto contained elsewhere in this document.
2. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Interactive Data is a wholly-owned subsidiary of Pearson Longman, Inc.
Pearson Longman, Inc., through a series of other entities, is wholly-owned by
Pearson plc (a U.K. Corporation). Interactive Data Corporation provides
financial data, including securities, commodities, and derivatives information,
to its customers in the United States, Europe and Asia. The data includes
pricing, descriptive and related financial data and corporate action data. This
information is used to support securities operations, fund pricing, research and
portfolio management within banks, brokerage firms and investment managers.
On November 14, 1999, Pearson Longman, Inc. and Interactive Data entered
into an agreement and plan of merger, which was subsequently amended on January
10, 2000, with Data Broadcasting Corporation ("DBC"), a publicly traded
corporation, whereby DBC will issue 56,424 shares of its stock to Pearson
Longman, Inc. for all of the stock of Interactive Data. As a result of this
transaction, Pearson Longman, Inc. will own approximately 60% of the then
outstanding common stock of DBC. The transaction is subject to approval by a
vote of the majority of the DBC common shares currently outstanding.
The merger agreement with DBC provides that, prior to consummation of the
transaction between Pearson Longman, Inc. and DBC, Pearson plc will undertake a
reorganization which will result in the capital stock of certain other Pearson
plc subsidiaries being transferred to Interactive Data. These subsidiaries are
engaged in businesses similar to Interactive Data. In connection with this
reorganization, certain inter-company balances with other Pearson plc entities
are required to be contributed to capital or eliminated and certain assets and
liabilities are required to be conveyed to other Pearson plc subsidiaries. The
capital stock of the following Pearson plc entities will be reorganized into
Interactive Data.
- Interactive Data Canada Inc., a company organized under the laws of the
Province of Ontario, Canada
- Financial Times Information (H.K.) Limited, a company organized under the
laws of Hong Kong
- Financial Times Information (Australia) Pty Limited, a company organized
under the laws of Victoria, Australia
- Financial Times Information (Singapore) Pte Ltd., a company organized
under the laws of Singapore
- FT Information (Ireland) Ltd., a company organized under the laws of
Ireland
- Exshare Financial Limited, a company organized under the laws of England
and Wales
- Exshare Computing Ltd., a company organized under the laws of England and
Wales
- The Exchange Telegraph Company, a company organized under the laws of
England and Wales
- Exshare Financial (US) Ltd., a company organized under the laws of
England and Wales
- W&W Ltd, a company organized under the laws of England and Wales
- Exshare Statistical Services Ltd., a company organized under the laws of
England and Wales
- Exshare Financial Inc., a Delaware corporation
F-20
110
INTERACTIVE DATA CORPORATION
NINE MONTHS ENDING SEPTEMBER 30, 1998
NOTES TO UNAUDITED COMBINED CONDENSED FINANCIAL INFORMATION -- (CONTINUED)
These combined financial statements include Interactive Data Corporation
and the entities listed above (collectively "Interactive Data" or the
"Company"). The combined financial statements of Interactive Data have been
prepared assuming the reorganization described above. Deemed capital
contributions/distributions arising from the assumed reorganization are
reflected in the Combined Statement of Cash Flows.
3. RESTRUCTURING AND OTHER ASSET WRITE-DOWNS
During 1998 the Company commenced the second phase of a restructuring of
operations in the United Kingdom. The purpose of the restructuring was to reduce
costs and streamline operations. For the nine months ended September 1998
restructuring charges, consisting of severance costs, which were incurred were
$2,753.
F-21
111
APPENDIX A
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(MARK ONE)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
FOR THE FISCAL YEAR ENDED JUNE 30, 1999
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 0-20311
DATA BROADCASTING CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 13-3668779
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
7050 UNION PARK CENTER 3490 CLUBHOUSE DRIVE, I-2
SUITE 600 JACKSON, WYOMING 83014
MIDVALE, UTAH 84047 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
(ADDRESS OF PRINCIPAL ADMINISTRATIVE OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:
(801) 562-2252 (307) 733-9742
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: COMMON STOCK, $.01
PAR VALUE
(TITLE OF CLASS)
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
As of September 22, 1999, the aggregate market value of the Common Stock of
the Registrant (based upon the closing transaction price) on such date held by
nonaffiliates of the Registrant was approximately $241,022,000.
As of September 22, 1999, there were 34,393,397 shares of Common Stock of
the Registrant outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Proxy Statement to be filed with the Securities and
Exchange Commission in connection with the Annual Meeting of Stockholders
expected to be held in December 1999 are incorporated by reference into Part III
hereof.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
A-1
112
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Data Broadcasting Corporation ("DBC", the "Registrant" or the "Company"),
directly and through its subsidiaries, distributes real-time financial and
business information on a subscription basis to a broad range of individual and
professional investors and businesses. The Company operates in two business
segments: (1) Market Information ("MI") and (2) BondEdge. The principal services
of MI are eSignal, Signal, BMI MarketCenter, Quotrek, InSite, BondVu, Global
Treasury Information Services ("GTIS"), Federal News Service ("FNS") and various
sports services. Historically, this segment included the agribusiness service of
AgCast, which was sold on May 20, 1999. The BondEdge product, delivered by the
Company's Capital Management Sciences division ("CMS"), is classified in its own
segment. In addition to these two segments, the Company owns approximately 33
percent of the outstanding common stock of MarketWatch.Com, Inc., which provides
an Internet business information site for individual investors, business
professionals and the general public.
MI sells access to its networks which provide real-time financial market
and sports information, primarily to individual investors. This includes stock
and commodity market quotes, equity analytics, financial and sports news and
information, access to historical databases, customizable portfolio tracking,
exclusive news coverage and commentary and historical and technical charting. MI
also provides government transcripts and foreign exchange data. BondEdge
distributes fixed income portfolio analytics to a broad base of institutional
investment managers including banks, insurance companies, brokerage firms and
investment management companies for valuation and risk management purposes. The
Company distributes its services via the Internet or communication devices that
rely on FM subcarriers, satellite transmission, cable television systems or
telephone lines. For its broadcast services, the Company provides subscribers
with proprietary equipment and software needed to access its networks and
databases. Subscribers to Internet-delivered services download the software
directly to their computers without the need for proprietary equipment.
For the last three fiscal years, the percentage of total revenue
contributed by the Company's operating segments was as follows (see Note 16 to
the financial statements):
1999 1998 1997
---- ---- ----
Market Information.................................. 78% 80% 82%
BondEdge............................................ 22% 20% 18%
---- ---- ----
Total............................................... 100% 100% 100%
==== ==== ====
INFORMATION TRANSMISSION TECHNOLOGY
The Company's data feeds are created by gathering ticker and news feeds
from stock exchanges and other sources and processing them into consolidated
data feeds. The Company has two such information processing and ticker plants:
one in California and one in Utah. The data feeds are transmitted from ticker
plants to multiple satellite transponders which broadcast the feed to FM radio
stations, cable television networks and directly to individual satellite
subscribers, using multiple satellite systems, including Echostar's Dish
Network. The data feeds are also provided to local servers which support the
Company's Internet-based services. In addition to the ticker plants and
Internet-hosting facilities in California and Utah, the Company has co-located
Web servers at facilities operated by UUNET in Virginia and AboveNet in
California.
The trend in the retail MI business is the transition from
broadcast-delivered subscriptions to Internet-delivered subscriptions. The
Company expects its Internet subscriber base to continue to grow quickly while
its broadcast subscriber base declines.
Internet subscribers receive their data through their standard Internet
access and can download the necessary software from the Company's World Wide Web
("Web") sites (www.dbc.com, www.esignal.com and www.insite.dbc.com). In
addition, DBC is able to deliver its data to eSignal and InSite customers via
A-2
113
wireless Internet service providers with a wireless CDPD modem. This results in
substantial flexibility for mobile traders.
DBC utilizes a proprietary technology to access unoccupied portions of
cable television broadcast signals (vertical blanking interval ("VBI")) to
transmit the Company's data feed along with the cable providers' broadcasts. The
Company has insertion agreements with several national cable programmers which
reach virtually every U.S. cable subscriber. The television signals of these
programmers are carried by various cable systems throughout the country. DBC is
presently in the second year of a three-year agreement with one of the
multiple-system operators offering carriage in these systems.
DBC's FM broadcast network consists of long-term agreements with radio
stations throughout the United States and Canada which are contracted to
broadcast the Company's data feed on their FM side-bands. This extensive network
provides coverage in most major North American cities and reaches over 75
percent of the U.S. population. Subscribers receive this one-way transmission
through a proprietary FM receiver. In fiscal 2000, certain of these FM radio
agreements are due for renewal. The Company believes it will be able to renew
these contracts on commercially reasonable terms but will evaluate each
agreement relative to the number of subscribers being served.
DBC offers subscribers optional software to display and analyze the data.
In addition, there are over 20 major third-party software packages, including
Omega Research's TradeStation, Metastock, Ensign and Option Vue Plus, that are
compatible with the Company's data feeds and range in features from simple quote
displays to sophisticated charting, stock modeling and analysis.
DBC's broadcast subscribers are provided certain hardware that enables them
to receive the Company's data feeds. The Company is responsible for repairs and
maintenance of such equipment through limited warranty periods. Customers must
pay for repair costs subsequent to the expiration of the warranty period. After
a customer cancels, the equipment is refurbished, if necessary, before it is
provided to new customers.
The BondEdge database is updated daily and accessed by clients via the
Internet or the CMS Bulletin Board System. BondVu subscribers have access to
pricing updates through its Web site (www.bondvu.com). FNS transmits its
services via satellite, FM side-band, telephone, cable and the Internet.
Data feeds for GTIS are created by gathering data from banks and brokers
around the world and consolidating it in one of its ticker plants located in
California, London or Tokyo. The content is then delivered to end users via the
Internet, various packet-switching networks, via other RMI products and networks
of other data providers.
InSite combines the Company's various data feeds and BondVu pricing
information to provide complete market coverage.
PRINCIPAL SERVICES
The Company generates revenue primarily through subscriptions to its
principal services. In addition, broadcast subscribers are charged certain
installation and service initiation fees, depending upon the service and
broadcast delivery method.
MARKET INFORMATION
DBC's data feed contains real-time securities prices for over 300,000
securities from all major domestic markets and several international exchanges
including equities, mutual funds, options, bonds, futures, commodities, indices
and foreign exchange rates. The data feed also contains news headlines from Dow
Jones, Options News Exchange and Futures World News, headlines and research
reports such as Hightower and sports information including news, scores and
betting odds from six major Las Vegas casinos.
The capacity of the data feed during hours in which the stock market is
closed is an additional resource of the Company. This capacity is currently
being used to broadcast sports information, as sporting events typically occur
during these off-hours.
A-3
114
The principal Market Information services are discussed below.
eSignal
eSignal delivers continuously updating real-time securities prices from the
DBC data feed using "active push" technology on the Internet. In addition,
eSignal provides portfolio features, charting and news and news retrieval
capabilities which were developed jointly by DBC and Dow Jones. News related to
specific securities pre-selected by a customer is provided via "News Alerts" and
"News Headlines" from Dow Jones and other sources. The Company also offers
access to Dow Jones News Retrieval databases and proprietary DBC news via modem,
news from MarketWatch.Com and links to the Signal Private Network Internet site,
which contains information on Nasdaq Bulletin Board stocks, a large database of
historical and fundamental data, charts, commentary, comprehensive research and
business descriptions of thousands of public and private companies. eSignal also
includes Nasdaq Level II Market Maker information, over-the-counter bulletin
board stock quotes and access to online trading. eSignal is also available in an
"equities-only" version at a reduced price.
Broadcast
Signal FM/Cable/Satellite(TM) is a real-time service offering many of the
same features as eSignal in a broadcast environment. Signal also offers a
delayed service and an end-of-day data service, which provides each day's market
settlement prices. Signal is also available in an "equities-only" version at a
reduced price.
BMI MarketCenter(R) provides continuously updating real-time and delayed
access to pricing and fundamental information. The system also features
charting, technical analysis and a portfolio feature that subscribers use to
obtain real-time valuation of their portfolios The service is delivered via
cable or satellite.
QuoTrek(TM) is a hand-held wireless quotation monitor which receives the
DBC data feed via FM broadcast signals and displays continuously updating
real-time market quotes on up to 127 securities, as selected by the subscriber
from a universe of over 50,000 securities. The service offers full portability
to users as they travel to any city covered by the Company's extensive FM
broadcast network.
DBC provides a variety of sports services (www.dbcsports.com), including
real-time sports scores and news, live odds feeds from Las Vegas casinos,
opening-line odds and historical databases of sports statistics. The Company has
executed a letter of intent to sell its sports operations for $10,000,000.
Institutional
InSite (www.insite.dbc.com) is an Internet delivered real-time market
information service for the institutional investment community. InSite provides
access to equities, fixed income, foreign exchange, commodities, news and
commentary, research, fundamental information and charting. Analytics and
portfolio valuation designed by CMS complete the comprehensive service.
Content, reliability, flexibility and portability are InSite's strengths.
These features as well as cost effectiveness make it the choice over traditional
market data providers. InSite provides continuous real-time quotes from all
major U.S. equities, futures and options exchanges, real-time foreign exchange
rates, European futures exchanges, treasury and other fixed income pricing, over
200 live indices and includes mutual fund market information. Windows-based
technology lets users have flexibility to personalize pricing information,
analytics, news and charts in a format that suits their needs. Push delivery
technology combines with DBC's high-speed network to use the Internet as both a
delivery tool and product platform. This fast and reliable technology makes
InSite completely portable for convenient use anywhere, anytime.
BondVu (www.bondvu.com) is a cost-effective service which combines
real-time fixed income prices with accurate security descriptions and superior
fixed income analytics. Delivered via the Internet directly to a client's
personal computer, BondVu provides access to real-time market pages, historical
prices/yields, bond swap, horizon return, and a portfolio valuation feature
which calculates portfolios in real-time.
A-4
115
FNS (www.fnsg.com) is a subscription service providing verbatim transcripts
of hearings, briefings, press conferences and interviews by U.S. government
officials, including the White House, Congress and its committees, the State and
Defense Departments, the U.S. Supreme Court, the Federal Reserve Bank, the
United Nations and many other governmental agencies. FNS also provides Commerce
Department statistics and covers other politically-related activities, such as
speeches at the International Trade Representative's office, the National Press
Club, the Brookings Institute, the Atlantic Council and many others. Similarly,
FNS covers the major events of the Russian government and its agencies,
embassies and consulates.
GTIS (www.gtiscorp.com), acquired August 31, 1998, has been a leading
supplier of information on non-exchange-traded instruments used by traders,
corporations and financial institutions for over 15 years. GTIS provides
real-time domestic and international fixed income, foreign exchange, money
market and precious metal information to institutional, corporate and consumer
clients worldwide.
BONDEDGE(TM)
BondEdge is a Windows-based fixed income portfolio analytic system which
provides risk management, regulatory reporting, and compliance tools. BondEdge
portfolio applications include daily market valuations, effective duration and
convexity, standard and custom appraisals, what-if analysis, bond index
comparisons, cash flow and book value simulations, performance measurement,
performance attribution, and total return optimization.
BondEdge is provided to institutional fixed income managers on both the
buy-side and sell-side. The securities covered by this product include over
1,000,000 government, agency, and corporate debt instruments, asset-backed
securities, fixed and adjustable rate pass-throughs, collateralized mortgage
obligations, private placements, commercial mortgage-backed securities, money
markets and futures/options. For tax-exempt managers, automated access is
provided to municipal databases.
The open architecture of BondEdge allows for the import and export of
calculated and descriptive data. BondEdge interfaces with all of the major
third-party accounting and asset/liability software packages to eliminate
duplicate data entry and to improve accuracy and efficiency within an
organization.
INVESTMENT IN MARKETWATCH.COM, INC.
MarketWatch.Com, Inc. ("MarketWatch") is a venture formed in October 1997
with CBS Broadcasting, Inc. It has an Internet web site (cbs.marketwatch.com)
that delivers a broad range of financial market information to individual
investors, business professionals and the general public. In January 1999,
MarketWatch completed an initial public offering of its common stock, reducing
DBC's ownership interest from 50 percent to 37 percent. DBC's investment has
been further diluted to 33 percent, due to MarketWatch's issuance of stock for
an acquisition. MarketWatch derives its revenues from four sources: advertising,
transaction fees, the sale of news to DBC and subscriptions.
OTHER INVESTMENTS
The Company owns two other investments in privately-held companies: 8
percent of the outstanding common stock of Internet Financial Network, Inc.
("IFN") and convertible preferred stock in Farm Journal Corporation ("FJ"). IFN
is a financial information company, providing over 200 sources of third-party
news and data sources and real-time SEC filings. FJ is an agribusiness
information company, providing magazines and database marketing. DBC received
this investment through the sale of its AgCast business to FJ.
CUSTOMERS AND COMPETITION
MI competes in the retail and institutional sectors of the securities
industry information market, including individual and professional investors.
These clients seek either real-time, delayed or end-of-day quotations,
analytical and portfolio tracking services or some combination thereof. The
target market for the real-time
A-5
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retail services of MI consists primarily of individuals who make their own
investment decisions, trade frequently and earn a substantial portion of their
income from trading.
The Company believes its retail Internet-based MI products have set the
standard for delivery of real-time market data to the non-professional trader.
Its primary competitors are services from Data Transmission Network,
PCQuote.com, Inc. and Track Data Corporation. In the delayed segment, the
Company's competition consists of numerous suppliers and the Company competes
mainly in the high quality, higher price segment of this market. The Company
believes the principal competitive factors in the industry include data
availability and reliability, ease of use, compatibility with third-party
software packages and price.
While DBC's broadcast network has long been a competitive advantage, the
broadcast business is declining in favor of Internet-based services. The Company
believes its open architecture, compatibility with over 20 third-party software
packages and its network reliability are competitive advantages.
InSite and BondVu are targeted at the investment management institutions
and professional brokers requiring comprehensive equity and/or fixed income
information and analytics. InSite has advantages when compared to the
competition, both high-end products (i.e. Bloomberg, Bridge/Telerate, and
Reuters) and the lower tier products (i.e. AT Financial, ILX and Quotron).
Against the high-end products InSite has the edge with Internet delivery, ease
and timeliness of installation, quick set-up and portability. It is also cost
effective in competition with these systems. Compared with the lower tier
products InSite has superior market coverage, proprietary fixed income analytics
and a sophisticated look and feel. BondVu is primarily marketed to community
banks, credit unions, municipalities and pension funds. Due to the high price of
other real-time services, this market segment has previously been unable to
acquire real-time fixed income information. Within the larger institutions,
BondVu supplements and occasionally replaces more expensive services provided by
Bloomberg, Reuters, and Bridge Telerate.
BondEdge competes with other vendors of fixed income portfolio analytics,
primarily Salomon Smith Barney's Yield Book service. The target market for
BondEdge is the institutional fixed income managers (managing in excess of $300
million in bonds) who invest in a broad range of security types that require
specialized modeling. Users in an organization are typically portfolio managers,
quantitative research analysts, and institutional brokers. BondEdge targets the
premium end of the market where clients, on average, spend $50,000 annually for
advanced analytics packages. The Company believes it dominates the North
American market, with an estimated 50% of the market.
MarketWatch markets its RT subscription services and its free information
to the casual investor. In this arena, it competes with many Web sites that
provide financial information, much of it for free. The more sophisticated Live
subscription service competes with other Internet and broadcast-based providers
of financial information. Because MarketWatch derives the majority of its
revenues from advertising and transaction fees, it also competes with many other
Web sites, financially oriented or not, in trying to attract visitors.
MARKETING STRATEGY
MI services are marketed aggressively through several channels:
advertising, marketing alliances, third party developer relationships, seminars,
trade shows, direct mail and referrals. Advertising is used to generate
telephone calls to sales representatives. Television advertising is placed on
CNBC, CNNfn and Bloomberg and print advertising is placed in Investors Business
Daily, Barron's, Stocks and Commodities and other business and investment
publications. DBC also uses web advertising, including CBS MarketWatch,
TheStreet.com and Yahoo. The Company has developed marketing alliances with
online brokers (e.g. Ameritrade, Dreyfus, Charles Schwab and Lind Waldock)
whereby those firms will market DBC's Internet-delivered products to their
customers. DBC has long encouraged third-party software developers to write
trading system software that is integrated with the Company's systems. This has
resulted in numerous sales leads amongst the developers' customers. Beginning
with the launch of eSignal, DBC conducted product seminars for the first time.
The Company believes this to be a very effective marketing method and will
continue to hold them. DBC has used direct mail campaigns on a limited basis,
focusing on prospects obtained
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from purchased mailing lists and former customers. The Company also provides
incentives to existing subscribers for referrals.
InSite also has a dedicated sales force. It is directed at the
institutional investment community with the main efforts on direct sales to
buy-side and brokerage marketplaces. Alliances with brokers for wholesale sales
opportunities are also in place. These are augmented by print advertising,
target mailings and selective trade show presence.
BondEdge is marketed through a dedicated sales force, product
demonstrations and sponsorship of seminars and workshops on fixed income
analysis. Users typically sign monthly contracts which are automatically renewed
unless canceled.
MarketWatch markets to potential users by advertising on CBS television and
radio and on other Web sites. MarketWatch employs a direct sales force to reach
advertisers and transaction partners.
BUSINESS EXPANSION AND PRODUCT DEVELOPMENT
In fiscal 1999, the Company experienced a net increase in its overall
retail subscriber base despite declines in its broadcast subscriber base. The
broadcast declines have been more than offset by new Internet-based subscribers.
The Company believes it has become the dominant Internet-based provider of
real-time financial market information.
The Company's acquisitions of GTIS and FNS, and the development of InSite,
have helped to expand its presence in the institutional market.
BondEdge's growth has been positively impacted by increased regulation in
the financial marketplace, the issuance of increasingly complex securities,
volatility in the bond market and the industry's growing awareness of the risks
associated with fixed income securities and derivatives. BondEdge's ability to
help subscribers manage those risks keeps the Company well-positioned to take
advantage of these trends. However, BondEdge has lost certain customers due to
consolidation in the banking, insurance and investment management industries.
During the fiscal years ended June 30, 1999, 1998 and 1997, the Company
expensed approximately $6.3 million, $8.4 million and $7.1 million,
respectively, for research and development, including development of new
products, maintenance and upgrading of existing products and development of
internal systems.
DBC plans to continue to expand its businesses, both domestically and
internationally through:
- expansion into the institutional market of users of real-time and other
financial information;
- selling continuously updating products, such as eSignal, directly over
the Internet to a broader customer base;
- alliances and joint ventures with complementary businesses in order to
expand the scope of products offered and geographic reach of the
business; and
- business and content acquisitions.
- incubation of other Internet ventures.
SEASONALITY
The Company has not experienced any material seasonal fluctuations in its
business. However, financial information market demand is largely dependent upon
activity levels in the securities markets. In the event that the U.S. financial
markets were to suffer a prolonged period of investor inactivity in trading
securities, the Company's business could be adversely affected. The degree of
such consequences is uncertain.
BACKLOG
Given the nature of the Company's businesses, DBC has no material backlog
orders.
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EMPLOYEES
The Company employed 580 people as of August 31, 1999, none of whom are
represented by a collective bargaining unit. The Company believes that its
relationship with employees is satisfactory.
REGULATION
The Federal Communications Commission ("FCC") regulates the broadcasting of
satellite, FM-SCA and other airwave transmissions in the United States. The FCC
has licensed BMI to transmit data from their uplink facilities in Salt Lake
City, Utah. Monitoring and compliance are carried out through the space segment
suppliers. Although the Company uses its FCC license to transmit data to
third-party satellites for further transmission, the loss of such license would
not be expected to have a long-term material adverse effect on the Company
because of other transmission alternatives.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table contains information as of August 31, 1999 as to the
executive officers of the Company:
NAME AGE OFFICE HELD WITH COMPANY
- ---- --- ------------------------
Alan J. Hirschfield.................... 63 Co-Chief Executive Officer
Allan R. Tessler....................... 62 Co-Chief Executive Officer
Mark F. Imperiale...................... 48 President
Dwight H. Egan......................... 46 Executive Vice President - Marketing
James A. Kaplan........................ 56 Vice Chairman
ALAN J. HIRSCHFIELD and ALLAN R. TESSLER serve as Co-Chairmen of the Board
and Co-Chief Executive Officers of the Company.
Prior to joining DBC, Mr. Hirschfield served as Managing Director of
Schroder Wertheim & Co. and as a consultant to the entertainment and media
industry. He formerly served as Chief Executive Officer of Twentieth Century Fox
Film Corp. and Columbia Pictures Inc. from 1980 to 1985 and 1973 to 1978,
respectively. Mr. Hirschfield currently serves on the boards of MarketWatch.com,
Inc. ("MarketWatch"), Cantel Industries, Inc., a manufacturer of infection
control equipment and distributor of diagnostic services, and Chyron
Corporation, a manufacturer of equipment used to enhance video and audio
production.
Mr. Tessler has been Chairman of the Board and CEO of International
Financial Group, Inc. an international merchant banking firm, since 1987. He is
also Chairman of the Board of Enhance Financial Services Group Inc., a provider
of financial guaranty insurance and reinsurance, and Jackpot Enterprises, Inc. a
gaming machine operator. Since January 1997, Mr. Tessler has also served as
Chairman of Checker Holdings Corp. IV, a private holding company. From December
1991 through September 1993 Mr. Tessler was Chairman and CEO of Ameriscribe Inc.
("Ameriscribe"), a national provider of facilities management services. Mr.
Tessler also serves on the boards of MarketWatch, The Limited, Inc., a
speciality retailer, and Allis-Chalmers Corporation, a machine repair business.
MARK F. IMPERIALE was named as President, Chief Operating Officer and Chief
Financial Officer in September 1996, having served as Executive Vice President
and Chief Financial Officer since July 1994. Mr. Imperiale was formerly
Executive Vice President and Chief Financial Officer of Ameriscribe from May
1992 through October 1993, when Ameriscribe was acquired by Pitney Bowes Inc.,
and where he continued as a consultant through December 1993. Mr. Imperiale
spent the prior 10 years in the securities industry, with Prudential Securities,
Merrill Lynch, and First Boston Corporation. Mr. Imperiale, a certified public
accountant, started his career with Arthur Young & Company. Mr. Imperiale also
serves on the boards of MarketWatch and Sorbent Products Corporation, a
privately-held manufacturer and distributor of oil absorption products.
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DWIGHT H. EGAN was appointed Executive Vice President of Marketing for DBC
in June 1998. He co-founded Broadcast International, Inc. ("BII"), a former
subsidiary of the Company which was acquired by DBC in 1995. Mr. Egan also
serves on the board of Gentner Communications, Inc., a provider of audio
communication equipment and services.
JAMES A. KAPLAN served as President of CMS during the last five years and
is currently President of Commontech, LLC. He retired as President of CMS as of
June 30, 1999 but remains Vice Chairman of the Board.
ITEM 2. PROPERTIES
The Company owns no real estate but leases the following principal
facilities:
SQUARE CURRENT
LOCATION OPERATING UNIT FEET ANNUAL RATE EXPIRATION
- -------- -------------- ------ ----------- ----------
Hayward, CA........................... DBC West(1) 60,158 $942,000 June 2013
New York, NY.......................... Various 27,386 $398,000 November 2009
Los Angeles, CA....................... CMS(3) 25,498 $704,000 October 2002
Salt Lake City, UT.................... BMI(1) 17,196 $304,000 December 2003
Midvale, UT........................... ISN(2) 15,193 $101,000 November 2002
Midvale, UT........................... ISN(2) 13,881 $257,000 October 2001
Washington, DC........................ FNS 6,688 $235,000 July 2001
Las Vegas, NV......................... Sports 5,969 $102,000 February 2002
London, England....................... DBC West 5,940 $ 94,000 November 2008
New York, NY.......................... CMS(3) 5,737 $ 64,000 October 2000
West Orange, NJ....................... Corporate 1,482 $ 33,000 December 2000
Jackson, WY........................... Corporate(1) 2,030 $ 39,000 June 2001
Paris, France......................... GTIS 861 $ 17,000 February 2002
Tokyo, Japan.......................... GTIS 108 $ 34,000 March 2000
- ---------------
(1) Certain of this space has been sublet under agreements of various terms.
(2) Discontinued operation.
(3) These properties are used by the BondEdge segment. All other properties are
used by the Market Information segment, except those noted as Corporate.
The Company also has approximately 2,300 square feet of property under
lease that was previously used by a former operation. This lease expires in
March 2000. In addition to the above facilities, the Company maintains several
other offices and facilities throughout the United States, all of which are
leased.
ITEM 3. LEGAL PROCEEDINGS
Newman v. CheckRite of California, Inc., et al, CIV-S-93-1557-LKK/PAN. On
September 28, 1993, plaintiffs filed a complaint in the United States District
Court for the Eastern District of California, alleging violations of the Federal
Fair Debt Practices Act and the California Unfair Business Practices Act. The
allegations include charging check writers unauthorized fees for returned checks
and threatening litigation against check writers where none was actually
contemplated. The case was certified as a class action on August 2, 1996. The
Company has negotiated a settlement and has fully funded the settlement by
posting a letter of credit. The settlement has not had a material effect on the
financial condition or results of operations of the Company.
There are no other material pending legal proceedings to which the
Registrant is a party, other than ordinary routine litigation incidental to the
business.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5. PRINCIPAL MARKET AND PRICES FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
PRINCIPAL MARKET AND PRICES
The Company has two classes of authorized stock: 75 million shares of
common stock, $0.01 par value, of which 34,393,397 were outstanding as of
September 22, 1999, and 5 million shares of preferred stock, $0.01 par value,
none of which has been issued.
The Company's common stock trades on The Nasdaq Stock Market ("Nasdaq")
under the symbol DBCC. The Company began trading under this symbol on June 29,
1992. As of September 22, 1999, there were 1,825 holders of record of the
Company's common stock, and the Company believes it had in excess of 10,000
beneficial owners of its common stock. The Company has paid no dividends, and
under the terms of certain indebtedness the Company is restricted from paying
dividends on its common stock (see Liquidity and Capital Resources under Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations).
The range of high and low bid quotations for the common stock of DBC as
reported by Nasdaq for each quarterly period during the fiscal years ended June
30, 1999 and June 30, 1998 is shown below.
HIGH LOW
---- ---
FISCAL YEAR 1999:
First Quarter (07/01/98 to 09/30/98)........................ 7 1/2 4
Second Quarter (10/01/98 to 12/31/98).................. 18 9/16 2 9/16
Third Quarter (01/01/99 to 03/31/99)................... 46 1/8 12 7/8
Fourth Quarter (04/01/99 to 06/30/99).................. 22 3/8 8 3/4
FISCAL YEAR 1998:
First Quarter (07/01/97 TO 09/30/97)................... 7 1/4 4 3/4
Second Quarter (10/01/97 TO 12/31/97).................. 8 5/16 4 7/8
Third Quarter (01/01/98 TO 3/31/98).................... 6 5/8 4 1/4
Fourth Quarter (04/01/98 TO 06/30/98).................. 9 1/8 5
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ITEM 6. SELECTED FINANCIAL DATA
YEAR ENDED JUNE 30,
--------------------------------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Revenues............................ $108,294 $102,613 $105,702 $ 81,664 $ 74,243
Income (loss) from operations....... (1,016) 5,434 9,174 12,432 8,245
Income (loss) from continuing
operations........................ (4,189) 2,993 5,396 9,088 16,365
Net income (loss)................... (4,189) (4,763) (18,279) 8,871 16,365
Basic income (loss) per share
Income (loss) from continuing
operations..................... $ (.12) $ .09 $ .17 $ .30 $ .73
Net income (loss)................. $ (.12) $ (.15) $ (.56) $ .29 $ .73
Diluted income (loss) per share
Income (loss) from continuing
operations..................... $ (.12) $ .09 $ .16 $ .28 $ .67
Net income (loss)................. $ (.12) $ (.14) $ (.54) $ .27 $ .67
Weighted average shares
Basic............................. 33,902 32,841 32,526 30,599 22,497
Diluted........................... 34,760 33,447 33,676 32,734 24,350
Total assets........................ $188,492 $126,464 $134,183 $153,967 $163,020
Long-term debt, less current
portion........................... -- 500 1,500 2,558 8,903
Stockholders' equity................ 154,158 102,525 105,853 116,097 96,715
- Operating results reflect the sale of the assets of Shark Information
Services Corp. effective May 1, 1995, the acquisition of BMI on June 30,
1995 and the acquisition of GTIS on August 31, 1998.
- Net loss in 1998 includes a loss of $6.1 million on the disposal of
discontinued operations, primarily due to the non-cash write-off of the
net assets of the business, net of a tax benefit.
- Net loss in 1997 includes a loss of $21.3 million on the disposal of
discontinued operations, primarily due to the non-cash write-off of the
net assets of the businesses and the related tax expense.
- Income from operations in 1996 includes a charge of $1.9 million related
to merger and consolidation costs. Net income also includes a
non-recurring, pre-tax benefit of $3.3 million attributable to proceeds
received from Consumer News and Business Channel ("CNBC") under a
previous agreement and an extraordinary loss of $0.2 million on the
prepayment of debt.
- Income from operations in 1995 includes a charge of $0.9 million related
to merger and consolidation costs. Net income also includes a
non-recurring, pre-tax benefit of $14.1 million attributable to proceeds
received from CNBC under a previous agreement and a non-recurring,
pre-tax gain of $5.4 million from the sale of the assets of Shark.
- Exchange fees have been reclassified as revenues and expenses, amounting
to $13.6 million, $12.7 million and $13.2 million in 1999, 1998 and 1997,
respectively. No such reclassification was made for 1996 and 1995.
- During the five-year period ended June 30, 1999, the Company paid no cash
dividends.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The Company delivers a wide range of information and analytical tools used
primarily by investors to make investment decisions. The Company will primarily
deliver these services over the Internet as a result of
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its decision to transition away from the Company's historical broadcast
platforms. These services include the following:
- Real-time financial market prices -- equities, mutual funds, options,
bonds, indices, futures, commodities and foreign exchange rates.
- News -- proprietary business articles, news headlines, press releases,
wire services, and transcripts from U.S. and Russian government
activities.
- Access to historical financial databases -- stock prices, technical
charts, research reports and SEC filings.
- Analytical tools -- Technical stock charting and detailed fixed income
portfolio analysis.
These services are delivered on a subscription basis via the Internet or
communication devices that rely on FM subcarriers, satellite, cable television
or telephone lines. While the majority of customers receive services via a
broadcast technology, most of the Company's new customers are choosing
Internet-delivered services. The Company expects the trend toward Internet
services to continue to grow and the number of broadcast customers to decline.
The Company also plans to use broadband, multi-cast technology to deliver its
information and services in a multimedia format.
With the exception of certain fixed income services, which are targeted
toward fixed income portfolio managers, most of the Company's customers have
historically been individual investors. However, the Company expects the number
of its institutional customers will increase as a result of growth in BondEdge
and InSite.
The Company operates in two business segments:
- Market Information -- including financial and sports information services
targeted toward individual and institutional investors.
- BondEdge -- fixed-income analytical software marketed to fixed-income
portfolio managers.
In May 1999, the Company sold its AgCast business to Farm Journal
Corporation ("FJ"), in exchange for $3,100,000 of convertible preferred stock in
FJ, a privately-held agribusiness information company.
MarketWatch.Com, Inc. ("MarketWatch") is a venture formed in October 1997
with CBS Broadcasting, Inc. It operates Internet web sites that deliver a broad
range of financial market information. The Company believes that most of the
visitors to this site are individual investors. Although much of the information
on MarketWatch is free to visitors, it does offer paid subscriptions to certain
of its data. MarketWatch currently derives the bulk of its revenue from
advertising. In January 1999, MarketWatch completed an initial public offering
of its common stock, reducing DBC's ownership interest from 50 percent to 37
percent. The Company's ownership interest has been further diluted to 33
percent, due to MarketWatch's issuance of stock for the acquisition of BigCharts
Inc., a leading provider of securities charts on the Web.
DBC purchased substantially all of the assets of GTIS on August 31, 1998.
GTIS provides real-time domestic and international fixed income, foreign
exchange, money market and precious metal information to institutional,
corporate and consumer clients worldwide. This acquisition expands the Company's
reach to institutional customers.
DBC owns two businesses which have been classified as discontinued
operations for accounting purposes. Instore Satellite Network ("ISN") installs
and operates point to multipoint satellite services for retail merchants.
Lawyers Communications Network ("LCN") is a limited liability company formed
with the American Bar Association which provides continuing legal education and
news via the Internet or satellite to legal professionals. Subsequent to
year-end, the Company sold ISN and closed LCN. DBC will continue to operate a
business video operation, formerly part of ISN, through the end of its existing
contracts, in accordance with the agreement to sell ISN.
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RESULTS OF OPERATIONS
SELECTED FINANCIAL DATA
YEAR ENDED JUNE 30,
--------------------------------
1999 1998 1997
-------- -------- --------
($ THOUSANDS)
Revenues
Market Information:
Broadcast............................................. $ 54,566 $ 72,069 $ 81,654
eSignal............................................... 16,107 3,256 570
Institutional......................................... 14,127 7,138 4,559
BondEdge................................................. 23,494 20,150 18,919
-------- -------- --------
108,294 102,613 105,702
Cost of services........................................... 55,219 47,955 45,627
Selling, general and administrative:
Sales and marketing...................................... 21,849 18,221 19,799
General and administrative............................... 17,137 15,407 16,691
Depreciation and amortization:
Equipment and leasehold improvements..................... 8,749 9,622 8,581
Goodwill................................................. 3,989 3,728 3,548
Software development and other........................... 2,367 2,246 2,282
-------- -------- --------
Income (loss) from operations.............................. $ (1,016) $ 5,434 $ 9,174
======== ======== ========
Income (loss) from operations by unit
Market Information....................................... $ (3,678) $ 3,685 $ 7,318
BondEdge................................................. 8,595 6,094 5,288
Corporate and unallocated................................ (5,933) (4,345) (3,432)
-------- -------- --------
$ (1,016) $ 5,434 $ 9,174
======== ======== ========
In the third quarter of 1997 the Company adopted a plan to dispose of its
CheckRite ("CRI") and ISN businesses. In the second quarter of 1998 DBC adopted
a plan to dispose of its interest in LCN due to the disappointing pace of
subscriber additions. The results of operations for these businesses have been
reported as discontinued operations. The loss from discontinued operations was
$23,675,000 ($0.73 per share) for 1997 and $7,756,000 ($0.24 per share) for
1998. These losses were primarily due to the non-cash write-off of the net
assets of the businesses and the related tax expense. Prior to the initial
write-off, the net assets included $34,239,000 of unamortized goodwill. CRI was
sold in 1998. Subsequent to year-end, DBC sold ISN and closed LCN.
1999 versus 1998
Overall, revenues from continuing operations increased by six percent.
eSignal revenues increased dramatically, from $3,256,000 to $16,107,000, while
Broadcast revenues declined from $72,069,000 to $54,566,000. This change in the
mix of customers, which is expected to continue, resulted in a decrease in
revenues, despite an overall increase in subscribers, due to lower average
revenues for eSignal subscribers. Institutional revenues grew from $7,138,000 to
$14,127,000, due to the August 1998 acquisition of GTIS and the initial market
acceptance of InSite. BondEdge revenues increased by 17 percent due to price
increases, growth in the subscriber base and the sale of additional analytical
modules to existing customers.
The Company recorded an operating loss of $1,016,000, down from operating
income of $5,434,000 a year ago. This decline is largely attributable to the
decline in Broadcast revenues with little reduction in Broadcast's fixed
distribution expense, substantial increases in sales and marketing expenses for
eSignal and Insite, offset by significant growth in the operating income of
BondEdge.
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The Company's share of MarketWatch's losses grew from $576,000 in 1998 to
$6,500,000 in 1999. This venture was formed during 1998 and DBC's results for
1998 included only eight months results versus a full year in 1999.
MarketWatch's losses increased significantly with the June 1999 acquisition of
BigCharts, Inc., which will result in significant non-cash charges over the next
three years for the amortization of goodwill. As a result, the Company's share
of MarketWatch's losses in fiscal 2000 is expected to increase.
In January 1999, MarketWatch completed an initial public offering ("IPO").
As a result of the IPO and MarketWatch's issuance of shares for the BigCharts
acquisition, DBC was required to increase the carrying value of its investment
in MarketWatch by $52,631,000, less deferred income taxes of $21,134,000. The
net adjustment was recorded as an increase to additional paid-in capital.
Interest income (expense), net, increased by $820,000. This increase was
mainly caused by higher interest income of $681,000 which resulted from higher
cash balances during the period. Interest expense decreased by $139,000 due to
lower levels of debt and other credit facilities.
Loss from continuing operations and net loss in 1999 amounted to $4,189,000
or $0.12 per share, including losses of $0.13 related to MarketWatch. Income
from continuing operations in 1998 was $2,993,000 or $0.09 per share, including
a charge of $0.01 for MarketWatch losses. Basic weighted average shares
outstanding increased by three percent due to the issuance of shares associated
with the exercise of stock options and warrants. The increases were partially
offset by the Company's purchases of treasury shares.
1998 versus 1997
Overall revenues from continuing operations decreased by 3 percent.
Broadcast revenues decreased by $9,585,000 (12 percent), while the Company
recorded an increase in revenues for eSignal of $2,686,000. While there was a
slight overall decrease in subscribers for these two businesses, revenues
dropped more sharply as the eSignal services are priced lower. BondEdge revenues
increased by seven percent due to subscriber increases and sales of additional
analytical modules to existing customers. Institutional revenues increased by 57
percent. This was due to strong increases in InSite and the European subscriber
base, and the inclusion of a full year of revenues from the October 1996
acquisition of Federal News Service.
Overall operating income decreased by $3,740,000. Market Information's
operating income declined by $3,633,000 due to the revenue losses described
above and the development and initial marketing for InSite. BondEdge's operating
income increased by 15 percent due to the revenue growth. Also included in 1998
operating income were $1,040,000 of other charges, including professional fees
related to potential acquisitions and the organization of MarketWatch, moving
certain operations in California and the settlement of a sales tax audit.
Included in 1998 were losses from MarketWatch of $576,000. There were no
comparable losses in the prior year as the venture was not formed until October
1997.
In 1997, other expense included a $700,000 charge associated with the
settlement of class action litigation. In 1998, the Company recorded a benefit
of $177,000, due to the positive resolution of certain contingencies included in
the 1997 charge and the 1998 settlement of other litigation in the Company's
favor.
Also included in 1997 was $952,000 in non-recurring gains associated with
previous transactions involving Shark Information Services Corp. and the
Consumer News and Business Channel. These gains resulted from the resolution of
certain contingencies and the revision of certain estimates associated with
these transactions.
Interest income (expense), net increased by $339,000 due to lower levels of
bank debt and higher cash balances, attributable to overall positive cash flow
and the receipt of $15,500,000 in May 1998 from the sale of CRI.
The effective tax rate for 1998 was approximately 45 percent. This was
significantly higher than 1997 due to the impact of nondeductible goodwill
amortization on a lower level of pretax income from continuing operations.
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Net income from continuing operations in 1998 was $2,993,000, equal to
$0.09 per share. Net income from continuing operations in 1997 was $5,396,000,
equal to $0.17 per share. Basic weighted average shares were flat as shares
issued for acquisitions and the exercise of stock options were offset by the
Company's stock buyback program.
LIQUIDITY AND CAPITAL RESOURCES
Cash provided by operating activities was $21,404,000, $15,941,000 and
$20,421,000 in 1999, 1998 and 1997, respectively. The increase from 1998 to 1999
resulted from favorable swings in income tax payments and accounts payable and
an increase in deferred revenue, offset by operating losses and an increase in
accounts receivable. The decrease from 1997 to 1998 was mainly due to lower
operating earnings and the payment of income taxes on the gain on the sale of
CRI.
The Company's capital expenditures have continued to decline due in part to
the shift to Internet-delivered services which require less Company-owned
equipment. However, DBC has entered into a new lease for office space in New
York, which will be used to consolidate its existing operations in New York and
provide space for their growth. In connection with this transaction, the Company
expects to incur expenditures for leasehold improvements during 2000.
Capitalized software development costs totaled $1,385,000 in 1999, mainly
for the development of updated versions of InSite and eSignal and enhancements
to BondEdge. Such costs in 1998 and 1997 amounted to $2,052,000 and $2,158,000,
respectively, and were primarily related to the development of InSite, AgCast
and BondEdge.
In 1999, DBC used $3,926,000 for acquisitions, primarily for the purchase
of GTIS, including $135,000 of transaction expenses. DBC received $15,500,000 in
1998 from the sale of substantially all of the assets of CRI. The Company
invested $3,168,000 in its MarketWatch and Internet Financial Network ("IFN")
joint ventures. In 1997, the Company used $6,155,000 for acquisitions, including
contingent earnout payments associated with the CMS acquisition and the purchase
of Instant Odds Network. The joint venture investments of $1,818,000 related to
DBC's activities in Hong Kong and IFN.
In 1999, DBC received $16,045,000 from the exercise of 3,073,000 stock
options and warrants. The Company purchased 1,321,313 shares of treasury stock
for $8,000,000. The Company also paid down $1,008,000 of debt in 1999.
In 1998, the Company paid down $1,053,000 of long-term debt and purchased
179,000 shares of treasury stock for $908,000. Only 180,000 stock options were
exercised, generating $714,000.
In 1997, the Company used $3,807,000 to pay down long-term debt, of which
$2,700,000 was associated with the acquisition of CMS. The exercise of 1,525,000
stock options generated $4,896,000 and $8,835,000 was used to purchase treasury
shares in a repurchase program that began in November 1996.
Subsequent to year end, the Company has continued to buyback its own
shares. The Company is currently authorized to buy up to 4,000,000 shares, of
which 3,160,000 had been purchased through September 22, 1999. In August 1999,
DBC received $3,995,000 for the sale of ISN. Due to significant tax losses
generated in 1999 by the exercise of stock options, the Company expects to
receive tax refunds of $5,800,000 in 2000.
DBC's debt agreement with Key Corporate Capital, Inc. requires the Company
to maintain certain financial ratios with respect to operations and financial
position. This agreement also restricts the payment of dividends to DBC's
stockholders and limits the purchase of treasury stock. At June 30, 1999, the
Company was in compliance with these covenants.
Management believes that the cash generated by operating activities,
together with its existing cash and financing facilities, are sufficient to meet
the short- and long-term needs of the current operations of the Company.
A-15
126
BUSINESS DEVELOPMENT AND OUTLOOK
During 1999, the Company's main development efforts were to increase the
markets for eSignal and Insite. The purchase of the GTIS business helped to
expand the Company's institutional market presence.
Demand for financial market information is largely dependent upon activity
levels in the securities markets. In the event that the U.S. financial markets
were to experience a prolonged period of investor inactivity in trading
securities, the Company's business could be adversely affected. The degree of
such consequences is uncertain.
INCOME TAXES
Under current accounting requirements, the Company recognizes future tax
benefits or expenses attributable to its temporary differences, net operating
loss carryforwards and tax credit carryforwards. Recognition of deferred tax
assets is subject to the Company's determination that realization is more likely
than not. As of June 30, 1999, the Company has recorded $5,386,000 of net
deferred tax assets, net of a valuation allowance of $2,601,000 and deferred tax
liabilities of $19,247,000. Based on taxable income projections, management
believes that the recorded net deferred tax assets will be realized.
INFLATION
Although management believes that inflation has not had a material effect
on the results of its operations during the past three years, there can be no
assurance that the Company's results of operations will not be affected by
inflation in the future.
YEAR 2000
The Company has substantially completed a comprehensive review of its
products, information systems and critical suppliers to identify those that may
be affected by the year 2000 ("Y2K") issue. The Company's Y2K status is as
follows:
- Most of the Company's products and networks are substantially Y2K
compliant already. However, there is one older product with a small
number of subscribers that is not Y2K compliant and will not be supported
beyond December 31, 1999. The Company has informed those customers
affected and will try to meet the customers needs with another DBC
product.
- The Company has sought compliance statements from each of its significant
suppliers, most of which have provided positive assurances regarding
their compliance. DBC will continue to work with those who are not yet
Y2K compliant.
- In the normal course of business, the Company is replacing its
administrative systems for accounting, billing and customer management.
The new systems will be fully Y2K compliant and will cost approximately
$3,200,000, most of which will be capitalized as fixed assets. At June
30, 1999, approximately $2,500,000 has been capitalized. These costs were
capitalized because they related to the implementation of new systems
which include substantial new functionality in addition to being Y2K
compliant.
All historical and future costs have been and will continue to be funded
out of existing cash and cash flows from operations.
The Company has developed certain contingency options that are available in
the event of a Y2K failure. For example, if any of the satellites that are used
by DBC's financial network were to fail, it is possible that the Company could
shift all of its satellite customers to its Internet-based products. In another
example, if one data provider fails, it is possible that there is another data
provider that provides substantially similar information that could be
integrated into DBC's data feed. There are certainly no foolproof contingency
plans that cover every possible failure. However, the Company will continue to
develop potential solutions so that it is as prepared as possible in the event
of a failure. In addition, the Company will continue to work with its insurers
so that it effectively manages its financial risk in the event of a business
interruption.
A-16
127
Based upon currently available information, management has no reason to
believe that the Company will not meet its compliance goals and does not
anticipate that the cost of effecting Y2K compliance will have a material impact
on the Company's financial condition, results of operations or liquidity.
Nevertheless, achieving Y2K compliance is dependent upon many factors, some of
which are not completely within the Company's control. Should either the
Company's internal systems or the internal systems of one or more of its
critical vendors fail to achieve Y2K compliance, the Company's business and its
results of operations could be adversely affected.
FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated financial performance, business
prospects, technological developments, new products, research and development
activities and similar matters. The Private Securities Litigation Reform Act of
1995 provides a safe harbor for forward-looking statements. In order to comply
with the terms of the safe harbor, the Company notes that a variety of factors
could cause the Company's actual results and experience to differ materially
from the anticipated results or other expectations expressed in the Company's
forward-looking statements. The risks and uncertainties that may effect the
operations, performance, development and results of the Company's business
include the following:
- The presence of competitors with greater financial resources and their
strategic response to the Company's new services.
- The acceptance of the Internet as a reliable real-time distribution
platform by institutional customers.
- The ability of the Company to broaden its subscriber base by adding more
individual investors outside of the Company's traditional "active-trader"
market.
- The Company's failure, or the failure of material third parties, to
complete their year 2000 compliance plan on a timely basis.
- The potential obsolescence of the Company's services due to the
introduction of new technologies.
- Activity levels in the securities markets.
A-17
128
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Financial Statements:
Report of Independent Accountants........................... A-19
Consolidated Statements of Operations and Comprehensive
Loss................................................... A-20
Consolidated Balance Sheets............................... A-21
Consolidated Statements of Cash Flows..................... A-22
Consolidated Statements of Stockholders' Equity........... A-23
Notes to Consolidated Financial Statements................ A-24
Quarterly Financial Information (Unaudited)................. A-36
Supplemental Schedule:
Report of Independent Accountants......................... A-37
Financial Statement Schedule.............................. A-38
A-18
129
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
of Data Broadcasting Corporation:
In our opinion, the accompanying consolidated balance sheets and the
related consolidated statements of operations, stockholders' equity and cash
flows present fairly, in all material respects, the financial position of Data
Broadcasting Corporation and its subsidiaries at June 30, 1999 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1999, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which 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, assessing the accounting principles used and significant estimates
made by management and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PRICEWATERHOUSECOOPERS LLP
Salt Lake City, Utah
August 18, 1999, except as to Note 17 which is as of August 31, 1999
A-19
130
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE LOSS
YEAR ENDED JUNE 30,
--------------------------------------
1999 1998 1997
---------- ---------- ----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
REVENUES................................................... $108,294 $102,613 $105,702
COSTS AND EXPENSES
Cost of services......................................... 55,219 47,955 45,627
Selling, general and administrative...................... 38,986 33,628 36,490
Depreciation and amortization............................ 15,105 15,596 14,411
-------- -------- --------
Total costs and expenses................................. 109,310 97,179 96,528
-------- -------- --------
INCOME (LOSS) FROM OPERATIONS.............................. (1,016) 5,434 9,174
Equity in loss of MarketWatch.com, Inc..................... (6,500) (576) --
Gain on sale of Shark...................................... -- -- 703
Equity in loss of Hong Kong joint venture.................. -- (43) (828)
Interest income, net....................................... 1,472 652 313
Other expense, net......................................... (169) (7) (702)
-------- -------- --------
INCOME (LOSS) BEFORE REORGANIZATION ITEMS.................. (6,213) 5,460 8,660
CNBC proceeds, net of obligations.......................... -- -- 249
-------- -------- --------
INCOME (LOSS) BEFORE INCOME TAXES.......................... (6,213) 5,460 8,909
Provision (benefit) for income taxes....................... (2,024) 2,467 3,513
-------- -------- --------
INCOME (LOSS) FROM CONTINUING OPERATIONS................... (4,189) 2,993 5,396
Loss from discontinued operations, including taxes......... -- (7,756) (23,675)
-------- -------- --------
NET LOSS................................................... (4,189) (4,763) (18,279)
Other comprehensive income
Foreign currency translation adjustment.................. (74) -- --
-------- -------- --------
COMPREHENSIVE LOSS......................................... $ (4,263) $ (4,763) $(18,279)
======== ======== ========
INCOME (LOSS) PER SHARE:
Basic
Income (loss) from continuing operations.............. $ (0.12) $ 0.09 $ 0.17
Loss from discontinued operations..................... -- (0.24) (0.73)
-------- -------- --------
Net loss............................................ $ (0.12) $ (0.15) $ (0.56)
======== ======== ========
Diluted
Income (loss) from continuing operations.............. $ (0.12) $ 0.09 $ 0.16
Loss from discontinued operations..................... -- (0.23) (0.70)
-------- -------- --------
Net loss............................................ $ (0.12) $ (0.14) $ (0.54)
======== ======== ========
See accompanying notes to consolidated financial statements.
A-20
131
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30,
--------------------------
1999 1998
----------- -----------
(IN THOUSANDS, EXCEPT FOR
NUMBER OF SHARES)
ASSETS
Current Assets:
Cash and cash equivalents................................. $ 41,507 $ 26,256
Accounts receivable, net of allowance for doubtful
accounts of $2,034 and $1,366.......................... 8,782 7,478
Income taxes receivable................................... 6,141 1,161
Net assets of discontinued operations..................... 1,373 1,180
Prepaid expenses and other current assets................. 1,187 885
-------- --------
Total Current Assets................................... 58,990 36,960
Property and equipment, net................................. 14,853 17,369
Software development costs, net of accumulated amortization
of $8,159
and $6,037................................................ 3,460 4,794
Goodwill, net of accumulated amortization of $15,914 and
$11,957................................................... 45,784 45,669
Investment in MarketWatch.com, Inc.......................... 47,554 424
Deferred tax assets, net.................................... 11,917 13,658
Other non-current assets.................................... 5,934 7,590
-------- --------
TOTAL ASSETS........................................... $188,492 $126,464
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable.......................................... $ 7,655 $ 6,798
Accrued liabilities....................................... 8,541 5,462
Deferred tax liabilities.................................. 6,531 538
Current maturities of long-term debt...................... 500 1,000
Other current liabilities................................. 545 733
-------- --------
23,772 14,531
Deferred revenue.......................................... 9,077 7,545
-------- --------
Total Current Liabilities.............................. 32,849 22,076
Long-term debt.............................................. -- 500
Other non-current liabilities............................... 1,485 1,363
-------- --------
TOTAL LIABILITIES...................................... 34,334 23,939
======== ========
Commitments and contingencies
Stockholders' Equity:
Common stock, $0.01 par value:
Authorized: 75,000,000 shares; Issued and Outstanding:
34,741,640 Shares in 1999 and 32,989,923 Shares in
1998.................................................. 375 345
Additional paid-in capital................................ 164,795 101,241
Retained earnings......................................... 5,860 10,049
Accumulated other comprehensive income.................... (74) --
Treasury stock............................................ (16,798) (9,110)
-------- --------
TOTAL STOCKHOLDERS' EQUITY............................. 154,158 102,525
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY............. $188,492 $126,464
======== ========
See accompanying notes to consolidated financial statements.
A-21
132
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED JUNE 30,
-------------------------------
1999 1998 1997
-------- ------- --------
(IN THOUSANDS)
CASH FLOWS PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss.................................................... $ (4,189) $(4,763) $(18,279)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization............................. 17,871 20,067 19,845
Write-down of net assets of discontinued operations,
including taxes........................................ -- 6,109 21,264
Equity in loss of MarketWatch.com, Inc.................... 6,500 576 --
Deferred tax provision (benefit).......................... (4,102) (2,971) 81
Provision for losses on accounts receivable............... 1,820 2,359 2,333
Equity in loss of Hong Kong joint venture................. -- 43 828
Gain on sale of Shark..................................... -- -- (703)
Other non-cash items, net................................. 569 516 291
Changes in operating assets and liabilities, net:
Accounts receivable....................................... (3,590) (1,352) (4,257)
Income taxes payable...................................... 2,574 (1,957) 1,000
Accounts payable and accrued liabilities.................. 2,833 (1,824) (399)
Deferred revenue.......................................... 1,605 562 367
Other assets and liabilities, net......................... (487) (1,424) (1,950)
-------- ------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES................... 21,404 15,941 20,421
-------- ------- --------
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchase of property and equipment........................ (8,751) (9,122) (11,693)
Cash received from joint ventures......................... 4,503 -- --
Investment in and advances to joint ventures.............. (3,592) (3,168) (1,818)
Cash paid for acquisitions, net of cash acquired.......... (3,985) (198) (6,155)
Capitalized software development costs.................... (1,385) (2,052) (2,158)
Proceeds from the sales of businesses..................... -- 15,500 --
Other, net................................................ 20 98 34
-------- ------- --------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES......... (13,190) 1,058 (21,790)
-------- ------- --------
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Exercise of stock options and warrants.................... 16,045 714 4,896
Purchase of treasury stock................................ (8,000) (908) (8,835)
Payments of long-term debt and capital lease
obligations............................................ (1,008) (1,053) (3,807)
Other, net................................................ -- (20) (28)
-------- ------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES......... 7,037 (1,267) (7,774)
-------- ------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS........ 15,251 15,732 (9,143)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD............ 26,256 10,524 19,667
-------- ------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.................. $ 41,507 $26,256 $ 10,524
======== ======= ========
See accompanying notes to consolidated financial statements.
A-22
133
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
COMMON STOCK
-------------------- ADDITIONAL OTHER TOTAL
SHARES PAID-IN RETAINED COMP. TREASURY STOCKHOLDERS'
OUTSTANDING AMOUNT CAPITAL EARNINGS INCOME STOCK EQUITY
----------- ------ ---------- -------- ------ -------- -------------
(IN THOUSANDS, EXCEPT FOR NUMBER OF SHARES)
BALANCE AT JUNE 30, 1996...... 31,337,984 $313 $ 82,693 $ 33,091 $116,097
Issuance of stock for
acquisitions.................. 1,263,747 14 10,772 -- 10,786
Exercise of stock options
and warrants.............. 1,525,347 14 4,882 -- 4,896
Tax benefit from exercise of
stock options............. -- -- 1,188 -- 1,188
Purchase/retirement of
treasury stock............ (1,417,916) -- (210) -- $ (8,625) (8,835)
Net loss.................... -- -- -- (18,279) -- (18,279)
---------- ---- -------- -------- -------- --------
BALANCE AT JUNE 30, 1997...... 32,709,162 341 99,325 14,812 (8,625) 105,853
Issuance of stock for
acquisitions.............. 280,291 3 1,363 -- -- 1,366
Exercise of stock options
and warrants.............. 179,745 2 712 -- -- 714
Tax benefit from exercise of
stock options............. -- -- 263 -- -- 263
Purchase/retirement of
treasury stock............ (179,275) (1) (422) -- (485) (908)
Net loss.................... -- -- -- (4,763) -- (4,763)
---------- ---- -------- -------- -------- --------
BALANCE AT JUNE 30, 1998...... 32,989,923 345 101,241 10,049 (9,110) 102,525
Exercise of stock options
and warrants.............. 3,073,030 30 16,015 -- -- 16,045
Tax benefit from exercise of
stock options............. -- -- 16,354 -- -- 16,354
Purchase/retirement of
treasury stock............ (1,321,313) -- (312) -- (7,688) (8,000)
Write-up of investment in
MarketWatch.com........... -- -- 31,497 -- -- 31,497
Accumulated other
comprehensive income...... -- -- -- -- $(74) -- (74)
Net loss.................... -- -- -- (4,189) -- (4,189)
---------- ---- -------- -------- ---- -------- --------
BALANCE AT JUNE 30, 1999...... 34,741,640 $375 $164,795 $ 5,860 $(74) $(16,798) $154,158
========== ==== ======== ======== ==== ======== ========
See accompanying notes to consolidated financial statements.
A-23
134
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business -- Data Broadcasting Corporation and subsidiaries (the
"Company" or "DBC") operates in two business segments, providing a variety of
actionable market data and news to its subscribers. This data consists of
real-time stock market quotes, equity and fixed income analytics, financial
market and governmental information and news and access to historical financial
databases and sports information.
DBC's customer base consists mainly of individual investors, traders and
institutional portfolio managers. Customers are located principally in North
America, with additional customers in Europe and Asia.
Demand for financial market information is largely dependent upon activity
levels in the securities markets. In the event that the U.S. financial markets
were to experience a prolonged period of investor inactivity in trading
securities, the Company's business could be adversely affected. The degree of
such consequences is uncertain.
Principles of Consolidation -- The consolidated financial statements
include the results of the Company and all majority-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated.
Cash and Cash Equivalents -- The Company considers all highly liquid
temporary cash investments with original maturities of three months or less to
be cash equivalents.
Property and Equipment -- Fixed assets are recorded at cost and are
depreciated using the straight-line method over their estimated useful lives
ranging from three to ten years. Leasehold improvements are recorded at cost and
are depreciated using the straight-line method over the shorter of their useful
lives or the remaining lease term. During fiscal 1998, the Company adopted
Statement of Position 98-1, "Accounting for Costs of Computer Software Developed
or Obtained for Internal Use". This pronouncement requires the capitalization of
internal use software under certain circumstances. The Company capitalized
approximately $2,113,000 and $1,201,000 during the years ended June 30, 1999 and
1998, respectively, primarily related to the purchase and development of new
computer systems.
Software Development Costs -- The Company capitalizes certain costs
incurred to produce certain software used by subscribers to access, manage and
analyze information in the Company's databases. Such costs, including coding,
testing and product quality assurance, are capitalized once technological
feasibility has been established. Amortization is computed on a case-by-case
basis over the estimated economic life of the software, which ranges from three
to five years. In fiscal 1999, 1998 and 1997, such amortization amounted to
approximately $2,348,000, $2,176,000 and $2,023,000 respectively.
Goodwill -- Goodwill represents the excess of the cost of acquisitions over
the fair value of the net assets acquired and is being amortized on a
straight-line basis over 5 to 25 years. At each balance sheet date management
assesses whether there has been a permanent impairment in the value of these
assets. If the carrying value of goodwill exceeds the undiscounted future cash
flows from operating activities of the related businesses, a permanent
impairment is deemed to have occurred. In this event, the assets would be
written down to an amount equivalent to the discounted future cash flows from
operating activities of the related businesses.
Revenue Recognition -- Prepaid subscription revenue is deferred and
recorded as revenue on a straight-line basis over the term of the subscription
agreement. One-time service initiation fees are recognized as revenue when
billed to the extent that no future performance obligations exist and such fees
do not exceed direct selling costs, which are expensed as incurred. In fiscal
1999, 1998 and 1997 such fees aggregated approximately $2,347,000, $4,793,000
and $5,300,000 respectively, and did not exceed direct selling costs.
Research and Development Costs -- Expenditures for research and development
are expensed as incurred. The Company expensed approximately $6,348,000,
$8,400,000 and $7,100,000 in research and
A-24
135
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
development costs during the years ended June 30, 1999, 1998 and 1997,
respectively, including maintenance and upgrading of existing products and
development of new products.
Stock-Based Compensation -- The Company follows Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB No. 25") in
accounting for its employee stock options, rather than the fair value method of
accounting provided under Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" ("SFAS No. 123"). Under APB No. 25,
the Company does not recognize compensation expense on stock options granted to
employees because the exercise price of each option is equal to the market price
of the underlying stock on the date of the grant.
Income Taxes -- Should there be a need to increase the deferred tax
valuation allowance in the future, a charge to income tax expense will be
required. However, in the event there is a need to decrease the valuation
allowance, Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7") requires a direct
addition to stockholders' equity. This treatment only applies to the deferred
tax assets and related valuation allowance applicable to items that arose prior
to June 26, 1992, the effective date of the reorganization plan of the Company's
predecessor. As of June 30, 1999, the entire valuation allowance is related to
such items.
Earnings per Share -- In fiscal 1998, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings per Share". Earnings per share
presented for 1997 have been restated to conform to the new presentation. Below
is a reconciliation of shares outstanding (in thousands) between the basic and
diluted calculations for each period.
1999 1998 1997
------ ------ ------
Basic shares............................................. 33,902 32,841 32,526
Stock options and warrants............................... 858 606 1,150
------ ------ ------
Diluted shares........................................... 34,760 33,447 33,676
====== ====== ======
Issuance of Stock by Investees -- When an investee sells its stock to
unrelated parties at a price in excess of its book value, the Company's net
investment in that investee increases. This increase is typically recorded as a
gain in the Company's statement of operations. However, in instances where
realization of such gain is not assured, the gain would be recorded as an
increase to additional paid-in capital.
Long-lived Assets -- The Company evaluates the recoverability of its
long-lived assets in accordance with Statement of Financial Accounting Standards
No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of" ("SFAS 121"). SFAS 121 requires recognition of
impairment of long-lived assets in the event the net book value of such assets
exceeds the future undiscounted cash flows attributable to such assets.
Accounting Estimates -- The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect amounts reported in the financial
statements. Actual results could differ from those estimates.
Reclassifications -- Certain prior year amounts have been reclassified to
conform with the current year's presentation. This included the reclassification
of exchange fees as revenues and expenses in all periods, which amounted to
$13,581,000, $12,721,000 and $13,224,000 in fiscal 1999, 1998 and 1997,
respectively.
Segment Information -- In fiscal 1999, DBC adopted Statement of Financial
Accounting Standards No. 131, "Disclosure about Segments of an Enterprise and
Related Information". FASB No. 131 establishes standards for the disclosure
using the management approach which designates the internal organization used by
management for performance assessment to be the source of the Company's
reportable segments.
A-25
136
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
2. INVESTMENT IN MARKETWATCH.COM, INC.
On January 15, 1999, MarketWatch.com, Inc. ("MW"), originally
Marketwatch.com LLC, the Company's 50-50 joint venture with CBS Broadcasting,
Inc. ("CBS"), completed an initial public offering of its common stock (the
"Offering"). In connection with the Offering, MW sold 3,162,500 shares for $17
per share, resulting in a reduction in the Company's ownership interest from 50%
to 37%. The selling price per share in the Offering was greater than the
Company's average carrying amount per share. As a result, the Company recognized
an increase in the carrying value of the investment of $18,045,000. This
increase in carrying value, net of deferred tax liabilities of $7,300,000 was
recorded as an increase to additional paid-in capital. Subsequent to the
Offering, MW issued stock for an acquisition, reducing DBC's investment to
approximately 33 percent. The value of the shares issued for the acquisition was
greater than the Company's average carrying amount per share. As a result, the
Company recognized an increase in the carrying value of the investment of
$34,586,000. This increase in carrying value, net of deferred tax liabilities of
$13,834,000, was recorded as an increase to additional paid-in capital.
In fiscal 1999 and 1998, the Company recognized equity in losses of MW of
$6,500,000 and $576,000, respectively. Upon the formation of the joint venture,
the Company's 50% interest in the net equity of the joint venture exceeded the
Company's $2 million cash contribution primarily due to the contribution to the
joint venture by CBS of advertising with a fair value of $30 million. This
excess is being amortized as the related advertising is utilized. The Company's
equity in losses of MW noted above are net of amortization of this excess of
$5,225,000 for the fiscal year ended June 30, 1999. The remaining amount of this
excess at June 30, 1999 is $4,835,000, which is included in "Investment in
MarketWatch.com, Inc." in the accompanying balance sheet.
There are several other agreements between the Company, Marketwatch and
CBS, including an agreement for CBS to license its name and logo to Marketwatch.
Additionally, DBC is required to lend Marketwatch up to $5,000,000 under a
revolving credit agreement expiring October 29, 2000. As of June 30, 1998,
$1,543,000 had been advanced under this provision. This advance was repaid in
January 1999 with proceeds from the Offering.
Additionally, DBC purchased news from MW in the amount of $1,421,000 for
the year ended June 30, 1999. DBC is required to pay a minimum of $100,000 per
month for this news through the month ending October 29, 2002. DBC also
purchased web advertising of $483,000 from MW for the year ended June 30, 1999.
DBC also provides services to MW including accounting, network operations,
web hosting and data feeds. DBC charged MW $1,039,000 for such services for the
year ended June 30, 1999, which amounts were recorded as reductions of the gross
expenses incurred by DBC.
As of June 30, 1999, MW's assets and liabilities, derived from the
unaudited quarterly data, were as follows: current assets, $33,033,000; total
assets, $187,673,000; current and total liabilities, $5,079,000. MW's unaudited
revenue and net loss for the six months ended June 30, 1999 were $7,965,000 and
$18,882,000, respectively.
3. ACQUISITIONS
On August 31, 1998, the Company completed its acquisition of substantially
all of the assets of the Global Treasury Information Services ("GTIS") division
of Automatic Data Processing, Inc. for $3,921,000 in cash, including $135,000 in
transaction expenses. GTIS provides real-time domestic and international fixed
income, foreign exchange, money market and precious metal information to
institutional, corporate and consumer clients worldwide. The transaction has
been accounted for as a purchase and goodwill is being amortized over 15 years.
A-26
137
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Effective July 1, 1996, the Company acquired by merger all of the
outstanding common stock of Las Vegas Sports Consultants, Inc. ("LVSC") in
exchange for 330,206 shares of the Company's common stock, valued at $3,100,000.
LVSC is the leading "opening line" odds maker in Las Vegas.
Effective July 1, 1996, the Company acquired all of the outstanding common
stock of Instant Odds Network, Inc. ("ION") for $2,600,000 in cash. ION has the
rights to transmit electronically real-time betting odds from six major casinos
in Las Vegas. The agreement contains a contingent earnout provision, payable in
the Company's common stock, based upon the results of operations of ION for the
three-year period ending June 30, 1999. This provision is expected to result in
the issuance of approximately 1,300 shares of DBC common stock in fiscal 2000.
Effective October 31, 1996, the Company acquired substantially all of the
assets of Federal News Service Group, Inc. ("FNS"), subject to certain
liabilities, for 804,841 shares of the Company's common stock, valued at
$6,650,000. FNS provides verbatim transcripts of major federal government
hearings to news organizations, political associations and corporations around
the world. The agreement also provided for a contingent earnout, based upon FNS'
results of operations for the year ended October 31, 1997. In March 1998, the
Company made a contingent earnout payment of $1,499,000, comprising $133,000 in
cash and approximately 280,000 shares of DBC common stock, valued at $1,366,000.
In conjunction with this acquisition, the Company extended an interest-bearing
loan to an executive of FNS. In January 1999, payment in full was received on
this loan.
Effective September 16, 1996, the Company acquired all of the outstanding
common stock of Dajoy Enterprises, Inc., dba Check Network ("CN"), in exchange
for 128,700 shares of the Company's common stock, valued at $1,000,000. CN,
which was merged into CheckRite International ("CRI"), provides check recovery
services. Effective January 1, 1996, CRI acquired all of the outstanding stock
of Northwest CheckRite, Inc., ("NCI") a former franchisee of CRI, for
$1,200,000. As noted below, substantially all of the assets of CRI were sold
during fiscal 1998, including the CN and NCI operations.
The above transactions have been accounted for as purchases and goodwill is
being amortized over 5 to 25 years using the straight-line method. The
acquisitions of GTIS, LVSC, ION, FNS, CN and NCI did not have a material effect
on the results of operations in the year of acquisition. Accordingly, no pro
forma results have been presented.
In connection with the acquisition of Broadcast International, Inc. ("BII")
on June 30, 1995, management developed and implemented certain restructuring
plans. The estimated cost of these actions as of June 30, 1995 was approximately
$1,874,000 and was accrued in purchase accounting. During fiscal 1999, 1998, and
1997 the Company charged approximately $8,000, $224,000 and $400,000,
respectively, of severance and lease costs against this accrual.
4. PROPERTY AND EQUIPMENT
Property and equipment consisted of the following at June 30, (in
thousands):
1999 1998
------- -------
Receiver equipment held by subscribers...................... $28,177 $28,377
Computer and communication equipment........................ 23,249 21,792
Furniture and fixtures...................................... 2,804 2,512
Leasehold improvements...................................... 3,071 2,259
------- -------
57,301 54,940
Less accumulated depreciation............................... 42,448 37,571
------- -------
$14,853 $17,369
======= =======
A-27
138
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Depreciation expense was $8,749,000, $9,622,000 and $8,581,000 for fiscal
years 1999, 1998, and 1997, respectively.
5. CREDIT ARRANGEMENTS
Long-term debt consisted of the following at June 30, (in thousands):
1999 1998
---- ------
Key Corporate Capital term loan............................. $500 $1,500
Less current maturities..................................... 500 1,000
---- ------
Long-term debt.............................................. $ 0 $ 500
==== ======
In March 1996, the Company entered into a $36,500,000 loan agreement with
Key Corporate Capital, Inc. ("Key"). The agreement provided for an acquisition
line of credit of $30,000,000, a revolving line of credit of $3,000,000 and a
term loan of $3,500,000. The lines of credit are available until December 31,
2000, with the amount available under the acquisition line of credit decreasing
each quarter. As of June 30, 1999, the total amount available under the
acquisition line of credit had been reduced to $8,150,000. The term loan matures
on December 31, 1999 with principal payments of $250,000 due quarterly. Under
this agreement substantially all of the assets of the Company and its
subsidiaries are collateralized. All facilities accrue interest at variable
rates with the interest rate on the term loan being 7.58 percent as of June 30,
1999. To date, DBC has not drawn on the line of credit facilities. Unused
commitment fees of 0.25 percent and 0.325 percent are charged to DBC based on
the average daily balance of the unused portion of the acquisition line of
credit and revolving line of credit, respectively. This agreement includes
various restrictive covenants, including a restriction on the payment of
dividends, and requires the Company to maintain certain financial ratios. At
June 30, 1999, the Company was in compliance with these covenants. At June 30,
1999 and 1998, $750,000 was included in Other Non-Current Assets, representing a
cash balance in an interest-bearing account, required to be maintained as long
as any amounts are available under this agreement.
The Company paid approximately $140,000, $285,000 and $591,000 of interest
on long-term debt during the fiscal years ended June 30, 1999, 1998 and 1997,
respectively. Interest expense for the fiscal years ended June 30, 1999, 1998
and 1997, was $234,000, $373,000 and $616,000, respectively.
In April 1999, DBC established a $3,100,000 letter of credit, expiring
December 31, 1999, related to the settlement of the previously-disclosed class
action suit against CheckRite of California, a discontinued operation of the
Company. This letter of credit reduces, by its face value, the amounts available
for borrowing under the Company's debt agreement with Key. Management does not
expect any claims to be made against this letter of credit. Consequently, it is
the Company's opinion that the fair value of this instrument is zero.
6. SALE OF BUSINESSES
On May 20, 1999, DBC sold substantially all of the assets of its AgCast
business to Farm Journal Corporation, a privately-held company, in exchange for
3,100 shares of convertible preferred stock with a face value of $3,100,000 and
a put of $1,700,000 exerciseable at the end of two years. Based upon the put,
the gain on the sale is $650,000, which has been deferred pending future
realization.
In fiscal 1997, the Company increased its pre-tax gain on the fiscal 1995
sale of substantially all of the assets of Shark Information Services Corp. by
$703,000 due to the reduction of certain reserves recorded at the time of the
sale. Management determined that these reserves were no longer necessary due to
the resolution of certain contingencies and the revision of certain estimates.
A-28
139
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
7. OTHER NON-CURRENT ASSETS
Other non-current assets primarily consists of the Company's investments in
Internet Financial Network ("IFN") of $2,607,000 and Farm Journal Corporation
(Note 6) and the compensating balance requirement further described in Note 5.
As a result of a recapitalization of the business of IFN, DBC converted its
advances to IFN to an investment in April 1999.
In fiscal 1998 and 1997, the Company recorded pre-tax charges of $43,000
and $606,000, respectively, to write-off its investment in a joint venture in
Hong Kong and an additional $222,000 of equity losses in fiscal 1997 from this
investment. The Company and its joint venture partner concluded that its core
product should be discontinued, given the lack of market acceptance.
8. STOCK BASED COMPENSATION
In connection with the Data Broadcasting Corporation Stock Option Plan (the
"Option Plan"), the Company has reserved 7,250,000 shares of DBC common stock.
The Option Plan provides for the discretionary issuance of stock options to
employees. The exercise price of options granted equals the market price at the
date of grant. Options expire five to ten years from the date of grant and
generally vest ratably over three years. In certain cases options have been
granted with no vesting requirements. In the past, the Company has also issued
stock options and warrants as partial consideration for the acquisition of
businesses and other transactions. These securities are not part of the Option
Plan but are included in the activity below.
WEIGHTED AVERAGE
SHARES EXERCISE PRICE
------ ----------------
OUTSTANDING, JUNE 30, 1996.................................. 5,572 4.78
Granted..................................................... 663 7.01
Exercised................................................... (1,525) 3.21
Canceled.................................................... (251) 4.44
------
OUTSTANDING, JUNE 30, 1997.................................. 4,459 5.67
Granted..................................................... 841 5.16
Exercised................................................... (180) 3.97
Canceled.................................................... (118) 7.51
------
OUTSTANDING, JUNE 30, 1998.................................. 5,002 5.13
Granted..................................................... 331 7.38
Exercised................................................... (3,073) 5.22
Canceled.................................................... (164) 5.48
------ ----
OUTSTANDING, JUNE 30, 1999.................................. 2,096 5.08
====== ====
Exercisable, June 30, 1999.................................. 1,293 4.37
====== ====
A-29
140
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
OUTSTANDING EXERCISABLE
------------------------ ------------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
SHARES EXERCISE PRICE SHARES EXERCISE PRICE
------ -------------- ------ --------------
Range of option exercise prices:
$1.22 to $2.44 (Avg. life: 3.47 years)........... 450 2.03 450 2.03
$2.96 to $5.38 (Avg. life: 7.42 years)......... 988 4.90 468 4.87
$5.50 to $9.79 (Avg. life: 7.37 years)......... 601 6.72 375 6.56
$12.62 to $18.55 (Avg. life: 9.75 years)....... 57 16.63 -- --
----- -----
2,096 1,293
===== =====
On June 22, 1998, the Board of Directors ratified the Stock Option
Committee's recommendation to re-price all stock options with an exercise price
of $6.81 or higher held by active directors and employees. This re-pricing
reduced the exercise price of 882,833 stock options to $5.19 and excluded
options issued to executive officers under contractual agreements.
The weighted average fair value per share of options granted was $3.36,
$2.21 and $2.53 for the years ended June 30, 1999, 1998 and 1997, respectively.
The following pro forma information presents DBC's net income (loss) and
basic and diluted earnings per share for the years ended June 30, 1999, 1998 and
1997 as if compensation cost had been measured under the fair value method of
SFAS No. 123.
1999 1998 1997
------- ------- --------
Net loss............................................. $(5,034) $(5,631) $(18,965)
Basic loss per share................................. $ (0.15) $ (0.17) $ (0.58)
The fair value of these options was estimated as of the date of grant using
a Black-Scholes option pricing model with the following assumptions:
1999 1998 1997
----- ----- -----
Risk free interest rate..................................... 5.80% 5.75% 6.05%
Expected life (in years).................................... 3.80 4.00 3.50
Volatility.................................................. 76.00% 62.00% 50.00%
Expected dividend yield..................................... 0.00% 0.00% 0.00%
Because the Company's stock options have characteristics significantly
different from traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, management's opinion
is that the existing valuation models do not necessarily provide a reliable
single measure of the fair value of its employee stock options. The impact on
pro forma net income and net income per share in current years may not be
representative of pro forma compensation expense in future years, depending upon
the amount of stock options awarded in the future and their related vesting
periods.
9. STOCKHOLDERS' EQUITY
In addition to the Company's common stock, the Company is authorized to
issue 5,000,000 preferred shares, $0.01 par value, none of which have been
issued.
The Board of Directors previously authorized the repurchase of up to
4,000,000 shares of common stock. This plan will continue to be implemented from
time to time in either open market or private transactions. As of June 30, 1999,
the Company had repurchased approximately 2,919,000 shares at a cost of
$17,743,000.
A-30
141
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
10. DISCONTINUED OPERATIONS
Effective March 31, 1997, the Company adopted a plan to sell its CRI and
Instore Satellite Network ("ISN") businesses which had historically made up the
Company's Business Services segment. Accordingly, these businesses have been
accounted for as discontinued operations in the accompanying financial
statements. On May 1, 1998, the Company consummated the sale of substantially
all of the assets of CRI for $15,500,000 in cash.
The initial estimated loss on the disposal of CRI and ISN was $21,264,000
(including taxes of $8,231,000), consisting of an estimated loss on disposal of
the business of $20,653,000 and a provision of $611,000 for anticipated
operating losses until disposal. This loss resulted primarily from the non-cash
write-off of the net assets of the businesses. Prior to the write-off, the net
assets included $34,239,000 of unamortized goodwill. The ISN operations have
continued to generate positive operating cash flows. Estimated costs associated
with these disposals, including taxes, have been recorded as accrued
liabilities.
Although DBC held discussions with potential buyers of ISN, there was no
assurance that a transaction would be completed. Therefore, in the second
quarter of fiscal 1998, the Company recorded a second charge for ISN. The
additional charge amounted to $5,202,000, including a net tax benefit of
$3,006,000. This additional loss was primarily a non-cash writedown of net
assets to adjust the carrying value of ISN to the net present value of the
expected cash flow from its current customer contracts, net of related service
costs.
In February 1998, the Company adopted a plan to dispose of its interest in
the Lawyers Communications Network due to the disappointing pace of subscriber
additions to date. Accordingly, this business has also been accounted for as
discontinued operations in the accompanying financial statements. The estimated
loss on disposal, including remaining contractual obligations and other exit
costs, was $907,000, net of a tax benefit of $593,000, and was recorded in the
second quarter of fiscal 1998.
Revenues for these operations were as follows:
1999 1998 1997
----------- ----------- -----------
ISN......................................... $12,118,000 $12,651,000 $14,468,000
LCN......................................... $ 194,000 $ 46,000 --
CRI......................................... -- $16,366,000 $17,710,000
Net assets of the discontinued operations consisted of the following as of
June 30, 1999 (in thousands):
Property and equipment...................................... $1,838
Accounts receivable......................................... 1,418
Prepaid expenses............................................ 297
Accrued liabilities......................................... (2,584)
Other net assets............................................ 404
------
$1,373
======
11. COMMITMENTS AND CONTINGENCIES
The Company leases communication and test equipment, office facilities and
equipment, and has distribution agreements for satellite and cable space and FM
radio channels, generally under noncancellable lease arrangements that expire on
various dates through fiscal 2013. Certain of the lease agreements for premises
require the Company to pay operating costs, including property taxes and
maintenance costs, and include rent adjustment clauses.
A-31
142
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Rent expense approximated $8,359,000, $8,219,000 and $7,750,000 in fiscal
1999, 1998 and 1997, respectively, net of sublease income. At June 30, 1999,
future minimum operating lease payments, including approximately $418,000
recorded as a liability in connection with the sale of the assets of Shark and
the acquisition of BII, are as follows (in thousands):
REAL ESTATE DISTRIBUTION
AND EQUIPMENT AGREEMENTS
------------- ------------
2000....................................................... $ 3,139 $3,614
2001....................................................... 3,403 2,677
2002....................................................... 3,112 1,697
2003....................................................... 2,270 892
2004....................................................... 2,138 330
Thereafter................................................. 14,392 --
------- ------
Total minimum lease payments............................... 28,454 $9,209
======
Less amounts accrued....................................... 418
-------
$28,036
=======
These minimum lease payments have not been reduced by minimum future
sublease rentals of $898,000.
DBC is also committed to approximately $3,335,000 associated with the
build-out of new office space in New York and related equipment and furniture
purchases.
Certain subscribers previously brought a class action litigation against
the Company related to its performance under certain subscriber contracts. In
July 1997, the Company commenced a mailing to current and former subscribers to
certain of its services, which contained an offer to upgrade their service to
take advantage of new products and technologies the Company is introducing. This
settlement was approved by the court in October 1997. The Company accrued
$700,000 in fiscal 1997 to cover the estimated costs of this settlement,
principally legal fees and expenses. In fiscal 1998, this accrual was reduced by
$103,000 due to the revision of certain estimates. As of June 30, 1999 all
obligations relative to the settlement have been paid.
Certain check writers have brought a class action suit against CheckRite of
California, a subsidiary of the Company, alleging violations of the federal Fair
Debt Practices Act and the California Unfair Business Practices Act. The Company
has denied the allegations but has negotiated a settlement which required the
posting of a letter of credit (Note 5). The settlement of this case has not had
a material effect on the financial condition or results of operations of the
Company.
The Company is a party to various other legal proceedings incidental to its
business operations, none of which is expected to have a material effect on the
financial condition or results of operations of the Company.
12. CNBC PROCEEDS AND OBLIGATIONS
In fiscal 1996, DBC received a final payment from the Consumer News and
Business Channel as the result of arbitration of certain matters related to a
previous transaction. In fiscal 1997, the Company increased its pre-tax gain
from this transaction by $249,000 due to the reduction of certain reserves
recorded at the time of the initial transaction. Management determined that
these reserves were no longer necessary due to the resolution of certain
contingencies and the revision of certain estimates.
A-32
143
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. INCOME TAXES
The components of net deferred tax assets as of June 30, 1999 and 1998 are
as follows (in thousands):
1999 1998
------- -------
Deferred tax assets
Federal net operating loss carryforwards.................... $16,885 $ 8,132
State net operating loss carryforwards.................... 2,780 1,046
Property and equipment.................................... 2,605 1,458
Amortization of goodwill and capitalized software......... 2,371 2,428
Accrued compensation...................................... 1,209 958
Sale of AgCast............................................ 811 --
Lease obligations......................................... 698 42
Expenses -- sale of Shark................................. 161 245
Sale of discontinued operations........................... -- 1,281
Purchase accounting liabilities........................... -- 699
Other..................................................... 250 172
------- -------
Gross deferred tax assets................................. 27,770 16,461
Valuation allowance....................................... 2,601 2,601
------- -------
Total deferred tax assets................................. 25,169 13,860
------- -------
Deferred tax liabilities
Investment in MarketWatch.com............................. 18,030 --
Sale/leaseback obligations................................ 1,128 522
Subscriber contracts...................................... -- 195
Other..................................................... 625 23
------- -------
Total deferred tax liabilities............................ 19,783 740
------- -------
Net deferred tax assets..................................... $ 5,386 $13,120
======= =======
The Company has net operating loss carryforwards ("NOLs") of $22,334,000,
the use of which is limited by the Internal Revenue Code due to prior ownership
changes. These NOLs expire through 2007 and are subject to an annual limitation
of approximately $2,200,000. The Company has additional NOLs of $36,271,000,
which have no annual limitation and expire in 2014.
The (benefit)/provision for taxes are as follows for the years ended June
30, (in thousands):
1999 1998 1997
------- ------- -------
Federal:
Current............................................... $ 1,839 $ 2,503 $ 2,344
Deferred............................................ (3,630) (415) 564
State:
Current............................................. 239 617 673
Deferred............................................ (472) (238) (68)
------- ------- -------
Tax (benefit) on continuing operations................ (2,024) 2,467 3,513
Tax (benefit) on discontinued operations.............. -- (4,662) 7,897
------- ------- -------
$(2,024) $(2,195) $11,410
======= ======= =======
A-33
144
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The consolidated (benefit)/provision for taxes for consolidated operations
are as follows (in thousands):
1999 1998 1997
------- ------- -------
Federal:
Current............................................... $ 1,839 $ 4,104 $ 2,344
Deferred............................................ (3,630) (5,908) 6,844
State:
Current............................................. 239 1,264 802
Deferred............................................ (472) (1,655) 1,420
------- ------- -------
$(2,024) $(2,195) $11,410
======= ======= =======
The Company's effective tax rate for continuing operations differs from the
federal statutory rate, as shown in the following reconciliation for the three
years ended June 30, 1999:
1999 1998 1997
----- ---- ----
Income tax expense at federal statutory rate................ (35.0)% 35.0% 35.0%
State income tax expense, net of federal benefit............ (3.6) 4.5 4.9
Amortization of goodwill.................................... 5.0 5.5 2.9
Other, net.................................................. 1.0 0.2 (3.4)
----- ---- ----
Effective income tax rate................................... (32.6)% 45.2% 39.4%
===== ==== ====
For the year ended June 30, 1999, the Company received $305,000 of income
tax refunds, net of income taxes paid. The Company paid approximately $4,439,000
and $881,000 in federal and state income taxes during the years ended June 30,
1998 and 1997, respectively.
14. 401(k) PLAN
The Company has a 401(k) plan covering substantially all full-time
employees of the Company. Employer contributions to the plan are determined
annually by the Company and are made on behalf of participants who have elected
to defer receipt of a portion of their compensation otherwise payable in a plan
year. Such Company contributions totaled approximately $645,000, $516,000, and
$470,000 in fiscal years 1999, 1998, 1997, respectively.
15. CONCENTRATIONS OF CREDIT RISK
Financial instruments that potentially subject the Company to
concentrations of credit risk consist principally of temporary cash investments
and accounts receivable. The Company has deposited its temporary cash
investments with eleven banks and two financial institutions of high credit
quality. At June 30, 1999, approximately $39,596,000 of cash and cash
equivalents was deposited in four money market accounts. These accounts are
largely invested in U.S. Government obligations and investment grade commercial
paper, thereby limiting credit risk. Concentrations of credit risk with respect
to accounts receivable are limited due to the large number of customers
comprising the Company's customer base and their dispersion across different
geographical regions of North America. At June 30, 1999, the Company believes
that it had no significant concentrations of credit risk.
16. SEGMENT INFORMATION
DBC's reportable segments are as follows:
- Market Information -- delivery of real-time financial market information
to retail and institutional customers.
- BondEdge -- fixed income portfolio analytics.
A-34
145
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
The accounting policies of the segments are the same as those described in
the "Summary of Significant Accounting Policies". The company evaluates the
segments on the basis of operating income, earnings before interest, taxes,
depreciation and amortization ("EBITDA") and capital expenditures. Segment
financial information is as follows (in thousands):
1999 1998 1997
-------- -------- --------
Revenues
Market Information............................... $ 84,800 $ 82,463 $ 86,783
BondEdge......................................... 23,494 20,150 18,919
-------- -------- --------
Total............................................ $108,294 $102,613 $105,702
======== ======== ========
Income (loss) from operations
Market Information............................... $ (3,678) $ 3,685 $ 7,318
BondEdge......................................... 8,595 6,094 5,288
Corporate and unallocated........................ (5,933) (4,345) (3,432)
-------- -------- --------
Total............................................ $ (1,016) $ 5,434 $ 9,174
======== ======== ========
EBITDA
Market information............................... $ 7,658 $ 15,400 $ 17,687
BondEdge......................................... 12,339 9,941 9,277
Corporate and unallocated........................ (5,908) (4,311) (3,379)
-------- -------- --------
Total............................................ $ 14,089 $ 21,030 $ 23,585
======== ======== ========
Identifiable assets
Market Information............................... $ 98,639 $ 50,064
BondEdge......................................... 27,815 30,993
Corporate and unallocated........................ 62,038 45,407
-------- --------
Total............................................ $188,492 $126,464
======== ========
The Company's geographic distribution is as follows (in thousands):
1999 1998 1997
-------- -------- --------
Revenues
United States...................................... $100,993 $ 98,308 $102,109
Foreign.......................................... 7,301 4,305 3,593
-------- -------- --------
Total............................................ $108,294 $102,613 $105,702
======== ======== ========
Identifiable assets
United States.................................... $186,454 $126,290
Foreign.......................................... 2,038 174
-------- --------
Total............................................ $188,492 $126,464
======== ========
17. SUBSEQUENT EVENTS
In August 1999, the Company sold its music and ad business know as InStore
Satellite Network, to Muzak LLC for $4,700,000. DBC received $3,995,000 in
August, with the remaining $705,000 held in escrow pending performance of the
business over a six-month period. This business was previously classified as a
discontinued operation. In August 1999, the Company closed Lawyers Communication
Network. These transactions had no material impact on the results of operations
of the Company.
A-35
146
DATA BROADCASTING CORPORATION AND SUBSIDIARIES
QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
QUARTER
---------------------------------------- YEAR ENDED
FIRST SECOND THIRD FOURTH JUNE 30, 1999
------- ------- ------- ------- -------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Revenues.............................. $25,670 $27,458 $27,652 $27,514 $108,294
Total costs and expenses.............. 24,907 26,797 29,213 28,393 109,310
Income (loss) from operations......... 763 661 (1,561) (879) (1,016)
Equity in losses of MarketWatch.com... (923) (1,166) (1,223) (3,188) (6,500)
Provision (benefit) for income
taxes............................... 112 (140) (456) (1,540) (2,024)
Income (loss) from continuing
operations.......................... 71 (88) (1,921) (2,251) (4,189)
Net income (loss)..................... 71 (88) (1,921) (2,251) (4,189)
Earnings (loss) per
share -- continuing operations
Basic & Diluted..................... $ 0.00 $ 0.00 $ (0.06) $ (0.06) $ (0.12)
Earnings (loss) per share -- net
Basic & Diluted..................... $ 0.00 $ 0.00 $ (0.06) $ (0.06) $ (0.12)
QUARTER
---------------------------------------- YEAR ENDED
FIRST SECOND THIRD FOURTH JUNE 30, 1998
------- ------- ------- ------- -------------
Revenues.............................. $26,367 $26,127 $25,390 $24,729 $102,613
Total costs and expenses.............. 23,547 24,249 24,197 25,186 97,179
Income from operations................ 2,820 1,878 1,193 (457) 5,434
Provision for income taxes............ 1,250 960 563 (306) 2,467
Income from continuing operations..... 1,692 1,009 688 (396) 2,993
Loss from discontinued operations..... (767) (6,989) -- -- (7,756)
Net income (loss)..................... 925 (5,980) 688 (396) (4,763)
Earnings per share -- continuing
operations
Basic & Diluted..................... $ 0.05 $ 0.03 $ 0.02 $ (0.01) $ 0.09
Earnings (loss) per share -- net
Basic & Diluted..................... $ 0.03 $ (0.18) $ 0.02 $ (0.01) $ (0.15)
A-36
147
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULE
To the Board of Directors and Stockholders
of Data Broadcasting Corporation:
Our audits of the consolidated financial statements referred to in our
report dated August 18, 1999, except as to Note 17 which is as of August 31,
1999, appearing in this Annual Report to stockholders of Data Broadcasting
Corporation also included an audit of the Financial Statement Schedule listed in
Item 14(a)(2) of this Form 10-K. In our opinion, this Financial Statement
Schedule presents fairly, in all material respects, the information set forth
therein when read in conjunction with the related consolidated financial
statements.
/S/ PRICEWATERHOUSECOOPERS LLP
Salt Lake City, Utah
August 18, 1999
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DATA BROADCASTING CORPORATION AND SUBSIDIARIES
FOR THE YEARS ENDED JUNE 30, 1999, 1998 AND 1997
SCHEDULE VIII -- VALUATION AND QUALIFYING ACCOUNTS
ADDITIONS
-------------------
CHARGED
BALANCE AT TO COSTS CHARGED WRITE BALANCE
BEGINNING AND TO OTHER OFFS/ AT END
DESCRIPTION OF PERIOD EXPENSES ACCOUNTS RECOVERIES OF PERIOD
- ----------- ---------- -------- -------- ---------- ---------
(IN THOUSANDS)
Allowance for doubtful accounts:
Year Ended June 30, 1997.................. $1,321 $1,954 $ 62(A) $1,355(B) $1,982
Year Ended June 30, 1998................ 1,982 2,177 2,793 1,366
Year Ended June 30, 1999................ 1,366 1,512 679 1,523 2,034
Deferred income tax valuation allowance:
Year Ended June 30, 1997................ 2,601 2,601
Year Ended June 30, 1998................ 2,601 2,601
Year Ended June 30, 1999................ 2,601 2,601
- ---------------
(A) Allowance for doubtful accounts recorded through acquisitions.
(B) Includes $430 reclassified to discontinued operations.
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APPENDIX B
AGREEMENT AND PLAN OF MERGER
DATED AS OF NOVEMBER 14, 1999
AMONG
INTERACTIVE DATA CORPORATION
PEARSON LONGMAN, INC.
DATA BROADCASTING CORPORATION
AND
DETECTIVE MERGER-SUB, INC.
150
TABLE OF CONTENTS
PAGE
----
ARTICLE I
DEFINITIONS............................................... B-1
Section 1.01 Certain Defined Terms........................ B-1
Section 1.02 Other Defined Terms.......................... B-6
Section 1.03 Terms Generally.............................. B-7
ARTICLE II
THE MERGER................................................ B-7
Section 2.01 The Merger................................... B-7
Section 2.02 Closing...................................... B-7
Section 2.03 Effective Time............................... B-7
Section 2.04 Effects of the Merger........................ B-7
Section 2.05 Certificate of Incorporation; By-laws........ B-7
Section 2.06 Directors and Officers....................... B-7
Section 2.07 Conversion of Securities..................... B-7
Section 2.08 Closing Deliveries by Lynx................... B-8
Section 2.09 Closing Deliveries by Detective and
Acquisition Sub........................................ B-8
Section 2.10 Adjustments.................................. B-9
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LYNX AND LYNX PARENT.... B-9
Section 3.01 Authority of Lynx............................ B-9
Section 3.02 Incorporation and Capital Stock of the Lynx
Companies.............................................. B-10
Section 3.03 No Conflict.................................. B-10
Section 3.04 Consents and Approvals....................... B-10
Section 3.05 Financial Information........................ B-11
Section 3.06 Absence of Certain Changes or Events......... B-11
Section 3.07 Absence of Litigation........................ B-12
Section 3.08 Compliance with Laws......................... B-12
Section 3.09 Governmental Licenses and Permits............ B-12
Section 3.10 Tangible Personal Property................... B-12
Section 3.11 Real Property................................ B-13
Section 3.12 Intellectual Property........................ B-13
Section 3.13 Employee Benefits Matters.................... B-14
Section 3.14 Taxes........................................ B-14
Section 3.15 Environmental Matters........................ B-15
Section 3.16 Material Contracts........................... B-15
Section 3.17 Brokers...................................... B-16
Section 3.18 Questionable Payments........................ B-16
Section 3.19 Nondistributive Intent....................... B-16
Section 3.20 Exclusivity of Representations............... B-16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF DETECTIVE AND
ACQUISITION SUB........................................ B-17
Section 4.01 Incorporation and Authority of Detective and
Acquisition Sub........................................ B-17
Section 4.02 Capital Stock of Detective; Detective's
Subsidiaries........................................... B-17
Section 4.03 No Conflict.................................. B-18
Section 4.04 Consents and Approvals....................... B-19
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PAGE
----
Section 4.05 SEC Documents; Financial Information........... B-19
Section 4.06 Absence of Certain Changes or Events......... B-19
Section 4.07 Absence of Litigation........................ B-21
Section 4.08 Compliance with Laws......................... B-21
Section 4.09 Governmental Licenses and Permits............ B-21
Section 4.10 Tangible Personal Property................... B-21
Section 4.11 Real Property................................ B-21
Section 4.12 Intellectual Property........................ B-21
Section 4.13 Employee Benefits Matters.................... B-22
Section 4.14 Taxes........................................ B-23
Section 4.15 Environmental Matters........................ B-23
Section 4.16 Material Contracts........................... B-23
Section 4.17 Brokers...................................... B-24
Section 4.18 Insurance.................................... B-24
Section 4.19 Registration Rights.......................... B-25
Section 4.20 NASD Matters................................. B-25
Section 4.21 State Anti-Takeover Statutes; Anti-Takeover
Defenses............................................... B-25
Section 4.22 Vote Required................................ B-25
Section 4.23 Opinion of Financial Advisers................ B-25
Section 4.24 Questionable Payments........................ B-25
Section 4.25 Representations Relating to Marksman......... B-25
Section 4.26 Exclusivity of Representations............... B-25
ARTICLE V
ADDITIONAL AGREEMENTS..................................... B-26
Section 5.01 Access to Information........................ B-26
Section 5.02 Confidentiality.............................. B-26
Section 5.03 Regulatory and Other Authorizations;
Consents............................................... B-26
Section 5.04 Further Action............................... B-27
Section 5.05 Ancillary Agreements......................... B-27
Section 5.06 Stockholders' Meeting........................ B-27
Section 5.07 NASDAQ National Market....................... B-28
Section 5.08 Fees and Expenses............................ B-28
Section 5.09 Public Announcements......................... B-28
Section 5.10 Tax Treatment................................ B-29
Section 5.11 Reorganization; Intercompany Transactions.... B-29
Section 5.12 Advice of Changes............................ B-29
Section 5.13 Board of Directors........................... B-29
Section 5.14 Indemnification, Exculpation and Insurance... B-29
Section 5.15 Repayment of Indebtedness.................... B-30
Section 5.16 Letter Agreements............................ B-30
ARTICLE VI
CONDUCT OF BUSINESS PENDING CLOSING....................... B-30
Section 6.01 Conduct of Business of Detective and its
Subsidiaries Prior to the Closing...................... B-30
Section 6.02 Conduct of Business of the Lynx Companies
Prior to the Closing................................... B-32
Section 6.03 No Solicitation by Detective................. B-34
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PAGE
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ARTICLE VII
CONDITIONS TO CLOSING..................................... B-35
Section 7.01 Conditions to Each Party's Obligations.... B-35
Section 7.02 Conditions to Obligations of Lynx......... B-36
Section 7.03 Conditions to Obligations of Detective and
Acquisition Sub....................................... B-37
Section 7.04 Frustration of Closing Conditions......... B-37
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER......................... B-37
Section 8.01 Termination.................................. B-37
Section 8.02 Effect of Termination........................ B-38
Section 8.03 Amendment.................................... B-38
Section 8.04 Extension; Waiver............................ B-38
ARTICLE IX
GENERAL PROVISIONS........................................ B-38
Section 9.01 Nonsurvival of Representations and
Warranties............................................. B-38
Section 9.02 Notices...................................... B-39
Section 9.03 Headings..................................... B-39
Section 9.04 Severability................................. B-39
Section 9.05 Entire Agreement............................. B-39
Section 9.06 Assignment................................... B-39
Section 9.07 No Third-Party Beneficiaries................. B-40
Section 9.08 Sections and Schedules....................... B-40
Section 9.09 Governing Law................................ B-40
Section 9.10 Counterparts................................. B-40
Section 9.11 No Presumption............................... B-40
SCHEDULES
Schedule I Lynx Companies
Schedule II Detective Disclosure Schedule
Schedule III Lynx Disclosure Schedule
Schedule IV Parties to Voting and Standstill Agreements
EXHIBITS
Exhibit A Form of Lynx Option Agreement
Exhibit B Form of Registration Rights Agreement
Exhibit C Form of Tax Cooperation Agreement
Exhibit D Form of Voting and Standstill Agreement
Exhibit E Form of Letter Agreements
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AGREEMENT AND PLAN OF MERGER, dated as of November 14, 1999, among Data
Broadcasting Corporation, a Delaware corporation ("Detective"), Pearson Longman,
Inc. a Delaware corporation and the sole shareholder of Lynx ("Lynx Parent"),
Detective Merger-Sub, Inc., a Delaware corporation and a wholly-owned subsidiary
of Detective ("Acquisition Sub"), and Interactive Data Corporation, a Delaware
corporation ("Lynx").
WITNESSETH:
WHEREAS, the respective Boards of Directors of Detective, Acquisition Sub
and Lynx have approved and declared advisable this Agreement and the merger of
Acquisition Sub with and into Lynx (the "Merger"), upon the terms and subject to
the conditions of this Agreement, whereby (a) Lynx will survive the Merger as a
wholly-owned subsidiary of Detective and (b) Lynx Parent will receive 56,453,800
newly issued shares of Detective Common Stock (the "Detective Shares"); and
WHEREAS, the parties hereto intend that the Merger be treated as a
reorganization within the meaning of Section 368(a) of the Code; and
WHEREAS, Lynx owns, or prior to, or contemporaneously with, the Effective
Time shall own, either directly or indirectly, 100% of the issued and
outstanding shares of stock (the "Lynx Company Shares") of each of the companies
set forth in Schedule I hereto (such companies, together with Lynx, the "Lynx
Companies").
NOW, THEREFORE, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 Certain Defined Terms. As used in this Agreement, the
following terms shall have the following meanings:
"Action" means any claim, action, suit, arbitration, inquiry,
proceeding or investigation by or before any Governmental Authority.
"Advisers Act" means the Investment Advisers Act of 1940, as amended,
and the rules and regulations promulgated thereunder.
"Affiliate" means, with respect to any specified Person, any other
Person that, directly or indirectly through one or more intermediaries,
Controls, is Controlled by or is under common Control with such specified
Person; provided, however, that in the case of Detective the persons on
Schedule IV shall also constitute Affiliates.
"Agreement" means this Agreement, including all Schedules and exhibits
hereto and all amendments hereto made in accordance with Section 8.03.
"Ancillary Agreements" means the Registration Rights Agreement, the
Voting and Standstill Agreements, the Tax Cooperation Agreement, the
Certificate of Merger, the Letter Agreements and the Lynx Option Agreement.
"Business Day" means any day that is not a Saturday, a Sunday or other
day on which banks are required or authorized by Law to be closed in the
City of New York.
"Closing Date" means the date on which the Closing actually occurs
which date shall be (a) the third Business Day after the date on which the
last of the consents, approvals, actions, filings, notices or waiting
periods described in or related to the filings described in Article VII
have been obtained, made or given or have expired, as applicable, or (b)
such other date as Lynx, Acquisition Sub and Detective may mutually agree
upon in writing.
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"Code" means the Internal Revenue Code of 1986, as amended, and the
rules and regulations promulgated thereunder.
"Contract" means any agreement, arrangement, lease, license, evidence
of indebtedness, mortgage, indenture, security agreement, deed of trust or
other contract, commitment or obligation (whether written or oral).
"Control" means, as to any Person, the power to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of voting securities, by Contract or otherwise. The term
"Controlled" shall have a correlative meaning.
"Detective Acquisition Agreement" means any letter of intent,
agreement in principle, acquisition agreement or other Contract related to
any Detective Takeover Proposal.
"Detective Disclosure Schedule" means the Disclosure Schedule
delivered by Detective and Acquisition Sub to Lynx on the date hereof and
attached hereto as Schedule II.
"Detective Stockholder Approval" shall mean the affirmative vote at
the Detective stockholder's meeting convened pursuant to Section 5.06 of
the holders of a majority of the outstanding shares of Detective Common
Stock to approve this Agreement, the Amended Charter, the election of the
Post-Closing Directors to the Board of Directors of Detective and all other
matters required to be approved by the stockholders of Detective pursuant
to this Agreement and the Ancillary Agreements.
"Environmental Law" means any Law relating to pollution or protection
of the environment, including the use, handling, transportation, treatment,
storage, disposal, release or discharge of Hazardous Materials.
"Environmental Liability" means any claim or demand, order, suit,
obligation, Action, liability, cost (including the cost of any
investigation, testing, compliance or remedial action), damages
(consequential or direct), Loss or expense (including reasonable attorneys'
and consultants' fees and expenses) arising out of, relating to or
resulting from any environmental matter or condition and related in any way
to the businesses of Detective, Acquisition Sub or the Lynx Companies, the
ownership of the Detective Shares or to this Agreement or its subject
matter.
"Environmental Permit" means any permit, approval, identification
number, License and other authorization required under or issued pursuant
to any Environmental Law.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, and the rules and regulations promulgated thereunder.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Fully Diluted Basis" means, with respect to the calculation of the
number of shares of Detective Common Stock, as of each date of
determination thereof, the sum of (i) all shares of Detective Common Stock
outstanding at the time of determination and (ii) all shares of Detective
Common Stock issuable upon the exchange, exercise or conversion of all
Options (other than the Lynx Option) then outstanding (including those
Options Detective has agreed to issue subject to receipt of shareholder
approval) (whether or not such Options are then exercisable or subject to
contingencies).
"Governmental Authority" means any United States federal, state or
local or any foreign government, governmental, regulatory or administrative
authority, agency or commission or any court, tribunal, or judicial or
arbitral body or any arbitrator (including any private arbitrator) or any
self-regulatory authority.
"Governmental Order" means any order, writ, judgment, injunction,
decree, stipulation, determination or award entered by or with any
Governmental Authority.
"Hazardous Materials" means (a) petroleum, petroleum products,
by-products or breakdown products, radioactive materials, friable asbestos
or polychlorinated biphenyls, and (b) any chemical,
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material or substance defined or regulated as toxic or as a pollutant,
contaminant or waste under any Environmental Law.
"HSR Act" means the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended, and the rules and regulations promulgated thereunder.
"Intellectual Property" means United States and international: (i)
patents, patent applications and statutory invention registrations,
including reissues, divisions, continuations, continuations in part,
extensions and reexaminations thereof, all rights therein provided by
international treaties or conventions, and all improvements thereto, (ii)
trademarks, service marks, trade dress, logos, trade names, corporate
names, and other source identifiers (whether or not registered) including
all common law rights, and registrations and applications for registration
thereof, all rights therein provided by international treaties or
conventions, and all reissues, extensions and renewals of any of the
foregoing, (iii) copyrightable works, copyrights (whether or not
registered) and registrations and applications for registration thereof,
and all rights therein provided by international treaties or conventions,
(iv) confidential and proprietary information, including methodologies for
generating evaluated prices and other trade secrets, (v) Software and Third
Party Software, (vi) coded values, formats, data, historical or current
databases, whether or not copyrightable and (vii) URLs, domain names,
Internet web sites or identities used or held for use exclusively by the
Lynx Companies or Detective or its Subsidiaries.
"knowledge of a given Person" or "knowledge" or words of similar
import means (i) with respect to Detective and Acquisition Sub, the actual
knowledge of the individuals listed in Section 1.01 of the Detective
Disclosure Schedule and (ii) with respect to any of the Lynx Companies and
Lynx Parent, the actual knowledge of the individuals listed in Section 1.01
of the Lynx Disclosure Schedule, in each case without specific
investigation or inquiry by such persons.
"Law" means any federal, state, local or foreign statute, law,
ordinance, regulation, rule, interpretation, code, common law, order, other
requirement or rule of law of any Governmental Authority applicable in the
relevant jurisdiction.
"Liabilities" means any and all debts, liabilities and obligations,
whether accrued or fixed, absolute or contingent, matured or unmatured or
determined or determinable, including, without limitation, those arising
under any Law, Action or Governmental Order and those arising under any
Contract, License, agreement, arrangement, commitment or undertaking or
otherwise.
"Licenses" means all licenses, permits, certificates of authority,
authorizations, approvals, registrations, filings, qualifications,
privileges, franchises and similar consents granted or issued by any
Governmental Authority.
"Lien" means any mortgage, deed of trust, pledge, hypothecation,
security interest, encumbrance, claim, lien or charge of any kind.
"Lynx Disclosure Schedule" means the Disclosure Schedule delivered by
Lynx and Lynx Parent to Detective and Acquisition Sub on the date hereof
and attached hereto as Schedule III.
"Lynx Option" means the Option granted by Detective to Lynx to
purchase Detective Common Stock pursuant to the Lynx Option Agreement.
"Lynx Option Agreement" means the Option Agreement, dated the date
hereof, among Detective and Lynx in the form of Exhibit A, as such
agreement may be amended, modified or restated from time to time.
"Marksman" shall mean MarketWatch.com, Inc. (including its
Subsidiaries), a Delaware company.
"Material Adverse Effect" means any occurrence, circumstance, change
in, or effect on the Lynx Companies or Detective and its Subsidiaries
(taken as a whole) or Marksman (including any Subsidiaries) (taken as a
whole), as applicable, that, individually or in the aggregate has had or
would reasonably be expected to have a material adverse effect on the
businesses, results of operations or the
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financial condition or prospects of the Lynx Companies or Detective and its
Subsidiaries (taken as a whole) or Marksman (including any Subsidiaries)
(taken as a whole), as applicable, taken as a whole.
"NASD" means the National Association of Securities Dealers, Inc.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any
shares of capital stock or share capital of such Person or any security of
any kind convertible into or exchangeable or exercisable for any shares of
capital stock or share capital of such Person or (ii) receive any benefits
or rights similar to any rights enjoyed by or accruing to the holder of
shares of capital stock or share capital of such Person, including without
limitation any rights to participate in the equity, income or election of
directors or officers of such Person.
"Permitted Liens" means the following Liens: (a) Liens for Taxes,
assessments or other governmental charges or levies not yet due or payable
or that are being contested in good faith by appropriate proceedings; (b)
statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, materialmen, repairmen and other Liens imposed by Law for
amounts not yet due; (c) Liens incurred or deposits made in the ordinary
course of business and on a basis consistent with past practice in
connection with worker's compensation, unemployment insurance or other
types of social security; (d) minor defects of title, easements,
rights-of-way, restrictions and other similar charges or encumbrances not
materially detracting from the value of the Lynx Companies, or Detective,
its Subsidiaries or the Detective Shares, as applicable, or interfering
with the ordinary conduct of businesses of the Lynx Companies or Detective
or its Subsidiaries, as applicable; and (e) Liens not created by the Lynx
Companies or Detective or its Subsidiaries, as applicable, which affect the
underlying fee interest of any Detective Leased Real Property or Lynx
Company Leased Real Property, as applicable.
"Person" shall mean any natural person, general or limited
partnership, corporation, limited liability company, firm, association or
other legal entity.
"Registration Rights Agreement" means the Registration Rights
Agreement among Detective and Lynx Parent, substantially in the form and to
the effect of Exhibit B, as such agreement may be amended, modified or
restated from time to time.
"Reorganization" means the transaction or series of transactions as
more fully described in Section 5.11 (which shall be in form and substance
reasonably satisfactory to Detective) pursuant to which Lynx shall acquire
prior to the Effective Time, either directly or indirectly, 100% of the
capital stock or issued share capital of each of the Lynx Companies (other
than any such stock that Lynx owns as of the date of this Agreement and
other than the stock of Lynx which is owned by Lynx Parent), it being
understood, however, that prior to, or simultaneously with, the
consummation of the Reorganization (i) certain assets and properties will
be conveyed by the Lynx Companies to non-Lynx Company Affiliates of the
Lynx Companies, (ii) certain assets and properties will be conveyed to the
Lynx Companies by non-Lynx Company Affiliates of the Lynx Companies, and
(iii) the Lynx Companies shall enter into certain Contracts to specify
operating procedures and/or trade practices among the Lynx Companies and
certain non-Lynx Company Affiliates of the Lynx Companies, which Contracts
shall provide for charges to the Lynx Companies for goods and services
which are no higher than the rates being charged on the date hereof (other
than pricing changes in the ordinary course of business consistent with
past practice and other than with regard to tax, treasury, human resources,
legal and accounting arrangements, the terms of which shall be agreed upon
by the parties) and which shall otherwise be in form and substance
reasonably satisfactory to Detective.
"SEC" means the United States Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Software" means all computer software developed or currently being
developed by or on behalf of the Lynx Companies or Detective or its
Subsidiaries, as applicable, for use exclusively by the Lynx
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Companies or Detective or its Subsidiaries, as applicable, including source
code, object code, comments, user interfaces, menus, buttons and icons, and
all files, data, manuals, design notes and other items and documentation
related thereto or associated therewith, but excluding Third Party
Software.
"Subsidiary" of any Person means any corporation, partnership, joint
venture, limited liability company, trust or estate of which (or in which)
more than 50% of (a) the issued and outstanding capital stock or the issued
share capital having ordinary voting power to elect a majority of the board
of directors of such corporation (irrespective of whether at the time
capital stock or share capital of any other class or classes of such
corporation shall or might have voting power upon the occurrence of any
contingency), (b) the interest in the capital or profits of such
partnership, joint venture or limited liability company or (c) the
beneficial interest in such trust or estate, is at the time directly or
indirectly owned or controlled by such Person, by such Person and one or
more of its other Subsidiaries or by one or more of such Person's other
Subsidiaries; provided, however, that (i) in the case of Lynx, the other
Lynx Companies shall each be deemed a Subsidiary of Lynx for the purposes
of the representations and warranties hereunder and the defined terms used
therein and (ii) all Subsidiaries of a Person shall also be Affiliates of
that Person.
"Tax" or "Taxes" means all income, excise, gross receipts, ad valorem,
sales, use, employment, franchise, profits, gains, property, transfer,
payroll, intangibles or other taxes, fees, stamp taxes, duties, charges,
levies or assessments of any kind whatsoever (whether payable directly or
by withholding), together with any interest and any penalties, additions to
tax or additional amounts imposed by any Tax authority with respect
thereto.
"Tax Cooperation Agreement" means the Tax Cooperation Agreement
between Detective and Lynx Parent in the form of Exhibit C, as such
agreement may be amended, modified or restated from time to time.
"Tax Returns" means all returns and reports (including elections,
declarations, disclosures, schedules, estimates, statements, and
information returns) required to be supplied to a Tax authority relating to
Taxes.
"Third Party Software" means all computer software used by or on
behalf of the Lynx Companies or Detective or its Subsidiaries, as
applicable, developed by a third party that was not developed by or on
behalf of the Lynx Companies or Detective or its Subsidiaries, as
applicable, (including source code, object code, comments, user interfaces,
menus, buttons and icons and all files, data, manuals, design notes and
other items and documentation related thereto), but excluding commercially
available shrink-wrapped software.
"Voting and Standstill Agreements" means the Voting and Standstill
Agreements, dated the date hereof, among Lynx and each of the Persons
listed in Schedule IV hereto, each in the form of Exhibit D, as such
agreements may be amended, modified or restated from time to time.
"Year 2000 Compliant" means, with respect to any of the services,
operations or businesses of the Lynx Companies or Detective or its
Subsidiaries, as applicable, as demonstrated through appropriate testing of
the same, design and performance capabilities (including, without
limitation, the ability of services and products distributed by Detective
or its Subsidiaries or the Lynx Companies, as applicable, to recognize the
century and to manage and manipulate data involving dates, including single
century and multi-century formulas and date values, without resulting in
the generation of incorrect values involving such dates or causing any
abnormal endings) such that prior to, during, and after the calendar year
2000, none of the assets, services or operations of Detective or its
Subsidiaries, or the Lynx Companies, as applicable, will malfunction,
produce errors, cause or suffer premature cancellation or expiration of
contractual rights, cause or suffer deletion of data or invalid or
incorrect results, or abnormally cease to function or exhibit any other
problems in connection with (i) the year 2000 (and all subsequent years) as
distinct from 1900s years, (ii) the date February 29, 2000, and all
subsequent leap years, (iii) the date September 9, 1999, or (iv) any other
calendar date (such failures and other problems, the "Year 2000 Problem").
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SECTION 1.02 Other Defined Terms. The following terms have the meanings
defined for such terms in the Sections set forth below:
TERM SECTION
---- --------
Acquisition Sub Preamble
Amended Charter 5.06
Certificate of Merger 2.03
Closing 2.02
Confidentiality Agreement 5.02
Detective Preamble
Detective Common Stock 4.02
Detective Leased Real Property 4.11
Detective Licensed Intellectual Property 4.12(a)
Detective Loan Agreements 5.15
Detective Material Contracts 4.16(a)
Detective Owned Intellectual Property 4.12(a)
Detective Plans 4.13(a)
Detective Shares Recitals
Detective Shrink-Wrapped Software 4.12(a)
Detective Superior Proposal 6.03(a)
Detective Takeover Proposal 6.03(a)
Detective Year 2000 Plan 4.12(f)
DGCL 2.01
Effective Time 2.03
FTAM 3.05(a)
FTRP 3.05(a)
Interim FTAM Financial Statements 3.05(a)
Letter Agreements 5.16
Lynx Preamble
Lynx Companies Recitals
Lynx Company Audited Financial Statements 3.05(a)
Lynx Company Leased Real Property 3.11
Lynx Company Licensed Intellectual Property 3.12(a)
Lynx Company Material Contracts 3.16(a)
Lynx Company Owned Intellectual Property 3.12(a)
Lynx Company Plans 3.13(a)
Lynx Company Shares Recitals
Lynx Company Shrink-Wrapped Software 3.12(a)
Lynx Company Year 2000 Plan 3.12(f)
Lynx Parent Preamble
Merger Recitals
1998 Financial Statements 3.05(a)
Other Filings 5.06
Pearson 3.05(b)
Post-Closing Directors 5.13
Proxy Material 5.06
Reference Balance Sheet 3.05(a)
Restraints 7.01(e)
SEC Documents 4.05
Section 1018 Approval 5.03(b)
Surviving Corporation 2.01
Termination Fee 5.08(b)
Year 2000 Problem 1.01
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SECTION 1.03 Terms Generally. (a) Words in the singular shall be held to
include the plural and vice versa and words of one gender shall be held to
include the other genders as the context requires, (b) the term "hereof,"
"herein," and "herewith" and words of similar import shall, unless otherwise
stated, be construed to refer to this Agreement and not to any particular
provision of this Agreement, and Article, Section, paragraph, Exhibit and
Schedule references are to the Articles, Sections, paragraphs, Exhibits and
Schedules to this Agreement unless otherwise specified, (c) the word "including"
and words of similar import when used in this Agreement shall mean "including,
without limitation," unless otherwise specified, (d) provisions shall apply,
when appropriate, to successive events and transactions, and (e) references to
amounts stated in dollars shall mean U.S. dollars and shall include reference to
amounts in other denominations of equal value based upon prevailing exchange
rates.
ARTICLE II
THE MERGER
SECTION 2.01 The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Delaware General Corporation
Law (the "DGCL"), Acquisition Sub shall be merged with and into Lynx at the
Effective Time. Following the Effective Time, Lynx shall be the surviving
corporation (the "Surviving Corporation") and shall succeed to and assume all
the rights and obligations of Acquisition Sub in accordance with the DGCL.
SECTION 2.02 Closing. Subject to the terms and conditions of this
Agreement, the closing of the Merger shall take place at a closing (the
"Closing") to be held at 10:00 a.m., New York City time, on the Closing Date,
concurrently with the Effective Time at the offices of Morgan, Lewis & Bockius
LLP, New York, New York, or at such other place as Lynx, Detective and
Acquisition Sub may mutually agree upon in writing.
SECTION 2.03 Effective Time. Subject to the provisions of this Agreement,
on or prior to the Closing Date, the parties shall file a certificate of merger
or other appropriate documents (in any such case, the "Certificate of Merger")
executed in accordance with the relevant provisions of the DGCL and shall at
such time or thereafter, as appropriate, make all other filings or recordings
required under the DGCL. The Merger shall become effective at such time as the
Certificate of Merger is duly filed with the Delaware Secretary of State, or at
such other time as Lynx and Acquisition Sub shall agree and specify in the
Certificate of Merger (the time the Merger becomes effective being hereinafter
referred to as the "Effective Time").
SECTION 2.04 Effects of the Merger. The Merger shall have the effects set
forth in Section 259 of the DGCL.
SECTION 2.05 Certificate of Incorporation; By-laws. The Certificate of
Incorporation and by-laws of Lynx, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation and by-laws of the
Surviving Corporation, in each case until thereafter changed or amended as
provided therein or by applicable law.
SECTION 2.06 Directors and Officers. The directors of Lynx immediately
prior to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and by-laws of the Surviving Corporation, and the officers of Lynx
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified.
SECTION 2.07 Conversion of Securities. At the Effective Time, by virtue of
the Merger and without any action on the part of Detective, Acquisition Sub,
Lynx, Lynx Parent or the holders of any of the following securities:
(a) Capital Stock of Acquisition Sub. Each issued and outstanding
share of capital stock of Acquisition Sub shall be converted into and
become one fully paid and nonassessable share of common stock, par value
$1.00 per share, of the Surviving Corporation.
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(b) Conversion of Lynx Shares. The issued and outstanding shares of
capital stock of Lynx shall be converted into the right to receive the
Detective Shares. As of the Effective Time, all such Lynx shares shall
automatically be canceled and shall cease to be outstanding, and each
holder of a certificate that immediately prior to the Effective Time
represented any such Lynx shares shall cease to have any rights with
respect thereto, except the right to receive the Detective Shares.
SECTION 2.08 Closing Deliveries by Lynx. At the Closing, Lynx shall
deliver or cause to be delivered to Detective and Acquisition Sub:
(a) executed copies of the Certificate of Merger and the Registration
Rights Agreement;
(b) the minute books, stock books and stock ledgers (to the extent
such exist) of the Lynx Companies;
(c) a certificate of the Secretary or an Assistant Secretary of Lynx
certifying the names and signatures of the officers of Lynx or an Affiliate
of Lynx authorized to sign this Agreement, the Ancillary Agreements to
which it is a party and the other documents to be delivered hereunder with
a true and complete copy of the by-laws of each Lynx Company in full force
and effect on the Closing Date, attached thereto;
(d) a certificate of an officer of Lynx and Lynx Parent as reasonably
requested by Detective certifying that (i) the representations and
warranties of Lynx and Lynx Parent contained in Article III are true and
correct in all material respects as of the Closing Date as though made on
and as of the Closing Date except (A) for changes specifically permitted by
this Agreement and (B) that those representations and warranties that
address matters only as of a particular date remain true and correct in all
material respects as of such date (provided, however, that any
representation or warranty that is qualified by materiality or by reference
to a Material Adverse Effect shall be true and correct in all respects as
of the Closing Date or as of such earlier date, as the case may be); and
(ii) the covenants contained in this Agreement to be complied with by Lynx
and Lynx Parent on or before the Closing Date shall have been complied with
in all material respects;
(e) a true and complete copy, certified by the Secretary or an
Assistant Secretary of Lynx, of the resolutions duly and validly adopted by
the Board of Directors of Lynx evidencing its authorization of the
execution and delivery of this Agreement and the Ancillary Agreements to
which it is a party and the consummation of the transactions contemplated
hereby and thereby as well as a true and complete copy, certified by the
Secretary or an Assistant Secretary of Lynx Parent, of its consent to the
Merger in its capacity as the sole shareholder of Lynx;
(f) Lynx Parent's receipt for the Detective Shares;
(g) copies of the certificates or articles of incorporation (or other
comparable corporate charter documents), including all amendments thereto,
of each of the Lynx Companies, certified by the Secretary of State or other
appropriate official of the applicable jurisdictions of incorporation; and
(h) such other documents and instruments as Detective, Acquisition Sub
and Lynx mutually agree to be reasonably necessary to consummate the
transactions described herein.
SECTION 2.09 Closing Deliveries by Detective and Acquisition Sub. At the
Closing, Detective and Acquisition Sub shall deliver or cause to be delivered to
Lynx (or Lynx Parent, where specified):
(a) stock certificates evidencing all of the Detective Shares issued
in the name of Lynx Parent or its designees and delivered to Lynx Parent or
its designees as specified by Lynx Parent;
(b) executed copies of the Registration Rights Agreement;
(c) certificates of the Secretary or an Assistant Secretary of
Detective and Acquisition Sub, as applicable, certifying the names and
signatures of the officers of Detective and Acquisition Sub or their
Affiliates authorized to sign this Agreement, the Ancillary Agreements to
which either is a party and the
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other documents to be delivered hereunder with a true and complete copy of
the by-laws of Detective and each of its Subsidiaries, as in full force and
effect on the Closing Date, attached thereto;
(d) certificates of officers of Detective and Acquisition Sub, as
applicable, certifying that (i) the representations and warranties of
Detective and Acquisition Sub contained in Article IV are true and correct
in all material respects as of the Closing Date as though made on and as of
the Closing Date, except (A) for changes specifically permitted by this
Agreement and (B) that those representations and warranties that address
matters only as of a particular date remain true and correct in all
material respects as of such date (provided, however, that any
representation or warranty that is qualified by materiality or by reference
to a Material Adverse Effect shall be true and correct in all respects as
of the Closing Date or as of such earlier date, as the case may be); and
(ii) the covenants contained in this Agreement to be complied with by
Detective and Acquisition Sub on or before the Closing Date have been
complied with in all material respects, except that Detective and
Acquisition Sub shall have complied in all respects with their obligations
regarding the delivery of the Detective Shares;
(e) true and complete copies, certified by the Secretary or an
Assistant Secretary of Detective and Acquisition Sub, as applicable, of the
resolutions duly and validly adopted by the Board of Directors of Detective
and Acquisition Sub, evidencing the authorization of the execution and
delivery of this Agreement, the Amended Charter and the Ancillary
Agreements to which they are a party and the consummation of the
transactions contemplated hereby and thereby;
(f) copies of the certificates or articles of incorporation (or other
comparable corporate charter documents), including all amendments thereto
(as well as the Amended Charter), of Detective and each of its
Subsidiaries, certified by the Secretary of State or other appropriate
officials of the applicable jurisdictions of incorporation;
(g) a copy of the listing application prepared by Detective, and
approved by the NASD, pursuant to Section 5.07 of this Agreement;
(h) the resignations from Detective's and Marksman's (if so requested
by Lynx) Boards of Directors contemplated pursuant to Section 5.13; and
(i) such other documents and instruments as Detective, Acquisition Sub
and Lynx mutually agree to be reasonably necessary to consummate the
transactions described herein.
SECTION 2.10 Adjustments. If at any time during the period between
November 10, 1999 and the Closing, any change in the number of shares of capital
stock of Detective (on a Fully Diluted Basis) shall occur by reason of any
reclassification, recapitalization, stock split or combination, issuance,
exchange or readjustment of shares or Options, or any similar transaction, or
any stock dividend thereon with a record date during such period, the number of
shares of Detective Common Stock (or Options to acquire such shares) issuable
pursuant to this Agreement or the Lynx Option Agreement shall be appropriately
adjusted to provide Lynx and Lynx Parent the same economic effect as
contemplated by this Agreement or the Lynx Option Agreement prior to such event.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF LYNX AND LYNX PARENT
Lynx Parent and Lynx each represent and warrant to Detective and
Acquisition Sub as follows:
SECTION 3.01 Authority of Lynx and Lynx Parent. Each of Lynx and Lynx
Parent has all necessary corporate power and authority to enter into this
Agreement and the Ancillary Agreements to which it is a party, to carry out its
obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and such Ancillary Agreements by Lynx and Lynx Parent, the performance by Lynx
and Lynx Parent of their respective obligations hereunder and thereunder and the
consummation by Lynx and Lynx Parent of the transactions contemplated hereby and
thereby have been duly authorized by all requisite corporate action on the part
of Lynx and Lynx Parent. This
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Agreement has been, and upon execution such Ancillary Agreements will be, duly
executed and delivered by Lynx and Lynx Parent, and (assuming due authorization,
execution and delivery by Detective and each Affiliate of Detective executing
this Agreement or one or more of such Ancillary Agreements) this Agreement
constitutes, and upon execution such Ancillary Agreements will constitute,
legal, valid and binding obligations of Lynx and Lynx Parent enforceable against
Lynx and Lynx Parent in accordance with their terms.
SECTION 3.02 Incorporation and Capital Stock of the Lynx Companies. (a)
Each Lynx Company is a corporation duly organized, validly existing and in 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, use and lease its assets and properties. Except as set
forth on Section 3.02 of the Lynx Disclosure Schedule, each Lynx Company is duly
qualified, licensed or admitted to do business and is in good standing in those
jurisdictions in which the ownership, use or leasing of such Lynx Company's
assets and properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary except where the failure to be
so qualified, licensed or admitted would not have a Material Adverse Effect.
Section 3.02 of the Lynx Disclosure Schedule lists for each Lynx Company the
amount of its authorized and outstanding capital stock or issued share capital.
The Lynx Company Shares have been duly authorized and validly issued, are fully
paid and nonassessable, and are owned, or prior to the Effective Time will be
owned, beneficially and of record, in the case of Lynx by Lynx Parent, and in
the case of the other Lynx Companies by Lynx or another Lynx Company, free and
clear of all Liens. Except as set forth on Section 3.02 of the Lynx Disclosure
Schedule, there are no outstanding Options with respect to any such Lynx Company
and no agreements, arrangements or understandings to issue Options with respect
to any such Lynx Company and there are no preemptive rights or agreements,
arrangements or understandings to issue preemptive rights with respect to any
such Lynx Company. Other than as listed in Section 3.02 of the Lynx Disclosure
Schedule, and except for the capital stock or issued share capital of such other
Lynx Companies, neither Lynx nor such Subsidiaries hold any equity, partnership,
joint venture or other interest in any Person.
SECTION 3.03 No Conflict. Assuming all consents, approvals, authorizations
and other actions described in Section 3.04 have been obtained, and except as
may result from any facts or circumstances relating solely to Detective,
Acquisition Sub or any of their Affiliates or as described in Section 3.03 of
the Lynx Disclosure Schedule, the execution, delivery and performance of this
Agreement and the Ancillary Agreements to which it is a party by Lynx and Lynx
Parent does not and will not (a) violate or conflict with the Certificate of
Incorporation, other constitutive documents or by-laws of Lynx and Lynx Parent,
(b) conflict with or violate any Law or Governmental Order applicable to Lynx
Parent or any Lynx Company, or (c) result in any breach of, or constitute a
default (or event which with the giving of notice or lapse of time, or both,
would become a default) under, or give to any Person any rights of termination,
amendment, acceleration or cancellation of, or result in the creation of any
Lien on any Lynx Company pursuant to, any Contract, License or other material
instrument to which any Lynx Company is a party or by which any such company or
its assets is bound or affected, except, in the case of clauses (b) and (c)
above, (i) for conflicts, violations, breaches, defaults, rights of termination,
amendment, acceleration or cancellation, or Liens as would not, individually or
in the aggregate, (A) have a Material Adverse Effect, (B) impair the ability of
any Lynx Company or Lynx Parent to perform its obligations under this Agreement
or any of the Ancillary Agreements to which it is a party or (C) prevent or
materially delay the consummation of the transactions contemplated by this
Agreement or any of the Ancillary Agreements, or (ii) for Liens created by or
through Detective, Acquisition Sub or any of their Affiliates.
SECTION 3.04 Consents and Approvals. The execution and delivery of this
Agreement and each Ancillary Agreement to which it is a party by Lynx and Lynx
Parent does not, and the performance of this Agreement and each such Ancillary
Agreement by Lynx and Lynx Parent will not, require any consent, approval,
authorization or other action by, or filing with or notification to, any
Governmental Authority, except (a) as described in Section 3.04 of the Lynx
Disclosure Schedule, (b) the notification requirements of the HSR Act and
applicable filings, notifications or receipts of any required clearances under
foreign antitrust and competition Laws, (c) where failure to obtain such
consent, approval, authorization or action, or to make such filing or
notification, would not, individually or in the aggregate, (A) have a Material
Adverse Effect, (B) impair the ability of Lynx or Lynx Parent to perform its
obligations under this Agreement or any of the
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Ancillary Agreements to which it is a party or (C) prevent or materially delay
the consummation of the transactions contemplated by this Agreement or any of
the Ancillary Agreements, and (d) as may be necessary as a result of any facts
or circumstances relating solely to Detective, Acquisition Sub or any of their
Affiliates.
SECTION 3.05 Financial Information. (a) Set forth in Section 3.05(a) of
the Lynx Disclosure Schedule are (i) the unaudited consolidated balance sheet as
of December 31, 1998 and the unaudited consolidated income statement for the
fiscal year then ended for Financial Times Asset Management Group ("FTAM") and
Financial Times Research Products ("FTRP"), FTRP having been sold on February
19, 1999 (the "1998 Financial Statements"), (ii) the unaudited consolidated
balance sheet as of September 30, 1999 (the "Reference Balance Sheet") and the
unaudited consolidated profit and loss statement for the nine-month period then
ended for FTAM (the "Interim FTAM Financial Statements") and (iii) the audited
statutory balance sheet as of December 31, 1998 and the audited statutory profit
and loss statements for the fiscal year then ended for each of ExShare Financial
Limited (including FTRP), Financial Times Information (H.K.) Limited, Financial
Times Information Australia Pty Limited and Financial Times Information
(Singapore) PTE Limited, and the audited balance sheet as of December 31, 1998
for Interactive Data Corporation (the "Lynx Company Audited Financial
Statements").
(b) The 1998 Financial Statements constitute the year-end consolidating
financial statements for FTAM and FTRP provided to Pearson plc, a company
organized under the laws of England and Wales ("Pearson") by the management of
FTAM and FTRP and incorporated by Pearson in its consolidated audited financial
statements as of December 31, 1998 and for the fiscal year then ended.
(c) The Interim FTAM Financial Statements have been extracted from the
books and records of FTAM and have been prepared by the management of FTAM in
the ordinary course of business for incorporation into the management accounts
of Pearson as of September 30, 1999 and for the nine-month period then ended.
(d) The Lynx Company Financial Statements were prepared in accordance with
the generally accepted accounting principles stated to be applicable thereto and
fairly present for each Lynx Company covered thereby the consolidated financial
position as of December 31, 1998 and the results of operations for the fiscal
year then ended.
SECTION 3.06 Absence of Certain Changes or Events. Since September 30,
1999, except (i) as disclosed in Section 3.06 of the Lynx Disclosure Schedule,
or (ii) as contemplated by this Agreement (including, without limitation, the
Reorganization), the businesses of the Lynx Companies have been conducted in the
ordinary course and there has not been any Material Adverse Effect. None of the
other representations or warranties set forth in this Agreement shall be deemed
to limit the foregoing. In addition, without limiting the foregoing, except (i)
as disclosed in Section 3.06 of the Lynx Disclosure Schedule, or (ii) as
contemplated by this Agreement (including, without limitation, the
Reorganization) there has not occurred since September 30, 1999:
(a) any declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock or share capital of the Lynx
Companies, or any direct or indirect redemption, purchase or other
acquisition by any of the Lynx Companies of any such capital stock or share
capital of, or any Option with respect to, the Lynx Companies;
(b) except for the execution, delivery and performance by Lynx or Lynx
Parent of this Agreement and the transactions contemplated hereby, any
authorization, issuance, sale or other disposition by the Lynx Companies of
any shares of capital stock or share capital of, or any Option with respect
to, the Lynx Companies, or any modification or amendment of any right of
any holder of any outstanding shares of capital stock or share capital of,
or any Option with respect to, the Lynx Companies;
(c) incurrences by the Lynx Companies of indebtedness or any voluntary
purchase, cancellation, prepayment or complete or partial discharge in
advance of a scheduled payment date with respect to, or waiver of any right
of the Lynx Companies under, any indebtedness of or owing to the Lynx
Companies (in either case other than in the ordinary course of business or
any indebtedness of the Lynx Companies owing to the Lynx Companies or any
Affiliate of the Lynx Companies);
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(d) any physical damage, destruction or other casualty loss (whether
or not covered by insurance) affecting any of the real or personal property
or equipment of the Lynx Companies in an aggregate amount exceeding
$100,000;
(e) any write-off or write-down of or any determination to write off
or write down any of the assets and properties of the Lynx Companies in an
aggregate amount exceeding $100,000;
(f) any acquisition of any assets and properties of any Person or
license or disposition of, or incurrence of a Lien (other than a Permitted
Lien or any Lien in aggregate amount less than $100,000) on, any assets and
properties of the Lynx Companies, in each case, other than acquisitions,
licenses or dispositions of products and services in the ordinary course of
business of such Lynx Company consistent with past practice or any Lien in
aggregate amount less than $100,000);
(g) any commencement, termination or change by any Lynx Company of any
line of business;
(h) any transaction by any Lynx Company with any officer, director,
stockholder, Affiliate or associate of any Lynx Company, other than
pursuant to any Contract in effect on September 30, 1999 and disclosed to
Detective and Acquisition Sub pursuant to Section 3.16(a) other than
pursuant to any arrangement with regard to intercompany indebtedness
between the Lynx Companies and any non-Lynx Company Affiliate of the Lynx
Companies, or other than pursuant to any contract of employment listed
pursuant to Section 3.16(a) of the Lynx Disclosure Schedule or other than
in the ordinary course of business consistent with past practice;
(i) any change in accounting or Tax principles, methods or practices;
or
(j) (i) any granting by any of the Lynx Companies to any current or
former director, executive officer or other employee of the Lynx Companies
of any increase in compensation, bonus or other benefits, except for normal
increases in cash compensation in the ordinary course of business
consistent with past practice or as was required under any employment
agreements in effect as of the date of the Reference Balance Sheet, (ii)
any granting by any of the Lynx Companies to any such current or former
director, executive officer or employee of any increase in severance or
termination pay, (iii) any entry by any of the Lynx Companies into, or any
amendments of, any employment, deferred compensation, consulting,
severance, termination or indemnification agreement with any such current
or former director, executive officer or employee or (iv) any amendment to,
or modification of, any Option, or the benefits under any Lynx Company
Plan.
SECTION 3.07 Absence of Litigation. As of the date hereof, except as set
forth in Section 3.07 of the Lynx Disclosure Schedule, there are no Actions
pending or, to the knowledge of the Lynx Companies or Lynx Parent threatened,
against Lynx Parent or any Lynx Company, that would reasonably be expected to
have, individually or in the aggregate, a Material Adverse Effect or that would
materially impair Lynx's ability to consummate the Merger.
SECTION 3.08 Compliance with Laws. Neither Lynx Parent nor any of the Lynx
Companies is in violation of any Laws (including, without limitation, the
Advisers Act) or any Governmental Orders applicable to the Lynx Companies, or by
which any of them is bound, except (i) as set forth in Section 3.08 of the Lynx
Disclosure Schedule and (ii) for violations the existence of which would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 3.09 Governmental Licenses and Permits. The Lynx Companies hold
all Licenses necessary to the operation of their businesses as currently
operated and are in compliance with the terms of such Licenses, except (a) as
set forth in Section 3.09 of the Lynx Disclosure Schedule or (b) for violations,
the existence of which would not, individually or in the aggregate, have a
Material Adverse Effect.
SECTION 3.10 Tangible Personal Property. Except as disclosed in Section
3.10 of the Lynx Disclosure Schedule, the Lynx Companies are in possession of
and have good and marketable title to, or have valid leasehold interests in or
valid rights under Contract to use, all tangible personal property used in the
conduct of their businesses, including all tangible personal property reflected
on the Reference Balance Sheets and tangible personal property acquired since
September 30, 1999 other than property disposed of since such
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date in the ordinary course of business consistent with past practice and the
terms of this Agreement. Except as disclosed in Section 3.10 of the Lynx
Disclosure Schedule, all such tangible personal property is free and clear of
all Liens, other than Permitted Liens or Liens created by or through Detective,
Acquisition Sub or any of their Affiliates, and is in good working order and
condition, ordinary wear and tear excepted, and its use complies in all material
respects with all applicable Laws and, to the knowledge of Lynx, is adequate and
suitable for the conduct by the Lynx Companies of the businesses presently
conducted by them.
SECTION 3.11 Real Property. None of the Lynx Companies owns any real
property. Each parcel of real property leased by the Lynx Companies and used
exclusively in the business of such Lynx Company, including, without limitation,
those properties set forth in Section 3.11 of the Lynx Disclosure Schedule (the
"Lynx Company Leased Real Property"), is leased, free and clear of all Liens,
except (i) as disclosed in Section 3.11 of the Lynx Disclosure Schedule, (ii)
Permitted Liens and (iii) Liens created by or through Detective, Acquisition Sub
or any of their Affiliates.
SECTION 3.12 Intellectual Property. (a) The Lynx Companies own exclusively
or have the right to use all Intellectual Property and commercially available
shrink-wrapped software that is material to the operation of the Lynx Companies
("Lynx Company Owned Intellectual Property", "Lynx Company Licensed Intellectual
Property" or "Lynx Company Shrink-Wrapped Software", as applicable). Section
3.12(a) of the Lynx Disclosure Schedule sets forth a true and complete list of
all material registered patents and patent applications, common law trademarks,
registered trademarks and trademark applications, copyright registrations,
domain name registrations and Software owned by the Lynx Companies. Except as
would not have a Material Adverse Effect, the Lynx Company Owned Intellectual
Property, the Lynx Company Licensed Intellectual Property and Lynx Company
Shrink-Wrapped Software collectively constitute all of the Intellectual Property
necessary for the continued operation of the businesses of the Lynx Companies.
(b) Except for such infringements as would not, individually or in the
aggregate, have a Material Adverse Effect (i) the Lynx Company Owned
Intellectual Property does not infringe upon the Intellectual Property rights of
any third party, and (ii) no written claim has been asserted to the Lynx
Companies which is currently pending or, to the knowledge of Lynx or Lynx Parent
threatened that the use of such Lynx Company Owned Intellectual Property or Lynx
Company Licensed Intellectual Property in a manner consistent with past practice
does or may infringe upon the Intellectual Property rights of any third party.
(c) To the knowledge of Lynx and Lynx Parent, the Lynx Companies are the
exclusive owners of the entire right, title and interest in and to all Lynx
Company Owned Intellectual Property and are entitled to use all Lynx Company
Owned Intellectual Property, Lynx Company Licensed Intellectual Property and
Lynx Company Shrink-Wrapped Software in the continued operation of their
businesses in a manner consistent in all material respects with past practice.
(d) To the knowledge of Lynx and Lynx Parent, except as set forth in
Section 3.12(d) of the Lynx Disclosure Schedule, no Person is engaging in any
activity that infringes upon the Lynx Company Owned Intellectual Property.
Except as would not, individually or in the aggregate, have a Material Adverse
Effect, the consummation of the transactions contemplated by this Agreement will
not result in the termination or impairment of any of the Lynx Company Owned
Intellectual Property, Lynx Company Licensed Intellectual Property or Lynx
Company Shrink-Wrapped Software, or any license relating thereto.
(e) None of the Lynx Companies is in breach of, or default under, any
material term of any license or sublicense of the Lynx Company Owned
Intellectual Property, Lynx Company Licensed Intellectual Property or Lynx
Company Shrink-Wrapped Software, and, to the knowledge of Lynx and Lynx Parent,
no other party to such license or sublicense is in breach thereof or default
thereunder, except in any such case as would not, individually or in the
aggregate, have a Material Adverse Effect.
(f) Except as set forth in Section 3.12(f) of the Lynx Disclosure Schedule,
the Lynx Companies have (i) initiated a review and assessment of the business
operations of the Lynx Companies (including those areas affected by suppliers
and vendors) that could reasonably be affected by the Year 2000 Problem, (ii)
developed a comprehensive plan, which has been delivered to Detective on or
before the date hereof (the "Lynx Company Year 2000 Plan"), to address the Lynx
Company Year 2000 Problem, and (iii) implemented and
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complied with (including dates by which steps and actions are to be taken and
performed by) the Lynx Company Year 2000 Plan in accordance with the terms
thereof. Except as set forth in Section 3.12(f) of the Lynx Disclosure Schedule,
the Lynx Company Year 2000 Plan includes all appropriate, necessary and timely
steps, actions and plans to make the Lynx Companies Year 2000 Compliant in
accordance with the methods and the time frames set forth therein. Except as set
forth in Section 3.12(f) of the Lynx Disclosure Schedule, as of the date hereof,
there are no issues or events that prevent the Lynx Companies from fully
addressing the Year 2000 Problem consistent with the terms of the Lynx Company
Year 2000 Plan. Except as set forth in Section 3.12(f) of the Lynx Disclosure
Schedule, all Third Party Software and all hardware used by the Lynx Companies
has been certified by the providers thereof to be Year 2000 Compliant for the
intended uses and purposes of such Third Party Software and such hardware.
(g) To the knowledge of Lynx and Lynx Parent, except as set forth in
Section 3.12(g) of the Lynx Disclosure Schedule, there are no Contracts of any
of the Lynx Companies under which such Lynx Companies make a Year 2000 warranty
that do not limit or cap the Liability of such Lynx Companies with respect to
any Year 2000 Problem.
SECTION 3.13 Employee Benefits Matters. (a) Section 3.13(a) of the Lynx
Disclosure Schedule contains a true and complete list of all employee benefit
plans (within the meaning of Section 3(3) of ERISA), all bonus, stock option,
stock purchase, restricted stock, incentive, deferred compensation, supplemental
retirement, severance or other benefit plans, programs or arrangements, and all
employment, termination, severance or other Contracts or agreements with respect
to which any Lynx Company or any of its Affiliates has any obligation and which
are maintained, contributed to or sponsored by any Lynx Company or any of its
Affiliates for the benefit of any current or former employee of any Lynx Company
(collectively, the "Lynx Company Plans").
(b) Except as otherwise disclosed in Section 3.13(b) of the Lynx Disclosure
Schedule, none of the Lynx Company Plans (i) is a "multiemployer plan", within
the meaning of Section 3(37) or 4001(a)(3) of ERISA, or a "single-employer
plan", within the meaning of Section 4001(a)(15) of ERISA, or (ii) provides or
promises to provide retiree medical or life insurance benefits.
(c) None of the Lynx Companies or any of their Affiliates has incurred any
liability under, arising out of or by operation of Title IV of ERISA (other than
liability for premiums to the Pension Benefit Guaranty Corporation arising in
the ordinary course). None of the assets of the Lynx Companies or any of their
Affiliates is the subject of any lien arising under Section 302(f) of ERISA or
Section 412(n) of the Code; none of the Lynx Companies or any of their
Affiliates has been required to post any security under Section 307 of ERISA or
Section 401(a)(29) of the Code; and no fact or event exists which could give
rise to any such lien or requirement to post any such security.
(d) Except as set forth in Section 3.13(d) of the Lynx Disclosure Schedule,
(i) no benefit or any right to a benefit under any Lynx Company Plan will become
payable, accelerated or be enhanced in any way solely by reason of the
consummation of the transactions contemplated by this Agreement or by reason of
the consummation of the transactions contemplated by this Agreement coupled with
another event (e.g., termination of employment), and (ii) any tax deduction
otherwise allowable in respect of remuneration to current or former Lynx Company
employees or Affiliates payable upon or after the Closing will not be disallowed
by operation of Section 280G of the Code in respect of the consummation of the
transactions contemplated by this Agreement.
(e) Except as disclosed in Section 3.13(e) of the Lynx Disclosure Schedule,
none of the Lynx Companies is a party to any collective bargaining or other
labor union Contract applicable to any Lynx Company employees. As of the date
hereof, there is, to the knowledge of Lynx, no material labor strike, slowdown
or work stoppage pending or, to the knowledge of Lynx, threatened in writing,
which may interfere in any material respect with the business activities of any
of the Lynx Companies.
SECTION 3.14 Taxes. Each of the Lynx Companies has timely filed or been
included in, or will timely file or be included in, all material Tax Returns
required to be filed by it or in which it is to be included with respect to
Taxes for any period ending on or before the Closing Date and such Tax Returns
are or will be,
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as the case may be, accurate, complete and correct in all material respects. All
Taxes shown to be payable on such material Tax Returns have been paid or will be
paid except to the extent the same are being contested in good faith and have
been adequately reserved for. As of the date hereof, there are no pending or
threatened actions or proceedings for the proposed assessment or assessment or
collection of Taxes against any of the Lynx Companies. There are no material
Liens or other encumbrances for Taxes (other than for Taxes not yet due and
payable) upon the assets of the Lynx Companies.
SECTION 3.15 Environmental Matters. Except as disclosed in Section 3.15 of
the Lynx Disclosure Schedule, to the knowledge of Lynx and Lynx Parent, the Lynx
Companies are in compliance with all applicable Environmental Laws and have
obtained and are in compliance with all applicable Environmental Permits other
than any non-compliance that would not have a Material Adverse Effect.
SECTION 3.16 Material Contracts. (a) Section 3.16(a) of the Lynx
Disclosure Schedule lists and briefly describes (including the parties to and
the date and subject matter of) as of the date hereof each of the following
Contracts of any of the Lynx Companies (such Contracts being "Lynx Company
Material Contracts"):
(i) each Contract for the purchase of materials or real or personal
property with any supplier or for the furnishing of services to the Lynx
Companies under the terms of which any of the Lynx Companies: (I) is
likely to pay or otherwise give consideration of more than $100,000 in
the aggregate during the calendar year ending December 31, 1999 or (II)
is likely to pay or otherwise give consideration of more than $300,000
in the aggregate over the remaining term of such Contract;
(ii) each Contract for the sale of personal property or for the
furnishing of services by any of the Lynx Companies which: (I) is likely
to involve consideration of more than $250,000 in the aggregate during
the calendar year ending December 31, 1999 or (II) is likely to involve
consideration of more than $750,000 in the aggregate over the remaining
term of the Contract;
(iii) all broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing consulting and advertising Contracts requiring payments in
excess of $250,000, to which any Lynx Company is a party;
(iv) all management Contracts and Contracts with independent
contractors or consultants (or similar arrangements) to which any Lynx
Company is a party requiring payments in excess of $250,000 and which
are not cancelable without penalty or further payment and without more
than 30 days' notice;
(v) all Contracts relating to indebtedness of any Lynx Company
which individually are in excess of $250,000;
(vi) all Contracts with any Governmental Authority to which any
Lynx Company is a party;
(vii) all Contracts that limit or purport to limit the ability of
any Lynx Company or any Person to compete in any line of business or
with any other Person or in any geographic area or during any period of
time;
(viii) all Contracts between or among any Lynx Company and any
Affiliate of any Lynx Company;
(ix) all Contracts relating in whole or in part to Intellectual
Property pursuant to which any Lynx Company obtains from a third party
the right to sell, distribute, display or otherwise use data or works
owned or controlled by such third party and that is (I) likely to
involve consideration of more than $100,000 in the aggregate during the
calendar year ending December 31, 1999 or (II) that does not involve any
cash consideration but is otherwise material to any Lynx Company;
(x) all Contracts relating in whole or in part to Intellectual
Property pursuant to which any Lynx Company grants to a third party the
right to sell, distribute, display or otherwise use data or works owned
or controlled by such Lynx Company and that is (I) likely to involve
consideration of
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more than $100,000 in the aggregate during the calendar year ending
December 31, 1999 or (II) that does not involve any cash consideration
but is otherwise material to any Lynx Company;
(xi) all Contracts relating to employment of any Person by any of
the Lynx Companies; and
(xii) all other Contracts whether or not made in the ordinary
course of business, which are material to the conduct of the businesses
of the Lynx Companies taken as a whole or the absence of which would
have a Material Adverse Effect.
(b) Except as disclosed in Section 3.16(b) of the Lynx Disclosure
Schedule and except as would not, individually or in the aggregate, have a
Material Adverse Effect, each such Lynx Company Material Contract is valid
and binding on the Lynx Companies and is in full force and effect. Except
as would not, individually or in the aggregate, have a Material Adverse
Effect, no Lynx Company, or to the knowledge of Lynx or Lynx Parent, any
other party thereto, is in breach of, or in default under, any such Lynx
Company Material Contract.
(c) Except as disclosed in Section 3.16(c) of the Lynx Disclosure
Schedule, there is no Contract granting any Person any preferential right
to purchase any of the properties or assets of any Lynx Company.
SECTION 3.17 Brokers. Other than Goldman Sachs & Co., no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
and the Ancillary Agreements based upon arrangements made by or on behalf of the
Lynx Companies or their Affiliates.
SECTION 3.18 Questionable Payments. None of the Lynx Companies nor, to the
knowledge of Lynx or Lynx Parent, any director, officer, agent, employee or
other Person associated with or acting on behalf of the Lynx Companies has,
directly, or indirectly: used any corporate funds for unlawful contributions,
gifts, entertainment, or other unlawful expenses relating to political activity;
made any unlawful payment to foreign or domestic government officials or
employees or to foreign or domestic political parties or campaigns from
corporate funds; established or maintained any unlawful or unrecorded fund of
corporate monies or other assets; made any false or fictitious entry on the
books or records of the Lynx Companies; or made any bribe, kickback, or other
payment of a similar or comparable nature, whether lawful or not, to any Person
or entity, private or public, regardless of form, whether in money, property, or
services, to obtain favorable treatment in securing business or to obtain
special concessions, or to pay for favorable treatment for business secured or
for special concessions already obtained.
SECTION 3.19 Nondistributive Intent. Lynx Parent is acquiring the
Detective Shares to be issued pursuant to Section 2.07 hereof for its own
account (and not for the account of others) for investment and not with a view
to the distribution thereof. Lynx Parent acknowledges that the Detective Shares
are being issued to it pursuant to an exemption from registration under the
Securities Act and, accordingly, are restricted (as defined by the Securities
Act) and may not be resold without either subsequent registration under the
Securities Act or an appropriate exemption therefrom.
SECTION 3.20 EXCLUSIVITY OF REPRESENTATIONS. (a) THE REPRESENTATIONS AND
WARRANTIES MADE BY LYNX AND LYNX PARENT IN THIS AGREEMENT AND THE ANCILLARY
AGREEMENTS ARE IN LIEU OF AND ARE EXCLUSIVE OF ALL OTHER REPRESENTATIONS AND
WARRANTIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES. LYNX AND LYNX
PARENT HEREBY DISCLAIM ANY SUCH OTHER OR IMPLIED REPRESENTATIONS OR WARRANTIES,
NOTWITHSTANDING THE DELIVERY OR DISCLOSURE TO DETECTIVE, ACQUISITION SUB OR
THEIR RESPECTIVE OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR REPRESENTATIVES OF
ANY DOCUMENTATION OR OTHER INFORMATION (INCLUDING ANY FINANCIAL PROJECTIONS OR
OTHER SUPPLEMENTAL DATA).
(b) Detective and Acquisition Sub acknowledge that (i) the representations
and warranties contained in Sections 3.05(b), 3.06, 3.07, 3.12, 3.13, 3.14, 3.15
and 3.16 are the only representations and warranties being
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made with respect to (A) Intellectual Property, (B) compliance with or liability
under ERISA, (C) Taxes and (D) compliance with or liability under Environmental
Laws, respectively, or with respect to any Intellectual Property, employee
benefit, Tax or environmental, health or safety matter related in any way to the
Lynx Companies and their Affiliates or to this Agreement or its subject matter,
and (ii) no other representation or warranty contained in this Agreement shall
apply to any such matters and no other representation or warranty, express or
implied, is being made with respect thereto.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
DETECTIVE AND ACQUISITION SUB
Detective and Acquisition Sub jointly and severally represent and warrant
to Lynx as follows:
SECTION 4.01 Incorporation and Authority of Detective and Acquisition
Sub. Detective and Acquisition Sub are corporations duly incorporated, validly
existing and in good standing under the laws of their jurisdiction of
incorporation and have all necessary corporate power and authority to enter into
this Agreement and the Ancillary Agreements to which it is a party, to carry out
their obligations hereunder and thereunder and to consummate the transactions
contemplated hereby and thereby. The execution and delivery of this Agreement
and such Ancillary Agreements by Detective and Acquisition Sub, the performance
by Detective and Acquisition Sub of their obligations hereunder and thereunder
and the consummation by Detective and Acquisition Sub of the transactions
contemplated hereby and thereby have been duly authorized by all requisite
corporate action on the part of Detective and Acquisition Sub. This Agreement
has been, and upon execution such Ancillary Agreements will be, duly executed
and delivered by Detective and Acquisition Sub, and (assuming due authorization,
execution and delivery by Lynx and each Affiliate of Lynx executing this
Agreement or one or more of such Ancillary Agreements) this Agreement
constitutes, and upon execution such Ancillary Agreements will constitute,
legal, valid and binding obligations of Detective and Acquisition Sub
enforceable against Detective and Acquisition Sub in accordance with their
terms.
SECTION 4.02 Capital Stock of Detective; Detective's Subsidiaries. (a) As
of the date hereof, the authorized capital stock of Detective consists of
75,000,000 shares of common stock, par value $.01 per share (the "Detective
Common Stock"), and 5,000,000 shares of Preferred Stock, par value $.01 per
share. As of November 10, 1999, 34,463,700 shares of Detective Common Stock are
validly issued, outstanding, fully paid and nonassessable, and have been issued
in compliance with all applicable federal and, to the knowledge of Detective,
state securities laws. 2,981,350 shares of Detective Common Stock are held as
treasury stock. No other shares of capital stock of Detective have been issued
or are outstanding. Section 4.02 of the Detective Disclosure Schedule describes
the nature, holder, exercise price and other material terms of each outstanding
Option of Detective, in each case, as of the date hereof. Except as disclosed in
Section 4.02 of the Detective Disclosure Schedule, there are no outstanding
Options or agreements, arrangements or understandings to issue Options with
respect to Detective and there are no preemptive rights or agreements,
arrangements or understandings to issue preemptive rights with respect to the
issuance or sale of Detective's capital stock. On the Closing Date, the delivery
to Lynx Parent of the certificate or certificates representing the Detective
Shares will vest in Lynx Parent good and valid title to such Detective Shares,
free and clear of all Liens, and such Detective Shares will have been duly
authorized, validly issued, fully paid and nonassessable. Detective has taken
all necessary corporate actions to reserve the full number of shares of
Detective Common Stock issuable upon exercise of the Lynx Option. The Detective
Common Stock issuable upon exercise of the Lynx Option, when issued, will be
duly authorized, validly issued, fully paid and nonassessable. Except as set
forth herein or in Section 4.02 of the Detective Disclosure Schedule, neither
the execution, delivery or performance by Detective or Acquisition Sub of this
Agreement or the Ancillary Agreements, the issuance of the Detective Shares or
the Lynx Option as contemplated hereby, the issuance of shares of Detective
Common Stock upon conversion of the Lynx Option, the performance by Detective or
Acquisition Sub of its respective obligations under the Ancillary Agreements nor
the exercise by any holder of the Detective Shares of the rights granted to such
holder under the Ancillary Agreements, will give rise to or result in (with or
without notice, lapse of time or both) any antidilution adjustment (other than
as disclosed in Section 4.02 of the Detective Disclosure
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Schedule), acceleration of vesting or other change under or to any Option.
Neither Detective nor Acquisition Sub is a party or subject to any agreement or
understanding and, to the knowledge of Detective, there is no agreement or
understanding between or among Persons which relates to the voting or giving of
written consents or nominating directors, with respect to Detective, any of its
Subsidiaries or any of their respective securities.
(b) Each Subsidiary of Detective is a corporation duly organized, validly
existing and in 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, to own, use and lease its assets and
properties and to enter into this Agreement and/or the Ancillary Agreements to
which it is a party. Section 4.02(b) of the Detective Disclosure Schedule lists
each Detective Subsidiary. Except as set forth in Section 4.02(b) of the
Detective Disclosure Schedule, each such Subsidiary is duly qualified, licensed
or admitted to do business and is in good standing in those jurisdictions in
which the ownership, use or leasing of such Subsidiary's assets and properties,
or the conduct or nature of its business, makes such qualification, licensing or
admission necessary except where the failure to be so qualified, licensed or
admitted would not have a Material Adverse Effect. Section 4.02(b) of the
Detective Disclosure Schedule lists for each Detective Subsidiary and, to
Detective's knowledge for Marksman, the amount of its authorized and outstanding
capital stock or issued share capital. All of the outstanding shares of capital
stock or issued share capital, of each Detective Subsidiary, and those shares of
the capital stock of Marksman owned by Detective, have been duly authorized and
validly issued, are fully paid and nonassessable, and, except as set forth in
Section 4.02(b) of the Detective Disclosure Schedule, are wholly owned,
beneficially and of record, by Detective or its Subsidiaries free and clear of
all Liens. Except as set forth in Section 4.02(b) of the Detective Disclosure
Schedule, there are no outstanding Options with respect to any Detective
Subsidiary and no agreements, arrangements or understandings to issue Options
with respect to any Detective Subsidiary and there are no preemptive rights or
agreements, arrangements or understandings to issue preemptive rights with
respect to any Detective Subsidiary. Other than as listed in Section 4.02(b) of
the Detective Disclosure Schedule, and except for the capital stock of the
Detective Subsidiaries and Marksman, neither Detective nor the Detective
Subsidiaries hold any equity, partnership, joint venture or other interest in
any Person. There are no Liens on any shares of capital stock of any of the
Detective Subsidiaries or on those shares of the capital stock of Marksman owned
by Detective other than Permitted Liens or Liens created by Lynx or its
Affiliates, except as set forth as Section 4.02(b) of the Detective Disclosure
Schedule.
(c) Other than in connection with the transactions contemplated by this
Agreement, since its date of incorporation, Acquisition Sub has not conducted
any business, has not owned, leased or operated any real property or other
assets and has not incurred and is not subject to any liabilities or obligations
of any nature, whether or not accrued, contingent or otherwise.
SECTION 4.03 No Conflict. Assuming all consents, approvals, authorizations
and other actions described in Section 4.04 have been obtained, and except as
may result from any facts or circumstances relating solely to the Lynx Companies
or any of their Affiliates or as described in Section 4.03 of the Detective
Disclosure Schedule, the execution, delivery and performance of this Agreement
and the Ancillary Agreements to which either is a party by Detective or
Acquisition Sub does not and will not (a) violate or conflict with the
Certificate of Incorporation, other constitutive documents or by-laws of
Detective or Acquisition Sub, (b) conflict with or violate any Law or
Governmental Order applicable to Detective or any of its Subsidiaries, or (c)
result in any breach of, or constitute a default (or event which with the giving
of notice or lapse of time, or both, would become a default) under, or give to
any Person any rights of termination, amendment, acceleration or cancellation
of, or result in the creation of any Lien on Detective or any of its
Subsidiaries pursuant to, any Contract, License or other material instrument to
which Detective or any of its Subsidiaries is a party or by which Detective, any
of its Subsidiaries or any of their assets are bound or affected, except, in the
case of clauses (b) and (c) above, (i) for conflicts, violations, breaches,
defaults, rights of termination, amendment, acceleration or cancellation, or
Liens as would not, individually or in the aggregate, (A) have a Material
Adverse Effect, (B) impair the ability of Detective or Acquisition Sub to
perform their respective obligations under this Agreement or any of the
Ancillary Agreements to which either is a party or (C) prevent
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or materially delay the consummation of the transactions contemplated by this
Agreement or any of the Ancillary Agreements, or (ii) for Liens created by or
through Lynx or any of its Affiliates.
SECTION 4.04 Consents and Approvals. The execution and delivery of this
Agreement and each Ancillary Agreement to which either is a party by Detective
or Acquisition Sub, does not, and the performance of this Agreement and each
such Ancillary Agreement by Detective or Acquisition Sub will not, require any
consent, approval, authorization or other action by, or filing with or
notification to, any Governmental Authority, except (a) as described in Section
4.04 of the Detective Disclosure Schedule, (b) the notification requirements of
the HSR Act and applicable filings, notifications or receipts of any required
clearances under foreign antitrust and competition Laws, (c) where failure to
obtain such consent, approval, authorization or action, or to make such filing
or notification, would not, individually or in the aggregate, (A) have a
Material Adverse Effect, (B) impair the ability of Detective or Acquisition Sub
to perform their respective obligations under this Agreement or any of the
Ancillary Agreements to which either is a party or (C) prevent or materially
delay the consummation of the transactions contemplated by this Agreement or any
of the Ancillary Agreements, and (d) as may be necessary as a result of any
facts or circumstances relating solely to Lynx or any of its Affiliates.
SECTION 4.05 SEC Documents; Financial Information. (a) Each report,
schedule, form, statement and other document required to be filed by Detective
with the SEC (each an "SEC Document", and collectively, the "SEC Documents") has
been so filed. As of its filing date, each SEC Document, and any SEC Documents
that will be filed prior to or after the Closing, complied or will comply in all
material respects with the applicable requirements of the Securities Act and the
Exchange Act. None of the SEC Documents, except to the extent that information
contained therein has been revised or superseded by an SEC Document subsequently
filed with the SEC, contains or will contain any untrue statement of a material
fact or omits, omitted or will omit to state a material fact (x) necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading or (y) required to be stated therein or necessary
to make the statements therein not misleading. The financial statements of
Detective and the Subsidiaries included in the SEC Documents comply in all
material respects with applicable requirements under the Securities Act and the
Exchange Act and any other published rules and regulations of the SEC with
respect to accounting requirements, have been prepared in accordance with U.S.
generally accepted accounting principles (except as may be indicated in the
notes thereto) and fairly present the consolidated financial position of
Detective and its Subsidiaries as of the respective dates thereof and the
consolidated results of their operations and cash flows for the respective
periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments which will not have or reflect a Material Adverse
Effect).
(b) Except as set forth in Section 4.05(b) of the Detective Disclosure
Schedule and except for Liabilities incurred in the ordinary course of business
since June 30, 1999, there are no material Liabilities of Detective or any of
its Subsidiaries which are not reflected or disclosed in the SEC Documents.
(c) To the knowledge of Detective, each report, schedule, form and other
document filed by Marksman with the SEC complies in all material respects with
the applicable requirements of the Securities Act and the Exchange Act. To the
knowledge of Detective, none of such documents, except to the extent information
contained therein has been revised or superseded by another such document
subsequently filed with the SEC, contains or will contain any untrue statement
of a material fact or omits, omitted or will omit to state a material fact (x)
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading or (y) required to be stated therein
to make the statements therein not misleading. To the knowledge of Detective,
except as set forth in Section 4.05(c) of the Detective Disclosure Schedule and
except for liabilities incurred in the ordinary course of business since June
30, 1999, there are no material liabilities of Marksman which are not reflected
or disclosed in such documents.
SECTION 4.06 Absence of Certain Changes or Events. Since June 30, 1999,
except (i) as disclosed in Section 4.06 of the Detective Disclosure Schedule, or
(ii) as contemplated by this Agreement, the businesses of Detective and its
Subsidiaries have been conducted in the ordinary course and there has not been
any Material Adverse Effect. None of the other representations or warranties set
forth in this Agreement shall be
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deemed to limit the foregoing. In addition, without limiting the foregoing,
except (i) as disclosed in Section 4.06 of the Detective Disclosure Schedule, or
(ii) as contemplated by this Agreement there has not occurred since June 30,
1999:
(a) any declaration, setting aside or payment of any dividend or other
distribution in respect of the capital stock or share capital of Detective
or any of its Subsidiaries, or any direct or indirect redemption, purchase
or other acquisition by Detective or any of its Subsidiaries of any such
capital stock or share capital of, or any Option with respect to, Detective
or any of its Subsidiaries;
(b) except for the execution, delivery and performance by Detective
and Acquisition Sub of this Agreement and the transactions contemplated
hereby, any authorization, issuance, sale or other disposition by Detective
or any of its Subsidiaries of any shares of capital stock or issued shares
of, or any Option with respect to, Detective or any of its Subsidiaries, or
any modification or amendment of any right of any holder of any outstanding
shares of capital stock or issued shares of, or any Option with respect to,
Detective or any of its Subsidiaries;
(c) incurrences by Detective or any of its Subsidiaries of
indebtedness or any voluntary purchase, cancellation, prepayment or
complete or partial discharge in advance of a scheduled payment date with
respect to, or waiver of any right of Detective or any of its Subsidiaries
under, any indebtedness of or owing to Detective or any of its Subsidiaries
(in either case other than any indebtedness of Detective or any of its
Subsidiaries owing to Detective or any of its Subsidiaries);
(d) any physical damage, destruction or other casualty loss (whether
or not covered by insurance) affecting any of the real or personal property
or equipment of Detective or any of its Subsidiaries in an aggregate amount
exceeding $100,000;
(e) any write-off or write-down of or any determination to write off
or write down any of the assets and properties of Detective or any of its
Subsidiaries in an aggregate amount exceeding $100,000;
(f) any acquisition of any assets and properties of any Person or
license or disposition of, or incurrence of a Lien (other than a Permitted
Lien or any Lien in aggregate amount less than $100,000) on, any assets and
properties of Detective or any of its Subsidiaries, in each case, other
than acquisitions, licenses or dispositions of products and services in the
ordinary course of business of Detective or any of its Subsidiaries
consistent with past practice or any Lien in aggregate amount less than
$100,000);
(g) any commencement, termination or change by Detective or any of its
Subsidiaries of any line of business;
(h) any transaction by Detective or any of its Subsidiaries with any
officer, director, stockholder, Affiliate or associate of Detective or any
of its Subsidiaries, other than pursuant to any Contract in effect on June
30, 1999 and disclosed to Lynx pursuant to Section 4.16(a) of the Detective
Disclosure Schedule or other than pursuant to any contract of employment
listed pursuant to Section 4.16(a) of the Detective Disclosure Schedule;
(i) any change in accounting or Tax principles, methods or practices;
or
(j) (i) any granting by Detective or any of its Subsidiaries to any
current or former director, executive officer or other employee of
Detective or any of its Subsidiaries of any increase in compensation, bonus
or other benefits, except for normal increases in cash compensation in the
ordinary course of business consistent with past practice or as was
required under any employment agreements in effect as of the date of the
most recent financial statements included in the SEC Documents, (ii) any
granting by Detective or any of its Subsidiaries to any such current or
former director, executive officer or employee of any increase in severance
or termination pay, (iii) any entry by Detective or any of its Subsidiaries
into, or any amendments of, any employment, deferred compensation,
consulting, severance, termination or indemnification agreement with any
such current or former director, executive officer or employee or (iv) any
amendment to, or modification of, any Option or the benefits under any
Detective Plan.
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SECTION 4.07 Absence of Litigation. As of the date hereof, except as set
forth in Section 4.07 of the Detective Disclosure Schedule, there are no Actions
pending or, to the knowledge of Detective threatened, against Detective or any
of its Subsidiaries, or to which any of the Detective Shares are subject, that
(a) would reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect or that would materially impair Detective's or
Acquisition Sub's ability to consummate the Merger or (b) are required under the
Exchange Act to be described in any SEC Documents.
SECTION 4.08 Compliance with Laws. Neither Detective nor any of its
Subsidiaries is in violation of any Laws (including, without limitation, the
Advisers Act, the Exchange Act and the rules of the NASD) or any Governmental
Orders applicable to Detective or any of its Subsidiaries, the Detective Shares
or by which any of them is bound, except (i) as set forth in Section 4.08 of the
Detective Disclosure Schedule and (ii) for violations the existence of which
would not, individually or in the aggregate, have a Material Adverse Effect.
SECTION 4.09 Governmental Licenses and Permits. Detective or its
Subsidiaries hold all Licenses necessary to the operation of their businesses as
currently operated and are in compliance with the terms of such Licenses, except
(a) as set forth in Section 4.09 of the Detective Disclosure Schedule or (b) for
violations, the existence of which would not, individually or in the aggregate,
have a Material Adverse Effect.
SECTION 4.10 Tangible Personal Property. Except as disclosed in Section
4.10 of the Detective Disclosure Schedule, Detective or its Subsidiaries are in
possession of and have good and marketable title to, or have valid leasehold
interests in or valid rights under Contract to use, all tangible personal
property used in the conduct of their businesses, including all tangible
personal property reflected on the financial statements contained in the SEC
Documents and tangible personal property acquired since June 30, 1999 other than
property disposed of since such date in the ordinary course of business
consistent with past practice and the terms of this Agreement. Except as
disclosed in Section 4.10 of the Detective Disclosure Schedule, all such
tangible personal property is free and clear of all Liens, other than Permitted
Liens or Liens created by or through Lynx or any of its Affiliates, and is in
good working order and condition, ordinary wear and tear excepted, and its use
complies in all material respects with all applicable Laws and, to the knowledge
of Detective, is adequate and suitable for the conduct by Detective and its
Subsidiaries of the businesses presently conducted by them.
SECTION 4.11 Real Property. Neither Detective nor any of its Subsidiaries
owns any real property. Each parcel of real property leased by Detective or any
of its Subsidiaries including, without limitation, those properties set forth in
Section 4.11 of the Detective Disclosure Schedule (the "Detective Leased Real
Property"), is leased, free and clear of all Liens, except (i) as disclosed in
Section 4.11 of the Detective Disclosure Schedule, (ii) Permitted Liens and
(iii) Liens created by or through Lynx or any of its Affiliates.
SECTION 4.12 Intellectual Property. (a) Detective or its Subsidiaries own
exclusively or have the right to use all Intellectual Property and commercially
available shrink-wrapped software that is material to the operation of Detective
or any of its Subsidiaries ("Detective Owned Intellectual Property", "Detective
Licensed Intellectual Property" or "Detective Shrink-Wrapped Software", as
applicable). Section 4.12(a) of the Detective Disclosure Schedule sets forth a
true and complete list of all material registered patents and patent
applications, common law trademarks, registered trademarks and trademark
applications, copyright registrations, domain name registrations and Software
owned by Detective or any of its Subsidiaries. Except as would not have a
Material Adverse Effect, the Detective Owned Intellectual Property, the
Detective Licensed Intellectual Property and the Detective Shrink-Wrapped
Software collectively constitute all of the Intellectual Property necessary for
the continued operation of the businesses of Detective or any of its
Subsidiaries.
(b) Except for such infringements as would not, individually or in the
aggregate, have a Material Adverse Effect (i) the Detective Owned Intellectual
Property does not infringe upon the Intellectual Property rights of any third
party, and (ii) no written claim has been asserted to Detective or any of its
Subsidiaries which is currently pending or, to the knowledge of Detective,
threatened that the use of such Detective Owned Intellectual Property or
Detective Licensed Intellectual Property in a manner consistent with past
practice does or may infringe upon the Intellectual Property rights of any third
party.
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(c) To the knowledge of Detective, Detective or its Subsidiaries are the
exclusive owners of the entire right, title and interest in and to all Detective
Owned Intellectual Property and are entitled to use all Detective Owned
Intellectual Property, Detective Licensed Intellectual Property and Detective
Shrink-Wrapped Software in the continued operation of its businesses in a manner
consistent in all material respects with past practice.
(d) To the knowledge of Detective, except as set forth in Section 4.12(d)
of the Detective Disclosure Schedule, no Person is engaging in any activity that
infringes upon the Detective Owned Intellectual Property. Except as would not,
individually or in the aggregate, have a Material Adverse Effect, the
consummation of the transactions contemplated by this Agreement will not result
in the termination or impairment of any of the Detective Owned Intellectual
Property, Detective Licensed Intellectual Property or Detective Shrink-Wrapped
Software, or any license relating thereto.
(e) Neither Detective nor any of its Subsidiaries is in breach of, or
default under, any material term of any license or sublicense of the Detective
Owned Intellectual Property, Detective Licensed Intellectual Property or
Detective Shrink-Wrapped Software, and, to the knowledge of Detective, no other
party to such license or sublicense is in breach thereof or default thereunder,
except in any such case as would not, individually or in the aggregate, have a
Material Adverse Effect.
(f) Detective or its Subsidiaries have (i) initiated a review and
assessment of the business operations of Detective and its Subsidiaries
(including those areas affected by suppliers and vendors) that could reasonably
be affected by the Year 2000 Problem, (ii) developed a comprehensive plan, which
has been delivered to Lynx on or before the date hereof (the "Detective Year
2000 Plan"), to address the Year 2000 Problem, and (iii) implemented and
complied with (including dates by which steps and actions are to be taken and
performed by) the Detective Year 2000 Plan in accordance with the terms thereof.
The Detective Year 2000 Plan includes all appropriate, necessary and timely
steps, actions and plans to make Detective and its Subsidiaries Year 2000
Compliant in accordance with the methods and the time frames set forth therein.
As of the date hereof, there are no issues or events that prevent Detective and
its Subsidiaries from fully addressing the Year 2000 Problem consistent with the
terms of the Detective Year 2000 Plan. All Third Party Software and all hardware
used by Detective or its Subsidiaries has been certified by the providers
thereof to be Year 2000 Compliant for the intended uses and purposes of such
Third Party Software and such hardware.
(g) To the knowledge of Detective, except as set forth in Section 4.12(g)
of the Detective Disclosure Schedule, there are no Contracts of Detective or any
of its Subsidiaries under which such company makes a Year 2000 warranty that do
not limit or cap the Liability of Detective or any of its Subsidiaries with
respect to any Year 2000 Problem.
SECTION 4.13 Employee Benefits Matters. (a) Section 4.13(a) of the
Detective Disclosure Schedule contains a true and complete list of all employee
benefit plans (within the meaning of Section 3(3) of ERISA), all bonus, stock
option, stock purchase, restricted stock, incentive, deferred compensation,
supplemental retirement, severance or other benefit plans, programs or
arrangements, and all employment, termination, severance or other Contracts or
agreements with respect to which Detective or any of its Subsidiaries has any
obligation and which are maintained, contributed to or sponsored by Detective or
any of its Subsidiaries for the benefit of any current or former employee of
Detective or any of its Subsidiaries (collectively, the "Detective Plans").
(b) Except as otherwise disclosed in Section 4.13(b) of the Detective
Disclosure Schedule, none of the Detective Plans (i) is a "multiemployer plan",
within the meaning of Section 3(37) or 4001(a)(3) of ERISA, or a
"single-employer plan", within the meaning of Section 4001(a)(15) of ERISA, or
(ii) provides or promises to provide retiree medical or life insurance benefits.
(c) Neither Detective nor any of its Affiliates has incurred any liability
under, arising out of or by operation of Title IV of ERISA (other than liability
for premiums to the Pension Benefit Guaranty Corporation arising in the ordinary
course). None of the assets of Detective or any of its Affiliates is the subject
of any lien arising under Section 302(f) of ERISA or Section 412(n) of the Code;
neither Detective nor any of its Affiliates has been required to post any
security under Section 307 of ERISA or Sec-
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tion 401(a)(29) of the Code; and no fact or event exists which could give rise
to any such lien or requirement to post any such security.
(d) Except as set forth in Section 4.13(d) of the Detective Disclosure
Schedule, (i) no benefit or any right to a benefit under any Detective Plan will
become payable, accelerated or be enhanced in any way solely by reason of the
consummation of the transactions contemplated by this Agreement or by reason of
the consummation of the transactions contemplated by this Agreement coupled with
another event (e.g., termination of employment), and (ii) any tax deduction
otherwise allowable in respect of remuneration to current or former Detective
employees or Affiliates payable upon or after the Closing will not be disallowed
by operation of Section 280G of the Code in respect of the consummation of the
transactions contemplated by this Agreement.
(e) Except as disclosed in Section 4.13(e) of the Detective Disclosure
Schedule, neither Detective nor any of its Subsidiaries is a party to any
collective bargaining or other labor union Contract applicable to any employees
of Detective or any of its Subsidiaries. As of the date hereof, there is, to the
knowledge of Detective, no material labor strike, slowdown or work stoppage
pending or, to the knowledge of Detective, threatened in writing, which may
interfere in any material respect with the business activities of Detective or
any of its Subsidiaries.
SECTION 4.14 Taxes. Detective and its Subsidiaries have timely filed or
been included in, or will timely file or be included in, all material Tax
Returns required to be filed by them or in which they are to be included with
respect to Taxes for any period ending on or before the Closing Date and such
Tax Returns are or will be, as the case may be, accurate, complete and correct
in all material respects. All Taxes shown to be payable on such material Tax
Returns have been paid or will be paid except to the extent the same are being
contested in good faith and have been adequately reserved for. As of the date
hereof, there are no pending or threatened actions or proceedings for the
proposed assessment or assessment or collection of Taxes against Detective or
any of its Subsidiaries. There are no material Liens or other encumbrances for
Taxes (other than for Taxes not yet due and payable) upon the assets of
Detective or any of its Subsidiaries.
SECTION 4.15 Environmental Matters. Except as disclosed in Section 4.15 of
the Detective Disclosure Schedule, to Detective's knowledge, Detective and its
Subsidiaries are in compliance with all applicable Environmental Laws and have
obtained and are in compliance with all applicable Environmental Permits other
than any non-compliance that would not have a Material Adverse Effect.
SECTION 4.16 Material Contracts. (a) Section 4.16(a) of the Detective
Disclosure Schedule lists and briefly describes (including the parties to and
the date and subject matter of) as of the date hereof each of the following
Contracts of Detective or its Subsidiaries (such Contracts being "Detective
Material Contracts"):
(i) each Contract for the purchase of materials or real or personal
property with any supplier or for the furnishing of services to
Detective or any of its Subsidiaries under the terms of which Detective
or any of its Subsidiaries: (I) is likely to pay or otherwise give
consideration of more than $100,000 in the aggregate during the calendar
year ending December 31, 1999 or (II) is likely to pay or otherwise give
consideration of more than $300,000 in the aggregate over the remaining
term of such Contract;
(ii) each Contract for the sale of personal property or for the
furnishing of services by Detective or any of its Subsidiaries which:
(I) is likely to involve consideration of more than $250,000 in the
aggregate during the calendar year ending December 31, 1999 or (II) is
likely to involve consideration of more than $750,000 in the aggregate
over the remaining term of the Contract;
(iii) all broker, distributor, dealer, manufacturer's
representative, franchise, agency, sales promotion, market research,
marketing consulting and advertising Contracts requiring payments in
excess of $250,000, to which Detective or any of its Subsidiaries is a
party;
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(iv) all management Contracts and Contracts with independent
contractors or consultants (or similar arrangements) to which Detective
or any of its Subsidiaries is a party requiring payments in excess of
$250,000 and which are not cancelable without penalty or further payment
and without more than 30 days' notice;
(v) all Contracts relating to indebtedness of Detective or any of
its Subsidiaries which individually are in excess of $250,000;
(vi) all Contracts with any Governmental Authority to which
Detective or any of its Subsidiaries is a party;
(vii) all Contracts that limit or purport to limit the ability of
Detective or any of its Subsidiaries or any Person to compete in any
line of business or with any other Person or in any geographic area or
during any period of time;
(viii) all Contracts between or among Detective or any of its
Subsidiaries and any Affiliate of Detective;
(ix) all Contracts relating in whole or in part to Intellectual
Property pursuant to which Detective or any of its Subsidiaries obtains
from a third party the right to sell, distribute, display or otherwise
use data or works owned or controlled by such third party and that is
(I) likely to involve consideration of more than $100,000 in the
aggregate during the calendar year ending December 31, 1999 or (II) that
does not involve any cash consideration but is otherwise material to
Detective or any of its Subsidiaries;
(x) all Contracts relating in whole or in part to Intellectual
Property pursuant to which Detective or any of its Subsidiaries grants
to a third party the right to sell, distribute, display or otherwise use
data or works owned or controlled by Detective or any of its
Subsidiaries and that is (I) likely to involve consideration of more
than $100,000 in the aggregate during the calendar year ending December
31, 1999 or (II) that does not involve any cash consideration but is
otherwise material to Detective or any of its Subsidiaries;
(xi) all Contracts relating to employment of any Person by
Detective or its Subsidiaries; or
(xii) all other Contracts whether or not made in the ordinary
course of business, which are material to the conduct of the businesses
of Detective or any of its Subsidiaries taken as a whole or the absence
of which would have a Material Adverse Effect.
(b) Except as disclosed in Section 4.16(b) of the Detective Disclosure
Schedule and except as would not, individually or in the aggregate, have a
Material Adverse Effect, each such Detective Material Contract is valid and
binding on Detective or its Subsidiaries and is in full force and effect. Except
as would not, individually or in the aggregate, have a Material Adverse Effect,
neither Detective nor any of its Subsidiaries, nor to the knowledge of Detective
any other party thereto, is in breach of, or in default under, any such
Detective Material Contract.
(c) There is no Contract granting any Person any preferential right to
purchase any of the properties or assets of Detective or any of its
Subsidiaries.
SECTION 4.17 Brokers. Other than Hambrecht and Quist LLC, and as described
in Section 6.01 of the Detective Disclosure Schedule, no broker, finder or
investment banker is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
and the Ancillary Agreements based upon arrangements made by or on behalf of
Detective or its Affiliates.
SECTION 4.18 Insurance. Detective and its Subsidiaries carry all
liability, property, workers' compensation, directors' and officers' liability
and other insurance policies in amounts and have coverages that are reasonable
and customary for Persons engaged in the businesses and operations of Detective
and its Subsidiaries.
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SECTION 4.19 Registration Rights. Except as disclosed in Section 4.19 of
the Detective Disclosure Schedule and for the rights granted pursuant to the
Registration Rights Agreement, Detective has not granted registration rights to
any holder of any of the securities of Detective.
SECTION 4.20 NASD Matters. The Detective Common Stock is listed on the
NASDAQ National Market, and the listing agreement between the NASD and Detective
with respect thereto is in full force and effect. The Detective Shares and the
maximum number of shares of Detective Common Stock issuable upon exercise of the
Lynx Option will be approved for listing on the NASDAQ National Market upon the
approval by the NASD of the Company's listing application for additional shares
filed pursuant to the terms of Section 5.07.
SECTION 4.21 State Anti-Takeover Statutes; Anti-Takeover Defenses. No
"fair price," "moratorium," "control share acquisition" or other similar
anti-takeover statute or regulation, including the restrictions contained in
Section 203 of the DGCL, or any anti-takeover provision in Detective's
Certificate of Incorporation or by-laws is, or at or after the Effective Time
will be, applicable to Lynx, Lynx Parent, any of the Lynx Companies, the Merger
or the other transactions contemplated by this Agreement or the Ancillary
Agreements (or the exercise of any rights hereunder or thereunder). The Board of
Directors of Detective has approved the Merger and the other transactions
contemplated by this Agreement and the Ancillary Agreements for all purposes of
the DGCL. Neither Detective nor any of its Subsidiaries has adopted a
stockholder rights plan, poison pill or other anti-takeover measure.
SECTION 4.22 Vote Required. The only vote of the holders of any class or
series of capital stock necessary to approve this Agreement and the transactions
contemplated hereby (including, without limitation, the Amended Charter) on
behalf of Detective and Acquisition Sub is the affirmative vote of the holders
of a majority of the outstanding shares of Detective Common Stock and the
affirmative vote of the holders of a majority of the common stock of Acquisition
Sub.
SECTION 4.23 Opinion of Financial Advisers. Detective has received the
opinion of its financial advisers, dated the date of this Agreement, to the
effect that, as of such date, the transactions contemplated by this Agreement
and the Ancillary Agreements are fair, from a financial point of view, to the
stockholders of Detective, a signed copy of which has been delivered to Lynx.
SECTION 4.24 Questionable Payments. Neither Detective, any of its
Subsidiaries, nor, to the knowledge of Detective, any director, officer, agent,
employee or other Person associated with or acting on behalf of Detective or any
of its Subsidiaries has, directly, or indirectly: used any corporate funds for
unlawful contributions, gifts, entertainment, or other unlawful expenses
relating to political activity; made any unlawful payment to foreign or domestic
government officials or employees or to foreign or domestic political parties or
campaigns from corporate funds; established or maintained any unlawful or
unrecorded fund of corporate monies or other assets; made any false or
fictitious entry on the books or records of Detective or any of its
Subsidiaries; or made any bribe, kickback, or other payment of a similar or
comparable nature, whether lawful or not, to any Person or entity, private or
public, regardless of form, whether in money, property, or services, to obtain
favorable treatment in securing business or to obtain special concessions, or to
pay for favorable treatment for business secured or for special concessions
already obtained.
SECTION 4.25 Representations Relating to Marksman. Except as set forth in
Section 4.25 of the Detective Disclosure Schedule, to the knowledge of
Detective, the representations and warranties contained in Sections 4.03, 4.06,
4.07, 4.08, 4.09, 4.10, 4.12 (except with regard to the second and third
sentences of Section 4.12(a)), 4.13(e), 4.14, 4.15, 4.16(c), 4.18 and 4.24,
insofar as they relate to Subsidiaries of Detective, are true and correct with
regard to Marksman (assuming Marksman is a Subsidiary of Detective for purposes
of such representations and warranties).
SECTION 4.26 EXCLUSIVITY OF REPRESENTATIONS. (a) THE REPRESENTATIONS AND
WARRANTIES MADE BY DETECTIVE AND ACQUISITION SUB IN THIS AGREEMENT AND THE
ANCILLARY AGREEMENTS ARE IN LIEU OF AND ARE EXCLUSIVE OF ALL OTHER
REPRESENTATIONS AND WARRANTIES, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTIES. DETECTIVE AND ACQUISITION SUB HEREBY DISCLAIM ANY SUCH OTHER OR
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IMPLIED REPRESENTATIONS OR WARRANTIES, NOTWITHSTANDING THE DELIVERY OR
DISCLOSURE TO LYNX OR ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS OR
REPRESENTATIVES OF ANY DOCUMENTATION OR OTHER INFORMATION (INCLUDING ANY
FINANCIAL PROJECTIONS OR OTHER SUPPLEMENTAL DATA).
(b) Lynx and Lynx Parent acknowledge that (i) the representations and
warranties contained in Sections 4.05(b) and (c), 4.06, 4.07, 4.12, 4.13, 4.14,
4.15 and 4.16 are the only representations and warranties being made with
respect to (A) Intellectual Property, (B) compliance with or liability under
ERISA, (C) Taxes and (D) compliance with or liability under Environmental Laws,
respectively, or with respect to any Intellectual Property, employee benefit,
Tax or environmental, health or safety matter related in any way to Detective
and its Affiliates or to this Agreement or its subject matter, and (ii) no other
representation or warranty contained in this Agreement shall apply to any such
matters and no other representation or warranty, express or implied, is being
made with respect thereto.
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01 Access to Information. From the date hereof until the Closing
(upon reasonable notice to Detective or Lynx, as applicable) during normal
business hours, Detective shall, and shall cause the officers, directors,
employees, auditors and agents of Detective and its Subsidiaries to; and Lynx
shall and shall cause the officers, directors, employees, auditors and agents of
the Lynx Companies to (i) afford the officers, employees and authorized agents
and representatives of Detective and its Subsidiaries (where the undertaking is
given by Lynx) and of the Lynx Companies (where the undertaking is given by
Detective) reasonable access to the offices, properties, books and records of
Detective and its Subsidiaries (where the undertaking is given by Detective) and
of the Lynx Companies (where the undertaking is given by Lynx) and (ii) furnish
to the officers, employees and authorized agents and representatives of
Detective and its Subsidiaries (where the undertaking is given by Lynx) and of
the Lynx Companies (where the undertaking is given by Detective) such additional
financial and operating data and other information regarding Detective, its
Subsidiaries and Marksman (where the undertaking is given by Detective) and
regarding the Lynx Companies (where the undertaking is given by Lynx) as
Detective and its Subsidiaries (where the undertaking is given by Lynx) and as
Lynx (where the undertaking is given by Detective) may from time to time
reasonably request; provided, however, that such investigation shall not
unreasonably interfere with any of the businesses or operations of Detective or
its Subsidiaries (where the undertaking is given by Detective) and of the Lynx
Companies (where the undertaking is given by Lynx); and provided further that
Detective or its Subsidiaries (where the undertaking is given by Detective) and
the Lynx Companies (where the undertaking is given by Lynx) shall not be
required to provide any such information or access to the extent that such
information or access would cause Detective or its Subsidiaries (where the
undertaking is given by Detective) and the Lynx Companies (where the undertaking
is given by Lynx) to be in breach of any confidentiality restrictions applicable
to them.
SECTION 5.02 Confidentiality. The terms of the letter agreement (the
"Confidentiality Agreement") between Detective and The Financial Times Group are
hereby incorporated herein by reference and shall continue in full force and
effect until the Closing, at which time the obligations of the parties under
this Section 5.02 and the Confidentiality Agreement shall terminate but only in
respect of that portion of the Evaluation Material (as defined in the
Confidentiality Agreement) exclusively relating to Detective, its Subsidiaries
and the Lynx Companies. If this Agreement is, for any reason, terminated prior
to the Closing, the Confidentiality Agreement shall nonetheless continue in full
force and effect in all respects.
SECTION 5.03 Regulatory and Other Authorizations; Consents. (a) Detective
shall use its commercially reasonable efforts to promptly obtain all
authorizations, consents, orders and approvals of all Governmental Authorities
that may be or become necessary for its execution and delivery of, and the
performance of its obligations pursuant to, this Agreement and the Ancillary
Agreements, and Lynx will cooperate with Detective in promptly seeking to obtain
all such authorizations, consents, orders and approvals, including
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providing any required information; it being understood that, except as set
forth in Section 5.03(c), Lynx shall not be required to pay any fees or other
payments to any such regulatory bodies or officials in order to obtain any such
authorization, consent, order or approval. Detective will not take any action
that would have the effect of delaying, impairing or impeding the receipt of any
required approvals.
(b) Detective agrees, if necessary, to promptly make an appropriate Section
1018 filing (the "Section 1018 Approval") with the NASD with respect to the
change of control of DBC Securities, Inc. and to respond promptly to any request
for any additional information and documentary material that may be requested by
the NASD. Detective further agrees to file any required notices with, and obtain
any required approvals from, state securities regulators in connection with the
change of control of DBC Securities, Inc. Detective shall bear the filing fees
in connection with such filings. Detective will not take any action that would
have the effect of delaying, impairing or impeding the receipt of any required
approvals.
(c) Each party hereto agrees to make an appropriate filing of a
Notification and Report Form pursuant to the HSR Act with respect to the
transactions contemplated hereby within 25 Business Days after the date hereof
and to respond promptly to any request for any additional information and
documentary material that may be requested pursuant to the HSR Act. In addition,
each party agrees to promptly make any other filing that may be required under
any antitrust Law or by any antitrust authority. Each party shall bear its
respective filing fees associated with the HSR filings and any other similar
filings required in any other jurisdictions.
(d) Each party hereto shall use its commercially reasonable efforts to
obtain all other consents, novations and approvals that may be required in
connection with the transactions contemplated by this Agreement and the
Ancillary Agreements.
SECTION 5.04 Further Action. From and after the Closing Date, each of the
parties hereto shall execute and deliver such documents and other papers and
take such further actions as may be reasonably required to carry out the
provisions of this Agreement and the Ancillary Agreements and give effect to the
transactions contemplated hereby and thereby.
SECTION 5.05 Ancillary Agreements. On the Closing Date, Lynx and Detective
shall execute and deliver (or shall cause one or more of their Affiliates to
execute and deliver) the Certificate of Merger and the Registration Rights
Agreement, as applicable.
SECTION 5.06 Stockholders' Meeting. Detective shall as promptly as
practicable following the date of this Agreement call and cause to be held a
stockholders meeting for the purpose of approving the Merger and the issuance of
the Detective Shares and the Lynx Option and the other matters contemplated by
this Agreement including, without limitation, the Amended and Restated
Certificate of Incorporation of Detective, which shall be in form and substance
reasonably satisfactory to Detective and Lynx (the "Amended Charter"), and the
election of the Post-Closing Directors. In connection therewith, subject to
Section 6.03(b), the Board of Directors of Detective shall declare advisable and
recommend the approval of the Merger, the Amended Charter, the election of the
Post-Closing Directors to Detective's Board of Directors and such other matters
necessary in connection with the consummation of the transactions contemplated
herein, and shall prepare and file with the SEC under the Exchange Act, and
shall use all reasonable efforts to have promptly cleared by the SEC, and
promptly thereafter shall mail to its stockholders, the proxy materials, as they
may be amended and supplemented, to be used in connection with such stockholder
meeting (the "Proxy Material"). Detective shall provide Lynx with a reasonable
opportunity to review and comment upon the Proxy Material prior to its filing
with the SEC and distribution to Detective's stockholders. Detective shall
promptly and properly prepare and file any other filings required under the
Exchange Act or any other Federal or state laws relating to the transactions
contemplated herein (collectively, the "Other Filings"). Detective shall notify
Lynx promptly of the receipt of any comments of the SEC and of any request by
the SEC for amendments or supplements to the Proxy Material or by any other
governmental official with respect to any Other Filings or for additional
information and will supply Lynx with copies of all correspondence between
Detective and its representatives, on the one hand, and the SEC or the members
of its staff or any other appropriate government official, on the other hand,
with respect to the Proxy Material and any Other Filings. Detective shall obtain
and furnish the information required to be included in the Proxy Material and
any Other Filings; and Detective, after consultation with Lynx, shall (and Lynx
agrees to reasonably cooperate
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with Detective in connection therewith) respond promptly to any comments made by
the SEC with respect to the Proxy Material and any Other Filings and any
preliminary version thereof and cause the Proxy Material and related form of
proxy to be mailed to its stockholders at the earliest practicable time.
Detective shall notify Lynx of its intention to mail the Proxy Material to the
stockholders of Detective at least 48 hours prior to the intended time of such
mailing. Detective represents and warrants that the information (other than
information with respect to the Lynx Companies which is supplied by Lynx in
writing to Detective specifically for use in the Proxy Material) contained in
the Proxy Material will not, at the date of mailing to Detective's stockholders
or at the date of such stockholder meeting, contain any statement which, at the
time and in light of the circumstances under which it is made, be false or
misleading with respect to any material fact required to be stated therein or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for such stockholder meeting. Detective represents
and warrants that the Proxy Material will comply as to form in all material
respects with the Exchange Act and the rules and regulations of the Commission
thereunder. Lynx and Lynx Parent represent and warrant that the information
supplied by Lynx or Lynx Parent in writing to Detective and Acquisition Sub
specifically for use in the Proxy Material will not, at the date of mailing to
Detective's stockholders or at the date of s uch stockholder meeting, contain
any statement which, at the time and in light of the circumstances under which
it is made, be false or misleading with respect to any material fact required to
be stated therein or necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for such stockholder
meeting.
SECTION 5.07 NASDAQ National Market. Prior to the Closing, Detective shall
cause the Detective Shares to be approved for listing on the NASDAQ National
Market.
SECTION 5.08 Fees and Expenses. (a) Except as provided in this Section
5.08, all fees and expenses incurred in connection with this Agreement, the
Ancillary Agreements and the transactions contemplated hereby and thereby shall
be paid by the party incurring such fees or expenses, whether or not the Closing
occurs.
(b) In the event that (1) a Detective Takeover Proposal shall have been
made to Detective or any of its Subsidiaries or shall have been made directly to
the stockholders of Detective generally or shall have otherwise become publicly
known or any Person shall have publicly announced an intention (whether or not
conditional) to make a Detective Takeover Proposal and thereafter this Agreement
is terminated by either Detective or Lynx pursuant to Section 8.01(b)(i) or (ii)
or this Agreement is terminated by Lynx pursuant to Section 8.01(c), or (2) this
Agreement is terminated by Lynx pursuant to Section 8.01(e), then Detective
shall promptly, but in no event later than the date of such termination, pay
Lynx Parent or its designee a fee equal to $25,500,000 million (the "Termination
Fee"), payable by wire transfer of same day funds; provided, however, that no
Termination Fee shall be payable to Lynx Parent or its designee pursuant to
clause (1) of this paragraph (b) unless and until within 12 months of such
termination Detective or any of its Subsidiaries enters into any Detective
Acquisition Agreement with respect to, or consummates, any Detective Takeover
Proposal, in which event the Termination Fee shall be payable upon the first to
occur of such events. Detective acknowledges that the agreements contained in
this Section 5.08(b) are an integral part of the transactions contemplated by
this Agreement, and that, without these agreements, Lynx and Lynx Parent would
not enter into this Agreement; accordingly, if Detective fails promptly to pay
the amount due pursuant to this Section 5.08(b), and, in order to obtain such
payment, Lynx and Lynx Parent commence a suit which results in a judgment
against Detective for the fee set forth in this Section 5.08(b), Detective shall
pay to Lynx and Lynx Parent their reasonable costs and expenses (including
reasonable attorneys' fees of one counsel (as well as local counsel) and
expenses) in connection with such suit, together with interest on the amount of
the fee at the prime rate of Citibank, N.A. in effect on the date such payment
was required to be made.
SECTION 5.09 Public Announcements. Promptly after the date hereof,
Detective, Acquisition Sub and Lynx will develop a joint communications plan and
each party hereto shall use all reasonable best efforts to ensure that all press
releases and other public statements with respect to the transactions
contemplated by this Agreement and the Ancillary Agreements shall be consistent
with such joint communications plan. Detective, Acquisition Sub and Lynx will
consult with each other before issuing any press release or otherwise making any
written public statement with respect to the transactions contemplated by this
Agreement and the Ancillary Agreements, and shall not issue any such press
release or make any such written public statement
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prior to such consultation, except as either party may determine is required by
applicable law or by obligations pursuant to any listing agreement with any
securities exchange or national trading system. The parties agree that the
initial press release to be issued with respect to the transactions contemplated
by this Agreement and the Ancillary Agreements shall be in the form theretofore
agreed to by the parties.
SECTION 5.10 Tax Treatment. Each of Detective, Acquisition Sub and Lynx
shall use its best efforts to cause the Merger to qualify as a reorganization
under the provisions of Section 368(a) of the Code.
SECTION 5.11 Reorganization; Intercompany Transactions. On or prior to the
Effective Time, Lynx shall cause the Reorganization to be effected. Except as
set forth in Section 5.11 of the Lynx Company Disclosure Schedule, the assets
and properties of the Lynx Companies following the consummation of the
Reorganization shall be all of those assets and properties necessary for the
conduct in all material respects of the businesses of FTAM as conducted on the
date hereof. Prior to the Effective Time, the Lynx Companies shall be rendered
cash-free and any inter-company indebtedness between any of the Lynx Companies,
on the one hand, and any non-Lynx Company Affiliates of the Lynx Companies, on
the other, shall be contributed to capital or otherwise eliminated (except for
the $19,224,000 intercompany receivable from Rycade Capital Corporation to
Interactive Data Corporation and the $20,000,000 intercompany payable from
Interactive Data Corporation to Pearson).
SECTION 5.12 Advice of Changes. Detective, Acquisition Sub and Lynx shall
promptly advise the other parties orally and in writing to the extent they have
knowledge of (i) any representation or warranty made by them or their Affiliates
contained in this Agreement or any of the Ancillary Agreements that is qualified
as to materiality becoming untrue or inaccurate in any respect or any such
representation or warranty that is not so qualified becoming untrue or
inaccurate in any material respect or (ii) their failure to comply with or
satisfy in any material respect any covenant, condition or agreement to be
complied with or satisfied by such parties (or such parties' Affiliates) under
this Agreement or any of the Ancillary Agreements and (iii) any change or event
having, or which is reasonably likely to have, a Material Adverse Effect on such
parties (or such parties' Affiliates) or on the truth of their respective
representations and warranties or the ability of the conditions contained in
this Agreement or any of the Ancillary Agreements to be satisfied; provided,
however, that no such notification shall affect the representations, warranties,
covenants or agreements of the parties or their Affiliates (or remedies with
respect thereto) or the conditions to the obligations of the parties or their
Affiliates under this Agreement or any of the Ancillary Agreements.
SECTION 5.13 Board of Directors. Detective shall employ its best efforts
to ensure that the Board of Directors of Detective is comprised of ten members
following the shareholders meeting convened pursuant to Section 5.06, it being
understood that such membership will include (i) Allan R. Tessler, Alan J.
Hirschfield and Carl Spielvogel; (ii) 1 (one) other independent director
designated by Lynx, who shall be reasonably acceptable to Detective, prior to
the mailing of the Proxy Materials; and (iii) 6 (six) persons designated by Lynx
prior to the mailing of the Proxy Materials (the persons described in clauses
(i), (ii) and (iii) being, collectively, the "Post-Closing Directors").
Detective shall also obtain, at the request of Lynx, the resignations, effective
at any time as of or after the Effective Time (as requested by Lynx), of those
persons designated by Detective as its representatives on Marksman's Board of
Directors.
SECTION 5.14 Indemnification, Exculpation and Insurance. (a) The parties
hereto agree that all rights to indemnification and exculpation from liabilities
for acts or omissions occurring at or prior to the Effective Time (and rights
for advancement of expenses) now existing in favor of the current or former
directors or officers of Detective or its Subsidiaries as provided in their
respective certificates of incorporation or by-laws (or comparable
organizational documents) and any indemnification or other agreements of
Detective as in effect on the date hereof shall be maintained by Detective after
the Merger, and shall survive the Merger and shall continue in full force and
effect in accordance with their terms.
(b) In the event that Detective or any of its successors or assigns (i)
consolidates with or merges into any other person and is not the continuing or
surviving corporation or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all its properties and assets to any
person, then, and in each such case, Detective shall cause proper provision to
be made so that the successors and assigns of Detective assume the obligations
set forth in this Section 5.14.
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(c) For six years from and after the Effective Time, Detective shall
maintain in effect Detective's current directors' and officers' liability
insurance covering acts or omissions occurring prior to the Effective Time
covering each person currently covered by Detective's directors' and officers'
liability insurance policy on terms with respect to such coverage and amounts no
less favorable than those of such policy in effect on the date hereof; provided
that Detective may substitute therefor policies of Lynx Parent or its Affiliates
or its subsidiaries containing terms with respect to coverage and amount no less
favorable to such directors or officers; provided, however, that in no event
shall Detective be required to pay aggregate premiums for insurance under this
Section 5.14(c) in excess of 200% of the amount of the aggregate premiums paid
by Detective in 1999 on an annualized basis for such purpose; provided that
Detective shall nevertheless be obligated to provide such coverage as may be
obtained for such 200% amount.
(d) The provisions of this Section 5.14 (i) are intended to be for the
benefit of, and will be enforceable by, each indemnified party, his or her heirs
and his or her representatives and (ii) are in addition to, and not in
substitution for, any other rights to indemnification or contribution that any
such person may have by contract or otherwise.
SECTION 5.15 Repayment of Indebtedness. Prior to the Effective Time,
Detective shall repay each of its outstanding obligations pursuant to its loan
with Society National Bank and any other similar agreement required to be
disclosed pursuant to Section 4.16(a)(v) (collectively, the "Detective Loan
Agreements").
SECTION 5.16 Letter Agreements. Contemporaneously with the execution of
this Agreement, Detective shall enter into and shall cause each of Mark F.
Imperiale, Allan R. Tessler and Alan J. Hirschfield to enter into Letter
Agreements, substantially in the form and to the effect of Exhibit E (the
"Letter Agreements").
ARTICLE VI
CONDUCT OF BUSINESS PENDING CLOSING
SECTION 6.01 Conduct of Business of Detective and its Subsidiaries Prior to
the Closing. (a) Unless Lynx otherwise agrees in writing and except as
otherwise set forth in Section 6.01 or any other Section of the Detective
Disclosure Schedule or as contemplated by this Agreement, between the date of
this Agreement and the Closing Date, Detective will, and will cause each of its
Subsidiaries to (i) operate only in the ordinary course, (ii) use commercially
reasonable efforts to keep available the services of the key employees of
Detective and such Subsidiaries, (iii) operate in compliance in all material
respects with all Laws and (iv) continue to pay their bills in the ordinary
course of business consistent with past practice.
(b) By way of amplification and not limitation, except as disclosed in
Section 6.01 of the Detective Disclosure Schedule or as contemplated by this
Agreement (including repayment of the Detective Loan Agreements) or as required
by Law, between the date of this Agreement and Closing Date, Detective will not,
and shall cause its Subsidiaries to not, do any of the following without the
prior written consent of Lynx (which consent shall not be unreasonably withheld
or delayed):
(i) grant any Liens (other than Permitted Liens);
(ii) establish or materially increase any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing,
stock option (including the granting of stock options, stock
appreciation rights, performance awards or restricted stock awards),
stock purchase or other employee benefit plan, or otherwise materially
increase the compensation payable to or to become payable to any
officers or key employees of Detective or any of its Affiliates, except,
in the case of salary, in the ordinary course of business or in any
other case described above as may be required by Law or applicable
employment agreement or collective bargaining agreement;
(iii) enter into any employment agreement with any Person whose
annual compensation exceeds $75,000 or any severance agreement outside
of the ordinary course of business consistent with past practice;
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(iv) except in the ordinary course of business sell, assign,
transfer, lease or otherwise dispose of any of the assets of Detective
or any of its Subsidiaries;
(v) (A) acquire (by merger, consolidation, acquisition of stock or
assets or otherwise) any corporation, partnership or other business
organization or division thereof or (B) incur any indebtedness for
borrowed money or issue any debt securities or assume, grant, guarantee
or endorse, or otherwise as an accommodation become responsible for, the
obligations of any Person, or make any loans, advances or distributions
of cash;
(vi) take any action, other than reasonable actions in the ordinary
course of business and consistent with past practice, with respect to
accounting policies or procedures;
(vii) pay, discharge or satisfy any material claim, liability or
obligation (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than as required by this Agreement or the payment,
discharge or satisfaction, in the ordinary course of business and
consistent with past practice, of liabilities reflected or reserved
against in the financial statements referred to in Section 4.05 or
subsequently incurred in the ordinary course of business and consistent
with past practice;
(viii) make any material state, local or foreign Tax election or
settle or compromise any material state, local or foreign Tax liability;
(ix) issue or sell any additional shares of the capital stock or
share capital of, or other equity interests in, Detective or any of its
Subsidiaries or securities convertible into or exchangeable for such
shares or equity interests, or issue or grant any Options, warrants,
calls, subscription rights or other rights of any kind to acquire
additional shares of such capital stock or share capital, such other
equity interests, or such securities (other than issuances of Detective
Common Stock pursuant to the exercise of Options outstanding as of the
date hereof);
(x) other than as required by this Agreement, amend the Certificate
of Incorporation, other constitutive documents or by-laws of Detective
or any of its Subsidiaries;
(xi) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned Subsidiary of
Detective and dividends and distributions declared, set aside or paid by
Detective as required by and in accordance with the respective terms of
its capital stock or share capital as of the date hereof, (x) declare,
set aside or pay any dividends on, or make any other distributions
(whether in cash, stock, property or otherwise) in respect of, any of
its capital stock or share capital, (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,
directly or indirectly, any shares of capital stock or share capital of
Detective or any of its Subsidiaries or any other securities thereof or
any rights, warrants or options to acquire any such shares or other
securities (other than issuances of Detective Common Stock pursuant to
the exercise of Options outstanding as of the date hereof);
(xii) make or agree to make any new capital expenditure or
expenditures except in the ordinary cause of business consistent with
past practice;
(xiii) except as required by Law or contemplated hereby, enter
into, adopt or amend in any material respect or terminate any Detective
Plan, collective bargaining agreement, employment agreement, deferred
compensation agreement, consulting agreement, severance agreement,
termination agreement, indemnification agreement or any other agreement,
plan or policy involving Detective or any of its Subsidiaries, and one
or more of its current or former directors, officers or employees, or
change any actuarial or other assumption used to calculate funding
obligations with respect to any pension plan, or change the manner in
which contributions to any pension plan are made or the basis on which
such contributions are determined;
(xiv) transfer or license to any person or entity or otherwise
extend, amend or modify any rights to the Detective Owned Intellectual
Property, the Detective Licensed Intellectual Property or
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the Detective Shrink-Wrapped Software other than in the ordinary course
of business consistent with past practice or on a non-exclusive basis
not materially different from past practice;
(xv) call or hold any meeting of stockholders of Detective other
than in connection with the election of members of the Board of
Directors of Detective or other routine matters in the ordinary course
of business consistent with past practice;
(xvi) enter into any contract, agreement, obligation, commitment,
arrangement or understanding with any Affiliate of Detective that would
have been required to be filed as an exhibit to Detective's annual
report on form 10-K for the fiscal year ended June 30, 1999 had
Detective or any of its Affiliates been a party thereto as of June 30,
1999;
(xvii) with respect to any Option or other award the value of which
is based in whole or in part upon the performance of Detective Common
Stock that is outstanding as of the date hereof, take any action that
would cause any condition relating to the exercisability or full
enjoyment of any such Option or other award to lapse in whole or in
part;
(xviii) (I) take or agree or commit to take or agree or commit to
omit any action that would make any representation or warranty of
Detective or Acquisition Sub under this Agreement or the Ancillary
Agreements inaccurate in any material respect (if not qualified by
materiality) and in any respect (if qualified by materiality); or (II)
take any action or course of action inconsistent with compliance with
the covenants or agreements of Detective or Acquisition Sub under this
Agreement or the Ancillary Agreements; or
(xix) authorize, or commit or agree to take, any of the foregoing
actions.
(c) Detective shall (and shall cause its Affiliates to) implement and
remain in compliance with the Detective Year 2000 Plan in accordance with the
terms thereof. Detective shall not amend or modify (or cause or permit to be
amended or modified) the Detective Year 2000 Plan without the prior written
consent of Lynx (which shall not be unreasonably withheld or delayed). Detective
shall provide Lynx with written progress reports as reasonably requested by
Lynx, but no more frequently than monthly, describing in reasonable detail the
steps and measures taken to the date of the report to implement the Detective
Year 2000 Plan, and the status of and the progress made in connection with the
implementation of the Detective Year 2000 Plan. Detective shall afford Lynx and
its agents, representatives and advisors reasonable access, upon reasonable
notice to Detective, to those Persons involved with the implementation of the
Detective Year 2000 Plan in order to monitor the status of the implementation of
the Year 2000 Plan and the progress made in addressing the Year 2000 Problem.
SECTION 6.02 Conduct of Business of the Lynx Companies Prior to the
Closing. (a) Unless Detective otherwise agrees in writing and except as
otherwise set forth in Section 6.02 or any other Section of the Lynx Disclosure
Schedule, or as contemplated by this Agreement (including, without limitation,
effecting the Reorganization) between the date of this Agreement and the Closing
Date, Lynx and Lynx Parent will cause the Lynx Companies to (i) operate only in
the ordinary course, (ii) use commercially reasonable efforts to keep available
the services of the key employees of the Lynx Companies, (iii) operate in
compliance in all material respects with all Laws and (iv) continue to pay their
bills in the ordinary course of business consistent with past practice.
(b) By way of amplification and not limitation, except as disclosed in
Section 6.02 of the Lynx Disclosure Schedule or as contemplated by this
Agreement (including effecting the Reorganization) or as required by Law,
between the date of this Agreement and the Closing Date, Lynx and Lynx Parent
will cause the Lynx Companies not to do any of the following without the prior
written consent of Detective (which consent shall not be unreasonably withheld
or delayed):
(i) grant any Liens (other than Permitted Liens);
(ii) establish or materially increase any bonus, insurance, severance,
deferred compensation, pension, retirement, profit sharing, stock option
(including the granting of stock options, stock appreciation rights,
performance awards or restricted stock awards), stock purchase or other
employee benefit
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plan, or otherwise materially increase the compensation payable to or to
become payable to any officers or key employees of the Lynx Companies,
except, in the case of salary, in the ordinary course of business or in any
other case described above as may be required by Law or applicable
employment agreement or collective bargaining agreement;
(iii) enter into any employment agreement with any Person whose annual
compensation exceeds $75,000 or any severance agreement outside of the
ordinary course of business consistent with past practice;
(iv) except in the ordinary course of business sell, assign, transfer,
lease or otherwise dispose of any of the assets of the Lynx Companies;
(v) (A) acquire (by merger, consolidation, acquisition of stock or
assets or otherwise) any corporation, partnership or other business
organization or division thereof or (B) incur any indebtedness (other than
indebtedness owing to any Affiliate of the Lynx Companies) for borrowed
money or issue any debt securities or assume, grant, guarantee or endorse,
or otherwise as an accommodation become responsible for, the obligations of
any Person, or make any loans, advances or distributions of cash;
(vi) take any action, other than reasonable actions in the ordinary
course of business and consistent with past practice, with respect to
accounting policies or procedures;
(vii) other than with respect to transactions between the Lynx
Companies and any of their Affiliates, pay, discharge or satisfy any
material claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction, in the ordinary course of business and consistent with past
practice, of liabilities reflected or reserved against in the Reference
Balance Sheet referred to in Section 3.05(a) or subsequently incurred in
the ordinary course of business and consistent with past practice;
(viii) make any material state, local or foreign Tax election or
settle or compromise any material state, local or foreign Tax liability;
(ix) issue or sell any additional shares of the capital stock or share
capital of, or other equity interests in, the Lynx Companies or securities
convertible into or exchangeable for such shares or equity interests, or
issue or grant any Options, warrants, calls, subscription rights or other
rights of any kind to acquire additional shares of such capital stock or
share capital, such other equity interests, or such securities.
(x) amend the Certificate of Incorporation, other constitutive
documents or by-laws of any Lynx Company;
(xi) other than with respect to any dividends or distributions to any
Affiliate of any Lynx Company, and other than for dividends and
distributions (including liquidating distributions) by a direct or indirect
wholly owned Subsidiary of any Lynx Company to its parent and dividends and
distributions declared, set aside or paid by any Lynx Company as required
by and in accordance with the respective terms of its capital stock or
share capital as of the date hereof, (x) declare, set aside or pay any
dividends on, or make any other distributions (whether in cash, stock,
property or otherwise) in respect of, any of its capital stock or share
capital, (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 their capital stock, or (z) purchase,
redeem or otherwise acquire, directly and/or indirectly, any shares of
capital stock or share capital of any Lynx Company or any other securities
thereof or any rights, warrants or options to acquire any such shares or
other securities;
(xii) make or agree to make any new capital expenditure or
expenditures except in the ordinary course of business consistent with past
practice;
(xiii) except as required by Law or contemplated hereby, enter into,
adopt or amend in any material respect or terminate any Lynx Company Plan,
collective bargaining agreement, employment agreement, deferred
compensation agreement, consulting agreement, severance agreement,
termination agreement,
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indemnification agreement or any other agreement, plan or policy involving
any Lynx Company and one or more of its current or former directors,
officers or employees, or change any actuarial or other assumption used to
calculate funding obligations with respect to any pension plan, or change
the manner in which contributions to any pension plan are made or the basis
on which such contributions are determined;
(xiv) transfer or license to any person or entity or otherwise extend,
amend or modify any rights to the Lynx Company Owned Intellectual Property,
Lynx Company Licensed Intellectual Property or Lynx Company Shrink-Wrapped
Software other than in the ordinary course of business consistent with past
practice or on a non-exclusive basis not materially different from past
practice;
(xv) with respect to any Option or other award the value of which is
based in whole or in part upon the performance of Lynx shares that are
outstanding as of the date hereof, take any action that would cause any
condition relating to the exercisability or full enjoyment of any such
Option or other award to lapse in whole or in part;
(xvi) enter into any material contract, obligation, commitment,
arrangement or understanding with any Affiliate of any Lynx Company not in
the ordinary course of business;
(xvii) (I) take or agree or commit to take or agree or commit to omit
any action that would make any representation or warranty of Lynx Parent or
any of the Lynx Companies under this Agreement or the Ancillary Agreements
inaccurate in any material respect (if not qualified by materiality) and in
any respect (if qualified by materiality); or (II) take any action or
course of action inconsistent with compliance with the covenants or
agreements of Lynx Parent or any of the Lynx Companies under this Agreement
or the Ancillary Agreements; or
(xviii) authorize, or commit or agree to take, any of the foregoing
actions;
(c) Lynx shall implement and remain in compliance with the Lynx Company
Year 2000 Plan in accordance with the terms thereof. Lynx shall not amend or
modify (or cause or permit to be amended or modified) the Lynx Company Year 2000
Plan without the prior written consent of Detective (which shall not be
unreasonably withheld or delayed). Lynx shall provide Detective with written
progress reports as reasonably requested by Detective, but no more frequently
than monthly describing in reasonable detail the steps and measures taken to the
date of the report to implement the Lynx Company Year 2000 Plan, and the status
of and the progress made in connection with the implementation of the Lynx
Company Year 2000 Plan. Lynx shall afford Detective and its agents,
representatives and advisors reasonable access, upon reasonable notice to Lynx,
to those Persons involved with the implementation of the Lynx Company Year 2000
Plan in order to monitor the status of the implementation of the Lynx Company
Year 2000 Plan and the progress made in addressing the Year 2000 Problem.
SECTION 6.03 No Solicitation by Detective. (a) From and after the date of
this Agreement, Detective shall not, nor shall it permit any of its Subsidiaries
to, nor shall it authorize or permit any of its directors, officers or employees
or any investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly through another Person, (i) solicit, initiate or encourage (including
by way of furnishing information), or take any other action designed to
facilitate, any inquiries or the making of any proposal that constitutes, a
Detective Takeover Proposal or (ii) participate in any discussions or
negotiations (including by way of furnishing information) regarding any
Detective Takeover Proposal. Notwithstanding the foregoing, in the event that
Detective receives a Detective Superior Proposal, Detective may participate in
discussions regarding any Detective Superior Proposal in order to be informed
with respect thereto in order to make any determination permitted pursuant to
Section 6.03(b)(i). In such event, Detective shall, no less than 48 hours prior
to participating in any such discussions, (i) inform Lynx of the material terms
and conditions of such Detective Superior Proposal, including the identity of
the person making such Detective Superior Proposal, (ii) inform Lynx of the
substance of any discussions relating to such Detective Superior Proposal and
(iii) keep Lynx fully informed of the status, including any change to the
material terms and conditions of, any such Detective Superior Proposal. For
purposes of this Agreement, "Detective Takeover Proposal" means any bona fide
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inquiry, proposal or offer from any person relating to any direct or indirect
acquisition or purchase of a business that constitutes 20% or more of the net
revenues, net income or the assets of Detective and its Subsidiaries, taken as a
whole, or 20% or more of any class of equity securities of Detective or any of
its Subsidiaries, any tender offer or exchange offer that if consummated would
result in any person beneficially owning 20% or more of any class of equity
securities of Detective or any of its Subsidiaries, or any merger,
consolidation, business combination, recapitalization, liquidation, dissolution
or similar transaction involving Detective or any of its Subsidiaries, other
than the transactions contemplated by this Agreement. For purposes of this
Agreement, "Detective Superior Proposal" means any offer not solicited by
Detective made by a third party to consummate a tender offer, exchange offer,
merger, consolidation or similar transaction which would result in such third
party (or its shareholders) owning, directly or indirectly, more than 50% of the
shares of the Detective Common Stock then outstanding (or of the surviving
entity in a merger) or all or substantially all of the assets of Detective and
its Subsidiaries, taken together, and otherwise on terms which the Board of
Directors of Detective determines in good faith to be reasonably likely to
obtain the Detective Stockholder Approval and to provide consideration to the
holders of the Detective Common Stock with a greater value than the
consideration to be exchanged at the Closing.
(b) Neither the Board of Directors of Detective nor any committee thereof
shall (i) except as required by law as advised in writing by outside counsel,
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Lynx, the approval or recommendation by such Board of Directors or
such committee of the transactions contemplated by this Agreement or the
Ancillary Agreements, provided, however, the Board of Directors, or such
committee, may, if it believes it is in the best interest of its shareholders to
do so, withdraw or modify such recommendation or (ii) cause Detective to enter
into any Detective Acquisition Agreement.
(c) In addition to the obligations of Detective set forth in paragraphs (a)
and (b) of this Section 6.03, Detective shall immediately advise Lynx orally and
in writing of any request for information or of any Detective Takeover Proposal,
the material terms and conditions of such request or Detective Takeover Proposal
and the identity of the person making such request or Detective Takeover
Proposal. Detective will keep Lynx informed of the status and details (including
amendments or proposed amendments) of any such request or Detective Takeover
Proposal.
(d) Nothing contained in this Section 6.03 shall prohibit Detective from
taking and disclosing to its stockholders a position contemplated by Rule 14d-9
or 14e-2 promulgated under the Exchange Act or from making any disclosure to
Detective's stockholders if, in the good faith judgment of the Board of
Directors of Detective, after consultation with outside counsel, failure so to
disclose would be inconsistent with its obligations under applicable law;
provided, however, that, except as permitted pursuant to Section 6.03(b)(i),
neither Detective nor its Board of Directors nor any committee thereof shall
withdraw or modify, or propose publicly to withdraw or modify, its position with
respect to the transactions contemplated by this Agreement or the Ancillary
Agreements.
ARTICLE VII
CONDITIONS TO CLOSING
SECTION 7.01 Conditions to Each Party's Obligations. The respective
obligations of each party to consummate the transactions contemplated by this
Agreement and the Ancillary Agreements are subject to the satisfaction or waiver
on or prior to the Closing Date of the following conditions:
(a) Stockholder Approval. The Detective Stockholder Approval shall
have been obtained.
(b) HSR Act. The waiting periods (and any extension thereof)
applicable to the transactions contemplated hereby under the HSR Act and
any applicable foreign antitrust and competition Laws shall have been
terminated or shall have expired, and any necessary consents or approvals
with respect to such transactions under any applicable foreign antitrust
and competition Laws shall have been obtained.
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(c) SEC or NASD Consents; Approvals. All consents, approvals or
orders of authorization of, or actions by, the SEC or NASD shall have been
obtained including, without limitation, the Section 1018 Approval if
necessary.
(d) Other Consents. The consents or approvals set forth on Section
7.01(d) of the Lynx Company Disclosure Schedule shall have been obtained.
(e) No Litigation. No judgment, order, decree, statute, law,
ordinance, rule or regulation, entered, enacted, promulgated, enforced or
issued by any court or other Governmental Authority of competent
jurisdiction or other legal restraint or prohibition (collectively,
"Restraints") shall be in effect, and there shall not be pending or
threatened any suit, action or proceeding by any Governmental Authority,
(i) preventing the consummation of the transactions contemplated hereby or
by the Ancillary Agreements or (ii) which otherwise is reasonably likely to
have a Material Adverse Effect; provided, however, that each of the parties
shall have used its reasonable efforts to prevent the entry of any such
Restraints and to appeal as promptly as possible any such Restraints that
may be entered.
(f) The Reorganization. The Reorganization shall have been effected
(and Lynx or any of its Affiliates shall have received any tax clearances
or consents (including any UK Treasury consent) deemed necessary or
desirable by Lynx or any of its Affiliates in connection therewith).
SECTION 7.02 Conditions to Obligations of Lynx. The obligation of Lynx to
consummate the transactions contemplated hereby and the Ancillary Agreements is
further subject to satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Detective and Acquisition Sub set forth herein that are
qualified as to materiality shall be true and correct, and those that are
not so qualified shall be true and correct in all material respects, in
each case as of the date hereof and as of the Closing Date, with the same
effect as if made at and as of such time (except to the extent expressly
made as of an earlier date, in which case as of such date); provided,
however, that Section 4.25 need only be true and correct in all material
respects as of the date of this Agreement, except to the extent expressly
made as of an earlier date, which need only be true as of such date. Lynx
shall have received a certificate signed on behalf of Detective and
Acquisition Sub by the chief executive officer of Detective to such effect.
(b) Performance of Obligations of Detective and Acquisition
Sub. Detective and Acquisition Sub shall have performed in all material
respects all obligations required to be performed by them under this
Agreement and the Ancillary Agreements at or prior to the Closing Date.
Lynx shall have received a certificate signed on behalf of Detective and
Acquisition Sub by the chief executive officer of Detective to such effect.
(c) NASD Listing. The Detective Shares shall have been approved for
listing, subject to notice of issuance, on the NASDAQ National Market.
(d) Detective Common Stock Price. For the 10-trading-day period
preceding the Closing Date, the average daily closing price per share of
Detective Common Stock as reported on the NASDAQ National Market (or if not
listed on the NASDAQ National Market, as reported on any national
securities exchange or national securities quotation system on which the
Detective Common Stock is listed or quoted), as reported in the Wall Street
Journal (Northeast edition) shall be equal to or greater than $6.50.
(e) Detective Loan Agreements. Lynx shall have received evidence, in
form and substance reasonably satisfactory to Lynx, of the repayment of the
Detective Loan Agreements and the release of all Liens in connection
therewith.
(f) Tax Treatment. Lynx and Lynx Parent shall have received an
opinion from tax counsel, reasonably acceptable in form and substance to
them, that the Merger will be treated as a "reorganization" under Section
368(a) of the Code.
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(g) The seven day revocation period under each of the Letter
Agreements shall have expired and the Letter Agreements shall not have been
revoked.
(h) Matters Relating to Marksman. There shall not have occurred
without Lynx's prior consent (i) any change in the authorized or
outstanding capital stock of Marksman (or any Board authorization of any
such change) from June 30, 1999 other than pursuant to common stock
options, bonuses or awards to employees, consultants or directors in the
ordinary course of business consistent with past practice in an amount not
exceeding 3 (three) percent of the outstanding common stock of Marksman as
of such date, (ii) any Material Adverse Effect with respect to Marksman
since June 30, 1999, (iii) any entry by Marksman into any new line of
business (or Board approval of such entry) or (iv) the consummation of any
acquisition of any company or business (whether by merger, purchase of
stock or assets or otherwise) by Marksman or the entry by Marksman into any
partnership or joint venture (regardless of legal form) with any other
party, or the entry by Marksman into any Contract to effect any such
transaction (or Board approval of such), in each case involving payments or
contributions by Marksman in excess of $5 million (whether in cash,
property or services).
SECTION 7.03 Conditions to Obligations of Detective and Acquisition
Sub. The obligation of Detective and Acquisition Sub to consummate the
transactions, contemplated hereby and by the Ancillary Agreements is further
subject to satisfaction or waiver of the following conditions:
(a) Representations and Warranties. The representations and
warranties of Lynx set forth herein that are qualified as to materiality
shall be true and correct, and those that are not so qualified shall be
true and correct in all material respects, in each case as of the date
hereof and as of the Closing Date, with the same effect as if made at and
as of such time (except to the extent expressly made as of an earlier date,
in which case as of such date). Detective shall have received a certificate
signed on behalf of Lynx by its chief executive officer to such effect.
(b) Performance of Obligations of Lynx. Lynx shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date. Detective shall have
received a certificate signed on behalf of Lynx by its chief executive
officer to such effect.
SECTION 7.04 Frustration of Closing Conditions. None of Lynx, Detective or
Acquisition Sub may rely on the failure of any condition set forth in Section
7.01, 7.02 or 7.03, as the case may be, to be satisfied if such failure was
caused by such party's failure to use its reasonable efforts to consummate the
transactions contemplated by this Agreement, and the Ancillary Agreements, as
required by and subject to Section 5.04.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 Termination. This Agreement may be terminated at any time
prior to the Closing (except as limited as to time in paragraph (b) below):
(a) by mutual written consent of Lynx and Detective;
(b) by either Lynx or Detective:
(i) if the Closing shall not have occurred prior to May 31, 2000;
provided, further, however, that the right to terminate this Agreement
pursuant to this Section 8.01(b)(i) shall not be available to any party
whose failure to perform any of its obligations under this Agreement
results in the failure of the Closing to occur by such time; or
(ii) if the Detective Stockholder Approval shall not have been
obtained at a Detective Shareholders Meeting duly convened therefor or
at any adjournment or postponement thereof; or
(iii) if any Restraint having any of the effects set forth in
Section 7.01(e) shall be in effect and shall have become final and
nonappealable; provided that the party seeking to terminate this
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Agreement pursuant to this Section 8.01(b)(iii) shall have used
reasonable efforts to prevent the entry of and to remove such Restraint.
(c) by Lynx, if Detective or any of its Affiliates shall have breached
or failed to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in this Agreement or
the Ancillary Agreements, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 7.02(a) or (b) and
(B) has not been or is incapable of being cured by Detective or any of its
Affiliates within 30 calendar days after its receipt of written notice from
Lynx;
(d) by Detective, if Lynx or any of its Affiliates shall have breached
or failed to perform in any material respect any of its representations,
warranties, covenants or other agreements contained in this Agreement or
the Ancillary Agreements, which breach or failure to perform (A) would give
rise to the failure of a condition set forth in Section 7.03(a) or (b) and
(B) has not been or is incapable of being cured by Lynx or any of its
Affiliates within 30 calendar days after its receipt of written notice from
or Detective; or
(e) by Lynx, if there is any material breach of the obligations set
forth in Section 6.03 or if Detective withdraws its recommendation of the
Merger or the transactions contemplated by this Agreement or the Ancillary
Agreements.
SECTION 8.02 Effect of Termination. In the event of termination of this
Agreement by either Detective or Lynx as provided in Section 8.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Detective, Acquisition Sub or Lynx, other than the
provisions of Section 3.17, Section 4.17, Section 5.02, Section 5.08, this
Section 8.02 and Article IX, which provisions shall survive such termination,
and except to the extent that such termination results from the wilful and
material breach by a party of any of its representations, warranties, covenants
or agreements set forth in this Agreement. If this Agreement is terminated under
circumstances in which Lynx is entitled to receive the Termination Fee, the
payment of such Termination Fee shall be the sole and exclusive remedy (other
than as provided for in the Lynx Option Agreement) available to Lynx, except if
there shall have been a wilful breach by Detective of Section 6.03.
SECTION 8.03 Amendment. This Agreement may be amended by the parties at
any time before or after the Detective Stockholder Approval; provided, however,
that after any such approval, there shall not be made any amendment that by law
requires further approval by the stockholders of Detective without the further
approval of such stockholders. This Agreement may not be amended except by an
instrument in writing signed on behalf of each of the parties.
SECTION 8.04 Extension; Waiver. At any time prior to the Closing, a party
may (a) extend the time for the performance of any of the obligations or other
acts of the other parties, (b) waive any inaccuracies in the representations and
warranties of the other parties contained in this Agreement or in any document
delivered pursuant to this Agreement or (c) subject to the proviso of Section
8.03, waive compliance by the other party with any of the agreements or
conditions contained in this Agreement. Any agreement on the part of a party to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party. The failure of any party to this
Agreement to assert any of its rights under this Agreement or otherwise shall
not constitute a waiver of such rights.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.01 Nonsurvival of Representations and Warranties. None of the
representations, warranties, covenants or agreements in this Agreement or in any
instrument delivered pursuant to this Agreement shall survive the Closing. This
Section 9.01 shall not limit any covenant or agreement of the parties which by
its terms contemplates performance after the Closing.
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SECTION 9.02 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given or made (and
shall be deemed to have been duly given or made upon receipt) by delivery in
person, by overnight courier service, by cable, by facsimile, by telegram, by
telex or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in accordance
with this Section 9.02):
(a) if to Detective or Acquisition Sub:
Data Broadcasting Corporation
3490 Clubhouse Drive
Jackson, WY 83001
Attention: President
Telecopier: (307) 733-4935
with a copy to:
Camhy Karlinsky & Stein LLP
1740 Broadway, 16th Floor
New York, NY 10019
Attention: Alan I. Annex, Esq.
Telecopier: (212) 977-8389
(b) if to Lynx or Lynx Parent:
c/o Pearson Inc.
1330 Avenue of the Americas, 7th Floor
New York, NY 10019
Attention: President
Telecopier: (212) 641-2500
with a copy to:
Morgan, Lewis & Bockius LLP
101 Park Avenue
New York, New York 10178
Attention: Anne E. Gold, Esq.
Telecopier: (212) 309-6273
SECTION 9.03 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
SECTION 9.04 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any 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 is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto 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 contemplated hereby be consummated as originally
contemplated to the greatest extent possible.
SECTION 9.05 Entire Agreement. This Agreement and the Ancillary Agreements
constitute the entire agreement of the parties hereto with respect to the
subject matter hereof and supersede all prior agreements and undertakings, both
written and oral, other than the Confidentiality Agreement, with respect to the
subject matter hereof and thereof and except as otherwise expressly provided
herein and therein.
SECTION 9.06 Assignment. This Agreement shall not be assigned by operation
of Law or otherwise, except that each of Lynx and Lynx Parent may assign all or
any of its respective rights and obligations
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hereunder to any of its Affiliates, provided, however, that no such assignment
shall relieve the assigning party of its obligations hereunder.
SECTION 9.07 No Third-Party Beneficiaries. This Agreement is for the sole
benefit of the parties hereto and their permitted assigns and nothing herein
(other than as set forth in Section 5.14), express or implied, is intended to or
shall confer upon any other Person or entity any legal or equitable right,
benefit or remedy of any nature whatsoever under or by reason of this Agreement.
SECTION 9.08 Sections and Schedules. Any disclosure with respect to a
Section or Schedule of this Agreement shall be deemed to be disclosure for all
other Sections and Schedules of this Agreement.
SECTION 9.09 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the Laws of the State of Delaware. All actions and
proceedings arising out of or relating to this Agreement shall be heard and
determined in a Delaware state or federal court sitting in the State of
Delaware, and the parties hereto hereby irrevocable submit to the exclusive
jurisdiction of such courts in any such action or proceeding and irrevocably
waive the defense of an inconvenient forum to the maintenance of any such action
or proceeding.
SECTION 9.10 Counterparts. This Agreement may be executed in one or more
counterparts, and by the different parties hereto in separate counterparts, each
of which when executed shall be deemed to be an original but all of which taken
together shall constitute one and the same agreement. Delivery of an executed
counterpart of a signature page to this Agreement by telecopier shall be
effective as delivery of a manually executed counterpart of this Agreement.
SECTION 9.11 No Presumption. This Agreement shall be construed without
regard to any presumption or rule requiring construction or interpretation
against the party drafting or causing any instrument to be drafted.
[signature page to follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
INTERACTIVE DATA CORPORATION
By: /s/ PHILIP J. HOFFMAN
------------------------------------
Name: Philip J. Hoffman
Title: Authorized Person
PEARSON LONGMAN, INC.
By: /s/ PHILIP J. HOFFMAN
------------------------------------
Name: Philip J. Hoffman
Title: Authorized Person
DATA BROADCASTING CORPORATION
By: /s/ MARK F. IMPERIALE
------------------------------------
Name: Mark F. Imperiale
Title: President
and
DETECTIVE MERGER-SUB, INC.
By: /s/ MARK F. IMPERIALE
------------------------------------
Name: Mark F. Imperiale
Title: President
[Signature page to Merger Agreement]
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SCHEDULE I
LYNX COMPANIES
1. Muller Data Corporation, a New York corporation
2. Interactive Data Canada Inc., an company organized under the laws of the
Province of Ontario, Canada
3. Financial Times Information (H.K.) Limited, a company organized under the
laws of Hong Kong
4. Financial Times Information (Australia) Pty Limited, a company organized
under the laws of Victoria, Australia
5. Financial Times Information (Singapore) Pte Ltd., a company organized under
the laws of Singapore
6. Financial Times Information (Ireland) Ltd., a company organized under the
laws of Ireland
7. Exshare Financial Limited, a company organized under the laws of England and
Wales
8. Exshare Computing Ltd., a company organized under the laws of England and
Wales
9. The Exchange Telegraph Co. Ltd., a company organized under the laws of
England and Wales
10. Exshare Financial (US) Ltd., a company organized under the laws of England
and Wales
11. W&W Ltd, a company organized under the laws of England and Wales
12. Extel Statistical Services Ltd., a company organized under the laws of
England and Wales
13. Exshare Financial Inc., a Delaware corporation
195
SCHEDULE IV
PARTIES TO VOTING AND STANDSTILL AGREEMENTS
Alan Hirschfield
Allan Tessler
196
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF MERGER
Amendment No. 1 to Agreement and Plan of Merger, dated as of January 10,
2000 (this "Amendment"), to the Agreement and Plan of Merger, dated as of
November 14, 1999 (the "Merger Agreement"), among Data Broadcasting Corporation,
a Delaware corporation, Pearson Longman, Inc. a Delaware corporation and the
sole shareholder of Lynx, Detective Merger-Sub, Inc., a Delaware corporation and
a wholly-owned subsidiary of Detective, and Interactive Data Corporation, a
Delaware corporation.
WHEREAS, the parties desire to amend the Merger Agreement and Exhibit B
thereto in certain respects.
NOW, THEREFORE, the parties hereto hereby agree as follows:
SECTION 1. Amendments to Merger Agreement.
(a) The number "56,453,800" appearing in the first WHEREAS clause of the
Merger Agreement is hereby deleted and replaced with "56,423,949".
(b) The number "56,453,800" appearing in the third WHEREAS clause of
Exhibit "B" to the Merger Agreement is hereby deleted and replaced with
"56,423,949".
SECTION 2. Miscellaneous. Except as and to the extent expressly modified
by this Amendment, the Merger Agreement (including all exhibits thereto) shall
remain in full force and effect in all respects. This Amendment shall be
governed by, and construed in accordance with, the laws of the State of
Delaware. This Amendment may be executed in one or more counterparts, and by the
different parties hereto in separate counterparts, each of which when executed
shall be deemed to be an original but all of which taken together shall
constitute one and the same agreement. Delivery of an executed counterpart of a
signature page to this Amendment by telecopier shall be effective as delivery of
a manually executed counterpart of this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed as of the date first written above by their respective officers
thereunto duly authorized.
INTERACTIVE DATA CORPORATION
By: /s/ PHILIP J. HOFFMAN
------------------------------------
Name: Philip J. Hoffman
Title: Authorized Person
PEARSON LONGMAN, INC.
By: /s/ PHILIP J. HOFFMAN
------------------------------------
Name: Philip J. Hoffman
Title: Authorized Person
DATA BROADCASTING CORPORATION
By: /s/ MARK F. IMPERIALE
------------------------------------
Name: Mark F. Imperiale
Title: President
and
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DETECTIVE MERGER-SUB, INC.
By: /s/ MARK F. IMPERIALE
----------------------------------
Name: Mark F. Imperiale
Title: President
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APPENDIX C
OPTION AGREEMENT, dated as of November 14, 1999 (the "Agreement"), by and
between DATA BROADCASTING CORPORATION, a Delaware corporation ("Issuer"), and
INTERACTIVE DATA CORPORATION, a Delaware corporation ("Grantee").
RECITALS
WHEREAS, Issuer, Detective Merger-Sub, Inc., a Delaware corporation,
Pearson Longman, Inc., a Delaware corporation and Grantee have entered into an
Agreement and Plan of Merger dated as of the date hereof (the "Merger
Agreement"; defined terms used but not defined herein have the meanings set
forth in the Merger Agreement), providing for, among other things, the merger of
Acquisition Subsidiary, Inc. with and into Grantee which shall become a
wholly-owned subsidiary of Issuer as a result thereof; and
WHEREAS, as a condition and inducement to Grantee's willingness to enter
into the Merger Agreement, Grantee has required that Issuer agree, and Issuer
has agreed, to grant Grantee the Option (as defined below).
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Grant of Option. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the
"Option") to purchase up to 6,889,293.63 (as adjusted as set forth herein)
shares (the "Option Shares") of Detective Common Stock at a purchase price
of $7.65 (as adjusted as set forth herein) per Option Share (the "Purchase
Price").
2. Exercise of Option. (a) Grantee may, at any time or times,
exercise the Option, in whole or in part, subject to the provisions of
Section 2(c), after the occurrence of any event as a result of which the
Grantee is entitled to receive the Termination Fee pursuant to Section 5.08
of the Merger Agreement (a "Purchase Event"); provided, however, that (i)
except as provided in the last sentence of this Section 2(a), the Option
will terminate and be of no further force and effect upon the earliest to
occur of (A) the Effective Time, (B) 12 months after the first occurrence
of a Purchase Event, and (C) termination of the Merger Agreement in
accordance with its terms prior to the occurrence of a Purchase Event,
unless, in the case of clause (C), Grantee has the right to receive a
Termination Fee following such termination upon the occurrence of certain
events, in which case the Option will not terminate until the later of (x)
12 months following the time such Termination Fee becomes payable and (y)
the expiration of the period in which the Grantee has such right to receive
a Termination Fee, and (ii) any purchase of Option Shares upon exercise of
the Option will be subject to compliance with the HSR Act and any
applicable foreign antitrust and competition Laws, and the obtaining or
making of any consents, approvals, orders, notifications, filings or
authorizations, the failure of which to have obtained or made would violate
any law, regulation or agreement to which Issuer is subject (the
"Regulatory Approvals"). Notwithstanding the foregoing, (A) if all
necessary Regulatory Approvals have not been obtained prior to the
termination of the Option, such termination shall be extended to the date
that is the fifth Business Day after receipt of such Regulatory Approvals,
and (B) notwithstanding the termination of the Option, if Grantee has
exercised the Option in accordance with the terms hereof prior to the
termination of the Option, Grantee will be entitled to purchase the Option
Shares and the termination of the Option will not affect any rights
hereunder.
(b) In the event that Grantee is entitled to and wishes to exercise
the Option, it will send to Issuer a written notice (an "Exercise Notice";
the date of which being herein referred to as the "Notice Date") to that
effect which Exercise Notice also specifies the number of Option Shares, if
any, Grantee wishes to purchase pursuant to this Section 2(b), the number
of Option Shares, if any, with respect to which Grantee wishes to exercise
its Cash-Out Right (as defined herein) pursuant to Section 6(c), the
denominations of the certificate or certificates evidencing the Option
Shares which Grantee wishes to purchase pursuant to this Section 2(b) and a
date (an "Option Closing Date"), subject to the following sentence, not
earlier than three Business Days nor later than 20 Business Days from the
Notice Date for the closing of such purchase (an "Option Closing"). Any
Option Closing will be at an agreed location
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and time in New York, New York on the applicable Option Closing Date or at
such later date as may be necessary so as to comply with clause (ii) of the
first sentence of Section 2(a).
(c) Notwithstanding anything to the contrary contained herein, any
exercise of the Option and purchase of Option Shares shall be subject to
compliance with applicable laws and regulations, which may prohibit the
purchase of all the Option Shares specified in the Exercise Notice without
first obtaining or making certain Regulatory Approvals. In such event, if
the Option is otherwise exercisable and Grantee wishes to exercise the
Option, the Option may be exercised in accordance with Section 2(b) and
Grantee shall acquire the maximum number of Option Shares specified in the
Exercise Notice that Grantee is then permitted to acquire under the
applicable laws and regulations, and if Grantee thereafter obtains the
Regulatory Approvals to acquire the remaining balance of the Option Shares
specified in the Exercise Notice, then Grantee shall be entitled to acquire
such remaining balance. Issuer agrees to use its reasonable efforts to
assist Grantee in seeking the Regulatory Approvals. In the event (i)
Grantee receives notice that a Regulatory Approval required for the
purchase of any Option Shares will not be issued or granted or (ii) such
Regulatory Approval has not been issued or granted within six months of the
date of the Exercise Notice, Grantee shall have the right to exercise its
Cash-Out Right pursuant to Section 6(c) with respect to the Option Shares
for which such Regulatory Approval will not be issued or granted or has not
been issued or granted.
3. Payment and Delivery of Certificates. (a) At any Option Closing,
Grantee will pay to Issuer in immediately available funds by wire transfer
to a bank account designated in writing by Issuer an amount equal to the
Purchase Price multiplied by the number of Option Shares to be purchased at
such Option Closing plus the amount of any transfer, stamp or other similar
taxes or charges imposed in connection therewith.
(b) At any Option Closing, simultaneously with the delivery of
immediately available funds as provided in Section 3(a), Issuer will
deliver to Grantee a certificate or certificates representing the Option
Shares to be purchased at such Option Closing, which Option Shares will be
free and clear of all Liens, claims, charges and encumbrances of any kind
whatsoever, except pursuant to applicable federal and state securities
laws. If at the time of issuance of Option Shares pursuant to an exercise
of the Option hereunder, Issuer shall have issued any securities similar to
rights under a stockholder rights plan, then each Option Share issued
pursuant to such exercise will also represent such a corresponding right
with terms substantially the same as and at least as favorable to Grantee
as are provided under any such stockholder rights plan then in effect.
(c) Certificates for the Option Shares delivered at an Option Closing
will have typed or printed thereon a restrictive legend which will read
substantially as follows:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE
REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH
REGISTRATION IS AVAILABLE."
It is understood and agreed that (i) the reference to restrictions arising
under the Securities Act in the above legend will be removed by delivery of
substitute certificate(s) without such reference if such Option Shares have
been registered pursuant to the Securities Act, such Option Shares have
been sold in reliance on and in accordance with Rule 144 under the
Securities Act or Grantee has delivered to Issuer a copy of a letter from
the staff of the SEC, or an opinion of counsel to the effect that such
legend is not required for purposes of the Securities Act and (ii) the
reference to restrictions pursuant to this Agreement in the above legend
will be removed by delivery of substitute certificate(s) without such
reference if the Option Shares evidenced by certificate(s) containing such
reference have been sold or transferred in compliance with the provisions
of this Agreement under circumstances that do not require the retention of
such reference.
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4. Representations and Warranties of Issuer. Issuer hereby represents
and warrants to Grantee as follows:
(a) Incorporation and Authority of Issuer. Issuer is a corporation
duly incorporated, validly existing and in good standing under the laws of
Delaware and has all necessary corporate power and authority to enter into
this Agreement, to carry out its obligations hereunder and to consummate
the transactions contemplated hereby. The execution and delivery of this
Agreement by Issuer, the performance by Issuer of its obligations hereunder
and the consummation by Issuer of the transactions contemplated hereby have
been duly authorized by all requisite corporate action on the part of
Issuer. This Agreement has been duly executed and delivered by Issuer, and
(assuming due authorization, execution and delivery by Grantee) this
Agreement constitutes legal, valid and binding obligations of Issuer
enforceable against Issuer in accordance with their terms.
(b) Capital Stock of Issuer. As of the date hereof, the authorized
capital stock of Issuer consists of 75,000,000 shares of common stock, par
value $.01 per share (the "Common Stock"), and 5,000,000 shares of
Preferred Stock, par value $.01 per share. As of November 10, 1999,
34,463,700 shares of Detective Common Stock are validly issued,
outstanding, fully paid and nonassessable, and have been issued in
compliance with all applicable federal and, to the knowledge of Issuer,
state securities laws. 2,981,350 shares of Detective Common Stock are held
as treasury stock. No other shares of capital stock of Issuer have been
issued or are outstanding. Section 4.02 of the Detective Disclosure
Schedule describes the nature, holder, exercise price and other material
terms of each outstanding Option of Detective, in each case, as of the date
hereof and as of the Closing Date. Except as disclosed in Section 4.02 of
the Detective Disclosure Schedule, there are no outstanding Options or
agreements, arrangements or understandings to issue Options with respect to
Detective and there are no preemptive rights or agreements, arrangements or
understandings to issue preemptive rights with respect to the issuance or
sale of Detective's capital stock. Issuer has taken all necessary corporate
and other action to authorize and reserve and, subject to the expiration or
termination of any required waiting period under the HSR Act and other
Regulatory Approvals that are required, to permit it to issue, and, at all
times from the date hereof until the obligation to deliver Option Shares
upon the exercise of the Option terminates, shall have reserved for
issuance, upon exercise of the Option, shares of Detective Common Stock
necessary for Grantee to exercise the Option, and Issuer will take all
necessary corporate action to authorize and reserve for issuance all
additional shares of Detective Common Stock or other securities which may
be issued pursuant to Section 6 upon exercise of the Option. The shares of
Detective Common Stock to be issued upon due exercise of the Option,
including all additional shares of Detective Common Stock or other
securities which may be issuable upon exercise of the Option or any other
securities which may be issued pursuant to Section 6, upon issuance
pursuant hereto, will be duly and validly issued, fully paid and
nonassessable, and will be delivered free and clear of all Liens, claims,
charges and encumbrances of any kind or nature whatsoever, including
without limitation any preemptive rights of any stockholder of Issuer, but
will be subject to applicable securities laws.
(c) No Conflict. The execution, delivery and performance of this
Agreement by Issuer does not and will not (a) violate or conflict with the
Certificate of Incorporation, other constitutive documents or by-laws of
Issuer or any of its Subsidiaries, (b) conflict with or violate any Law or
Governmental Order applicable to Issuer or any of its Subsidiaries, or (c)
result in any breach of, or constitute a default (or event which with the
giving of notice or lapse of time, or both, would become a default) under,
or give to any Person any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any Lien on Issuer pursuant
to, any Contract, License or other material instrument to which Issuer or
any of its Subsidiaries is a party or by which Issuer or any of its
Subsidiaries is bound or affected, except, in the case of clauses (b) and
(c) above, (i) for conflicts, violations, breaches, defaults, rights of
termination, amendment, acceleration or cancellation, or Liens as would
not, individually or in the aggregate, have a Material Adverse Effect on
Issuer or (ii) for Liens created by or through Grantee or any of its
Affiliates.
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5. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that:
Purchase Not for Distribution. Any Option Shares or other
securities acquired by Grantee upon exercise of the Option will not be
transferred or otherwise disposed of except in a transaction registered,
or exempt from registration, under the Securities Act.
6. Adjustment upon Changes in Capitalization, Etc. (a) In the event
of any change in Detective Common Stock by reason of a stock dividend,
split-up, merger, recapitalization, combination, exchange of shares, or
similar transaction, the type and number of shares or securities subject to
the Option, and the Purchase Price thereof, will be adjusted appropriately,
and proper provision will be made in the agreements governing such
transaction, so that Grantee will receive upon exercise of the Option the
number and class of shares or other securities or property that Grantee
would have received in respect of Detective Common Stock if the Option had
been exercised immediately prior to such event or the record date therefor,
as applicable, provided that no such adjustment shall be required in
connection with the exercise of options or similar rights under any stock
option plan or benefit arrangement in effect on the date hereof or in
connection with the conversion of any convertible or exchangeable
securities outstanding on the date hereof.
(b) Without limiting the parties' relative rights and obligations
under the Merger Agreement, in the event that Issuer enters into an
agreement (i) to consolidate with or merge into any person, other than
Grantee or one of its Subsidiaries, and Issuer will not be the continuing
or surviving corporation in such consolidation or merger, (ii) to permit
any Person, other than Grantee or one of its Subsidiaries, to merge into
Issuer and Issuer will be the continuing or surviving corporation, but in
connection with such merger, the shares of Detective Common Stock
outstanding immediately prior to the consummation of such merger will be
changed into or exchanged for stock or other securities of Issuer or any
other person or cash or any other property, or the shares of Detective
Common Stock outstanding immediately prior to the consummation of such
merger will, after such merger, represent less than 50% of the outstanding
voting securities of the merged company, or (iii) to sell or otherwise
transfer all or substantially all of its assets to any person, other than
Grantee or one of its Subsidiaries, then, and in each such case, the
agreement governing such transaction will make proper provision so that the
Option will, upon the consummation of any such transaction and upon the
terms and conditions set forth herein, be converted into, or exchanged for,
an option with identical terms appropriately adjusted to acquire the number
and class of shares or other securities or cash or other property that
Grantee would have received in respect of Detective Common Stock if the
Option had been exercised immediately prior to such consolidation, merger,
sale, or transfer, or the record date therefor, as applicable and make any
other necessary adjustments.
(c) If, at any time during the period commencing on a Purchase Event
and ending on the termination of the Option in accordance with Section 2,
Grantee sends to Issuer an Exercise Notice indicating Grantee's election to
exercise its right (the "Cash-Out Right") pursuant to this Section 6(c),
then Issuer shall pay to Grantee, on the Option Closing Date, in exchange
for the cancellation of the Option with respect to such number of Option
Shares as Grantee specifies in the Exercise Notice, an amount in cash equal
to such number of Option Shares multiplied by the difference between (i)
the average closing price, for the 10 trading days commencing on the 12th
trading day immediately preceding the date of delivery of such Exercise
Notice, per share of Detective Common Stock as reported on The NASDAQ
National Market (or, if not listed on The NASDAQ National Market, as
reported on any other national securities exchange or national securities
quotation system on which the Detective Common Stock is listed or quoted,
as reported in The Wall Street Journal (Northeast edition), or, if not
reported thereby, any other authoritative source) (the "Closing Price") and
(ii) the Purchase Price. Notwithstanding the termination of the Option,
Grantee will be entitled to exercise its rights under this Section 6(c) if
it has exercised such rights in accordance with the terms hereof prior to
the termination of the Option.
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7. Profit Limitations. (a) Notwithstanding any other provision of
this Agreement, in no event shall the Total Option Profit (as defined
herein) exceed in the aggregate $3,600,000 million (such amount, the
"Profit Limit") and, if any payment to be made to Grantee otherwise would
cause such aggregate amount to be exceeded, the Grantee, at its sole
election, shall either (i) reduce the number of shares of Detective Common
Stock subject to this Option, (ii) deliver to Issuer for cancellation
Option Shares previously purchased by Grantee, (iii) pay cash to Issuer or
(iv) any combination thereof, so that the Total Option Profit shall not
exceed the Profit Limit after taking into account the foregoing actions.
(b) Notwithstanding any other provision of this Agreement, the Option
may not be exercised for a number of shares of Detective Common Stock as
would, as of the date of exercise, result in a Notional Total Option Profit
(as hereinafter defined) which would exceed in the aggregate the Profit
Limit and, if it otherwise would exceed such amount, the Grantee, at its
sole election, shall on or prior to the date of exercise either (i) reduce
the number of shares of Detective Common Stock subject to such exercise,
(ii) deliver to Issuer for cancellation Option Shares previously purchased
by Grantee, (iii) pay cash to Issuer or (iv) any combination thereof, so
that the Notional Total Option Profit shall not exceed the Profit Limit
after taking into account the foregoing actions, provided that this
paragraph (b) shall not be construed as to terminate the Option in whole or
in part or to restrict any exercise of the Option that is not prohibited
hereby on any subsequent date.
(c) As used herein, the term "Total Option Profit" shall mean the
aggregate amount (before taxes) of the following: (i) any amount received
by Grantee pursuant to the Cash-Out Right, (ii)(x) the net consideration,
if any, received by Grantee pursuant to the sale of Option Shares (or any
other securities into which such Option Shares are converted or exchanged)
to any unaffiliated party, valuing any non-cash consideration at its fair
market value (as defined below), less (y) the Exercise Price and any cash
paid by Grantee to Issuer pursuant to Section 7(a)(iii) or Section
7(b)(iii) and (iii) the net cash amounts received by Grantee on the
transfer (in accordance with Section 12(g)) of the Option (or any portion
thereof) to any unaffiliated party.
(d) As used herein, the term "Notional Total Option Profit" with
respect to any number of shares of Option Shares as to which Grantee may
propose to exercise the Option shall be the aggregate of (i) the Total
Option Profit determined under paragraph (c) above with respect to prior
exercises and (ii) Total Option Profit with respect to such number of
shares of Detective Common Stock as to which Grantee proposes to exercise
and all other Option Shares held by Grantee and its affiliates as of such
date, assuming that all such shares were sold for cash at the closing
market price for Detective Common Stock as of the close of business on the
preceding trading day (less customary brokerage commissions or underwriting
discounts).
(e) As used herein, the "fair market value" of any non-cash
consideration consisting of:
(i) securities listed on a national securities exchange or traded
on The NASDAQ National Market shall be equal to the average closing
price per share of such security as reported on such exchange or The
NASDAQ National Market for the five trading days after the date of
determination; and
(ii) consideration which is other than cash or securities of the
form specified in clause (i) above shall be determined by a nationally
recognized independent investment banking firm mutually agreed upon by
the parties within five business days of the event requiring selection
of such banking firm, provided that if the parties are unable to agree
within two business days after the date of such event as to the
investment banking firm, then the parties shall each select one firm,
and those firms shall select a third nationally recognized independent
investment banking firm, which third firm shall make such determination.
8. Registration Rights. Issuer will, if requested by Grantee at any
time and from time to time within two years of the exercise of the Option,
as expeditiously as possible prepare and file up to three registration
statements under the Securities Act if such registration is necessary in
order to permit the sale or other disposition of any or all shares of
securities that have been acquired by or are issuable to
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Grantee upon exercise of the Option in accordance with the intended method
of sale or other disposition stated by Grantee, including a "shelf"
registration statement under Rule 415 under the Securities Act or any
successor provision, and Issuer will use its reasonable efforts to qualify
such shares or other securities under any applicable state securities laws,
provided that Issuer shall not be required to effect such registration if
less than 10% of the Option Shares subject to the Option will be offered
for sale pursuant thereto. Issuer will use reasonable efforts to cause each
such registration statement to become effective, to obtain all consents or
waivers of other parties which are required therefor, and to keep such
registration statement effective for such period not in excess of 120
calendar days from the day such registration statement first becomes
effective as may be reasonably necessary to effect such sale or other
disposition. The obligations of Issuer hereunder to file a registration
statement and to maintain its effectiveness may be suspended for up to 120
calendar days in the aggregate if the Board of Directors of Issuer shall
have determined in good faith that the filing of such registration
statement or the maintenance of its effectiveness would require premature
disclosure of material nonpublic information that would materially and
adversely affect Issuer or otherwise interfere with or adversely affect any
pending or proposed offering of securities of Issuer or any other material
transaction involving Issuer. Any registration statement prepared and filed
under this Section 8, and any sale covered thereby, will be at Issuer's
expense except for underwriting discounts or commissions, brokers' fees and
the fees and disbursements of Grantee's counsel related thereto. Grantee
will provide all information reasonably requested by Issuer for inclusion
in any registration statement to be filed hereunder. If, during the time
periods referred to in the first sentence of this Section 8, Issuer effects
a registration under the Securities Act of Detective Common Stock for its
own account or for any other stockholders of Issuer (other than on Form S-4
or Form S-8, or any successor form), it will allow Grantee the right to
participate in such registration, and such participation will not affect
the obligation of Issuer to effect demand registration statements for
Grantee under this Section 8; provided that, if the managing underwriters
of such offering advise Issuer in writing that in their opinion the number
of shares of Detective Common Stock requested to be included in such
registration exceeds the number which can be sold in such offering, Issuer
will include the shares requested to be included therein by Grantee pro
rata with the shares intended to be included therein by Issuer or any other
stockholders who may have priority as to the Issuer. In connection with any
registration pursuant to this Section 8, Issuer and Grantee will provide
each other and any underwriter of the offering with customary
representations, warranties, covenants, indemnification, and contribution
in connection with such registration.
9. Quotation. If Detective Common Stock or any other securities to be
acquired upon exercise of the Option are then approved for quotation on The
NASDAQ National Market (or any other national securities exchange or
national securities quotation system), Issuer, upon the request of Grantee,
will promptly file an application to have approved for quotation the shares
of Detective Common Stock or other securities to be acquired upon exercise
of the Option on The NASDAQ National Market (and any such other national
securities exchange or national securities quotation system) and will use
reasonable efforts to obtain approval of such quotation as promptly as
practicable.
10. Loss or Mutilation. Upon receipt by Issuer of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of
like tenor and date. Any such new Agreement executed and delivered will
constitute an additional contractual obligation on the part of Issuer,
whether or not the Agreement so lost, stolen, destroyed, or mutilated shall
at any time be enforceable by anyone.
11. Miscellaneous. (a) Expenses. Each of the parties hereto will bear
and pay all costs and expenses incurred by it or on its behalf in
connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants,
and counsel.
(b) Amendment. This Agreement may not be amended, except by an
instrument in writing signed on behalf of each of the parties.
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(c) Extension; Waiver. Any agreement on the part of a party to waive
any provision of this Agreement, or to extend the time for performance,
will be valid only if set forth in an instrument in writing signed on
behalf of such party. The failure of any party to this Agreement to assert
any of its rights under this Agreement or otherwise will not constitute a
waiver of such rights.
(d) Entire Agreement; No Third-Party Beneficiaries. This Agreement,
the Merger Agreement (including the documents and instruments attached
thereto as exhibits or schedules or delivered in connection therewith), the
Registration Rights Agreement, the Voting and Standstill Agreements, the
Tax Cooperation Agreement and the Confidentiality Agreement constitute the
entire agreement, and supersede all prior agreements and understandings,
both written and oral, between the parties (and their Affiliates) with
respect to the subject matter hereof and thereof.
(e) Governing Law. This Agreement will be governed by, and construed
in accordance with, the laws of the State of Delaware, regardless of the
laws that might otherwise govern under applicable principles of conflict of
laws thereof.
(f) Notices. All notices, requests, claims, demands, and other
communications under this Agreement shall be sent in the manner, with the
effect and to the addresses set forth in the Merger Agreement.
(g) Assignment. Neither this Agreement, the Option nor any of the
rights, interests, or obligations under this Agreement may be assigned or
delegated, in whole or in part, by operation of law or otherwise, by Issuer
or Grantee without the prior written consent of the other; provided,
however, that Grantee may assign all or any of its rights and obligations
hereunder to any Affiliate or Affiliates of Grantee, provided, further,
however, that no such assignment shall relieve Grantee of its obligations
hereunder. Any assignment or delegation in violation of the preceding
sentence will be void. Subject to the first and second sentences of this
Section 11(g), this Agreement will be binding upon, inure to the benefit
of, and be enforceable by, the parties and their respective successors and
assigns.
(h) Further Assurances. In the event of any exercise of the Option by
Grantee, Issuer and Grantee will execute and deliver all other documents
and instruments and take all other actions that may be reasonably necessary
in order to consummate the transactions provided for by such exercise.
(i) Enforcement. The parties agree that irreparable damage would
occur and that the parties would not have any adequate remedy at law 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 will be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions of this Agreement in any Federal
court located in the State of Delaware or in Delaware state court, the
foregoing being in addition to any other remedy to which they are entitled
at law or in equity. In addition, each of the parties hereto (i) consents
to submit itself to the personal jurisdiction of any Federal court located
in the State of Delaware or any Delaware state court in the event any
dispute arises out of this Agreement or any of the transactions
contemplated by this Agreement, (ii) agrees that it will not attempt to
deny or defeat such personal jurisdiction by motion or other request for
leave from any such court, and (iii) agrees that it will not bring any
action relating to this Agreement or any of the transactions contemplated
by this Agreement in any court other than a Federal court sitting in the
State of Delaware or a Delaware state court.
(j) 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. Upon such determination that
any term or other provision is invalid, illegal or incapable of being
enforced, the parties hereto shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible to the fullest extent permitted by applicable law in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled
to the extent possible.
[Signature Page to follow]
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IN WITNESS WHEREOF, Issuer and Grantee have caused this Agreement to be
signed by their respective officers thereunto duly authorized as of the day and
year first written above.
DATA BROADCASTING CORPORATION
By: /s/ MARK F. IMPERIALE
------------------------------------
Name: Mark F. Imperiale
Title: President
INTERACTIVE DATA CORPORATION
By: /s/ PHILIP J. HOFFMAN
------------------------------------
Name: Philip J. Hoffman
Title: Authorized Person
[Signature Page to Option Agreement]
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APPENDIX D
November 14, 1999
Confidential
The Board of Directors
Data Broadcasting Corporation
3940 Clubhouse Drive
Jackson, WY 83001
Gentlemen:
You have requested our opinion to the effect that the Proposed Transaction
(as described below) is fair, from a financial point of view, to the
stockholders of Data Broadcasting Corporation ("DBC" or the "Company"). Pursuant
to the Agreement and Plan of Merger, dated November 14, among Interactive Data
Corporation ("IDC"), Pearson Longman, Inc., DBC and Detective Merger-Sub, Inc.
(the "Agreement") (i) Detective Merger-Sub, Inc., a wholly-owned subsidiary of
DBC, will merge with and into Interactive Data Corporation (the "Merger"); (ii)
Interactive Data Corporation will survive the Merger as a wholly-owned
subsidiary of DBC; and (iii) Pearson Longman, Inc., the sole shareholder of
Interactive Data Corporation, will receive 56,453,800 newly issued shares of DBC
Common Stock (together the "Proposed Transaction").
For purposes of this opinion, we have assumed that the Proposed Transaction
will qualify as a tax-free reorganization within the meaning of Section 368(a)
of the United States Internal Revenue Code and that the Proposed Transaction
will be accounted for as a purchase.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as a part of its investment
banking services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Board of
Directors of DBC in connection with the Proposed Transaction, and we will
receive a fee for our services, which include the rendering of this opinion.
In the ordinary course of business, Hambrecht & Quist may actively trade in
the equity and derivative securities of DBC and/or Pearson plc for its own
account and/or for the accounts of its customers and, accordingly, may at any
time hold a long or short position in such securities. Hambrecht & Quist may in
the future provide additional investment banking or other financial advisory
services to DBC or Pearson plc.
In connection with our review of the Proposed Transaction, and in arriving
at our opinion, we have, among other things:
(i) reviewed the financial statements of DBC and IDC for recent years
and interim periods to date and certain other relevant financial and
operating data of DBC and IDC made available to us from the internal
records of DBC and IDC;
(ii) reviewed certain internal financial and operating information,
including certain projections, relating to DBC and IDC prepared by the
management of DBC and IDC;
(iii) discussed the business, financial condition and prospects of DBC
and IDC with certain members of senior management of DBC and IDC;
(iv) reviewed the publicly available consolidated financial statements
of DBC for recent years and interim periods to date and certain other
relevant financial and operating data of DBC and IDC made available to us
from published sources and from the internal records of DBC and IDC;
(v) reviewed certain internal and financial operating information,
including certain projections, relating to DBC and IDC prepared by the
management of DBC and IDC;
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(vi) discussed the business, financial condition and prospects of DBC
and IDC with certain members of senior management;
(vii) reviewed the recent reported prices and trading activity for the
common stock of DBC and compared such information and certain financial
information for DBC and IDC with similar information for certain other
companies engaged in businesses with characteristics we considered
comparable;
(viii) reviewed the financial terms, to the extent publicly available,
of certain comparable merger and acquisition transactions;
(ix) reviewed the Agreement; and
(x) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and
financial, economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information concerning DBC and IDC considered in
connection with our review of the Proposed Transaction, and we have not assumed
any responsibility for independent verification of such information. We have not
prepared any independent valuation or appraisal of any of the assets or
liabilities of DBC or IDC, nor have we conducted a physical inspection of the
properties and facilities of either company. With respect to the financial
forecasts and projections made available to us and used in our analysis, we have
assumed that they reflect the best currently available estimates and judgements
of the expected future financial performance of DBC and IDC. For purposes of
this opinion, we have assumed that neither DBC nor IDC is a party to any pending
transactions, including external financings, recapitalizations or material
merger discussions, other than the Proposed Transaction and those activities
undertaken in the ordinary course of conducting their respective businesses. Our
opinion is necessarily based upon market, economic, financial and other
conditions as they exist and can be evaluated as of the date of this letter and
any change in such conditions would require a reevaluation of this opinion. We
express no opinion as to the price at which DBC common stock will trade
subsequent to the rendering of this opinion. In rendering this opinion, we have
assumed that the Proposed Transaction will be consummated substantially on the
terms discussed in the Agreement, without any waiver of any material terms or
conditions by any party thereto.
It is understood that this letter is for the information of the Board of
Directors in connection with their evaluation of the Proposed Transaction and
may not be used for any other purpose without our prior written consent;
provided, however, that this letter may be reproduced in full in the Proxy
Statement to be filed in connection with the Proposed Transaction. This letter
does not constitute a recommendation to any stockholder as to how such
stockholder should vote on the Proposed Transaction.
Based upon and subject to the foregoing and after considering such other
matters as we deem relevant, we are of the opinion that as of the date hereof
the Proposed Transaction is fair, from a financial point of view, to the
stockholders of DBC.
Very Truly Yours,
HAMBRECHT & QUIST LLC
By: /s/ PAUL B. CLEVELAND
----------------------------------
Paul B. Cleveland
Managing Director
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APPENDIX E
DATA BROADCASTING CORPORATION
2000 LONG-TERM INCENTIVE PLAN
1. Purpose. The purpose of this 2000 Long-Term Incentive Plan (the "Plan")
of Data Broadcasting Corporation, a Delaware corporation (the "Company"), is to
advance the interests of the Company and its stockholders by providing a means
to attract, retain, motivate and reward directors, officers, employees and
consultants of and service providers to the Company and its affiliates and to
enable such persons to acquire or increase a proprietary interest in the
Company, thereby promoting a closer identity of interests between such persons
and the Company's stockholders.
2. Definitions. The definitions of awards under the Plan, including
Options, SARs (including Limited SARs), Restricted Stock, Deferred Stock, Stock
granted as a bonus or in lieu of other awards, Dividend Equivalents and Other
Stock-Based Awards as are set forth in Section 6 of the Plan. Such awards,
together with any other right or interest granted to a Participant under the
Plan, are termed "Awards." For purposes of the Plan, the following additional
terms shall be defined as set forth below:
(a) "Award Agreement" means any written agreement, contract, notice or
other instrument or document evidencing an Award.
(b) "Beneficiary" shall mean the person, persons, trust or trusts
which have been designated by a Participant in his or her most recent
written beneficiary designation filed with the Committee to receive the
benefits specified under the Plan upon such Participant's death or, if
there is no designated Beneficiary or surviving designated Beneficiary,
then the person, persons, trust or trusts entitled by will or the laws of
descent and distribution to receive such benefits.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to any provision of the Code shall be deemed to
include regulations thereunder and successor provisions and regulations
thereto.
(e) "Committee" means the committee appointed by the Board to
administer the Plan, or if no committee is appointed, the Board.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time. References to any provision of the Exchange Act
shall be deemed to include rules thereunder and successor provisions and
rules thereto.
(g) "Fair Market Value" means, with respect to Stock, Awards, or other
property, the fair market value of such Stock, Awards, or other property
determined by such methods or procedures as shall be established from time
to time by the Committee, provided, however, that if the Stock is listed on
a national securities exchange or quoted in an interdealer quotation
system, the Fair Market Value of such Stock on a given date shall be based
upon the last sales price at the end of regular trading or, if unavailable,
the average of the closing bid and asked prices per share of the Stock at
the end of regular trading on such date (or, if there was no trading or
quotation in the Stock on such date, on the next preceding date on which
there was trading or quotation) as provided by one of such organizations.
(h) "ISO" means any Option that is designated as an incentive stock
option within the meaning of Section 422 of the Code, and qualifies as
such.
(i) "Parent" means any "person" (within the meaning of Section
13(d)(3) or 14(d)(2) of the Exchange Act) that controls the Company, either
directly or indirectly through one or more intermediaries.
(j) "Participant" means a person who, at a time when eligible under
Section 5 hereof, has been granted an Award under the Plan.
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(k) "Rule 16b-3" means Rule 16b-3, as from time to time in effect and
applicable to the Plan and Participants, promulgated by the Securities and
Exchange Commission under Section 16 of the Exchange Act.
(l) "Stock" means the Company's Common Stock, and such other
securities as may be substituted for Stock pursuant to Section 4.
(m) "Subsidiary" means each entity that is controlled by the Company
or a Parent, either directly or indirectly through one or more
intermediaries.
3. Administration.
(a) Authority of the Committee. Except as otherwise provided below, the
Plan shall be administered by the Committee. The Committee shall have full and
final authority to take the following actions, in each case subject to and
consistent with the provisions of the Plan:
(i) to select persons to whom Awards may be granted;
(ii) to determine the type or types of Awards to be granted to each
such person;
(iii) to determine the number of Awards to be granted, the number of
shares of Stock to which an Award will relate, the terms and conditions of
any Award granted under the Plan (including, but not limited to, any
exercise price, grant price or purchase price, any restriction or
condition, any schedule for lapse of restrictions or conditions relating to
transferability or forfeiture, exercisability or settlement of an Award,
and waivers or accelerations thereof, performance conditions relating to an
Award (including performance conditions relating to Awards not intended to
be governed by Section 7(f) and waivers and modifications thereof), based
in each case on such considerations as the Committee shall determine), and
all other matters to be determined in connection with an Award;
(iv) to determine whether, to what extent and under what circumstances
an Award may be settled, or the exercise price of an Award may be paid, in
cash, Stock, other Awards, or other property, or an Award may be canceled,
forfeited, or surrendered;
(v) to determine whether, to what extent and under what circumstances
cash, Stock, other Awards or other property payable with respect to an
Award will be deferred either automatically, at the election of the
Committee or at the election of the Participant;
(vi) to determine the restrictions, if any, to which Stock received
upon exercise or settlement of an Award shall be subject (including
lock-ups and other transfer restrictions), may condition the delivery of
such Stock upon the execution by the Participant of any agreement providing
for such restrictions;
(vii) to prescribe the form of each Award Agreement, which need not be
identical for each Participant;
(viii) to adopt, amend, suspend, waive and rescind such rules and
regulations and appoint such agents as the Committee may deem necessary or
advisable to administer the Plan;
(ix) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan and to construe and interpret the Plan and any
Award, rules and regulations, Award Agreement or other instrument
hereunder; and
(x) to make all other decisions and determinations as may be required
under the terms of the Plan or as the Committee may deem necessary or
advisable for the administration of the Plan.
Other provisions of the Plan notwithstanding, the Board shall perform the
functions of the Committee for purposes of granting awards to directors who
serve on the Committee, and the Board may perform any function of the Committee
under the Plan for any other purpose, including without limitation for the
purpose of ensuring that transactions under the Plan by Participants who are
then subject to Section 16 of the Exchange Act in respect of the Company are
exempt under Rule 16b-3. In any case in which the Board is
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performing a function of the Committee under the Plan, each reference to the
Committee herein shall be deemed to refer to the Board, except where the context
otherwise requires.
(b) Manner of Exercise of Committee Authority. Any action of the Committee
with respect to the Plan shall be final, conclusive and binding on all persons,
including the Company, its Parent and Subsidiaries, Participants, any person
claiming any rights under the Plan from or through any Participant and
stockholders, except to the extent the Committee may subsequently modify, or
take further action not consistent with, its prior action. If not specified in
the Plan, the time at which the Committee must or may make any determination
shall be determined by the Committee, and any such determination may thereafter
be modified by the Committee (subject to Section 8(e)). The express grant of any
specific power to the Committee, and the taking of any action by the Committee,
shall not be construed as limiting any power or authority of the Committee.
Except as provided under Section 7(f), the Committee may delegate to officers or
managers of the Company, its Parent or Subsidiaries the authority, subject to
such terms as the Committee shall determine, to perform such functions as the
Committee may determine, to the extent permitted under applicable law.
(c) Limitation of Liability; Indemnification. Each member of the Committee
shall be entitled to, in good faith, rely or act upon any report or other
information furnished to him by any officer or other employee of the Company ,
its Parent or Subsidiaries, the Company's independent certified public
accountants or any executive compensation consultant, legal counsel or other
professional retained by the Company to assist in the administration of the
Plan. No member of the Committee, or any officer or employee of the Company
acting on behalf of the Committee, shall be personally liable for any action,
determination or interpretation taken or made in good faith with respect to the
Plan, and all members of the Committee and any officer or employee of the
Company acting on its behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company with respect to any such action,
determination or interpretation.
4. Stock Subject to Plan.
(a) Amount of Stock Reserved. The total number of shares of Stock that may
be subject to outstanding Awards, determined immediately after the grant of any
Award, shall not exceed 20% of the total number of shares of all classes of the
Company's common stock outstanding at the effective time of such grant. For
purposes of the foregoing limitation, shares of Stock subject to options
outstanding under the Stock Option Plan of Data Broadcasting Corporation (as
amended through September 13, 1994) shall be treated as shares subject to
outstanding Awards. In no event shall the number of shares of Stock delivered
upon the exercise of ISOs exceed 20% of the total number of shares of all
classes of the Company's common stock outstanding determined (i) at the time the
Plan is approved by the Company's stockholders, or (ii) if at the time of such
approval, the shareholders also ratify the Agreement and Plan of Merger, (the
"Merger Agreement") dated as of November 14, 1999, among the Company,
Interactive Data Corporation, Detective Merger-Sub, Inc. and Pearson Longman,
Inc. immediately after the effective time of the merger contemplated by such
agreement; provided, however, that shares subject to ISOs shall not be deemed
delivered if such ISOs are forfeited, expire or otherwise terminate without
delivery of shares to the Participant. If an Award valued by reference to Stock
may only be settled in cash, the number of shares to which such Award relates
shall be deemed to be Stock subject to such Award for purposes of this Section
4(a). Any shares of Stock delivered pursuant to an Award may consist, in whole
or in part, of authorized and unissued shares, treasury shares or shares
acquired in the market on a Participant's behalf.
(b) Annual Per-Participant Limitations. During any calendar year, no
Participant may be granted Awards that may be settled by delivery of more than
1,000,000 shares of Stock, subject to adjustment as provided in Section 4(c). In
addition, with respect to Awards that may be settled in cash (in whole or in
part), no Participant may be paid during any calendar year cash amounts relating
to such Awards that exceed the greater of the Fair Market Value of the number of
shares of Stock set forth in the preceding sentence at the date of grant or the
date of settlement of the Award. This provision sets forth two separate
limitations, so that Awards that may be settled solely by delivery of Stock will
not operate to reduce the amount of cash-only Awards, and vice versa;
nevertheless, Awards that may be settled in Stock or cash must not exceed either
limitation.
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(c) Adjustments. In the event that the Committee shall determine that any
recapitalization, forward or reverse split, reorganization, merger,
consolidation, spin-off, combination, repurchase or exchange of Stock or other
securities, Stock dividend or other special, large and non-recurring dividend or
distribution (whether in the form of cash, securities or other property),
liquidation, dissolution, or other similar corporate transaction or event,
affects the Stock such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Participants under the Plan, then the
Committee shall, in such manner as it may deem equitable, adjust any or all of
(i) the number and kind of shares of Stock reserved and available for Awards
under Sections 4(a) and 4(b), including shares reserved for ISOs, (ii) the
number and kind of shares of outstanding Restricted Stock or other outstanding
Awards in connection with which shares have been issued, (iii) the number and
kind of shares that may be issued in respect of other outstanding Awards and
(iv) the exercise price, grant price or purchase price relating to any Award.
(or, if deemed appropriate, the Committee may make provision for a cash payment
with respect to any outstanding Award). In addition, the Committee is authorized
to make adjustments in the terms and conditions of, and the criteria included
in, Awards (including, without limitation, cancellation of unexercised or
outstanding Awards, or substitution of Awards using stock of a successor or
other entity) in recognition of unusual or nonrecurring events (including,
without limitation, events described in the preceding sentence) affecting the
Company, its Parent or any Subsidiary or the financial statements of the
Company, its Parent or any Subsidiary, or in response to changes in applicable
laws, regulations, or accounting principles.
5. Eligibility. Directors, officers and employees of the Company or its
Parent or any Subsidiary, and persons who provide consulting or other services
to the Company, its Parent or any Subsidiary deemed by the Committee to be of
substantial value to the Company or its Parent and Subsidiaries, are eligible to
be granted Awards under the Plan. In addition, persons who have been offered
employment by, or agreed to become a director of, the Company, its Parent or any
Subsidiary, and persons employed by an entity that the Committee reasonably
expects to become a Subsidiary of the Company, are eligible to be granted an
Award under the Plan.
6. Specific Terms of Awards.
(a) General. Awards may be granted on the terms and conditions set forth
in this Section 6. In addition, the Committee may impose on any Award or the
exercise thereof such additional terms and conditions, not inconsistent with the
provisions of the Plan, as the Committee shall determine, including terms
requiring forfeiture of Awards in the event of termination of employment or
service of the Participant. Except as expressly provided by the Committee
(including for purposes of complying with the requirements of the Delaware
General Corporation Law relating to lawful consideration for the issuance of
shares), no consideration other than services will be required as consideration
for the grant (but not the exercise) of any Award.
(b) Options. The Committee is authorized to grant options to purchase
Stock on the following terms and conditions ("Options"):
(i) Exercise Price. The exercise price per share of Stock purchasable
under an Option shall be determined by the Committee.
(ii) Time and Method of Exercise. The Committee shall determine the
time or times at which an Option may be exercised in whole or in part, the
methods by which such exercise price may be paid or deemed to be paid, the
form of such payment, including, without limitation, cash, Stock, other
Awards or awards granted under other Company plans or other property
(including notes or other contractual obligations of Participants to make
payment on a deferred basis, such as through "cashless exercise"
arrangements, to the extent permitted by applicable law), and the methods
by which Stock will be delivered or deemed to be delivered to Participants.
(iii) Termination of Employment. The Committee shall determine the
period, if any, during which Options shall be exercisable following a
Participant's termination of his employment relationship with the Company ,
its Parent or any Subsidiary. For this purpose, unless otherwise determined
by the Committee, any sale of a Subsidiary of the Company pursuant to which
it ceases to be a Subsidiary of the
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Company shall be deemed to be a termination of employment by any
Participant employed by such Subsidiary. Unless otherwise determined by the
Committee, (x) during any period that an Option is exercisable following
termination of employment, it shall be exercisable only to the extent it
was exercisable upon such termination of employment, and (y) if such
termination of employment is for cause, as determined in the discretion of
the Committee, all Options held by the Participant shall immediately
terminate.
(iv) Sale of the Company. Upon the consummation of any transaction
other than any transaction contemplated by the Merger Agreement whereby the
Company (or any successor to the Company or substantially all of its
business) becomes a wholly-owned Subsidiary of any corporation, all Options
outstanding under the Plan shall terminate, unless such other corporation
shall continue or assume the Plan as it relates to Options then outstanding
(in which case such other corporation shall be treated as the Company for
all purposes hereunder, and, pursuant to Section 4(c), the Committee of
such other corporation shall make appropriate adjustment in the number and
kind of shares of Stock subject thereto and the exercise price per share
thereof to reflect consummation of such transaction). If the Plan is not to
be so assumed, the Company shall notify the Participant of consummation of
such transaction at least ten days in advance thereof.
(v) Options Providing Favorable Tax Treatment. The Committee may
grant Options that may afford a Participant with favorable treatment under
the tax laws applicable to such Participant, including, but not limited to
ISOs. If Stock acquired by exercise of an ISO is sold or otherwise disposed
of within two years after the date of grant of the ISO or within one year
after the transfer of such Stock to the Participant, the holder of the
Stock immediately prior to the disposition shall promptly notify the
Company in writing of the date and terms of the disposition and shall
provide such other information regarding the disposition as the Company may
reasonably require in order to secure any deduction then available against
the Company's or any other corporation's taxable income. The Company may
impose such procedures as it determines may be necessary to ensure that
such notification is made. Each Option granted as an ISO shall be
designated as such in the Award Agreement relating to such Option.
(c) Stock Appreciation Rights. The Committee is authorized to grant stock
appreciation rights on the following terms and conditions ("SARs"):
(i) Right to Payment. An SAR shall confer on the Participant to whom
it is granted a right to receive, upon exercise thereof, the excess of (A)
the Fair Market Value of one share of Stock on the date of exercise (or, if
the Committee shall so determine in the case of any such right other than
one related to an ISO, the Fair Market Value of one share at any time
during a specified period before or after the date of exercise), over (B)
the grant price of the SAR as determined by the Committee as of the date of
grant of the SAR, which, except as provided in Section 7(a), shall be not
less than the Fair Market Value of one share of Stock on the date of grant.
(ii) Other Terms. The Committee shall determine the time or times at
which an SAR may be exercised in whole or in part, the method of exercise,
method of settlement, form of consideration payable in settlement, method
by which Stock will be delivered or deemed to be delivered to Participants,
whether or not an SAR shall be in tandem with any other Award, and any
other terms and conditions of any SAR. Limited SARs that may only be
exercised upon the occurrence of a change in control of the Company may be
granted on such terms, not inconsistent with this Section 6(c), as the
Committee may determine. Limited SARs may be either freestanding or in
tandem with other Awards.
(d) Restricted Stock. The Committee is authorized to grant Stock that is
subject to restrictions based on continued employment on the following terms and
conditions ("Restricted Stock"):
(i) Grant and Restrictions. Restricted Stock shall be subject to such
restrictions on transferability and other restrictions, if any, as the
Committee may impose, which restrictions may lapse separately or in
combination at such times, under such circumstances, in such installments,
or otherwise, as the Committee may determine. Except to the extent
restricted under the terms of the Plan and any Award Agreement relating to
the Restricted Stock, a Participant granted Restricted Stock shall have all
of the
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rights of a stockholder including, without limitation, the right to vote
Restricted Stock or the right to receive dividends thereon.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable restriction period,
Restricted Stock that is at that time subject to restrictions shall be
forfeited and reacquired by the Company; provided, however, that the
Committee may provide, by rule or regulation or in any Award Agreement, or
may determine in any individual case, that restrictions or forfeiture
conditions relating to Restricted Stock will be waived in whole or in part
in the event of termination resulting from specified causes.
(iii) Certificates for Stock. Restricted Stock granted under the Plan
may be evidenced in such manner as the Committee shall determine. If
certificates representing Restricted Stock are registered in the name of
the Participant, such certificates may bear an appropriate legend referring
to the terms, conditions, and restrictions applicable to such Restricted
Stock, the Company may retain physical possession of the certificate, in
which case the Participant shall be required to have delivered a stock
power to the Company, endorsed in blank, relating to the Restricted Stock.
(iv) Dividends. Dividends paid on Restricted Stock shall be either
paid at the dividend payment date in cash or in shares of unrestricted
Stock having a Fair Market Value equal to the amount of such dividends, or
the payment of such dividends shall be deferred and/or the amount or value
thereof automatically reinvested in additional Restricted Stock, other
Awards, or other investment vehicles, as the Committee shall determine or
permit the Participant to elect. Stock distributed in connection with a
Stock split or Stock dividend, and other property distributed as a
dividend, shall be subject to restrictions and a risk of forfeiture to the
same extent as the Restricted Stock with respect to which such Stock or
other property has been distributed, unless otherwise determined by the
Committee.
(e) Deferred Stock. The Committee is authorized to grant units
representing the right to receive Stock at a future date subject to the
following terms and conditions ("Deferred Stock"):
(i) Award and Restrictions. Delivery of Stock will occur upon
expiration of the deferral period specified for an Award of Deferred Stock
by the Committee (or, if permitted by the Committee, as elected by the
Participant). In addition, Deferred Stock shall be subject to such
restrictions as the Committee may impose, if any, which restrictions may
lapse at the expiration of the deferral period or at earlier specified
times, separately or in combination, in installments or otherwise, as the
Committee may determine.
(ii) Forfeiture. Except as otherwise determined by the Committee,
upon termination of employment or service (as determined under criteria
established by the Committee) during the applicable deferral period or
portion thereof to which forfeiture conditions apply (as provided in the
Award Agreement evidencing the Deferred Stock), all Deferred Stock that is
at that time subject to such forfeiture conditions shall be forfeited;
provided, however, that the Committee may provide, by rule or regulation or
in any Award Agreement, or may determine in any individual case, that
restrictions or forfeiture conditions relating to Deferred Stock will be
waived in whole or in part in the event of termination resulting from
specified causes.
(f) Bonus Stock and Awards in Lieu of Cash Obligations. The Committee is
authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu
of Company obligations to pay cash under other plans or compensatory
arrangements.
(g) Dividend Equivalents. The Committee is authorized to grant awards
entitling the Participant to receive cash, Stock, other Awards or other property
equal in value to dividends paid with respect to a specified number of shares of
Stock ("Dividend Equivalents"). Dividend Equivalents may be awarded on a free-
standing basis or in connection with another Award. The Committee may provide
that Dividend Equivalents shall be paid or distributed when accrued or shall be
deemed to have been reinvested in additional Stock, Awards or other investment
vehicles, and subject to such restrictions on transferability and risks of
forfeiture, as the Committee may specify.
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(h) Other Stock-Based Awards. The Committee is authorized, subject to
limitations under applicable law, to grant such other Awards that may be
denominated or payable in, valued in whole or in part by reference to, or
otherwise based on, or related to, Stock and factors that may influence the
value of Stock, as deemed by the Committee to be consistent with the purposes of
the Plan, including, without limitation, convertible or exchangeable debt
securities, other rights convertible or exchangeable into Stock, purchase rights
for Stock, Awards with value and payment contingent upon performance of the
Company or any other factors designated by the Committee and Awards valued by
reference to the book value of Stock or the value of securities of or the
performance of specified Subsidiaries ("Other Stock Based Awards"). The
Committee shall determine the terms and conditions of such Awards. Stock issued
pursuant to an Award in the nature of a purchase right granted under this
Section 6(h) shall be purchased for such consideration, paid for at such times,
by such methods, and in such forms, including, without limitation, cash, Stock,
other Awards, or other property, as the Committee shall determine. Cash awards,
as an element of or supplement to any other Award under the Plan, may be granted
pursuant to this Section 6(h).
7. Certain Provisions Applicable to Awards.
(a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted
under the Plan may, in the discretion of the Committee, be granted either alone
or in addition to, in tandem with or in substitution for any other Award granted
under the Plan or any award granted under any other plan of the Company, its
Parent or Subsidiaries or any business entity to be acquired by the Company or a
Subsidiary, or any other right of a Participant to receive payment from the
Company its Parent or Subsidiaries. Awards granted in addition to or in tandem
with other Awards or awards may be granted either as of the same time as or a
different time from the grant of such other Awards or awards.
(b) Term of Awards. The term of each Award shall be for such period as may
be determined by the Committee; provided, however, that (i) in no event shall
the term of any ISO or an SAR granted in tandem therewith exceed a period of ten
years from the date of its grant (or such shorter period as may be applicable
under Section 422 of the Code), and (ii) the term of any Option granted to a
resident of the United Kingdom shall not exceed a period of ten years from the
date of its grant.
(c) Form of Payment Under Awards. Subject to the terms of the Plan and any
applicable Award Agreement, payments to be made by the Company, its Parent or
Subsidiaries upon the grant, exercise or settlement of an Award may be made in
such forms as the Committee shall determine, including, without limitation,
cash, Stock, other Awards or other property, and may be made in a single payment
or transfer, in installments or on a deferred basis. Such payments may include,
without limitation, provisions for the payment or crediting of reasonable
interest on installment or deferred payments or the grant or crediting of
Dividend Equivalents in respect of installment or deferred payments denominated
in Stock.
(d) Rule 16b-3 Compliance.
(i) Six-Month Holding Period. Unless a Participant could otherwise
dispose of equity securities, including derivative securities, acquired
under the Plan without incurring liability under Section 16(b) of the
Exchange Act, equity securities acquired under the Plan must be held for a
period of six months following the date of such acquisition, provided that
this condition shall be satisfied with respect to a derivative security if
at least six months elapse from the date of acquisition of the derivative
security to the date of disposition of the derivative security (other than
upon exercise or conversion) or its underlying equity security.
(ii) Other Compliance Provisions. With respect to a Participant who
is then subject to Section 16 of the Exchange Act in respect of the
Company, the Committee shall implement transactions under the Plan and
administer the Plan in a manner that will ensure that each transaction by
such a Participant is exempt from liability under Rule 16b-3, except that
such a Participant may be permitted to engage in a non-exempt transaction
under the Plan if written notice has been given to the Participant
regarding the non-exempt nature of such transaction. The Committee may
authorize the Company to repurchase any Award or shares of Stock resulting
from any Award in order to prevent a Participant who is subject to Section
16 of the Exchange Act from incurring liability under Section 16(b). Unless
otherwise specified
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by the Participant, equity securities, including derivative securities,
acquired under the Plan which are disposed of by a Participant shall be
deemed to be disposed of in the order acquired by the Participant.
(e) Loan Provisions. With the consent of the Committee, and subject at all
times to, and only to the extent, if any, permitted under and in accordance
with, laws and regulations and other binding obligations or provisions
applicable to the Company, the Company may make, guarantee or arrange for a loan
or loans to a Participant with respect to the exercise of any Option or other
payment in connection with any Award, including the payment by a Participant of
any or all federal, state or local income or other taxes due in connection with
any Award. Subject to such limitations, the Committee shall have full authority
to decide whether to make a loan or loans hereunder and to determine the amount,
terms and provisions of any such loan or loans, including the interest rate to
be charged in respect of any such loan or loans, whether the loan or loans are
to be with or without recourse against the borrower, the terms on which the loan
is to be repaid and conditions, if any, under which the loan or loans may be
forgiven.
(f) Performance-Based Awards. The Committee may, in its discretion,
designate any Award the exercisability or settlement of which is subject to the
achievement of performance conditions as a performance-based Award subject to
this Section 7(f), in order to qualify such Award as "qualified
performance-based compensation" within the meaning of Code Section 162(m) and
regulations thereunder. The performance objectives for an Award subject to this
Section 7(f) shall consist of one or more business criteria and a targeted level
or levels of performance with respect to such criteria, as specified by the
Committee but subject to this Section 7(f). Performance objectives shall be
objective and shall otherwise meet the requirements of Section 162(m)(4)(C) of
the Code. Business criteria used by the Committee in establishing performance
objectives for Awards subject to this Section 7(f) shall be selected from among
the following:
(1) Annual return on capital;
(2) Annual earnings or earnings per share;
(3) Annual cash flow provided by operations;
(4) Increase in stock price;
(5) Changes in annual revenues; and/or
(6) Strategic business criteria, consisting of one or more objectives
based on meeting specified revenue, market penetration, geographic business
expansion goals, cost targets, and goals relating to acquisitions or
divestitures.
The levels of performance required with respect to such business criteria may be
expressed in absolute or relative levels. Performance objectives may differ for
such Awards to different Participants. The Committee shall specify the weighting
to be given to each performance objective for purposes of determining the final
amount payable with respect to any such Award. The Committee may, in its
discretion, reduce the amount of a payout otherwise to be made in connection
with an Award subject to this Section 7(f), but may not exercise discretion to
increase such amount, and the Committee may consider other performance criteria
in exercising such discretion. All determinations by the Committee as to the
achievement of performance objectives shall be in writing. The Committee may not
delegate any responsibility with respect to an Award subject to this Section
7(f).
8. General Provisions.
(a) Compliance With Laws and Obligations. The Company shall not be
obligated to issue or deliver Stock in connection with any Award or take any
other action under the Plan in a transaction subject to the requirements of any
applicable securities law, any requirement under any listing agreement between
the Company and any national securities exchange or automated quotation system
or any other law, regulation or contractual obligation of the Company until the
Company is satisfied that such laws, regulations, and other obligations of the
Company have been complied with in full. Certificates representing shares of
Stock issued under the Plan will be subject to such stop-transfer orders and
other restrictions as may be applicable under
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such laws, regulations and other obligations of the Company, including any
requirement that a legend or legends be placed thereon.
(b) Limitations on Transferability. Awards and other rights under the Plan
will not be transferable by a Participant except by will or the laws of descent
and distribution or to a Beneficiary in the event of the Participant's death,
shall not be pledged, mortgaged, hypothecated or otherwise encumbered, or
otherwise subject to the claims of creditors, and, in the case of ISOs and SARs
in tandem therewith, shall be exercisable during the lifetime of a Participant
only by such Participant or his guardian or legal representative; provided,
however, that such Awards and other rights (other than ISOs and SARs in tandem
therewith) may be transferred to one or more transferees during the lifetime of
the Participant to the extent and on such terms as then may be permitted by the
Committee.
(c) No Right to Continued Employment or Service. Neither the Plan nor any
action taken hereunder shall be construed as giving any employee, director or
other person the right to be retained in the employ or service of the Company,
its Parent or any Subsidiary, nor shall it interfere in any way with the right
of the Company, its Parent or any Subsidiary to terminate any employee's
employment or other person's service at any time or with the right of the Board
or stockholders to remove any director.
(d) Taxes. The Company, its Parent and Subsidiaries are authorized to
withhold from any Award granted or to be settled, any delivery of Stock in
connection with an Award, any other payment relating to an Award or any payroll
or other payment to a Participant amounts of withholding and other taxes due or
potentially payable in connection with any transaction involving an Award, and
to take such other action as the Committee may deem advisable to enable the
Company, its Parent and Subsidiaries and Participants to satisfy obligations for
the payment of withholding taxes and other tax obligations relating to any
Award. This authority shall include authority to withhold or receive Stock or
other property and to make cash payments in respect thereof in satisfaction of a
Participant's tax obligations.
(e) Changes to the Plan and Awards. The Board may amend, alter, suspend,
discontinue or terminate the Plan or the Committee's authority to grant Awards
under the Plan without the consent of stockholders or Participants, except that
any such action shall be subject to the approval of the Company's stockholders
at or before the next annual meeting of stockholders for which the record date
is after such Board action if such stockholder approval is required by any
federal or state law or regulation or the rules of any stock exchange or
automated quotation system on which the Stock may then be listed or quoted, and
the Board may otherwise, in its discretion, determine to submit other such
changes to the Plan to stockholders for approval; provided, however, that,
without the consent of an affected Participant, no such action may materially
impair the rights of such Participant under any Award theretofore granted to him
(as such rights are set forth in the Plan and the Award Agreement). The
Committee may waive any conditions or rights under, or amend, alter, suspend,
discontinue, or terminate, any Award theretofore granted and any Award Agreement
relating thereto; provided, however, that, without the consent of an affected
Participant, no such action may materially impair the rights of such Participant
under such Award (as such rights are set forth in the Plan and the Award
Agreement). Notwithstanding the foregoing, the Board or the Committee may take
any action (including actions affecting or terminating outstanding Awards) to
the extent necessary for a business combination in which the Company is a party
to be accounted for under the pooling-of-interests method of accounting under
Accounting Principles Board Opinion No. 16 (or any successor thereto). The Board
or the Committee shall also have the authority to establish separate sub-plans
under the Plan with respect to Participants resident in a particular
jurisdiction (the terms of which shall not be inconsistent with those of the
Plan) if necessary or desirable to comply with the applicable laws of such
jurisdiction.
(f) No Rights to Awards; No Stockholder Rights. No person shall have any
claim to be granted any Award under the Plan, and there is no obligation for
uniformity of treatment of Participants and employees. No Award shall confer on
any Participant any of the rights of a stockholder of the Company unless and
until Stock is duly issued or transferred and delivered to the Participant in
accordance with the terms of the Award or, in the case of an Option, the Option
is duly exercised.
(g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to
constitute an "unfunded" plan for incentive and deferred compensation. With
respect to any payments not yet made to a Participant
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pursuant to an Award, nothing contained in the Plan or any Award shall give any
such Participant any rights that are greater than those of a general creditor of
the Company; provided, however, that the Committee may authorize the creation of
trusts or make other arrangements to meet the Company's obligations under the
Plan to deliver cash, Stock, other Awards, or other property pursuant to any
Award, which trusts or other arrangements shall be consistent with the
"unfunded" status of the Plan unless the Committee otherwise determines with the
consent of each affected Participant.
(h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the
Board nor any submission of the Plan or amendments thereto to the stockholders
of the Company for approval shall be construed as creating any limitations on
the power of the Board to adopt such other compensatory arrangements as it may
deem desirable, including, without limitation, the granting of stock options
otherwise than under the Plan, and such arrangements may be either applicable
generally or only in specific cases.
(i) No Fractional Shares. No fractional shares of Stock shall be issued or
delivered pursuant to the Plan or any Award. The Committee shall determine
whether cash, other Awards, or other property shall be issued or paid in lieu of
such fractional shares or whether such fractional shares or any rights thereto
shall be forfeited or otherwise eliminated.
(j) Governing Law. The validity, construction and effect of the Plan, any
rules and regulations relating to the Plan and any Award Agreement shall be
determined in accordance with the laws of the State of Delaware, without giving
effect to principles of conflicts of laws, and applicable federal law.
(k) Effective Date; Plan Termination. The Plan shall become effective as
of the date of its adoption by the Board, and shall continue in effect until
terminated by the Board; provided, however, that if approval of such adoption by
the Company's shareholders is not obtained within 12 months of the date of such
adoption, the Plan shall terminate ab initio, and any Awards then outstanding
shall be canceled.
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APPENDIX F
PROPOSED AMENDMENT TO THE
CERTIFICATE OF INCORPORATION OF
DATA BROADCASTING CORPORATION
Article FOURTH of the Amended and Restated Certificate of Incorporation
shall be amended in its entirety to read as follows:
"FOURTH: The total number of shares which the Corporation shall have
authority to issue is 205,000,000, of which 200,000,000 shall be Common
Stock, with a par value of $.01 per share and 5,000,000 shall be Preferred
Stock, with a par value of $.01 per share."
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ANNUAL MEETING OF STOCKHOLDERS OF
DATA BROADCASTING CORPORATION
WEDNESDAY, FEBRUARY 23, 2000
PROXY VOTING INSTRUCTIONS
TO VOTE BY MAIL
Please date, sign and mail your proxy card in the envelope provided as soon as
possible.
TO VOTE BY TELEPHONE (TOUCH-TONE PHONE ONLY)
Please call toll-free 1-800-PROXIES and follow the instructions. Have your
control number and the proxy card available when you call.
TO VOTE BY INTERNET
Please access the web page at "www.voteproxy.com" and follow the on-screen
instructions. Have your control number available when you access the web page.
YOUR CONTROL NUMBER IS __________________
Please Detach and Mail in the Envelope Provided
- -------------------------------------------------------------------------------
[X] PLEASE MARK YOUR VOTES AS IN THIS EXAMPLE
FOR ALL
NOMINEES AT RIGHT NOMINEES:
3. Elect Robert Berkley
the following Stuart Clark
nominees as set [ ] John Fallon
forth in the Donald P. Greenberg
proxy statement: Stephen Hill
Alan J. Hirschfield
Philip J. Hoffman
John Makinson
Carl Spielvogel
Allan R. Tessler
WITHHOLD
AUTHORITY TO VOTE
[ ]
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL
NOMINEE, PRINT THE NOMINEE'S NAME IN THE SPACE PROVIDED BELOW)
____________________________________________________________
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE FOLLOWING PROPOSALS:
FOR AGAINST ABSTAIN
1. Approve the Agreement and Plan of
Merger, dated November 14, 1999,
and amended as of January 10, 2000,
among Data Broadcasting Corporation,
Interactive Data Corporation, Pearson [ ] [ ] [ ]
Longman Inc. and Detective Merger-Sub and
the related issuance of 56,423,949 shares
of Data Broadcasting's common stock to
Pearson Longman.
2. Approve the amendment to our Certificate
of Incorporation to increase the number [ ] [ ] [ ]
of authorized shares to 200,000,000.
4. Grant our Board of Directors discretion
to postpone or adjourn the meeting to [ ] [ ] [ ]
solicit additional votes to approve
proposals (1), (2) and (3).
5. Adopt the 2000 Long Term Incentive [ ] [ ] [ ]
Plan.
6. Ratify the appointment of
PricewaterhouseCoopers LLP as our [ ] [ ] [ ]
independent auditor for the fiscal year
ending June 30, 2000.
7. Approve such other business as may
properly come before the meeting or any [ ] [ ] [ ]
adjournment thereof.
Signatures ____________ Signature if held jointly ___________ Dated: _____, 2000
Note: Please sign above exactly as the shares are issued. When shares are
held by joint tenants, both should sign. When signing as attorney,
executor, administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by the
president or other authorized officer. If a partnership, please sign in
partnership name by an authorized person.
220
DATA BROADCASTING CORPORATION
PROXY FOR ANNUAL MEETING
FEBRUARY 23, 2000
The undersigned hereby appoints Steven Crane and Susan Mulligan, or either of
them, attorneys and proxies with full power of substitution in each of them, in
the name and stead of the undersigned to vote as proxy all the stock of the
undersigned in Data Broadcasting Corporation, a Delaware corporation, at the
Annual Meeting of Stockholders scheduled to be held on February 23, 2000 and any
adjournments or postponements thereof.
The shares represented hereby shall be voted by proxies, and each of them, as
specified and, in their discretion, upon such other matters as may properly come
before the meeting. Stockholders may withhold the vote for one or more
nominee(s) for director(s) by writing the nominee(s) for director(s) name(s) in
the blank provided on the reverse hereof. If no specification is made, the
shares represented hereby will be voted FOR the proposals set forth on the
reverse hereof.
(Continued and to be signed on the reverse side)