Exhibit (c)(1)
December 12, 2001
Special Committee of the Board of Directors
Organic, Inc.
000 Xxxxxxxx Xxxxxx
Xxx Xxxxxxxxx, XX 00000
Gentlemen:
We understand that certain shareholders of Organic, Inc. ("Organic"), including
Xxxxxxxx Xxxxxx (collectively referred to as "Organic Holdings"), initially
negotiated a Share Purchase Agreement dated September 18, 2001 (the "Initial
Holdings Agreement") with E-Services Investments Organic Sub LLC, a wholly owned
subsidiary of Seneca Investments LLC ("Seneca"), providing for the purchase of
51,954,975 shares of common stock of Organic, representing 58.7% of the total
outstanding shares, for a purchase price consisting of approximately $15.9
million in cash ($0.3080 per share) after certain tax related expenses payable
at the closing of the transaction, plus additional amounts payable under an
"earn-out" formula depending upon Organic's performance after the closing. We
understand that the Initial Holdings Agreement was subsequently revised on
December 4, 2001 (the "Revised Holdings Agreement") to reduce the initial cash
payment to $8.5 million ($0.1636 per share) and revise the terms of the
"earn-out" formula. Giving effect to the purchase of the shares from Organic
Holdings, we understand that Xxxxxx now owns approximately 80.9% of the
outstanding common shares of Organic.
Furthermore, we understand that on September 18, 2001, Xxxxxx submitted an offer
(the "Initial Offer") to Organic to acquire for $0.33 per share in cash (the
"Purchase Price") the shares of Organic that it does not already own or at the
time was under contract to purchase pursuant to the Initial, and later Revised,
Holdings Agreement. We understand that the Initial Offer was reaffirmed on
December 4, 2001 (the "Reaffirmed Offer") at the same Purchase Price and on
substantially the same terms as the Initial Offer. You have provided us with the
Offer to Purchase, dated December 5, 2001 (the "Offer to Purchase"), pursuant to
which E-Services Investments Organic Sub LLC, a wholly owned subsidiary of
Seneca ("E-Services"), commenced a cash tender offer to acquire those shares at
the Purchase Price. We understand that, if the tender offer is successful
E-Services intends promptly to complete a merger of E-Services with and into
Organic ("the Merger"), without any shareholder vote, pursuant to which each
remaining shareholder of Organic would receive the Purchase Price (the
Reaffirmed Offer, together with the Merger, the "Transaction").
You have asked us to render our opinion as to whether as of the date hereof the
Purchase Price is fair, from a financial point of view, to the public
shareholders of Organic, excluding Seneca, Organic Holdings and their respective
affiliates (the "Unaffiliated Shareholders"). You have not asked us for any
opinion on any other transaction to which Organic is or may be a party.
The Special Committee of the Board of Directors
Organic, Inc.
December 12, 2001
Page 2
In the course of performing our review and analyses for rendering this opinion,
we have:
o reviewed the Offer to Purchase and the related Schedule 13D/A and Schedule
TO, each dated December 5, 2001;
o reviewed the Initial Holdings Agreement and the Revised Holdings
Agreement;
o reviewed the Loan Agreement between Organic and Omnicom Group Inc.
("Omnicom"), dated August 27, 1999 (the "Loan Agreement"), the Guaranty
and Security among Organic, Organic Media, Inc. and Omnicom, dated August
27, 1999, the Revolving Note of Organic payable to Omnicom, dated August
27, 1999, and the Joinder to Guaranty and Security Agreement and
Intercreditor Agreement among Organic, Omnicom and Bank of America, N.A.,
dated December 3, 2001;
o reviewed the letter agreement dated December 3, 2001 from Omnicom to
Organic waiving certain conditions to borrowing under the Loan Agreement
and the Option Agreement dated December 3, 2001 under which Organic issued
an Option to Omnicom to purchase 39,370,079 shares of Organic common stock
at $0.254 per share (the "Option");
o reviewed Organic's Annual Reports to Shareholders and Annual Reports on
Form 10-K for the years ended December 31, 1998 through 2000, its
Quarterly Reports on Form 10-Q for the periods ended March 31, June 30,
and September 30, 2001 and its Reports on Form 8-K for the three years
ended the date hereof;
o reviewed certain operating and financial information, including estimates
for the quarter ending December 31, 2001 and projections for the years
ending December 31, 2002 through December 31, 2006, provided to us by
management relating to Organic's business and prospects;
o met with certain members of Organic's senior management to discuss
Organic's business, operations, historical and projected financial results
and future prospects;
o reviewed the historical prices, trading multiples and trading volume of
the common shares of Organic;
o reviewed publicly available financial data, stock market performance data
and trading multiples of companies which we deemed generally comparable to
Organic;
o reviewed the valuation multiples paid in recent mergers and acquisitions
we deemed relevant;
o reviewed the premia paid in recent cash acquisitions and cash minority
buy-ins of similar size;
o performed a discounted cash flow analyses based on the projections for
Organic furnished to us;
o conducted such other studies, analyses, inquiries and investigations as we
deemed appropriate.
In rendering our opinion, we have considered the current condition of the
capital markets, both generally and for digital professional services companies
in particular, and discussed with the senior management of Organic (i) its
recent and projected financial performance, current capital structure and
current rate at
The Special Committee of the Board of Directors
Organic, Inc.
December 12, 2001
Page 3
which cash is being generated and used in operating and financing activities and
(ii) the current capital needs of Organic as reflected in the projections of its
future financial performance provided to us by management. We have considered
whether such capital needs can be met, absent a transaction, in light of
Organic's recent operating performance and financial condition and its access to
capital given current market conditions. We have also considered the potential
negative impact of the above factors on the prices of Organic's equity
securities in the absence of the Transaction or a similar transaction.
At your request, we have relied upon and assumed, without independent
verification, the accuracy and completeness of the financial and other
information, including without limitation the projections, provided to us by
Organic. With respect to Organic's projected financial results, we have assumed
that they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the senior management of Organic as to the
expected future performance of Organic, and that, in light of Organic's
anticipated financial condition as of August 27 2002, Omnicom forgives a portion
of its loan to Organic under the Loan Agreement and exercises the Option
following the exercise price adjustment described therein. We have not been
asked to and have not assumed any responsibility for the independent
verification of any such information or of the projections provided to us, and
we have further relied upon the assurances of the senior management of Organic
that they are unaware of any facts that would make the information and
projections provided to us incomplete or misleading.
In arriving at our opinion, we have not performed or obtained any independent
appraisal of the assets or liabilities (contingent or otherwise) of Organic, nor
have we been furnished with any such appraisals. During the course of our
engagement, we were asked by the Special Committee of the Board of Directors to
solicit indications of interest from various third parties regarding a
transaction with Organic, and we have considered the lack of interest of such
third parties in such solicitation in rendering our opinion. We have assumed
that the Transaction will be consummated in a timely manner and in accordance
with the terms of the Offer to Purchase, without any limitations, restrictions,
conditions, amendments, waivers or modifications, regulatory or otherwise, that
collectively would have a material effect on terms or the likelihood or
consummation of the Transaction.
We do not express any opinion as to the price or range of prices at which the
shares of common stock of Organic may trade at any time.
We have acted as a financial advisor to the Special Committee of the Board of
Directors of Organic in connection with the Transaction and will receive a
customary fee for such services, a substantial portion of which is contingent on
successful consummation of the Transaction. In the ordinary course of business,
Bear Xxxxxxx and its affiliates may actively trade the equity and debt
securities of Organic for our and their own accounts and for the account of our
and their customers and, accordingly, may at any time hold a long or short
position in such securities.
It is understood that this letter is intended for the benefit and use of the
Special Committee of the Board of Directors of Organic and does not constitute a
recommendation to the Special Committee of the Board of Directors of Organic or
any holders of Organic common stock as to whether or not to accept the Offer to
Purchase their shares.
This opinion does not address Organic's underlying business decision to pursue
the Transaction, the timing of the Transaction, the relative merits of the
Transaction as compared to any alternative business strategies that might exist
for Organic or the effects of any other transaction in which Organic might
engage. We have not conducted a review or analysis as to the strategic or
commercial merits of, or
The Special Committee of the Board of Directors
Organic, Inc.
December 12, 2001
Page 4
financial fairness of, any other transaction, including, without limitation, (i)
the sale by Organic Holdings of its shares of Organic common stock to Seneca or
the terms thereof, (ii) the restructuring of Organic's San Francisco lease,
(iii) Organic's borrowing of $10 million from Omnicom in connection with the
lease restructuring or (iv) the issuance of the Option relating to the lease
restructuring and borrowing. This letter is not to be used for any other
purpose, or be reproduced, disseminated, quoted from or referred to at any time,
in whole or in part, without our prior written consent; provided, however, that
this letter may be included in its entirety in any Schedule 14D-9 to be filed
with the Securities and Exchange Commission in connection with the Transaction.
Our opinion is subject to the assumptions and conditions contained herein and is
necessarily based on economic, market and other conditions, and the information
made available to us, as of the date hereof. We assume no responsibility for
updating or revising our opinion based on circumstances or events occurring
after the date hereof.
Based on and subject to the foregoing, it is our opinion that, as of the date
hereof, the Purchase Price is fair, from a financial point of view, to
Unaffiliated Shareholders of Organic.
Very truly yours,
BEAR, XXXXXXX & CO. INC.
By: /s/ Xxxxxx X. Xxxxxx
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Xxxxxx X. Xxxxxx
Senior Managing Director
